Banco Macro SA (BMA) 2020 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to Banco Macro's 4Q '20 Earnings Conference Call. We would like to inform you that the 4Q '20 press release is available for download at the Investor Relations website of Banco Macro, www.macro.com.ar/relaciones-inversores/. Also, this event is being recorded. (Operator Instructions)

It is now my pleasure to introduce our speakers. Joining us from Argentina are Mr. Gustavo Manriquez, Chief Executive Officer; Mr. Jorge Scarinci, Chief Financial Officer; and Mr. Nicolas Torres, IR. Now I will turn the conference over to Mr. Nicolas Torres. You may begin your conference.

Good morning, and welcome to Banco Macro's Fourth Quarter 2020 Conference Call. Any comments we may make today may include forward-looking statements, which are subject to various conditions, and these are outlined in our 20-F, which was filed to the SEC and is available on our website. Fourth quarter 2020 press release was distributed yesterday and it's also available at our website. All figures are in Argentine pesos and have been restated in terms of the measure in unit current at the end of the reporting period.

As of the first quarter of 2020, the bank began reporting results applying hyperinflation accounting in accordance with IFRS IAS 29, as established by the Central Bank of Argentina. For recent comparison, figures of previous quarters have been restated applying IAS 29 to reflect the accumulated effects of the inflation adjustment for each period through December 31, 2020.

I will now briefly comment on the bank's fourth quarter 2020 financial results.

Banco Macro's net income for the quarter was ARS 6.9 billion, 2% higher than in the third quarter of 2020 and 11% lower than the result posted a year ago. The bank's fourth quarter 2020 accumulated ROE and ROA of 20.9% and 4.3%, respectively, remained healthy and showed the bank's earnings potential. In fiscal year 2020, total comprehensive income totaled ARS 25.3 billion, 5% lower than the result posted in fiscal year 2019. Net operating income before general and administrative and personnel expenses for the fourth quarter of 2020 was ARS 17.4 billion, decreasing 20% or ARS 4.4 billion quarter-on-quarter and 55% or ARS 21.6 billion lower than a year ago.

In fiscal year 2020, net operating income before general and administrative and personnel expenses totaled ARS 95.2 billion, 12% lower than the previous year. Operating income after general and administrative expenses was ARS 523 million, 89% or ARS 4.4 billion lower than in the third quarter of 2020 and 97% lower than in the fourth quarter of 2019.

In the quarter, net interest income totaled ARS 21.7 billion, 8% or ARS 1.8 billion lower than the result posted in the third quarter of 2020, and 32% or ARS 10.5 billion lower than the result posted 1 year ago. In fiscal year 2020, net interest income was 19% lower than in fiscal year 2019 as a result of different regulations adopted by the Central Bank that set caps on lending rates and floors on deposit rates. In the fourth quarter of 2020, interest income totaled ARS 41.6 billion, 2% or ARS 651 million higher than in the third quarter of 2020 due to higher income from government securities, and 11% or ARS 5 billion lower than in the previous year.

Within interest income, interest on loans decreased 1% or ARS 164 million quarter-on-quarter. Interest income decreased 38% or ARS 11.8 billion year-on-year. In the fourth quarter of 2020, interest on loans represented 47% of total interest income. In fiscal year 2020, interest on loans totaled ARS 85.6 billion and decreased 23% compared to fiscal year 2019.

Net income from government and private securities increased 4% for ARS 680 million quarter-on-quarter due to higher income from government securities. Compared to the fourth quarter of 2019, net income from government and private securities decreased 38% or ARS 5.4 billion. In the fourth quarter of 2020, FX gains, including investment in related financing totaled ARS 1.2 billion, an increase compared to the third quarter of 2020 due to the 10% Argentine peso depreciation against the U.S. dollar and the bank's loan spot dollar position.

In the fourth quarter of 2020, interest expense totaled ARS 19.8 billion, 14% or ARS 2.4 billion higher compared to the third quarter of 2020, and 38% or ARS 5.4 billion higher on a yearly basis. Within interest expense, interest on deposits increased 14% or ARS 2.4 billion quarter-on-quarter, mainly driven by a 320-basis-point increase in the average interest rate paid on deposits. The average for that rate increased 452 basis points quarter-on-quarter. On a yearly basis, interest on deposits increased 40% or ARS 5.4 billion.

In the fourth quarter of 2020, interest on deposits represented 94% of the bank's financial expenses.

In the fourth quarter of 2020, the bank's net interest margin, including FX, was 16.3% lower than the 17.1% posted in the third quarter of 2020 and the 33.6% registered in the fourth quarter of 2019. In the fourth quarter of 2020, net fee income totaled ARS 5.7 billion, 4% or ARS 209 million lower than in the third quarter of 2020. On a yearly basis, net fee income decreased 3% or ARS 170 million.

In fiscal year 2020, net fee income was 7% lower than in the previous year. In the fourth quarter of 2020, net income from financial assets and liabilities at fair value to profit and loss totaled ARS 10.7 billion loss as a consequence of the inflation adjustment applied to our LELIQs Holdings. Higher inflation was observed in the quarter, together with higher LELIQ volume.

In the quarter, other operating income totaled ARS 1.4 billion, increasing 6% compared to third quarter of 2020. On a yearly basis, other operating income decreased 9% or ARS 115 million.

In the fourth quarter of 2020, Banco Macro's personnel and administrative expenses totaled ARS 10.8 billion, 1% or ARS 67 million higher than in the previous quarter due to higher administrative expenses. On a yearly basis, personnel and administrative expenses decreased 8% or ARS 968 million. In fiscal year 2020, administrative expenses plus employees benefits decreased 11% compared to fiscal year 2019, showing the strict control policies adopted by the bank's senior management.

In the fourth quarter of 2020, the efficiency ratio reached 50.7%, deteriorating from the 49.9% posted in the third quarter for 2020. In the quarter, expenses increased 1%, while net interest income plus net fee income plus other operating income decreased 16%. In fiscal year 2020, Banco Macro's effective tax rate was 28.8% lower than the 39.1% registered during the fiscal year 2019.

In terms of loan growth, the bank's financing to the private sector totaled ARS 252.5 billion, decreasing 2% or ARS 6.1 billion quarter-on-quarter and 12% or ARS 31.9 billion lower year-on-year as a consequence of the economic recession that affected Argentina during 2020. Within commercial loans, documents stand out with 100% of ARS 2.4 billion increase quarter-on-quarter, mostly due to loans extended to SMEs. Meanwhile, (inaudible) decreased 20% or ARS 9.7 billion.

On the consumer side, credit card loans increased 9% or ARS 5.3 billion in the quarter. Within private sector financing, peso financing decreased 1% or ARS 3.4 billion, while U.S. dollar financing decreased 19% or $64 million.

It is important to mention that Banco Macro's market share over private sector loans as of December 2020 reached 7.1%. On the funding side, total deposits decreased 11% or ARS 59.8 billion quarter-on-quarter and increased ARS 138.6 billion year-on-year. Private sector deposits decreased 4% quarter-on-quarter, while public sector deposits decreased 37% quarter-on-quarter. The decrease in private sector deposits was led by time deposits, which decreased 8% or ARS 18.8 billion quarter-on-quarter, while demand deposits increased 2% or ARS 4.2 billion. Within private sector deposits, peso deposits decreased 1% or ARS 3.9 billion, while U.S. dollar deposits decreased 22% or 149 million.

As of December 2020, Banco Macro's transactional accounts represented approximately 48% of total deposits. Banco Macro's market share over private deposits as of December 2020 totaled 6.4%.

In terms of asset quality, Banco Macro's loan performance total financial ratio reached 0.78%. The coverage ratio measured as total allowances under expected credit losses over nonperforming loans under Central Bank rules improved significantly and totaled 479.2%. Consumer portfolio and nonperforming loans improved 23 basis points, down to 0.73 from 0.96 in the previous quarter. While commercial portfolio nonperforming loans improved 65 basis points in the fourth quarter of 2020, down to 0.9% from 155% in the quarter ago. The improvement in commercial nonperforming loans can be traced to the write-off of a specific exporter client.

Asset quality continues to be positively affected by risk measures adopted by the Central Bank of Argentina in the current pandemic COVID-19 context, particularly the 60-day grace period that was added to debtor classification before a loan is considered as nonperforming. In terms of capitalization, Banco Macro accounted an excess capital of ARS 132.1 billion, which represented a total record absolute capital ratio of 34.2% and a Tier 1 ratio of 27.1%.

It should be noted that on October 21, 2020, the special shareholders' meeting decided on a supplementary dividend of up to ARS 3.8 billion. The supplementary dividend is calculated by multiplying the ARS 20 per share dividend already declared and approved by the shareholders' meeting held in April 2020 by the variation in the consumer price index between April and the date in which the Central Bank's is granted. The ARS 3.8 billion from the supplementary dividend were deducted from the shareholders' equity in the fourth quarter of 2020.

The bank's aim is bring the best use of this excess capital. The bank's liquidity remained more than appropriate. Liquid assets to total deposit ratios reached 90%.

Overall, we have accounted for another positive quarter. We continue showing a solid financial position. Asset quality remain under control and closely monitored. We keep on working to improve more our efficiency standards and we keep a well-optimized deposit base. At this time, we would like to take the questions you may have.

(Operator Instructions) And the first question will come from Ernesto Gabilondo with Bank of America.

My question is on your expectations for the payment behavior of the deferred portfolio once clients have finished their grace period? Also, can you share with us what is the percentage of your portfolio that is under a grace period or that is deferred? And what was the amount of additional provisions related to COVID-19 that were built during 2020?

Because I think also in the press release, you were also mentioning that in the fourth quarter, you start to create provisions, but more related to corporate. So if you can separate how much are related to COVID, how much are related to those corporates? And how do you think you have already created provisions for the expected NPL peak in the second quarter?

Ernesto, this is Jorge Scarinci. Thanks for your questions. In terms of the portfolio that you have -- that we have under this 60-day grace period, it's approximately 13.5% of total loans. We can split that -- in pesos is approximately ARS 34 billion. We can split that between approximately ARS 2.1 billion in corporates, and then individuals, approximately ARS 32 billion. I would say that ARS 20 billion -- almost ARS 25 billion will be in loans and about ARS 7 billion in credit cards. In terms of the additional provisions that we posted in 2020 related to the COVID-19 are 3.1 billion including corporates and individuals. Is that okay?

Yes. So on the ARS 30 billion -- on the ARS 34 billion that is under grace period, how are your expectations after the client finish this grace period? You know how much of this will be paid or could be delayed? Just to have an idea if the provisions clearly related to COVID-19 are enough for this year?

Ernesto, I would say that this 60-day period grace could be maybe extended by the Central Bank, but this will depend on the economic activity, the pickup on the economy. I would say that the Central Bank is trying to maintain the credit quality health of the system. So this could be extended. Honestly, we don't know if this is going to happen and how long it's going to be -- or the extension of this regulation. I have to say that, meanwhile, we are going to maintain the level of provisioning we are forecasting for 2021, between 2.5% and 3%, the cost of risk to our books. We are forecasting for 2021, recovery in the economy in the area of 7% in real terms. And the consensus for inflation for 2021 is 44%. So for the moment, we think that this 60-day is going to be extended because we might see some positive recovery figures for the economy, starting by late of the second quarter of 2021. That is what the market is expecting.

Okay. Perfect. And then just let me make another question in terms of NIMs. What are you expecting on NIMs considering the subsidy on loans and the caps on credit cards and the flows on deposits? How should we think of NIMs this year?

That's a good question, Ernesto. Honestly, what we saw in the past in 2020 was a narrowing of our margin in -- along the industry. We think that at least first and second quarter, might be third quarter, we are going to keep on seeing this level of NIM. We are not expecting an expansion on the NIM. We think that the mix between the increasing lending and increasing deposits, we are not seeing many -- a big variation in rates and volumes in order to affect the NIM here. So I would assume for 2021, a NIM between what we saw in the third quarter and the fourth quarter, kind of an average of that. We could see something happen by the end of the year. But honestly, it is not easy to forecast that. So our forecast is approximately on average between the third and fourth quarter of 2020.

And the next question will come from Juan Recalde with Scotiabank.

I have 2 questions. One related to the ROE outlook and the second one related to the other comprehensive income. In terms of the ROE outlook for 2021, you mentioned that you expect inflation to be around 44%, that's higher than inflation in 2020. So how should we think about the ROE for 2021? What's your base case for ROE in 2021?

And the second question is related to the OCI. We saw a sizable negative higher comprehensive income of around ARS 3 billion, I think, in the fourth quarter. Can you talk a little bit about what drove that and whether we should expect these losses to reverse in the future?

Juan. Related to your first question, the ROE that we are expecting with the scenario that I described before is in real terms between 10% and 15% for 2021. Again, we do not calculate inflation. We always take the consensus of the market that, for the moment, is 44% for 2021; a recovery in GDP, as I mentioned before, in the area of 7%. Loans and deposits growing slightly above the inflation, we'd assume between 5% and 10% increase in both loans and deposits above inflation. So that is how we are reaching the 10% to 15% ROE for 2021.

In terms of your second question, there was a change in the accounting of public bonds -- on sovereign bonds that we did in the fourth Q. That was the impact on the ROE in the negative. Going forward, I would say, in 2021, we are going to see a much, I would say, tidy income statement because there was a regulation that was put out by the central bank in order to put all the inflation affecting not only the LELIQs but also the public bonds to put that above the net income line. So we are going to see a much tidy or tidier income statement in 2021 compared to the one that we saw in 2020.

And the next question will be from Gabriel Nóbrega with Citi.

So actually, just going back to this part of profitability. It really called our attention here that you reached AMR, a real ROE, of almost 20% on top of the very high capital base. And now you are saying that this is going to compress to around 10% to 15% mainly because of the NIM pressures, which were seen on provisions and also because NIMs are going to be sort of flattish. And so I was just wondering, are there any other strategies which you could maybe implement, be it on the P&L or maybe a faster capital deployment, which could even provide some upside to these ROE figures? And I'll make a second question afterwards.

Gabriel. No, honestly, what we are seeing is, first of all, a higher inflation scenario. Then what we are seeing is that, as I mentioned before, the margin is going to remain, at least the first 3 quarters of the year, similar level than the one that we saw in the fourth quarter. And in the fourth quarter, part of the -- at the beginning of the fourth quarter, we continue having some extra net interest margin, I would say, that were measures that were passed by mid or beginning of the fourth quarter.

So no, I would assume that taking into consideration that the conservative scenario and, of course, the struggle that we are going to carry out in terms of expenses, trying to maintain expenses similar or below inflation levels. That's why that we are forecasting between 10%, 15% real return.

But in terms of the capital that we are going to deploy, as we have been showing in the past, we try to deploy the capital in those assets that develops or brings the best rate -- risk return rate for the bank. So we are forecasting again a recovery charging by late second quarter of the year. So basically, those are the assumptions that we have in order to read these ROE expectations.

Okay. That's very clear. And as for my second question, could you maybe just elaborate on what happened with your effective tax rate? Because when we look here in the quarter, in my estimates, it was around 8%. But in the other quarters, it was between 30% to 35%. If you could just maybe give us a bit more color what's happened here.

Basically, the statutory rate here on the income statement is 30%. The thing here is that we made the adjustments on inflation to the income tax in the fourth quarter and that's why we are showing a lower income tax -- or effective income tax rate. That was an accounting issue, basically that. But if you have to forecast going forward, consider a 30% rate.

Next question is from Alonso Garcia with Crédit Suisse.

I wanted to check with you. I mean, regarding the asset quality question, you mentioned that 13.5% of your total loans were under this additional 60-day period grace that the Central Bank is granting for calculating NPLs. So basically taking the 90 days to 150 days. So I wanted to check if besides that, if there is any portion of your portfolio that is currently still under payment holidays as the ones that you have back in April last year?

And also regarding asset quality, if you could mention, when do you expect the NPL ratio to peak and at which level? And from current levels, if you expect the commercial or the retail segment to drive that deterioration?

Alonso, loans in Category 3 to 5, all of the ones that are being -- including the 60-day period and including those categories between 3 to 5. So they're included there. On the question on the recovery on loans, basically, what we are seeing is some recovery on the corporate side on export-oriented industries and agri business. Then we can see some recovery or pickup in construction compared to last year. In terms of individual, some recovery also in consumption in personal loans. But again, that is going to happen second quarter afterwards.

But in terms of the NPL ratio, do you expect it to peak? I mean, I know it will depend on Central Bank's regulation. But what is your best case on when the NPL ratio will peak? And what level do you expect to be that peak? And what segment are you most concerned about in terms of asset quality? Is it the retail portfolio or is it the commercial portfolio at this point?

Yes, it will depend on the extension on this regulation of the 60-day grace period. Depending on that, we could see a deterioration on the NPL ratio, maybe level of between 2, 2.5 could be. Honestly, it's hard to say when that could be happening because it depends on the extension on this rule. Now basically, I would say that, well, last year was a disaster for the world. But for Argentina, I think that was a very bad year because we have some -- apart from the COVID-19, we have some internal issues going on. And therefore, the recession was maybe deeper than expected and deeper than in other countries. And what we saw on -- we are still seeing some consumers having problem for payment basis because some layoffs happened in Argentina, and of course, the economic activity collapsed for every company. And also some on the range of SMEs on the corporates, that's depending on the industry, they are showing still problems to recover. But again, if the scenario is what the system is expecting or the consensus is expecting that from second quarter onwards, we are going to see a recovery there, we could see some healthier behaviors of SMEs and consumers going forward.

(Operator Instructions) The next question will come from Carlos Gomez with HSBC.

Could you reiterate the comment about the tax rate? We have seen them higher for most of your competitors, but lower in your case, so I wanted to understand the discrepancy. And also, if you continue to see a 30% tax rate on inflation-adjusted results for the coming 1 or 2 years.

And regarding profitability, so you are targeting 10% to 15% in real ROE for next year. What could change that more? Is it more growth or the elimination of regulations or lower inflation?

Carlos. No, as I commented before, it's basically an accounting issue that we made all the adjustments on inflation to this line in the fourth quarter. But going forward, as I mentioned before, you can use a 30% rate in order to forecast our P&L. In terms of -- yes, we could see that -- I mean this 10% to 15% ROE expectations is based on what I commented before, a 44% inflation as a consensus for the system here in Argentina. I would say that, yes, if we see low inflation, we are going to be above the 15% for sure in terms of return. And if there is a recovery higher than the one that we are expecting, the impact could be, of course, positive, but less than the impact of a lower inflation in Argentina. So our P&L is more sensitive to the inflation than a recovery considering that the current interest rates on loans and deposits.

Okay. That's clear. And if I can follow-up. You also mentioned that interest rates look to be stable through the third quarter. I mean, that seems to imply that you think that by the end of the year, we might see some type of adjustment in macroeconomic policy. It's very hard, but what are you envisioning? And how are you preparing yourself?

I mean, when you look at what's going on in the financial sector, all the economic books would advise you to increase interest rates and to maybe increase more the lending or asset rates done the borrowing rates. However, we are in Argentina. And of course, we challenge all the economic books and also considering that we have elections -- midterm elections in October, I would assume that the Central Bank will try not to increase interest rates in order not to affect the recovery of the economy, and that could be affecting a potential good record in election for the official party. So that's what we are forecasting.

And the next question comes from [Nick Nutro] with Morgan Stanley Investment Management.

Just a quick question regarding your plans about the subordinated debt that you have that is callable in November this year. When I look at your capital ratios, you currently don't need a subordinated debt. Nonetheless it's dollar-denominated, so you need the dollars. I think the market is pretty clear in terms of its expectations what you're going to do with the bond, but I was just curious to hear your thoughts.

Nick. According to the level of today's interest rates, if we are -- we not call the bond, the bond would transform the 6.75% fix rate into a variable step-down interest rate. And honestly, we are considering different scenarios, which is also pretty clear, is that even the interest rate that, that bond could have in this scenario, which is lower than the 6.75%, it is also true that for the moment, we cannot apply those funds to an attractive asset. So we are considering different scenarios for this bond. Again, this is -- the call date for this bond is the the 5th of November of this year. So we still have some more to see what's happening in the interest rates and also on maybe some potential demand on dollar-denominated loans that could be a good alternative for allocation of those funds. But for the moment, we are not seeing that demand for dollar-renovated loans.

Right. And you mentioned different scenarios. Can you share your thoughts regarding what those scenarios could be?

One is calling the bond that day. The other one is not calling the bond. Another one could be after the call date, to buy back the bond. Partially, it will depend on market condition, on integration, on the economic activity in Argentina. So many assumptions to put in the equation.

And the next question will be from Rodrigo Nistor with AR Partners.

I would like to have your view on Central Bank policies that are affecting bank's profitability like flow rates on deposits, credit lines with negative real rates. Do you expect them to remain in place for a long time? Also, your assumptions take into account the continuity of these policies. And a follow-up on that, in this highly regulated context, what's your commercial strategy? Does it make sense to gain market share?

Rodrigo, for the moment, we are assuming that these regulations are going to be maintained. Of course, depending on the monthly inflation evolution of Argentina, we could see some fine-tuning. But again, we are working with the scenario that the Central Bank does not want to change a lot his monetary strategy going forward. So we're assuming that in a big portion of this 2021, we are going to have to live with these regulations.

In terms of the commercial view, I think that well, you can see what's happening in part of 2020 that we decreased in real terms in our lending portfolio because we were not seeing that being aggressive was a good strategy for the bank and, of course, for the bank profitability. So going forward, we are going to see if it is profitable for the bank to increase share, we are going for that. If not, we're going to continue as the last 2 quarters of the year. What we are assuming is that the recovery in the country is going to be a positive incentive for the bank to maybe marginally increase in market share with a positive impact on the P&L.

Ladies and gentlemen, there are no further questions at this time. This concludes our question-and-answer session. I would now like to turn the conference back over to Nicolas Torres for final considerations.

Thank you all for your interest in Banco Macro. We appreciate your time and look forward to speaking to you again. Good day.

Thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.