Grupo Supervielle SA (SUPV) 2016 Q2 法說會逐字稿

Good morning and welcome to the Grupo Supervielle second-quarter and six-months 2016 earnings call. A slide presentation will accompany today's webcast which is available in the investors section at Grupo Supervielle's Investor Relations website, www.gruposupervielle.com. (Operator Instructions) As a reminder, today's conference is being recorded.

At this time I'd like to turn the conference over to Ana Bartesaghi, Treasurer and IRO. Please go ahead.

Thank you. Good morning, everyone, and thank you for joining us today. Speaking during today's call will be Patricio Supervielle, our Chief Executive Officer and Chairman of the Board of Directors, and Jorge Ramirez, Vice Chairman of the Board. Also joining us is Alejandra Naughton, our Chief Financial Officer. All will be available for the Q&A session.

Before we proceed, I would like to make the following safe harbor statement. Today's call will contain forward-looking statements and I refer you to the forward-looking statements section of our earnings release and recent filings with the SEC. We assume no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances. I would now like to turn the call over to our CEO, Patricio Supervielle.

Thank you, Ana. Hello, everyone, and thank you for joining us today. It's a pleasure to welcome you to Supervielle's first earnings conference call.

Starting with slide 3. We achieved a very important milestone with the successful completion of our IPO on May 19. The Supervielle's share now trade on both the Buenos Aires and New York Stock Exchange. Reflecting the opportunity ahead for the Company, the offering was three times oversubscribed and 93% of the shares are held outside of Argentina, primarily in the US.

We raised $253 million in a primary offering and $70 million in a secondary offering. Let me also point out that Supervielle was the first stock IPO in -- the first bank IPO in Argentina since 2007 and the first Latin American company to IPO since July 2015.

Let's move to slide 4. The IPO marks an exciting new chapter in our history. Our financial position is stronger and we have additional capital to continue to support growth without incurring substantial additional costs. We plan to use the proceeds to accelerate the growth of our loan portfolio and reduce high cost debt at the listed holding company.

To date, we repaid old HoldCo debt maturity in second quarter 2016 and expect to continue redeeming existing notes either at maturity or before if rates are attractive. Remaining funds at the HoldCo today, around ARS1 billion are invested in low-risk, short-term local mutual funds which posted a 33.7% annualized return in June.

After paying down debt, we expect to maintain asset quality of ARS600 million to fund growth. Between May and June, we also made capital injections of ARS2 billion at Banco Supervielle and ARS280 million in our consumer finance business which allows us to fund the strong quarter-on-quarter loan growth delivered June 30. Our SME and middle market loan portfolio expanded by ARS2.3 billion in June and ARS1.2 billion in July. I will discuss these in more detail later in my presentation.

Given the significant loan growth delivered in the quarter, the consolidated pro forma Tier 1 ratio adjusted from 15.3% immediately after the IPO to 13.5% at the close of the quarter.

Please turn to slide 5. While I had the opportunity to meet many of you during the recent IPO road show, there are many that are new to our story on the call today. So if you will bear with me before I get into the results of the recent quarter, I want to spend a few minutes discussing who we are and the opportunities ahead of us.

Briefly, Grupo Supervielle is a financial services platform in Argentina with over $3 billion in assets, more than 2 million clients and a 4% share of loans in the private financial market. Through a combination of organic growth and acquisitions, we have been one of the fastest-growing financial institutions in terms of loan growth, distribution network and market share gains for the past 15 years. Our major business are a universal bank, a consumer finance business, insurance company and asset management operation and a distribution platform of complementary non-financial services.

We focus on high-margin clients with potential for continued growth such as SME, middle market as well as retail and consumer finance, holding leadership positions in certain product segments and geographical regions. Although we have been one of the fastest-growing companies, we still have difficult growth opportunities ahead of us, particularly when we are compared to some of the largest financial institution in Argentina.

We have the customer base and now the added capital will allow us to pursue additional business with our existing client base without incurring significant cost.

Importantly, our rapid loan growth over the past 15 years has resulted in a diversified and balanced loan portfolio between individuals and corporate clients focused on high-growth industries.

Please turn to slide 5 -- 6, slide 6. As the macro environment has been rapidly changing with the introduction of market-oriented policies and listing of longstanding subsidies by the new administration, I want to take a few minutes to provide a quick overview of where we are now and the outlook.

During the first quarter, to curb high inflation levels the Central Bank implemented a restricted monetary policy with an aggressive interest rate increase. GDP in turn contracted in the second quarter. The government also implemented fiscal policies including the elimination of subsidies in utility service and transportation which deteriorated consumers' confidence and resulted in the contraction of disposable income.

Although visibility remains low and challenging conditions are expected to continue in the second half of the year, according to the market expectation survey, the economy is expected to stabilize by year end. GDP is forecast to contract by 1.5% in 2016.

But economies in this survey are forecasting an improvement for 2017 of 3.2%. While this remains a transition year, we are optimistic that sustainable growth will resume during 2017. Consumer confidence is already improving, logging 45.6 points in July, up from 42.7 in June, the largest increase in the past 18 months.

Now let me speak briefly about the financial sector in slide 7. Argentina's under-developed banking and insurance markets provide an attractive growth opportunity for us. Starting from a very low base, the sector is well-positioned for strong and healthy growth, supported by new market trending with the regulations and rational fiscal and monetary policy.

Loans to the private sector were up 8% quarter on quarter with improved performance in corporate loans up 12%. This was partially offset by slowdown in retail loans, reflecting a more demanding economy that put pressure on the consumer. Compared to the same quarter last year, systems loans rose 32% year on year. Systems deposits in turn rose 7% quarter on quarter or 36% year on year. Note, however, loan and deposit growth was still below inflation.

Let me highlight that the average BADLAR rate, the Buenos Aires deposits of large amount rate, rose 270 basis points sequentially to 31% by the first quarter of the year before reversing course and declining to 27.5% towards the end of June and then continuing to drop in July following the reduction in the Lebac rate.

Please let's now move to our quarterly results on slide 8. On the positive side, we began implementing our growth strategy, expanding our loan book above inflation and paying down expensive debt as we deployed capital raised in the IPO.

By contrast, asset quality was impacted by a constrained consumer that was faced with significant contraction in purchasing power on the back of significantly higher prices for essential goods and services. We quickly implemented additional collection and preventive actions to minimize further asset quality erosion. Given the liberalization of interest rates, our original plan was to ease our credit scoring standards.

However, given the current economic environment, we decided it was more prudent to maintain our conservative origination policies until we see a sustainable improvement in asset quality.

Net interest margin and efficiency performed well, while profitability was impacted by the higher loan loss reserves. Jorge will provide more color on this in a few minutes. But before that, let me review our loan performance and commercial strategy.

Moving on to our performance as shown in slide 9, please. We expanded on total loan portfolio by 16% quarter over quarter, more than double the system growth and above inflation as we began to deploy IPO proceeds. It is important to mention that proceeds were available to us for only the last 27 days of June.

Growth was largely driven by corporate loans which represented 41% of our total loan book, up from 35% in the previous quarter. I would like to note that the government of the Province of San Luis has requested to change certain terms and conditions relating to the service that Banco Supervielle provides to the Province under the Financial Agency Agreement signed in 1996.

We are currently negotiating the proposed changes with the local authorities and have confirmed our commitment with the development of the Province of San Luis. Our determination is over the risk factor, this is a relationship that we have maintained for over the past 20 years and have successfully navigated a number of negotiations with respect to services and terms in the past.

Please now turn to slide 10. You can see that our corporate loans were up 52% on an annual basis. Let me highlight that the 34% quarter-on-quarter increase tripled market growth. This expansion delivered immediately after the IPO was achieved by leveraging existing client relationships and our strong value proposition, our one-stop-shop model services clients across the entire value chain through products tailored specifically for their diverse needs.

We differentiate ourselves by providing flexibility and shorter time to cash. The bulk of corporate growth was mainly driven by trade finance loans. Our goal in the corporate segment is to become our clients' primary bank by offering outstanding transactional and cash management services.

We plan to grow this business by further increasing the ticket size per client, focusing on high-potential economic sectors such as agribusiness, infrastructure and energy and stepping up cross-selling efforts.

In the retail segment, the slower performance this quarter, up 3% quarter on quarter, is mainly explained by our client mix in this segment which includes a significant share of loans to senior citizens. Senior citizens who live primarily on fixed incomes were strongly affected by the sharp prices increase in consumer goods, resulting in weaker loan demand. On the positive side, we started to see an improvement in July.

Looking ahead, we expect retail loans to show significant growth driven by the recent approval of the historic reparation bill for the retirees and pensioners. This includes the payment of legal [sentences] awarded to pensioners in the past as well as important increases above inflation in pensions.

We are currently assessing the impact of these measures given the leading position we hold within the senior citizen segment. For example, an analysis of our customer base reveals that in prior years 80% of pension increases resulted in equivalent increases in deposits at Banco Supervielle.

We are the largest player in this segment with a dedicated network for senior citizens that offers customized financial and non-financial products. For us this is a low-cost, low-delinquency and low-yield customer base. Our strategy in the retail segment also includes leveraging SMEs and middle-market relationship to increase penetration in high quality payroll customers, where today we have a market share of less than 2%.

Driving cross-selling of new products to the groups is one of our key initiatives. Longer term as the economy stabilizes we also see good growth potential in mortgage and car financing. Finally, consumer finance loans were up 10% Q on Q. Asset quality, as I mentioned earlier, was affected by a contraction in consumers' disposable income.

Let me reinforce that we maintain our conservative credit scoring standards. Although we are facing challenging conditions right now, we see good longer-term potential for this business. We operate in a country-wide consumer finance business. We have a longstanding agreement with Walmart; this has been a successful business for us with loans generated representing 9% of Walmart sales in Argentina.

We also have the highest market share of active MasterCard in the country. Our higher capital base now puts us in a better position to form alliances with medium retail chains.

I will now hand out the call to Jorge Ramirez who will review our funding and profit and loss. Before opening the floor to questions, I will go over guidance for the year. Please, Jorge, go ahead.

Thank you, Patricio. Good day, everyone. Moving on to funding on slide 11, total deposits increased 37% year on year and 14% in the quarter. The yearly growth was due primarily by savings accounts which were up 55% and checking accounts that grew 34%. A similar trend was seen in quarter on quarter. The increase in low-cost bank deposits together with lower growth in time deposits reflect utilization of the IPO proceeds as we were able to reduce the weight of more expensive institutional deposits.

Low-cost demand deposit comprised 59% of the Company's total deposit base, [37%] in savings accounts and [32%] in checking accounts as of June 30, 2016. This 10 percentage points are from first quarter of 2016 levels. As of June 30, 2016, retail deposits represented 59% of total deposits, up from the 57% as of the end of March of this year and unchanged from the second quarter of 2015, reflecting the importance of the Company deposit network franchise.

Turning now to slide 12, gross financial margin was up 18% quarter on quarter, above the 16% loan growth. Gross margins benefited from the replacement of some high-interest-bearing liabilities with proceeds from the IPO as well as a reduction of 4.5 basis points in the monthly contribution rate to fund the deposit guarantee fund calculated over the monthly average of the daily deposit balance. This more than offset the negative impact of margin from the significant increase in the private bank deposit rate or BADLAR rate and the resulting increase in cost of funds mainly for consumer finance business.

After rising 270 basis points quarter on quarter, the BADLAR rate fell to 27.5% at the end of June and continued to fall in July, reaching 25.6% at the close of the month. As a result, the average interest rate and interest-bearing liabilities rose 100 basis points to 18.8% quarter on quarter while the average interest rate on interest-bearing assets increased by only 10 basis points to 34.9%.

Also note our average loan balance was only 8.6% this quarter as the majority of the loan growth took place in the last 27 days of the month as we began to record proceeds from the IPO. In June we also saw an increase in the regulatory reserve requirements set by Central Bank which was 1.5% for time deposits and 2.5% for current accounts.

Moving on to slide 13, net service fee income was up 16% year on year and 3% quarter on quarter, low inflation despite higher volume in trading and savings accounts. This was a result of regulatory restrictions in fee pricing, partially related in June with the 20% cap. Formal regulation will be effective September 2016.

Additionally, there was a 27% decline in service fee income from insurance services as a result of the rules introduced in August 2015, which were applicable since the fourth quarter of last year, limiting the availability of financial institutions to receive remuneration from any insurance product that customers are obligated to purchase as a condition to access financial products and services.

The main contributors to fee income was deposit account and debit and credit cards which represented 27% and 32% of total fees, respectively.

On the other hand, fee expenses related to credit and debit card promotions increased as well as the cost related to higher cost of processing as volume grew. Income from insurance activities booked in our insurance subsidiary shows an impressive 345% growth year on year and 39% quarter on quarter. This is mostly explained by the completion last February of the migration of trade-related life insurance which was previously booked in third party insurance companies. Second quarter of 2016 shows the full quarterly impact of this business line.

Now, turn to slide 14 as we take a deeper look at the asset quality. While our risk policies remain unchanged, as you have already heard Patricio discuss, the challenging volatile economy caused a significant contraction in consumers' disposable income which resulted in a spike in loan loss provisions this quarter, up 61% to ARS296 million, with our cost of risk rising to 5% from 3.4% in quarter 2016.

Integration and asset quality was in the consumer finance segment. In prior years, we have seen that the delinquency rate in our consumer finance segment portfolio normally experiences an increase in the first month of the year and later falls as salary bargaining agreements catch up with inflation, improving consumers' disposable income and their ability to pay their bills.

Normally this happens around the end of May. Collections also normally included in the months of June and July (inaudible) salary. This year, however, it was not the case. Increases in public service tariffs and in transportation fares caused the peak in inflation in April and May 2016. While salary increases as per union agreements were delayed towards the end of the quarter.

Additionally, in some provinces, particularly in Patagonia (inaudible) salary was delayed even beyond June. All these factors impacted consumers' ability to meet their financial obligations. Given this scenario, we quickly implemented additional collection of preventive actions to minimize further asset quality deterioration and maintain our strict credit policies. We are already starting to see improvement in collections in July.

Moving on to expenses on slide 15. A couple of key factors caused a 12% increase in administrative expenses this quarter. Among this, high turnover taxes stemming from higher revenues and the ARS35 million one-time tax charge on the debit and credit transfer of the IPO proceeds. All other IPO expenses were deducted from the IPO proceeds.

Another (inaudible) was the 33% increase in average salaries for banking employees approved in the collective bargaining agreement. This new agreement exceeded the provision from future salary increases accounted for in the first quarter of 2016 by 2.5 percentage points with the difference accrued retroactively this quarter. We're beginning to see an initial improvement in the efficiency ratio, down 170 basis points quarter on quarter to 72.1% mostly driven by IPO proceeds.

Although still higher than we would like, we expect further improvement by increasing our operating leverage as we grow the number of loans per branch. Currently we have an infrastructure in place that is underutilized. On a quarterly basis the employee raise increased slightly by 0.5 percentage point, a part of which are temporary employees.

Now turning to profitability on slide 16. Net income rose 362% year on year, but fell 3.9% when compared to the first quarter of the year. This mainly reflects the hike in cost of risk as I just explained, together with a higher effective tax rate of 40% which compares to 27% in the first quarter of 2016.

These two factors more than offset the 16% growth in our loan book and the 18% increase in gross financial margin achieved in the quarter. Capital raised in the IPO resulted in a 135% increase in equity, and it explains the temporary dilution in return on average equity this quarter to 15.6% down from 27.5% in the first quarter of 2016. These should normalize as we deploy our capital in the following quarters.

Let me point out, the first half of the year shows seasonally weaker results compared to the second half. This is mostly related to the impact from salary increases. This year is no exception even despite our 183% annual increasing of bottom line during the first six months. Results tend to improve substantially in the second half of the year driven by higher growth in net interest revenues and net fee income relative to administrative expenses. We expect a similar trend to occur in 2016 and it should be even more [notorious] due to the return on the proceeds of the IPO.

Now let me turn the call back to Patricia, who will go over our guidance for 2016 and then we'll open the floor for questions. Thank you.

Thank you, Jorge. Let me now share with you our guidance for the year and some of the underlying assumptions, which you can see on slide 17.

As I mentioned earlier, we continued -- we see continued volatility in the macroeconomic environment ahead. According to the market expectation survey, GDP is anticipated to contract 1.5% this year. Inflation for the year is expected to reach 42% with [more] inflation anticipated to trend down to 1.8% by December from 3.2% in June.

We also estimate that average BADLAR rate to reach 33.5% in December -- 23.5% in December. Based on these assumptions and taking into account expected volatility which in turn create uncertainty loan demand could soften in the near term. As a result, we expect total loan growth in 2016 to range from between 47% to 57%.

Overall asset quality is anticipated to remain around current levels although we could experience some short-term deterioration throughout the rest of the year. We expect to close 2016 with an NPL ratio ranging between 3% to 3.2%. Although there is a macro uncertainty in the near term which keeps us cautious on some metrics, we expect to see continued strong improvement with others.

For example, we anticipate NIM to remain between 17% to 20% for the full year. We will continue to deploy capital to leverage our under-utilized infrastructure. This in turn is expected to result in additional improvements in the efficiency ratio, allowing us to reach levels between 66% to 71% for the full year as we see further room for improvement. And we see further room for improvement as we continue to grow.

In terms of profitability we expect net income in 2016 in the range of ARS1.2 billion to ARS1.4 billion while 2015 net income was ARS674 million.

While this may seem as a big challenge, the seasonality in our results that Jorge explained earlier plus the full impact of capital injection during the second half of the year give us confidence in our ability to deliver these results.

Finally, we expect our Tier 1 ratio to continue adjusting to between 11.5% and 12.5% at year end as we move ahead in our capital deployment increasing on our risk-weight [profit].

Before opening the call to questions I would like to acknowledge all our new shareholders and thank them for their support. In our first year as a public Company we are facing higher-than-expected volatility on the macro front which created some challenges.

You can be assured that we are fully committed to transparency and good corporate governance and look forward to continuing our dialogue with all of you.

We are now ready to take questions please. Operator, go ahead.

(Operator Instructions) Mario Pierry, Bank of America Merrill Lynch.

So let me ask you two questions. First one, as you mentioned, your guidance implies a very strong growth in the second half of the year. I think you're talking about earnings; they have to almost triple from what you delivered in the first half. We do understand there is some seasonality to your business. But if you can try to explain to us how much of this growth really is coming from the deployment of capital, how much of this growth is coming from a better regulatory environment in Argentina because you do mention in your release that you expect fees to -- fee regulation to normalize, that could mean higher fees. But given the situation of the consumer in Argentina today and the fact that you had problems with asset quality, can you also explain to us your ability to continue to increase fees in the second half of the year. And then I'll ask you my second question later.

Okay, Mario this is Jorge. First of all let me go back to what I mentioned in my presentation which is the seasonality. If you take a look at slide -- I think it's slide 16 -- what you can see if you compare the result of last year compared to this year what you see is that normally -- if we exclude extraordinary items that we had last year, normally the second half of the year's result are over three times the result of the first half of the year, okay?

And that is normally the case because what happened is that collective bargaining increased our expense base in one chunk, one step in the first half of the year while volumes grow throughout the year. It's typical of all inflationary economies in which volumes tend to be much higher and accelerate in the second half of the year essentially because of the inflation that push everything up.

Second thing is that normally we see loan demand from our consumers in the second half of the year also to increase because the outlook they have is much more positive because they have already collected the salary increases and also the (inaudible) salary in June and July, that improves the credit quality on the one side but also improves the mood of the consumers and they tend to spend more in the second half of the year as they do in the first half of the year.

What we're seeing so far, and we explained that also in the presentation, is that there is a very strong and solid demand on the corporate side which was something that we originally anticipated in the road show and we've seen that, we have a very strong pipeline and that is rolling out very favorably.

And finally, as you mentioned, on the fee side I think you have a couple of forces playing there that go in opposite directions. One the one hand, we have this issue regarding the insurance fees that are collected in the bank and Cordial Compania Financiera, there has been some regulatory changes in the last part of last year that prevented insurance -- operations banks and financial services companies from collecting fees and commissions from insurance companies.

What you are still seeing in our income statement is the fees and collection from loans that were originated prior to those regulations coming into force. That is going to fade away. Part of this is captured in our insurance company, so it's partly -- it has only a change from one balance sheet to another and on a consolidated basis it could be compensated. It will be shown in the different line but it will be compensated in the bottom line. But part of it we expect to recover in the second half in terms of -- by means of interest rate.

The other thing is that as of September the fee prices will be fully liberated. And again, as you pointed out in your question and we mentioned also in the presentation, consumer sentiment in, particularly in late May and June was very heavily affected because of the hike in inflation rate and the increase in public utilities in price and are already turning to be very cautious.

We are starting to see some positive change there, we see some good origination, loan origination in July in the consumer side, primarily in the Bank with the (inaudible) and we expect that as inflation starts coming down in the second half of the year the perception of the consumer might turn more positive and that would enable us to increase prices and keep on charging fees.

Okay. That's clear. Let me ask you then, second question is related to your expenses. On page 11 of your release you mentioned that there was a one-time tax charge on the debit and credit account transfers on the IPO proceeds, can you just quantify this amount?

Yes, Mario, Alejandra speaking. The effect of the one-time tax is of ARS35 million.

ARS35 million?

Yes.

Jorge Kuri, Morgan Stanley.

I have a couple of questions. The first one is on asset quality, could you give us a sense of how do you think you performed relative to what's happening industry-wide, you mentioned some general trends that affected the consumer, so I am assuming this is an industry-wide problem, do you have a sense of your performance vis-a-vis the industry? Are you going to prove to be more defensive equally, what's your sense on how you did relative to your peers?

And then the second question is on your guidance for the year, what is the assumption of provisions, do loan loss provisions have to be lower sequentially in third quarter and fourth quarter in order for you to meet the guidance or can you still meet the guidance if the cost of risk remains relatively at the same level sort of like 5% as you did in the second quarter?

Hi, Jorge, this is Jorge Ramirez, I'll answer your first question. I mean, if you look at the inventory rate in the consumer finance business and you compare it to our peers last year, we had lower inventory rates than our peers had essentially because we have tightened our underwriting standards back in 2013.

And we're also seeing credit scoring that were more similar to the credit scorings in banks rather the ones belonging to consumer finance companies. So first point is we haven't changed that policy as Patricio mentioned and I mentioned also in the presentation. So this was not a question of us softening our underwriting standards or going after more riskier loans.

And this was a one-time effect that impacted us because of combination of factors most importantly a hike in inflation rate and hike in price in public utility prices that -- and the delays in the collective bargaining and delay in the collection of a [certain] salary, particularly in certain provinces in the southern part of the country where we do have a large presence.

The Patagonia perhaps represents 25% of the portfolio in the consumer finance business. It is difficult for me to tell you whether or not this -- how this compares to other peers, I don't have any visibility yet regarding the figures yet, so it's hard for us to tell.

From market gossip or not market gossip, market talks that there are -- staff has had with some of them, this has been something that might -- that has happened across the board but market has impacted them and I'm in no position to tell you because I don't have that information.

Jorge, (inaudible) with your question regarding cost of risk, even though we do not provide the guidance regarding cost of risk, let me tell you that our assumption regarding NPL provided a guidance and consequently loan loss provisions are included in our guidance regarding net income for 2016.

Sorry, I am not sure I understood that last question, sorry. The last answer, I'm sorry, it's a bit difficult to hear. So my question is --

The main idea here is -- sorry? I listen to you, go ahead.

No, go ahead, go ahead.

Okay. No, what I am trying to let you know is that even though we do not provide guidance regarding loan loss provision, we do provide guidance regarding NPLs. And those NPLs and the corresponding loan loss provisions are embedded in the guidance of net income for 2016. All in all information is inserted in that number in our net income guidance of ARS1.2 billion to ARS1.4 billion.

No, I understand that. But I guess I am trying to figure out what your expectation is for, so you mentioned there was a specific deterioration in the consumer in the second quarter that you feel is progressively getting better. So I wanted to understand if embedded in that guidance is the assumption that things are going to get better and loan loss provision charges are going to be lower going forward.

Or no, even if the situation continues to be as it is now and we're being conservative enough assuming that even with provision charges still at 5% we get to the ARS1.2 billion, ARS1.4 billion. What I am trying to understand is, if things don't improve as fast as you think, can you still make the guidance? I am just trying to understand how much have you -- are you baking in that guidance that, hey, the second quarter probably with asset quality is a one-off and beginning the third quarter and fourth quarter we are going to see a massive improvement, hence we get to those numbers. I am just trying to understand the sensitivity to that.

Yes, let me tell you in other words. Our NPL ratio in terms of (inaudible) it will be ranking 3% to 3.2%, so it will remain as we have reported in this second quarter.

[Carlos Sanguinetti], Copernico Capital Partners.

Could you refresh to me the past-due loan ratio in the quarter and relative to previous quarter and the same quarter last year, please?

Yes. It's in the table on page 14. The NPL ratios were first half of the year 3.1%, end of quarter of last year 2.7%. Full year 2015 was 3.2%, 9 months of September of last year 3.1% and first half of last year is 3.3%.

Is it right, as a clarification, is it right that loan loss provision is below the level of past-due loans, could you clarify that please?

No, no, no. I think I'm sorry -- this is Ana Bartesaghi. This is -- you are asking considering the coverage ratio, the coverage ratio is not calculated comparing past-due loans but loans that are -- the non-performing loans. But this is not past due. Loans allowance is higher than the past-due loans really. It's much higher.

Yes, I am looking for that figure, please, the level of allowances relative to past-due loans. I need to get an idea of how above are those.

Past-due installment or past-due loans? Coverage ratio is below 100% but -- not this ratio for considering -- I do not know if you are asking past-due installments or the whole loans, this is not something reported in Argentina even to Central Bank. I (multiple speakers) --

Okay, no, just wanted --

-- basically is reported but not in Argentina.

Sorry, just wanted to get a sense of up to what extent the current level of provisions is covering the level of past-due loans.

The total loan provisions exceed clearly the number, the figure regarding the non-performing portfolio. We include in our estimations in order to cover 83% of coverage loan loss provisions by ARS80 million beyond the loan provisions required by the non-performing loans. Does it answer your question?

Yes, thank you.

(inaudible)

Fernando Suarez, Raymond James.

I was wondering if you can give us some follow-up on early July results, mainly coming from gross loans in the retail business and the corporate business. Thanks.

Can you repeat the question, please?

I would like to get a sense how loans grew during July and what's -- what will be the impact for the whole quarter?

Okay. I mean in July, as Patricio mentioned in the presentation, we had a ARS1.2 billion increase in our corporate portfolio. And the recent portfolio had an increase of --

(inaudible) the retail banking we are already closing the number.

So, Fernando, the figure we have here that we are disclosing is the ARS1.2 billion in the corporate portfolio. However, we can say that we had a strong -- we had stronger demand for credit in our -- particularly in our (inaudible) segment in the month of July, much better than the one we have in the first -- in the second quarter.

(Operator Instructions) Carlos Gomez, HSBC.

First, congratulations on the IPO, and also thank you for putting out fairly detailed numbers, we appreciate that. I have two questions, the first one refers to the proceeds of the IPO $253 million, I just wanted to understand completely was that full amount converted into Argentine pesos at the exchange rate that you mentioned ARS13.93 or is part of it still in US dollars. And is it already in Argentina or is it held abroad?

My second question refers to your capital position, we look at the table on page 18 of your press release where you show that the capital ratio before the IPO was 7.3% of Tier 1, there was a very small increase in risk-weighted assets between the end of 2015 and the beginning of 2016 and we wanted to understand whether there was a regulatory change or there was another reason for this? Thank you.

Okay. Regarding your first question, everything was converted into pesos and it's in the country. A substantial portion of it was capitalized in the Bank, about ARS280 million were capitalized in the consumer finance company and around ARS1 million are still at the holding company level which will be used to cancel debt and to support in the future capital needs of any of our subsidiaries. Regarding the second question -- could you -- Carlos was your name, wasn't it?

Yes. The name is Carlos.

Okay.

If you go to the table showing you your credit risk-weighted assets and risk-weighted assets on page 18 of your press release what you see is that your credit risk-weighted asset were ARS25.2 billion at the end of 2015 and they grew only to ARS27.2 billion in 2016, which is a very small increase, whereas -- and risk-weighted assets grew even less, 34 to 35, so we wanted to understand the dynamics of risk-weighted assets there and why they grew so little?

Well, let me add the figures.

If it's too detailed, we can take it offline.

Yes, between which and which?

No, he is comparing full-year 2015 with first quarter of 2016, the growth --

Essentially you have an increase in Tier 1 capital from 6.7% to 7.2% and we want to understand how it happened, how the capital increased from the end of 2015 until the beginning of 2016.

Okay. I think I understand the question. In terms of how the capital increased from the full year 2015 to the first quarter of 2016, that has to do with the capitalization of the net profit we had last year. So that increases our capital base and normally we're able to recognize that as of February --

February (multiple speakers) --

As of February of every calendar year, okay, that's the Central Bank ruling.

The other thing has to do with growth normally for us given our specialization in factoring. End of the year tends to be a high month in terms of companies (inaudible) factoring with us because they want to get out of their balance sheet checks or invoices. And that tends to -- those are short-term assets and they tend to be very quickly restated in the month of January and February, okay, so that normally counterbalances the increase we normally see in our normal loan originations in the first quarter of the year.

Okay. That is clear. And if I may follow up if there are no other questions. You give a guidance for capital by the end of the year of, I think, 11% to -- 11.5% to 12.5%, that's for the end of this year. In the medium-term the next two, three years what is the level of Tier 1 that you want to maintain?

Our longer-term target is 10% for Tier 1 and 12% for total capital ratio.

Very clear. Thank you.

(Operator Instructions) And it appears we have no further questions. I'll turn the conference back over to Ms. Ana Bartesaghi for any additional or closing remarks.

Okay. Thank you for joining us today. We appreciate your interest in our Company. We look forward to meeting more of you over the coming months and providing financial and business update next quarter.

In the interim the team remains available to answer any questions that you may have. Thank you and enjoy the rest of your day.

That does conclude today's conference. Thank you for your participation. You may now disconnect.