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Edited Transcript of BMA.BA earnings conference call or presentation 25-Aug-22 3:00pm GMT

Q2 2022 Banco Macro SA Earnings Call Buenos Aires Aug 25, 2022 (Thomson StreetEvents) -- Edited Transcript of Banco Macro SA earnings conference call or presentation Thursday, August 25, 2022 at 3:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Jorge Francisco Scarinci Banco Macro S.A. - CFO, Finance Manager & IR Manager * Nicolas Torres Banco Macro S.A. - Manager of IR ================================================================================ Conference Call Participants ================================================================================ * Ernesto María Gabilondo Márquez BofA Securities, Research Division - Associate * Nicolas Alejandro Riva BofA Securities, Research Division - VP in Credit Research & Research Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to Banco Macro's Second Quarter 2022 Earnings Conference Call. We would like to inform you that the 2Q '22 press release is available to 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. -------------------------------------------------------------------------------- Nicolas Torres, Banco Macro S.A. - Manager of IR [2] -------------------------------------------------------------------------------- Thank you. Good morning, and welcome to Banco Macro's second quarter 2022 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 at our website. Second quarter 2022 press release was distributed yesterday and is also available at our website. Our figures are in Argentine pesos and have been restated in terms of the measuring unit current at the end of the reporting period. As of 2020, the bank began reporting results applying high preferential accounting in accordance with IFRS IAS 29 as established by the Central Bank of Argentina. For ease of comparison, figures of previous quarters have been restated applying IAS 29 to reflect the accumulated effect of the inflation adjustment for each period through June 30, 2022. I will now briefly comment on the bank's second quarter 2022 financial results. Banco Macro's net income for the quarter was ARS 4 billion or 1% lower than the first quarter of 2022 and 45% lower than the result posted a year ago. The bank's second quarter 2022 annualized ROE and ROA of 5.1% and 1.3%, respectively, remains healthy and show the bank's earning potential. Net operating income before general and administrative and personnel expenses for the second quarter of 2022 was ARS 81.3 billion, ARS 6 billion higher quarter-on-quarter due to higher net interest income and higher FX gains. On a yearly basis, net operating income increased 26% or ARS 16.6 billion due to higher net interest income and higher net fee income. Operating income after general administrative and personnel expenses was ARS 44.5 billion, 4% or ARS 1.6 billion higher than in the first quarter of 2022 and 39% or ARS 12.6 billion higher than in the same quarter of last year. In the quarter, net interest income totaled ARS 53.1 billion, 8% or ARS 4 billion higher than the result posted in the first quarter of 2022, and 27% or ARS 11.3 billion higher than the result posted 1 year ago. In the second quarter of 2022, interest income totaled ARS 96.1 billion, 19% or ARS 15.3 billion higher than in the first quarter of 2022, and 32% or ARS 23.5 billion higher than the previous year. Within interest income, interest on loans totaled ARS 41.7 billion and increased 5% or ARS 2 billion quarter-on-quarter, mainly due to a 350 basis points increase in the average lending rate. Interest income increased 10% or ARS 3.7 billion year-on-year. In the second quarter of 2022, interest on loans represents 43% of total interest income. Net income from government and private securities increased 33% or ARS 13.1 billion quarter-on-quarter due to higher income from government securities. Compared to the second quarter of 2021, net income from government and private securities increased 66% or ARS 21.3 billion. In the second quarter of 2022, income from Repos totaled ARS 699 million, 38% or ARS 192 million higher than in the previous quarter and 69% or ARS 1.5 billion lower than the result posted a year ago. In the second quarter of 2022, FX gains, including investment in derivative financing, totaled ARS 5.4 billion gain which was 49% or ARS 1.8 billion higher than the first quarter of 2022 and ARS 4.3 billion higher than the previous year due to the bank's long dollar position and the peso depreciation during the quarter. In the second quarter of 2022, interest expenses totaled ARS 42.9 billion, 36% or ARS 11.3 billion higher compared to the first quarter of 2022 and 39% or ARS 12.2 billion higher on a yearly basis. Within interest expenses, interest on deposits increased 35% or ARS 10.7 billion quarter-on-quarter, mainly driven by a 650 basis points increase in the average interest rate paid on deposits while the average volume of private sector deposits increased 5%. On a yearly basis, interest on deposits decreased 4.7% or ARS 11.7 billion. In the second quarter of 2022, interest on deposits represented 95% of the bank's financial expenses. In the second quarter of 2022, the bank's net interest margin, including FX, was 24.5% higher than the 22.8% posted in the first quarter of 2022 and the 18.8% registered in the second quarter of 2021. In the second quarter of 2022, net fee income totaled ARS 11.9 billion, ARS 49 million lower than the first quarter of 2022. On a yearly basis, net fee income increased 8% or ARS 842 million. In the second quarter of 2022, net income from financial assets and liabilities at fair value to profit net loss totaled ARS 7.7 billion gain, 2% or ARS 180 million higher than in the previous quarter. This increase is mostly related to higher income from government securities which increased 76% or ARS 1.3 billion. On a yearly basis, net income from financial assets and liabilities at fair value to profit or loss decreased 11% or ARS 917 million. In the quarter, other operating income totaled ARS 3.9 billion, 1% or ARS 54 million higher compared to the first quarter of 2022. On a yearly basis, other operating income increased 68% or ARS 1.6 billion. In the second quarter of 2022, Banco Macro's personnel and administrative expenses totaled ARS 22 billion, 22% or ARS 4 billion higher than the previous quarter. Personnel expenses increased 32% as a consequence of salary increases agreed with the union, while administrative expenses increased 6%. And on a yearly basis, personnel and administrative expenses increased 10% or ARS 1.4 billion. As of the second quarter of 2022, the efficiency ratio reached 31.3%, deteriorating from the 29.6% posted in the first quarter of 2022. In the second quarter of 2022, expenses increased 20% while net interest income plus net fee income plus other operating income increased 7% compared to the first quarter of 2022. In the second quarter of 2022, the result from the net monetary position totaled ARS 38.2 billion loss, which was 13% or ARS 4.3 billion higher than the loss posted in the first quarter of 2022 due to higher inflation observed in the quarter, which was 123 basis points above the first quarter of 2022. Inflation was 17.3% in the second quarter of 2022 compared to 16.1% in the first quarter of 2022. In the second quarter of 2022, Banco Macro's effective tax rate was 33%. More information is provided in our financial statements. In terms of loan growth, the bank's financing to the private sector totaled ARS 446 billion increasing 2% or ARS 9.9 billion quarter-on-quarter and 2% or ARS 6.9 billion higher year-on-year. Within commercial lending, overdrafts, documents and others stand out with a 29%, 10% and 16% increase, respectively. Meanwhile, within consumer lending, credit card loans increased 5%, while personal loans decreased 6%. Within private sector financing, peso financing increased 1% or ARS 4.1 billion while U.S. dollar financing increased 12% or $21 million. It is important to mention that Banco Macro's market share with private sector loans as of June 2022 reached 7.2%. On the funding side, total deposits totaled ARS 858.2 billion and increased 8% or ARS 63.4 billion quarter-on-quarter and 6% or ARS 15.9 billion higher year-on-year. Private sector deposits increased 10% quarter-on-quarter, while public sector deposits decreased 9% quarter-on-quarter. The increase in private sector deposits was led by time deposits, which increased 15% or ARS 49.8 billion quarter-on-quarter while demand deposits increased 6% or ARS 20.7 billion. Within private sector deposits, special deposits increased 9% or ARS 62.5 billion, while U.S. dollar deposits decreased 11% or ARS 115 million. As of June 2022, Banco Macro's transactional accounts represented approximately 48% of total deposits. Banco Macro's market share of private sector deposits as of March after June 2022 totaled 5.9%. In terms of asset quality, Banco Macro's nonperforming to total financing ratio reached 0.25%. The coverage ratio, measured as total allowances under expected credit losses of our nonperforming loans under Central Bank rules totaled 159.71%. Consumer portfolio nonperforming loans improved 11 basis points down to 1.24% from 1.35% in the previous quarter, while commercial portfolio nonperforming loans improved 149 basis points in the second quarter of 2022, down to 128% from 276% in the previous quarter, mainly due to our [value shock] of financial new clients, which shows signs of credit deterioration in the previous quarter. In terms of capitalization, Banco Macro accounted an excess capital of ARS 284.3 billion, which represented a total regulated capital ratio of 30.5% and a Tier 1 ratio of 35.9%. It should be noted that on May 12, the Superintendencia de Entidades Financieras y Cambiarias and the Central Bank of Argentina informed us that the authorized Banco Macro to distribute profits in cash are run in kind for an aggregate amount of ARS 19.7 billion. And the distribution should be carried out in 12 monthly equal and consecutive installments. As of this date, the bank has paid, on June 7, a cash dividend in the amount of ARS 9.9 billion, which corresponds to installments 1 through 6. And July 6, a cash dividend in the amount of ARS 1.6 billion, which was installment 7. And another, too, a cash dividend in the amount of ARS 1.6 billion, which is installment 8. The bank's aim is to make the best use of this excess capital. The bank's liquidity remained more than appropriate. Liquid assets to total deposit ratio reached 90%. Overall, we have accounted for another positive quarter. We continued showing a solid financial position. Asset quality remained under control and closely monitored. We keep on working to improve more our efficiency standards, and we keep a well atomized deposit base. At this time, we would like to take the questions you may have. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) The first question is from Ernesto Gabilondo with Bank of America. -------------------------------------------------------------------------------- Ernesto María Gabilondo Márquez, BofA Securities, Research Division - Associate [2] -------------------------------------------------------------------------------- I have 3 questions from my side. The first one is on the macro outlook. Would like to hear from you how do you see the inflation and the interest rate by year-end. And given the higher levels, when do you see the potential normalization in both indicators? Especially considering that if at some point, you have lower rates in Argentina, that would translate into the peso depreciation. Then my second question is on loan growth. Also, we'd like to hear from you considering the inflation, how do you see real loan growth for the year? Do you think it's still achievable? Or do you think it could be more something of next year? And then my last question is, when do you see the ROE for this year? -------------------------------------------------------------------------------- Jorge Francisco Scarinci, Banco Macro S.A. - CFO, Finance Manager & IR Manager [3] -------------------------------------------------------------------------------- Ernesto, this is Jorge Scarinci. On your first question, according to the local economies, inflation in 2022 should be ranging between 85% to 95%. That is the range of the consensus of the economies here. And -- what we are seeing in terms of interest rates, nominally speaking, is that they will maybe slightly increase by the year-end in order to catch up the inflation pace. We are not seeing for the moment that we are going to have a big real interest rates by year-end, but we are going to have a slightly higher nominal interest rates. But in our view, that should help in our net interest margin to keep on expanding. In terms of the FX, that is the million-dollar question. We understand also looking at what local economies are predicting is that the official effects should move at higher speed monthly speaking in order to give some kind of suite at least to the agribusiness sector to start selling dollars. Honestly, we believe that the Economy Minister, Massa, I would like to maybe finish with a more complex economic program before starting to have a higher speed devaluation promotion in Argentina. We understand that the official effects is well behind the inflation rate for the moment, it's not helping a lot. But towards year-end, we could see a -- maybe a faster pace on the monthly devaluation of the official effects. In terms of your second question, looking at the loan growth, I mean, what we are seeing is that after the big increase on the nominal interest rates, we are seeing loan demand, may be a bit more sluggish. And we think that by year-end, we are going to finish 2022 with loans growing similar to the inflation rate. So we are not seeing a major positive increase in real terms in loan growth by year-end. And third question, in terms of ROE, it's not easy to answer this question, but we are targeting or we would like to be in the area of 10% positive real ROE by year-end. So that would be between 9% and 11% or 8% and 12%, they get to be around 10% for year-end 2022. -------------------------------------------------------------------------------- Operator [4] -------------------------------------------------------------------------------- (Operator Instructions) The next question is from Nicolas Riva, also with Bank of America. -------------------------------------------------------------------------------- Nicolas Alejandro Riva, BofA Securities, Research Division - VP in Credit Research & Research Analyst [5] -------------------------------------------------------------------------------- I have 2 questions. First, on the 2026 bond, I wanted to ask if you considered doing a tender offer given that the bond is trading in the 70s and losing capital treatment. My understanding is you could only call it once last year, but you can still do a tender offer market price plus any premium at any time. And if you would need to get dollars from the Central Bank to buy back the bond or if you could use your current reposition? Because my understanding is that when you issued this bond, you kept the dollars, the $400 million, for the most part. That's my first question. And then my second question on your exposure to the public sector. So you have -- and you reported this, so you have $2.2 billion in LELIQs. In total, your exposure to public sector is roughly $4.5 million using the official FX at the end of June, which compares to $2.7 million in equity, right? But in the second quarter, you earned interest rate of about 50% annually on these LELIQs and the government bonds in pesos. And I assume the risk weight on this is going to be close to 0, which means it's a great investment for you. The risk, of course, would be in a worst-case scenario, a default of the government of the peso debt -- the peso-denominated debt, and even by the Central Bank on the LELIQs. So how do you think about this exposure to the public sector? Can you easily reduce this exposure in a worst-case scenario? And have there been any discussions between the banks and the Central Bank and the government about all of this exposure to LELIQs and government bonds? -------------------------------------------------------------------------------- Nicolas Torres, Banco Macro S.A. - Manager of IR [6] -------------------------------------------------------------------------------- Nicolas. Your third question about our 2026 bonds, because it's a subordinated bond, we -- first of all, we have to ask permission to the Central Bank in any kind of tender or buyback or whatever. And that's the first point. Second point, we have the dollars, we have dollars in our position to do any kind of buyback and tender. I don't know if at this time, the Central Bank would allow us to use those dollars for that. Honestly, for the moment, we are in a wait-and-see position in that sense. But we have the dollars. Second question, in terms of the exposure to the public sector, I mean, looking at what happened in the second quarter when there was a kind of sale on -- or pressure sale on the domestic debt in pesos, we had the Central Bank rapidly acting and putting bids on all the curve in pesos. And since then, the Central Bank is -- they are on the bid side. And according to the conversations that we have with the Central Bank, the idea is for them to continue in that attitude, so putting a kind of secure to the financial sector, in that sense. Also recently, the economy, Mr. Massa successfully did a swap in the debt in pesos during until October and moving that debt into mid next year. And we think that going forward, they could be doing something similar in the debt during -- by the end of the year in pesos. And we are not seeing any kind of big risk in terms of a refinance restructuring in the peso debt for the moment. We think that the exposure that we have on the LELIQs that is almost 100% on the (inaudible) pesos that we have, that is a kind of almost the maximum that we can have in LELIQs according to local regulation. We think that the risk of the Central Bank or the Central Bank risk is minor according to what we've seen in Argentina for the last 60 years. In terms of the exposure to the treasury, again, we are, for the moment, putting a low -- very low probability of restructuring the debt in pesos. Also, at some point, we have to hedge our equity since we have a kind of a cap on the dollars, we are trying to hedge that as much as we can in terms of the inflation exposure. So the idea is to continue for the moment. It is also important to note that the Central Bank has been issuing put options. So banks that hold this kind of debt to the treasury, we can sell that once to the Central Bank in case of any potential crisis plus that the Central Bank is on the curve on the market on the bid side in -- just in case. So said that, we are assuming that the probability for this kind of debt restructure is extremely low for the moment. -------------------------------------------------------------------------------- Nicolas Alejandro Riva, BofA Securities, Research Division - VP in Credit Research & Research Analyst [7] -------------------------------------------------------------------------------- A follow-up on the last point about the LELIQs. Do you think that if you wanted to, you could easily decide not to renew the LELIQs with the Central Bank? Would you get that money easily from the Central Bank? And has your view about the Central Bank being lower risk changed at all with Massa, meaning the Ministry of Economy, and perhaps with less money printing by the Central Bank? -------------------------------------------------------------------------------- Jorge Francisco Scarinci, Banco Macro S.A. - CFO, Finance Manager & IR Manager [8] -------------------------------------------------------------------------------- No. I mean, I think it was last month, we did that -- or we took that attitude in terms of maybe renewing partially the LELIQs. We received the money without any problem. So no, basically that -- for the moment, even though Massa's economies are the Central Bank is doing, I mean, its job. And we think there's no problem in terms of decreasing LELIQs exposure there in terms of the exposure to the Central Bank. No, not at all. -------------------------------------------------------------------------------- Operator [9] -------------------------------------------------------------------------------- There are no further questions at this time. This concludes the question-and-answer session. I will now turn over to Mr. Nicolas Torres for his final considerations. -------------------------------------------------------------------------------- Nicolas Torres, Banco Macro S.A. - Manager of IR [10] -------------------------------------------------------------------------------- Thank you all for your interest in Banco Macro. We appreciate your time and look forward to speaking with you again soon. Good day. -------------------------------------------------------------------------------- Operator [11] -------------------------------------------------------------------------------- The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.