Earnings Call: Q2 2021

Aug 26, 2021

Earnings release

Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to Banco Macro's 2Q 'twenty one Earnings Call. We would like to inform you that the 2Q 'twenty one press release is available to download at the Investor Relations website of banco macro, www.macro.com.ar Also, this event is being recorded and all participants will be in listen only mode during the company's presentation. After the company's remarks are completed, there will be a question and answer session. At that time, further instructions will be given. It is now my pleasure to introduce our speakers. Joining us from Argentina are Mr. Gustavo Manrique, Chief Executive Officer Mr. Jorge Scurizy, Chief Financial Officer and Mr. Nicolas Torres, IR. Now I will turn the conference over to Mr. Nicholas Torres. You may begin your conference. Thank you, Sara. Good morning, and welcome to Lancome Macro's Q21 conference call. Any comment 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 it is available at our website. Q2 2021 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 measuring unit current at the end of the reporting period. As of the Q1 of 2020, the bank started reporting results applying hyperinflation 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, 2021. I will now briefly comment on the bank's Q2 2021 financial results. Banco Macro's net income for the quarter was MXN4.6 billion, 90% higher than the Q1 of 2021 and 50% lower than the result posted a year ago. The bank's Q2 2021 accumulated ROE and ROA of 7.8% and 1.7% respectively remained healthy and shows the bank's earnings potential. Net operating income before general and administrative and personnel expenses for the Q2 of 2021 was ARS 39,400,000,000 decreasing 5% or ARS 1,900,000,000 quarter on quarter due to a relatively small loan loss provisions and higher income from financial instruments at fair value to profit or loss. On a yearly basis, net operating income decreased 1% or ARS355,000,000 due to lower net interest income and lower net fee income. Operating income after general administrative expenses and personnel expenses was ARS 19,400,000,000, 7 percent or ARS 1,600,000,000 lower than in the Q1 of 2021 and 1% lower than in the Q2 of 2020. In the quarter, net interest income totaled MXN 25,500,000,000, 4% or MXN 957,000,000 lower than the result posted in the Q1 of 2021 and 50% or Ps. 4,600,000,000 lower than the result posted 1 year ago, as a result of different regulations adopted by the Central Bank that set caps on lending rates and floors on deposit rates. In the Q2 of 2021, interest income totaled ARS 44.3 1,000,000,000, 12 percent or ARS5.8 billion lower than the Q1 of 2021 and ARS250 1,000,000 lower than the previous year. Within interest income, interest on loans decreased 7 percent or ARS 1,700,000,000 quarter on quarter and interest income decreased 15% or ARS 4 1,000,000,000 year on year. In the Q2 of 2021, interest on loans represented 52% of total interest income. Net income from government and private securities decreased 14 percent or ARS 3,200,000,000 quarter on quarter due to lower relic volume and lower income from government securities. Compared to the Q2 of 2020, net income from government and private securities increased 30% or ARS 4,600,000,000. In the Q2 of 2021, FX gains including investment in derivative financing totaled ARS640,000,000 gain, 53% or ARS709,000,000 lower than in the Q1 of 2021. The gain is due to the 4% Argentine peso depreciation against the U. S. Dollars and the bank's long spot dollar position. On a yearly basis, FX gains decreased 47% or ARS 569,000,000. In the Q2 of 2021, interest expenses totaled ARS 18.8 1,000,000,000, 20 percent or ARS 4,800,000,000 lower compared to the Q1 of 2021 and 31 percent of ARS 4,400,000,000 higher on a yearly basis. Within interest expenses, interest and deposits decreased 20 percent or ARS 4,500,000,000 quarter on quarter, mainly driven by a 16% decrease in the average volume of time deposits and by a 129 basis points decrease in the average interest rate paid on deposits. On a yearly basis, interest and deposits increased 37 percent or ARS 4,800,000,000. In the Q2 of 2021, interest and deposits represented 95 percent of the bank's financial expenses. In the Q2 of 2021, the bank's net interest margin, including FX, was 18.8%, higher than the 17.4% posted in the Q1 of 2021 and lower than the 19.8% registered 1 year ago. In the Q2 of 2021, net fee income totaled ARS 6,800,000,000, 3 percent or ARS 186,000,000 higher than in the Q1 of 2021. On a yearly basis, net fee income decreased 3% or ARS218 1,000,000. In the Q2 of 2021, net income from financial assets and liabilities at fair value to profit and loss totaled ARS5,300,000,000 gain, 4% or ARS221,000,000 higher than in the previous quarter. This gain is mostly related to higher income from government and private securities. In the quarter, other operating income totaled ARS 1,400,000,000, decreasing 23% or ARS 421,000,000 compared to the Q1 of 2021. On a yearly basis, other operating income decreased 12% or ARS189,000,000. In the Q2 of 2021, Banco Macro's personnel and administrative expenses totaled ARS 12,300,000,000, 4 percent or ARS441,000,000 higher than in the previous quarter due to higher employee benefits and higher administrative expenses. On a yearly basis, personnel and administrative expenses decreased 5% or ARS693 1,000,000, showing the strict cost confirmed policies adopted by the bank's senior management. In the Q2 of 2021, the efficiency ratio reached 38.4%, deteriorated from the 35.7% posted in the Q1 of 2021. In the quarter, expenses increased 3% or ARS446,000,000, while net interest income plus net fee income plus other operating income decreased ARS 1,300,000,000. In the Q2 of 2021, the result from the net monetary position totaled a ARS 13,600,000,000 loss, 15% or ARS 2,500,000,000 lower than the loss posted in the Q1 of 2021 due to lower inflation observed in the quarter, 200 basis points below the Q1 2021, down to 10.95% from 12.95% posted in the Q1 of 2021. On a yearly basis, the loss related to the monetary position increased 119 percent or ARS 7,400,000,000. This is the 2nd quarter in which the result from the net monetary position is shown pursuant to Communication A7211 of the Central Bank of Argentina, in which the inflation adjustment on our other government securities holding is included, which was previously shown in net income and financial income statement at fair value to profit or loss. In the Q2 of 2021, Banco Macro's expected tax rate was 21.8%, lower than the 51.4% registered during the Q1 of 2021 and the 29.9% registered a year ago. In terms of loan growth, the bank's financing to the private sector totaled MXN267,800,000,000, decreasing 7% or ARS20 1,000,000,000 quarter on quarter and 19 percent or ARS61.7 billion lower year on year as a consequence of the economic recession that affected Argentina during 2020 and weak loan demand. Commercial loans decreased 13% or ARS 13,400,000,000 among which others stand out as loan extended to SMEs as part of the relief package given the COVID-nineteen pandemic started to come due. Consumer lending decreased 5% or ARS 7,300,000,000 personal loans decreased 6%, while credit card loans decreased 4%. Within private sector financing, peso financing decreased 5% or ARS 12,400,000, while U. S. Dollar financing decreased 31% or $19,000,000 It is important to mention that Banco Macro's market share over private sector loans as of June 2021 reached 7%. On the funding side, total deposits totaled Ps.492,300,000,000 decreased 3 percent of ARS 15,100,000,000 quarter on quarter and decreased 19% or ARS 117,500,000,000 year on year. Private sector deposits decreased 1% quarter on quarter, while private sector deposits decreased 16% quarter on quarter. The decrease in private sector deposits was led by TAM deposits, which decreased 7% or ARS 15,700,000,000 quarter on quarter, while demand deposits increased 4% or ARS 8,600,000,000. Within private sector deposits, peso deposits decreased 3% ARS11.1 billion, while U. S. Dollar deposits decreased 8% or $81,000,000 As of June 2021, Bank of America's transactional accounts represented approximately 51% of total deposits. Bank of America's market share over private sector deposits as of June 2021 totaled 5.1%. In terms of asset quality, Bancro Macro's non performing total financial ratio reached 1 0.68%. The coverage ratio measured as total allowances under expected credit losses over nonperforming loans under Central Bank rules totaled 212.91%. Consumer portfolio non performing loans deteriorated 89 basis points up to 1 0.88% from 0.89% in the previous quarter, while commercial portfolio non performing loans deteriorated 11 basis points in the Q2 of 2021, up to 1.1% from 1% in the previous quarter. During 2020, asset quality was positively affected by measures developed by the Central Bank of Argentina in the current pandemic context, particularly the 60 days grace period that was added to debt of classification before a loan was considered nonperforming. In March 2021, the Central Bank established a gradual transition, which was completed by June 1, 2021, and financial entities must not classify their debtors according the general debtor classification. In terms of capitalization, Banco Macro accounted in excess capital of MXN 167,000,000,000, which represented a total regulatory capital ratio of 38.3 percent and a Tier 1 ratio of 30.9%. It should be noticed that percent communication 7,312 issued by the Central Bank of Argentina, the distribution of profits by financial entities is suspended until December 31, 2021. The bank's aim is to make the best use of this excess capital. The bank's liquidity remained more than appropriate. Liquid assets during deposits ratio reached 93%. Overall, we have accounted for another positive quarter. We continue showing a solid financial position. Our headquarter remain under control and closely monitored. We keep on working to improve more our efficiency standards and we keep our well atomized deposit base. At this time, we would like to take the questions that you may have. There are no questions at this time. This concludes the question and answer session. I will now turn over to Mr. Nicholas Torres for final consideration. Thank you all for your interest in Banco Macro. We appreciate your time and look forward to speaking with you again. Good day.