Banco Macro Q3 2023 Earnings Call Transcript

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Provided by Quartr
November 27, 2023

There are 6 speakers on the call.

Operator

Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to Banco Macro's 3rd Quarter 2023 Earnings Conference Call. We would like to inform you that the 3Q 'twenty three press release is available to download at the Investor Relations website of Banco Macro, www.macro.com.arrelacionesinversores. 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.

Operator

At that time, further instructions will be given. It is now my pleasure to introduce our speakers. Joining us from Argentina are Mr. Gustavo Menriquez, Chief Executive Officer Mr. Jorge Scarinci, Chief Financial Officer and Mr.

Operator

Nicolas Torres, Investor Relations. Now, I will turn the conference over to Mr. Nicolas Torres. You may begin your conference.

Speaker 1

Thank you, Gary. Good morning, and welcome to Banco Macro's Q3 2023 conference call. Any comments we may make today 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. Q4 2023 press release was distributed last Wednesday and is available at our website. Oil fevers are in Argentine pesos and have restated in terms of the measuring unit current at the end of the reporting period.

Speaker 1

As of 2020, the bank began reporting results applying high penetration accounting in accordance with IFRS IAS 29 as established by the Central Bank of Argentina. For risk of comparison, figures of previous quarters have been restated upon IAS 29 to reflect the accumulated effect of inflation adjustment for each period through September 30, 2023. I will now briefly comment on the bank's Q3 2023 financial results. Banco Macro's net income for the quarter was ARS7.5 billion, 87% lower than in the Q2 of 2023 and 55% lower than we saw posted a year ago. The bank's accumulated ROE and ROA of 11.3% and 2.8%, respectively, remained healthy and show the bank's earnings potential.

Speaker 1

Net operating income before general, admission and personnel expenses for the Q3 of 2023 was ARS356.5 billion, increasing ARS364 1,000,000 quarter on quarter. On a yearly basis, net operating income before general and administrative expenses increased 23% or ARS66.7 billion. In the Q4 of 2023, provision for loan losses totaled ARS4.9 billion, 35% or ARS 2,600,000,000 lower than in the previous quarter. On a yearly basis, provision for loan losses increased 43% or ARS 1,500,000,000. Operating income after general, administrative and personnel expenses was ARS 235,000,000,000 or 1 percent or ARS 1,700,000,000 higher than in the Q2 of 2023 and 31 percent ARS 56,100,000,000 higher than in the Q3 of 2022.

Speaker 1

In the quarter, net interest income totaled ARS112.7 billion, 23 percent or ARS 32,800,000,000 lower than the result posted in the Q2 of 2023 and 26 percent or ARS38,600,000,000 lower than the result posted 1 year ago. In the Q3 of 2023, interest income totaled ARS 409.1 billion, 4 percent or ARS15.1 billion higher than in the Q2 of 2023 and 31 percent or ARS 102,300,000,000 higher than the previous year. Within interest income, interest on loans increased 11% or ARS18.1 billion quarter on quarter due to a 574 basis points increase in the average lending rate, while the average volume of private sector loans was practically unchanged. On a yearly basis, income from interest on loans was 36% or BRL47.5 billion higher. In the Q3 of 2023, interest on loans represented 42% of total interest income.

Speaker 1

Net income from government and private securities decreased 7% or ARS 16,000,000,000 quarter on quarter due to lower income from government securities. Compared to the Q3 of 2022, net income from government and private securities increased 12% or ARS21.8 billion. In the Q4 of 2023, income from rebos totaled ARS37.6 billion, 52 percent or ARS12.8 billion higher than the previous quarter and 304 percent or ARS 28,300,000,000 higher than the same period of last year. The Q3 of 2023, FX gains, including investments in derivative financing, totaled ARS238,100,000,000 gain, ARS135.8 billion higher than the previous quarter and ARS200 1,000,000,000 higher than a year ago. This result is mainly due to the 30 6.4% Argentine peso depreciation against the U.

Speaker 1

S. Dollar and the bank's long dollar position, including dollar linked and lower box. In the Q3 of 2023, interest expense totaled ARS 316,400,000,000, an 18% or ARS 47 point 9,000,000,000 increase compared to the Q2 of 2023 and 80% or ARS 140,900,000,000 higher on a yearly basis. Within interest expenses, interest on deposits increased 19 percent ARS48.7 billion quarter on quarter, mainly driven by a 1072 basis points increase in the average interest rate paid on deposits, while the average volume of private sector deposits decreased 3%. On a yearly basis, interest on deposits increased 80% or ARS 138.2 billion.

Speaker 1

In the Q4 of 2023, interest on deposits represented 98% of the bank's financial expenses. In the Q4 of 2023, the bank's net interest margin, including FX, was 58.7%, higher than the 38.2% posted in the Q2 of 2023 and higher than the 28.1% posted in the Q3 of 2022. In the Q4 of 2023, net income net fee income totaled ARS 35,500,000,000, 20,000,000 lower than the Q2 of 2023. And on a yearly basis, net fee income was 5% or ARS 1,600,000,000 higher. In the Q3 of 2023, net income from financial assets and liabilities at fair value to profit or loss turned at ARS36.4 billion loss, mainly due to the mark to market of government securities.

Speaker 1

A yearly basis, net income from financial assets and liabilities per value to profit or loss decreased ARS97.2 billion. In the quarter, other operating income totaled ARS11.3 billion, increasing 9% or ARS1 1,000,000,000 compared to the Q2 of 2023. On a yearly basis, other operating income increased 26 percent or ARS 2,400,000,000. In the Q3 of 2023, Banco Macro's personal and administrative expenses totaled ARS66.2 billion, 3 percent or ARS1.6 billion higher than the previous quarter due to higher employee benefits, which were partially offset by ARS102 1,000,000 decrease in administrative expenses. On a yearly basis, personnel and administrative expenses increased 7% or ARS4.4 billion.

Speaker 1

In the Q4 of 2023, the efficiency ratio reached 22.4%, deteriorating from the 21.7% posted in the Q2 of 2023. In the Q3 of 2023, expenses increased 3%, while net interest income plus net fee income plus other operating income decreased 1%. In the Q3 of 2023, the result of the net monetary position totaled ARS215.9 billion loss, considerably higher than the loss posted in the Q2 of 2023 as a consequence of higher inflation observed in the quarter, which was 11 and 4 basis points higher than the Q2 of 2023. Inflation in the Q3 of 2023 was 34.8% compared to 23.8% in the Q2 of 2023. In the Q3 of 2023, Banjo Macro's effective tax rate was 60.5%, and further information is provided in March 'twenty two to our financial statements.

Speaker 1

In terms of loan growth, the bank's total financing totaled ARS 1,200,000,000,000, decreasing 4% of ARS 50,800,000,000 quarter on quarter and 5 percent ARS57.8 billion lower year on year. Within commercial loans, overdrafts stand out with a 5% or ARS 5,900,000,000 decrease, while documents increased 16% or ARS 30,200,000,000. It is important to mention that Banco Macro's market share over private sector loans as of September 2023 reached 7.7%. On the funding side, total deposits decreased 22 percent or ARS 5.56 billion quarter on quarter, totaling ARS 2,000,000,000,000 and decreased 25% or ARS 670,000,000,000 year on year. Private sector deposits decreased 23% or ARS 554 800,000,000 quarter on quarter, while private sector deposits decreased ARS875 1,000,000 quarter on quarter.

Speaker 1

The decrease in private sector deposits was led by CAM deposits, which decreased 30% or ARS374.2 billion quarter on quarter, while demand deposits decreased 16% or ARS174.3 billion. Within private sector deposits, pesos deposits decreased 24 percent or ARS549.7 billion, while U. S. Dollar deposits decreased 28 percent or BRL351,000,000. As of September 2023, Banco Macro's transactional accounts represented approximately 46% of total deposits.

Speaker 1

Banco Macro's market share over private sector deposits as of September 2023 totaled 5.3%. In terms of asset quality, Banco Macro's nonperforming total financial ratio reached 1.39%. The coverage ratio, measured as total allowance under expected credit losses over nonperforming loans under Central Bank rules, remained stable at 133.93%. Consumer portfolio nonperforming loans deteriorated 5 basis points, up to 148% from 1.43% in the previous quarter, while commercial portfolio nonperforming loans improved 4 basis points in the Q2 of 2023, down to 1.14% from 118% in the previous quarter. In terms of capitalization, Banco Matos accounted an excess capital of ARS 788.3 billion, which represented a total regulatory capital ratio of 37 0.9% and a Tier one ratio of 34.8%.

Speaker 1

The bank's aim is to make the best use of prefixed capital. The bank's liquidity remained more than appropriate. Liquid assets to total deposit ratio reached 99%. Overall, we have accounted for another positive quarter. We continue showing a solid financial position, asset quality remain under control and closing monitored.

Speaker 1

We keep on working to improve more our future standard and we keep a well optimized deposit base. Finally, on November 2, 2023, the Central Bank of Argentina approved the sale of Itau Argentina, now Banco BMA, to Banco Macro. Banco Macro has now acquired 100% of the share and both of Banco Itau Argentina and Itau Cidades, Itau Asset Management and Itau Gallaudes. The price of the agreement was set at $15,000,000 which was paid on November 3, an additional amount resulted from a potential adjustment that will be eventually set based on results obtained by the bank owned that Guajainte and subsidiaries between April 1, 2023, and the closing date will be determined at a future date. At this time, we would like to take questions that you may have.

Operator

Our first question today is from Ernesto Gavallanto with Bank of America. Please go ahead.

Speaker 2

Hi, good morning, Gustavo, Jorge and Nicolas. My first question will be on the potential economic outlook for Argentina, Which do you think could be the key execution risks for the new administration? How do you see the possibility to implement structural reforms considering that Congress could be kind of divided as neither the officialism or the right parties will have the majority. Also related to this macro political context, we have seen Caputo will be appointed as the new Economic Minister. He has been hinting that the capital controls will not be lifted right away and the dollarization process will be a medium term target.

Speaker 2

So having said that, how are you seeing the dual currency in the medium term? How should we think about the Argentine peso

Speaker 3

against the

Speaker 2

blue sheep? And considering the high inflation levels, when should we start to think of lower rates for Argentina? And I will also kind of relate it to this, we have been seeing that Millet will want to remove the Central Bank, reduce the Leliq's exposure. So if that happens, how are you positioning these excess liquidity? Do you want it to allocate it into loans?

Speaker 2

But again, considering this context of high levels of interest rates and inflation, how fast do you think will be the credit demand next year? Thank you.

Speaker 3

Hi, Ernesto. Good morning. This is Jorge Carinthi. Thanks for your questions. I will try to summarize my answers.

Speaker 3

On the outlook for 2024 for Argentina, I think that even though it is a bit early, but most of the economic consultants in Argentina are like dividing next year into 2. The first half, we have higher inflation compared to the second half, basically because of as the market is expecting some devaluation on the official effects and some adjustments on tariff prices and also on oil and gas prices. And that would affect short term inflation. And therefore, the first half of twenty twenty four, we should be seeing a high inflation number compared to the second half, again, according to local economies here. And in terms of the new administration, honestly, it seems to be like a year ago, they were elected.

Speaker 3

However, it's only 1 week since Millet was elected President. And for sure, things in Argentina run-in a very high speed. However, we are still 2 weeks before December 10 when he is going to be appointed in. Therefore, in the last week, we have seen or heard many names to be appointed as ministers and they were like laid down. New names appeared.

Speaker 3

So I would say that we have to be a little bit careful and patient on the names, on the ministry that we help in May to tackle the next 4 years for Argentina. I think that the biggest challenge for Millet basically is inflation, of course, how he will try to reduce the fiscal deficit, also with the reform that he is planning to send to the Congress. And again, here at the Congress, he would be the help of Junta Fodder de Cambio because the amount of deputies and senators belonging to Chile are very few. Honestly, it is not an easy task as of today to make what is going to happen in the next 30 or 90 or 120 days of delays period. So we have to be a little patient on that and to see how things evolve.

Speaker 3

According to Mile's statement, he has a clear picture on the economic, monetary and fiscal situation, and he will try to do his best on the measures. But again, we have to wait because measures will be taken from December 10th onwards and law projects are going to be sent to the Congress after December 10th. So we have to wait a little bit more to see official announcements and not only newspaper statements on Millet's proposals. And this is including everything also the dollarization that 2 months ago was an issue and now apparently is not a big issue that could take place in 2 or 3 years after the normalization of the economy. Same happened with the situation of the Central Bank that now the last statements are saying that Millet is saying that the Central Bank is not going to be closed day number 1, but he wants to improve the balance of the Central Bank first.

Speaker 3

So again, a bit of patience on the evolution of the announcements and the official low projects and measures that will take place after December 10. In terms of Banco Macro, we decided to reduce at some point the exposure to the Central Bank. So at late September, but more in the Q4, we decided to start the reduction of the release exposure to with the Central Bank. At some point, reducing some institutional deposits, also extending additional loans, short term loans to AAA companies and also increasing the amount of sovereign bonds in local currency in pesos, basically the dual bonds and dollar linked bonds. So, Ernesto, that was a kind of a summary on the bunch of questions that you

Speaker 2

asked. No, no, very interesting, very interesting, Jorge. Just a follow-up on this related to your exposure to dual bonds and dollar linked bonds. So how are you thinking for next year? Because we have seen that most of the banks have benefited because they have not been lending and they have been using this excess liquidity into these securities.

Speaker 2

So thinking that next year could be more challenging. And actually in this quarter, we saw a lot of volatility. You did very well in terms of FX gains, but we have some losses in the security. So how should we think about this? Or how should we think about the sensitivity, which are the variables that we will have to be looking in the next quarters?

Speaker 3

Yes. I mean, you're right. In the Q3, there was some declining prices basically on the dual bonds and dollar linked bonds as a consequence of some statements made by Millet at that time. However, what we are seeing in the 4th quarter is a big recovery in the prices of these bonds. And nowadays, the markets are continue showing some hedge against the potential devaluation of official effects.

Speaker 3

So the Q4 performance on these bonds is looking very good. Honestly, this is a way that we have been mentioning this many times that is a way of hedging the equity of the bank since banks cannot be long in dollars. So we found this as another way of protecting the equity of the bank. For next year, I think that conditions might change depending on how the market evolves, how inflation expectations are for the second half. If expectation for inflations decline, this could bring and of course, in hand in hand with the decline of nominal rates, this would bring additional loan demand.

Speaker 3

But again, this, if happens, is going to happen by the end of 2024. So I think that next year should be challenging. And at some point, banks would have to see where to allocate the excess liquidity. And in the case of Banco Macro, as we have been proving in last years, we always try to allocate excess liquidity in profitable assets with a risk reward equation to be positive for the bank, always looking at profitability, solvency and liquidity. So that's the idea, Ernesto.

Speaker 2

No, excellent. And just last question on how do you see the ROE for this and for next year?

Speaker 3

I mean, for this year, well, the Q4 is not closed yet. We might see something in the area of high teens or maybe close to 20% depending on the evolution of bond prices, so in that area. For next year, tougher to forecast. Let's assume that we are working with a scenario between 10% to 15% in real terms.

Speaker 2

Perfect. Thank you very much.

Speaker 3

Welcome, Ernesto.

Operator

The next question is from Brian Flores with Citibank. Please go ahead.

Speaker 1

Hi, Tim. Thank you for the opportunity to ask questions. I have two questions. The first one is on the strategic rationale of deposits. We saw, contrary maybe to some of your peers, shrinkage in deposits on a quarter on quarter basis.

Speaker 1

So just wanted to understand what is your rationale behind this? That is my first question. And then on the second question, we saw some effects on the effective tax rate. I think the notes were very clear. But just I was wondering if these effects are recurring in nature, if we should see something more for the remainder of the year?

Speaker 1

Any other insights here is very helpful. Thank you.

Speaker 3

Hi, Brian. How are you? Let's start with your second question. In terms of the taxes, I mean, if you look at the 9th month income tax rate, it is 35%. Basically, it was slightly below in the 1st two quarters.

Speaker 3

And basically, the 3rd quarter, we are catching up in order to reach the 35% income tax statutory rate that we have here in Argentina. In terms of your Q1, the behavior of deposit is related to sorry, related to what I mentioned in to Ernesto's questioning. I mean, we decided at some point to reduce some institutional deposits in the strategy of reducing the allocation of assets and exposure to the Central Bank, basically because we decided to pay lower interest rate to those depositors that they move to other banks. That is the main reason for that.

Speaker 1

Okay, perfect. And then just to confirm, I didn't hear very clearly, you're thinking about ROE for next year between 12% and 15%. Is this correct?

Speaker 3

Yes, that is correct. Again, very preliminary estimates because, of course, next year, it's going to be important year in sense of we are going to have new pressure, new economic cabinet, new measures. So as of today, we are working with that scenario that could change at the beginning of 2024 depending on the measures and of course, the outcome that the current might be looking for in terms of inflation, GDP, etcetera.

Operator

The next question is from Nicolas Riva with Bank of America. Please go ahead.

Speaker 4

Thanks very much, Nicolas and Jorge, for the chance to ask questions. So Jorge, I want to circle back on kind of the prior question, the initial question that well Ernesto made multiple questions, but one of the topics that he wanted to discuss was Lelek's exposure. So and in this case, we're talking about Banco Macro, but as CFO of 1 of the largest banks, if you can provide some insights into, at this point, what do you think is the new administration's plan for the Relics? Because it seems to me, right, you're talking based on what I see here from New York would be that the market solution that the new administration is talking about could be just exchanging the stock of Leliqs for longer term government bonds. Is that the way you see it as way?

Speaker 4

And as you said, the new administration hasn't even taken off. Is there going to do that December 10? It seems like a year since I mean, I won the election, but it has only been a week. And also, if at this point you think that the restructuring of the Leliqs could include any haircut to the principal. I would assume going forward that there's going to be very little, if any, new issuance from Leliqs.

Speaker 4

But I wanted to also get your thoughts in terms of how you think this administration is going to treat that stock of outstanding Leliqs? Thanks very much, Jorge.

Speaker 3

Nicolas, how are you? Thanks for your question. Honestly, what we've heard for the moment in terms of what the new administration might be doing are only unofficial comments. All of them are unofficial and we have heard a bunch of different measures. In terms of Banco Macro, I can tell you that, as I mentioned before, we decided to reduce this exposure to the Central Bank.

Speaker 3

So we are going to reach December with no exposure to the Leliqs. I mean, 0% of Leliqs exposure to the Central Bank started in December. So this is a process that we started almost 2 months ago. And according to what we've seen in the last auctions, there are other private banks that are following the same path that we initiated 2 months ago. So at some point, I would say that the new administration is going to have a much smaller amount of the leaks to work on.

Speaker 3

In my personal view, most of that is going to be handled public owned banks. But honestly, I don't know what they are going to offer or what they are going to do with the Elite stock that is going to be much, much smaller after December 10, considering what we have seen in the latest auctions. But honestly, Nicolas, it is not easy for me to tell you what they are going to do, honestly, because all the payments have been very unofficial. And according to the press, We still don't know if Caputo is going to be the economy meter or if he's going to go to the Central Bank. So again, a lot of the speculations there.

Speaker 3

So it would not be fair for me to comment on those kind of measures.

Speaker 4

And that's Jorge. If I can one follow-up. So you said by the end of this year, by the end of December, we plan to 0 Leliqs in our own balance sheet. Would you feel comfortable moving all of that exposure just from a central bank liability to just owning a federal government bond? Or would you prefer to reallocate those Leliqs into a mix of national government bonds, but also some loans to the private sector?

Speaker 3

Yes. I commented that, Nicolas. I mean, we started this was a process that lasted for 2 months. It was a gradual process of decreasing the amount of Leliqs. And on the other hand, reducing the amount of some institutional depositors plus extending new loans to private companies AAA in the short term plus at some point increasing exposure to sovereign bonds in pesos.

Speaker 3

So it's a combination of all that. Okay.

Speaker 4

Thanks very much, Jorge.

Speaker 3

You're welcome.

Operator

The next question is from Carlos Gomez with HSBC. Please go ahead.

Speaker 5

Thank you so much. So two questions. One is, when one looks at your equity, it has barely changed year on year. Is that bond situations and should we expect an investment in the 4th quarter or just The second question is regarding the acquisition of Iguacu Argentina. Could you give us some indication about how this is going to affect your

Operator

Mr. Gomez, this is the conference operator. Unfortunately, your line seems to be breaking up. Could you try repeating your first question? Go ahead, Mr.

Operator

Gomez.

Speaker 5

Yes. And apologies for the quality of the line. My question was regarding the changes in shareholders' equity, which have been almost 0 year on year. And I wanted to know exactly why that is if it is the valuation of the bond. 2nd, if you could give us an indication about the impact of the acquisition of Bancoitau Argentina on your capital ratio?

Speaker 5

Thank you.

Speaker 3

Hi, Carlos. How are you? In terms of the equity evolution, I mean, this is a consequence of the cash dividend that we've been paying and reducing the amount of course of the equity plus the increase on the results in real terms. And that basically in the first 9 months of the year are kind of compensating for the cash dividend payment basically. So this is why the equity is not changing that much compared to last year.

Speaker 3

In terms of Itau, we are I mean, it's not going to have a major impact in our capital base. The excess capital is going to continue to be similar than the one that we published in the 3rd quarter. Basically, remember that for the payment, we issued a local debt, 1 year duration for the payment of Itau. So basically, the capital rate is not going to be operating at all.

Speaker 5

Thank you so much.

Speaker 3

Welcome Carlos.

Operator

The next question is a follow-up from Nicolas Riva with Bank of America. Please go ahead.

Speaker 4

Thanks very much, Jorge for taking my follow-up question. One question about your dollar position outside of the country. One of the things that the CEO of Itau mentioned in your earnings call was that an advantage for the acquiring bank and for them to sell really was that the acquiring bank Banco Macro could pay with dollars outside of the country. From what I remember, when you issued the 20.26 bond for $400,000,000 in 2016, most of those $400,000,000 were offshore. If you can remind us what's your dollar position outside of the country?

Speaker 4

I know that you just mentioned that you did issue a local bond to pay for the $50,000,000 But if you can remind us your dollar position also for the country, that would be very helpful. Thanks.

Speaker 3

Give me one second because please I have to check at the end of September for

Speaker 2

Sabral, please.

Speaker 3

Sorry, Nicolas, for the delay. Dollars 350,000,000 as of September 2023 are catching corresponding banks abroad.

Speaker 4

Okay. So that's essentially the BRL400 1,000,000 you had issued back in 2016 minus the $50,000,000 for to acquire Itau essentially?

Speaker 3

Yes, approximately.

Operator

There are no more questions at this time. This concludes the question and answer session. I will now turn over to Mr. Nicolas Torres for final considerations.

Speaker 3

Thank you

Speaker 1

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

Operator

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

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Banco Macro Q3 2023
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