Banco Macro Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 18, 2023

There are 9 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 1Q 'twenty three Earnings Conference Call. We would like to inform you that 1Q 'twenty three press release is available to download at the Investor Relations website of Banco Macro at 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 Marriquez, Chief Executive Officer and Mr. Jorge Carinthi, Chief Financial Officer and Mr.

Operator

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

Speaker 1

Thank you, Anthony. Good morning, and welcome to Banco Macro's Q1 2023 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 is available at our website. Q1 2023 press release was distributed yesterday and is available at our website. All figures are in Argentine pesos and have been restated in terms of the measurement unit current at the end of the reporting period.

Speaker 1

As of the first quarter of 2020, the bank began reporting results applying hyperinflation accounting in accordance with IFRS IAS 29 as established by the Central Bank of Argentina. For ease of comparison, figures of previous quarters have been restated applying IAS 29 to reflect the estimated effect of the inflation adjustment for each period through March 31, 2023. I will now briefly comment on the bank's Q1 2023 financial results. Banco Macro's net income for the quarter was ARS 9,800,000,000, 52% lower than the Q4 of 2022 and 20% lower than the result posted a year ago. The bank's Q1 2023 ROE and ROA of 8.2% and 1.7%, respectively, remained healthy and show the bank's earnings potential.

Speaker 1

Net operating income before general, administrative and personnel expenses for the Q1 of 2023 was ARS 167,800,000,000, increasing 5% or ARS8 billion quarter on quarter due to higher income from financial instruments at fair value to profit or loss and higher net fee income. On a yearly basis, net operating income before general and administrative and personnel expenses increased 28% or ARS 36,800,000,000. In the Q1 of 2023, provision for loan losses totaled ARS 3,500,000,000, 13% or ARS397,000,000 higher than in the previous quarter. On a yearly basis, provision for loan losses increased 129 percent to ARS1.9 billion. Operating income after general administrative and personnel expenses were ARS103.9 billion, 9 percent or ARS8.8 billion higher than in the Q4 of 2022 and 39 percent or ARS 29,300,000,000 higher than in the Q1 of 2022.

Speaker 1

In the quarter, net income totaled ARS97,700,000,000, 4 percent or ARS 4,100,000,000 lower than the result posted in the Q4 of 2022 and 14% or ARS 12,000,000,000 higher than the result posted 1 year ago. In the Q1 of 2023, interest income totaled ARS 228,600,000,000, 5% or ARS13 1,000,000,000 lower than in the Q4 of 2022. Due to lower income from government securities and a and it was 63 percent or ARS88,000,000,000 higher than the previous year. Within interest income, interest and loans increased 2% or ARS1.6 billion quarter on quarter due to a 3 0 4 basis point increase in the average lending rate. On a yearly basis, income from interest on loans was 25 percent or $17,300,000,000 higher.

Speaker 1

In the Q1 of 2020 3, interest on loans represented 38 percent of total interest income. Net income from government and private securities decreased 9% or ARS 13,100,000,000 quarter on quarter due to lower income from government securities. Compared to the Q1 of 2022, net income from government and private securities increased 91% ARS64.6 billion. In the Q1 of 2023, FX gains, including investment in diluted financing, totaled ARS36.7 billion gain due to the 18 percent Argentine peso depreciation against the U. S.

Speaker 1

Dollars and the bank's long dollar position. In the Q1 of 2023, interest expense totaled ARS130,900,000,000, a 6% or ARS9 billion decrease compared to the Q4 of 2022 and ARS 138,000,000 or ARS75,900,000,000 higher than on a yearly basis. Within interest expenses, interest on deposits decreased 7% or ARS10.1 billion quarter on quarter, mainly driven by a 14% decrease in the average volume of private sector deposits, while the average interest rate paid on deposits increased 5 37 basis points. On a yearly basis, interest on deposits increased 143 percent or MXN 75,100,000,000. In the Q1 of 2023, interest on deposits represented 98% of the bank's financial expenses.

Speaker 1

In the Q1 of 2023, the bank net interest margin, including FX, was 33.6 percent higher than the 32.7% posted in the Q4 of 2022 and a 22.8% registered in the Q1 of 2022. In the Q1 of 2023, net fee income totaled ARS22,000,000,000, 6 percent or ARS1.3 billion higher than in the Q4 of 'twenty two. On a yearly basis, net fee income was 6% higher. In the Q1 of 2023, net income from financial assets and liabilities, fair value to property or loss totaled ARS9,200,000,000 gain mainly due to the mark to market of dual bonds. In the quarter, other operating income totaled ARS 5,700,000,000, decreasing 18% compared to the Q4 of 2022.

Speaker 1

On a yearly basis, other operating income decreased 16% or ARS 1,100,000,000. In the Q1 of 2023, Banco Macro's personnel administrative expenses totaled ARS35,100,000,000, 1% or ARS424 1,000,000 lower than the previous quarter, due to lower administrative expenses, which were partially offset by higher employee benefits. On a yearly basis, personnel and administrative expenses increased 12% or ARS 3 point 8,000,000,000. In the Q1 of 2023, the efficiency ratio reached 25.5%, improving from the 28 point 6% posted in the Q4 of 2022. In the Q1 of 2023, expenses decreased 1%, while net interest income plus other operating income increased 6%.

Speaker 1

In the Q1 of 2023, the result from the net monetary position totaled ARS88.4 billion loss, which was 27% or ARS19 1,000,000,000 higher than the loss posted in the Q4 of 'twenty 2 as a consequence of higher inflation observed in the quarter, which was 444 basis points above the level registered in the Q4 of 'twenty two. Envision was 21.7% and was up from 17.3% from the previous quarter.

Operator

In the

Speaker 1

Q1 of 2023, Bank of America's effective tax rate was 36.3%. Further information is provided in note 22 to our financial statements. In terms of loan growth, the bank's financing to the private sector totaled ARS694,500,000,000, decreasing 4% or ARS30 ARS30.4 billion quarter on quarter and decreasing 8% or ARS63.5 billion year on year. Within commercial loans, overdrafts stand out with a 10% or ARS 6,200,000,000 decrease quarter on quarter. On the consumer side, credit card loans decreased 7% or ARS 16,100,000,000 in the quarter, while personal loans and mortgages decreased 7%.

Speaker 1

It is important to mention that Banco Macro's market share over private sector loans as of March 2023 reached 7.3%. On the funding side, total deposits decreased 7% or ARS 112,600,000,000 quarter on quarter and increased 6% or ARS 8,000,000,000 year on year. Private sector deposits decreased 6% or ARS 89,700,000,000 quarter on quarter, while private sector deposits decreased 17% quarter on quarter. The decrease in private sector deposits was led by demand deposits, which decreased 13% or ARS 83,400,000,000 quarter on quarter, while hand deposits increased 4% or ARS 27,000,000,000. Within private sector deposits, peso deposits decreased 8% or ARS109.1 billion, while U.

Speaker 1

S. Dollar deposits decreased 17% or 196 $1,000,000 As of March 2023, Bank of America's transactional accounts represented approximately 42% of total deposits. Bank of America's market share over private sector deposits as of March 2023 totaled 6.1%. In terms of asset quality, Banco Macro's nonperforming to total financial ratio reached 1.41%. The coverage ratio measured as total allowance under expected credit losses over nonperforming loans under Central Bank rules totaled 145.3%.

Speaker 1

Consumed portfolio nonperforming loans deteriorated 24 basis points, up to 1.34 percent from 1.1 percent in the previous quarter, while commercial portfolio nonperforming loans improved 22 basis points in the Q1 of 2023. They were down to 173% from 195% in the previous quarter. In terms of capitalization, Banco Macro accounted in excess capital of ARS 520,000,000,000, which represented a total rubric capital ratio of 42.4% and a Tier 1 ratio of 39.1%. The bank's aim is to make the best use of this excess capital. The bank's liquidity remained more than appropriate.

Speaker 1

Liquid assets to total deposit ratio reached 97%. Overall, we have accounted for another positive quarter. We continue to show a solid financial position. Asset quality remains under control and closely monitored. We keep on working to improve more our efficiency standards and we keep a well atomized deposit base.

Speaker 1

At this time, we would like to take the questions you may have.

Operator

Our first question will come from Brian Flores with Citibank. You may now go ahead.

Speaker 2

Hi, Tim. Thank you for the opportunity to ask questions. I just have two questions. The first one is on ROE. So I know you're running at high levels of capital and this could be a headwind, but are you changing the soft guidance you provided on the around 10% ROE from the previous conference call?

Speaker 2

And my second point is on politics. Given the momentum in Middle East candidacy, I just wanted to know if you know of any specific measures proposed by him or his team that could affect the banking regulation? Thank you very much.

Speaker 3

Good morning, Brian. This is Jorge Grinchi. How are you? On your first question of our ROE guidance that we gave in the former quarter conference call, basically, what I'm thinking is what we mentioned was a kind of a range of guidance. Basically, what we are seeing right now in Argentina is high inflation than the one that we or at least the consensus was expecting.

Speaker 3

So the range for ROE for this year should be slightly lower than 10%, should be 9% or 8.5% area. So because the consensus is expecting inflation to be 130% compared to the 94% that we had in 2022. So basically, this is not an operating level because at an operating level, we are showing good growth rates year over year and quarter over quarter. But in terms of bottom line, we are affected by high inflation. Your second question, honestly, we do not make a lot of comments on politics, but honestly, we do not know as far as for the moment any potential measure on Miele's candidacy.

Speaker 3

So honestly, no clue in this positive question that you asked.

Operator

Our next question will come from Ernesto Gabilonell with Bank of America. You may now go ahead.

Speaker 4

Thank you. Hi, good morning, Gustavo, Jorge and Nicolas. Thanks for the opportunity to ask questions. I have 3 from my side. The first one will be on your expectations for loan growth, considering that well as you mentioned we have been seeing higher inflation and higher interest rates in Argentina.

Speaker 4

So, if you can elaborate on your expectations per segment for this year will be helpful. Then my second question is on your sensitivity to the Argentine peso and inflation. I think you have a dual bond position that benefits from the peso depreciation and the high inflation. So, I would like to understand the sensitivity. So, for example, an increase of 100 basis points on inflation or 100 basis points on the depreciation of the Argentine peso.

Speaker 4

What would that mean in terms of Argentine pesos in your P and L? I know it's a difficult one to estimate, but something approximately will help us. And then my last question is on your Tier 1 ratio. So we have seen that the regulator has allowed the banks to start paying excess capital and allow you to pay dividends. So, after paying the dividends, where do you see your Tier 1 ratio and where do you see will be like your targets or your comfortable level for the Tier 1 ratio during the next years?

Speaker 4

Thank you.

Speaker 3

Ernesto, how are you? First question in terms of loan growth. Again, what we are seeing is that loans are going to grow in nominal levels, but are going to decrease in real terms as what we are seeing at the moment. Basically, this is a special year in terms of elections plus high inflation and, of course, high nominal rates. So we are not expecting a pressure on loan demand.

Speaker 3

So we are expecting loans to be below inflation between 5% 10% in 2023, mostly in the commercial area, maybe not that much in the consumption portfolio. But the total loan book should be down between 5% 10% compared to inflation in 2023. In terms of your second question about 1% increase in inflation or the devaluation of the official effects could impact in our loan book. As you mentioned, it's not that easy to measure, but I would assume approximately in pesos should be after income tax in the area of ARS 2,300,000,000, 2,400,000,000, a 1% increase in inflation, a 1% increase on the devaluation of the official effects. So take this number as a rough number, okay?

Speaker 3

In terms of your 4th question, the Tier 1 ratio that, of course, we know and we are conscious that is a high number, that this is a consequence of what has happened in previous years about raising capital and 2 years of that we cannot banks in general could not pay cash dividends. So as you mentioned, we are allowed to pay dividends this year again in 6 installments. Assuming that the dividend payment would be 1 installment, the Tier 1 ratio would be down from level of 39.1% that we posted in this press release to approximately 32%. However, since the dividend is going to pay installments, the Tier 1 ratio might not decline that much because we are going to have the monthly results that could at some point offset the decline on the Tier 1 because of the payment of the dividends. But of course, going forward, we would like to work, of course, with a narrower Tier 1 ratio.

Speaker 3

We are going to continue paying cash dividends. And again, as always, we mentioned the consolidation of concentration process in the banking sector in Argentina, we think that is continuous. So it might happen that in the future, could be a possibility for an M and A. So we could use this excess capital for those purposes also plus that you have to as we also always comment that we are a private local bank, so we have to be a bit more conservative and always work with a cushion in terms of capital for organic growth. So let's assume that in a normalized scenario with a normalized inflation level, we should be working with a Tier 1 ratio ranging in the area of 18%, 20%.

Speaker 3

But that is a long term normalized scenario. Just to give you an idea where the ideal Tier 1 ratio for Banco Macro would be.

Operator

Our next question will come from Yuri Fernandes with JPMorgan. You may now go ahead.

Speaker 5

Hello, everybody. Thank you, Jorge and Nicolas. I have a question regarding deposits. Deposits are down 7% quarter over quarter. But when we look to the cheap demand deposits and savings and all of that, they are down even more.

Speaker 5

And I kind of get that there may be some seasonality, 1st Q versus 4th Q. But looking year over year, they are still down. So my question is, what is happening with deposits? What is your outlook there? And I have a second question regarding capital.

Speaker 5

Like for sure you were not paying dividends, all those expansions already gave in the previous question. But also the mix of loans to assets also change a lot over the years, right? So you have much more government security than loans. And I think the risk weighting factors of this mix is superb beneficial for your capital ratios. My question is, have you ever done like an exercise like returning to a more normalized loan to asset mix and what would be your capital ratio today?

Speaker 5

Because the concern is at some point, let's say Argentina becomes a more normalized banking sector and you start having more loans, how is your capital would look like? Do you really have these amount of excess capital or is this mostly because you have like a very like government related securities mix? Thank you.

Speaker 3

Hi, Ulrich, how are you? In terms of your deposit question, I mean, you have to consider the inflationary environment here. So at some point, it sounds quite reasonable that people holding money in transactional accounts try to minimize those balances because inflation being at, I don't know, between 7.5% 8% a month is a lot. So at some point, that could be some reasonable behavior from depositors on the transactional accounts. When you see the time deposits, they are growing quarter on quarter or year over year in real terms, and that is because of the increase on the interest rate that we have seen that the Central Bank have done in the last 60 or 90 days.

Speaker 3

So we think that the deposit behavior is quite reasonable. And of course, we continue to be pretty liquid in that sense. So in terms of funding, we feel pretty comfortable on the structure that we have right now on our deposit base. On your second question, we have not done the calculation exactly on what would happen if instead of having securities or government bonds that will be translated into new loans. As far as we know, of course, the level of loans to assets right now is one of the lowest in the history As a consequence of what we have mentioned previously, basically, the economy is not doing that well.

Speaker 3

Inflation is very high. Elections are going to take place in the next 4, 5 months. But when you look backwards, I think that we reach loans to asset levels of close to 65%. I would say that in those areas, we will remain with a very high Tier 1 ratio. So in that sense, we do not have, of course, a problem of excess capital.

Speaker 3

We continue to be the best capitalized bank in Argentina, And we feel, again, comfortable with the level of capital that we have going forward, not yet in the present because of big sales that we understand it is high. But going forward, we think that we are going to be or become much more efficient on this excess capital.

Speaker 5

No, that's pretty clear, Jorge. Just a follow-up on deposits. The minimum deposit payment, right, it's only for time deposits, right? So most of your spread on deposits, they are coming from checking, savings account. Is that correct?

Speaker 5

Or those deposits also have some kind of minimum government remuneration?

Speaker 3

The minimum rate is for time deposits only.

Speaker 5

Perfect. Thank you.

Speaker 3

You're welcome.

Operator

Our next question will come from Carlos Gomez with HSBC. You may now go ahead.

Speaker 6

Hello, good morning, Jorge Nicolas. Questions, I'm looking at the Page 16 of your press release and I noticed that you have sharply reduced your exposure to share and increased your U. S. Dollar net exposure. And is that correct?

Speaker 6

Are you currently $1,500,000,000 long? And if the time comes, how certain are you that this net position is something that you could have access to? And what is the reason for the reduction in debt exposure? Was this a swap of assets? Or there is a different view that you have about how things are going to go?

Speaker 6

Thank you.

Speaker 3

Carlos, how are you? Basically, the change here is because we have a large portfolio on the dual bonds and a little bit on dollar linked bonds. And in this case, all the loan position on these bonds is take into the foreign currency position and not on the inflation position because we have to choose whether to put it, and that's why we have increased or why we have such a long position in U. S. Dollars and decrease on the inflation exposure basically.

Speaker 6

Okay. So you have to choose. But then if I add your said exposure and your ForEx exposure, it would have been reduced in the Q1, right? Because you had 200, it went down to 73 for sale and you had 1.6 and it went to 1.5. Have you closed the gaps in your balance sheet going into 2023?

Speaker 3

Basically, no, if you put all the effects you mean, if you put all the net effects on the CER, could be a little bit, but because we changed from some SIR or inflation bonds to dual bonds. But basically, we continue to be since we have to choose 1 of each. But in reality, we have exposure to both, either inflation or devaluation of the FX, the higher. So again, maybe a little bit in terms of inflation. So this could be also because there were some loans tied to inflation that were matured, and we have an increase in the in our loan book adjusted by inflation in the same amount that they want that they were doing basically.

Speaker 6

Okay. And one final clarification. So again, when I look at this table and I see a position of €1,500,000,000 that's about half of your equity with the official exchange rate. Should we see that as real? Are you indeed hedged to, let's say, to half of your capital if and when there is a devaluation in Argentina?

Speaker 3

Yes.

Operator

Our next question will come from Robert Gilman with Brie Technology. You may now go ahead.

Speaker 7

Hello. In regards to your dividends, how many dividends payments are you planning to make in the next

Speaker 3

year? Good morning. We are going to make a payment this year. We are going to pay 6 installments starting at the end of May 1.

Speaker 7

Thank you. You're welcome.

Operator

Our next question will come from Rodrigo Nestor with Latin Situations. You may now go ahead.

Speaker 8

Hi, how are you? Jorge and Iguilar, thank you for the opportunity. Year, are you at Banco Madal already brainstorming for 2025, 2026? Or does the upcoming election makes too hard to plan that far ahead? And then maybe, Jorge, what are the big things on your worry list right now?

Speaker 8

Thank you.

Speaker 3

Hi, Rodrigo. Of course, we do not right now, we are not thinking exactly on 'twenty five or 'twenty six. But in Argentina, it's not that easy to forecast 2 or 3 years ahead. Of course, we know where we want to be. And our strategy we continue with other strategy in the long run that is to be the leading bank in Argentina.

Speaker 3

Maybe in the interim, we'll have to adjust the strategy as the one that we are doing right now. I think that most of the banks are doing that. When you have a declining loan demand and you have deposits growing, you have excess funds that you at some point, you have to invest them in some place where to get some return plus at some point you have to hedge your equity against inflation or against a potential devaluation of the effects. But I think that in the long run, we have a clear picture where we want to be in the leading positions of the banking sector in Argentina. I would say that the thing that worries us most are basically an acceleration of inflation that this is going to affect more the loan demand and, of course, the P and L on banks.

Speaker 3

I would say that inflation would be the worst problem for the banking sector, and I think that for Argentina in general.

Operator

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

Speaker 1

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

Operator

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

Powered by Quartr

Key Takeaways

  • Banco Macro reported Q1 net income of ARS 9.8 billion, down 52% quarter-on-quarter and 20% year-on-year, reflecting lower earnings from financial instruments and government securities.
  • The bank’s efficiency ratio improved to 25.5% in Q1 from 28.6% in Q4 2022, driven by a 1% reduction in expenses and a 6% rise in net interest income plus other operating income.
  • Management lowered its ROE guidance for 2023 to the 8.5%–9% range (from around 10%), citing higher-than-expected inflation of roughly 130% versus 94% in 2022 as a headwind to bottom-line results.
  • With a Tier 1 capital ratio of 39.1% (42.4% total capital), Banco Macro holds ARS 520 billion in excess capital and will pay dividends in six installments, aiming for a long-term Tier 1 target of 18%–20%.
  • Total deposits fell 7% quarter-on-quarter (driven by demand deposits) but Banco Macro maintained ample liquidity, with liquid assets covering 97% of total deposits.
AI Generated. May Contain Errors.
Earnings Conference Call
Banco Macro Q1 2023
00:00 / 00:00