Banco Macro Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 25, 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 2nd Quarter 2023 Earnings Conference Call. We would like to inform you that the Q2 'twenty three press release is available to download at the Investor Relations website of Banco Macro at www.macro.com dot arrelationinvestors. 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 Manriquez, Chief Executive Officer Mr. George Scarinci, Chief Financial Officer and Mr.

Operator

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

Speaker 1

Thank you, Andrea. Good morning, and welcome to Banco Macro's Q2 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. Q2 2023 press release was distributed on Wednesday and is 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.

Speaker 1

As of the year 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, previous quarters have been restated applying IAS 29 to reflect the accumulated effect of the inflation adjustment for each period through June 30, 2023. Will now briefly comment on the bank's Q2 2023 financial results. Banco Macro's net income for the quarter was ARS 44,200,000,000, 2 65% higher than the Q1 of 2023 and 3.94% higher than the result posted a year ago. The bank's accumulated ROE and ROA of 15.5% and 3.9%, respectively, remained healthy and show the bank's earnings potential.

Speaker 1

Net operating income before general, administrative and personnel expenses for the Q2 of 2023 was ARS 2 100 and 4,100,000,000, increasing 27 percent or ARS56,400,000,000 quarter on quarter due to higher income from financial instruments at fair value to profit or loss and higher FX gains. On a yearly basis, net operating income before general, administrative and personnel expenses increased 50% or ARS 88 500,000,000. In the Q2 of 2023, provision for loan losses totaled ARS5.5 billion, 28 percent or ARS1.2 billion higher than in the previous quarter. On a yearly basis, provision for loan losses increased 2 32 percent or ARS 3,900,000,000 Operating income after general and administrative and personnel expenses was ARS 173,100,000,000, 35 percent or ARS 44,400,000,000 higher than the Q1 of 2023 and 81 percent or ARS 77,200,000,000 higher than in the Q2 of 2022. In the quarter, net interest income totaled ARS107,900,000,000, 11 percent or ARS 12,900,000,000 lower than the result posted in the Q1 of 2023 and 7% or ARS7.9 billion lower than the result posted a year ago.

Speaker 1

In the Q2 of 2023, interest income totaled ARS307.1 billion, 9 percent or ARS24.1 billion higher than the Q1 of 2023 and 48% or ARS100 1,000,000,000 higher than the previous year. Within interest income, interest and loans increased 12% or ARS 13,100,000,000 quarter on quarter due to a 7 60 basis points increase in the average lending rate, while the average volume of private sector loans decreased 3%. On a yearly basis, income from interest on loans was 34% or R30 1,000,000,000. In the Q2 of 20.3, interest on loans represent 34% of total interest income. Net income from government and private securities decreased 1 percent or ARS 1,900,000,000 quarter on quarter due to lower income from government securities.

Speaker 1

Compared to the Q2 of 2022, net income from government and private securities increased 43% to ARS 49,700,000. In the Q2 of 2023, FX gains, including investments in derivative financing, totaled ARS 83,300,000 gain due to the 23 percent Argentine peso depreciation against the U. S. Dollar and the bank's long dollar position. In the Q2 of 2023, interest expense totaled ARS199.2 billion, a 23% or ARS 37,100,000,000 increase compared to the Q1 of 2023 and ARS119,000,000,000 or ARS 108,000,000,000 higher on a yearly basis.

Speaker 1

Within interest expenses, interest on deposits increased 23 percent or ARS 36,000,000,000 quarter on quarter, mainly driven by a 3% increase in the average volume private sector deposits, while the average interest rates paid on deposits increased 9 40 basis points. On a yearly basis, interest on deposits increased 120% or MXN106 1,000,000,000. In the Q2 of 2023, interest on deposits represented 97% of the bank's financial expenses. In the Q2 of 2023, the bank's net interest margin, including FX, was 38.3%, higher than the 33 6% posted in the Q1 of 2023 and higher than the 24.7% posted in the Q2 of 2022. In the Q2 of 2023, net fee income totaled ARS26.3 billion, 3 percent or ARS932 million lower than the Q1 of 2023.

Speaker 1

On a yearly basis, net fee income was 2% higher. In the Q2 of 2023, net income from financial assets and liabilities at fair value of the profit or loss totaled ARS51.9 billion, mainly due to the mark to market of Duo bonds. On a yearly basis, net income from financial assets and liabilities to fair value to popular loss increased 2 26 percent or ARS 36,000,000. In the quarter, other operating income totaled ARS 7,700,000,000, increasing 8% compared to the Q1 of 2023. On a yearly basis, other operating income decreased 7% or ARS578 1,000,000.

Speaker 1

In the Q2 of 2023, Banco Macro's personal and administrative expenses totaled ARS 47,900,000,000, 10% or ARS 4,400,000,000 higher than the previous quarter, due to higher administrative expenses and higher employee benefits. On a yearly basis, personnel and administrative expenses increased 1% to ARS507,000,000. In the Q2 of 2023, the efficiency ratio reached 21.7%, improving from the 25.5% posted in the Q1 of 2023. In the Q2 of 2023, expenses increased 9%, while net interest income plus net fee income plus prior year operating income increased 28%. In the Q2 of 2023, the result from the net monetary position totaled MXN109.4 billion, slightly higher than the loss posted in the Q1 of 2023 as a consequence of higher inflation observed in the quarter, which was 200 basis points higher than in the Q1 of 2023.

Speaker 1

Inflation in the quarter was 23.78% compared to 21.73% in the Q1 of 2023. In the Q2 of 2023, Banco Macro's effective tax rate was 30.4 percent and further information is provided in Note 22 to our financial statements.

Speaker 2

In terms of loan growth,

Speaker 1

the bank's financing to the private sector totaled ARS 872,500,000,000, increasing 1% or ARS 13,000,000,000 quarter on quarter and increasing 9% or ARS 88,000,000,000 year on year. Within commercial loans, overdraft documents and others stand out with a 32% of ARS21.5 billion increase and an 11% of ARS13.7 billion and 6% of ARS 7,000,000,000 increase, respectively. It is important to mention that Banco Macro's market share over private sector loans as of June 2023 reached 7.8%. On the funding side, total deposits increased 5% or ARS90.2 billion quarter on quarter, totaling ARS 1.9 trillion and increased 3% or ARS 52,800,000,000 year on year. Private sector deposits increased 6% or ARS94.7 billion quarter on quarter, while private sector deposits decreased 4% quarter on quarter.

Speaker 1

The increase in private sector deposits was led by demand deposits, which increased 9% or ARS 64,600,000,000 quarter on quarter, while time deposits increased 2% or ARS 20,500,000,000. Within private sector deposits, peso deposits increased 7%, while U. S. Dollar deposits decreased 24% or 288,000,000 dollars As of June 2023, Banco Macro's transactional accounts represented approximately 39% of total deposits and Banco Macro's share over private sector deposits as of June 2023 totaled 6.5%. In terms of asset quality, Banco Macro's nonperforming to total financial ratio reached 1.37%.

Speaker 1

The coverage ratio, measured as total allowance under expected credit losses over nonperforming loans under Central Bank loans, remained stable at 1 146.05%. Consumer portfolio nonperforming loans deteriorated 9 basis points and were up to 1 point 43% from 1.34% in the previous quarter, while commercial portfolio nonperforming loans improved 55 basis points in the Q2 of 2023. In terms of capitalization, Banco Macro accounted an excess capital of ARS 570.7 billion, which represented a total reported capital ratio of 35.9 percent and a Tier one ratio of 33%. The bank's aim is to make the best use of the excess capital. The bank's liquidity remained more than appropriate.

Speaker 1

Liquid assets total deposit ratio reached 95%. Overall, we have accounted for another positive quarter. We continue 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 our well atomized deposit base. Lastly, before taking your calls, we wanted to announce that Banco Macro entered a purchase agreement to acquire 400% of the shares and both Banco Itau Argentina and its subsidiaries, basically Itau Asset Management and Itau Valores.

Speaker 1

This agreement is subject to the completion of certain conditions, substantially the approval of the transaction by the Central Bank of Argentina. The price of the agreement was set at $50,000,000 which will be paid on the closing date of the transaction and an additional amount resulted from the potential adjustment that would be eventually set based on the results obtained by Banco Itau Argentina and its subsidiaries between April 1, 2023 and the closing date. At this time, we would like to take the questions you may have.

Operator

And our first question comes from Brian Flores of Citibank. Please go ahead.

Speaker 1

Hi, Tim. Good morning and congratulations on the reports. Just two quick questions on my side. The first one is on Itau Argentina. And I just wanted to ask you, do you actually consume capital in this operation because the leasing of the purchase was well below book value.

Speaker 1

So just wondering if this is actually accretive to your capital ratio. And the second one is on the banks Central Bank's addition yesterday to change the remuneration of deposits in the digital wallets. So just really want me to understand, if you consider this a threat to your deposit base at some point, Any color on the size of these deposits would be greatly appreciated. Thank you very much.

Speaker 2

Hi, Brian. How are you? Yes. So far, there's not a lot of additional information we can add on the announcement that we did on the agreement that we reached with Itau to buy its operations in Argentina. Available data is public according to the Central Bank website.

Speaker 2

There you will find all the data on Itau. The book value, the latest numbers that we got, I think, is as of June in terms of Argentine pesos is ARS 83,300,000,000. We the agreement said that we're going to pay $50,000,000 So we are paying approximately rough numbers, 20% of book value on Itau's operations. In terms of your second questions on those deposits coming from virtual wallets, basically we do not have those deposits here. We assume that, of course, that is going to affect those virtual wallets in terms of profitability because those interest has to be accrue on their clients.

Speaker 2

But we do not have those kinds of deposits at the bank.

Speaker 1

Thank you very much. Welcome.

Operator

The next question comes from Ernesto Gabriondo of Bank of America. Please go ahead.

Speaker 3

Thank you. Hi, good morning, Gustavo, Jorge, Nicolas. Congrats on your results and thanks for the opportunity to ask questions. My first question would be on loan growth and asset quality. We noticed that you were the bank that posted the lower contraction in loans against all the listed banks.

Speaker 3

But at the same time, we also saw a big jump in the provision charges. So what should we expect in terms of your loan growth appetite for the second half of the year? And how should we think about the asset quality? My second question is on your investment strategy. We have seen your dual bonds position related to FX and inflation have been paying off.

Speaker 3

So how much do you hold today on those bonds? And how would you like to be positioned before the elections and after the elections? And my last question will be, given these high financial and FX gains that you experienced in this first half, how should we think about the ROE for this next year? Thank you.

Speaker 2

Good morning, Ernesto. In terms of your first question about loan growth, asset quality, I think that it's not that useful to only look at 1 quarter. I think that in the 2 quarters of this year and I think that in the coming 2 quarters, I believe, we are going to have loan performance in real terms showing negative numbers. Imagine that with the level of inflation that we are having in Argentina and the election process that is coming in the next couple of months, loan demand is pretty, pretty sluggish. So I would not concentrate in what you see in only one quarter.

Speaker 2

I could try to see more a medium term view. And I think that overall, all Argentine banks are going to finish approximately with a negative real performance on lending. In terms of provisioning, what we are forecasting in this is that the economy is going to hold a little bit and it is expected to have a negative performance in real GDP this year. So a kind of a more conservative view on what could be coming in coming futures, that's why we increased provisioning this quarter. In terms of your second question about how we are positioned in terms of securities, Yes, we are positioning dual bonds and dollar linked bonds.

Speaker 2

That is almost 95% of our security bonds. The remaining 5% is bonds tied to inflation. This is how we want to get before the election. Depending the outcome on the election, we are going to make some changes or not. But we think that we are in a very well or very good position in terms of securities according to what we are seeing on the effects on inflation coming.

Speaker 2

And your third question about ROE, we think that's due to the good performance or better than expected performance on securities. I would assume that the real ROE for 2023 could be slightly below 20 or around 20. So that is what we are forecasting for 2023 real ROE.

Speaker 3

And the ROE for next year, should we think about something around that or lower than that?

Speaker 2

I think it's a bit earlier, Ernesto, to answer that question because, I mean, the economic outcome for Argentina is not the same depending on who is the next President. So I prefer to wait a little bit for giving some guidance for 2024.

Speaker 3

Okay. No, no, understood. Thank you very much. And just a last question on this acquisition on Itau, Argentina operation. Yes, it seems was very attractive, the multiples for the transaction.

Speaker 3

But just wondering your common equity Tier 1 ratio after paying the $15,000,000 and the dividend that you're expecting to pay for the rest of the year. How should we think about the common equity Tier one ratio? And even after those payments, you will continue to hold a very high capital ratio. So can you share with us how much excess capital do you have? And if you will continue to explore potential M and A opportunities?

Speaker 2

I mean, yes, it's clear that after the dividends that we are paying or we will be finishing to pay in a couple of months this year and the acquisition will continue to have capital or Tier 1 ratios that would be around 30%, still high. Honestly, as always, we mentioned that we are examining or alert on any potential player leading the game for sure. And again, we are also prepared for organic growth. If that is the case for 2024, 2025, depending on the outcome of the economy or maybe to increase some future dividends if it is possible. So all the alternatives are on the table.

Speaker 2

As we already mentioned, what the bank has been doing in the last years and we will continue doing in the future is to make the best use of this excess capital.

Speaker 3

Excellent. Thank you very much, Jorge.

Speaker 2

You're welcome, Valento.

Operator

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

Speaker 4

I have two questions. The first one, maybe if you can give a bit more color in terms of your FX position because one of the things that the Argentine banks have said for a while is that there is a cap in terms of the long position you can have in dollars. But I think this refers only to the cash position. If I look at all of your assets and liabilities in dollars, you had $2,600,000,000 net long position as of the end of June. That's actually 91% of your equity and you have been showing large FX translation gains in income statement because of that.

Speaker 4

So again, if you can actually clarify that there is no actual cap in terms of the total net loan position if I include all assets and liabilities in dollars. And also if you can tell us, let's say, next week or whenever there is a large basically, there is they removed the FX controls and the evaluation. How would that impact actually your results and your capital ratios? And then the second question on Itau. So my understanding is the price has been set in dollars at $50,000,000 So I wanted to ask actually what's your if you have actually $50,000,000 on hand to pay for this or if you need to get access to dollars from the Central Bank to pay for this?

Speaker 4

Thanks.

Speaker 2

Hi, Nicolas. How are you? In terms of your first question, banks are not allowed to be long in dollars in the spot position. The only way that you can be long in dollars up to 25% of the equity is through either futures or dollar linked bonds, which are subscribing pesos. So what you are seeing that we are long in dollars is because we are having some positions in dollar link and also depending on the structure or the report that you are seeing, sometimes the dual bonds are also use a kind of to be long in dollars.

Speaker 2

But in terms of assets and liabilities, in U. S. Dollars purely, you have to be completely hedged. So you can use some bonds that are in pesos, that are dollar linked or dual just to be long in dollars up to 25% of the equity. And that's what we are that's the picture that we are showing that you are looking at, that's why we are loaning dollars through those bonds basically.

Speaker 2

No other asset in U. S. Dollars. Again, peso denominated bonds that are tied to the evolution of the dollar dual. So that's to be clear about that.

Speaker 2

On your question about Itau and the $50,000,000 yes, we have $50,000,000 and we are going to use these dollars to pay for Itau. We do not need of course, the transaction has to be approved by the Central Bank.

Speaker 4

Jorge, thanks very much for that. Maybe just one follow-up on the first point. So again, if I just look at the balance sheet, your FX position in dollars net long is 2.6 dollars Can you clarify if there's a 100% devaluation, you are not going to show a $2,600,000,000 gain?

Speaker 2

Of course, no. What we are going to I mean, the impact on the balance sheet is going to be neutral in the sense that you have the same assets in dollars and liabilities in dollars. So in the accountancy or accountable, we are going to have a 0% impact on the P and L. On the net FX position of 2.5%, what we are going to have is basically the impact on the bonds that are tied to the evolution of the FX, which are the dollar linked and the dual bonds, if this 100% devaluation is higher than inflation, the impact that you are going to see is in those basically assets. And of course, it's not going to be $2,600,000,000 impact.

Speaker 2

Of course, it's going to be a bit less than that. But again, since we could be trading the dollar link and the dual bonds, This is a picture as of June. So now we are reaching September, so there may be some changes there. But the impact on devaluation, 100% on the official effect is going to have an impact basically on the bonds that we have tied to the dollar.

Operator

And our next question comes from Carlos Gomez of HSBC. Please go ahead.

Speaker 5

Hello, Jorge. Congratulations on the results and on the acquisition. On the second, can you give us an idea about the expected timeline as to when you might receive approval? And we understand it's not in your hands, there will be changes at Central Bank. But when is it reasonable to expect that you would get possession of the asset?

Speaker 5

And also, I understand that the value agreed is based on the value of the bank as of March sort of April of this year and that it adjusts over time. Could you clarify that? And the second question is about your earnings. I'm actually a bit surprised because you're right, this first half has been really good or rather the second quarter has been really good, things look better, but we have seen your real ROE fluctuate a lot. Are you confident that you're going to get that closer to 20% ROE before the end of the year?

Speaker 5

And is there anything in the horizon by whoever comes in the discharge of the economy that could impact the profitability of the banks in the short term and future? Thank you.

Speaker 2

Hi, Carlos. Thanks. On the approval, honestly, we think that it could happen before the end of this year. That is our view. But honestly, again, because we're having elections, could be delayed a little bit.

Speaker 2

But the idea or what we have in mind is that this might be approved before the end of 2023 here. In terms of the operations, I couldn't get exactly the question that you asked, but basically, I mean, this is reaffirming what we have been saying many, many times that we want to keep on growing in Argentina. I think that the acquisition of Itau that is has a lot of value for Banco Macro not only because we think that we are paying a good price on this operation because also it's increasing the number of branches mainly in BACT and Greater Buenos Aires, in the north part of Greater Buenos Aires. At some point, it is almost doubling our presence in this area, and we have been highlighting that this is the area where we want to grow. And also we have been stating that if there was a potential acquisition, our main target was to increase our in this area.

Speaker 2

So we are confirming what we have been saying. And also it's giving us some, of course, new clients on the commercial and the retail area. So I think it is a very good acquisition and very valuable for Banco Macro and more taking consideration the price that we are paying. And on the your third question about ROE, I think that we are going to have a 3rd quarter that's going to be as good or maybe better than the second one, basically because the so far the securities or the bonds are performing really well. So that's why we think that honestly, and now in the Q4, it's a big question mark because a lot of on the performance of the quarter will be tied to the outcome on the election.

Speaker 2

So that's why our the target that we are putting in the area of 20% is because there's some uncertainty on how mainly securities could be performing in the 4th quarter. But of course, if the performance in that quarter continues on the trend that we are showing, ROE in real terms is going to be above 20%. But just put some interrogation mark on the Q4.

Operator

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

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 and you may now disconnect.

Powered by Quartr
Earnings Conference Call
Banco Macro Q2 2023
00:00 / 00:00