Macro Bank Q4 2023 Earnings Call Transcript

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February 29, 2024

Key Takeaways

  • Net income for Q4 2023 reached ARS 460 billion, up 394% QoQ and 789% YoY (FY net income ARS 587.7 billion, +338%), delivering a 33.2% ROE.
  • The efficiency ratio improved to 18.6% from 23.0% in Q3 2023 and 28.6% a year ago, reflecting strong cost discipline.
  • Provisions for loan losses jumped 144% QoQ to ARS 18.2 billion (FY ARS 49.9 billion, +125% YoY), signaling increased credit risk.
  • Total loans grew 4% QoQ to ARS 1.8 trillion, led by commercial lending, while the NPL ratio remained low at 1.29% with 200.9% coverage.
  • Acquired 100% of Banco Itau Argentina for US$50 million, with legal and brand integration set for H2 2024 to expand market share.
AI Generated. May Contain Errors.
Earnings Conference Call
Macro Bank Q4 2023
00:00 / 00:00

There are 5 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 4th Quarter 2023 Earnings Conference Call. We would like to inform you that the Q4 2023 release is available to download at the Investor Relations website of Banco Macro, and that is www. Macro.com.arrelacionesinversores. Also, this event is being recorded and all participants will be in listen only mode during the company's presentation.

Operator

After the company's remarks are completed, there will be a question and answer session. It is now my pleasure to introduce our speakers. Joining us from Argentina are Mr. Gustavo Marriquez, Chief Executive Officer Mr. Jorge Scarinci, Chief Financial Officer and Mr.

Operator

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

Speaker 1

Thank you.

Speaker 2

Good morning, and welcome to Banco Macro's 4th quarter 2023 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 in Cabenarada website. Q4 2023 press release was issued yesterday and it's available on 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 2020, the bank began reporting results applying hyperinflation accounting in accordance with IFRS IAS 29 as established by the Central Bank.

Speaker 2

For ease of comparison, the years of previous quarters have been restated applying IAS 29 to reflect the accumulated effect of the inflation adjustment for each period through December 31, 2023. I will now briefly comment on the bank's 4th quarter 2023 financial results. Banco Macro's net income for the quarter was ARS460 1,000,000,000,000, 3,898 94 percent higher or ARS448,000,000,000 higher than in the 3rd quarter and 789 percent or ARS 408,000,000,000 higher than the result posted a year ago. The bank's accumulated ROE and ROA of 33.2% and 8.7%, respectively, remains healthy and shows the bank earnings potential. In fiscal year 2023, net income totaled 587,700,000,000, 3 38 percent higher than in fiscal year 2022.

Speaker 2

Total comprehensive income totaled BRL 6 $27,000,000,000 and was 4 38 percent higher than fiscal year 2022. Net operating income before general, administrative and personnel expenses for the Q4 of 2023 was ARS 1,300,000,000,000, increasing ARS 778,000,000,000 quarter on quarter. On a yearly basis, net operating income before general and administrative and personnel expenses increased 2 24 percent or ARS915,000,000,000. In fiscal year 2023, net operating income before general and personnel expenses totaled ARS2.84 trillion, 83% higher than in fiscal year 2022. In the Q4 of 2023, provision for loan losses totaled ARS18.2 billion, 144 percent or ARS10,700,000,000 higher than in the previous quarter.

Speaker 2

On a yearly basis, provision for loan losses increased 131 percent or ARS 10,300,000,000. In fiscal year 2023, provision for loan losses totaled ARS 49 point 9,000,000,000 and were 125% higher than in fiscal year 2022. Operating income after general, administrative and personnel expenses was ARS 1,000,000,000,000, 189 percent or ARS 680,000,000,000 higher than in the Q3 of 2023 and ARS327 percent or ARS796 1,000,000,000 higher than in the Q4 of 2022. In fiscal year 2023, operating income after general and administrative and personnel expenses totaled ARS 2,000,000,000, 123 percent higher than in fiscal year 2022. In the quarter, net interest income totaled ARS183,700,000,000, 6% or ARS10.9 billion higher than the result posted in the Q3 of 2023 and 29% or ARS77 billion lower than the result posted 1 year ago.

Speaker 2

In fiscal year 2023, net interest income totaled ARS829 1,000,000,000 and was 13% lower than in fiscal year 2022. Interest income increased 28%, while interest expenses decreased 30%. In the Q4 of 2023, interest income totaled ARS 573,000,000,000, 13 percent or ARS 84 point 5,000,000,000 lower than in the Q1 of 2023 and 7% or ARS 45,300,000,000 lower than the previous year. Income from interest on loans and other financing totaled ARS372,000,000,000, 36 percent or ARS98,500,000,000 higher compared with the previous quarter, mainly due to a 68% increase in the average volume of private sector loans, which was partially offset by a 1211 basis points decrease in the average lending rate. On a yearly basis, income from interest on loans increased 73% or ARS157.4 billion.

Speaker 2

In fiscal year 2023, income from interest on loans and other financing totaled ARS1.1 trillion, 43% higher than in fiscal year 2022. In the Q4 of 2023, interest and loans represented 64% of total interest income. In the Q4 of 2023, income from government and private securities decreased 66 percent or ARS209.5 billion quarter on quarter due to the unwinding of our net debt portfolio and decreased 72% or ARS 271,600,000,000 compared with the same period of last year. In fiscal year 2023, income from government and private securities totaled ARS 1,100,000,000,000, 3% higher than in fiscal year 2022. In the Q4 of 2023, income from repos totaled ARS84.2 billion, 46 percent or ARS26.6 billion higher than in the previous quarter and 2.87 percent or ARS 62,400,000 higher than a year ago.

Speaker 2

In the Q4 of 2023, FX income totaled ARS182,700,000,000, 50 percent or ARS182,200,000,000 lower than the previous quarter and 92% or ARS 87,500,000,000 higher than a year ago. The FX income gain was due to the 131 percent Argentine peso depreciation against the U. S. Dollar and the bank's bank dollar position during the quarter, including dollar in and dual bonds. It is important to notice that the bank's long dollar position decreased 47 42% during the quarter.

Speaker 2

For fiscal year 2023, FX income totaled ARS798.2 billion, 3 12 percent above the results posted in fiscal year 2022. In the Q4 of 2023, interest expense totaled ARS389,000,000,000, 20% or ARS 95,500,000,000 lower compared to the Q3 of 2023 and 9% or ARS 31,400,000,000 higher on a yearly basis. Within interest expense, interest and deposits decreased 21 percent or ARS97,600,000 quarter on quarter, mainly driven by a 2,750 basis points increase in the average interest rate on deposits, while the average volume of private sector deposits increased 38%. On a yearly basis, interest on deposits increased 7% or ARS25.5 billion. In the Q4 of 20 23, interest and deposits represented 97 percent of the bank's financial expenses.

Speaker 2

In the Q4 of 2023, the bank's net interest margin, including FX, was 33.8%, lower than the 58.7% posted in the Q3 of 2023 and the 32.7% posted in the Q4 of 2022. In the Q4 of 2023, Banco Macro's net income totaled ARS65,600,000,000 2 percent or ARS 1,200,000,000 higher than in Q3 of 2023 and was 5% or ARS 2,400,000 higher than the same period of last year. In fiscal year 2023, net fee income totaled ARS220.8 billion, 4% higher than the fiscal year 2022. In the Q4 of 2023, net income from financial assets and liabilities at fair value to profit or loss totaled ARS895.2 billion gain, mainly due to the mark to market of some government securities, mainly due to our bonds, which represented ARS835.2 billion. For fiscal year 2023, net income from financial assets and liabilities of fair value to profit on loss totaled ARS970.2 billion, 5.55 percent higher than the fiscal year 2022.

Speaker 2

In the quarter, other operating income totaled ARS25,200,000,000, increasing 45 percent or ARS7,900,000,000 compared to the Q3 of 2023. On a yearly basis, other operating income increased 40% or ARS 7,200,000,000. In fiscal year 2023, other operating income totaled ARS72.9 billion, 11% higher than in fiscal year 2022. In the Q4 of 2023, Banco Macro's administrative expenses plus employee benefits totaled ARS152.5 billion, 50 percent or ARS51 1,000,000,000 higher than in the previous quarter, due to higher employee benefits, which increased 35% and higher administrative expenses, which increased 80%. On a yearly basis, administrative expenses plus employee benefits increased 68% or MXN 61.5 billion.

Speaker 2

In fiscal year 2023, administrative expenses for asset value benefits increased 22% compared to fiscal year 2022. As of the Q4 of 2023, the efficiency ratio reached 18.6%, improving from the 23% posted in the Q3 of 2023 and the 28.6% posted 1 year ago. In the Q4 of 2023, expenses increased 51% and net interest income plus net debt income plus other operating income increased 149%. In the Q4 of 2023, the result from the net monetary position totaled ARS 525.8 billion loss, ARS194.8 billion higher than the loss posted in the Q3 of 2023 and ARS 196 percent or ARS348.4 billion higher than the loss posted 1 year ago. Higher inflation was observed during the quarter, which was 18.5% higher than in the Q3 of 2023.

Speaker 2

Inflation in the quarter was 53.3% compared to 34.8% in the Q3 of 2023. In fiscal year 2023, the result from the net monetary position totaled ARS1.3 trillion loss, 88% higher than the one posted in fiscal year 2022. Inflation in 2023 reached 211% compared to the 94.8% registered in 2022. In the Q4 of 2023, Banjo Mato's effective tax rate was 31.4 percent and in fiscal year 2023 effective income tax rate was 32.5%, higher than the 31.1% registered in fiscal year 2022. Further information is provided in Note 25 to our financial statements.

Speaker 2

In terms of loan growth, the bank's total financial reached ARS 1,800,000,000,000, increasing 4% or ARS 65,600,000,000 quarter on quarter and decreasing 2% or ARS 30,000,000,000 year on year. Within commercial loans, overdraft stand out with a 66% or ARS114.9 million increase and others with a 30% or ARS74 1,000,000,000 increase. Within consumer lending, personal loans decreased 20 2 percent or ARS65,900,000,000 while credit card loans decreased 7% or ARS38,400,000,000. In fiscal year 2073, overdraft documents and others stand out with an 88%, 33% and 48% increase, respectively. It is important to mention that Banco Macro's market share over private sector loans as of December 2023 reached 9.1%.

Speaker 2

On the funding side, total deposits increased 9% or ARS290.4 billion quarter on quarter, totaling ARS3.4 trillion and decreased 16% or ARS663.7 billion year on year. Private sector deposits increased 13% or ARS360.8 billion quarter on quarter, while public sector deposits decreased 31% or ARS85.3 billion quarter on quarter. The increase in private sector deposits was led by demand deposits, which decreased 41% or ARS563.8 billion while hand deposits decreased 23% or ARS 300,300,000,000. Within private sector deposits, peso deposits decreased 10% or ARS 252,600,000,000 while U. S.

Speaker 2

Dollar deposits decreased 8% or $107,000,000 As of December 2023, Banco Macro's transactional accounts represented approximately 69% of total deposits. Banco Macro's market share over private sector deposits as of December 103 totaled 6.2%. In terms of asset quality, Banco Macro's nonperforming total financial ratio reached 1.29%. The coverage ratio measured total allowance under the expected credit losses over nonperforming loans and the certain bank pools remained stable at 200.91%. Consumer portfolio nonperforming loans improved 13 basis points, down to 1.35 percent from 1.48% in the previous quarter, while commercial portfolio nonperforming loans deteriorated 6 basis points in the Q4 of 2023, up to 1.2% from 1.14% in the previous quarter.

Speaker 2

In terms of capitalization, Vaca Muertos accounted an excess capital of ARS1.75 trillion, which represented a capital adequacy ratio of 35.4 percent and a Tier 1 ratio of 32.8%. The bank's aim is to make the best use of this excess capital. The bank's liquidity remained more than appropriate with the assets to total deposit ratio reached 118%. Overall, we have accounted for another positive quarter. We continue to show a solid financial position, asset quality remain under control and closely monitored.

Speaker 2

We keep on working to improve more efficiency standards and we keep a well optimized deposit base. Finally, on November 2, 2023, the Central Bank of Argentina approved the sale of Argentina, now Banco BMA to Banco Macro. Banco Macro has now acquired 100% of the share in both of Banco Itau Argentina and its subsidiaries, Itau Asset Management and Itau Valores. The price of the agreement was set at $50,000,000 which was paid on November 3. An additional amount resulted from a potential adjustment that will be eventually set based on the results obtained by Banco Hipagua Heplina and its subsidiaries between April 1, 2023 and the close of date and will be determined at a few days.

Speaker 2

The result from the acquisition is shown under income from associates and joint ventures and totaled MXN156 1,000,000,000, and it's shown in the Q4 of 2023. More information is provided in notes to our financial statements. At this time, we would like the questions that you may have.

Operator

Thank you. We are going to open it up The first question comes from Ernesto Gabilondo from Bank of America. Ernesto, please go ahead.

Speaker 3

Thank you. Hi, good morning, Gustavo, Jorge and Nico. Thanks for the opportunity and congrats on your strong earnings. My first question is on your investment securities and FX positions. Can you elaborate on how the positions benefited because of the high inflation, the high rates and the FX?

Speaker 3

And how should we think about the valuation of these positions in 2024? If we continue to see higher inflation or FX depreciation, should we continue to see positive results? Or how should we think about them? And also related to this question, how much of Leliq's did you continue to hold? Then my second question is on loan growth.

Speaker 3

I'm pretty sure that Macro would be one of the few banks in Argentina with real loan growth in 2023. Having said that, we saw that it was driven by commercial loans, but the retail part continues to be still very weak. So how should we think about loan growth, real loan growth for this year? And for my last question is on your ROE. We saw the 23 ROE close around the 33%.

Speaker 3

But again, it was highly driven because of the gains on investments on securities. So considering that you will have a tougher G over G base in 2024, how should we think about the ROE in this year? Thank you.

Speaker 4

Hi, Ameto. How are you? Thanks for your questions. Let's start with the first one, if I remember wrongly. In terms of the strategy that we carried out in the last quarter of 2023, basically, at some point, we were forecasting that there were could be some trouble with the Delix.

Speaker 4

So we decided to switch from the Delix into dual bonds, those bonds that are yielding inflation or evolution of the efficient effects, the higher. Since basically that we consider at that time that the risk between the difference of the risk between the Central Bank and the Treasury was almost the same. So we were the 1st bank to switch the portfolio of Leliq. So as of the end of November, we have no Leliq and we're switching to dual bonds. And basically, we were also benefited by the devaluation of the official FX in December.

Speaker 4

And basically, that was those numbers were reflecting that in the 4th quarter results that we posted basically yesterday. In 2024, part of those dual bonds, we were like switching into inflation linked bonds. Of course, I cannot give you much of the details because it's not public information, but basically we were switching a little bit of the dual into SER linked bonds.

Speaker 3

Of course,

Speaker 4

as I mentioned also, Leliq, we have 0 as of the end of November. In terms of loan growth, that was another question, I think the second question you asked. Yes, commercial launch showed a good performance. Please consider there that we are including Itau's portfolio, mainly commercial. So that's why the comparison and the increase that you are showing in the numbers, I think that is well explained in the press release.

Speaker 4

And of course, in terms of ROEs, yes, the ROE that we posted in 2023 was spectacular. Going forward, we think that we should be in more normalized levels between 15% to 20% positive ROE.

Speaker 3

Excellent. Super helpful, Jorge. So for 2024, we should expect ROEs between 15% to 20 Or is it something that could start to show up more in 2025?

Speaker 4

I think in a normalized scenario, I think that Banco Macro should have no product to deliver ROE in the area of 20%. 2024, it's tough to forecast right now. Let's say around 15 in real terms and we could be fine tuning this in coming quarters.

Speaker 3

Excellent. Thank you very much, Jorge.

Speaker 4

You're welcome.

Operator

And now we have a question from Carlos Gomez from HSBC. Carlos, please go ahead.

Speaker 4

Hello, can you hear me? Yes. Go ahead, please.

Speaker 1

Hi. Sorry, the line is full. So first of all, congratulations on a result. The conditions in which you are operating in this Q1 of the year, meaning with relatively high inflation, with much lower swap rates from the Central Bank? What is it that we should expect in this 1st and second quarter of the year?

Speaker 1

And then what do you expect to see once we normalize by the end of the year? I'm talking in particular about securities gains and essentially your margin from financial intermediation. And secondly, if you can give us a bit of an update on what you are going to do with your newly acquired asset Itau? When do you expect to integrate it? And whether you think that there are more assets that come up for sale for you in the coming quarters or years?

Speaker 1

Thank you.

Speaker 4

Carlos, I couldn't hear exactly the first part of your question or your previous question, but the last part of your first question was talking about securities in the Q1 of this year. Of course, it is not possible to repeat the spectacular performance we had in the last quarter of last year. So I think we are going to have a more normalized behavior of securities gains in the 1st and second quarter. Again, it will depends on market conditions, depends on the volatility and of course bond prices. And I mean, we have demonstrated in the past that we can be switching the portfolio into those bonds that deliver the best result.

Speaker 4

So I think that the result is going to be good, not again, not as spectacular as the one that we posted in the last quarter of last year. In terms of Itau merge, I would say that it's going to happen in the second half of this year, the legal merger offer with Itau. So that in the last part of the year, you are going to see the I mean, the consolidated and normalized numbers, including Tawu in all the figures.

Speaker 1

Okay. So that is the legal merger. In terms of operationally, putting your systems, putting your brand in the bank, how long do you think that process will take?

Speaker 4

Sorry, Carlos, could you repeat that, please?

Speaker 1

Yes. And my apologies again for the line. I was asking, when do you think you will have the operational merger with Itau? And when will you be using a single brand?

Speaker 4

Carlos, that is going to happen in the second half of the year. Exactly, we believe that it's going to be between August October, but still do not have the exact time, but second half for sure.

Speaker 1

2nd half. All right. Very good. And going back to the gains from securities with general your margin, again with the swap rate or it is with negative real rates today, what's keeping a normal margin between these conditions, really?

Speaker 4

I mean, yes, the environment here with negative real interest rate is basically, I mean, not that good. You have to take into consideration that when you compare the average cost of funds of the bank and the yield that we are getting on loans and on the securities, even though they are still negative in real terms, the margins there are quite attractive. Take into consideration that almost 50% of our deposits are close to 0%, the other 50% close to 100. So we assume that the average cost of funds in the area of between 55% 60%. Then you have to assume that loans are yielding in the area of 110 or 115 approx and then the securities.

Speaker 4

Therefore, margins look still quite attractive for banking intermediation here and therefore that's why we continue to increase our funding. And on the asset side, increasing loans or securities, the better.

Operator

And there are no further questions at this time. So this concludes the question and answer session. I will turn the conference back over to Mr. Nicolas Torres for some final considerations.

Speaker 4

Thank you all for your interest in

Speaker 2

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 and have a great day. You may now disconnect.

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