Q2 2022 Banco Macro SA Earnings Call

Good morning, ladies and gentlemen, and thank you for waiting.

At this time, we would like to welcome everyone to Banco Macros second quarter 2022 earnings Conference call.

We would like to inform you that the two Q22 press release is available to download at the Investor Relations website of Banco macro www dot and macro dot com dot a R. Slash relax ceylonese dash and whether that's sort of it.

Also this event is being recorded and all participants will be in listen only mode. During the Companys presentation.

After the company's remarks are completed there will be a question and answer session at that time further instructions will be given.

Should any participant need assistance during this call. Please press star zero to signal the operator.

It is now my pleasure to introduce our speakers joining.

Joining us from Argentina are Mr. Gustavo Manriquez, Chief Executive Officer, Mr. Jorge screens E Chief Financial Officer, and Mr. Nicolas Torres IR.

Now I will turn the conference over to Mr. Nicolas Torres you May begin your conference.

Thank you good morning, and welcome to Banco Macros second quarter 2022 conference calls.

Any comment we may make today may include forward looking statements, which are subject to various conditions and these sort of mining our 20-F, which was filed with the SEC and available at the website.

Second quarter 2022 press release was distributed yesterday, and a cultural I'm, making a write up website.

Our viewers are already in Argentine pesos and have been restated in terms of the Mexican unit at the end of the reporting period.

2020, the bank began reporting results applying hyperinflation accounting in accordance with I guess direct Ias 29, as established by the Central Bank of Argentina.

For ease of comparison Peters of three or four quarters have been restated applying ias 29 to reflect the accumulated effect of inflation adjustment break through.

Through June 32022.

I will now briefly comment on the banks second quarter 2022 financial results.

And come up with net income for the quarter was 4 billion pesos.

1% lower than the first quarter of 2022, and 45% lower than there was all posted a year ago.

The banks too.

Second quarter, 'twenty, two annualized ROA and ROE, Inc. A five 1% and one 3% respectively remains healthy and shows the banks earnings potential.

Net operating income before general and administrative and personnel expenses for the second part of 'twenty to 'twenty two.

$81 3 billion pesos.

Six medium prices higher quarter on quarter due to higher net interest income and higher FX gains.

On a yearly basis net operating income increased 26% or $16 6 million pesos due to higher net interest income and higher net fee income.

Operating income after general and administrative expenses personnel expenses was $44 5 billion pesos, 4% or one 6 million pesos higher than in the first quarter of 2022, and 39% or $12 6 billion pesos higher than in the same quarter of last year.

In the quarter net interest income totaled $53 1 billion pesos, 8% or 4 billion, but it was higher than the result posted in the first quarter, 2022, and 27% or $11 3 million pesos higher than the result posted one year ago.

In the second quarter of 2020 to interest income totaled $96 1 billion pesos, 19% or $15 3 billion pesos higher than in the first quarter of 2022, and 32% from $23 5 billion impact of higher than the previous year.

Within interest income interest on loans totaled $41 7 billion pesos and increased 5% or 2 billion pesos quarter on quarter, mainly due to a 350 basis point increase in the average lending rate.

Interest income increased 10% or three 7 billion year on year.

In the second quarter of 2022 interest on loans represented 43% total interest income.

Net income from government and private securities increased 32% or $13 1 billion pesos, what on quarter due to higher income from government securities.

Compared to the second quarter of 2021 net income from government and private securities increased 66% from $21 3 billion pesos.

In the second quarter of 2022 income from Repos totaled 699 million pesos, 38% or 192 million pesos higher than in the previous quarter and 69% a 1.5 billion peso slower than the result posted a year ago.

In the second quarter of 2022, FX gains, including investment grade with the financing totaled $5 4 billion bushels gain which was 49% or $1 8 billion, which is higher than the first quarter of 2022, and $4 3 billion plus is higher than the previous year.

Long dollar position and the peso depreciation during the quarter.

In the second quarter of 2020 to interest expenses totaled $42 9 billion pesos, 36% or $11 3 billion pesos.

Higher compared to the first quarter of 2022 and.

39% or $12 2 billion pesos higher on a yearly basis.

Within interest expenses interest on deposits increased 35% of $10 7 billion pesos quarter on quarter, mainly driven by a 650 basis points increase in the average interest rate paid on deposits, while the average volume of private sector deposits increased 5% on.

On a yearly basis interest on deposits decreased four 7% or 11 seven.

Currently in place.

In the second quarter of 2022 interest on deposits represented 95% of the bank's financial expenses.

And the second part of the banks net interest margin, including FX was 24, 5% higher than the 22.8% posted in the first quarter of 2022, and the 18, 8% registered in the second quarter 2021.

In the second quarter of 2022 net fee income totaled.

One 9 billion pesos.

Medium pressure pumping 1 million pesos lower than the first quarter of 'twenty two on a yearly basis net fee income increased 8% or 842 medium term.

Okay.

In the second quarter of 2022, net income from financial assets and liabilities at fair value of the property net loss totaled $7 7 billion pesos gain.

2% or 180 million pets is higher than the previous quarter. This increase is mostly related to higher income from government securities, which increased 26% or $1 3 billion pesos.

On a yearly basis net income from financial assets and liabilities for everybody. It's a bucket of loss decreased 11% or 917 medium pesos.

In the quarter other operating income totaled $3 9 billion pesos, 1% of 54 million pesos higher compared to the first part of 2022.

On a yearly basis other operating income increased 68% or $1 6 million pixels.

In the second quarter of 2022 Michaels person that are administered expenses totaled 22 billion pesos, 22% or 4 billion pesos higher than the previous quarter as personalized.

<unk> expenses increased 32% as a consequence of salary increases agreed with the union.

Administrative expenses increased 6%.

And on a yearly basis personally, but I noticed the expenses increased 10% or one 4 billion pesos.

As of the second quarter of 'twenty to 'twenty two the efficiency ratio reached 31 three per cent deteriorating from the 29, 6% posted in the first quarter of 2022.

In the second quarter of 2022 expenses increased 20%, while net interest income plus net fee income plus out of operating income increased 7% compared to the first quarter of 'twenty to 'twenty two.

In the second quarter of 2022, the results from the net monetary position totaled $38 2 billion peso lost which was 13% or $4 3 billion peso was higher than the loss posted in the first quarter of 2022 due to higher inflation observed in the quarter, which was 120 basis points above the first quarter of 2022.

Inflation was 17, 3% in the second quarter of 2022 compared to 16, 1% in the first quarter of 2022.

In the second quarter of 2010 to Banco macros effective tax rate was 33% more information is provided in our financial statements.

Loan growth the banks financing to the private sector totaled 446 billion pesos, increasing 2% from 19 9 billion pesos.

At 2% or $6 9 billion pesos higher year on year.

Within commercial lending overdrafts documents, another stand out with a 29 10 and 16% increase respectively.

I mean, the way, we didnt consumer lending credit card loans increased 5% what personal loans decreased 6%.

In private sector financing special financing increased 1% from $4 1 billion pixels, while U S dollar financing increased 12% from $21 million.

It is important to mention that Banco macros market share over private sector loans as of June 2022 reached seven 2%.

On the funding side total deposits totaled $858 2 billion pesos and increased 8% or $63 4 billion in place a quarter on quarter, and 6% repeat $2 9 billion pesos higher year on year.

Private sector deposits increased 10% quarter on quarter, while public sector deposits decreased 9% quarter on quarter.

The increase in private sector deposit west led by time deposits, which increased 15% or $49 8 billion pesos quarter on quarter, while demand deposits increased 6% or $20 7 billion pesos.

Within private sector deposits, especially deposits increased 9% or $62 5 billion pesos, while U S dollar deposits decreased 11% or 115.

As of June 2020 to Banco macros transactional accounts represented approximately 48% of total deposits amongst market share of private sector deposits as of March after the June 2020.

So the five 9%.

In terms of asset quality, Banco macros non performing to total financing ratio reached 125 per cent the coverage ratio measured as total allowances under expected credit losses over a number of problem loans and their children back roads totaled 150, 971%.

Two a portfolio of nonperforming loans improved 11 basis points down to 124% from 135 in the previous quarter, while commercial portfolio nonperforming loans for 149 basis points from the second quarter of 2022 down to 128% from 276 in the previous quarter, mainly due to a rebel.

Incident claim which show signs of credit deterioration in the previous quarters.

In terms of capitalization Banco macro accounted an excess capital of $284 3 billion pesos, which represented a total regulatory capital.

Capital ratio of 45% in the tier one ratio of 35, 9%.

It should be noted that on May 12, the sprint and they tend to see that.

On the central bank of Argentina and format.

The alkali Banco macro to distribute profit in cash or unkind.

For an aggregate amount of $19 seven.

Medium pixels.

And the distribution should be carried out in 12 monthly equal in consecutive installments.

These days the banks that's paid on June seven.

The dividend in the amount of $9 9 billion pesos, which corresponds two installments one through six onto a nice mix of cash dividends in the amount of $1 6 billion pesos, which was installed in seven.

I don't know.

Two cash dividend in the amount of $1 6 billion pesos, which is from eight.

The aim is to make the best use of this excess capital the bank's liquidity remained more than appropriate liquid assets to total deposit ratio reached 90% overall.

Overall, we have accounted for another positive quarter, we continued showing a solid financial position asset quality remain under control and closely monitored.

We keep on working to improve more artificial if your standards and we keep a well optimized deposit base at this time, we would like to take the questions you may have.

At this time, we're going to open it up for questions and answers if he would like to ask a question. Please press star one on your Touchtone phone.

If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two one moment. Please for the first question.

The first question is from Ernesto get along with Bank of America. Please go ahead.

Hi, good morning Jorge.

Hum Nicola Kroger Kroger personal gruesome I have a quick question for my side I heard one of you from the macro outlook.

Like to hear from you how your food inflation.

Drew.

Sure.

And given the high level one of your they're preparing for normally from a voting recruiters.

Especially considering that her coupon you have lower her right.

Recruitment blame for the peso depreciation.

Then my second question is on long Road, Oh, who like to hear from you.

Considering they blame him.

Do you have real long road.

Yeah.

She level or do you think it could be more something next year.

And then my last question.

What do you see the ROE.

Uh huh.

Thank you.

Yeah.

Okay.

Okay.

Hi, Nicole good morning. This is Jorge Crazy So what are you.

On your first question.

According to <unk>.

The local economies inflation in southern in 'twenty, two should be ranging between 85 to 95, but that is the range of the consensus of the.

Economists here.

What we are seeing in terms of <unk>.

Interest rates are nominally speaking these debts they will may be.

Slightly increased by the year end in order to catch up.

The inflation pace.

We are not seeing for the moment that we are going to.

B real interest rates by year end, but we are going to have a slightly higher interest rates.

And that's in our view that's huge held in our in our net interest margin to keep on it.

Expanding.

In terms of the effects that these are the immediate dollar question we understand also.

Looking at the World local economies are producing is that the official effects should move.

And higher speeds.

Generally speaking in order to.

Give some kind of.

Suite.

At least to the agribusiness sector to start selling dollars.

And honestly, we believe that in the corner and Mr. Masa who'd like to maybe.

Finish with a more.

Complex economic program.

Before starting to to have a higher speed the devaluation.

Here in Argentina.

We understand that the official effects.

He is well behind the inflation rate.

41, which is not helping a lot.

But towards the year end, we could see maybe.

Maybe a faster pace on the on the monthly devaluation of the official effects.

In terms of your second question looking at the loan growth.

I mean, what we are seeing is adopted.

Increase on the nominal interest rates, we are seeing loan demand, maybe a bit more sluggish.

And we think that by year end, we're going to finish 2022 with loans growing.

Similar to the inflation rate so we.

We are not seeing a major positive increase.

Attempting in loan growth by year end.

And.

Third question in terms of I O.

No T C too.

To answer this question, but are we.

We are targeting all we would like to be in the area of 10%.

The positive real Roe.

By year end, so that would be between 911 or eight and 12 days year to be around 10%.

For year end 2022.

Perfect. Thank you very much.

Yeah.

You're welcome.

Again, if you have a question. Please press Star then one.

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

Thanks, very much Jorge I think the last one.

My question is I come to two questions.

First on the 20th 26 bond I wanted to ask you do you consider doing a tender offer even though the bond is trading in the Seventy's and loosening capital treatment. My understanding is you could only call. It one.

Last year, you can still do a tender offer marketplace plus any pretty much anytime and if you would need to get dollars from the central bank to buy back the bonds.

Or you could use your current position because my understanding is that when you introduce born.

Okay.

That all that stuff for the most part so.

This is my first question and then my second question on your exposure to the public sector.

So you have and you reported these so you have $2 2 billion brushing their lips.

In total on your exposure to the public sector.

More than a half million dollars you seem to feel the effects of the end of June .

Which compares to two point until I remember asking equity right.

Hmm.

But in the second quarter you on average interest rate of about 50% annually on these limits on the government bond two vessels and I assume the risk weight on this is gonna be.

Two zero, which means it's a great investment for you the risk of course would be in a worst case scenario of default of the government the basal bed the peso denominated debt and even by the Central Bank on the relief. So how do you think about this exposure to the public sector.

Can you easily neither were used this exposure in a worst case scenario and how have there been any discussions between the banks on the central Bank and the government about these all of these exposure to leaks and Columbia.

<unk>.

Uh huh.

Hi, Nicholas.

Your first question about what 2026 bonds.

Because he's a subordinated bond, which first of all we have to ask permission to the central bank in any kind of tender or buyback or whatever.

And that's the first 0.2nd point, we have the daughters.

Doris and in our position to do any kind of about a buyback on tender.

I don't know at this time, the central bank with allowed us to use those owners for that honestly for the moment, we are in a wait and see position in that sense, but we have to the owners.

Second question in terms of.

The exposure to the public sector.

<unk>.

I mean.

Looking at what's happening in the second quarter.

When there was a kind of cardinal for them.

Well on.

Our pressure sale on the domestic debt in pesos.

We've had the central bank.

Rapidly acting on them, putting beats on on all the curves in pesos.

Since then the Central Bank <unk>.

They are on the bid side.

And according to conversations I can cut with the Central Bank. The idea is for them to continuing that attitude, so putting that kind of holds.

<unk> secure two to the financial sector.

That sense.

Also.

Recently.

The economy Mr Masa.

Successfully did a swap in the debt in pesos doing until October and moving that into mid next year, and we think that going forward. They could be doing something similar in that they're doing by the end of the year in pesos.

And we are not seeing any kind of.

Decrease in terms of Ah I refinance strikes a restructuring in the peso that for the moment.

And we think that the exposure that we have on the on the daily leaks that these almost 100% on the Cvs in pesos that we got.

That is a kind of.

The maximum that we can have in the leaks. According to local regulation, we think that.

At the risk of the Central bank or they center around whiskeys is minor according towards seen in Argentina, where does that sit.

Years.

In terms of the exposure to the Treasury and.

Again, we are for the moment forging a low.

Very low probability of a restructuring in pesos.

Also at some point, we will have to pitch our.

Our equity and we have a kind of a cup on on the dollars. We are trying to create that as much as we can in terms of the inflation exposure.

So the idea is to continue for the moment.

Also important to note is that the central bank has been neutral in the food options. So banks.

Hold it kind of a bit to the treasury, we can sell that once to the central bank in case of any potential crises plus that the central bank is on the curve on the market on the beef side.

Just in case so.

So that's who we are assuming that the probability for this kind of the restructuring is extremely low for the moment.

Thanks, very much more about Jorge on a follow up on the last point about the relief do you think that if you wanted to you could easily decided not to renew the lease with the Central Bank would you get the money.

From the Central Bank and how is your view about the central bank being lower risk changed at all.

With Martha meaning the ministry of economy and.

Perhaps with less money printing.

No I mean, I think it was less last month we.

That's.

We took that attitude in terms of maybe able renewing at partially the least we received the money without any problem. So no basically that's it for the moment, even though Marcellus economy meter the central banking.

He is doing I mean, it's job on.

There's no problem in terms of.

Decreasing the leaks bullshit. They are in terms of the exposure to the Central Bank No no that's all.

Thanks very much.

Youre welcome.

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

Sure.

Thank you all for your interest in Banco macro we appreciate your time and look forward to speaking with you again soon good day.

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

Yeah.

[music].

Okay.

[noise] [music].