Q2 2023 Banco Macro SA Earnings Call
Speaker 1: 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 2nd Quarter 23 Press Release is available to download at the Investor Relations website of Banco Macro at www.macro.com.
Speaker 1: dot AR slash relations slash investors.
Speaker 1: Also, this event is being recorded and all participants will be in listen-only mode during the company's presentation.
Speaker 1: After the company's remarks are completed, there will be a question and answer session.
Speaker 1: At that time further instructions will be given.
Speaker 1: Should any participants need assistance during this call, please press star then zero to signal the operator.
Speaker 1: 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. Nicholas Torres of Investor Relations.
Speaker 1: Now I will turn the conference over to Mr. Nicholas Torres. You may begin your conference.
Speaker 2: Thank you, Andrea. Good morning and welcome to Bank of Macros 2nd quarter 2023 conference call.
Speaker 2: Any comment we may make today may include forward-looking statements which are subject to various conditions and this is our outline in our 20th which was filed to the FCC and it's available on our website.
Speaker 2: The second FODOR 2023 press release was distributed on Wednesday and is available at the website.
Speaker 2: All figures are in urgent and precious and have been restated in terms of the measuring units current at the end of the reporting period.
Speaker 2: As of the year 2020, the Bank began reporting results, applying high-pariferential accounting in accordance with IFRS IAS 29, as established by the Centre Bank of Argentina.
Speaker 2: For ease of comparison, figure three quarters have been restated applying IAS 29 to reflect the accumulated effect of the inflation adjustment for each period through June 30, 2023.
Speaker 2: I will now break this comment on the bank's second quarter, 2023 financial results.
Speaker 2: Bank of Macros net income for the quarter was 44.2 billion pesos, 265% higher than the first quarter of 2023, and 394% higher than the result posted a year ago. The banks accumulated ROE and ROA of 15.5% and 3.9% respectively, remained healthy and showed the banks earnings potential.
Speaker 2: Net operating income before general administrative and personal expenses for the second quarter of 2003 was $264.1 billion, increasing 27% of $56.4 billion per quarter due to higher income from financial instruments and further value to profit or loss and higher FX gains.
Speaker 2: On a yearly basis, net operating income before general admission of personal expenses increased 50% or 88.5 billion pesos.
Speaker 2: In the second quarter of 2023, provision for loan losses totaled 5.5 billion pesos, 28% or 1.2 billion pesos higher than in the previous quarter. On a yearly basis, provision for loan losses increased 232% or 3.9 billion pesos.
Speaker 2: Operating income after general and administrative and personal expenses was 173.1 billion pesos, 35% or 44.4 billion pesos higher than the first quarter of 2023, and 81% or 77.2 billion pesos higher than the second quarter of 2022.
Speaker 2: In the quarter, net interest income totaled 107.9 billion pesos, 11% or 12.9 billion pesos lower than the result posted in the first quarter of 2023, and 7% or 7.9 billion pesos lower than the result posted a year ago.
Speaker 2: In the second quarter of 2023 interest income totaled $301 billion, 9% or $24.1 billion higher than the first quarter of 2023 and 48% or $100 billion higher than the previous year.
Speaker 2: Within interest income, interest and loans increase 12% or 13.1 billion pesos, quarter on quarter, due to a 760 basis points increase in the average lending rate, while the average volume of private sector loans is 3%.
Speaker 2: On a yearly basis, income from interest on loans was 34% or 30 billion higher.
Speaker 2: In the second quarter of 2023, interest of loans represented 34% of total interest in loan.
Speaker 2: Net income from government and private securities decreased 1% or 1.9 billion pesos for a quarter due to lower income from government securities. Compared to the second quarter of 2022, net income from government and private securities increased 43% or 49.7 billion pesos.
Speaker 2: In the second quarter of 2023, FX gains, including investments in derivative financing, totaled a 3.3 billion pesos gain due to the 23% Argentine peso depreciation against the US dollar and the bank's long dollar position.
Speaker 2: In the second quarter of 2023, interest expense totaled $199.2 billion at 23% or $37.1 billion increase compared to the first quarter of 2023 and $119 or $108 billion higher on a yearly basis.
Speaker 2: Within interest expenses, interest on deposits increased 23% or 36 billion pesos quarter on quarter, mainly driven by a 3% increase in the average volume of private sector deposits while the average interest rate on deposits increased 940 basis points.
Speaker 2: On a yearly basis, interest on deposits increased 120% for 106 billion pesos.
Speaker 2: In the second quarter of 2023, interest on deposits represented 97% of the bank's financial expenses.
Speaker 2: In the second quarter of 2023, the bank's net interest margin, including effects, was 38.3%, higher than the 33.6% posted in the first quarter of 2023, and higher than the 24.7% posted in the second quarter of 2022.
Speaker 2: In the second quarter of 2023, net fee income totaled 26.3 billion pesos, 3% or 932 million pesos lower than the first quarter of 2023. On a yearly basis, net fee income was 2% higher. In the second quarter of 2023, net income from financial assets and liabilities of fair value to property loss totaled 51.9 billion pesos gain, mainly due to the market of dual bonds.
Speaker 2: On a yearly basis, net income from financial assets and liabilities for a value to property loss increased 226% at 36 billion pesos.
Speaker 2: In the quarter, other operating income totaled 7 billion pesos, increasing 8% compared to the first quarter of 2023. On a yearly basis, other operating income decreased 7% or 578 billion pesos.
In the second quarter of 2023, back-to-market personal and administrative expenses totaled 47.9 billion pesos, 10% or 4.4 billion pesos higher than the previous quarter. You need to hire administrative expenses and hire employee benefits.
On a yearly basis personal and initial expenses increase 1% to 507 million pesos.
In the second quarter of 2023, the incidence rate reached 21.7%, improving from the 25.5% posted in the first quarter of 2023.
In the second quarter of 2023, expenses increased 9% while net interest income plus net fee income plus other operating income increased 28%.
In the second quarter of 2023, the result from the net monetary position, total 109.4 billion pesos loss, slightly higher than the loss possible in the first quarter of 2023, as a consequence of higher inflation observed in the quarter, which was 200 basis points higher than in the first quarter of 2023. Inflation in the quarter was 23.78% compared to 21.73% in the first quarter of 2023.
In the second quarter of 2023, the income address tax rate was 34% and further information is provided in note 22 to our financial statements.
In terms of long growth, the bank's financing to the private sector total 872.5 billion pesos, increasing 1% or 13 billion pesos quarter on quarter and increasing 9% or 88 billion pesos year on year.
Within commercial loans, overdraft documents and others stand out with a 32% or 21.5 billion increase and an 11% or 13.7 billion pesos and 6% or 7 billion pesos increase respectively.
It is important to mention that Bank of America's market share of private sector loans as of June 2023 reached 7.8%.
On the funding side, total deposits increased 5% or 9.2 billion pesos quarter-on-quarter, totaling 1.9 trillion pesos, and increased 3% or 52.8 billion pesos year-on-year.
Private sector deposits increased 6% on 94.7 billion pesos quarter on quarter, while private sector deposits decreased 4% quarter on quarter.
The increase in private sector deposits was led by demand deposits, which increased 9% or 64.6 billion pesos. Quarter-on-quarter, lifetime deposits increased 2% or 20.5 billion pesos. Within private sector deposits, peso deposits increased 7%, while US dollar deposits decreased 24% or 288 million dollars.
As of June 2023, Bank of Marcos and Taxonal Accounts represent approximately 39% of total deposits and Bank of Marcos share over private sector deposits as of June 2023, totaling theopropite printed documents over the past year.
In terms of asset quality, Bank of matrix non-performing to total financial ratio reached 1.37%. The coverage ratio, measured as total allowance under expected credit losses over non-performing loans under central bank rules, remains stable at 146.05%.
Consumer portfolio non-performing loans deteriorated 9 basis points and were up to 1.43% from 1.34% in the previous quarter, while commercial portfolio non-performing loans improved 55 basis points in the second quarter of 2023.
In terms of capitalization, Bank of Microsoft has accounted an excess capital of 570.7 billion pesos, which represented a total reward at a capital ratio of 35.9% and a tier 1 ratio of 33%.
The bank's aim is to make the best use of this excess capital. The bank's liquidity remains more than appropriate. Public assets go down there
Overall, we have accounted for another positive quarter. We continue showing a solid financial position, asset quality remains under control and closing monitor.
We keep on working to improve more our efficiency standards and we keep a well optimized deposit base.
Lastly, before taking your calls, we wanted to announce that Banco Macro entered a purchase agreement to acquire 100% of the shares and votes of Banco Y Tabu Argentina and its subsidiaries, basically Itauba Asset Management and Itauba Lores.
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 million US dollars, which will be paid on the closing date of the transaction and an additional amount resulting from the potential adjustment that will eventually be set based on the results obtained by Banque y Tahu, 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.
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And our first question comes from Brian Flores of Citibank. Please go ahead.
Hi Tim, good morning and congratulations on the reports. Just two quick questions on my site.
The first one is on Itau, Argentina. I just wanted to ask if you actually consume capital in this operation because it may seem that the fortune was well below book value. I'm just wondering if this actually occurred to you capital launch.
And the second one is on the banks, central bank edition yesterday to change the remuneration of the cottage in the deals and wallets.
So just really, really one thing to understand, if you consider this a threat to your deposit base at some point, any call on the size of these deposits would be really appreciated. Thank you very much.
Hi, Brian . How are you? So far, there's not a lot of additional information we can add on the announcement that we did on...
on the agreement that will reach with Itau to buy its operations in Argentina.
Available data is public according to the
central bank website. There you will find all the data on ETAU. The book value, the latest numbers that we got, I think it's as of June , in terms of Argentine pesos, it's 83.3 billion pesos.
The agreement said that we are going to pay $50 million, so we are paying approximately rough numbers, 20% of book value on each of those operations.
In terms of your second question 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 accrual on their clients but we do not have those kinds of deposits at the bank.
Thank you very much. You're welcome. The next question comes from Ernesto Gabliondo of Bank of America. Please go ahead..
Thank you. Hi, good morning Gustavo, Jorge and Nicolas. Congrats on your results and thanks for the opportunity to ask questions.
My first question would be on long-term and asset quality. We noticed that you were the bank that posted the lower contraction in loans against all the listed banks. How did you find out that you were the bank that posted the lower contraction in loans against all the listed banks?
So what should we expect in terms of your long-world 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 bond position related to FX and inflation have been paying off. 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 these first half, how should we think about the ROE for this next year?
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.
Thank you.
In terms of your first question about long growth and quality, I think that
It's not that useful to only look at one quarter.
I think that in
in the two quarters of this year, and I think that in the coming two quarters at least.
we are going to have a low 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 sluggish.
I would not concentrate in what you see in only one quarter. I would try to see more a medium-term view. And I think that overall all Argentine bonds 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 more conservative view on what could be coming in the coming future. We increase provisioning at 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. That is almost 95% of our security bonds and the remaining 5% is bonds tied to inflation.
This is how we want to get before the election. Depending on the outcome of 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.
And your third question about ROE, we think that is 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.
And thank you, and the ROE for next year. Should we think about something around that or lower than that?
I think it's a bit early, Ernesto, to answer that question because, I mean, the economic outcome for Argentina is not the same depending on who is the next president.
I prefer to wait a little bit for giving some guidance for 2024.
Okay, no, no, understood. Thank you very much. And just a last question on this acquisition on Itau's Argentina operations.
It seems it was very attractive, the multiples for the transaction. But just wondering, your common equity ratio after paying the $15 million and the dividends that you're expecting to pay for the rest of the year, how should we think about the common equity ratio? 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&A opportunities? 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, we will continue to have capital or tier one ratios that would be around 30%, still high. Honestly, as always, we mentioned that we are...
It seems it was very attractive, the multiples for the transaction. But just wondering, your common equity year-to-year ratio after paying the $15 million and the dividends that you're expecting to pay for the rest of the year, how should we think about the common equity year-to-year ratio? Even after those payments, you will continue to hold a very high capital ratio. So can you share with us how much excess capital you have and if you will continue to explore potential M&A opportunities? 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, we will continue to have a capital or tier one ratios that would be around 30%, still high. Honestly, as always, we mentioned that we are…
examining or alert on any potential player leaving 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. 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.
examining or alert on any potential player leaving 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. As we always mentioned, what the bank has been doing in the last few years and we will continue doing in the future is to make the best use of this excess capital. Excellent. Now, thank you very much Jorge.
You're welcome, Ricardo. The next question comes from Nicholas Riva of Bank of America. Please go ahead. Thanks, Jorge and Nico, for taking my questions. I have two questions. The first one might be if you can give a bit more color in terms of your FX position, because one thing that the urgent and banks have said for a while is that there is a cap in terms of the loan 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 $2.6 billion net loan position as of the end of June , and that's actually 91% of your equity, and you have been showing large FX translation gains in income stem because of that.
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 I will do this in dollars. And also if you can tell us, let's say next week or whenever, there is a large, basically there is, they remove the FX controls and –
and the official exchange rate, the values essentially to the unofficial one, so there's a 100% devaluation, how would that impact actually your results and your capital ratios?
Actually, what's your, if you have actually $50 million on hand to pay for this, or if you need to get access to dollars from the central bank to pay for this? Yes.
What's your, if you have actually $50 million on hand to pay for this, or if you need to get access to dollars from the central bank to pay for this? Thanks. Hi Nicholas, 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 short-term futures.
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 subscribed in pesos. So what you are seeing that we are longing 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 used as kind of to be longing dollars. But in terms of,
linked bonds which are subscribed in pesos. So what you are seeing that we are long in dollars is because we are having some positions in dollar linked and also depending on the structure or the report that you are seeing, sometimes the dual bonds are also used to be long in dollars. But in terms of assets.
and liabilities. In US 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 longing 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 longing dollars through those.
bonds basically. No other asset in US dollars. Again, peso denominated bonds that are tied to the evolution of the dollar.
of the official effects or either inflation or the official effects the higher, which is the view up.
So that's to be clear about that.
Your question about the DAU and the $50 million, yes, we have $50 million and we are going to use these dollars to pay for the DAU. We do not need
Of course, the transaction has to be approved by the central bank.
Okay, thanks very much. 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 billion. Can you clarify if there's a 100% devaluation, we are not going to show a $2.6 billion gain.
So again, if I just look at the balance sheet, your FX position in dollars net long is $2.6 billion. Can you clarify if there's a 100% devaluation, we are not going to show a $2.6 billion gain.
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 zero percent impact on the P&L. I'd better leave in the room.
net effects position of 2.5, what we are going to have is basically the impact on the bonds tied to the evolution of the effects.
which are the dollar link 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 $2.6 billion impact. 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 travelling can see what Jesus said.
the evaluation 100% on the official effect is going to have an impact basically on the bonds that we have tied to the dollars.
Okay, thanks very much.
You're welcome.
Again, if you would like to ask a question, please press star, then 1.
And our next question comes from Carlos Gomez of HSBC. Please go ahead.
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 and also I understand that the value agreed.
is based on the value of the bank as of March, sorry, 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? And is there anything in the horizon by whoever comes and takes charge of the economy that could impact the availability of the banks in the short term? Thank you.
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 are having elections, could be delayed a little bit, 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 a...
We are filming what we have been saying many, many times that we want to keep on growing in Argentina. I think that the acquisition of VITAO is a very important part of our
a lot of value for Banco Macro not only because we think that we are paying a lot of money
a good price on this operation because also it's increasing the number of branches mainly in VACET 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. Thank you for watching.
Also, we have been stating that if there was a potential acquisition, our main target was to increase our presence in this area, so we are confirming what we have been saying. And also, it is giving us some new clients on the commercial and the retail area.
Also we have been stating that if there was a potential acquisition, our main target was to increase our presence in this area, 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.
I'm very valuable for Banco Macro and more taking consideration the price that we are paying. And on your third question about ROE, I think that we are going to have a third quarter that's going to be as good or maybe better than the second one, basically because the Will's answer Thursday.
So far the securities or the bonds are performing really well. So that's why we think that honestly and now in the fourth quarter it's a big question mark because...
A lot of the performance of the quarter will be tied to the outcome on the election. So that's why the target that we are putting in the area of 20% is because there is some uncertainty on how many securities could be performing in the fourth quarter.
a lot of the performance of the quarter will be tied to the outcome on the election. So that's why the target that we are putting in the area of 20% is because there is some uncertainty on how many securities could be performing in the fourth 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 about 20%. But just put some interrogation marks on the fourth quarter.
in that quarter continues on the trend that we are showing, ROE in real terms is going to be about 20%. Just put some interrogation marks on the fourth quarter.
Thank you so much. Thank you Carlos. 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. Thank you all for your interest in Banco Maco. We appreciate your time and look forward to speaking with you again. Have a good day.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.