Q3 2024 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 Micro's 3rd Quarter 2024 Earnings Conference Call.

We would like to inform you that the third quarter 2024 press release is available to download at the Investor Relations website at Bank of Macro at www.macro.com.ar slash Relaciones hyphen Investores slash.

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.

At that time, further instructions will be given. Should any participant need assistance during the call, please press star zero to signal the operator.

Speaker Change: It is now my pleasure to introduce our speakers. Joining us from Argentina are Mr. Jorge Skerrenci and Chief Financial Officer as well as Mr. Nicholas Torres, IR. Now I will turn the conference over to Mr. Nicholas Torres. You may begin your conference.

Nicholas Torres: Thanks Guya. Good morning and welcome to Bank of Mexico's third quarter 2024 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 it's available at our website.

Speaker Change: Third quarter 2024 press release was distributed last Wednesday and it's available at our website.

Speaker Change: All viewers are in Argentine pesos and have been restated in terms of the measuring unit current at the end of the reporting period.

Speaker Change: As of 2020, the bank began reporting results applying hyperinflation accounting in accordance with IFRS IAS 29 as established by the central bank. For ease of comparison, figures of previous quarters have been restated applying IAS 29 to reflect the accumulated effect of the inflation adjustment for each period through September 30, 2024.

Speaker Change: I will now briefly comment on the bank's third quarter 2024 financial results.

Speaker Change: In the third quarter of 2024, Bank of Mexico's net income totaled 91.3 billion pesos. This result was 293% of 68.1 billion pesos higher than in the third quarter of 2023.

Speaker Change: As of the third quarter of 2024, the accumulated annualized return on average equity and the accumulated annualized return on average assets were 6.8% and 2.1% respectively.

Speaker Change: In the third quarter of 2024, operating income before general, administrative, and personal expenses totaled 829.2 billion pesos.

Speaker Change: 61% or 313 billion pesos higher than in the second quarter of 2024. And 25% or 272.3 billion pesos lower than the same period of last year.

Speaker Change: Net Operating Income before General Administrative and Personal Expenses in the third quarter of 2024 was 403.7 billion pesos, increasing 263% or 299.6 billion pesos when compared to the previous quarter and 44% or 322.5 billion pesos lower on a yearly basis.

Banco Macro

Speaker Change: Third quarter 2024 net income totaled 91.3 billion pesos, recovering from the loss posted in the previous quarter, and 293% or 68.1 billion pesos higher than in the third quarter of 2023.

Speaker Change: This result is mainly due to higher net interest income and a lower loss related to the net monetary position as inflation eased during the quarter.

Speaker Change: It is also worth mentioning that the bank continues to hold positive options on the remaining position of those bonds.

Speaker Change: In the third quarter of 2024, provision for loan losses totaled 23 billion pesos, 24% of 4.5 billion pesos higher than in the second quarter of 2024. On a yearly basis, provision for loan losses increased 53% or 7.9 billion pesos.

Speaker Change: In the quarter, net income total $569.1 billion, 167% of $356.1 billion higher than in the second quarter of 2024, and 63% or $220.9 billion higher year on year.

Interest income increased 23% when interest expenses decreased 40%.

Speaker Change: In the third quarter of 2024, interest income totaled 857.6 billion pesos, 23% of 160.4 billion pesos higher than in the second quarter of 2024, and 35% of 468.4 billion pesos lower than in the third quarter of 2023.

Speaker Change: Income from interest on loans and other financing totaled 400.4 billion pesos, 13% of 56.9 billion pesos lower compared with the previous quarter, mainly due to a 15.4 percentage point decrease in the average lending rate, which was partially offset by a 20% increase in the average volume of private sector loans.

Speaker Change: In the third quarter of 2024, income from government and private securities increased 143% or 253 billion pesos quarter on quarter and decreased 33% or 210.1 billion pesos compared with the same period of last year.

Speaker Change: In the third quarter of 2024, income from BRIC was totaled $18.6 billion pesos, 66% or $36 billion pesos lower than the previous quarter, and 84% or $97.5 billion pesos lower than a year ago.

Speaker Change: In the third quarter of 2024, FX income totaled $16.3 billion pesos gain, 43% or $12.5 billion pesos lower than the previous quarter, and 98% or $719.4 billion pesos lower than a year ago.

Speaker Change: The effecting campaign was due to the 6.5% Argentine peso depreciation against the U.S. dollar and the bank's long dollar position during the quarter.

Speaker Change: In the third quarter of 2024, interest expense totaled $288.4 billion pesos, increasing 40% or $195.7 billion pesos compared to the previous quarter, and 71% or $689.4 billion pesos lower compared to the third quarter of 2023.

Speaker Change: On a yearly basis, interest on deposits decreased 71% or 682.4 billion pesos.

Speaker Change: In the third quarter of 2024, the bank's netting interest margin, including FX, was 31.5%, higher than the 20% posted in the second quarter of 2024, but lower than the 60% posted in the third quarter of 2023.

Speaker Change: In the third quarter of 2024, Banco Matos net income totaled 117.8 billion pesos, 8% or 9.2 billion pesos higher than in the second quarter of 2024, and 7% or 8.1 billion pesos higher than the same period of last year.

Speaker Change: In the third quarter of 2024, net income from financial assets and liabilities of fair value to profit or loss totaled a $103.6 billion pesos gain, decreasing 24% or $32.3 billion pesos in the quarter. The gain was mainly due to a 4% decrease in income from government securities and a 58% decrease in income from private securities.

Speaker Change: In the quarter, other operating income totaled 45 billion pesos, 7% of 3.3 billion pesos lower than in the second quarter of 2004. On a yearly basis, other operating income increased 29% of 10.1 billion pesos.

Speaker Change: In the third quarter of 2024, DACA's administrative expenses plus employee benefits totaled $251.9 billion pesos, 11% for $24.9 billion pesos higher than the previous quarter due to higher employee benefits, which increased 6% and a 22% increase in administrative expenses.

Speaker Change: On a yearly basis, administrative expenses plus employee benefits increase 23% of 47.4 billion pesos.

Speaker Change: As of the third quarter of 2024, deficiency rates have reached 25.5%, deteriorating from the 22.2% posted in the second quarter of 2024 and the 23% posted one year ago.

Speaker Change: In the third quarter of 2024, expenses increased 10% while net income plus net pay income plus other operating income increased 68% compared to the second quarter of 2024.

Speaker Change: In the third quarter of 2024, the results from the Net Monetary Position totaled 283.9 billion pesos lost, 45% or 234.8 billion pesos lower than the loss posted in the second quarter of 2024, and 57% or 303.3 billion pesos lower than the loss posted a year ago.

Speaker Change: This result is a consequence of lower inflation observed during the quarter. Inflation is 12.1% from 18.6% in the second quarter of 2024.

Speaker Change: In the third quarter of 2024, the effective tax rate was 24.4%, lower than the 60.5% registered in the third quarter of 2023. Further information is provided in Note 21 to our financial statements.

Speaker Change: In terms of loan growth, the bank's total financings reach $4.55 trillion pesos, including 17% or $657.9 billion pesos quarter-on-quarter and 28% or $988 billion pesos higher year-on-year.

Speaker Change: Within commercial loans, overdrafts stand out with a 46% or $212.5 billion pesos increase, while debt cements decreased 12% or $83.5 billion pesos.

Speaker Change: Within consumer lending, personal loans increased 43% to 235.5 billion pesos, while credit card loans increased 25% to 227.1 billion pesos.

Speaker Change: It is important to mention that Bank of Mexico's market share over private sector loans as of September 2024 reached 9.2%.

Speaker Change: On the funding side, total deposits increased 7% or 516 billion pesos for one quarter totaling 8.1 trillion pesos and increased 30% or 1.8 trillion pesos year on year.

Speaker Change: private sector deposits increased 6% or 401.7 billion pesos, quote-on-quote, while public sector deposits increased 12% or 104.6 billion pesos, quote-on-quote.

Speaker Change: The increase in private sector deposits was by demand deposits, which increased 28% or 999.7 billion pesos, driven by the tax amnesty, while time deposits decreased 32% or 829.5 billion pesos quarter on quarter.

Speaker Change: But in private sector deposits, special deposits decreased 15% or $941.7 billion, while U.S. dollar deposits increased 87% or $1.4 billion.

Speaker Change: As of September 2024, Bank of Mexico's transactional accounts represented approximately 62% of total deposits.

Speaker Change: Bank of America's market share over private sector deposits as of September 2024 totaled 7.4 percent.

Speaker Change: In terms of capitalization, Banco Macro accounted for an excess capital of 2.53 trillion pesos, which represented a capital adequacy ratio of 32.8% and a tier 1 ratio of 31.3%.

Speaker Change: The bank's aim is to make the best use of this excess capital.

Speaker Change: The bank's liquidity remained more than appropriate, liquid assets, debt, and deposit ratio reached 91%.

Speaker Change: Overall, we have accounted for a net deposit of a quarter. We continue to show that solid financial position. Asset qualities remain under control and closely monitored. We keep on working to improve more efficient standards and we keep a well-atomized deposit base. At this time, we would like to take questions you may have.

Speaker Change: At this time, we're going to open it up for questions and answers. If you would like to ask a question, please press star, then 1 on your touchtone phone.

Speaker Change: And if you want to withdraw, please press star, then 2.

Speaker Change: And our first question will come from Brian Flores with Citibank. Please go ahead.

and your peers in the country may be accelerating 2024.

Speaker Change: on different dynamics. Right? You have maybe the same demand and the same appetite, but also better inflation dynamics help you.

Thank you.

Speaker Change: Hi Brian, good morning. This is Jorge Carrizzi answering. Thank you for your questions. The first one in terms of loan growth, yes.

Speaker Change: Since May of this year, I would say that we started to see more loan demand coming.

And, of course, in the recent months.

Speaker Change: as a consequence of a decline in inflation and some stability in the effects.

Speaker Change: So we think we are going to finish 2024 with a positive or a real positive rate of growth. It is going to be between

Speaker Change: 25% and 35% in 2024, and I would say that it's going to be in the area of 40% positive real rate of growth in 2025.

Speaker Change: So that is what we are seeing in terms of lung-related diseases.

Speaker Change: It's positive and I would say that we are going to see also GDP growth according to local economies growing next year in real terms between 5 to 6 percent.

In terms of your second question, in terms of ROE...

forecast this year I would say as a consequence of

Speaker Change: in the low to mid-10s, I would say, for next year. So that is guidance for the moment for 2024-2025.

Speaker Change: According to capital consumption, the third question, I mean, we have the highest excess capital among RG banks.

Speaker Change: We could be able to continue growing at high rates without any needs of additional capital here. So, in that sense, we feel pretty comfortable there, Brian.

Super clear Jorge, thank you very much.

You're welcome.

Speaker Change: Our next question will come from Ernesto Gavliova with Bank of America. Please go ahead.

Speaker Change: First, I would like to hear what would be your assumptions for inflation and FX for next year?

It could give you an idea of...

We'll play in-champs on the profitability next year.

Thank you.

Hi Ernesto, how are you?

Thank you.

Speaker Change: On the question on securities or bonds, I think there is a pretty clear table in the press release where we are stating there our position.

in bonds, open, in the different...

Speaker Change: of accountancy that we can take them or have them. As of today, we have a long position in bonds tied to inflation, and we do not have any bonds linked to the evolution of the effects.

Thank you. Thank you.

Speaker Change: In terms of a second question, honestly, I mean, it's not very easy to answer because it is very dynamic and we think that

The net interest income is going to continue growing.

Speaker Change: Of course, we are switching little by little, quarter by quarter, from securities into loan growth.

However, this is very tough to forecast.

Speaker Change: the combination between, or how that shift would result, adding also.

Speaker Change: So, my feeling is if you have to give you an answer here, next year we should be seeing NII growing also between 30 and 35 percent in real terms.

Speaker Change: The answer I can give you right now, of course, we could be fine-tuning this in the coming quarters.

Speaker Change: That was super helpful, Jorge. And just another question related to asset quality. So considering that you will be expanding again the loan book, how should we think about the NPL ratio and the cost of rates for next year?

Speaker Change: Well, I mean, asset quality, I think it's quite under control not only in Banco Macro but also in the average of the system. I think that...

NPR ratio.

For sure below 2% if that is the question.

Perfect, perfect. Thank you very much, Jorge.

Welcome Aniston.

Speaker Change: Next question comes from Nicolas Riva with Bank of America. Please go ahead.

Speaker Change: Hi, Nicolas. No, honestly we do not have any plans to raise new debt in the international markets. The 2025 Tier 2 bond is due by the end of 2026, sorry, of 2026. So, no, for the moment we do not have any plans on going into the markets on debts.

Speaker Change: And if you have a question please press star then 1. Our next question comes from Yuri Fernandez with JP Morgan. Please go ahead.

Yuri Fernandez: Hi, Jorge. I have a question here on your USD deposits. I know this quarter you had the blanqueo, and maybe this will continue for...

Yuri Fernandez: For the fourth queue, I think it was open until November, the beginning of November. So a lot of inflows of dollars. But when we look to the lows in dollars, they are not growing at the same pace. And your LDR, it is a good problem, right? Your LDR is very low.

Speaker Change: How to deploy this money, what to do with those dollar deposits, how those deposits impact your margins. So just trying to understand these excess of U.S. dollar deposits you have and how you are planning to work with this. Thank you.

Hi, Yuri. Yes, this blanqueo have a...

Speaker Change: I mean stronger effect in the fourth quarter and of course we are going to cover numbers there by February next year.

Speaker Change: But to give you some ideas, yes, we not only macro, but also other peers receive many deposits in U.S. dollar cash.

Speaker Change: But take into consideration that in this blanqueo, if you were depositing below $100,000, you can or you could withdraw those dollars without paying any tax in the following month.

Speaker Change: No, super clear. And just a final one on this topic. I see a big decrease in margins for you.

Speaker Change: And all the other larger banks, you have the breakdown of margins in both pesos and dollars, right? And when we go to the dollar margin, this used to be a mid-teens, like a 15 to 20 min. It is now running at 4.5. Basically, you are charging 5, 6, 7% on the asset side.

Speaker Change: And you are paying like 2% on the liabilities. Just trying to understand, what is driving this compression in margins, Jorge? Is competition? Is all the banks landing at very low rates on the asset side? Like, what explains the margin compression and what is there to look for your margins in USD?

Thank you.

Trent.

Trent: In the coming quarters, we're going to see stable U.S. dollar margins and maybe some pick-up in the second half of 2025, but I'm not seeing margins in U.S. dollars keeping on going downwards, but it's basically competition, yes.

No, perfect. Thank you very much, Jorge.

Welcome, Yuri.

Speaker Change: Thank you all for your interest in Banco Macro. We appreciate your time and look forward to speaking with you again. Good day.

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