Banco Macro S A (NYSE:BMA) Q3 2022 Earnings Call Transcript

Banco Macro S A (NYSE:BMA) Q3 2022 Earning Call Transcript November 28, 2022

Operator: Good morning ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to Banco Macro’s Third Quarter 2022 Earnings Conference Call. We would like to inform you that this third quarter 2022 press release is available to download at the Investor Relations website at www.macro.com.ar/relaciones-inversores. Also, this event is also being recorded and all participants will be in a listen-only mode during the company’s presentation. It is now my pleasure to introduce our speakers. Joining us from Argentina are Mr. Gustavo Manriquez, Chief Executive Officer; Mr. Jorge Scarinci, Chief Financial Officer, Mr. Nicolas Torres, Investor Relations. Now, I would like to turn the conference over to Mr. Nicolas Torres. You may begin your conference, sir.

Nicolas Torres: Thank you. Good morning, and welcome to Banco Macro’s third quarter 2020 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 is available at our website. Third quarter 2022 press release was distributed last Wednesday and it’s also 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. As of 2020, the bank began reporting results applying hyperinflation accounting in accordance with IFRS IAS 29 as established by the Central Bank of Argentina. 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, 2022.

I will now briefly comment on the bank’s third quarter 2022 financial results. Banco Macro’s net income for the quarter was ARS8.9 billion, 76% higher than the second quarter of 2022 and 34% lower than the result posted a year ago. As of the third quarter of 2022 the bank’s accumulated annualized ROE and ROA of 7.7% and 1.9%, respectively, remained healthy and showed the bank’s earnings potential. Net operating income before general and personnel expenses in the third quarter of 2020 was ARS122 billion, 22% or higher quarter-on-quarter due to higher income from financial instruments at fair value or loss and higher FX gains. On a yearly basis, net operating income increased 54% or ARS42.6 billion due to higher income from financial instruments at fair value for profit and loss and higher FX gains.

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Operating income after general and administrative expenses was ARS75.1 billion, 39% or ARS21 billion higher than in the second quarter of 2022 and 101% or ARS37.7 billion higher than in the third quarter of 2021.In the quarter, net interest income totaled ARS63.5 billion, 3% or ARS2.1 billion lower than the result posted in the second quarter of 2022, 17% or ARS9 billion higher than the result posted one year ago. In the third quarter of 2022 interest income totaled ARS137.2 billion, 17% or ARS20 billion higher than in the second quarter of 2022 and 50% or ARS45.8 billion higher than the previous year. Within interest income, interest on loans totaled ARS55.5 billion and increased 9% or ARS4.6 billion quarter-on-quarter, mainly due to a 324 basis points increase in the average lending rate.

Interest on loans increased 22% or ARS9.8 billion year-on-year. In the third quarter of 2022, interest loans represented 40% of total interest income. Net income from government and private securities increased 19% or ARS12.2 billion quarter-on-quarter due to higher income from government securities, compared to the third quarter of 2021, net income from government and private securities increased 86%. In the third quarter of 2022, income from repos totaled ARS3.9 billion, 358% or ARS3 million higher than in the previous quarter and 3% or ARS107 million lower than a year ago. In the third quarter of 2022, FX gains, including investments in derated financing, totaled ARS16 billion gain, ARS9.5 billion higher than in the second quarter of 2022 and ARS15 billion higher than the previous year due to the bank’s long dollar position and the profit depreciation during the quarter.

In the third quarter of 2020, interest expenses totaled ARS73.7 billion, 43% or ARS22.1 billion increase compared to the second quarter of 2022 and 100% of ARS36.8 billion higher on a yearly basis. Within interest expenses, interest on deposits increased 45% to ARS22.4 billion quarter-on-quarter, mainly driven by a 950 basis point increase in the average interest rate paid on deposits while the average volume of private sector deposits increased 6%. On a yearly basis, interest on deposits increased 106% or ARS37.2 billion. In the third quarter of 2022, interest on deposits represented 98% of the bank’s financial expenses. In the of 2022, the bank’s net interest margin, including FX was 28.1%, higher than the 24.7% posted in the second quarter of 2022 and the 19.1% registered in the third quarter of 2021.In the third quarter of 2022, net fee income totaled ARS14.2 billion, 2% or lower than in the second quarter of 2022.On a yearly basis, net fee income decreased 1% or ARS80 million. In the of 2022, net income from financial assets and liabilities at fair value to profit and loss totaled ARS25.5 billion gain 183% or ARS16.5 billion higher than in the previous quarter. This increase is mostly related to higher income from government securities, which increased 416% or ARS14.7 billion. On a yearly basis, net income from financial assets and liabilities at fair value to profit or loss increased 304% or ARS19.2 billion. In the quarter, other operating income totaled ARS3.7 billion, 20% and ARS911 million lower, compared to the second quarter of 2020.

On a yearly basis, other operating income increased 16% or ARS517 million. In the third quarter of 2022, Banco Macro’s personnel and administrative expenses totaled , 3% or ARS854 million lower than the previous quarter. Personnel expenses decreased 4% when administering remain unchanged. On a yearly basis, personnel and administrative expenses increased 5% or ARS1.2 billion. As of the third quarter of 2022, the efficiency ratio reached 29.1%, improving from the 31.2% posted in the second quarter of 2022.In the third quarter of 2022, expenses decreased 3%, while net interest income plus net fee income plus income increased 23% compared to the second quarter of 2022.In the third quarter of 2022 the results from totaled ARS58.3 billion loss, 25% or ARS11.7 billion higher than the loss posted in the second quarter of 2022, due to higher inflation observed in the quarter.467 basis points above second quarter 2022 level. Inflation was 22% in the quarter compared to 17.3% in the second quarter of 2022.In the third quarter of 2022, Banco Macro’s effective tax rate was 46.7%, and more information is provided in Note 22 in our financial statements. In terms of loan growth, the bank’s financing to the private sector totaled ARS507 billion, decreasing 7% of ARS37.2 billion quarter-on-quarter and 9% or ARS53.1 billion lower year-over-year. Within commercial lending, overdrafts and documents stand out with an 18% decrease and a 9% decrease, respectively. Meanwhile, within consumer lending, personal loans decreased 12% while credit card loans decreased 6%.

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Within private sector financing, peso financing decreased 6% or ARS33.3 billion, while U.S. dollar financing decreased 26% or $63 million. It is important to mention that Banco Macro’s market share over private sector loans as of September 2022 reached 7.3%.On the funding side, total deposits totaled ARS1.1 trillion and increased 7% or quarter-on-quarter and 13% or ARS 132.1 billion higher year-on-year. Private sector deposits increased 5% quarter-on-quarter, while public sector deposits increased quarter-on-quarter. The increase in private sector deposits was led by time deposits, which increased 7% or ARS34.5 billion, while demand deposits decreased 5% or ARS21.4 billion. Within private sector deposits, peso deposits increased 10% or ARS94.3 billion, while U.S.dollar deposits decreased 25% or $289 million.As of September 2022, Banco Macro’s transactional accounts represented approximately 43% of total deposits.Banco Macro’s market share over private deposits as of September 2022 totaled 6.5%.

In terms of asset quality, Banco Macro’s nonperformance total financial ratio reached 1.27%, and the coverage ratio measured as total allowance and the expected credit losses over non-performing loans under Central Bank rules, totaled 153.13%.Consumer portfolio non-performing loans were unchanged at 1.23%, while commercial portfolio non-performing loans increased 15 basis points in the third quarter of 2022.In terms of capitalization, Banco Macro accounted an excess capital of ARS361.9 billion, which represented a total capital ratio of 40.4% and a Tier 1 ratio of 36.1%.It should be noted that on May 12, the Superintendencia de Entidades Financieras y Cambiarias of the Central Bank of the Republic of Argentina informed us that it has decided to authorize Banco Macro S.A.to distribute profits in cash and/or in kind for an aggregate amount of ARS19.7 billion, and the distribution shall be carried out in 12 monthly equal and consecutive instalments. As of this date the Bank has paid 11 installments and will pay another one in December. The banks 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, we have accounted for another positive quarter. We continue showing a solid financial position.

Asset quality remain under control and closely monitored. We keep on working to improve more our efficiency standards, and we keep a well-optimized deposit base.At this time, we would like to take the questions you may have.

Operator: And the first question will come from Alonso Garcia with Credit Suisse. Please go ahead.

Alonso Garcia: Hi, good morning everyone and thank you for taking my question. My question is regarding your exposure to the public sector, especially to the National Treasury. I mean I understand that in this environment of negative free interest rates and very low grade demand, it’s the way you can protect your shareholders equity right from inflation. But is there €“ and I noticed that in this quarter, you had a €“ in relative terms, right, as a percentage of your total assets, you had a slight decline in your exposure to public sector, compared to the previous quarter. Just wanted to hear your thoughts on your exposure to the national treasury going forward, considering that next year, most likely might remain subdued and that interest rates might remain as well in negative territory in real terms. So, I don’t know if you have any kind of internal limits or anything €“ any color you can provide on this exposure going forward? Thank you.

Jorge Scarinci: Hi Alonso, good morning. This is Jorge Scarinci. No, honestly, we do not have an internal benchmark in terms of exposure to the public sector. This is ranging differently into the quarters, taking to consideration the behavior of interest rates, the different instruments that the treasury is issuing in terms of getting that from the market. Honestly, we feel comfortable with the exposure that we have. Again, this might change depending on the quarter. We think that the public sector that has no problem to be renewed going forward.

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