Banco Hipotecario S.A. (BHIP) Earnings Call Transcript & Summary

Hello all. Welcome to the 2019 Full Year Conference Results of Banco Hipotecario. Due to technical issues today, we do not have the AT&T moderator. So this is going to be an open line conference. [Operator Instructions] Now I hand it over to Mr. Tomás Godino, CFO of Banco Hipotecario.

Thank you, Martin, and welcome all. Let's talk a little bit about the results for the year. The year ended up with a net income of ARS 1.7 million, almost ARS 1.8 billion compared to ARS 2.0 billion of previous year. The decrease in the net result was due to a couple of reasons. Basically, was -- actually there are 2 reasons. One, related to the interest rate and the other one with the provision for loan losses. The one regarding to the interest rate in order to understand what happened, is -- we had to add up a couple -- actually, 5 lines of the income statement, the one that are related to the net interest income. In fact, when you look at that line in the statement, you see a decrease of 23%, but that is compensated with 3 other lines that are below the net fee income. The lines are named as net income from financial instruments at fair value, difference in foreign currency and other operating income. Those 3 lines are related also to the interest rate because basically what happened last year is we reduced our loan portfolio, which the interest from the loan portfolio is recorded in the first item. And since we reduced the loan portfolio, all the liquidity we were building, we invested in financial instrument, right? And also, there is, again, with the difference of foreign currency since we bought -- we built liquidity also in foreign currency. And we have debt in foreign currency. So that's why also, you can see an increase in that item. And other operating income, basically, there are some other assets as the future, some other that follow the pace of the foreign currency, okay? So in order to understand the movement in the interest rate, you have to add those pipelines, which when you add them all together, you will see an increase of 22%. Although it's an increase, but it's lower than inflation, basically, another reason why it was lower than inflation. First of all, you know that our bank is more sensitive to the interest rate and suffers more in high interest rate environment. So that's the main -- one of the reason. Another reason is that we have a considerable negative carry, since we are building liquidity, we have a payment this year, November, of $280 million, and we have the liquidity and that we don't have many alternatives in Argentina to save money, to invest the liquidity in dollars. So the yield of that liquidity will also have a significant negative carry with that. Moving on the financial statement. We see the other important line is the provision for loan losses. Basically, it has an increase of 100%. That's ARS 1.8 billion, and that's mostly related to corporates that we have been already discussing, mostly all the -- in all the conference calls. Let's go -- let's talk about a little of the NPLs. It's important to mention that as we were advising in previous quarters that in -- since January, the IFRS rule 9 is enforced. And when you look -- and there is -- then the main changes are in the coverage ratios of the NPLs. If a total portfolio has -- the NPLs of the portfolio, has a coverage ratio of 60% with the Argentine Central Bank rules, but when we look it under the IFRS rules, it will be 92%. So there's a considerable increase there. And when you look at the consumer portfolio, also talking about the NPLs, it moved from 56% in Central Banks rules to 108% in IFRS and the -- in the corporate portfolio, it's 63% under Argentine Central Bank rules and 80% under IFRS. So as we mentioned that in previous quarter, they cover us, increased significantly, once we apply the rules from IFRS. We'll talk later about that. The shareholders' equity under the new rules in order to understand what happened with that. Going back to the financial statement, financial income statement. Below the provision for loan losses, we have the expenditures, personnel expenses and other operating expenses, basically, which the personnel expenses increased lower than inflation. They increased 38%, basically because we're reducing our employee plan in order to improve our efficiency. And we can see also an increase of 45% in the important item of expenses, although it increased higher than the present expenses because those are expenses harder to calculate as they are more related to the daily operating expenses. They increased below inflation, they increased only 45% when you look at the inflation of 50%. So there is a lower tax issue. And then we end up with a net income of ARS 1.781 billion. Talking a little bit about the balance sheet structure. The most important ratios that we follow, if you remember that we have been through a very hard year. And the most important items for us are liquidity and solvency. The commercial part is not, as we mentioned previously, in our calls, it's not the most important. The most important was the liquidity and the solvency. And in terms of liquidity, we have the -- our liquidity coverage ratio of 182% and the net stable funding ratio of 177%. While liquid over total deposit was 85%. So the liquidity is performing good. In terms of capital ratios, risk-weighted assets, as of December, was 14.18%, improving from 12.71% of previous year. And lastly, regarding the new shareholders' equity, once you include inflation accounting and the expected loss provision that we mentioned before. The shareholders' equity will be ARS 12.1 billion under IFRS rules compared to ARS 11.7 billion under Argentine Central Bank rules. So combine the both effects, we will have a higher shareholders' equity. So I think now we have to mention a little bit about the fourth quarter. There are not many things to mention basically because the quarter was -- net income for the quarter was ARS 89 million. But basically, the decrease on the last quarter of the year was basically related to the interest issue regarding the negative carry we had and the decrease -- that there was a strong decrease on the lease that couldn't much -- wasn't much by the decrease of the -- our deposit rate, but the interest rate decreased, but the duration is much of the -- the lease is much shorter than the deposit. In fact, the lease back then, they have 3 days average life compared to deposit with 30 days. So it will be the most important part of the quarter. So having said that, I would like to turn to the Q&A, if there's any?

If there's any, please go ahead because there is no...

We have no moderator.

Yes. It's Nicolas from Bank of America. One question on the 2020 bond. So you said that you have been strengthening a bit liquidity ahead of this payment of the $280 million in November. I wanted to hear your thoughts on that because, I mean, you did the partial tender offer last year, you took some of the $350 million out. Your cash position increased to over $300 million in this quarter. You're not growing the loan book. Deposits are growing faster than -- and also, it seems to be that your capacity to pay that bond has increased. What are your thoughts there regarding your capacity to pay $280 million in November?

Okay. Our capacity, we have been raising liquidity. Not enough because we have payments to do in the local bond market. So we have been building liquidity, yet not all enough in order to make all the payments. But the most important issue now that it's hurting us is the negative carry we have with the liquidity. So of course, we'll do anything to pay our debt, but we will also -- would like to -- in some part of the time, make transaction in order to use that liquidity related to the transaction because below that liquidity to get to the payment will be very handful for the bank.

Okay. So what I understand is that we shouldn't be surprised between the first quarter or second quarter if we see some drop in your liquidity levels. But then the idea would still be to probably raise whatever funds you need to raise in the local market in order to be able to pay the $280 million in November, without asking for an extension or one...

No. The liquidity shouldn't decrease, it should decrease if we launch a transaction of liability management. But the most important -- the reason why we're building liquidity is in order to pay our bond. We don't know if it's going to be enough because the local market has -- is not as deep as the international market. So at some point, we -- when I think on doing liability management transaction.

And also, let me add that the liquidity that you consider at $300 million includes...

For allowance requirements, it's not all available.

Yes. Yes. But right now, you're not thinking of asking for an extension in the payment in November, launching a concern, you're not thinking of that really for now?

We still don't know what we're going to do, we plan on doing some liability management transaction, the shape of that will be a determined in the...

It's something we're analyzing as we always are analyzing what to do with our resources.

Are there any other question in the room?

This is Matias Castagnino from BCP Securities. So I want to ask you, you also had a maturity in January for local bonds. So how do you pay for that? And if you can give us the current liquidity position after that.

You mean the maturities that we -- oh, yes, the 2020...

'21?

Sorry. No, 2020. The one that we already paid.

The one that we already paid or the...

Yes.

We already paid.

We paid one in January...

Yes, yes, yes. I want to ask, the liquidity post-payment, what is the current liquidity?

It wasn't significant. It wasn't that significant.

We paid ARS 1 billion. Around ARS 1 billion between the ARS 600 million in January and 2 local bonds in February, there were, yes, ARS 1.1 billion between both, but we also raised ARS 3.4 billion of debt in the local capital markets. So our liquidity increased right around that time.

Okay. Okay. And one more question I have. You said that the coverage under IFRS 9 would be higher. That would be exactly because of higher allowances, lower NPLs, what would be the reason behind that?

Tomás mentioned, just mentioned that it's going to be higher. What we did or what Tomás mentioned it, what would the current NPLs at December 31 with the new provisions from IFRS? So there has been a reduction -- during the year, there have been an increase in the NPLs as we've seen and we discussed in all the different calls. During the last quarter, the NPLs on the consumer segment went down. But if you take that NPL, that is on the press release, but you replace instead of the allowances for Banco Central, you replace it with IFRS 9, the coverage ratio would be the one that Tomás just mentioned, that's 92% for the whole portfolio, 108% for the consumer portfolio and almost 80% for the commercial portfolio.

Okay. So we should expect allowances to be higher, but NPLs to remain at pretty much the levels that we saw in December 2019, right?

In the consumer portfolio, I would say that, yes, in the corporate portfolio there's still some time during the quarter to see if we have to -- if it is going to grow or not.

Okay.

In fact, this -- the third quarter -- sorry, the fourth quarter does not include Vincentin because it wasn't an NPL until then, but it's definitely going to be in the first quarter of 2020.

So it's going to be an NPL in the first quarter?

Going to be an NPL in the first quarter in the commercial portfolio, and it's not considered here because it wasn't an NPL in that moment.

And what levels of NPLs then should we expect with that?

Again, I don't know what the level of NPL is going to be for the quarter. Our exposure to Vincentin is around...

$11 million.

$11 million.

All right. So if there is no other question, and well, thank you very much, and we'll hear from you on the other quarter.

Thank you.

Thank you.