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

Ladies and gentlemen, thank you for standing by. Welcome to Banco Hipotecario's First Quarter 2020 Earnings Release Call. [Operator Instructions] I would like now to turn the conference over to Mr. Martin Diez, Banco Hipotecario's CFO. Please go ahead.

Thank you, Valentina. Hello, everybody. Welcome to Banco Hipotecario's First Quarter 2019 -- 2020 Consolidated Results Conference call. The bank began reporting results applying hyperinflation accounting in accordance to IFRS rule IAS 29 as established by the Central Bank. Therefore, average results and variation described in this report is expressed in constant currency as of March 31, 2020. Also, the provisioning model of IFRS 9 Section 5.5 was applied as established by Central Bank. Before jumping into the highlights, let me comment a little on the COVID-19 outbreak that we are all aware of. I believe, I assume we're aware of. Well, as you all know, the pandemic that was declared by the Worldwide Health Organization on March, it impacts Argentina in the first half of the month of March, and the government decided to declare a lockdown on March 20, 2020, and this was originally meant to last for 11 days, and we are almost 80 days. And yesterday, it was announced that for the city of Buenos Aires and the surrounding metropolitan area, it's going to last at least for 21 more days, and we think it can last maybe for a couple of months. So this obviously has an impact on our operating model, on our business in the future and on our current business, and we still don't know the extent that this is going to have both on the world economy and the Argentine economy. From our perspective, what we can tell you is that our operations remain completely stable. We are operating in a full capacity. We have shifted into a home office model where our headquarters are operating on a 97% from -- remotely, meaning that only 3% of the headquarter is in the office as we speak. And on the branch network, 40% of the employees are working from home, and the remaining 60% are working for the branches that are open for business. Regardless the -- regarding the Central Bank measures on the COVID-19, there have been several. Well, the bank started raising several measures before the COVID-19 outbreak, some of them impact our profitability. They did impact on the quarter, and they are going to impact as long as these measures remain. Some other measures that were decided on during the outbreak are related to giving some relief for the debtors and also to create lower interest or low interest loans in some cases, are mandatory, such as the independent workers loans that we -- that the banks have to be about 16% -- sorry, at 0% rate, but we receive a 15% from the furlough-related fund created by national government. And some matters are not mandatory, but the impact on the amount that you can invest in the mix. These are the SMEs loans at the 24% rate that limit the [indiscernible] or the Central Bank knows that you can have. Having said all this, let me go into the highlights. The net income for the quarter was minus ARS 498.4 million. This compared to minus ARS 1,629 million of 2019 first quarter. Net operating income for the quarter was ARS 3,833 million, this compares to ARS 4,357 million of 2019 first quarter. Operating income for the year was ARS 237 million, and this is compared to minus ARS 438 million of 2019 first quarter. During the first quarter of 2020, the liquidity coverage ratio was 208%. Net stable funding loan ratio was 136%, and the liquid assets to deposit ratio was 98.7%. Loans to the nonfinancial private sector decreased 34.4% year-over-year. Deposits remained stable because they only decreased 0.5% year-over-year, while capital market debits decreased 32.4% year-over-year. On a consolidated basis, NPL -- let me hash tag to this particular one that the figures that I'm going to tell you are different than the ones that were published because there was a mistake on the calculation of the total portfolio and the calculation of the first quarter of 2019. So on a consolidated basis, these figures are available on our website, they have already been published, the corrected one. On a consolidated basis, NPL increased from 11.9% in the first quarter of 2019 to 12.5% in the first quarter of 2020, while coverage ratio was 92.9% for this quarter. Besides the NPL for the consumer portfolio decreased from 10.1% in the first quarter of 2019 to 4.6% in the first quarter of 2020. Total capital ratio as a percentage of risk-weighted assets as of March 31, 2020, was 17% compared to 12.7% of the same quarter last year. Well, this is all what we had to report. So Valentina, we can now open to questions.

[Operator Instructions]

[ Foreign Language ]

[Foreign Language]. Well, the questions that [ Damian ] just placed are related, the first one to the commercial NPL and the size of 30% that he wants to know about the composition of this. Let me describe our commercial portfolio NPL. Today, we have 2 big loans or 2 big companies that explain, I would say, more than 95% of our commercial NPL. These are [indiscernible] the impact asked last year, in fact, on the first quarter of last year, where you can see the jump on our commercial NPL. And the second one that impact on this quarter was Vincentin. These 2 explain, yes, almost 95% of our commercial portfolio NPL. We do not have other cases, in fact, we have been reducing our exposure to corporate. So this 30% of the total portfolio has 2 impacts. First of all, the one that it's -- these loans are dollar denominated. So with the devaluation, they grow, and their share in the portfolio increases. And also, since we have been shrinking the portfolio, this also looks bigger on relative terms, but it's not growing on absolute terms. Also, these 2 loans are already provisioned at 75%, both of them. So I would say that we believe that the heat has been taken in fact, it might be also the other way round, if this company settled, we can improve on these figures, but it's not something that we have certainty right now. And then the other question was related to our endowment that matures on November 30, 2020, of $280 million. He asked about our plans regarding this particular business. Well, I believe if you have been following our previous conference calls and the meetings we attended with investors, we do have plans around this. We are waiting until the sovereign finishes, what they have to do with their own debt in order not to be there in the market, making some noise or intervening in a process that we believe that should be resolved before we can solve our -- or we can face what we are going to do with our maturity. The things that we are exploring there is to do liability management, that's one possibility. And also if we can see a window in the capital markets to raise new debt in order to repay this. We will do it. As of today, our cash position is quite strong, even though we are -- we still, as I mentioned before, we still don't know what the outcome of the pandemic and the impact of the COVID-19 is going to have. We believe that our solid cash position can help us in order to do a good liability management both for the investors and for us. I don't know if that answered your question, [ Damian ]?

We will now go to the line of [ Frederik De Mari. ]

Just wanted to ask for your views, Martin, on maybe on the sector as a whole, less for Hipotecario. I mean you mentioned the liquidity ratios, capital ratios, all that is clear. I was curious to see what do you think about -- what's your view on the financial stability for the Argentine banks as a whole? Do you see any subsector, any niche that could be more at risk than others? And I would very much like to hear your views about NPLs. So you mentioned your portfolio that is where you have the 2 clients at risk, but it's already very well provisioned. And you even mentioned that we could have a reversal of provisions. Obviously, it's a bit early to have a clear view on this. But based on what you're seeing today, where do you think the NPL ratios or the NPL situation goes for the sector as a whole for the Argentine banks for the next few quarters?

I think that you're asking me for -- to tell you what the future is going to be, and it's a tough question. But let me tell you, we don't see the NPLs improving in the next quarters for sure because we are aware that the Argentine economy is going to suffer a lot from the COVID-19. In fact, we believe it is one of the economies that it's going to suffer more. If you see -- if you've seen the figures from March and April, the economic activity plan and this is something that is going to be on the NPLs on the future, both on the corporate side and also on the consumer side. Then you can go to a specific business line. For example, on the corporate side, there are corporates that are going to be hit or are even going to improve their business. And that's one of the reasons why we did not originate as much as we could have on the SMEs portfolio when the Central Bank imposed or not imposed, but well, yes, imposed a limit on the link holdings related to how much you lend to SMEs. We were not as aggressive as other banks were because we see that the NPLs can have a raise there. Also on the consumer side, we believe it's going to increase as well. If you've seen our figures, we've been improving since the first quarter of last year until now, we do not expect this improvement to continue, but we expect that it's going to increase in the future. Then we can also discuss, if you want, regarding the profitability meaning that you mentioned that how this is going to impact the financial system. I believe that the financial system in Argentina is very well capitalized. It has a lot of liquidity. So I don't think we will see problems with any financial institution. So I think that the system is ready to face this. The measures that the Central Bank has been taken have been -- I believe that some of the measures were very good for the system, such as the one that postponed the loans and the credit cards, I mean, the people that couldn't afford to pay or that they didn't pay on April their credit cards, USA Bank had to give them a 20-month loan. I believe that, that was a very good measure that it's going to help both the debtors and the financial institutions. And the other measures that the Central Bank has taken, some of them do impact the profitability of the bank. Particularly in our case, we are going to have an impact or we are having an impact on the profitability based on the restriction on the rate that you have -- you can impose to the credit card holders, that limit that the Central bank imposed before the COVID-19 outbreak in February. It impacted our first quarter profitability, and it's going to impact the profitability for the -- as long as this measure continues. Also, another measure from Central Bank that impacts our profitability is the limit on the adjustment of the fees. I mean we are not able to reprice or to -- you can reprice down, but you cannot reprice up the fees related to the credit card. So I think that for the profitability of the bank, it's going to be an impact during the year. NPLs are going to go up as well. But I do not see any financial institution having solvency or liquidity programs.

Yes. We will now go to the line of [ Eliseo Santi. ]

I would like to check about the previous answer and what about is the government doesn't reach an agreement with the debt? So do you have enough cash to pay the 2020s in this case? Or you will need the liability management window opened before November to solve the problem with the court?

As of today, we will not have [ $280 million ] in order to pay -- to fully pay this debt. Today, I would say that we need to access the market in order to pay this, but if the government fails in order to restructure the debt or if it's successful, either way our base case, it's to do the liability management. What I'm saying is that we are waiting until there's a destination around this in order to see how we can do this liability management transaction. We still have 6 months exactly, 5 months and 25 days, and we still see chances of raising funds in case things improve. So we believe that the best case, it's going to do -- it's going to be of us doing a liability management, but we are also considering reductions as well. But I mean, this is regardless of the fact if the government is successful or not, the best case remains the same.

[Operator Instructions] I'm showing no other questions in queue. Please continue.

Well, if there are no further questions, I have nothing else to add. Well, thanks, everybody to -- for joining our conference call on this new fashion of Zoom that we're experiencing today. I hope this works for all of you. It certainly did for us. Thank you all for joining and see you in 3 months.

Okay. Ladies and gentlemen, that does conclude your conference call for today. Thank you for your participation in Banco Hipotecario's First Quarter 2020 Earnings Release. You may now disconnect.