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

Hello, ladies and gentlemen, thank you for standing by. Welcome to Banco Hipotecario's Second 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.

Thanks, Valentina. Hello, everyone. Thanks for joining us. Well, the bank began reporting results applying hyperinflation accounting in accordance to IFRS rule, IAS 29, established by the Central Bank as of the first quarter of 2020. Therefore, average results and variation described in this report is expressed in constant currency as of June 30, 2020. Also, the provisioning model of IFRS 9 Section 5.5 was applied as established by the Central Bank. Net income attributable to owners of the parent company for the quarter was ARS 596 million compared to minus ARS 525 million in the first quarter of 2020 and minus ARS 27 million of second quarter 2019. Net operating income for the quarter was ARS 4,599 million compared to ARS 4,039 million of first quarter 2020 and ARS 6,788 million of second quarter of 2019. Operating income for the quarter was ARS 1,113 million compared to ARS 249 million of first quarter 2020 and ARS 1,316 million of second quarter 2019. During the second quarter of 2020, the liquidity coverage ratio was 179%. Net stable funding ratio was 136 -- sorry, 138%, and the liquid assets to deposit ratio was 73.4%. Loans to the nonfinancial private sector decreased 3.9% quarter-over-quarter and 28.2% year-over-year. Deposits increased 40% quarter-over-quarter and 49% year-over-year, while capital market debts -- debt decreased 6.4% quarter-over-quarter and 26% year-over-year. On a consolidated basis, NPLs increased from 12.5% in the first quarter of 2020 to 12.7% in the second quarter of 2020, while coverage ratio was 93.6% for the quarter. Besides NPL in the consumer portfolio decreased from 4.6% to 4.4% during the same period. Total capital ratio as a percentage of risk-weighted assets as of June 30, 2020, was 16.9% compared to 17% of last quarter and 12.9% of second quarter 2019. The CET1 ratio for the quarter was 16.4%. The COVID pandemic is adversely -- the COVID-19 pandemic has adversely impacted both the global economy and the Argentine economy and our business, and it's still too early to know the full extent of its impact. During 2020, the Central Bank established measures that affect the results of our operations, such as maximum rate for credit cards, minimum rate for term deposits and freezing of fees, among others. Well, as you might have seen in the figures I just read, we've seen a better quarter than the first one of the year and also a better quarter when you compare to the same quarter of last year. There is not a single driver to explain this, but there are a few that show the main changes among the quarters. The first one is that we had a better net interest income, and that's not -- in order to see that, you have to sum up the net interest income and also the net income from financial instruments at fair value through profit and losses since the results from the release are included there because technically, these discount instruments are not considered interest, but when you see -- you have to see it combined. So we've seen a better net interest income. We've also seen a better fee income that is mainly related, as I mentioned on our last -- on the last bullet. One of the measures from the Central Bank was the freeze of the credit card fees. Well, that happened in March, but we have -- we made an increase in February, and that had an impact in the first quarter only in the month of March, and now we are looking at the full impact in this quarter. Even though we have seen an increase in this quarter, we do not expect to see any other increase during the year since it's not allowed until November 2020 to make any adjustments. And we don't know if -- when that freeze ends, we are going to be able to make an adjustment again or not. Then we have also seen an improvement on the line of difference in quoted prices of gold and foreign currency. This is mainly driven to the cost of the FX coverage that is -- has been lower in the quarter. Also, we've seen an improvement on the expense control. This is something that, as the ones of you that have been joining our conference calls in the previous quarters and years, we've seen an improvement in these figures since 2017. Well, during this year, we've made some adjustments as well in the way we do our expense control. And taking advantage of the COVID-19 situation, we discussed internally different ways of improving not only the control but also the way we decide where to put the money and what services are really required or not. So this is an improvement that we've seen in the quarter, but we expect to see good figures on this in the rest of the year. And for 2021, we are starting our budgeting process, and we expect to be below inflation next year as well because if you see the last column, when you see these figures year-over-year, the administrative expenses are 33% -- we've seen a 33% reduction in real terms. And in other operating expenses, we've seen a 47% reduction in real terms. So these figures are quite impressive. Then also another factor that you have to bear in mind in order to explain the difference between the 2 quarters and also with previous year is that the inflation for the quarter has been lower than the last quarter and lower than the second quarter of previous year. So those are the main drivers of the better results for the quarter. Then to give you a brief update on the COVID-19 situation, as we've mentioned, well, there has not been many changes from the situation we described on our last conference call on the first quarter earnings. The situation with the COVID, even though the cases are growing in Argentina, there are less restrictions because we started with very strict restrictions and now the government is easing some of those restrictions. But when it comes to our business, our branches remain operational. We are working with shifts in order to be able to provide the service, even though we've seen some cases on our staff. We've not seen many or considerable issues there. Then on the headquarters, the headquarters are almost completely empty. I went there last week. We are all operating from home. In fact, this is the second conference call of results that we are having from home. If you go to the branch or to -- sorry, to the headquarters, you will see there's no one there. It's quite impressive to see or to hear the silence of that place. We still have no signs of -- on returning to the office, even though we have a committee, and we are working on different scenarios and all. We still don't know how and when we are going to come back to the office. It's not that we don't know. I mean that there are no plans as a country or as a -- in order to go back to the new normal or whatever that is. Then let me go to one of the bullets that I read before that it's related to the NPLs because this -- I think that's something that is quite related to the COVID-19 or what we are going to see relating the future, it's all related to the COVID-19 situation and the impact that it's having on the economy. Until now, we have not seen any impact on the NPLs regarding the COVID-19 situation. There have been several measures from the Central Bank related to this that we have explained before, but one important that this -- one important that is related to the credit card business that in the month of April, the Central Bank instructed the banks to refinance all the amounts that were not paid during that month. And we have refinanced that on a 12-month loans with 9 installments, the first and 3-month grace period. The first installment, it's now on the month of August. And even though it's quite early to tell, we have not seen any deterioration on the collections. When this first -- at least until now, where we are today on the 20th of August, the figures from collections are quite good, and we've not seen an impact -- negative impact related to be the first installment of those loans. So that's something positive, but we still have to see how this evolves in the future as the economy is going to suffer and we expect the unemployment to grow. On the commercial portfolio, we have not seen any changes. There are some companies -- I mean, the companies can, if they want, not -- they can refinance the maturities that they have with the banks until September. We don't know if the Central Bank is going to extend that or not. But having said that, there are not many companies that have been using that capacity as there's plenty of liquidity. So we have not seen any companies with issues from our portfolio at least. It's -- and our NPLs from the commercial portfolio, as you are aware, are mainly related to Molca and [ Vicentin ], they are the 2 big cases that we have that explain almost all of our NPLs So I think that, that's what I wanted to explain from -- so from my side, if you want, Valentina, to open for questions.

[Operator Instructions]

Martin, this is [ Damian ]. Well, I have 2 questions basically. The first one is about the deposits. We see some important increase in the deposits. We would like to know what are the reasons. And the second question is about the loan portfolio. We would like to know if you are making some provisions regarding the COVID-19 in -- I mean, the impact of the COVID-19 in the loan portfolio. We know about the Central Bank measures, but we would like to know if you, as a bank, made your provisions.

Okay. Thanks for the question, [ Damian ]. The deposits, we've seen an improvement on the deposits that are driven by, let me say, 3 factors mainly and they're -- and it relates to the quarter specifically. One of them is that we've seen a higher demand for site deposits. We believe that not only us, but all the system. This is mainly related to the people. This is a precautionary demand for pesos. So the clients are leaving more money in their sites accounts. Also, there has been an improvement on the term deposits, both on the system and on our side as well, mainly on the individual side because the commercial side is -- if you want to grow, you can grow, I mean, you just have to pay. And today, it's easy to grow, but we've not been growing there as you have to pay for the minimal rate, and it's something that we are not interested right now. I mean it's something very volatile, and it's not something where we want to -- well -- but on the individual side, we've seen an improvement related to the measures taken by the Central Bank where you have to pay a minimum rate to -- for individual deposits. So there has been a considerable growth there. And also the improvement that you can see in those figures, it's because we grew on remunerated accounts that those are very short-term deposits that you take from money market funds and you place that into repos with the Central Bank. That has been an improvement there as well. Those are the 3 factors that explain the change in the deposits. On the loan portfolio, if you see during the quarter, the provisions are similar to the previous quarter. This is mainly due -- in fact, in the first quarter of 2020, the provisions were partially explained by [ Vicentin ], where we've taken that loan to 75% of provisioning. And we didn't have that in this quarter. And the IFRS model did not require us to make more provisions, but we did more provisions because we incorporate the -- we're incorporating in our forward-looking model -- on the part of the forward-looking of the model a decrease in the economy. And as a result of that, you have the charge of ARS 324 million. I would say that almost half of that is explained by the forward looking, that it reflects the economy going to a worse situation. I don't know if that explains the point or if you want to add something?

If you can, I have one more question about the note that expires on November in U.S. dollars. If you have in mind some kind of restructuring process, liability management or something like that?

Well, as -- if you see the figures, our cash position is good, but we still don't have ARS 280 million available in order to face the amortization on November 30. So we are working on different alternatives, being one of them a liability management transaction. We expect to be doing something on the short term. I mean we have to. This matures in November this year, so we have 3 months. So we expect to be doing something quite soon on that front.

[Operator Instructions] Nicolas wanted -- Nicolas Riva wanted to make a question. Nicolas now says that his question was answered. [Operator Instructions] Okay. So allowing a few moments, I see no other questions in queue. So Martin, please continue.

So from my side, there's nothing else to add. If you have any follow-up questions or you want to contact us, you have the contact details on the -- and almost all of you know us so you know where to find us. So in case you need something from our side, feel free to contact us.

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

Thank you, all. Bye-bye.