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

[Audio Gap] Therefore, every result and variation described in this report is expressed in constant currency as of September 30, 2020. Also, the provisioning model of IRS 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 163.9 million. This compares to ARS 642 million of the second quarter of 2020 and minus ARS 401.9 million of the third quarter 2019. Net operating income for the quarter was ARS 4,817.1 million compared to ARS 4,952 million of the second quarter of 2020 and ARS 6,568.3 million of the third quarter of 2019. Operating income for the quarter was ARS 686.4 million compared to ARS 1,198.8 million of the second quarter of 2020 and ARS 1,638.4 million of the third quarter of 2019. During the second quarter the liquidity coverage ratio was 139%. The net stable funding ratio was 128.8%, and the liquid assets-to-deposit ratio was 102.5%. Loans to the nonfinancial private sector and foreign residents decreased 4.9% quarter-over-quarter and 25.9% year-over-year. This is in real terms, of course. Deposits increased 22% quarter-over-quarter and 85.5% year-over-year, while capital market debt increased 1.6% quarter-over-quarter and decreased 14% year-over-year. On a consolidated basis, NPL decreased from 12.7% in the second quarter of 2020 to 12.5% in the third quarter of 2020, while coverage ratio was 90.6% for the quarter. Besides, NPL in the consumer portfolio decreased from 4.4% to 3.4% during the same period. Total capital ratio as a percentage of risk-weighted assets as of September 30, 2020, was 17.9%. This is compared to 16.9% of the last quarter and to 13.5% of the third quarter of 2019. As we've been mentioning in the previous conference calls, the COVID-19 pandemic is adversely impacting both the global economy and the Argentine economy and our business, and it's still too early to know the full extent of this impact. Also, we are going to talk a bit further, but the bank underwent a successful exchange transaction for its Series 29 of notes due on November 2020. The impact from this will be visible as of next quarter's financial statements. Also, there were several measures taken by the Central Bank during this year that had an impact on our operations, such as maximum rates for credit cards, minimum rates from term deposits and freezing of fees, among others. As a comment on this particular topic, on the freezing of fees, the Central Bank has just allowed the banks to raise fees on the credit cards in February and March on a total of 18%. The change in the net income compared to the previous quarter was given by an increase in interest and adjustment expense due to an increase in minimum rates of time deposits, a lower net fee commission income and higher personnel expenses as well as a higher loss on the net monetary position because of higher inflation during Q3. We are going to discuss more or deeper on these particular items. The quarter was a good quarter for the bank, as we explained in the previous quarters, under this environment for the bank being -- or having a return over equity positive on real terms as we are having is positive for us. And the drivers that explain the difference between this quarter and the previous quarter and mainly, as we've mentioned before, a reduction on the net interest income that you have to see compared -- or you have to consolidate that with the net income from financial instrument that gives you a difference of ARS 300 million, negative ARS [ 210 ] million. Then we had a higher cost of the FX coverage that had an impact of ARS 107 million. Then on the positive side, we had a positive provisions in the quarter. This is mainly explained by the fact that, as we've been discussing in previous, I would say, almost the previous 2 years, we've been diminishing considerably our low-income portfolio. And this reduction has further strength -- or we increased that reduction in the third quarter. So getting rid of that portfolio that incurs in a lot of provisions has been positive for us. Also, when you compare to the previous quarter, in the previous quarter, we have incorporated the forward-looking statement on our expected loss model, and that also made us construct higher provisions in the previous quarter. So since those provisions or those assumptions that the model is taking have not yet been fulfilled, we have been able to release some provisions. Then I would like also to comment a bit on the exchanges. I believe many of you are wondering if we're going to pay our indebtedness next Monday or not. And the answer is, as you may have seen in the -- that we sent to the market, the information that indeed we are because we have been authorized by the Central Bank. I mean we received the formal approval from the Central Bank in order to fulfill that payment. But let me comment on the exchange that we made. I believe all of you have seen -- or many of you have seen that we have offered -- at the beginning, we've offered 35% in cash for the existing notes of the -- maturing on November 30, 2020, and 65% of bonds maturing in 2025 with an average life of 3 years. After the early bird, we decided to extend the early consideration also to improve the offering, ARS 0.42 of cash plus 60 of securities, meaning that we were offering 102% over 100 securities. And the total acceptance for that offer was 46.6%, and that was something very positive for us because it was, perhaps after -- or before the Central Bank sent its communication, the 7106 that had a lot of impact on the restructurations or refinance of corporate bonds. Before that communication was sent to the market or was created by Central Bank, our target -- or the sale target for our balance sheet was around the number that we received. Why we are saying this? It's because we've been building liquidity as we've been discussing in the previous conference calls for almost 2 years in order to face this maturity. And for us, extending 60 -- $78 million for the next 5 years. It's very good because it allowed us to reduce our interest expenses on this particular note at around $20 million for the next year. So this will have a huge impact on our return on our equity in 2021, and it's a very good start point for next year. As we mentioned before, for us, operating under this kind of environment, it's tough, but we are achieving return over equity positive on real terms. And we expect this to improve next year, at least from what we've seen in this particular reduction of interest that it's going to be of around $20 million. So having described this, I would like to hand the words to Eliezer Baschkier, who is responsible for capital markets and Investor Relations and also asset liability management, who is going to comment a bit on how the collections have been doing in the last quarter.

Thank you, Martin. Hello, everyone. Let's review a couple of the measures that the Central Bank took at the beginning of the pandemic and the quarantine in Argentina. In -- at the beginning of April, they took measures in order to alleviate the burden for the debtors. We need to divide it in 2 chapters, let's say. On one side, the credit cards; on the other side, all the other loans. For the credit cards, in particular, what the Central Bank did in April was all the amount due in April that was not paid by the debtors, the banks had to refinance in 12-month loans with a 3-month grace period at the beginning. And then the bank -- Central Bank repeated that measure on September. So if we review the numbers for that refinancing of credit cards, we can see that before April and up to April, let's say, in February, for example, in March, we -- the amount due to collection from credit cards was around ARS 8 billion. And during those months, we collected around 60%. So it's ARS 5.5 billion. In April, the amount dues for collections was ARS 7.8 billion, and we collected ARS 4.6 billion. The difference between that, those ARS 3.2 billion went into that refinancing measure of Central Bank. In May, what happened after these refinancing of the amounts of April, in May, what happened is that the amount due for that month was ARS 4.7 billion, and we collected 90% of that. It's a very high percentage. And on the subsequent months, that amount, the amount due was in line with that and around ARS 5 billion. And we -- in each month, we collected above 80%. The Central Bank repeated the measure in September with amounts -- with amounts due not paid on September. And on that month, we have ARS 6 billion of amount due from credit cards, and we collected ARS 4.9 billion. So ARS 1.1 billion went into that refinancing measure. And on October, the collections were also good. We collected 90% of the amount due from credit cards. Something I would like to note is that on August, that was the first month after the 3-month grace period of those loans, the collection of that loans that came from the refinancing of the credit cards was in line with other refinanced portfolios. So that's good news because that's a question we have in April, how that portfolio was going to behave, and it's behaving pretty well. On the other side, the Central Bank for the rest of the loans, the initial measures said that every installment of any loan that was due between April and June, that installment, if the debtor didn't pay, it was going to -- it went automatically to the end of the loan. So for example, if someone didn't pay an installment in May 2020 and the loan -- the final maturity of the loan was August 2021, that installment from May 2020 went to September 2021, 1 month after the maturity of that loan. That measure was extended a couple of times. And as of today, that measure goes for all the installments that fall between April 2020 and December 2020. So to review briefly the behavior of both the retail portfolio of loans and the corporate portfolio of loans. Let's go first with the retail portfolio. During the year, we've been able to collect 80.9% of the amount due to collection for the retail portfolio. That's around -- we've been able -- out of the amount due during the year for the retail portfolio from installments was ARS 4.5 billion. And the amount we were not able to collect, you see, we had to postpone the maturity, was ARS 869 million. That's 19.1% of the total amount due of the retail portfolio of loans this year. And on the corporate portfolio, we need to split this between the peso portfolio and the dollar portfolio. In the peso portfolio, there was a difficult time for most of the companies that was up to the end of July because the country was almost close and we were not able to operate. And at that moment, we have capital due from loans of ARS 464 million out of the loan portfolio, the corporate sector of ARS 1.5 billion. That was around 30% of the peso portfolio of the corporate loans. But after the activity, the economy started to reopen. Many of those companies paid those installments that were due that they were not able to pay before. And as of today, we have only ARS 1.6 million out of that ARS 1.5 billion. That's 0.1%. So on the peso portfolio, the corporate loans, we have almost no problems today. On the dollar portfolio of the corporate loans, we have around $125 million of portfolio. And today, we have around $7.5 million that we're not able to -- the companies were not to pay those installments at around 6% of that portfolio. That will be a brief summary of how the collections on the credit cards and on the -- both the consumer loan portfolio and the corporate loan portfolio, how was the share of collection during the year. That will be all from my side. Please, now open the Q&A.

[Operator Instructions]

Can you hear me guys? It's Nicolas Riva from Bank of America. I have 2 questions. And maybe just to clarify and to make sure I understood what you said, Martin. So you said you're going to pay the $149 million due on the maturity, which is coming due now November 30 this coming Monday, and that you have received authorization from the Central Bank to make these payments. So you already have the dollars and you're going to pay the $149 million on Monday.

Exactly. We do have dollars. We had them since a long time ago. But the extent of this communication 7106 was not clear if we needed or not a formal approval from the Central Bank. Because it was referred to the access to the foreign exchange market. But when a bank pays debt, it has to make some -- like a technical access, even though we do have the money. So we asked the Central Bank if we were complying with that, and they formally said that, yes, we are -- that indeed, we are complying with that communication. So we have their approval, and we also have the dollars in our foreign accounts. So we're going to pay on Monday.

Correct. Perfect.