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

Ladies and gentlemen, thank you for standing by. Welcome to Banco Hipotecario's First Quarter 2021 Earnings Release Call. [Operator Instructions] Today, Mr. Martin Diez, Banco Hipotecario's CFO; and Mr. Eliezer Baschkier, Capital Markets and Assets and Liability Management Supervisor at Banco Hipotecario will be presenting. I would now like to turn the conference over to Mr. Martin Diez. Please go ahead.

Good morning. Thanks, Millie. Hello, everyone. Thank you for joining us. Well, let's begin with the presentation. First quarter 2021, Banco Hipotecario consolidated results. The bank began with reporting results applying high penetration accounting in accordance to IFRS rule, IAS 29, established by the Central Bank as of the first quarter of 2020. Therefore, every result and variation described in this report is expressed in constant currency as of March 31, 2021. Also the provisioning model of IFRS 9 Section 5.5 was applied as established by Central Bank. Highlights. Net income attributable to owners of the parent company for the quarter was minus ARS 1,625 million compared to a ARS 732.8 million of last quarter a minus ARS 711 million of the same quarter last year. The net operating income for the quarter was ARS 4,711.6 million, 25 -- 26.7% lower than the ARS 6,426.8 million in the previous quarter and 3.3% lower than the ARS 4,874.5 million of the same quarter last year. Operating income for the quarter was minus ARS 854.3 million compared to ARS 1,286.6 million of the previous quarter and minus ARS 230 million of the same quarter last year. As of March 31, 2021, liquidity coverage ratio was 125%, net stable funding ratio was 144%, and the liquid assets to deposit ratio was 78%. Loans to the nonfinancial private sector and foreign residents decreased 6.2% quarter-over-quarter and 16.2% year-over-year. Deposits decreased 6.6% quarter-over-quarter, an increase of 53.5% year-over-year, while capital market debt decreased 25 -- 21.5% quarter-over-quarter and 62.4% year-over-year. On a consolidated basis, NPLs decreased slightly from 12% in the fourth quarter of 2020 to 11.8% in the first quarter of 2021. NPL in the consumer portfolio decreased from 2.9% to 2.5% during the same period. The coverage ratio remained stable at 92% -- 92.3% for the period. Total capital ratio as a percentage of risk-weighted assets as of March 31, 2021, was 18.5% compared to 19.4% of previous quarter and 17% of the same quarter of last year. The general level of consumer price index accumulated an increase of 13% in the quarter of -- the first quarter of 2021, where it was 10.7% and 7.4% for the previous quarter and the same quarter of last year, respectively. During 2020, the Central Bank established measures that affected the result of our operations and remain valid for the same -- for this period such as maximum rate for credit card, minimum rate for time deposits, freezing of fees, zero-rate loans for self-employee, productive investment lines of 7.5% of deposits to the private sector among other measures. Well, as you may have seen from the highlights, we have been operating this first quarter under a very challenging and higher regulated environment. As described in the last bullet, the regulations that impact us, particularly on the first quarter have been impacted us on the last quarters as well at maximum rates for the -- of 42% for the credit card. This is very important because it's a unique rate regardless of the sentiment of customers that we are discussing and the level of risk that every segment has. Then the 0 interest rate for loans to freelance worker or research employee. This also had an impact because we have a portfolio earnings about ARS 1.5 billion. Then the minimum rate for deposits continue having an impact, and this has to be seen as well with the mandatory inflation-adjusted fixed-term deposits that the banks have to offer to retail investors that have been growing during the year with the loss of inflation. Also, the freeze of fees that impact us during all 2020 have been impacting us also on the first quarter of 2021, since the adjustments are beginning in March and April. So there has not been almost any adjustment of fees in the first quarter. All these measures had an impact, a considerable impact on the quarter. And when we work to the drivers of the bad results of the first quarter, first, we see the lower interest income had different -- it has different components. One of them is that what many of them have already mentioned. But for example, in the productive line, investment line, we had to originate almost ARS 4 billion of loans at a rate between 30% and 35%. And since we don't have almost any of these loans, we had -- and this had to be fulfilled on average, during the month or during the first quarter, we had an impact when you compare these lines that we had to -- in order to fulfill with this, we had to originate at a lower interest rate, we're originating below 20%. And that had an impact of ARS 250 million during the first quarter. We expect that this will improve in the second quarter because we have been renewing these lines at higher rates, and we have been able to diminish the size of this line because, as I mentioned before, since this had to be covered on average and we don't have any when this line began. In the last -- or in the first month of the year, we had to go above the average. So now we expect to have a lower impact on this. Also, this impact is when you compare -- the impact that I mentioned is when you compare with a 35% of cost of funds. Of course, if this would be free, we would be going to higher rates to this kind of segment. So the impact would be higher. So that had an impact and also the new tax to the [ release ] and repos with the Central Bank imposed by the city of Buenos Aires, whereas the gross income tax had an impact of around ARS 150 million during the quarter, and we expect this impact to increase during the year as we expect to grow on deposits. And we've been growing during this second quarter that we are going through right now. Also, there has been a very challenging environment for our subsidiaries with higher rate of claims than we previously expected. We see an improvement in the second quarter of this as it was a bad quarter, the first one, but we see an improvement for second one. Also on personnel expenses, you will see that we have been growing above the inflation. This is related to the impact of the union salary adjustment that had an increase of 11% in January plus the retroactive increase for 2020 that had an impact on the quarter. Also, the payment of policies, as always, is something that impacts from the first quarter. And you can see there as well. Then when we go to inflation, the impact of the inflation adjustment has been considerable during the quarter, basically because inflation was higher than expected, and we've been operating on a very high inflation environment, that was 13%. Also we did not perform all the adjustment that we can in our branches and other buildings that we have, and we expect to do it during the rest of the year. So part of this will be absorbed when we adjust these buildings because of the valuations that grow with inflation that we have performed the adjustments. Also I have to give some color on the second quarter and the remaining of the year. Usually, the first quarter, it's a very challenging quarter for bank as it has been in the last 2 years, and this will be the third. This is the third. As many of the fees and commissions that we adjust begin in the third month of the year or even in the second quarter. So this is not the exception, and we expect a higher income from fees and commissions. Then we also -- as I mentioned before, we've been optimizing these productive line loans, so we expect to improve the figures around there. And we expect higher activity from the productive [ trust ], and we have already seen in this quarter, we expect in the third and fourth quarter to continue as well as the government announced that they plan to originate almost ARS 80 billion of loans to construction, and these are going to be granted through Banco Hipotecario. So we expect to see higher, very higher or considerably higher activity from the [indiscernible] and hence, this will come with higher fees and deposits for the bank. And also, we expect and we've seen in the -- in what we've seen in the second quarter, it's higher income on trading and termination activity. We also expect lower inflation for the remaining of the year when compared to the first quarter. And as I mentioned before, there are remaining some adjustments that we can do on the properties, plant and equipment that can also help in the remaining quarters. Well, now I will hand over to Eliezer Baschkier, who will be giving some color also on the NPLs and collections. Eli, go ahead, please.

Thank you, Martin, and good morning, everyone. Regarding the nonperforming loans, as you might have seen on the nonperforming loans table. The situation is pretty similar like the last quarter. When last quarter, the NPL ratio was 12%, and this quarter is 11.8%. And the coverage ratio last -- total coverage ratio last quarter was 92.8%, and this quarter, it was 92.3%. Something important to note, looking to the second quarter and beyond is that the rule of the Central Bank, the Central Bank issued last year a rule in March, on the year of the pandemic that every unpaid installment of the loans had to be postponed to the end of the life of the loan. That rule expired at the end of March. So now installments that are not paid, we start counting the unpaid days until they become NPLs. So we expect probably increase in the NPLs in the consumer portfolio. But as of now, we have not seen changes in the collections, neither on the consumer portfolio or commercial portfolio. So as of now, we have no -- we haven't seen changes there. So as of now, we have no bad news to say on that side. That will be all regarding the NPLs, Martin.

Thank you, Martin, and...

Let me add something that I wanted to mention and I will pass it, that also a positive thing during the quarter is that we have been improving our -- the relation of our funding going from the capital markets to the deposits. That's something that we wanted to do, and we started working on that. A couple of years ago, we have continued improving on that trend is something that is worthwhile to mention. That's it from my side. Millie, if you want to open up for questions, if there are any.

[Operator Instructions] I'm showing no other question in queue. Martin, do you want to add something else?

It seems that we've been crystal clear on the presentation. No, I have no further comments. Thank you, everyone, for joining us. Also if you want to or if you have any questions or want discuss any of the discussed topics here, you can reach us. You will see the contact details in the press release. So we are always open for question and discussion.

Well, ladies and gentlemen, that does conclude your conference call for today. Thank you for your participation in Banco Hipotecario's first quarter 2021 earnings release. You may now disconnect.