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

Ladies and gentlemen, thank you for standing by. Welcome to Banco Hipotecario Second Quarter 2021 Earnings Release Call. [Operator Instructions] Today, Mr. Martin Diez, Banco Hipotecario's CFO, will be presenting. I would now like to turn the conference over to Mr. Martin Diez. Please go ahead.

Thanks, Milagros, and good morning to everyone. Thanks for joining our conference call. 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, every result and variation described in this report is expressed in constant currency as of June 30, 2021. Also, the provisioning model of IFRS 9 section 5.5 was applied as established by the Central Bank. I will go through the highlights, and then I will make some comments on the driver that explain the performance of the quarter. Net income attributable to the owners of the parent company for the quarter was minus ARS 1,111 million compared to minus ARS 1,802 million of last quarter and ARS 895 million of the same quarter of last year. The net operating income for the quarter was ARS 5,384 million, 3% higher than the ARS 5,227 million of the previous quarter and 18% lower than the ARS 6,567 million of the same quarter of last year. Operating income for the quarter was minus ARS 611 million compared to minus ARS 947 million of previous quarter and ARS 1,243 million of the same quarter of last year. As of June 30, 2021, liquidity coverage ratio was 131%, net stable funding ratio was 178%, and the liquid assets to deposit ratio was 86%. Loans to the nonfinancial private sector and foreign residents decreased 10.3% quarter-over-quarter and 21.7% year-over-year. Deposits increased 30.3% quarter-over-quarter and from 42.7% year-over-year, while capital market debt remained constant compared to the previous quarter and decreased 60% year-over-year. On a consolidated basis, NPLs increased from 11.8% in the first quarter of 2021 to 14.3% in the second quarter of 2021. NPL in the consumer portfolio increased from 2.5% to 2.9% during the same period. The coverage ratio is 78.2%. Total capital ratio as a percentage of risk-weighted assets as of June 30, 2021, was 16.6% compared to 18.5% of previous quarter and 16.9% of the same quarter of last year. The general level of consumer price index accumulated an increase of 11% in the second quarter of 2021, while it was 13% and 5.4% for the previous quarter and the same quarter of last year, respectively. During 2020 and also in 2021, the Central Bank established measures that affected the results of our operation and remain valid for this period such as maximum rate for credit cards, minimum rate for term deposits, freezing of fees, 0 rate loans for self-employees, productive investment line of 7.5% of the deposits to the private sector, among other measures. Well, these are the highlights. I will go and describe some of the drivers for the performance of the quarter. This, as you are aware, has been a weak quarter in a very complex operating environment. As we described in the last bullet, there are several measures that the Central Bank took that made the financial system, as a whole, less profitable. And in our case, this has a considerable impact. And also the economic activity has been weak as well. In fact, the demand for credit has not been -- there has not been significant demand for credit, not only on the consumer side, but also on the corporate side. Also, when we discuss the consumer demand for credit, the demand is very weak on the personal loans and also on the credit cards. But considering that for the banks right now, the credit card is a product -- when the outstanding grows, we lose money, more or less. So that's not that bad, that it hasn't grown much. Then comparing this quarter to the previous quarter, the financial margin, when you compare it -- I would like to -- or I'd like to describe the financial margin as the net interest income, plus the income from us, plus the net income from financial instrument at fair value and the FX and rate differences. Considering that as a whole, the total for the quarter is ARS 2,700 million, and this is ARS 1,073 million higher than the previous quarter. So we believe that the financial margin has improved for the same quarter -- sorry, for the previous quarter and has diminished ARS 559 million when you compare it to the previous year. As you are aware -- or I don't know if you're aware, but the floor on the interest rate that we have to pay for deposits were imposed during the second quarter of 2020. So that explains the difference between the second quarter of 2020 and this quarter of 2021. In fact, the BADLAR rate, the average for the second quarter of 2020 was 24.5%, while [ NIO ] is around 34%, while the Leliq rate, that is the rate that we get from our deposits in the Central Bank, has remained stable at 38%. So there has been a considerable shrinking on the margins in both by the measures of the Central Bank. But we believe that the improvement of the financial margin is one of the good things of the quarter comparing to the previous quarter. Then the loans to the nonfinancial segment, as I commented before, has -- have diminished, and this has to do with the demand for credit. But let me go -- now that we talk to -- about this particular item, let me go to the portfolio and to the NPL. As you have seen, the NPL raised, especially on the commercial side, because on the consumer side, there has been a raise, but it's not significant. On the commercial side, the difference between the previous quarter and this one, it's one particular loan, it's a $10 million loan that you might have seen that the coverage ratio that we didn't provision that. And the fact is that we already had it provisioned. But what we are doing now is it's a secured loan, where the guarantee covers like 2 or 3x the price of the -- or the size of the loan. So we are executing that guarantee, and we expect to be completely recovering that loan. We still don't have a time frame because it's -- the justice for the foreclosures takes some time. But it's -- there are commercial properties, they're guarantee and in the center of Buenos Aires City, and they are very good properties. So we expect to recover that. I don't know if it's going -- I don't think it's going to be in 2021, but perhaps in the first half of 2022, we will recover that. So that's why there are no more provisions related to the loan. Then on the consumer side, I think -- also -- sorry, in order to give some color on the commercial side, as we've been mentioning in the last calls, the companies that took the optional refinancing that was granted by the Central Bank were 6 companies that took their financing in pesos, and they have all canceled those loans, meaning that we don't have any more companies with refinancing in pesos. And in dollars, there were 10 companies with $10 million of principal, and we have already collected, and they paid $4 million. So there are still $6 million remaining that have been refinanced on this optional measure imposed by the Central Bank. So that's behaving quite well. On the consumer side, the NPL increased from 2.5% to 2.9%. But this is related mainly to the -- the measures of the Central Bank were up to April that we could not count the days that were in arrears. So the behavior is quite good. In fact, it's better than we expected. For example, we were collecting -- before the COVID, the collections on the first 10 days of the month were 57% of the total amount to be collected, and now we are on July in 59%. So the portfolio is behaving much better than we previously expected. And even though we've seen an increase, it's not significant, but we expect an increase in July and stabilization in August because as I mentioned before, this -- there were -- there was a lot of people that started with delays on April and became NPL on July, not in June. So we expect that between July and August, this could raise maybe less than 100 basis points more [ by trying to grow ] a little, but we see that in August, it's behaving quite well. So we believe that this is much better than we previously expected. Then the commissions and fees have been -- there has been a reduction from the previous quarter, but not that significant. But when you compare it to the previous year, we've seen a significant reduction in real terms. And this is, as we mentioned before, due to the restrictions of the Central Bank for us to raise fees. We are raising fees right now in different products where we are able to, but we do not expect to recover what we have lost in the past. Then as I mentioned before, the inflation has been a little lower than the previous quarter, but it has been a tough quarter for inflation with 11%. We expect the third quarter to be below 9%, the inflation for the quarter. So that will come with an improvement. And also, some other things that I need to mention is when you go to the measures taken by the Central Bank and the impact on the net financial margin, you have to consider a loss of around ARS 130 million from the investment line for this particular quarter. Last quarter, it was like ARS 250 million. We've been able to improve the rates where we are giving these subsidized loans. So the loss, when you compare it to the Central Bank repo rate, so it will be an opportunity cost of ARS 130 million for the quarter. And then another thing related to the Central Bank, and it's not a good news, is that the loans to the self-employees at 0.7% rate, where we get -- the banks get a 15% rate, have been relaunched by the government. And so we expect that this will have an impact. We don't know the extent of this impact because we don't know how much we are going to originate for this. Perhaps a minor impact on the third quarter, perhaps a bigger one for the fourth. So I think that covers more or less all the things that we wanted to mention. So if you would like, Milagros, to open for questions.

Yes. Thank you, Martin. We now open the Q&A section. [Operator Instructions] We will go to the line of Riva Nicolas.

We cannot hear you, Nicolas. I think you have a problem with your audio. Perhaps you can type it on the chat, if you would like. I don't know, perhaps he didn't mean to ask. While Nicolas writes his question on the chat, if he's not able to unmute himself, we can open to other questions.