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

Ladies and gentlemen, thank you for standing by. Welcome to Banco Hipotecario's Third 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, Mili. Thanks, everybody, for joining us on our conference call. Well, the bank started reporting results applying hyperinflation accounting in accordance to IFRS ruled as 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 September 30, 2021. 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 minus ARS 1,120 million compared to minus ARS 1,214.6 million of last quarter and ARS 249.9 million of the same quarter of last year. The net operating income for the quarter was ARS 5,184 million. This is 11.5% lower than the ARS 5,856 million the previous quarter and 27.5% lower than the ARS 7,151.2 million of the same quarter of last year. Operating income for the quarter was minus ARS 842.7 million compared to minus ARS 691.8 million of the previous quarter and ARS 714.2 million of the same quarter of last year. As of September 30, 2021, liquidity coverage ratio was 139.3%. Net stable funding ratio was 180.1%, and the liquid assets to deposit ratio was at 89.4%. Loans to the nonfinancial private sector and foreign residents decreased 10.3% quarter-over-quarter and 5% year-over-year. Deposits increased 13.7% quarter-over-quarter and 33% year-over-year, while capital markets debt decreased 5% compared to the previous quarter and at 62.4% year-over-year. On a consolidated basis, NPL remained constant at 14.3%. The NPL in the consumer portfolio increased from 2.9% in the second quarter of 2021 to 3.4% in the third quarter of 2021. And the coverage ratio increased from 78.2% to 94.9% in the same period. Total capital ratio as a percentage of risk-weighted assets as of September 30, 2021, was 15.3% compared to 16.6% of the previous quarter and 17.9% of the same quarter of last year. In October 2021, the bank issued a new class of negotiate obligations of $10 million at a 0% rate with a tenure of 18 months. The general level of consumer price index accumulated an increase of 9.3% in the same quarter -- in the third quarter of 2021, where it was 11% and 7.7% for the previous quarter and for the same quarter of last year, respectively. As of September 2021, accumulated inflation for the year is 37%. During 2020 and 2021, the Central Bank established measures that affected the results of our operations and remain valid for this period, such as maximum rate for credit cards, minimum rate for term deposits, phasing of fees, zero rate loans for the self-employed, productive investment lines of 7.75% of deposits from the private sector, among other measures. Also, there have been recent measures during the third quarter -- during the fourth quarter of 2021 that we would like to mention. One is that the FX limit -- FX position of the banks have been limited with a new special limit that was a combination of the position that you held during the month of October, an average position, and the first days of November. That measure made the banks sell spot dollars when it was implemented, and this measure is due on November 30. But yesterday, the Central Bank released a new communication that imposed that the spot position limit has been reduced from 4% of the shareholders' equity to 0% of the shareholders' equity, that happened yesterday. It also issued a communication where the banks cannot give installments for selling tickets or services abroad to customers. So we won't comment on these measures in particular. This just gives a sign that the reserves of the Central Bank are in a complex situation. Then let me mention that, regarding profitability ratios, the return over average assets for the third quarter of 2021 for the bank was minus 2.8%, and this compares to the minus 3.2% for the second quarter of 2021 and the 0.2% for the third quarter of 2020, while the return over average equity for the same periods were minus 26.3%, minus 28.5% and 2.1%, respectively. Then going to the drivers of the results, I would like to highlight 2 particular things. One is the financial margin that showed an improvement. As we always mentioned in this call, you don't have to look at the financial margin just by looking at the net interest income. But this has to be looked together with the lines of net income from financial instrument at fair value through profit and loss, and the line of gold and foreign currency exchange rate differences. The combinations of these 3 lines is what we believe is the real financial margin. And for this quarter, it was ARS 3,239 million. That is ARS 287 million more than the previous quarter and ARS 345 million more than the same quarter of last year. Among these, the principal lines that changed is the interest on repo transactions with the Central Bank that increased considerably. And let me also add that even though inflation is at higher levels than last year, the repo rates are fixed at 32% for repos of 1 week -- sorry, of 1 day and 36.5% for the 7-day repos. And this has been in that level since November 2020. So it doesn't seem that the rate reacts to the higher inflation so this impacts the interest that we receive for the repos. And also you have to consider that we have to pay for deposits -- fixed term deposits from individuals, 37% rate, and for companies, 34%. And when you consider the taxes and the amount in order to activate this, you have to think about a rate of 40% from the individual fixed term deposits that we pay 37%. So this, of course, gives us an impact on the financial margin that even though it has improved from what it was the last quarter and the same quarter of last year. The other thing that I would like to mention that is the biggest impact on this particular quarter is the loan loss provision that it is ARS 1,799 million against ARS 539 million of last quarter. The explanation for this change is that we have a provision, Molino Cañuelas and Vincentin to 100%. Even though we believe that these credits have bigger value than that, it's what we expect -- what we think it's a prudent approach. So this quarter has that impact. That impact is of ARS 1,420 million approximately. So that is the main driver for this change. That also comes with the change on the coverage ratio. Then I would also like to comment that even though we are not political analysts, we are going to mention that as you, I believe, are all aware that we had elections in -- we had [ de paso ] during this quarter that we are reporting. And now also after that, we had the general election in Argentina where the government lost the majority on the Senate and had a considerable loss in the province of Buenos Aires and in other provinces. So this has been an impact that we have to see the extent of this in the future. And also, let me mention the other thing that we are all waiting for is that the government reaches an agreement with the IMF. That, we believe, is something extremely important for the stabilization of the macro economy of Argentina. So I have no other things to add. If you want, Mili, we can go to questions, if there are.

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

Okay. Martin, Milagros, everyone there, so I got a few questions. The first one was going to be on provisions for loan losses and what explain the jump in provisions this quarter. But -- so let me check that I understood correctly, Martin. So you said the jump was driven by Molino Cañuelas and by Vincentin, which now you're provisioning at 100%. So that's good news. And I think you said.

Exactly. It was at 25% -- sorry, it was provisioned at 75%. So the -- we provisioned the remaining 25% of those loans.

Okay. It was -- hold on, you said it was 25% before up to the second quarter. And now you provisioned the other 75%?

No, no, no. Sorry. It was 75% provisioned.

Oh, it was 75%. Okay.

And we provisioned the remaining 25%. And that remaining 25% of those loans, it's ARS 1.4 billion out of the ARS 1.8 billion that you see there. The rest is the usual or the provision for the month -- for the quarter, sorry.

Great. So it means that the exposure -- I mean, the loans given to Molino Cañuelas and Vincentin then were about ARS 5.6 billion, right?

Yes, more or less. Exactly.

Or roughly, like at the official exchange rate, like ARS 560 million -- yes, sorry, I did it -- sorry, I did it the other way around. Okay. But in pesos, ARS 5.6 billion.

Yes. Also, if we deactivate those loans, our NPL will be 5.5%. And the coverage ratio would be like 40 -- sorry, 84% more or less of the whole bank.

Okay. Okay. Understood. So $56 million, $56 million, that's what I was trying to get at, the official exchange rate, more or less, the exposure to these [indiscernible]

Yes, it's a bit less. It's like $54 million, $53 million.

Okay, around $50 million.

Yes.

Okay. Perfect. The second question, on the FX act. So I wanted to ask you -- so on the 2025 bond, right, so you had to pay the amortization of roughly $15 million in October.

Yes, $16 million plus interest. Yes, we...

And for that, did you need access to dollars from the Central Bank to pay that or not?

Yes. I explained a few things that it's not that the banks we need access like the companies do. We always have access when we use the dollars. We have to be in the position that the Central Bank states that it has to be a couple of days before maturity. And in the moment that we are going to use them, it applies the same on the company. So there were some dollars that we had before, some dollars that we bought, but we have no issue with the Central Bank in order to be able to pay this. In fact, we sent them a letter before saying, look, we understand that we have to pay and we are going to do it. And we had no come back from them. So there was no noise around that.

Okay. And one thing, I know that for corporates in general, there were restrictions up until, I think, the end of this year where they could only really have access to dollars from the Central Bank to pay like 40% of the amount due in dollars.

Yes.

Are those restrictions going to be extended like for next year? Do you know?

I can't tell you what I think, but it's maybe not for speaking on behalf of the bank. I think that it's likely because when you see the measures that the Central Bank is taking, it looks like they are restricting the access to dollars to everybody. So I think it's likely that they will extend it. I don't know if they are going to. But as you said, this is up to the end of the year. Then if they do it, they have to do it again. If not, if they don't do anything on January 1, you have access in order to repay 100% of the debt.

Okay. Great. And my last question, Martin. So the loan book, we see that it contracted -- there was a big contraction in real terms. And especially -- so for you, the loan-to-deposit ratio is very, very low, only 27%, right, which, again, for a bank it just looks very low. Any comments on the outlook for loan growth and when do you expect that to recover?

Yes. We expect to recover the loan portfolio soon. As we've mentioned in the last call, we were in a phase of nominal reduction on the loans. And now we are growing in nominal terms, but we are decreasing in real terms. So our idea is to grow on personal loans, as we've been mentioning. We don't want to grow on credit cards so we have been restricting that. But we are growing on personal loans, on good risk segments, and we are accelerating that growth piece. The thing is that it also depends on the counterparties, meaning on the people taking those loans. There's still not much of a -- for demand for loans, but we are growing. And our idea is to grow even more and even more during 2022. On the corporate side, we are growing not at the speed that we would like to because the rates are -- have decreased considerably, in part because the banks are not willing to -- some banks are not willing to put -- 0especially international ones, are not willing to put pesos in the central banks so they are giving money to corporate clients at a very low rates, and we are not on that [ mole ], at least, until now. But our idea is to grow on the corporate segment as well. We have been growing considerably on SMEs, mainly on the productive investment lines where we have like ARS 8 billion of loans in the first quarter of 2021. We had a huge impact on our results because we had to originate very fast in order to comply with this, and we originated at rates of 19%. And now we are originating at rates around 32%, and we have recently raised that to 35%. So we are not going to lose that much, but we are still going to lose money because this is a line where you lose money. But unfortunately, this is something that we have to do. But our idea is to increase the loan portfolio.

Okay. At this point, for next year, do you have any sort of guidance in nominal or real terms for loan growth for 2022?

No. I have to be honest, we have plans, but those plans -- we have like 4 different plans related for 4 different scenarios of macro. And I don't think it's prudent to mention those because they are quite different scenarios, especially at the beginning, if we agree -- if there is an agreement or not with the IMF. If there is not an agreement with the IMF, we don't expect growth on the loans. But we don't want to jump into something that is quite uncertain yet.

And Martin, my last one, I apologize for so many questions. Going back to Molino Cañuelas and Vincentin. So you said -- I think I understand that probably you wanted to be conservative, and that's why you increased that coverage to 100%. Can you remind us where in the -- maybe in the bankruptcy process these 2 companies are? And if you have any collateral for those loans, and therefore, if you can recover anything in the fourth quarter and maybe have a reversal of some of these provisions in the fourth quarter?

We don't have any collateral for neither of those loans and we do not expect a recovery in the fourth quarter. We expect a recovery sometime in the future, but not in the fourth quarter. And these 2 are in Chapter 11. There has been some kind of an offer because we didn't even get it for Vincentin, but the judge rejected it because it was like too bad for the creditors. So there are not much news there. I believe that Vincentin is in a position more uncertain that Molina Cañuelas seems to have more value. But that's my opinion, it's not necessarily what is going to happen. But we do not expect any change in the fourth quarter. Let me -- perhaps there's another question, but from the topics that we discussed, let me add something, Nicolas, I didn't mention. That is the increase on the NPL and the consumer portfolio that it went from 2.9% to 3.5%, that we mentioned in the last call that we expected a slight increase and that happened. And it happened on the month of July when we had the final impact on the installments that were frozen with the Central Bank measures. Now in the last 2 months -- sorry, in the last 2 months of the quarter, there was a slight improvement. And also, it is improving in the fourth quarter. So we expect the NPL on the consumer segment to end around 2021 at around 3% because the recoveries and what we are seeing in the behavior of this is quite good. So we expect to finish the year maybe around 3%. So I don't know if there are any further questions.

I'm showing no other question in queue. Do you want to add something else, Martin?

No. I just want to thank you all for joining us, and we will be talking about in a couple of -- in 3 months. We're always open to questions or follow-ups. If you have our contacts, Milagros, Juan and myself are always there if you want to ask us anything.

Yes. Perfect. Well, so ladies and gentlemen, that does conclude your conference call for today. Thank you for your participation in Banco Hipotecario's Third Quarter 2021 Earnings Release. You may now disconnect.