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

Ladies and gentlemen, thank you for standing by. Welcome to Banco Hipotecario's Year 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. Welcome, everyone. Thanks for joining us today. Well, let me begin. The bank reported results applying hyperinflation accounting in accordance to IFRS rules IAS29 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 December 31, 2021. Also, the provisioning model of IFRS 9 Section 5.5 was applied established by the Central Bank. Net income attributable to owners of the parent company for the year was minus ARS 4,201 million compared to ARS 1,383 million of the last year. Net income attributable to owners of the parent company for the quarter was ARS 543 million compared to minus ARS 1,234 million of the last quarter and ARS 979 million of the same quarter last year. The net operating income for the year was ARS 27,223 million compared to ARS 29,930 million of last year. Net operating income for the quarter was ARS 9,185 million compared to ARS 5,722 million of the last quarter and ARS 7,624 million of the same quarter last year. The operating income for the year was ARS 2,046 million compared to ARS 2,746 million of last year. Operating income for the quarter was 1,148 million compared to minus ARS 928.8 million of last quarter and ARS 769 million of the same quarter last year. For the end of 2021, the liquidity coverage ratio was 143%. Net stable funding ratio was 226.3%, and the liquid assets to deposit ratio was 92.6%. Loans to a nonfinancial private sector and foreign residents decreased 19.2% year-over-year. Deposits increased 115% year-over-year, while capital market debt decreased 30.9% year-over-year. On a consolidated basis, NPL increased from 11.9% in 2020 to 13.4% in 2021. Besides NPL in the consumer and commercial portfolios remained relatively constant at 3% and 28.5%. Coverage ratio decreased from 92.8% to 89.1% during the same period. Total capital ratio as a percentage of risk-weighted assets as of December 31 of 2021, was 16.4% compared to 15.3% of the last quarter and 19.4% of the same quarter last year. The general level of consumer price index increased 10.2% in the last quarter of 2021 compared to 9.3% of the last quarter and 11.3% of the same quarter last year. Accumulated inflation in 2021 was 50.9%. During the first month of 2022, the BCRA or the Argentine Central Bank has sanctioned new reforms regarding the country's monetary policy. Among them, the increase in rates for a 28-day financial instrument and the creation of a new 180 days instrument stand out. The last 3 -- the last instruments include fixed income rate Leliqs and variable rates long-term Leliqs that I'll call Notaliqs. Additionally, the new resolution established an increase in the maximum rate of credit cards and in the production investment line rate and also an increase of the rate that we have to pay for deposits for fixed-term deposits. Also, on February 22, Banco Hipotecario paid to over denominated bonds for ARS 8.5 billion approximately, that will have a considerable impact on the months to come on our interest charges. Well, let me go to the highlights of the drivers that we would like to share with you. First of all, we will focus mainly on the quarter, not so much on the year because as many of you usually join our quarter conferences. So you are aware of the things that we've been discussing last year, where we started with a very bad first quarter and the following ones were an improvement of the previous one. So this trend continued in the fourth quarter where we've seen a much better quarter than the third quarter of 2021. So we will base our comparison on the quarter because we believe it's a -- it tells you more how the bank is doing that looking at the full year because of the trend that I mentioned that has been quite changing during the year. So the first thing that I would like to highlight is what we call the financial margin that it's the combination of the net interest income plus the net income from financial instruments at fair value, profit and loss plus the gold and foreign currency exchange rate differences. Between those 3 lines, we've seen in a quarter that the sum of that is ARS 5,494 million, and this is compared with ARS 3,629 million of the same quarter -- sorry, of the previous quarter. So that financial margin has increased 51%. So that's one of the first things that we will like to highlight because we believe it shows the improvement that we had on the financial margin, and also if you compare with the last year as well. If you remember, last year, we said in the year conference call, that the results of the bank were good, but we've seen a deterioration on the margin and that was based on the Central Bank policies of imposing caps to the active rates and flows to the passive rates. That didn't change that much during the year, but we've been able to rebalance the assets and liabilities that we have. The second one that I would like to mention, it's the net fee and commission income where we've seen a considerable impact during the year. On a yearly basis, we are down 28% there. But on a quarterly basis, we've been able to stabilize that. In fact, we've seen an increase of 1.2% in real terms quarter against quarter. This -- the change during the year has been driven mainly because here is where you see the fees from the credit card business, where we've been trying to reduce that business based mainly on all the regulations that the Central Bank applies there. So that reduction of the business comes with a reduction on the fees that we charge. And also, we sold during last year, the remaining loan portfolio of Tarshop that have considerable fees. Tarshop, if you remember was -- Tarshop, a company that we used to have, and we closed it and we took the portfolio and put it into the bank. So that reduction is already -- has already impact there during the year. So the key takeaway is that we've seen a decrease, a considerable decrease during the year, but we have seen a stabilization in the last quarter. We don't expect to be able to maintain exactly on real terms the commissions of last year, but we are originating again in some segments, credit cards. So we expect that this number should not go down as it did on the last year. I would also like to highlight the loan loss provision that you may see. It's positive during this quarter and it was heavily negative in the last quarter. The main difference there, well, as we mentioned in our previous conference call, the previous quarter was explained by the -- by Molca, [ Calsa ] and Vicentin that we took those trades to -- we provisioned -- we fully provision at 100% those trades. So that had an impact of ARS 1.5 billion in the quarter. But if you see this quarter, the positive loan loss provision is mainly based on the -- we have reshaped our PE model, our specifically loss model, where the improvement of the quality of our portfolio, plus the fact that we sold Tarshop that it was a portfolio with high PD or probability of default, the improvement of the probability of default of all the loan portfolio on the consumer basis made us reduce the charge that we have. So this reflects an improvement of the figures of the loan book that we've seen in the last 2 years, mainly. We do not expect to have positive charge in the next quarter. We see it stabilizing perhaps around ARS 400 million or even less on a quarterly basis. Then let me highlight as well personnel expenses where you see an increase in real terms during the year and during the quarter. This is mainly due -- well, to the union increases. And also it has an addition there on the severance costs and that we've been reducing the FTEs of the bank. So that is something that comes with a cost at the beginning, but then it comes with savings. Also another thing that I would like to highlight is that the means that the expenses continue going down on a yearly basis on real terms, but it's something that we are very committed and we've been showing good results there in the last 2 years. But we've seen a considerable impact on the other operating expenses, where the main difference there is due to -- in that line is where we have to put the gross income -- sorry, yes, the gross income taxes that the city of Buenos Aires imposed to a Central Bank notes, Leliqs and passes. That made us pay for that, it had an impact in 2021. We paid ARS 2,040 million when we paid in the previous year, ARS 860 million, that adjusted to the end of the year will be ARS 1.3 billion. So the impact of this, it's more than ARS 1,000 million in the in the year on adjusted terms, so that has a considerable impact on the results of the year. Also another thing that I would like to highlight is that the line -- the investment line that we have to grant for SMEs due to Central Bank regulation had an impact on the year of more than ARS 700 million as well. And then the last thing that I would like to mention is that we've seen a considerable increase on the deposits, and that is -- it has 2 sides. One side is that we've grown on the remunerated accounts with the money market funds considerable during the year. That was a business that we paid quite well last year. So we've seen an improvement there. That is not what we call core deposits. But we've also seen a considerable increase on the core deposits. So that's a good takeaway for the year. And the last thing that I would like to mention is related to the capital market debt where at the end of 2021, it represented only 6.6% of our funding. That is something that if you've been following our conference calls, we've mentioned that we wanted to reduce since we were at a ratio of more than 50% of our funding came from capital markets 2 years ago. And we've been working very hard on that, and we've seen considerable improvements. And also, this is going to be reflected on the next quarter where, as I mentioned before, we canceled or we paid or the mature -- we have the maturity of 2 UA-denominated bonds that will have a very good impact on our net financial margin as well. So the last thing that I would like to highlight also is that the [indiscernible] had a lot of activity during 2021, where we originated more than say, I believe that 30,000 mortgages during the year, and we expect to have the same level of activity or even more during this year. So that's something very important for our goal of positioning us there as the bank for the homes of Argentina. So that's all from our side. If you want, Milagros, we can open to questions if there are any.

[Operator Instructions] We will go now to the line of Nicolas.

Milagros and Martin, can you guys hear me well? .

Perfect, Nico.

Okay. Martin and Milagros. All right. So Martin, I have a few questions. So the first one is on the peso-linked bond. I believe the amount outstanding is ARS 2.6 billion, you have to pay this year, you paid in dollars, I believe, so that's like around $25 million of the official effects. My question is, how do you plan to get those dollars if at this point, you think you're going to have access to dollars from the Central Bank or if you plan to use dollars on offshore?

We are presenting a plan to a central bank that it has to be discussed with them in the next 2 months to see what we do there. Since the amount is -- it's a small amount, meaning this as the exchange rate of today, it's like $24 million, and it's divided in 3 installments. We do not foresee any issues around this. We just have to agree with the Central Bank how we are going to do it. But we don't see something like a big challenge, let's say. And what I mean that it's not much more what we're going to say because we presented a couple of options or we are presenting a couple of options to Central Bank, and we have to see what they allow us to do.

Perfect. Martin, my second question is on the result from the monetary position, right? So inflation, of course, in the quarter was very high, still 10% in the quarter, 50% in the year. But you reported here a small gain, a very small gain on that line. What was the reason for that?

Well, in the last quarter, you have the impact of -- you have to bring all the other results to the currency of this month. And that negative impact comes with a positive income on the monetary position because the results of this quarter were positive and the results of the previous quarter were negative. And also on the fourth quarter, it's where we usually -- where we reestimate the price of the branches and other buildings that we have that are inflation-adjustable and we do it only once a year on the last quarter of the year. This is usually done in the last quarter, as I mentioned before, but this quarter, this has come with a small impact because some of the investment properties that we have, have not been adjusted neither during the year nor in the last quarter. As we've mentioned in the last call, we were not willing to adjust some of the buildings that we have in the center of Buenos Aires City because the market was, let me say, it was not a good driver to see how much the property costs because there are no transactions at all. So this income could have been higher in the last quarter, but we were very prudent on this.

So Martin, if I understand correctly, then it was driven by this small income there and that line was driven by the revaluation of real estate, which offset -- which more than offset, I'm sure the loss that you had on your monetary assets, right, on loans or cash, right? .

Exactly. If you see the fourth quarter of 2020, you will see a higher impact on that positive line because as I mentioned, before we were prudent during the year. This is because we have not been doing it during the year. We do it in the fourth quarter.

Okay. Understood, Martin. Then my next question on loan loss provisions, just to make sure I understood what you said. So you had an income in this line, which is kind of where you add back. If I understood correctly, you said this was driven because -- so you sold Tarshop -- and remind me, when did you -- in which quarter did you sell Tarshop?

In the third quarter.

Third quarter of 2021. Okay. And then after that, you changed your assumptions for expected losses?

Exactly. In December. That change in that assumption, it was based not only in the fact that we no longer have Tarshop as an asset, meaning the loan portfolio. So that improved the general quality of the loan portfolio, plus that our model was based on the behavior that, that loan portfolio had on the previous years. Remember that on the previous year, we had a higher NPL and we've been reducing our exposure to some segments. For example, we have not been originating [indiscernible] and on open market segments. So we reestimated the model in order to capture those improvements. And that revaluation of the model had an impact of ARS 400 million around. And that's what takes the results to positive terms.

There were no recoveries from those loans you had written off in the third quarter, Molino Cañuelas and Vicentin, right? .

No. There were not at all. I don't know if you've seen the news, but in Vicentin, there's an offer that it was presented to bond holders or to debtors -- sorry to borrowers. And even though we don't like that offer much, let me say, it's likely that -- or -- yes, I would say that it's likely that they might be successful on that. If that happens, we will have an impact, a positive impact there. Perhaps, we will recover around ARS 0.20 to ARS 0.25 on the grade. And today, it's at 0 on our balance sheet. So that will be positive, but it has no impact during this quarter.

And then -- so just assuming that the recoveries have been ARS 0.20 or ARS 0.25, can you remind us if you can, if you have disclosed, if you can disclose this, then what was the actual exposure to Vicentin.

$12 million.

All right. Perfect. And then last question, more forward-looking now. If you can give -- what kind of guidance you can give for this year especially regarding loan growth in real terms? Last year, of course, there was an important contraction in real terms of the portfolio. And then NPLs, and whatever you can say of net interest margins, but especially considering also the line income from the Leliq, if you can?

Yes, of course. The net interest margin, we expect it should be a bit higher as these last measures from the Central Bank were slightly positive for us. When I mean this measure from Central Bank, it was the increase on the rates of Leliq and the possibility of buying 180 days Leliq or not Leliq, that is this floating rate instrument. So we expect the net interest margin perhaps to be better than the last year, I would say, if everything continues as it is, right? So we expect a positive impact there. Then on the loan growth, we do not expect to have a positive growth in real terms, but we expect to -- not to have a decrease on real terms. On that front, we are trying to decrease our credit card exposure as we've been doing in the previous years. But we are trying to grow on real terms, the personal loans. So we expect a considerable increase in real terms in the personal loan side. And the commercial side, we expect to grow perhaps a little below inflation. Those are our views. And did you ask me anything else?

How about the NPLs?

NPLs, as you know, the NPL for the consumer portfolio, we expect to remain as it is right now. And on the commercial side, the NPL is very big, as we mentioned before, due to these cases of Molca, [ Calsa ] and Vicentin and the other one that we have that we mentioned in our previous call, that it's a $10 million loan, that was granted by mortgages, where we expect to recover everything. I don't know if it's going to be this year because of the of justice in Argentina takes some time, but we expect a full recovery of that. So I would say that we do not expect an increase on the NPL on the commercial side, regardless of these 3 cases that explains more than 95% of the NPL. So it will depend a lot on how we deal with these 3 cases. But excluding that, that it's something given, in the rest of the portfolio, we do not foresee any -- an increase on the NPLs.

And one last question. Remind me, Tarshop, was that portfolio was credit card financing for clients of the shoppings of IRSA or...

Well, it started like that. At the beginning, it was meant to be something like that. But then it was expanded to consumer loans and credit card loans for people consuming everywhere, not only in the shopping. In fact, the presence in the shopping center was very small. I don't know if there's any other question.

Yes, I'm allowing a few moments, but I'm now showing no other questions in queue. I don't know, Martin, if you want to add something else?

No, I think that's all. So thanks, everybody, for joining us and talk to you in the next quarter.

Okay. Ladies and gentlemen, that does conclude your conference call for today. Thank you for your participation in Banco Hipotecario's Year 2021 Earnings Release. You may now disconnect.