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

Ladies and gentlemen, thank you for standing by. Welcome to Banco Hipotecario First Quarter 2022 Earnings Release Call. [Operator Instructions] Today, Mr. Martin Diez, Banco Hipotecario CFO, will be presenting. I would now like to turn the conference over to Mr. Martin Diez. Please go ahead.

Thank you, Milagros. Hello, everyone. Thank you for joining us today. 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 despite this report is expressed in constant currency as of March 31, 2022. Also, the provision 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 quarter was ARS 1,168 million compared to ARS 630 million of the last quarter and minus ARS 2,520 million of the same quarter of last year. The return of average equity for the first quarter of 2022 was 17% compared to 8.9% for the fourth quarter of 2021 and minus 37.4% for the first quarter of 2021, while return over average assets for the same period were 1.4%, 0.8% and minus 4.4%, respectively. The net operating income for the quarter was ARS 3,558 million. This is 27% higher than the ARS 10,672 million of the previous quarter and 85.8% higher than the ARS 7,298 million of the same quarter of last year. Operating income for the quarter was ARS 4,217 million compared to ARS 1,333 million of the previous quarter and minus ARS 1,325 million of the same quarter of last year. As of March 31, 2022, liquidity coverage ratio was 151.8%. Net stable funding ratio was 212.7%, and the liquid assets to deposit ratio was 88.9%. Loans to the nonfinancial private sector and foreign residents decreased 16.4% quarter-over-quarter and 28% year-over-year. Deposits decreased 42.6% quarter-over-quarter, an increased 32.7% year-over-year, while capital market debt decreased 45.2% quarter-over-quarter and 51.7% year-over-year. The NPL decreased from 13.4% in the fourth quarter of 2021 to 6.6% in the first quarter of 2022. NPL in the commercial portfolio decreased from 28.5% to 13.5% during the same period. The coverage ratio also decreased from 89.1% to 78.5% for the same period. Let me give a brief formation about this topic, and I will continue with the bullets. In this particular case, what we have done is that we took out of the balance sheet, the loan that was granted to Molino Cañuelas that it was around ARS 5,000 million. But it was already provisioned at 100%, so this change explains the change in the quarter. Total capital ratio as a percentage of risk-weighted assets as of March 2022 was 17.1% compared to 16.4% of the previous quarter and 18.5% of the same quarter of last year. The bank has issued a new plastics senior unsecured bond of $15.9 million at a 0% rate with a 24-month maturity. This was after the end of the quarter, but it's something that we wanted to highlight. The general level of the consumer price index accumulated an increase of 16.1% in the first quarter of 2022, while it was 10.2% and 13% for the previous quarter and for the same quarter last year, respectively. During the first month of 2022, the Central Bank has sanctioned new reforms regarding the country's monetary policy. Among them, an increase of 650 basis points in the monetary policy rate and the creation of a new 180-day instruments stand out. This plus instrument include fixed rate [Foreign Language]. Additionally, the new resolutions established an increase in the maximum rate on credit cards in the producing investment line rate. Let me give you a bit of color of what happened in the quarter. First of all, we consider this was a very good quarter for the bank. And one of the main reasons, you will find it on what we call the financial margin that it's the sum up of the net interest income line plus net income from financial instruments at fair value through profit loss plus income from asset recognition measured at amortized cost, plus gold and foreign currency exchange rate differences. When you combine these 4 lines, the result for the first quarter of 2022 is ARS 8,232.9 million, and this compares with ARS 6,458 million of the last quarter and compares to ARS 2,350 million of the same quarter of last year. That means 250% growth on a year-over-year basis. This has several reasons. One of them as the ones of you that have been joining us. The first quarter of last year was a very complex quarter in this particular item since we had to originate a lot of productive line loans that are requested by the Central Bank, and we had to originate them at a very low interest rate around 18% when -- so that had a huge impact on our first quarter of 2021. But it's not the only reason also the change in the monetary policy instruments, it was significant and the change in the steepening of the curve of the Central Bank instrument was important for us as well. We switched a lot from repos with the Central Bank to the likes and that improved the rates that we receive from the liquidity. And also, as we mentioned before, there was a 650 basis point rate in the [ linked rates for the -- during the quarter. So that had a positive impact as well. Then other important things that happened in the quarter. It was that we granted 16,141 loans from Broker. This means that the proper trust had a lot of activity, and that also comes with with a good impact for the bank. So I think that those are the main drivers for the quarter. I already explained something about the NPL. I don't know if there are any questions or if somebody sent any questions through the chat, [indiscernible]

[Operator Instructions] Regarding the NPL, I have here one question. And how do we see the NPL and the coverage ratio evolution for the rest of the year?

Well, we don't usually give guidance, but what we've seen in the first quarter of the year, that it's a good quality of the retail loans portfolio. So -- and we expect that the corporate portfolio will improve during the year. So we expect to be around 5% of NPL at the end of the year perhaps a little lower, and we expect the coverage ratio to remain at the same level where it is right now, more or less, we don't expect to see much change there. The reason for this is that the outlier in the coverage ratio is 1 particular loan that is a corporate loan of $11 million around that is secured, and we expect to recover that loan. I don't know if we are going to recover it during this year because we are executing the collateral, but if not this year, we will recover it at the end of the year. So that if we recover this year, the NPL will go below 5%. But if not, we expect it to see that perhaps at the level of 5%, more or less.

Perfect. And here, we have a second question, which says, "why have deposits decreased 42.6% compared to the previous quarter?"

Okay. Well, it's not only the -- in order to see the full picture of the deposits, you have to see that they decreased 42.6% quarter-over-quarter, but they increased 32% year-over-year. So the last quarter -- sorry, yes, the last quarter of 2021 was a bit of an outlier because we saw an opportunity there to take a lot of deposits from money market funds and from corporates that they were particularly a trade in order to buy short-term Central Bank instruments that the spread was very good. So that is one of the biggest explanation from the decrease of deposits. The second explanation is that during the month of March, is when the Central Bank takes what we call the picture in order to the time line, the size of the investment productive line. So we wanted to shrink the balance sheet in order to be on a better picture, let's say, that in order to originate less subsidiaries loans. So that was the second reason. And if you want to have some more color in order to see what we call the deposits that we want to -- when we consider the core business, we had a growth during the year or considering this quarter against the previous -- the same quarter of last year, we grew 31%, the number of accounts of the target segments that is the retail accounts for wages and what we call [Foreign Language] is a product of the bank that is similar to wage accounts. That is -- the people have to -- they grant a certain amount of money that is debited from some other bank account on each month. So it works like a wage account. So we saw an improvement there of 31% year-over-year. And let me add something that I missed that I wanted to mention is that in February 2022, we paid 2 bonds -- 2 local bonds that were denominated in UBA that it's adjusted by inflation for ARS 8.5 billion, and that is something that also helped to improve the financial margin. Sorry, that has nothing to do with the question, but it was something that I missed on the highlights of the quarter.

Yes. No, we -- I don't have another question. So I don't know if you want to add something else?

Okay. That's all we wanted to share with you. Thank you for joining us.

Okay. We are available if you have any other question. So ladies and gentlemen, that does conclude your conference call for today. Thank you for your participation in Banco Hipotecario's First Quarter 2022 Earnings Release. You may now disconnect.