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

Ladies and gentlemen, thank you for standing by. Welcome to Banco Hipotecario's Second Quarter 2022 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. Good morning. Hello, everybody. Thanks 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 described in this report is expressed in constant currency as of June 30, 2022. Also, the provisioning model of IFRS 9 Section 5.5 was applied established by Central Bank. Net income attributable to owners of the parent company for the quarter was ARS 1,366.6 million compared to ARS 1,370.6 million of last quarter and minus ARS 1,822.6 million of the same quarter of last year. The return of average equity for the second quarter of 2022 was 17.3% compared to 17.7% for the first quarter of 2022 and minus 28.5% for the second quarter of 2021, while return over average assets for the same period were 1.4%, 1.5% and minus 3.2%, respectively. The net operating income for the quarter -- let me add a minor comment here. We have changed this bullet because there was a mistake on the sum of these items. So we will replace this on the website, and we'll publish it again with this version. The net operating income for the quarter was ARS 16,116 million, 11% higher than the ARS 14,538.7 million of the previous quarter and 96% higher than the ARS 8,204.6 million of the same quarter of last year. Operating income for the quarter was ARS 4,283.9 million compared to ARS 3,605.5 million of the previous quarter and minus ARS 1,531.9 million of the same quarter of last year. As of June 30, 2022, liquidity coverage ratio was 139%; net stable funding ratio was 219.4%; and the liquid assets-to-deposit ratio was 91.7%. Loans to the nonfinancial private sector and foreign residents decreased 4.7% quarter-over-quarter and 23.4% year-over-year. Deposits increased 6.2% quarter-over-quarter and 8.1% year-over-year, while capital market debt decreased 3.9% quarter-over-quarter and 53.7% year-over-year. NPL decreased from 6.6% in the first quarter of 2022 to 4.2% in the second quarter of 2022. NPL in the commercial portfolio decreased from 13.5% to 7.6% during the same period. The coverage ratio increased from 78.5% to 82.3% for the same period. Total capital ratio as a percentage of risk-weighted assets as of June 30, 2022, was 18.7% compared to 16.6% of the previous quarter and 16.2% of the same quarter of last year. The general level of consumer price index accumulated an increase of 17.3% in the second quarter of 2022, where it was 16.1% and 11% for the previous quarter and for the same quarter of last year, respectively. In May and August of 2022, we paid 2 installments of principal for the bond Series 48 totaling $14 million. We still have to pay the third amortization installment in November of 2022. And also on the macroeconomic side, in June of 2022, the Central Bank started buying bonds in local currency floaters and they printed around ARS 1.2 billion in order to defend the curve. So this was a major change in the sovereign market of bonds. From that moment on, they remain active, but not as active as they were in that particular moment when we see that situation. Then going a bit to the things that we consider the drivers for the quarter. One important driver was the financial margin that the way we see it is a combination between the net interest income plus the net income from financial instruments at fair value through profit and loss plus the income from asset derecognition measured at amortized cost plus gold and foreign currency exchange rate differences, the combination of those 4 lines was ARS 2,102.9 million. This compares to ARS 1,657.4 million of the previous quarter, but it's a 25% increase quarter-over-quarter and this compares to ARS 4,487 million of 2021, so this represents an increase of 169% year-over-year, so that's one of the driver and this is related to the shape of the sovereign curve on interest rate curve that the Central Bank designed that made the longer terms more higher or relatively higher than the short term, so does the spread increase during the quarter and based on our allocation of liquidity, we have taken advantage of that. So that's an important point. Then all the other lines remain quite similar to the previous quarter that it was a good quarter. For the quarter ahead, that is the third quarter, we remain cautious because of the economic situation. We've seen inflation rising considerably this year, both in the first and the second quarter of the year. And the third one is not the exceptions, so we remain careful of the economic outlook and that is why you've seen that the loans have not grown as inflation because we have not experienced demand or a lot of demand on personal loans, neither corporate loans. And we have been -- or we are becoming more careful in order to see what happens with the macroeconomic environment in the next couple of months. So I don't know, Milagros, if you want to open for questions.

[Operator Instructions] Here, we have the line of Nicolas.

So I have 2 questions. So the first one is, in May, you had this issuance in the local market for $15 million, which was clearly very positive. And I wanted to ask if this is something you plan to do again, the local debt market access to finance, perhaps the coming installments of the 2025 bonds? That's my first question. And then my second question is on the floating bond that you have, which matures in November, and Martin, you mentioned the first 2 installments in May and August. So you mentioned the first 2 installment totaled instead $40 million. In Bloomberg, I can see amount outstanding of ARS 2.1 billion. If you can confirm what's the last payment you have to do in November? And I understand this is fixed in pesos, but you pay in dollars, if you can say the amount you are going to pay in dollars.

Nicolas, well, the issuance that we did during this -- in the month of May, it was in order to fulfill the requirement for the Central Bank that we needed to obtain dollars in order to pay dollars. Remember the 60-40 rule. So we have to do that in order to have the dollars to obtain access to repay this floating -- the peso-denominated bond, the 48 Series that we paid the first 2 installments, and we had to pay the third one. Well, we need to issue at least 60% of the dollars that we need to use. So that's why we issued that amount. So we don't expect to go to the market again to do something like this because it was a particular need for this principal payments. Then the third installment that is the one due in November 7, it's of ARS 800 million around. Exactly, it's ARS 800 million, and we will pay that in dollars, as you said, but the amount in dollar is going to be determined 3 days before the calculation period. So you are going to see -- and it's based on the FX of the [ 350 ], the Central Bank official exchange rate. So that amount is going to be determined. It's the amount of pesos divided by the FX rate of -- if I've mistaken, it's 3 days average of the exchange rate. So that was one question. The second one, if we were planning to do an issuance in order to pay, for example, the installment of the 2025 bond that we have to pay in October. No, we are not trying to do anything around that because we do have access since this has already been refinanced according to the Central Bank rules. We have assets to pay that. So we'll not to issue -- we not need to issue any security in order to make that payment. Do we have any questions, Mili?

Yes. Here, I have a question in the chat that says, why did the NPL decreased from 6.6% in the first quarter of 2022 to 4.2% in the second quarter of 2022?

Okay. Well, this is mainly a technical issue. As we've been discussing in our previous calls, NPLs were improving. The performance of our portfolio was improving, and this quarter was not the exception as the consumer NPL improved, but the difference here that you see is mainly driven by the fact that we have taken off balance sheet, the loans rented to [ Bicenten ] that it was already completely provisioned, and we've taken out of balance sheet, so it's no longer on the NPL calculation. So that's the main driver for the situation change.