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

Ladies and gentlemen, thank you for standing by. Welcome to Banco Banco Hipotecario Second Quarter 2023 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.

Thanks, Angela. Good morning, everyone. Thanks for joining us today. Let's begin. Second quarter 2023 consolidated results. The bank began reporting results applying hyper inflation accounting in accordance to IFRS rules IAS 29. Established by the Central Bank of Argentina as of the first quarter of 2020. Therefore, every results and variation described in this report is expressed in constant currency as of June 30, 2023. Also, the provisioning model of IFRS 9 Section 5.5 was applied as established by the Central Bank. Executive summary. Net income attributable to owners of the parent company for the quarter was ARS 4,015 million and compared to ARS 4,525 million of the last quarter and ARS 2,946 million of the same quarter last year. Return over average equity for the second quarter of 2023 was 19.9% and compared to 23.6% for the first quarter of 2023 and 17.3% for the same quarter of last year, while return over average assets for the same period were 2.7%, 3.2% and 1.4%, respectively. The net operating income for the quarter was ARS 37,681.2 million. This is 9.4% higher than the ARS 34,456.2 million of the previous quarter and 8.5% higher than the ARS 34,742.9 million of the same quarter of last year. Operating income for the quarter was ARS 16,781.9 million compared to ARS 16,309.6 million of the previous quarter and ARS 9,235.3 million of the same quarter of last year. Loans to the nonfinancial private sector and foreign residents decreased 3.3% quarter-over-quarter and 26.9% year-over-year. Deposits increased 37.5% quarter-over-quarter and decreased 3.9% year-over-year, while capital market debt decreased 15.5% quarter-over-quarter and 48.5% year-over-year. Nonperforming loans decreased from 4.2% in the second quarter of 2022 to 2.7% in the second quarter of 2023, which remained constant quarter-over-quarter. The coverage ratio increased from 82.3% in the second quarter of 2022 to 119% in the first quarter of 2023 and decreased to 113.3% in the second quarter of 2023. Total capital ratio as a percentage of risk-weighted assets as of June 30, 2023, was 23.8%. This compares to 25.1% of the previous quarter and 18.9% of the same quarter of last year. The general level of consumer price index accumulated an increase of 23.8% in the second quarter of 2023, while it was 21.7% and 17.3% of the previous quarter and for the same quarter of last year, respectively. In April 2023, the bank made the amortization payment of the senior unsecured notes Series 5 for a total amount of $10 million. Let's go now to the income statement to see the principal lines here. The first line that you should see is the net interest income that shows a negative sign of ARS 10,000 million or ARS 10 billion in English. This is a bit higher, a negative number higher than the previous quarter, but as we usually mentioned, the financial margin in order to see it completely has to be measured as the sum of the net interest income plus the net income from financial instruments at fair value through profit and loss plus gold and foreign currency exchange rate difference. And this [ cemetery ] of this field for the second quarter of 2023 was ARS 32,938.4 million, and this compares to the ARS 21,038 million of the last quarter so this represents an increase of 56.6% quarter-over-quarter and also compares to ARS 26,091 million of the same quarter of last year. So it represents an increase of 26.2% year-over-year. The main drivers for this improvement in the quarter were the increase on the rates that the Central Bank pays of the monetary policy rate and the repo rate that increased 1,900 basis points during the second quarter. One of the main factors is that one. And the other main factor is that we grew the balance sheet during the second quarter, as we usually explained in the first quarter of every year and in the third quarter, the Central Bank the termine based on the deposits that the bank has, the amount of compulsory lines that we have to originate at subsidized rates to SMEs. So in the first quarter and in the third quarter of every year, we reduce the balance sheet. So in the second quarter, we had a bigger balance sheet, so that made us have a stronger financial margin. Then important lines on the balance sheet. You will see in our operating income, a considerable reduction. And as we explained from ARS 10,000 million to ARS 1,800 million. As we mentioned on our last call, in the first quarter, we made a revaluation of commercial for big property that we have in Avenida 9 de Julio. And that the Central Bank did not allow us to evaluate that from a couple of quarters or more than a year. And that improvement was in the first quarter and did not happen in the second quarter because we did not adjust that value. That difference is in that particular line in the balance sheet. Then an important line is the loan loss provision that went from ARS 842 million in the first quarter of 2023 to ARS 350 million in the second quarter of 2023. This is driven by the improvement of our portfolio, mainly the consumer portfolio. Also, the other one remains constant. We have not seen any changes in the corporate side and the consumer portfolio is improving its quality. So we've seen a reduction in the loan loss provision. As we mentioned, the NPLs decreased considerable when you see from the last year when you compare to the fourth quarter of 2022. It was 4.8% and now it's 2.7%. This, as we mentioned in our last call, is mainly driven by partial cancellation of around $9 million corresponding to a secured commercial loan that it was in arrears as of the December 31. And we still have in that loan $3 million -- around $3 million that explains a big portion of our commercial NPL and that loan is secured by a property that we expect to collect. I don't know if we are going to be able to collect it during this year or if it's going to be collected at the beginning of next year, but we are quite certain that it's going to be collected. Then on the expenses side, Personnel expenses reduced 5.7% year-over-year and increased 25.2% quarter-over-quarter. When you go to these lines, it's quite complex to see if there is a reduction or not because it has to do a lot with the moment that the union negotiates the salaries with the banks. So that may have an impact on the first quarter or in the second quarter. This had a bigger impact on the second quarter than on the third comparing to the first one, that's why you see an increase. And also, there was an increase in the severance line and in the bonus provision line, this is mainly driven to some changes and some reduction on the staff. It has -- a portion of that is related to severances. Then other things that we've been mentioning in our last calls, as we usually mentioned on the digital business that we call Buhobank that we launched at the beginning of the year. During this quarter, we've been able to sell or to obtain 2,963 new accounts through this digital channel. And we are further advancing in the implementation of our digital strategy to amplify the distribution capacity. We are also including it's not on that number, but as we mentioned on our last call, we started originating pension payments. We've signed an agreement with NSS, that is the administrator of pensions in Argentina, where now we are one of the banks that is allowed to pay salaries for retirees. That is starting. We have -- I think that we paid around 800 clients in the first 2 months. We expect to improve that as we are designing quite a good offer for that population. So I think that, that's all from my side. Angela, if you want to open it for questions.

[Operator Instructions] I think there are no questions, right? So allowing a few moments, I'm showing no questions in queue. So ladies and gentlemen, please continue, Martin Diez.

Okay. Well, if there are no questions, thanks, everybody, for joining us and talk to you in the next quarter. Thank you so much. Bye.

That does conclude your conference call for today. Thank you for your participation in Banco Hipotecario's Second Quarter 2023 Earnings Release. You may now disconnect.