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

Ladies and gentlemen, thank you for standing by. Welcome to Banco Hipotecario's Year 2023 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, Angela. Good morning, everyone. Thanks for joining us today. We are going to go through the full year 2023 consolidated results. Before beginning, let me say that it has been a very complex year for the economic environment in Argentina, but we have been able to achieve great results along the year and mainly in the fourth quarter where we had a very solid quarter and converting into a very good year for the bank. Let's go through the presentation. 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 results and variation described in this report is expressed in constant currency as of December 31, 2023. 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 ARS 56,565 million. This compares to ARS 18,855 million of last year. Net income attributable to owners of the parent company for the quarter was ARS 35,946 million compared to ARS 2,968 million of last quarter and ARS 4,368 million of the same quarter of last year. Return over average equity for the full year 2023 was 31.1%. This compares to 13.1% for the full year 2022, while return over average assets for the same period were 4.1% and 1.1%, respectively. Return over average assets for the fourth quarter of 2023 was 74.8% and return over average assets was 9.4%. Net operating income for the year was ARS 300,076 million. This compares to ARS 200,069 million of last year, which represents an increase of 39.7% year-over-year. Net operating income for the quarter was ARS 151,000 million compared to ARS 76,543 million of last quarter and ARS 67,528 million of the same quarter of last year. Operating income for the year was ARS 194,000. This compares to ARS 75,150 million of last year. Operating income for the quarter was ARS 93,957 million. This compares to ARS 32,653 million of last quarter and ARS 19,000 million of same quarter last year. Loans to the nonfinancial private sector and foreign residents decreased 40.6% year-over-year and 18% quarter-over-quarter. Deposits increased 22% year-over-year and decreased 2.6% quarter-over-quarter. Capital market debt decreased 14.6% year-over-year, and increased 10.9% quarter-over-quarter, mainly due to the devaluation that occurred in the fourth quarter of 2023. On a consolidated basis, NPL decreased from 4.8% in the fourth quarter of 2022 to 3.1% of the fourth quarter of 2023, while NPL in the consumer portfolio increased from 2.5% to 2.9% and commercial NPL decreased from 8% to 3.5% during the same period. Coverage ratio increased from 61.9% to 109.2% for the same period. Total capital ratio as a percentage of risk-weighted assets as of December 31, 2023, was 38.5%. This compares to 25.3% of last quarter and 23.1% of the same quarter of last year. On February 19, the bank issued the senior unsecured notes Series VII for ARS 10.4 billion or trillion at BADLAR plus 3%. In December 2023, the bank signed a deed of transfer of ownership and assignment of rights of the fixed asset the Edificio del Plata as a contribution to the Edificio del Plata Trust in order to carry out the conversion project in this property. Inflation in Argentina during the full year 2023 was 211.4% while in the fourth quarter, it was 53.3%. Let me go through some highlights or some items that I mentioned here that we would like to highlight regarding the profitability ratio that, as I mentioned before, have been very solid, both for the quarter and also for the year. We had other important aspects. As I mentioned in the previous bullet where we signed the deed of transfer of ownership of the Edificio del Plata. As many of you know, the Edificio del Plata, it's a big property, but it's in the center of the Buenos Aires City in front of the [ Rio Negro ] that we had -- we bought in 2016, and the idea was to build our new headquarters there. But then mainly due to the digitalization that the banking industry had and reduced the reduction of our footprint and the total FTEs that we have on our headquarters. We consider that was too big. So we started with the idea of selling it. And then in 2020, the pandemic occurred, and this is an office that it is on the center of Buenos Aires. So the Government of Buenos Aires City launched -- they stated a law, where you can use taxes in order to transform commercial properties into housing, and we've been working like for 2 years in this in order to put this building on the trust and to reconvert it into housing. Well, that has been achieved in December. So now we have an equity interest on that of 28.5% of the total building once it's finished. And our commitment to that is only what we have done, that it's giving the property in order to other investors to embed and put all the money. So this has been very important for us. It's something that we've been working on for years. Then other important aspects of the quarter. I would like to go to the NPL as we've been mentioning in the last maybe 2 years or 3 years that we've seen a reduction on the NPL, consistent reduction on the NPL, both on the consumer side and on the commercial side. If we go to the commercial side, we've seen a small hike during the quarter, but this is mainly due to the fact that our biggest loan on arrears. It's dollar-denominated, and we've seen a considerable devaluation in the fourth quarter. So the portfolio continues to improve regardless of this particular item. When it goes to the consumer side, we've seen a hike, a small hike. Also, we've seen a reduction in the portfolio. As we mentioned on our previous calls, we were not eager to originate considering the macro environment. And also there is no demand for credit in Argentina. There was no demand for credit in Argentina during 2023. And this has not changed in 2024. But the fact there is that what we've seen is on the riskier portfolios, for example, in our digital origination segment that is called [ BOA Bank ], where we originated 75,000 clients during 2023. We are on a learning curve there, and we've seen that the riskier clients that come through that platform, they have a bigger NPL ratio. So we have been very prudent, and we are planning to switch the target of clients that we acquired through that platform to higher level or higher income customers. That's part of the plan for 2024. Then important aspects of the year mainly. It's when it goes to the financial margin. And as we always mentioned, we do not consider the financial margin as only the net interest income, but a combination of the net interest income, the net income from financial instrument at fair value to profit and loss, the income from asset derecognition and gold and foreign currency exchange rate differences. And this item for the full year of 2023 was ARS 300,000 million, and this compares to ARS 192,000 million of last year. This represents an increase of 56.1%. So we've seen a huge increase in the financial margin. Our financial margin for the 2022 was good. And for 2023, it was even better. And in the fourth quarter, we've seen a very consistent financial margin. Also, there has been a switch in the financial -- in the monetary policy instruments that the Central Bank use. For example, the main tool that the Central Bank had -- in fact, the monetary policy rate was determined by the rate of the relic and the relic instrument has been let's say, eliminated by the Central Bank. Now the banks, we only do repo transactions with the Central Bank. So there also has been a reduction on the rate that the Central Bank space to -- for the repo rate. Now it's 100% on a yearly basis. So there has been a considerable reduction. And with the spike on the inflation, it's what we call the -- well, let's say, the Central Bank is trying to recover the solvency on its balance sheet. And one of the things that it's doing is the -- they are reducing their liabilities on real terms. And the way they are doing it, it's with the negative real rates, very high negative real rates. We're saying that the Central Bank is paying an 8% rate on a monthly basis, 8.5% rate on a monthly basis when inflation has been 25% for December '24, January, and we are still waiting to see how much it would be in February. What we've been seeing a consistent reduction on this extremely high inflation rate that we've seen in the last 2 months. In fact, we expect the inflation to be in the area of 15% for February for what we've seen on the measures that we take on inflation and also on the measures that we buy and we consume from the market. Then on the loan loss provision for the year, we've seen a reduction. This is in line with the decrease of the total nonperforming loans that we've seen during the year. Well, the better aspect of the year has been the fee and commission, the net fee and commission income, where we've seen a reduction of 11.6%. And where our idea was to remain constant during the year. We were performing quite okay during the first 3 quarters of the year. On the fourth quarter, we've not been able to achieve the results that we wanted. This is mainly due to the fact that inflation had a big acceleration in the fourth quarter, and you have to determine the pricing of your products before the beginning of the quarter. So when there's a spike in inflation, you can -- you have the risk that you didn't expect that level of inflation. So that's perhaps the biggest hit of the year. So I think that's all from my side. I don't know if there are any questions.

[Operator Instructions] I'm showing no questions in queue. Martin, do you want to add something else?

Yes. Let me add something that I didn't mention. But 2 important takeaways also from the year. One of this -- or I've been mentioning this in the last call, but during 2023, we started paying the pensions from ANSES that's very, very important achievement for the bank, and we expect to grow on that segment during 2024. We have a good proposal there with a cash back for this particular segment. So we already have some clients there, and we expect to grow maybe from around 15,000 to 20,000 accounts during this year. And also on our target segment that it's the people that deposit their wages with Banco Hipotecario and what we call the real customers, we grew 25% during 2023. So that's a big achievement as well considering that it was a very tough year for the macro environment in Argentina. So that's all from my side.

Ladies and gentlemen, that does conclude your conference call for today. Thank you for your participation in Banco Hipotecario's Year 2023 Earnings Release Call. You may now disconnect.

Thank you very much. Bye-bye.