Banco Macro S.A. (BMA) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to Banco Macro's Fourth Quarter 2023 Earnings Conference Call. We would like to inform you that the fourth quarter 2023 press release is available to download at the Investor Relations website of Banco Macro, and that is www.macro.com.ar/relaciones-inversores/. Also, this event is being recorded [Operator Instructions] It is now my pleasure to introduce our speakers. Joining us from Argentina are Mr. Gustavo Manriquez, Chief Executive Officer; Mr. Jorge Scarinci, Chief Financial Officer; and Mr. Nicolas Torres, Investor Relations. Now I'll turn the conference over to Mr. Torres. You may begin your conference.

Thank you. Good morning, and welcome to Banco Macro's Fourth Quarter 2023 Conference Call. Any comments we may make today may include forward-looking statements, which are subject to various conditions, and these are outlined in our 20-F, which was filed to the SEC and is available at our website. Fourth quarter 2023 press release was distributed yesterday, and it's available at our website. All figures are in Argentine pesos and have been restated in terms of the measuring unit current at the end of the reporting period. As of 2020, the bank began reporting results applying hyperinflation accounting in accordance with IFRS IAS 29 as established by the Central Bank. For ease of comparison, figures of previous quarters have been restated applying IAS 29 to reflect the accumulated effect of the inflation adjustment for each period through December 31, 2023. I will now briefly comment on the bank's fourth quarter 2023 financial results. Banco Macro's net income for the quarter was ARS 460 billion, 3,894% higher or ARS 448 billion higher than in the third quarter and 789%, or ARS 408 billion higher than the result posted a year ago. The bank's accumulated ROE and ROA of 33.2% and 8.7% respectively, remains healthy and show the bank's earnings potential. In fiscal year 2023, net income totaled ARS 587.7 billion, 338% higher than in fiscal year '22. Total comprehensive income totaled ARS 627 billion and was 438% higher than fiscal year 2022. Net operating income before general and administrative and personnel expenses for the fourth quarter of 2023 was ARS 1.3 trillion, increasing ARS 778 billion quarter-on-quarter. On a yearly basis, net operating income before general and administrative and personnel expenses increased 224% or ARS 915 billion. In fiscal year 2023, net operating income before general and personnel expenses totaled ARS 2.84 trillion, 83% higher than in fiscal year 2022. In the fourth quarter of 2023, provision for loan losses totaled ARS 18.2 billion, 144% or ARS 10.7 billion higher than the previous quarter. On a yearly basis, provision for loan losses increased 131% or ARS 10.3 billion. In fiscal year 2023, provision for loan losses totaled ARS 49.9 billion (sic) [ ARS 45.9 billion ] and were 125% higher than in fiscal year 2022. Operating income after general, administrative and personnel expenses was ARS 1 trillion, 189% or ARS 680 billion higher than in the third quarter of 2023 and 327% or ARS 796 billion higher than in the fourth quarter of 2022. In fiscal year 2023, operating income after general and administrative and personnel expenses totaled ARS 2 trillion, 123% higher than in fiscal year 2022. In the quarter, net interest income totaled ARS 183.7 billion, 6% or ARS 10.9 billion higher than the result posted in the third quarter of 2023 and 29% or ARS 77 billion lower than the result posted 1 year ago. In fiscal year 2023, net interest income totaled ARS 829 billion and was 13% lower than in fiscal year 2022. Interest income increased 28%, while interest expenses increased 70%. In the fourth quarter of 2023, interest income totaled ARS 573 billion, 13% or ARS 84.5 billion lower than in the third quarter of 2023 and 7% or ARS 45.3 billion lower than the previous year. Income from interest on loans and other financing totaled ARS 372 billion, 36% or ARS 98.5 billion higher compared with the previous quarter, mainly due to a 68% increase in the average volume of private sector loans, which was partially offset by 1,211 basis points decrease in the average lending rate. On a yearly basis, income from interest on loans increased 73% or ARS 157.4 billion. In fiscal year 2023, income from interest on loans and other financing totaled ARS 1.1 trillion, 43% higher than fiscal year 2022. In the fourth quarter of 2023, interest and loans represented 64% of total interest income. In the fourth quarter of 2023, income from government and private securities decreased 66% or ARS 209.5 billion quarter-on-quarter due to the unwinding of our Leliq portfolio and decreased 72% to ARS 271.6 billion compared with the same period of last year. In fiscal year 2023, income from government and private securities totaled ARS 1.1 trillion, 3% higher than in fiscal year 2022. In the fourth quarter of 2023, income from Repos totaled ARS 84.2 billion, 46% or ARS 26.6 billion higher than in the previous quarter and 287% or ARS 62.4 billion higher than a year ago. In the fourth quarter of 2023, FX income totaled ARS 182.7 billion, 50% or ARS 182.2 billion lower than the previous quarter and 92% or ARS 87.5 billion higher than a year ago. The FX income gain was due to the 131% Argentine peso depreciation against the U.S. dollar and the bank's loan dollar position during the quarter, including dollar linked and dual bonds. It is important to notice that the bank's long dollar position decreased 42% during the quarter. In fiscal year 2023, FX income totaled ARS 798.2 billion, 312% above the results posted in fiscal year 2022. In the fourth quarter of 2023, interest expense totaled ARS 389 billion, 20% or ARS 95.5 billion lower compared to the third quarter of 2023 and 9% or ARS 31.4 billion higher on a yearly basis. Within interest expenses, interest on deposits decreased 21% or ARS 97.6 billion quarter-on-quarter, mainly driven by a 2,750 basis point increase in the average interest rates paid on deposits, while the average volume of private sector deposits increased 38%. On a yearly basis, interest on deposits increased 7% or ARS 25.5 billion. In the fourth quarter of 2023, interest on deposits represented 97% of the bank's financial expenses. In the fourth quarter of 2023, the bank's net interest margin, including FX, was 33.8% lower than the 58.7% posted in the third quarter of 2023 and 32.7% posted in the fourth quarter of 2022. In the fourth quarter of 2023, Banco Macro's net fee income totaled ARS 55.6 billion, 2% or ARS 1.2 billion higher than in the third quarter of 2023 and was 5% or ARS 2.5 billion higher than the same period of last year. In fiscal year 2023, net fee income totaled ARS 220.8 billion, 4% higher than in the fiscal year 2022. In the fourth quarter of 2023, net income from financial assets and liabilities at fair value through profit or loss totaled ARS 895.2 billion gain, mainly due to the mark-to-market of some government securities, mainly dual bonds, which represents ARS 835.2 billion. In fiscal year 2023, net income from financial assets and liability at fair value through profit or loss totaled ARS 970.2 billion, 555% (sic) [ 551% ] higher than the fiscal year 2022. In the quarter, other operating income totaled ARS 25.2 billion, increasing 45% or ARS 7.9 billion compared to the third quarter of 2023. On a yearly basis, other operating income increased 40% or ARS 7.2 billion. In fiscal year 2023, other operating income totaled ARS 72.9 billion, 11% higher than in fiscal year 2022. In the fourth quarter of 2023, Banco Macro's administrative expenses plus employee benefits totaled ARS 152.5 billion, 50% or ARS 51 billion higher than in the previous quarter due to higher employee benefits, which increased 35% and higher administrative expenses, which increased 80%. On a yearly basis, administrative expenses plus employee benefits increased 68% or ARS 61.5 billion. In fiscal year 2023, administrative expenses plus employee benefits increased 22% compared to fiscal year 2022. As of the fourth quarter of 2023, the efficiency ratio reached 18.6%, improving from the 23% posted in the third quarter of 2023 and a 28.6% posted 1 year ago. In the fourth quarter of 2023, expenses increased 51% while net interest income plus net fee income plus other operating income increased 149%. In the fourth quarter of 2023, the result from the net market position totaled ARS 525.8 billion loss, ARS 194.8 billion higher than the loss posted in the third quarter of 2023, and 196% or ARS 348.4 billion higher than the loss posted 1 year ago. Higher inflation was observed during the quarter, which was 18.5% higher than in the third quarter of 2023. Inflation in the quarter was 53.3% compared to 34.8% in the third quarter of 2023. In fiscal year 2023, the result from the net monetary position totaled a ARS 1.3 trillion loss, 88% higher than the one posted in fiscal year 2022. Inflation in 2023 reached 211% compared to the 94.8% registered in 2022. In the fourth quarter of 2023, Banco Macro's effective tax rate was 31.4%, and fiscal year 2023, effective income tax rate was 32.5%, higher than the 31.1% registered in fiscal year 2022. Further information is provided in Note 25 to our financial statements. In terms of loan growth, the bank's total financial reached ARS 1.8 trillion, increasing 4% or ARS 65.6 billion quarter-on-quarter and decreasing 2% or ARS 30 billion year-on-year. Within commercial loans, Overdrafts stand out with a 66% or ARS 114.9 billion increase and Others with a 30% or ARS 74 billion increase. Within consumer lending, personal loans decreased 22% or ARS 65.9 billion, while credit card loans decreased 7% or ARS 38.4 billion. In fiscal year 2023, Overdraft, Documents and Others stand out with an 88%, 33% and 48% increase, respectively. It is important to mention that Banco Macro's market share over private sector loans as of December 2023 reached 9.1%. On the funding side, total deposits increased 9% or ARS 290.4 billion quarter-on-quarter, totaling ARS 3.4 trillion and decreased 16% or ARS 663.7 billion year-on-year. Private sector deposits increased 30% or ARS 360.8 billion quarter-on-quarter, while private sector deposits decreased 31% or ARS 85.3 billion quarter-on-quarter. The increase in private sector deposits was led by demand deposits, which decreased 41% or ARS 562.8 billion, while [ term ] deposits decreased 23% or [ ARS 313.2 billion. ] Within private sector deposits peso deposit decreased 10% or ARS 252.6 billion, while U.S. dollar deposits decreased 8% or $107 million. As of December 2023, Banco Macro's transactional accounts represented approximately 59% of total deposits. Banco Macro's market share over private sector deposit as of December 2023 totaled 6.2%. In terms of asset quality, Banco Macro's nonperforming to total financial ratio reached 1.29%. The coverage ratio measured as total allowance under expected credit losses over nonperforming loans under Central Bank rules remain stable at 200.91%. Consumer portfolio nonperforming loans improved 13 basis points, down to 1.35% from 1.48% in the previous quarter, while Commercial portfolio and nonperforming loans deteriorated 6 basis points in the fourth quarter of 2023 up to 1.2% from 1.14% in the previous quarter. In terms of capitalization, Banco Macro accounted an excess capital of ARS 1.75 trillion, which represented a capital adequacy ratio of 35.4% and a Tier 1 ratio of 32.8%. The bank's aim is to make the best use of this excess capital. The bank's liquidity remained more than appropriate. Liquid assets to total deposit ratio reached 118%. Overall, we have accounted for another positive quarter. We continue to show a solid financial position. Asset quality remain under control and closely monitor. We keep on working to improve more our efficiency standards, and we keep a well-optimized deposit base. Finally, on November 2, 2023, the Central Bank of Argentina drove the sale of Itaú Argentina, now Banco BMA to Banco Macro. Banco Macro has now acquired 100% of the share in both of Banco Itaú Argentina and subsidiaries, Itaú Asset Management and Itaú Valores. The price of the agreement was set at $50 million, which was paid on November 3. An additional amount resulting from a potential adjustment that will be eventually set based on the results obtained by Banco Itaú Argentina and its subsidiaries between April 1, 2023, and the closing date and will be determined at [ few days ]. The results from the acquisition is shown under income from associates and joint ventures and totaled ARS 156 billion, and it's shown in the fourth quarter of 2023. More information is provided in notes to our financial statements. At this time, we would like the questions that you may have.

[Operator Instructions] The first question comes from Ernesto Gabilondo from Bank of America.

Congrats on your strong earnings. My first question is on your investment securities and FX positions. Can you elaborate on how the positions benefited because of the high inflation, high rates and the FX? And how should we think about the valuation of these positions in 2024? If we continue to see higher inflation or FX depreciation, should we continue to see positive results? Or how should we think about them? And also related to this question, how much of Leliqs that you continue to hold? Then my second question is on loan growth. I'm pretty sure that Macro would be one of the few banks in Argentina with real loan growth in '23. Having said that, we saw that it was driven by commercial loans, but the retail part continues to be still very weak. So how should we think about loan growth -- real loan growth for this year? And for my last question is on your ROE. We saw the '23 ROE close around the 33%, but again, it was highly driven because of the gains on investments on securities. So considering that you will have a tougher Q-over-Q base in '24. How should we think about the ROE in this year?

Ernesto, thanks for your questions. Let's start with the first one, if I remember [ wrongly ]. In terms of the strategy that we carried out in the last quarter of 2023, basically, at some point, we were forecasting that there were -- could be some trouble with Leliqs. So we decided to switch from Leliqs into dual bonds, those ones that are yielding or yielding inflation or evolution of the official effects, the higher since basically that we consider at that time the risk between -- the difference of the risk between the Central Bank and the treasury was almost the same. So we were the first bank to switch the portfolio of Leliq. So at the end of November, we had no Leliq and we're switching to dual bonds. And basically, we were also benefited by the devaluation of the official FX in December. And basically, that was -- those numbers were reflecting that in the fourth quarter results that we posted basically yesterday. In 2024, part of those dual bonds, we were like switching into inflation-linked bonds. Of course, I cannot give you much of the details because it's not public information, but basically, we were switching a little bit of the dual linked to [indiscernible] bonds. Of course, as I mentioned also, Leliqs, we have [ 0 ] as of the end of November. In terms of loan growth, that was another question. I think the second question that you asked. Yes, commercial loans showed a good performance. Please consider there that we are including Itaú's portfolio mainly commercial. So that's why the comparison and the increase that you are showing in the numbers, I think that is well explained in the press release. And of course, in terms of ROEs, yes, the ROE that we posted in 2023 was spectacular. Going forward, we think that we should be in more normalized levels between 15% to 20% positive ROE.

Excellent. Super helpful, Jorge. So for '24, we should expect ROEs between 15% to 20% or this is something that could start to show up more in '25?

I think in a normalized scenario, I think that Banco Macro should have no problems to deliver ROE in the area of 20%. 2024, it's tough to forecast right now, let's say, around 15% in real terms, and we could be fine-tuning this in coming quarters.

And now we have a question from Carlos Gomez from HSBC.

Can you hear me?

Yes, Carlos. Go ahead, please.

Sorry, the line is poor. So first of all, congratulations on the result [Technical Difficulty] the conditions in which you are operating in this first quarter of the year, meaning with relatively high inflation with much lower swap rates from the Central Bank. What is it that we should expect in this first and second quarter of the year? And then what do you expect to see once this normalize by the end of the year? I'm talking in particular about securities gains and essentially your margin from financial intermediation. And secondly, if you can give us a bit of an update on what you are going to do with your newly acquired asset Itaú? When do you expect to integrate it and whether you think that there are more assets that come up for sale for you in the coming the quarter or years?

Carlos, I couldn't hear exactly the first part of the question -- your first question, but the last part of your first question was talking about securities. In the first quarter of this year, of course, it is not possible to repeat the spectacular performance we had in the last quarter of last year. So I think we are going to have a more normalized behavior of securities gains in the first and second quarter. Again, it will depend on market conditions, depends on the volatility and of course, bond prices. And I mean, we have demonstrated in the past that we can be switching the portfolio into those bonds that deliver the best results. So I think that's the result is going to be good, not -- again, not as spectacular as the one that we posted in the last quarter of last year. In terms of Itaú merge, I would say that it's going to happen in the second half of this year, the legal merger of -- with Itaú. So that -- in the last part of the year, you are going to see the -- I mean, the consolidated and normalized numbers, including Itaú in all the figures.

And -- okay, so that is the legal merger. In terms of operationally putting your systems, putting your brand in your bank. How long do you think that process will take?

Sorry, Carlos, could you repeat that, please?

Yes. My apologize, again, for the line. I was asking when do you think you will have the operational merger with Itaú. And when will you be using a single brand?

Carlos, that is going to happen in the second half of the year. Exactly we believe that it is going to be between August and October, but still do not have an exact time, but second half for sure.

Second half. All right. Very good. And going back to the gains from securities general your margin. Again, with the swap rate, as it is with negative real rates today, what do you think normal margin would be if this conditions remain?

I mean, yes, the environment here with negative real interest rates is basically -- I mean, not that good. You have to take into consideration that when you compare the average cost of funds of the bank and the yield that we are getting on loans and on the securities, even though they are still negative in real terms, the margins there are quite attractive. Take into consideration that almost 50% of our deposits is close to 0%. The other 50%, close to 100%, so we assume that the average cost of funds will be in the area of between 55% and 60%, then you have to assume that loans are yielding in the area of 110% or 115% approx, and then the securities. Therefore, margins look still quite attractive for bank intermediation here. And therefore, that's why we continue to increase our funding. And on the asset side, increasing loans or securities, the better.

And there are no further questions at this time. So this concludes the question-and-answer session. I will turn the conference back over to Mr. Nicolas Torres for some final considerations.

Thank you all for your interest in Banco Macro. We appreciate your time and look forward to speaking with you again. Good day.

The conference has now concluded. Thank you for attending, and have a great day. You may now disconnect.