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 First Quarter 2023 Earnings Conference Call. We would like to inform you that first quarter 2023 press release is available to download at the Investor Relations website of Banco Macro at 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, IR. Now I will turn the conference over to Mr. Nicolas Torres. You may begin.

Thank you. Good morning, and welcome to Banco Macro's First Quarter 2024 Conference Call. Any comments we may make today may include forward-looking statements, which are subject to various conditions, and these are [ applied ] in our 20-F, which was filed to the SEC, and it's available at our website. First quarter 2024 press release were distributed on Wednesday, 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 March 31, 2024. I will now briefly comment on the bank's first quarter 2024 financial results. Banco Macro's net income for the quarter was ARS 275.2 billion, 61% or ARS 422 billion lower than in the fourth quarter of 2023 and 626% or ARS 237.3 billion higher than the result posted a year ago. The bank's annualized ROE and ROA of 37.4% and 11.9%, respectively, remains healthy and shows the bank's earnings potential. Net operating income before general, administrative and personnel expenses for the first quarter of 2024 was ARS 1.62 trillion, increasing 19% or ARS 388 billion quarter-on-quarter. On a yearly basis, net operating income before general, administrative and personnel expenses increased 149% or ARS 969 billion. In the first quarter of 2024, provision for loan losses totaled ARS 18.9 billion, 32% or ARS 8.7 billion lower than in the previous quarter. On a yearly basis, provision for loan losses increased 40% or ARS 5.4 billion. Operating income after general, administrative and personal expenses was ARS 1.25 trillion, 20% or ARS 322.7 billion lower than the fourth quarter of 2023 and 211% or ARS 850 billion higher than the first quarter of 2023. In the quarter, net interest income totaled ARS 167.5 billion, 40% or ARS 111 billion lower than the results posted in the fourth quarter of 2023 and 56% or ARS 211.3 billion lower than the result posted 1 year ago. Interest income decreased 18% while interest expenses decreased 7%. In the first quarter of 2024, interest income totaled ARS 714.8 billion, 18% or ARS 154.5 billion lower than in the fourth quarter of 2023 and 19% or ARS 172 billion lower than the previous year. Income from interest on loans and other financing totaled ARS 462 billion, 18% or ARS 102.8 billion lower compared with the previous quarter, mainly due to a 16% decrease in the average volume of private sector loans and 118 basis points decrease in the average lending rate. On a yearly basis, income from the interest on loans increased 39% or ARS 129.8 billion. In the first quarter of 2024, interest on loans represented 65% of total interest income. In the first quarter of 2024, income from government and private securities decreased 42% or ARS 68.3 billion quarter-on-quarter due to the unwinding of our LELIQ portfolio and decreased 82% or ARS 429.3 billion compared with the same period of last year. In the first quarter of 2024, income from Repos totaled ARS 151.9 billion, 19% or ARS 24.3 billion higher than the previous quarter and 482% or ARS 125.8 billion higher than a year ago. In the first quarter of 2024, FX income totaled ARS 80.6 billion, 71% or ARS 196.5 billion lower than the previous quarter and 43% or ARS 61.6 million lower than a year ago. FX Income gain was due to the ARS 6.1 depreciation against the U.S. dollar and the bank's long dollar position during the quarter. It is important to notice that the bank's long dollar position decreased 96% during the quarter. In the first quarter of 2024, interest expense totaled ARS 547.3 billion, 7% or ARS 43.5 billion lower compared to the fourth quarter of 2023 and 8% or ARS 39.3 billion higher on a yearly basis. Within interest expenses, interest on deposits decreased 8% or ARS 56.5 billion quarter-on-quarter, mainly driven by a 970 basis points decrease in the average interest rate paid on deposits, while the average volume of private sector deposits increased 5%. On a yearly basis, interest on deposits increased 6% or ARS 31.5 billion. In the first quarter of 2024, interest on deposits represented 96% of the bank's financial expenses. In the first quarter of 2024, the bank's net interest margin including FX was 26%, lower than the 52.1% posted in the fourth quarter of 2023 and the 73.6% posted in the first quarter of 2023. In the first quarter of 2024, Banco Macro's net fee income totaled ARS 74.1 billion, 12% or ARS 10.2 billion lower than in the fourth quarter of 2023 and was 13% or ARS 11.4 billion lower than the same period last year. In the first quarter of 2024, net income from financial assets and liabilities at fair value through profit or loss totaled a ARS 1.27 trillion gain, mainly due to the mark-to-market of some government securities, mainly inflation-adjusted bonds. In the quarter, other operating income totaled ARS 44.4 billion, increasing 16% or ARS 6.2 billion compared to the fourth quarter of 2023. On a yearly basis, other operating income increased 100% or ARS 22.2 billion. In the first quarter of 2024, Banco Macro's administrative expenses plus employee benefits totaled ARS 202.3 billion, 12% or ARS 28.9 billion lower than the previous quarter due to lower employee benefits, which decreased 1%, and lower administrative expenses, which decreased 28%. On a yearly basis, administrative expenses plus employee benefits increased 49% or ARS 66.1 billion. As of the first quarter of 2024, the efficiency ratio reached 14.7%, improving substantially from the 18.6% posted in the fourth quarter of 2023 and the 25.5% posted 1 year ago. In the first quarter of 2024, expenses decreased 13% while net interest income plus net fee income plus other operating income decreased 11% compared to the fourth quarter of 2023. In the first quarter of 2024, the result from the net monetary position totaled a ARS 889 billion loss, 12% or 92 ARS billion higher than the loss posted in the fourth quarter of 2023 and 159% or ARS 546.2 billion higher than the loss posted 1 year ago. Our net monetary position increased 84% during the quarter while lower inflation was observed in the first quarter of '24, 167 basis points below inflation registered in the fourth quarter of 2023. Inflation was 51.6% in the first quarter of 2024 compared to 53.3% in the fourth quarter of 2023. In the first quarter of 2024, Banco Macro's effective tax rate was 24.5%, lower than the 31.4% registered in the fourth quarter of 2023. Further information is provided in Note 21 to our financial statements. In terms of loan growth, the bank's total financial reached ARS 2.5 trillion, decreasing 10% or ARS 279.6 billion quarter-on-quarter and 8% or ARS 205.9 billion lower year-on-year. Within commercial loans, overdrafts stand out with a 21% or ARS 92.6 billion decrease. Documents decreased 21% or ARS 10 billion, while others increased 2% or ARS 9.3 billion. Within consumer lending, personal loans decreased 12% or ARS 44.8 billion, while credit card loans decreased 18% or ARS 172.1 billion. Peso financing decreased 20% or ARS 513.9 billion, while U.S. dollar financing increased 75% or $254 million. It is important to mention that Banco Macro's market share over private sector loans as of March 2024 reached 9.4%. On the funding side, total deposits decreased 1% or ARS 74.3 billion quarter-on-quarter, totaling ARS 5 trillion, and decreased 11% or ARS 644 billion year-on-year. Private sector deposits decreased 6% or ARS 291.2 billion quarter-on-quarter, while public sector deposits increased 83% or ARS 234.2 trillion in the quarter. The decrease in private sector deposits was led by demand deposits, which decreased 26% or ARS [ 777.3 ] billion quarter-on-quarter, while time deposits increased 27% or ARS 422.6 billion. Within private sector deposits, peso deposits increased 10% versus ARS 365.2 billion, while U.S. dollar deposits decreased 32% or $622 million. As of March 2024, Banco Macro's transactional accounts resented approximately 46% of total deposits. Banco Macro's market share over private sector deposits as of March 2024 totaled 7.5%. In terms of asset quality, Banco Macro's nonperforming total financial ratio reached 1.14%, and the coverage ratio, measured as total allowance under expected credit losses over nonperforming loans under Central Bank rules, reached 222.7%. Consumer portfolio and nonperforming loans deteriorated 12 basis points up to 147% from 135% in the previous quarter while commercial portfolio and nonperforming loans improved 49 basis points in the first quarter of 2024, down to 0.72% from 1.2% in the last quarter. In terms of capitalization, Banco Macro accounted an excess capital of ARS 2.59 trillion, which represented a capital adequacy ratio of 46.5% and a Tier 1 ratio of 44.5%. 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 124%. Overall, we have accounted for another positive quarter. We continue showing a solid financial position. Asset quality remains under control and closely monitored, and we keep on working to improve more our efficiency standards, and we keep a well-optimized asset base. At this time, we would like to take the questions you may have.

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

My first question will be on your loan growth expectations. And also, if you can provide us what will be behind that in terms of GDP for this and next year, inflation levels and interest rates. And then my second question will be on your evolution of your loan-to-deposit ratio, given that the Argentine banks are starting to resume loan growth. How would you see this ratio in the next years? And finally, I would like to ask you about your ROE expectations. How do you see the ROE for the year? And also, if you can provide us some color on how should we see the evolution of the ROE during the year. Now, first quarter was a kind of high ROE, so how should we think about second quarter and then the second half for the ROE?

This is Jorge Scarinci. Well, that's a bunch of questions. Let's start for the first one. In terms of loan growth, we're expecting some positive loan growth for this fiscal year 2024. What we are seeing is basically that the first quarter, that is the seasonally lowest quarter in Argentina, we posted some negative growth in real terms. However, in the second quarter, and we think that in the second half of the year, the trend of pickup in loan demand as a consequence of a decline in inflation, inflation expectations and, of course, nominal interest rates. We're going to finish the year with approx a positive in the area of 10% to 15% loan growth. Inflation, according to the market consensus, is expected to keep on going in the downward trend. May is expected to be between 5% and 6%. The market is expecting that the CPI index could reach 3% or below 3% monthly number for the last quarter of the year. And as a consequence of that, what we think is that we are going to start seeing a positive real interest rate in the fourth quarter of this 2024. In terms of loans-to-deposit ratio. I think that, yes, we are in -- not only Macro, but I think in Argentina, banks are pretty under-leveraged. This is a consequence of many quarters of sluggish loan demand and, of course, liquidity still went into the banking sector, and we have to find other sources of allocation of those funds. Going forward, we think that maybe not this year, we're not going to see a big change in the loans-to-deposit ratio this year. But if the trends continue, without any doubt we could reach 60%, 65% of loans-to-deposit ratio in the next couple of years. ROE guidance, as you mentioned, yes, the first quarter ROE was pretty good, pretty high. We think that the trend is going to go a bit downwards in the coming quarters. Remember that what happened in the fourth quarter of last year and also in the first quarter of this year was a consequence of a good track record in bond prices. What we are seeing in the second quarter is that bond prices are not growing that much. Therefore, we think that we could be finishing this fiscal year 2024 with an approx of 20% ROE on average for the year.

And just a follow-up on your macro expectations, so can you repeat again how are you expecting for GDP growth for this next year, inflation for this next year, and rates for this next year?

Well, GDP for this year is expected to be down between 2.8% and 3%. Of course, we're going to see a recovery in the second half of the year. And this would imply that for 2025, the market is taking a positive real growth in GDP of around 6%. Inflation, the market is expecting between 150% to 170% inflation this year. For next year, of course, the trend is much downward, between 35% and 55% inflation for next year. Interest rate, I think this is not that easy to forecast. But again, let me not give you some nominal levels, but give you some real levels. We think that we are going to see in the area of 2 to 3 percentage point real interest rate on a monthly basis starting in the fourth quarter of this year.

Excellent. Excellent. And just one last macro assumption in terms of the FX. What are you expecting for this year?

I mean, we think that the FX, of course, is going to keep on going with a crawling of 2%. We are seeing for the end of the year the FX reaching between ARS 1,150 and ARS 1,200 approx. That is what we think that the FX could be by the end of the year, yes.

The next question comes from Brian Flores with Citibank.

I have two. The first one is, I mean, we are already finishing May. Just wanted to get a sense on how are you sensing consumer and companies after this really strong shock, right? We have seen some improvements in fiscal accounts. The Milei administration has been showing some positive signs. However, the trade of this are a big shock to the economy, right? So I know we're talking about finishing the year on a strong note in real terms regarding growth. But can you talk a little bit on how are you sensing your clients, both on the corporate side and the consumer side, with regards to demand so far in this quarter? And where are you going to prioritize growth? Is it going to be with companies or with consumers? And then I'll ask my second question.

What we are seeing is that the commercial lending is starting to pick up earlier than consumer. What we think is that consumer lending is going to catch up to commercial lending growth maybe by the end of the year, more in 2025 when we expect to see some recovery in the real wages. So we think that companies are going -- what we are seeing right now is companies are starting to demand for new loans and more loans. We are going to focus -- we are a universal bank. Therefore, we focus in all the segments throughout the country. So if the demand is coming from the commercial, we are going there. When the demand comes from the consumer, we are ready to go for them also. So we have the liquidity, the excess capital to tackle any potential loan demand coming. So the sooner that recovery, the better for us.

Okay. I just wanted to ask, I mean, at the beginning of Milei's administration, we heard there were some meetings with banks, et cetera. I just wanted to get a sense on how are you sensing Milei's administration now. Are they receiving your feedback? Are they open? How technical these discussions have been? Just any color you can share with us, it would be very, very important.

Yes. What we are seeing is that the current administration, on those areas that are related to our business, that is to say the Central Bank and the economy ministry, both are very receptive, and we have a fluid communications with them. They want our feedback on how we are seeing the market in maybe regulations that should be erased, et cetera, et cetera. So I think that they are very receptive and we have a good communication with the 2 areas, and I think that that is very important for all the changes and the challenges that we have in front. So I think that is very positive.

Perfect. And then maybe just a final one, and I promise this is the real final one. On dividends, I know you said capital is very strong. So do you think we should continue seeing, let's say, a dividend shareholder-friendly policy going forward? Or are you going to prioritize growth and maybe limit dividends in the short term?

Well, the next dividend to be paid is going to happen next year, in 1 year. So I would say that the Board is going to consider macroeconomic conditions at that time, future expectations on the economy, and we are -- I think that the Board is going to evaluate the better dividend policy at that time in order to have -- find an equilibrium on the dividend and the organic growth. And of course, going forward, we cannot say that another inorganic opportunity could be appearing in the horizon. So those conditions are going to be on the table in March, April next year. With those elements, the Board is going to decide the dividend.