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 One quarter '25 Earnings Conference Call. We would like to inform you that the first quarter 2025 press release is available to download at the Investor Relations website of Banco Macro, 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, 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 your conference.

Thank you. Good morning, and welcome to Banco Macro's First Quarter 2025 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. The first quarter 2025 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, previous quarters have been restated applying IAS 29 to reflect the accumulated effect of the inflation adjustment for each period through March 31, 2025. I will now briefly comment on the bank's first quarter 2025 financial results. In the first quarter of 2025, Banco Macro's net income totaled ARS 45.7 billion. This result was 59% or ARS 65.3 billion lower than the fourth quarter of 2024. This result was mainly due to lower net income from financial assets and liabilities fair value to profit or loss and the bigger loss related to the result from the net monetary position. Higher inflation was observed in the quarter, which was partially offset by higher other operating income and lower employee benefits and administrative expenses. The annualized return on average equity and the accumulated annualized return on average assets were 3.8% and 1.2% respectively. In the first quarter of 2025, net operating income before general and administrative expenses was ARS 801 billion, 9% or ARS 82.6 billion lower compared to the fourth quarter of 2024 due to lower income from interest and government securities. On a yearly basis, net operating income before general, administrative and personnel expenses decreased 68% or ARS 1.7 trillion. In the first quarter of 2025, provision for loan losses totaled ARS 66 billion, 62% or ARS 25.3 billion, higher than the fourth quarter of 2024, given the loan growth experienced in the quarter. On a yearly basis, provision for loan losses increased 124% or ARS 36.6 billion. In the quarter, net interest income totaled ARS 579.2 billion, ARS 1 billion higher than the fourth quarter of 2024 and 122% or ARS 318 billion higher year-on-year. This result is due to an 8% decrease in interest expense and a 3% decrease in interest income. In the quarter, a 21% decrease in income from interest on government securities stands out. In the first quarter of 2025, interest income totaled ARS 866.7 billion, 3% or ARS 22.6 billion lower than in the fourth quarter of 2024 and 22% or ARS 247.8 billion lower than the first quarter of 2024. Income from interest on loans and other financing totaled ARS 592.3 billion, 9% or ARS 49.6 billion higher compared with the previous quarter, mainly due to an 18% increase in the average volume of private sector loans, which was partially offset by a 200 basis point decrease in the average lending rate. On a yearly basis, income from interest on loans decreased 18% or ARS 132.2 billion. In the first quarter of 2025, interest amounts represented 68% of total interest income. In the first quarter of 2025, income from government and private securities decreased 21% or ARS 71.5 billion quarter-on-quarter mainly due to lower income from Bonos del Tesoro Nacional and inflation adjusted bonds and increased 83% or ARS 123 billion compared with the same period of last year. This result is explained 93% by income from government and private securities at amortized cost, and the remaining 7% is explained by income from government securities valued at fair value other comprehensive income. In the first quarter of 2025, income from repos totaled ARS 864 million, 79% or ARS 382 million higher than the previous quarter and almost 100% or ARS 236 billion lower than a year ago. It is worth noting that as of July 22, 2024, the Central Bank decided to terminate repos and have replaced them with LEFIs, which are now issued by the treasury. In the first quarter of 2025, FX income totaled ARS 6.4 billion gain, 95% or ARS 118.7 billion lower than a year ago. In the quarter, the Argentine peso depreciated 4% against the U.S. dollar as the Central Bank of Argentina lowered the crawling peg from 2% per month to 1% per month effective as of February 2025. In the first quarter of 2025, interest expense totaled ARS 287.6 billion, decreasing 8% or ARS 23.5 billion compared to the previous quarter and 66% or ARS 565.8 billion lower compared to the first quarter of 2024. Within interest expenses, interest on deposits represented 95% of the bank's total interest expense, decreasing 8% or ARS 22.3 billion quarter-on-quarter due to a 274 basis points decrease in the average rate paid on deposits, while the average volume of private sector deposits increased 15%. On a yearly basis, interest on deposits decreased 67% or ARS 547.9 billion. In the first quarter of 2025, the bank's net interest margin, including FX, was 23.2% lower than the 24.7% posted in the fourth quarter of 2024 and a 26.1% posted in the first quarter of 2024. In the quarter, fee income totaled ARS 169.8 billion, 1% or ARS 943 million lower than the fourth quarter of 2024. In the quarter, ATM transactions fees decreased 18% or ARS 1.9 billion and credit card fees decreased 2% or ARS 635 million, which were partially offset by a 3% or ARS 1.7 billion increase in fees charged on deposit accounts. On a yearly basis, fee income increased 29% or ARS 38.5 billion. In the first quarter of 2025, net income from financial assets and liabilities at fair value through profit or loss, total ARS 66.4 billion gain, decreasing 55% or ARS 80 billion compared to the fourth quarter of 2024. This result is mainly due to lower income from government securities. On a yearly basis, net income from financial assets and liabilities at fair value through profit or loss decreased 97% or ARS 1.9 trillion. In the quarter, other operating income totaled ARS 68.5 billion, 29% or ARS 15.5 billion higher than the fourth quarter of 2024 due to higher other service-related fees, which increased 29% or ARS 6.2 billion and higher income from credit and the debit cards. On a yearly basis, other operating income decreased 2% or ARS 1.4 billion. In the first quarter of 2025, Banco Macro's administrative expenses plus employee benefits totaled ARS 257 billion, 10% or ARS 27.3 billion lower than the previous quarter due to lower employee benefits, which decreased 9% and lower administrative expenses, which decreased 11%. On a yearly basis, administrative expenses plus employee benefits decreased 19% or ARS 58.5 billion. In the first quarter of 2025, the efficiency ratio reached 38.2%, improving from the 39.4% posted in the fourth quarter of 2024 and deteriorating from the 14.7% posted a year ago. In the first quarter of 2025, expenses decreased 10%, while net interest income plus net fee income plus FX income and other operating income and -- plus net income from financial assets at fair value through profit and loss decreased 7% compared to the fourth quarter of 2024. In the first quarter of 2025, the result from the net monetary position totaled ARS 267.1 billion loss, 11% or ARS 27.1 billion higher than the loss posted in the previous quarter and 81% or ARS 1.1 trillion lower than the loss posted 1 year ago. Higher inflation was observed during the quarter, 54 basis points above the fourth quarter of 2024, up to 8.6% from 8% in the fourth quarter of 2024. In the first quarter of 2025, Banco Macro's effective income tax rate was 43% higher than the one registered in the fourth quarter of 2024. Further information is provided in Note 21 to our financial statements. In terms of loan growth, the bank's total financing reached ARS 7.7 trillion, increasing 22% or ARS 1.4 trillion quarter-on-quarter and increasing 97% or ARS 3.8 trillion year-on-year. In the first quarter of 2025, private sector loans increased 22% or ARS 1.3 trillion. On a yearly basis, private sector loans increased 94% or ARS 3.6 trillion. Within commercial loans, Overdrafts and Others stand out with 107% or ARS 628.7 billion increase and a 16% or ARS 188.4 billion increase, respectively. Within consumer lending, almost all product lines increased during the first quarter of 2025. Personal loans and credit card loans stand out with a 28% or ARS 354.1 billion increase and a 4% or ARS 65.2 billion increase, respectively. In the first quarter of 2025, peso financing increased 21% or ARS 1 trillion, where the U.S. dollar financing increased 22% or USD 262 million. And it's important to mention that Banco Macro's market share over private sector loans as of March 2025 reached 9.5%. On the funding side, total deposits increased 5% or ARS 485.4 billion quarter-on-quarter, totaling ARS 9.6 trillion and increased 23% or ARS 1.8 trillion year-on-year. Private sector deposits increased 4% or ARS 349.6 billion quarter-on-quarter, but public sector deposits increased 20% or ARS 136.6 billion quarter-on-quarter. The increase in private sector deposits was led by time deposits, which increased 83% or ARS 1.8 trillion, while demand deposits decreased 22% or ARS 1.2 trillion quarter-on-quarter. Within private sector deposits, peso deposits increased 15% or ARS 899.5 billion, while U.S. dollar deposits decreased 17% or USD 497 million. As of March 2025, Banco Macro transactional accounts represented approximately 48% of total deposits. Banco Macro's market share over private deposits as of March 2025 totaled 7.8%. In terms of asset quality, Banco Macro's nonperforming total financial ratio reached 1.44%. The coverage ratio, measured as total allowances under expected credit losses over nonperforming loans under Central Bank rules reached 163.34%. Consumer portfolio and nonperforming loans deteriorated 37 basis points, up to 1.81% from 1.44% in the previous quarter while commercial portfolio nonperforming loans improved 22 basis points in the first quarter of 2025, down to 0.66% from 0.88% in the previous quarter. In terms of capitalization, Banco Macro accounted an excess capital of ARS 3.2 trillion, which represented a capital adequacy ratio of 34.3% and a Tier 1 ratio of 33.6%. The bank's aim is to make the best use of this excess capital. The bank's liquidity remained more than appropriate. Liquid assets total deposit ratio reached 68%. Overall, we have accounted for another positive quarter. We continue showing a solid financial position. We keep a well-optimized deposit base. Asset quality remain under control and close to monitor, and we keep on working to improve more our efficiency standards. At this time, we would like the questions that you may have.

[Operator Instructions] Our first question comes from Brian Flores with Citi.

The first one is just a quick update on guidance to see if anything has changed, we remember to discuss maybe a real loan growth of 60%, deposits at around 30% and ROE ranging between 12% and 15% with the core equity Tier 1 ratio, maybe at 25%, 26%. So I just wanted to know if there are any updates on that? And then a second just to maybe seize the opportunity on capital, right? Because you benefited from capital, you have one of the strongest positions in the system. So just wanted to hear your thoughts on that, if you're going to focus completely on organic growth? Or if at some point, inorganic growth is also an opportunity. Thank you.

Brian. This is Jorge Scarinci. On your first question, we are going to keep some of the guidance that we gave on the last quarter, and we are going to change a little bit some of them. In terms of loan growth, we continue to maintain the 60% loan growth in real terms for 2025. In deposits, we are forecasting a real growth of 45%. In terms of capital ratio, we should maybe increase a little bit our forecast. The capital ratio by the end of 2025 should be ranging in the area of 28% to 29%. In terms of ROE, we are downgrading a little bit from the former conference. We expect to have between 8% to 10% ROE for 2025. Of course, this is going to be or could be affected by the evolution of bond prices. This 8% to 10% is considering ordinary evolution of prices. If we see prices improving, ROE could be ranging slightly above 10%. But let's say, 8% to 10% is the range that we are forecasting as a normal scenario in 2025. In terms of your second question on the capital structure, yes, we know that we have the best capital in the Argentine banking sector. That's why we are speeding up in increasing organic growth as much as we can and taking advantage of loan demand. And that is what we are focusing for the moment. We believe that in the future, there will be some other opportunities maybe for M&A. Honestly, there's nothing that we are starting right now. But we are positive that in the next couple of years or 3 years, the number of banks in Argentina might shrink. And we are going to be on other term trying to analyze any acquisition target that should appear in the market.

And if I may, just a follow-up on what you mentioned on deposits. Is this increase because it's significant, right? It's from 30 to 45, is this driven by maybe looking to compete on remunerated accounts that some of your competition is doing? Or what is driving these better prospects on deposit growth?

Other thing is that the first quarter in terms of volume growth, both in loans and deposits, but more in deposits, we're slightly ahead of expectations. That's why we are increasing that and also because we are seeing maybe dollar deposit growth slightly stronger than what we had expected.

Our next question comes from Ernesto Gabilondo with Bank of America.

Jorge and Nico, thanks for the opportunity to ask questions. My first question will be on your macro expectations. Just wondering what are you expecting in terms of interest rates, inflation, GDP growth and FX for this and next year? And my second question will be on operating expenses. As you mentioned in your remarks, there was a decline in the first quarter. So just wondering how should we think about the OpEx growth this year? And then my second question will be on your loan-to-deposit ratio and your strong capital ratio on your loan-to-deposit ratio, I believe it's already at 86%. So how are you expecting the evolution of this ratio, especially considering a loan growth of 60% and that now you're expecting deposits to grow at 45%. And then your capital ratio, it seems very strong. You have an excess of capital. So a follow-up to the first question is there could be M&A in the sector? And this especially considering that if we have a positive outcome on the midterm elections next October probably it will be a good timing to do it before that or do you think there was still a chance to do it after that, but considering to pay higher multiples in a potential consolidation in the sector. So I just wanted to hear your thoughts on that.

Well, let's start from the first question in terms of macroeconomic expectations. For GDP, we are forecasting a real growth for this year of 5% and 3% for 2026. In terms of inflation, we are expecting according to the consensus, 30% area inflation in 2025 and 22% area inflation for 2026. In terms of interest rates, we believe that we are going to see in 2025, at least some declining trend in domestic interest rates. And according to the margins, I think that these are going to be slightly positive for the margins of the sector and Banco Macro basically because our deposits reprice faster than our loans, plus that the mix in loans that we are lending faster in consumer, that is the segment that showed the highest rates that is going to help to maybe expand a little bit the margins along 2025. In terms of operating expenses, yes, we had -- we put some decrease in the first quarter compared to the fourth quarter of last year. If I have to assume for 2025, I would assume operating expenses to move close to inflation rate. So let's say, in the area of 30%, maybe in the bottom part of the area of 30%, maybe 1 or 2 percentage points below inflation, but let's assume close to inflation for 2025. In terms of the loan-to-deposit ratio, yes, we are increasing that ratio. Also, we are increasing -- the other ratio that is loans as a percentage of total assets, remember that 1 year ago, loans represented only 25% of total assets and in the first quarter of this year, loans represented 48% of total assets. So that's a big increase even in the quarter. We jumped from 40% in the fourth quarter, loans to assets to 48% in the current quarter. So we are speeding up in terms of moving from low levels of loans as a percentage of assets also reducing the exposure to the public sector and increasing the exposure on the private sector. Going forward, this ratio could be in the area of 90 or low 90s by the end of 2025, Ernesto. And in terms of your last question, according to capital ratio, again, we -- I have been stating this, but on the buy side of the table, we believe that we are the only ones. Honestly, it's not depending a lot on us when we are going to maybe acquire another bank or the multiples. We have to see if there is an opportunity on the table. As I mentioned before, we are not analyzing anything for the moment. So we have to be patient and see when the opportunity appears. Also, I also mentioned this before, but depending on the scenario in March, April of 2026. The Board also could be considering some increase in the dividends for next year in order to maybe trim down a little bit the excess of capital that we have. But that is something that might -- is going to be considered next year depending on macroeconomic expectations. By then, if there is an opportunity of M&A. So we are conscious that we do not feel that comfortable with this excess capital. So the idea is to work on different strategies in order to reduce it in the most efficient way for the bank.

Our next question comes from Carlos Gomez-Lopez with HSBC.

I want to ask you about your bond portfolio, your public securities. And we want to know where -- how you would like to be positioned. And I'm thinking about what currency, what indexator, do you prefer inflation linkers, not inflation linkers. And what your preference is as to how you want to have this classified available-for-sale trading or held to maturity. Where would you like to have the bond portfolio, let's say, for the next year? And how would you contrast that to other banks. And the second question is, I think that you have your CEO here for the first time, and maybe you want to introduce him to us.

Thanks for your questions. In terms of the bond portfolio, there is a clear table in Page 20 of the press release with all the exposure and the accounting slots that we have. We are working on maybe some mutative changes, but that is related on maybe reserve requirements just to move some bonds in replace of others. We want to have an available for sale level of maybe ARS 1 billion, similar than the current level, but maybe with different bonds in order to be able to trim down these public sector exposure in order to keep on fueling the loan growth that we are forecasting. And in terms of exposure for the moment, we feel comfortable having a high exposure on inflation. For the moment, we believe that is the best way to hedge the equity of the bank. And in terms of the CEO, he has to step up for a second, he has a phone call, but if he comes back, we are going to introduce Juan on the call.

Okay. Very good. And I mean it's good what you were saying. So you are, I mean, distinctly more exposed to inflation linkers. And again, for you, that is justified by the fact that you have more capital than your peers. Is that correct?

Yes, that's correct.

[Operator Instructions] There are no more questions at this time. This concludes the question-and-answer session. I will now turn over to Mr. Nicolas Torres for final considerations.

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