Banco Macro - Earnings Call - Q2 2025

Transcript

Speaker 5

Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to Banco Macro S.A.'s second quarter 2025 earnings conference call. We would like to inform you that the second Q25 press release is available to download at the investor relations website of Banco Macro S.A., www.macro.com.ar/relaciones-inversores. Also, this event is being recorded, and all participants will be in a listen-only mode during the company's presentation. After the company's remarks are completed, there will be a question and answer session. At that time, further instructions will be given. It is now my pleasure to introduce our speakers. Joining us from Argentina are Mr. Jorge Scarinci, Chief Financial Officer, and Mr. Nicolás Torres, Investor Relations. Now, I will turn the conference over to Mr. Nicolás Torres. You may begin your conference.

Speaker 1

Thank you. Good morning and welcome to Banco Macro S.A.'s second quarter 2025 conference call. Any comment 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 it's available at our website. The second 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 of Argentina. 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 June 30, 2025.

I will now briefly comment on the bank's second quarter 2025 financial results. In the second quarter of 2025, Banco Macro S.A.'s net income totaled ARS 149.5 billion, which was 209% or ARS 101.1 billion higher than in the previous quarter. This result was mainly due to higher net interest income, as well as higher net fee income, higher net income from financial assets and liabilities at fair value for profit or loss, and higher FX income, and the lower loss related to the results from the net monetary position, as lower inflation was registered in the quarter, which was partially offset by lower other operating income, higher loan loss provisions, and higher income tax. This result represented an annualized ROE and ROA of 12% and 3.5% respectively.

Total comprehensive income for the quarter totaled ARS 157.1 billion, 241% or ARS 111 billion higher than the result posted in the previous quarter. Net operating income before general and administered on personal expenses was ARS 956.2 billion in the second quarter of 2025, 13% or ARS 107 billion higher compared to the first quarter of 2025, due to higher income from interest on loans and higher income from government securities. On a yearly basis, net operating income before general and administered on personal expenses increased 49% or ARS 314.6 billion. Provision for loan losses totaled ARS 103 billion, 47% or ARS 33.1 billion higher than the first quarter of 2025, given the loan growth experienced in the quarter. On a yearly basis, provision for loan losses increased 349% or ARS 80.1 billion.

In the quarter, net interest income totaled ARS 696.9 billion, 14% or ARS 82.9 billion higher than in the first quarter of 2025, and 163% or ARS 432 billion higher year on year. This result was due to a ARS 169.2 billion increase in interest income and an ARS 86.3 billion increase in interest expense. In the second quarter of 2025, interest income totaled ARS 1.1 trillion, 18% or ARS 169.2 billion higher than in the first quarter of 2025, and 26% or ARS 221.3 billion higher than in the second quarter of 2024. Income from interest on loans and other financing totaled ARS 746.1 billion, 19% or ARS 118.2 billion higher compared with the previous quarter, mainly due to a 17% increase in the average volume of private sector loans and by a 43 basis points increase in the average lending rate.

On a yearly basis, income from interest on loans increased 30% or ARS 171.3 billion. In the second quarter of 2025, interest on loans represented 69% of total interest income. In the second quarter of 2025, income from government and private securities increased 18% or ARS 50.8 billion quarter on quarter, mainly due to the caps and inflation-adjusted bonds sell and increased 54% or ARS 118.8 billion compared with the same period of last year. This result is explained 94% by income from government and private securities at a mortgage price cost, and the remaining 6% is explained by income from government securities valued at fair value for profit through other comprehensive income. In the second quarter of 2025, income from repos totaled ARS 1 billion, 10% or ARS 92 million higher than the previous quarter, and 99% or ARS 67 billion lower than a year ago.

It is worth noting that as of July 22, 2024, the Central Bank decided to terminate repos and replace them with LEFIs, which were then terminated on July 10, 2025. In the second quarter of 2025, FX income totaled a ARS 22.4 billion gain, 229% or ARS 15.6 billion higher than the first quarter of 2025, mainly due to income from foreign currency exchange, which increased ARS 12.5 billion. On a yearly basis, FX income decreased 37% or ARS 13.1 billion. In the quarter, the Argentine peso depreciated 11.2% against the U.S. dollar after the Central Bank of Argentina replaced the 1% falling peg, allowing the Argentine peso to fall freely between 1,100 and 1,400.

In the second quarter of 2025, interest expense totaled ARS 391.2 billion, increasing 28% or ARS 86.3 billion compared to the previous quarter, and decreased 35% to ARS 110.7 billion compared to the second quarter of 2024. Within interest expenses, interest on deposits represented 96% of the bank's total interest expense, increasing 30% or ARS 86.6 billion quarter on quarter due to a 228 basis points increase in the average rate paid on deposits, while the average volume of private sector deposits increased 14%. On a yearly basis, interest on deposits decreased 35% or ARS 205.1 billion. In the second quarter of 2025, the bank's net interest margin, including FX, was 23.5%, higher than the 23.2% posted in the first quarter of 2025 and the 19.9% posted in the second quarter of 2024.

In the second quarter of 2025, Banco Macro S.A.'s net fee income totaled ARS 108.4 billion, 16% or ARS 25.1 billion higher than the first quarter of 2025. In the quarter, credit card fees stand out with a 90% or ARS 28.6 billion increase, followed by fees charged on deposit accounts and credit-related fees, which increased 4% or ARS 2.9 billion and 33% or ARS 2.8 billion respectively, which were partially offset by a 30% or ARS 2.3 billion decrease in mutual funds and securities fees. On a yearly basis, fee income increased 34% or ARS 45.3 billion. In the second quarter of 2025, net income from financial assets and liabilities for a value to profit or loss totaled an ARS 113.7 billion gain, increasing 61% or ARS 43.3 billion compared to the first quarter of 2025. This result is mainly due to higher income from government securities.

On a yearly basis, net income from financial assets and liabilities for a value to profit or loss decreased 33% or ARS 55.3 billion. In the quarter, other operating income totaled ARS 45.8 billion, 37% or ARS 26.8 billion lower than the first quarter of 2025 due to lower credit and debit card income. On a yearly basis, other operating income decreased 24% or ARS 14.3 billion. In the second quarter of 2025, Banco Macro S.A.'s administrative expenses plus employee benefits totaled ARS 279.7 billion, 3% or ARS 7.3 billion higher than the previous quarter due to higher administrative expenses, which increased 8%. Meanwhile, employee benefits were practically unchanged. On a yearly basis, administrative expenses plus employee benefits decreased 1% or ARS 2.6 billion.

In the second quarter of 2025, efficiency rates have reached 33.9%, improving from the 38.2% posted in the first quarter of 2025 and from the 55.6% posted a year ago. In the second quarter of 2025, expenses, employee benefits plus general and administrative expenses, depreciation and impairment of assets increased 2%, while income, net interest income, net fee income, plus difference in quarter prices of goals and foreign currency, plus other operating income, and net income from financial assets for a value to profit or loss increased 15% compared to the first quarter of 2025. In the second quarter of 2025, the result from the net monetary position totaled ARS 303.9 billion lost, 28% or ARS 79.3 billion lower than the loss posted in the first quarter of 2025, and 68% or ARS 439.9 billion lower than the loss posted one year ago.

Lower inflation was observed during the quarter, 256 basis points below the first quarter of 2025, down 6.1% to 8.97% in the first quarter of 2025. In the second quarter of 2025, Banco Macro S.A.'s effective income tax rate was 39% lower than the one registered in the first quarter of 2025. Further information is provided in notes 21 to our financial statement. In terms of loan growth, the bank's total financials reached ARS 9.24 trillion, increasing 14% or ARS 1.1 trillion quarter on quarter and increasing 91% or ARS 4.4 trillion year on year. In the second quarter of 2025, private sector loans increased 13% or ARS 1.1 trillion. On a yearly basis, private sector loans increased 91% or ARS 4.3 trillion.

Within commercial loans, overdrafts, documents, and others stand out with a 29% or ARS 369.8 billion increase, a 19% or ARS 243.5 billion increase, and a 14% or ARS 206.6 billion increase, respectively. In consumer lending, almost all product lines increased during the second quarter of 2025, except for credit card loans. Personal loans and mortgage loans stand out with a 12% or ARS 206.8 billion and a 13% or ARS 82.2 billion increase, respectively. In the second quarter of 2025, peso financing increased 13% or ARS 846.1 billion, while U.S. dollar financing increased 4% or USD 65 million. It is important to mention that Banco Macro S.A.'s market share over private sector loans as of June 2025 reached 9.2%. On the funding side, total deposits increased 4% or ARS 406.2 billion quarter on quarter, totaling ARS 3.62 trillion and increased 13% or ARS 1.2 trillion year on year.

Private sector deposits increased 4% or $414 billion quarter on quarter, while public sector deposits decreased 1% or $8.3 billion quarter on quarter. The increase in private sector deposits was led by time deposits, which increased 12% or $514.6 billion, while demand deposits increased 5% or $209.9 billion quarter on quarter. Within private sector deposits, peso deposits increased 1% or $45.9 billion, while U.S. dollar deposits increased 2% or $45 million. As of June 2025, Banco Macro S.A.'s transactional accounts represented approximately 48% of total deposits. Banco Macro S.A.'s market share over private sector deposits as of June 2025 totaled 7.3%. In terms of asset quality, Banco Macro S.A.'s non-performing loan (NPL) ratio reached 2.06%. The coverage ratio, measured as total allowances under expected trade loss over non-performing loans, reached 144.37%.

Consumer portfolio non-performing loans deteriorated 100 basis points up to 2.81% from 1.81% in the previous quarter, while commercial portfolio non-performing loans improved 14 basis points in the second quarter of 2025, down to 0.52% from 0.66% in the previous quarter. In terms of capitalization, Banco Macro S.A. exhibited an excess capital of $3.13 trillion, which represented a capital adequacy ratio of 30.5% and a tier one ratio of 19%. The bank's aim is to make the best use of this excess capital. The bank's liquidity remains more than appropriate. Liquid assets to total deposit ratio reached 67%. Overall, we have accounted for another positive quarter with continued showing a solid financial position. We keep a well-optimized deposit base, asset quality remains under control, and closing order, and we keep on working to improve more our efficiency standards.

At this time, we would like to take the questions you may have.

Speaker 5

Thank you. At this time, we are going to open it up for questions and answers. If you would like to ask a question, please press the Q&A button at the bottom of the screen. To ask questions on audio, click on "Raise Hand." You will then receive a request to activate your microphone. One moment, please, for the first question. Our first question comes from Ernesto Gabilondo with Bank of America Merrill Lynch.

Thank you. Hi, good morning, Jorge and Nicolás, and thanks for taking my call. I have a couple of questions from my side. The first one will be on what could be the potential impact on names and asset quality from the recent volatility on interest rates and debt auctions. Should we continue to expect volatility in the next weeks? Yesterday, we saw the renewal of peso debt maturities, but still at high rates. My understanding is that you are participating in the debt auctions, which are coming with a high cost of funding, but at the same time, you are lending personal loans with three-year maturity and high fixed rates. I just want to understand if this should help to compensate the temporary higher cost of funding.

On the other hand, my question is, if we have these high fixed rates, I don't know if at some point this could create asset quality deterioration on your client base. I know a lot of questions in this first one, but I will appreciate your thoughts. My second question is on your ROE expectations. Looking to the first half, it came at the low end of the guidance range of 8% to 10%. We have seen other peers reducing guidance because of the temporary macro backdrop. How are you thinking about your ROE in the second half and full year? Thank you.

Speaker 4

Good morning, Ernesto. This is Jorge Scarinci. Thanks for your questions. The first one, yes, we are in an environment with a higher volatility than the one that we experienced, at least in the first quarter of this year. I would say that the government is trying to reach the midterm elections with some peace on FX expectations and also on inflation expectations. To have these two macro variables under control, I think that the work or the consequences of this is basically what the government is looking for because inflation is under control, below 2% on a monthly basis, and also the FX is also under control in the current spot market. Yes, of course, we are seeing an increase in the funding costs, basically on time deposits. We are seeing interest rates going up.

It is also true that in time deposits, we have a well-optimized deposit base and with a big standing in the interior of the country. In those deposits, we can relatively pay lower interest rates compared to our competitors that are more based in the Buenos Aires area. Even though we are seeing an increase in the funding cost, it is also true what you mentioned about the debt auctions, that we are going to these auctions in order to comply with the reserve requirements that have been increased a lot in the last 30 to 45 days. It is also true what you mentioned, that we are extending loans on personal lending with high interest fixed rates.

I would say that even though if you have a look at the NIMs in the second quarter and also in the first half of 2025, we have been able to increase or to enlarge or to widen these net interest margins. What we are forecasting for the third quarter is when you put all the combination of the increasing funding costs and what we are doing on the asset side, we expect some timid reduction in the NIMs in the third quarter, basically due to this volatility and to the increasing reserve requirements and the auctions that we are complying with, with some fixed rates that are not that high as we have been expecting. Bottom line, the third quarter NIMs should be timidly below the second quarter net interest margin. On your second question, you also asked about NPLs. Yes, we are seeing NPLs across the board.

I mean, the system is going up. Even though Banco Macro has the best asset quality standards among our peers, we are doing a great job there. It's also true that with the current high real interest rate environment, we are foreseeing or we are showing an increase in NPLs. Consider that with a monthly inflation of 2% and now real interest rates, at least in these personal loans, are close to 6% or 7% positive in real terms. It becomes a bit more difficult for maybe debtors to pay, even though we have to say also that the economic program of this government has been focused on trying to maintain the salaries of the people rolling below inflation. That is also affecting.

Therefore, we are forecasting for the third and fourth quarter of this year some additional deterioration in asset quality, going to levels maybe between 2.5% to 3% of NPLs as a percentage of total loans. Finally, on your second question, in terms of ROE expectations, for the moment, we are maintaining the range of between 8% to 10% ROE in 2025 in real terms. In that sense, we are keeping our expectations and our guidance there.

Now, excellent. Thank you so much. Just to follow up in terms of the asset quality, you mentioned your expectations for the NPL in the second half. How should we think about the cost of risk?

I would assume Ernesto's cost of risk is similar to the one that we saw maybe in the first half of 2025. In the year of 2024, I would say 4% would be 4% would be something reasonable to forecast for the second half.

Okay. Perfect. Thank you very much, Jorge.

You're welcome, Ernesto.

Speaker 5

Our next question comes from Brian Flores with Citibank.

Hello, Jorge. Hello, Nicolás. Thank you for picking my question. I have only one question. What do you estimate for the year-to-year tier one ratio would be?

Speaker 4

Good morning. In terms of the tier one ratio, considering the increase in loans and the installments that we are paying, our cash dividends announced in May of this year, we are forecasting to end 2025 with a tier one ratio in the area of 28.75%.

Thank you. Thank you very much. Thank you on another question. What are your thoughts on the quality of the retail loan portfolio for the system?

Sorry, can you repeat that?

What are your thoughts on the quality of the retail loan portfolio for the system?

Yes. I mean, as I was commenting in the previous question, we are seeing some deterioration in asset quality. Basically, the increase in nominal and real interest rates is also impacting the rhythm of the economic growth. What we are forecasting is that it should be maintained at least in the third quarter. We could see some relaxation of these interest rates in the fourth quarter. In terms of delinquency rates, as I mentioned before, we are forecasting to have continued deterioration. In our case, maybe to level up to 3% of total loans by the end of the year. I would say that across the board it is going to be similar or might be a bit worse in other banks, Brian.

Okay, thank you very much.

You're welcome.

Speaker 5

Next question from Yuri Fernandez with JP Morgan.

Thank you, Nicolás, and thank you, Jorge. I have one regarding the funding growth, especially in pesos. I know all the cost debate, but we also have a volume debate, right? We are seeing our LDR in local currency approach 100%. This is not only Macro, this is in the industry. It's the lack of pesos. We get it. What is the strategy for the funding, Jorge? What could Macro do, you know, or should we see loan growth deceleration because funding is getting too expensive and too difficult to find? If you can comment a little bit on your funding strategy, maybe some guidance on deposits, and also comment a little bit on your loan growth guidance, I would appreciate. I can ask a second question. Thank you.

Speaker 4

Okay, Yuri, good morning. In terms of what we are doing in terms of funding, ideally, we are trying to pay a higher cost, but as far as we can, a relatively lower higher cost compared to our peers. As I mentioned in the first question, basically because of the deposit base, more focus on the interior of the country and more retail than other peers. Of course, the idea is to continue growing in both in pesos deposits and dollar deposits. To give you an idea, in dollar deposits, we have the very competitive interest rates among the markets, even though we have to say that we were able to issue a corporate bond in the second quarter. That, of course, is also helping the funding in dollars. We raised $530 million. It was a great transaction. In that sense, we feel really comfortable and pretty liquid.

When you look at the liquidity standards in Macro, you can see that we have the highest levels among our peers, both in pesos and in dollars. Going back into pesos, also remember that we have been mentioning this in previous calls, that in order to fuel the increase in loans, we not only look at the increase in deposit, but also the portfolio of securities that we have that we can also change or transform into loans. The idea is to keep on growing in both deposit in pesos and in dollars and also in loans. To give you the guidance that we have, when you look at loans, for example, in the first half of 2025, we grew 36% in real terms our loans. The idea is to maintain the 60% loan growth guidance that we have been giving in the previous quarter.

60% is maintained as a guidance for 2025 for loans. Deposits in the first half of 2025, we grew our deposit base by 15%. The idea is to keep the 30% guidance for 2025 for the moment.

Jorge, just to follow up here, do you think like government may change, like reserve requirements post-elections? Is this the hope from the industry here to help on this?

I mean, Yuri, the government, at least what they have been saying is that at least in August, we are finishing August this weekend. Next Monday, we are starting September. At least in August, they didn't want to see spare liquidity in pesos that could be fueling an increase in inflation on the effects. That was the main reason behind the increase in reserve requirements. Honestly, I don't know what was happening in September. I think that we have to focus on what could be going on in the Buenos Aires province election that is taking place on Sunday, the 7th of September. I would say that if the government can have a good performance in that election, I would say that all the liquidity and effects and inflation, everything is going to be more relaxed after that.

Honestly, it is very difficult for me to answer that question right now, Yuri.

No, thank you. I know it's a difficult one. Just a final one here, Jorge, on my side. Going back to Ernesto's questions on the margin pressure for the third quarter, you mentioned a marginal pressure. Can you quantify or explain the moving parts? Where I struggle is the funding, right? When you go to the time deposits, like you go to the bottler, the bottler is, I don't know, running around 60%. This is something that starts in July. When we go to the asset side, I know you can reprice some loans, but we see an increase in rates for commercial papers, right? Adelantos and those other things. When we go to the personal loans, we don't see a major repricing. When I think about your, I don't know, mortgage book, that will not reprice as quickly, I struggle with like a marginal pressure.

I would expect like a bigger pressure for the third quarter. If you can help us understand a little bit, I know it's a quarterly thing, so it should not change our story, but just to understand a little bit the third quarter margin pressure here, how to quantify this. Thank you.

We are in the middle of the third quarter, and with this volatile scenario, it's not easy to forecast. For the moment, what we are doing is what you have been mentioning. The increase that we are seeing in the time deposits, of course, is translated in short-term lending. Also, we are, or we have been repricing a little bit our personal loans. Remember that the interest rate that we have in personal loans were in the area of 73% nominal. We are, or we have been moving those rates to low 80s. Basically, the big impact is on the short-term liquidity that we are charging to big corporates in short-term financing and also maybe in some short-term discount documents.

If I have to say, I would say that the compression that we could be foreseeing in the third quarter again should be in the area of 100 basis points for the moment. This could change, but for the moment, that is what we are seeing.

Late August, and that's your best guess. No, super clear, Jorge. Thank you and congrats on your asset quality. Congrats to Swersi is not good, but as I said, it will be a little bit better than most years. Good on that. Thank you.

Thank you very much, Yuri.

Speaker 5

Next question from Matthias Cattaruzzi with Adcap Securities.

Hi, Jorge. Hi, Nicolás. How are you? I have a question about the expected loan growth and deposit growth for 2025. The guidance was 60% on loans and as well, 45% on deposits. We've seen 25% in the first quarter on loans and then 14%. There's still room to grow in loans, and deposits only have a 5% and a 4% growth in prior quarters. How do you see this tendency, especially with the third quarter expected to be a little bit more illiquid than prior expectations?

Speaker 4

Hi, Matthias. Yes, what we are seeing is that in the third quarter, at least in terms of lending, there should be a number maybe not that high. What we are forecasting is that in the fourth quarter, macroeconomic conditions should be more relaxed and there could be some pickup there in demand in order to get to the 60% guidance in loans. Also, in terms of the guidance in deposits that I mentioned that is 30% for 2025, it's similar. I would say that some volatility in the third quarter and more normalized scenario in the fourth quarter.

Another question on your strong capital position. Do you still consider M&A activity, acquiring a mid-sized peer, or given valuations right now are more hurt than before, what is your outlook on that field?

I mean, when you look at Banco Macro and our track record, we always are trying to find opportunities in the markets. If there is an opportunity, we are going to analyze it. Price is very important. The physical presence of branches, type of businesses, overlapping of branches, we consider all that. For the moment, there's nothing on the table, but we are open to analyze any potential target as always, as we have been doing the last 22 years.

Great. On loan growth opportunities going forward, what should be the mix going forward? We've seen some rising NPLs on consumer lending. Are you shifting to corporates and small and medium enterprises, or what's your outlook?

No, we maintain our policy of being a universal bank and tackling commercial and consumer lending with the same appetite. Of course, in this volatile scenario, we are a bit more conservative in some requirements for both types of loans, commercial and consumer, and of course, with the higher interest rates. We are not stopping one in order to focus into the other. No.

Okay, thank you so much.

You're welcome, Matthias.

Speaker 5

Our next question comes from Shamely van der Poorten. What is the inflation adjustment item in the P&L? Is it due to inflation accounting?

Speaker 4

Yes, it's due to inflation accounting.

Speaker 5

Next question from Jonty Fish. What real growth for loans can we expect for 2025 and 2026?

Speaker 4

In terms of loan growth for 2025, I have been commenting that 60%. For 2026, for the moment, we are forecasting a 45% real loan growth.

Speaker 5

There are no more questions at this time. This concludes the question and answer session. I will now turn over to Mr. Nicolás Torres for final considerations.

Speaker 1

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

Speaker 5

This concludes Banco Macro S.A.'s conference. Thank you.