Banco Macro - Earnings Call - Q3 2024

Transcript

Operator (participant)

Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to Banco Macro's third quarter 2024 earnings conference call. We would like to inform you that the third quarter 2024 press release is available to download at the Investor Relations website at Banco Macro at www.macro.com.ar/relaciones-inversores. Also, this event is being recorded, and all participants will be in 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. Should any participant need assistance during the call, please press star zero to signal the operator. It is now my pleasure to introduce our speakers. Joining us from Argentina are Mr. Jorge Scarinci, Chief Financial Officer, as well as Mr. Nicolás Torres, IR. Now, I will turn the conference over to Mr. Nicolás Torres.

You may begin your conference.

Nicolás Torres (Head of Investor Relations)

Thanks, Waya. Good morning and welcome to Banco Macro's third quarter 2024 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. Third quarter 2024 press release was distributed last 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 September 30, 2024.

I will now briefly comment on the bank's third quarter 2024 financial results. In the third quarter of 2024, Banco Macro's net income totaled ARS 91.3 billion. This result was 293% or ARS 68.1 billion higher than in the third quarter of 2023. As of the third quarter of 2024, the accumulated annualized return on average equity and the accumulated annualized return on average assets were 6.8% and 2.1%, respectively. In the third quarter of 2024, operating income before general, administrative, and personnel expenses totaled ARS 829.2 billion, 61% or ARS 313 billion higher than in the second quarter of 2024, and 25% or ARS 272.3 billion lower than the same period of last year.

Net operating income before general, administrative, and personnel expenses in the third quarter of 2024 was ARS 403.7 billion, increasing 263% or ARS 299.6 billion when compared to the previous quarter, and 44% or ARS 322.5 billion lower on a yearly basis. Banco Macro's third quarter 2024 net income totaled ARS 91.3 billion, recovering from the loss posted in the previous quarter, and 293% or ARS 68.1 billion higher than in the third quarter of 2023. This result is mainly due to higher net interest income and a lower loss related to the net monetary position, as inflation eased during the quarter. It is important to notice that during the quarter, as it is publicly known, Banco Macro exercised about half of some put options that it held on certain inflation-adjusted securities, leading to a ARS 50 billion loss related to the exercise of said put options.

It is also worth mentioning that the bank continues to hold put options on the remaining position of those bonds. In the third quarter of 2024, provision for loan losses totaled ARS 23 billion, 24% or ARS 4.5 billion higher than in the second quarter of 2024. On a yearly basis, provision for loan losses increased 53% or ARS 7.9 billion. In the quarter, net interest income totaled ARS 569.1 billion, 167% or ARS 356.1 billion higher than in the second quarter of 2024, and 63% or ARS 220.9 billion higher year-on-year. Interest income increased 23%, while interest expenses decreased 40%. In the third quarter of 2024, interest income totaled ARS 857.6 billion, 23% or ARS 160.4 billion higher than in the second quarter of 2024, and 35% or ARS 468.4 billion lower than in the third quarter of 2023.

Income from interest on loans and other financing totaled ARS 405.4 billion, 13% or ARS 56.9 billion lower compared with the previous quarter, mainly due to a 15.4 percentage point decrease in the average lending rate, which was partially offset by a 20% increase in the average volume of private sector loans. On a yearly basis, income from interest on loans decreased 28% or ARS 161.1 billion. In the third quarter of 2024, interest on loans represented 47% of total interest income. In the third quarter of 2024, income from government and private securities increased 143% or ARS 253 billion quarter on quarter and decreased 33% or ARS 210.1 billion compared with the same period of last year.

In the third quarter of 2024, income from repos totaled ARS 18.6 billion, 66% or ARS 36 billion lower than the previous quarter, and 84% or ARS 97.5 billion lower than a year ago. In the third quarter of 2024, FX income totaled ARS 16.3 billion gain, 43% or ARS 12.5 billion lower than the previous quarter, and 98% or ARS 719.4 billion lower than a year ago. FX income gain was due to the 6.5% Argentine peso depreciation against the US dollar and the bank's long dollar position during the quarter. In the third quarter of 2024, interest expense totaled ARS 288.4 billion, decreasing 40% or ARS 195.7 billion compared to the previous quarter, and 71% or ARS 689.4 billion lower compared to the third quarter of 2023.

Within interest expenses, interest on deposits decreased 41% or ARS 191.3 billion quarter on quarter due to a 4.4 percentage point decrease in the average rate paid on deposits, while the average volume of deposits from the private sector decreased 11%. On a yearly basis, interest on deposits decreased 71% or ARS 682.4 billion. In the third quarter of 2024, the bank's net interest margin, including FX, was 31.5%, higher than the 20% posted in the second quarter of 2024, but lower than the 60% posted in the third quarter of 2023. In the third quarter of 2024, Banco Macro's net fee income totaled ARS 117.8 billion, 8% or ARS 9.2 billion higher than in the second quarter of 2024, and 7% or ARS 8.1 billion higher than the same period of last year.

In the third quarter of 2024, net income from financial assets and liabilities at fair value to profit or loss totaled 103.6 billion pesos gain, decreasing 24% or 32.3 billion pesos in the quarter. The gain was mainly due to a 4% decrease in income from government securities and a 58% decrease in income from private securities. In the quarter, other operating income totaled 45 billion pesos, 7% or 3.3 billion pesos lower than in the second quarter of 2024. On a yearly basis, other operating income increased 29% or 10.1 billion pesos. In the third quarter of 2024, Banco Macro's administrative expenses plus employee benefits totaled 251.9 billion pesos, 11% or 24.9 billion pesos higher than the previous quarter, due to higher employee benefits, which increased 6%, and a 22% increase in administrative expenses. On a yearly basis, administrative expenses plus employee benefits increased 23% or 47.4 billion pesos.

As of the third quarter of 2024, the efficiency rate reached 25.5%, deteriorating from the 22.2% posted in the second quarter of 2024 and the 23% posted one year ago. In the third quarter of 2024, expenses increased 10%, while net interest income plus net fee income plus other operating income increased 68% compared to the second quarter of 2024. In the third quarter of 2024, the result from the net monetary position totaled ARS 283.9 billion loss, 45% or ARS 234.8 billion lower than the loss posted in the second quarter of 2024, and 57% or ARS 303.3 billion lower than the loss posted a year ago. This result is a consequence of lower inflation observed during the quarter. Inflation eased to 12.1% from 18.6% in the second quarter of 2024.

In the third quarter of 2024, Macro's effective tax rate was 24.4%, lower than the 60.5% registered in the third quarter of 2023. Further information is provided in note 21 to our financial statements. In terms of loan growth, the bank's total financing reached ARS 4.55 trillion pesos, increasing 17% or ARS 657.9 billion pesos quarter on quarter, and 28% or ARS 988 billion pesos higher year-on-year. Within commercial loans, overdrafts stand out with a 46% or ARS 212.5 billion pesos increase, while debt demands decreased 12% or ARS 83.5 billion pesos. Within consumer lending, personal loans increased 43% or ARS 235.5 billion pesos, while credit card loans increased 25% or ARS 227.1 billion pesos. Peso financing increased 19% or ARS 616.7 billion pesos, while U.S. dollar financing decreased $6 million. It is important to mention that Banco Macro's market share over private sector loans as of September 2024 reached 9.2%.

On the funding side, total deposits increased 7% or ARS 516 billion quarter on quarter, totaling ARS 8.1 trillion, and increased 30% or ARS 1.8 trillion year-on-year. Private sector deposits increased 6% or ARS 401.7 billion quarter on quarter, while public sector deposits increased 12% or ARS 104.6 billion quarter on quarter. The increase in private sector deposits was led by demand deposits, which increased 28% or ARS 999.7 billion, driven by the tax amnesty, while time deposits decreased 32% or ARS 829.5 billion quarter on quarter. Within private sector deposits, peso deposits decreased 15% or ARS 941.7 billion, while US dollar deposits increased 87% or $1.4 billion. As of September 2024, Banco Macro's transactional accounts represented approximately 62% of total deposits. Banco Macro's market share over private sector deposits as of September 2024 totaled 7.4%.

In terms of asset quality, Banco Macro's non-performing loans ratio reached 1.15%, and the coverage ratio measured as total allowances under expected credit losses over non-performing loans under central bank rules reached 177.6%. Consumer portfolio non-performing loans improved 12 basis points down to 1.4% from 1.52% in the previous quarter, while commercial portfolio non-performing loans improved 6 basis points in the third quarter of 2024. In terms of capitalization, Banco Macro has an excess capital of ARS 2.53 trillion, which represented a capital adequacy ratio of 32.8% and a Tier 1 ratio of 31.3%. 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 deposits ratio reached 91%. Overall, we have accounted for another positive quarter. We continue to show a solid financial position. Asset quality remained under control and closely monitored.

We keep on working to improve more efficient standards, and we keep a well-optimized deposit base. At this time, we would like to take questions you may have.

Operator (participant)

Okay. At this time, we're going to open it up for questions and answers. If you would like to ask a question, please press star, then one on your touch-tone phone. And if you want to withdraw, please press star, then two. One moment as we assemble our questions. And our first question will come from Brian Flores with Citibank. Please go ahead.

Brian Flores (VP Equity Research)

Hi, team. Good afternoon. Thank you very much for the opportunity to ask questions. I have maybe one that is divided in two parts. So the first one is if you have any updates on the prospects for loan growth this year. We have seen some of your peers in the country maybe accelerating 2024 on different dynamics, right?

You have maybe the same demand and the same appetite, but also better inflation dynamics helping you in the denominator. So I just wanted to understand if you have any changes in the guidance for 2024, 2025 loan growth, and also for ROE in both 2024 and 2025. And then if I may, and because I think it's linked, if you could also update us into how should we think in terms of capital consumption for to fuel this growth that we're discussing, right? Thank you.

Jorge Scarinci (Group CFO)

Hi, Brian. Good morning. This is Jorge Scarinci answering. Thank you for your questions. The first one in terms of loan growth, yes. Since May of this year, I would say that we started to see more loan demand coming.

And of course, in the recent months, as a consequence of a declining inflation and some stability in the FX, we are seeing loan demand pushing harder. So we think we are going to finish 2024 with a positive or a real positive rate of growth. This is going to be between 25% and 35% in 2024. And I would say that it's going to be in the area of 40% positive real rate of growth in 2025. So that is what we are seeing in terms of loan growth that is positive. And I would say that we are going to see also GDP growth, according to local economists, grow in next year in real terms between 5%-6%.

In terms of your second question, in terms of ROE forecast this year, I would say as a consequence of a negative second quarter, we should be delivering in the area of 10% positive ROE this year. And next year, we should be more in the low to mid-10%, I would say, for next year. So that is guidance for the moment for 2024, 2025. According to capital consumption, third question, I mean, we have the highest excess capital among Argie banks. Honestly, continue with this aggressive loan growth that we are forecasting for 2024, 2025. And if we move forward to 2026, we could be able to continue growing at high rates without any needs of additional capital here. So in that sense, we feel pretty comfortable there, Brian.

Brian Flores (VP Equity Research)

Super clear, Jorge. Thank you very much.

Jorge Scarinci (Group CFO)

You're welcome.

Operator (participant)

Our next question will come from Ernesto Gabilondo with Bank of America. Please go ahead.

Ernesto Gabilondo (Director)

Thank you. Hi, good morning, Jorge and Nicolas. Thanks for taking my call. A couple of questions from my side. The first one is on your position on securities linked to inflation and to the dollar. Well, first, I would like to hear what would be your assumptions for inflation and FX for next year. And how should we think about your securities position linked to inflation and FX next year? I don't know. Maybe you can tell us what is your current position to total assets today and how should we think about next year. And then my second question is on your NII growth expectations plus securities plus FX.

So considering the shift of the asset mix and growing the loan book again, how should we think about the evolution of the NII growth as well as financial results and FX? It could give you an idea of what will play in terms of the profitability next year. Thank you.

Jorge Scarinci (Group CFO)

Hi, Ernesto. How are you? On the question on securities or bonds, I think there is a pretty clear table in the press release where we're stating there our position in bonds open in the different level of accounting that we can take them or have them. As of today, we have a long position in bonds tied to inflation, and we do not have any bonds linked to the evolution of the FX. Honestly, for next year, according to local economists, there is some wide range between inflation expectations.

It goes from 25%-40% inflation expectations for next year, and a depreciation of the peso that is in the area of, again, also economists, they have a range that goes between 15%-25% depreciation of the FX for next year. In terms of the second question, honestly, Ernesto, it's not very easy to answer because this is very dynamic, and we think that the net interest income is going to continue growing. Of course, we are switching little by little or quarter by quarter from securities into loan growth. However, this is very tough to forecast the combination between how that shift would result, adding also the FX evolution. You know that we have a slightly positive or we are slightly positive assets on FX there.

So my feeling is if you have to give an answer here, next year we should be seeing NII growing also between 30% and 35% in real terms. That is the answer I can give you right now. Of course, we could be fine-tuning this in the coming quarters. No, super helpful, Jorge. And just another question related to asset quality. So considering that you will be expanding again the loan book, how should we think about the NPL ratio and the cost of risk for next year? Well, I mean, asset quality, I think, is quite under control not only in Banco Macro, but also in the average of the system. I think that we are going to see some slight deterioration going forward. But next year, by December next year, we should have an NPL ratio for sure below 2% if that is the question.

Ernesto Gabilondo (Director)

Perfect.

Perfect. Thank you very much, Jorge.

Jorge Scarinci (Group CFO)

Welcome, Ernesto.

Operator (participant)

Next question comes from Nicolas Riva with Bank of America. Please go ahead.

Nicolas Riva (Director)

Thanks very much, Jorge and Nico, for taking my questions. Jorge, I have a question. If you have any plans to raise debt in the international market, I mean, we have seen one of your large peers recently raise about $300 million in the international market of senior debt. You also have the maturity of your 2026 tier 2 bond. Any plans at all really to tap international market for either senior or subordinated debt? Thanks.

Jorge Scarinci (Group CFO)

Hi, Nicolas. No, honestly, we do not have any plans to raise new debt in the international markets. The 2025 tier 2 bond is due by the end of 2026, sorry, of 2026. So no, for the moment, we do not have any plans on going into the markets on debt.

Nicolas Riva (Director)

Thanks very much, Jorge.

Jorge Scarinci (Group CFO)

Welcome.

Operator (participant)

And if you have a question, please press star, then one. Our next question comes from Yuri Fernandes with J.P. Morgan. Please go ahead.

Yuri Fernandes (Executive Director)

Hi, Jorge. I have a question here on your USD deposits. I know this quarter you had the blanqueo, and maybe this will continue for the 4th Q. I think it was open until November, the beginning of November. So a lot of inflows of dollars. But when we look to the loans in dollars, they are not growing at the same pace. And your LDR, it is a good problem, right? Your LDR, it's very low. How to deploy this money? What to do with those dollar deposits? How do those deposits impact your margin? So just trying to understand these excess of US dollar deposits you have and how you are planning to work with this. Thank you.

Jorge Scarinci (Group CFO)

Hi, Yuri. Yes, this Blanqueo have a stronger effect in the fourth quarter, and of course, we are going to have numbers there by February next year, but to give you some ideas, yes, we, not only Macro, but also other peers, receive many deposits in U.S. dollar cash. We saw some pickup in loan demand in U.S. dollars in the fourth quarter, but taking into consideration that in this Blanqueo, if you were depositing below $100,000, you can or you could withdraw those dollars without paying any tax in the following month, so just to give you an idea, almost half of the deposits that we receive under the figure of Blanqueo were below $100,000. So therefore, we have to be careful in terms of the liquidity because half of those deposits could be withdrawn in the next month or so.

But we saw some pickup in loan demand in U.S. dollars in the fourth quarter.

Yuri Fernandes (Executive Director)

No, super clear. And just a final one on this topic. I see a big decrease in margins for you and all the other Argie banks. You have the breakdown of margins in both pesos and dollars, right? And when we go to the dollar margin, this used to be a mid-teens, like a 15-20 mean. It is now running at 4-5. Basically, you are charging 5-7% on the asset side, and you are paying like 2% on the liabilities. Just trying to understand what is driving this compression in margins, Jorge. Is competition? Is all the banks lending at very low rates on the asset side? What explains the margin compression, and what is the outlook for your margins in USD?

Trying to understand if this can be a tailwind for because we are in the, I don't know, the worst point of the margins in dollars. This is becoming a bigger portion of your liabilities. So trying to understand if this can be a tailwind for the next quarters. Thank you.

Jorge Scarinci (Group CFO)

Yes. So basically, competition is driving this compression in margins. It's only that most of our peers are in the same trend. I think that even though the dollar book is, let's say, only 15%-17% of our total book, but yes, I think we are reaching the bottom part of the margins. I think that in the coming quarters, we are going to see stable US dollar margins and maybe some pickup in the second half of 2025. But I'm not seeing margins in US dollars keeping on going downwards. But it's basically competition, yes.

Yuri Fernandes (Executive Director)

No, perfect. Thank you very much, Jorge.

Jorge Scarinci (Group CFO)

Welcome, Yuri.

Operator (participant)

There are no more questions at this time. And thus, this concludes the question and answer session. I'll now turn over to Mr. Nicolás Torres for the final considerations.

Nicolás Torres (Head of Investor Relations)

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

Yuri Fernandes (Executive Director)

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.