Banco Macro - Q4 2023

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 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, 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 this time pardon me, at that time, further instructions will be given. Should any participant need assistance during this call, please press star zero to signal the operator. 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.

Nicolás Torres, Investor Relations. Now I'll turn the conference over to Mr. Torres. You may begin your conference.

Nicolás Torres (Investor Relations)

Thank you. Good morning and welcome to Banco Macro's fourth quarter 2023 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. 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 corrected 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 effects of the inflation adjustment for each period through December 31st, 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, remained healthy and shows the bank's earnings potential. In fiscal year 2023, net income totaled ARS 587.7 billion, 338% higher than in fiscal year 2022. Total comprehensive income totaled ARS 627 billion and was 438% higher than in fiscal year 2022. Net operating income before general administrative and personal 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 administrative and personal expenses increased 224% or ARS 915 billion.

In fiscal year 2023, net operating income before general and personal 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 in 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 and were 125% higher than in fiscal year 2022. Operating income after general administrative and personal 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 administrative and personal 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 one 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 a 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 in fiscal year 2022. In the fourth quarter of 2023, interest on 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% or 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 109.8 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 long dollar position during the quarter, including dollar-linked and dual bonds. It is important to notice that the bank's long dollar position decreased 47% 42% during the quarter.

In fiscal year 2023, FX income totaled ARS 798.2 billion, 312% above the result 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 million quarter-over-quarter, mainly driven by a 2,750 basis points increase in the average interest rate 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 the 32.7% posted in the fourth quarter of 2022. In the fourth quarter of 2023, Banco Macro's net 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 2.4 billion higher than the same period of last year. In fiscal year 2023, net income totaled ARS 220.8 billion, 4% higher than the fiscal year 2022. In the fourth quarter of 2023, net income from financial assets and liabilities at fair value to profit or loss totaled ARS 895.2 billion gain, mainly due to the mark-to-market of some government securities, mainly dual bonds, which represented ARS 835.2 billion.

In fiscal year 2023, net income from financial assets and liabilities at fair value to profit or loss totaled ARS 970.2 billion, 555% 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, efficiency ratio reached 18.6%, improving from the 23% posted in the third quarter of 2023 and the 28.6% posted one year ago. In the fourth quarter of 2023, expenses increased 51% while net income plus net income plus other operating income increased 149%. In the fourth quarter of 2023, the result from the net monetary position totaled a 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 one 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 in 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 75 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 the 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 13% or ARS 360.8 billion quarter-on-quarter, while public 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 time deposits decreased 23% or ARS 300.3 billion.

Within private sector deposits, Peso deposits 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 deposits as of December 2023 totaled 6.2%. In terms of asset quality, Banco Macro's non-performing total financial ratio reached 1.29%. The coverage ratio measured as total allowances under expected credit losses over non-performing loans under certain bank rules remained stable at 200.91%. Consumer portfolio non-performing loans improved 13 basis points down to 1.35% from 1.48% in the previous quarter, while commercial portfolio non-performing loans deteriorated six 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's 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 showing a solid financial position. Asset quality remained under control and closely monitored. We keep on working to improve more our efficiency standards, and we keep a well-optimized deposit base. Finally, on November 2nd, 2023, the Central Bank of Argentina approved the sale of Itaú Argentina, now Banco BMA, to Banco Macro. Banco Macro has now acquired 100% of the share and votes of Banco Itaú Argentina and its subsidiaries, Itaú Asset Management and Itaú Valores.

The price of the agreement was set at $50 million, which was paid on November 3rd, 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 1st, 2023, and the closing date, and will be determined in a few days. The result from the acquisition is shown under income from associate 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 (participant)

Thank you. We are going to open it up for questions and answers. If you would like to ask a question, please press star one on your touch-tone phone. Again, it is star one. When called, please unmute your phone and record your name clearly when prompted. One moment, please, while we gather the first question. The first question comes from Ernesto Gabilondo from Bank of America. Ernesto, please go ahead.

Ernesto Gabilondo (Director and Head of LatAm Financials)

Thank you. Hi, good morning, Gustavo, Jorge, and Nico. Thanks for the opportunity and 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, the 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 did you continue to hold? Then my second question is on loan growth. I'm pretty sure that Macro will be one of the few banks in Argentina with real loan growth in 2023.

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 long growth, real long growth for this year? For my last question, it's on your ROE. We saw the 2023 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 comp base in 2024, how should we think about the ROE in this year? Thank you.

Jorge Francisco Scarinci (CFO)

Hi, Ernesto. How are you? Thanks for your questions. Let's start with the first one if I'm not remembering 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 could be some trouble with the LELIQs, so we decided to switch from LELIQs into dual bonds, those ones that are yielding or were yielding inflation or evolution of the official FX, the higher, since basically that we considered at that time that 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 switched into dual bonds. And basically, we were also benefited by the devaluation of the official FX in December.

Basically, those numbers were reflecting that in the fourth quarter result that we posted basically yesterday. In 2024, part of those dual bonds, we were 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 into SER-linked bonds. Of course, as I mentioned also, LELIQs, we have zero at 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 the numbers, I think that that is well explained in the press release.

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 a 15%-20% positive ROE.

Ernesto Gabilondo (Director and Head of LatAm Financials)

Excellent. Super helpful, Jorge. So for 2024, we should expect ROEs between 15%-20%, or this is something that could start to show up more in 2025?

Jorge Francisco Scarinci (CFO)

I think in a normalized scenario, I think that Banco Macro should have no problem to deliver ROEs 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.

Ernesto Gabilondo (Director and Head of LatAm Financials)

Excellent. Thank you very much, Jorge.

Jorge Francisco Scarinci (CFO)

You're welcome.

Operator (participant)

Now we have a question from Carlos Gomez from HSBC. Carlos, please go ahead.

Carlos Gomez-Lopez (Head of LatAm Financials Research)

Hello. Can you hear me?

Jorge Francisco Scarinci (CFO)

Yes, Carlos. Go ahead, please.

Carlos Gomez-Lopez (Head of LatAm Financials Research)

Hi. Sorry, the line is poor. First of all, congratulations on the result. 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 normalizes by the end of the year? I'm talking in particular about securities gains and essentially your margin from financial intermediation. And second, 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 quarters or years? Thank you.

Jorge Francisco Scarinci (CFO)

Hi, Carlos. I couldn't hear exactly the first part of your question or 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 result. So I think that the result is going to be good, again, not as spectacular as the one that we posted in the last quarter of last year.

In terms of Itaú merger, I would say that it's going to happen in the second half of this year, the legal merger offer 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.

Carlos Gomez-Lopez (Head of LatAm Financials Research)

Okay. That is the legal merger. In terms of operationally putting your systems, putting your brand in the bank, how long do you think that process will take?

Jorge Francisco Scarinci (CFO)

Sorry, Carlos. Could you repeat that, please?

Carlos Gomez-Lopez (Head of LatAm Financials Research)

Yes. My apologies 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?

Jorge Francisco Scarinci (CFO)

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

Carlos Gomez-Lopez (Head of LatAm Financials Research)

Second half. All right. Very good. Going back to the gains from securities, in general, your margin, again, with the swap rate that it is with negative real rates today, what do you think a normal margin would be if these conditions remain?

Jorge Francisco Scarinci (CFO)

I mean, yes, the environment here with negative real interest rate 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 are close to 0%, the other 50% close to 100%. So we assume that the average cost of funds is in the area of between 55% and 60%. Then you have to assume that loans are yielding in the area of 110% or 115% approximately, and then the securities. Therefore, margins look still quite attractive for banking intermediation here. And therefore, that's why we continue to increase our funding.

On the asset side, increasing loans or securities, the better.

Carlos Gomez-Lopez (Head of LatAm Financials Research)

Okay. Thank you very much.

Jorge Francisco Scarinci (CFO)

You're welcome.

Operator (participant)

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

Nicolás Torres (Investor Relations)

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

Operator (participant)

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