Feb 19, 2015
Executives
Jorge Francisco Scarinci - Director of Finance and Investor Relations
Analysts
Boris Molina - Santander Patricio Danziger - Everest Capital
Operator
Good morning ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to the Banco Macro’s Fourth Quarter 2014 Earnings Conference Call.
We would like to inform you that Fourth Quarter 2014 Press Release is available to download at the Investor Relations website of Banco Macro, www.ri-macro.com.ar. 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.
[Operator Instructions] It is now my pleasure to introduce our speakers. Joining us from Argentina are Mr.
Jorge Pablo Brito, Member of the Executive Committee; Mr. Guillermo Goldberg, Commercial Deputy General Manager; and Mr.
Jorge Scarinci, Finance and IR Manager; and other members of the Bank’s management team. Now, I would like to turn the conference over to Mr.
Jorge Scarinci, Finance and IR Manager. You may begin your conference.
Jorge Francisco Scarinci
Good morning, and welcome to Banco Macro’s fourth quarter 2014 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 is available at our website.
Fourth quarter 2014 Press Release was distributed yesterday and it is also available at our website. Banco Macro is one of the leading private banks in Argentina with a strong presence in the interior of the country and a branch network of 434 branches.
Even though we are a universal bank, we focus on the low to middle income individuals and SMEs. Banco Macro is a financial agent of four provinces in Argentina: Salta, Jujuy, Misiones, and Tucuman.
I will now briefly comment on the Bank’s fourth quarter 2014 financial results. Banco Macro’s net income for the quarter was Ps.575 million or 40% lower than the Ps.953.4 million earned one year ago.
The bank’s accumulated fourth quarter 2014 ROE and ROA of 33.4% and 5.1% respectively remains healthy and shows the bank’s earnings potential. However, Banco Macro accounted one-time charges in the quarter such as provision for the payment of the employees bonuses and provisions for one-time payment for Ps.182.4 million, and also a loss in income from government and private securities for Ps.356.5 million where were experienced in the quarter and finally the cancellation of contingent liabilities for another Ps.72.2 million that were accounted in the fourth quarter.
Had these concepts been excluded, fourth quarter 2014 net income would have been Ps.1.1 billion, representing an accumulated ROE and ROA of 38.4% and 5.8% respectively, and being 15% of our last year’s result. Therefore, in a normalized basis we consider we have a positive quarter.
On a fiscal year basis Banco Macro earned Ps.3.5 billion in 2014 or 42% higher than the Ps.2.4 billion earned in 2013. In the quarter, net financial income totaled Ps.1.8 billion flat compared to the Ps.1.8 billion registered one year ago.
This performance can be traced to a 19% year-on-year increase in financial income and 50% year-on-year increase in financial expenses. Within the financial income, interest on loans rose 28% year-on-year due to a 346 basis point increase in the average private sector lending interest rate, and to a 13% growth in the average private loan portfolio.
The fourth quarter 2014 interest on loans represented 87% of total financial income. On the other hand, net income from government and private securities increased 291% year-on-year, due to higher income from securities.
Meanwhile, within financial expenses interest on deposits grew 46% year-on-year due to a 22% increase in the average volume of interest bearing deposits and to a 360 basis point increase in the average time deposit interest rates. Excluding FX gains, the former combined effect resulted in an increase of the bank’s net interest margin from 13.7% as of the fourth quarter 2013 to 15.5% as of the fourth quarter of 2014.
And we also excluded bond gains and warranty loans on the calculation, the bank’s net interest margin would have widened to a further 14.7% from last year’s level of 13.9%. The bank’s net fee income grew 33% year-on-year based on debit and credit card fees, and fee charges on deposit accounts.
Administrative expenses rose 42% year-on-year, mainly due to an increase in personnel expenses, primarily higher salaries, and higher other operating expenses. The increase in personnel expenses can be traced to salary increase agreed with the unions back in April 2014.
Therefore, the accumulated efficiency ratio, measured as cost to fee income, reached 47.7%, improving from the 48.7% posted one year ago. In 2014, Banco Marco’s effective income tax rate was 36.1% compared to the 35.3% registered in 2013.
In terms of loan growth, the bank’s financing to the private sector grew 6% quarter-on-quarter and 12% year-on-year. However, if we exclude or we do not consider loans to AAA companies, which in our case are considered as the companies of liquidity administration, the increase was 19% on a yearly basis.
On the funding side, total deposits grew 3% quarter-on-quarter and 26% year-on-year. Private sector deposits grew 7% on a quarterly basis, while public sector deposit decreased 16%.
As of December 2014, Banco Macro’s transactional accounts represented approximately 50% of total deposits and therefore the bank’s average cost of fund was 10.1%. In terms of asset quality, Banco Macro’s non-performing to total financing ratio reached 1.92% compared to last year’s level of 1.72%.
The coverage ratio reached 135.3%. In terms of capitalization Banco Macro accounted an excess of capital of Ps.5.9 billion, which represented a capitalization ratio of 24%.
The bank’s aim is to make the best use of this excess capital. The bank’s liquidity remains appropriate.
Liquid assets to total deposit ratio reached 40.6%. So overall, we think that we have accounted for another good quarter considering the negative quarterly effects detailed before.
We continued showing a solid financial position. Asset quality continues under control and closely monitored.
We keep on working to improve more our efficiency standards and we have one of the cleanest balance sheets in Argentina’s banking sector. Also we keep a well optimized deposit base.
So at this time operator, we like to take the questions that people might have. Thanks.
Operator
Thank you. At this time we are going to open it up for questions and answers.
[Operator Instructions] One moment please, for the first question. Our first question is, Boris Molina from Santander.
Please go ahead.
Boris Molina
Yes, good morning. [Foreign Language] Thanks for the opportunity.
I have a couple of questions. I just want to make sure I got the numbers you mentioned right regarding the securities loss.
You mentioned Ps.350 million - was it Ps.356 million?
Jorge Francisco Scarinci
Yes, that’s right, yes.
Boris Molina
And Ps.72.2 million in contingent liabilities. Was this contingent liability accounted in the margin or somewhere else?
Jorge Francisco Scarinci
Sorry, the liabilities were in another expense were accounted.
Boris Molina
Okay. Expense and that is on top of the Ps.182 million on operating expenses in the personnel line, right?
Jorge Francisco Scarinci
Yes, that’s right, yes.
Boris Molina
Okay. I just wanted to make sure.
So okay, now, I had a couple of questions. The first one is, if you could please tell us a little bit about how is the market evolving in the fourth quarter and in the beginning of the year?
We have seen how commercial lending has been slowing down and then only consumer demand in the credit cards probably and personal loans are the ones that are doing relatively well. So I don’t know if you could explain to us a little bit what you are seeing in the market and what could you expect in terms of volume growth for the rest of the year?
And the second one is related to asset quality. We saw that the non-performing loan ratio was relatively flat, but it was a - there was a little bit of an increase in the - in non-performing loans in the commercial portfolio and an improvement - I would say probably also because of the growth in the consumer portfolio.
So what is happening in the Company segment, is there something that you are worried about?
Jorge Francisco Scarinci
Okay, Boris, in terms of the first question, I think that loan growth is, of course, tied to what happens in the economy and what we saw in 2014 was a slight economy pace. And we are forecasting for 2015 another year of little growth or maybe a decline in real GDP.
Therefore, I would say that demand for loan is going to be sluggish. We are forecasting between 15% and 20% loan growth.
That is our primary or preliminary expectation for this year. In terms of commercial lending what we are seeing, of course, is again the compulsory loans that we have to extend due to the regulation of the Central Bank.
And also the consumer side, the Consumer segment is going to be tied to the salaries increases that are going to take place between March and May of this year. But overall, we are not expecting a great year for loan demand in 2015, similar to some extent to what happened in 2014.
In terms of - yes.
Boris Molina
Sorry. So you expect, for example, in this 15% to 20% growth, it will be probably very low single-digit or low double-digit growth in commercial and then consumer still growing with salary increases?
I mean, what is the rate of salary increases that you expect? What have you seen in the market, is it 20%, 30%?
What have you been seeing?
Jorge Francisco Scarinci
No, we haven’t seen any salary increase yet. These negotiations start in March or late March.
We are forecasting around mid-20s approximately or maybe high-20s depending on the sector. We are not expecting the consumer loans to increase by that amount, but maybe low-20s, mid-20s, something like that.
But in terms of - we are not forecasting a great year in terms of loan growth basically.
Boris Molina
Okay. But the idea that consumers is going to perform better than commercial is still there?
Jorge Francisco Scarinci
If I have to get, slightly above.
Boris Molina
Okay, wonderful.
Jorge Francisco Scarinci
Yes. And in terms of the second question, in terms of asset quality, basically there were some different companies that were moved from category two to category three and four.
But honestly, there was not a - were around Ps.18 million in the quarter. So basically this is nothing to be worried about in terms of the commercial non-performing portfolio.
Boris Molina
Okay, okay. And when you look at your margins, we’ve seen like interest rates in the last year or so rose from the low-teens to around 20%.
Do you expect interest rates to move any higher and do you expect your margins to continue, it appears that your lending margin continues to expand because of the change in the mix with more consumers. Do you expect that your overall margins could continue to expand on a sequential basis during the year, or do you think that fourth quarter margins is a good indication of what we could expect for the rest of the year?
Jorge Francisco Scarinci
Yes, I will assume maybe fourth quarter margin to be a good proxy for an estimate in 2015. Yes, we are not seeing great movements on interest rates and also in the margins.
Boris Molina
Okay, wonderful. Thank you so much, Jorge.
Jorge Francisco Scarinci
Welcome, Boris.
Operator
Our next question is Patricio Danziger, Everest Capital. Please go ahead.
Patricio Danziger
Hi, thank you for the call, and thank you for the clarification on the one-offs. Just another question on the one-offs, you mentioned Ps.356 million in trading losses and also Ps.72 million and there is Ps.182 million also in the press release.
If I add up Ps.575 million with the Ps.356 million and the Ps.182 million, I get to the Ps.1.1 billion of net income that you mentioned previously. So can I understand this Ps.72 million, if it’s included in the Ps.182 million and how does it work?
Jorge Francisco Scarinci
Hi, how are you? Now the point that we are considering also the net income tax effect on this potential income that we would have had.
Therefore, when you do the calculations on the Ps.182 million and Ps.356 million, you have to consider that it’s only 65% of that, not 100% of that.
Patricio Danziger
I see, I see, fantastic. Thank you.
And then could you further explain a little bit more what is this Ps.356 million in trading losses? Because I’m seeing in the press release that Lebacs and Nobacs are lower in the quarter.
They are at around Ps.5.7 billion versus Ps.9.2 billion in the third quarter, just to understand, where did the loss come from?
Jorge Francisco Scarinci
Yes, basically from private securities, that’s a portfolio that Banco Macro built in the fourth quarter of 2014, basically on quoted shares on the local stock exchange. When you do this market - mark-to-market on that portfolio as of December, there you have a negative impact of around Ps.260 million, [ph] also you have another negative impact in the valuation of public securities in the case of, for example, Borinkeente [ph], we’ll another impact of around Ps.90 million.
So basically the Ps.350 [ph] million is different than those - us - the securities, private securities portfolio and public bonds valuation of mark-to-market as of December 2014.
Patricio Danziger
I see, I see. Thank you.
And you basically sold Lebac and Nobac to buy other securities, because I see that this number coming down of Lebacs and Nobacs from the third quarter to the fourth quarter?
Jorge Francisco Scarinci
In part, yes. But in part we use Lebac and Nobac as another instrument of the liquidity as in provision [ph].
So, in fact, a part was sold for that and the other part for increase the cash that - in December the demand for cash increased a lot in Argentina because of holiday, Christmas, et cetera.
Patricio Danziger
Fantastic. And then the last one on the Ps.182 million of extraordinary bonus payments and other provisions, I just would like to understand how extraordinary is this, because every year there is a bonus payment?
So how - why is it extraordinary?
Jorge Francisco Scarinci
It’s extraordinary in this quarter, because we do not account for that on a monthly basis. We account that on - basically on the last quarter.
And basically, if you want the split up of the Ps.182 million, you have approximately Ps.100 million on the provision for the bonuses for employees and another Ps.80 million in relation to one-time payment for employees that happened in the fourth quarter.
Patricio Danziger
I see. I see.
Thank you very much for all the answers, Jorge.
Jorge Francisco Scarinci
You are welcome, Patricio.
Operator
There are no questions at this time. This concludes the question-and-answer session.
I will now turn over to Mr. Jorge Scarinci for any final considerations.
Jorge Francisco Scarinci
Okay, thanks, everyone, for your interest in Banco Macro. We appreciate your time and look forward to speaking with you soon.
Have a good day. Bye-bye.
Operator
The conference is now concluded. Thank you for attending today’s presentation.
You may now disconnect.