Earnings Call
Macro Bank Inc. (BMA)
Earnings Call Transcript - BMA Q3 2024
Operator, 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 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 of 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. 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, Investor Relations
Thanks, Wyatt. Good morning, and welcome to Banco Macro's third quarter 2024 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 third quarter 2024 press release was distributed last Wednesday and is 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 Ps.91.3 billion. This result was 293% or Ps.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 Ps.829.2 billion, 61% or Ps.313 billion higher than in the second quarter of 2024 and 25% or Ps.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 Ps.403.7 billion, increasing 263% or Ps.299.6 billion when compared to the previous quarter and 44% or Ps.322.5 billion lower on a yearly basis. Banco Macro's third quarter 2024 net income totaled Ps.91.3 billion, recovering from the loss posted in the previous quarter and 293% or Ps.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 probably known, Banco Macro exercised about half of some put options that helped on certain inflation-adjusted securities, leading to a Ps.50 billion loss related to the exercise of those 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 Ps.23 billion, 24% or Ps.4.5 billion higher than in the second quarter of 2024. On a yearly basis, provision for loan losses increased 53% or Ps.7.9 billion. In the quarter, net interest income totaled Ps.569.1 billion, 167% or Ps.356.1 billion higher than in the second quarter of 2024 and 63% or Ps.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 Ps.857.6 billion, 23% or Ps.160.4 billion higher than in the second quarter of 2024 and 35% or Ps.458.4 billion lower than in the third quarter of 2023. Income from interest on loans and other financing totaled Ps.400.4 billion, 13% or Ps.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 and loans decreased 28% or Ps.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 Ps.253 billion quarter-on-quarter and decreased 33% or Ps.210.1 billion compared with the same period of last year. In the third quarter of 2024, income from repos totaled Ps.18.6 million, 66% or Ps.36 million lower than the previous quarter and 84% or Ps.97.5 billion lower than a year ago. In the third quarter of 2024, FX income totaled Ps.16.3 billion gain, 43% or Ps.12.5 billion lower than the previous quarter and 98% for Ps.719.4 billion lower than a year ago. FX income gain was due to the 6.5% RGP peso depreciation against the U.S. dollar and the bank's loan dollar position during the quarter. In the third quarter of 2024, interest expense totaled Ps.288.4 billion, increasing 40% or Ps.195.7 billion compared to the previous quarter and 71% or Ps.689.4 billion lower compared to the third quarter of 2023. Within interest expenses, interest on deposits decreased 41% or Ps.191.3 million 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 Ps.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 Ps.117.8 billion, 8% or Ps.9.2 billion higher than in the second quarter of 2024 and 7% or Ps.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 and loss totaled Ps.103.6 billion gain, decreasing 24% or Ps.32.3 billion 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 Ps.45 billion, 7% or Ps.3.3 billion lower than in the second quarter of 2024. On a yearly basis, other operating income increased 29% or Ps.10.1 billion. In the third quarter of 2024, Banco Macro's administrative expenses plus employee benefits totaled Ps.251.9 billion, 11% or Ps.24.9 billion 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 Ps.47.4 billion. As of the third quarter of 2024, the efficiency ratio reached 25.5%, deteriorating from the 22.2% posted in the second quarter of 2024 and 23% posted one year ago. In the third quarter of 2024, expenses increased 10%, while net interest income plus net income plus other operating income increased 68% compared to the second quarter of 2024. In the third quarter of 2024, the results from the net monetary position totaled Ps.283.9 billion loss, 45% or Ps.234.8 billion lower than the lowest posted in the second quarter of 2024 and 57% or Ps.383.3 billion lower than the loss posted a year ago. This result is a consequence of lower inflation observed during the quarter. Inflation is 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% versus 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 Ps.4.55 trillion, increasing 17% or Ps.657.9 billion quarter-on-quarter and 28% or Ps.988 billion higher year-on-year. Within commercial loans, overdrafts stand out with a 46% or Ps.112.5 billion increase, while documents decreased 12% or Ps.83.5 billion. Within consumer lending, personal loans increased 43% to Ps.235.5 billion, while credit card loans increased 25% to Ps.227.1 billion. Peso financing increased 19% or Ps.616.7 billion, 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% to Ps.516 billion or on-quarter totaling Ps.8.1 trillion and increased 30% or Ps.1.8 trillion year-on-year. Private sector deposits increased 6% or Ps.401.7 billion quarter-on-quarter, while private sector deposits increased 12% or Ps.104.6 billion quarter-on-quarter. The increase in private sector deposits was led by demand deposits, which increased 28% or Ps.999.7 billion, driven by the Tax Amnesty. While time deposits decreased 32% or Ps.829.5 billion quarter-on-quarter. Within private sector deposits, peso deposits decreased 15% or Ps.941.7 billion, while U.S. 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 nonperforming total financial ratio reached 1.15%, and the coverage ratio measured as total allowances under expected credit losses over nonperforming loans under Central Bank rules reached 177.6%. The consumer portfolio at nonperforming loans improved 12 basis points, down to 1.4% from 1.52% during this quarter, while commercial portfolio nonperforming loans improved 6 basis points in the third quarter of 2024. In terms of capitalization, Banco Macro accounted for an excess capital of Ps.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. The liquid assets to total deposit ratio reached 91%. Overall, we have accounted for another positive quarter. We continue to show a solid financial position; asset quality remains under control and closely monitored. We keep working to meet higher efficiency standards, and we maintain a well-optimized deposit base. At this time, we would like to take questions you may have.
Operator, Operator
And our first question will come from Brian Flores with Citibank. Please go ahead.
Brian Flores, Analyst
Hi, team. Good afternoon. Thank you very much for the opportunity to ask questions. I have maybe one that is divided into two parts. So the first one is if you have any updates on the prospect for loan growth this year. We have seen some of your peers in the country maybe accelerating in 2024 with different dynamics. You may have the same demand and 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 and 2025 loan growth, as well as for ROE in both years. Then, if I may, and because I think it's linked, could you also update us on how we should think about capital consumption to fuel this growth that we're discussing? Thank you.
Jorge Scarinci, CFO
Hi, Brian, good morning. This is Jorge Scarinci answering. Thanks 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. Of course, in the recent months, as a consequence of declining inflation and some stability in the exchange rates, we are seeing loan demand pushing harder. So we think we are going to finish 2024 with a positive or really positive rate of growth. This is going to be between 25% and 35% in 2024. 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, and that it's positive. I would say that we are going to see GDP growth according to local economies, growing in next year in real terms between 5% to 6%. In terms of your second question regarding ROE forecast for 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. Next year, we should be more in the low to mid-teens, I would say for next year. So that is the guidance for the moment for 2024 and 2025. Regarding capital consumption, we have the highest excess capital among local banks. Honestly, we can continue with these aggressive loan growth that we are forecasting for 2024 and 2025. If we progress toward 2026, we could be able to continue growing at high rates without any needs for additional capital here. So in that sense, we feel pretty comfortable there, Brian.
Brian Flores, Analyst
Super clear, Jorge, thank you very much.
Jorge Scarinci, CFO
You're welcome.
Operator, Operator
Our next question will come from Ernesto Gabilondo with Bank of America. Please go ahead.
Ernesto Gabilondo, Analyst
Thank you. Hi, good morning, Jorge and Nicolás. Thanks for taking my call. A couple of questions from my side. The first one is about your position on securities linked to inflation and to the dollar. First, I would like to hear your assumptions for inflation and FX for next year. How should we think about your securities position linked to inflation and FX next year? Could you tell us what your current position is relative to total assets today, and how should we think about next year? Then my second question is on your NII growth expectations plus securities and FX. Considering the shift in the asset mix and growing the loan book again, how should we think about the evolution of NII growth, financial results, and FX? This information would give us an idea of what to expect in terms of profitability next year. Thank you.
Jorge Scarinci, CFO
Hi Ernesto, how are you? Regarding your question on securities or bonds, I think there is a pretty clear table in the press release where we state our position in bonds across the different levels of accounting that we can take 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 economies, there is a wide range between inflation expectations from 25% to 40% for next year, and a depreciation of the peso in the area of 15% to 25% for next year. Regarding your second question, it is not easy to answer because it is a very dynamic situation. We believe that the net interest income is going to continue growing. We are gradually shifting from securities to loan growth. However, it is tough to forecast how this shift will result, adding also the FX evolution. My feeling is, if I had to give you an answer here, next year we should be seeing NII growing between 30% and 35% in real terms. That is the answer I can give you right now, though we could fine-tune this in the coming quarters.
Ernesto Gabilondo, Analyst
No, super helpful, Jorge. And just another question related to asset quality. So considering that you will be expanding the loan book again, how should we think about the NPL ratio and the cost of risk for next year?
Jorge Scarinci, CFO
Well, I mean, asset quality, I think it's 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. However, by December next year, we should have a non-performing loan (NPL) ratio for sure, below 2%, if that is your question.
Ernesto Gabilondo, Analyst
Perfect, perfect. Thank you very much, Jorge.
Jorge Scarinci, CFO
Welcome, Ernesto.
Operator, Operator
The next question comes from Nicolas Riva with Bank of America. Please go ahead.
Nicolas Riva, Analyst
Thanks very much, Jorge and Nicolás, for taking my questions. Jorge, I have a question. Do you have 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 to tap the international market for either senior or subordinated debt? Thanks.
Jorge Scarinci, 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. So for the moment, we do not have any plans on going into the market for debt.
Nicolas Riva, Analyst
Thanks very much, Jorge.
Jorge Scarinci, CFO
Welcome.
Operator, Operator
Our next question comes from Yuri Fernandes with JPMorgan. Please go ahead.
Yuri Fernandes, Analyst
Hi Jorge, I have a question regarding your USD deposits. I know this quarter you had the special program, and maybe this will continue into the fourth quarter. I think it was open until the beginning of November, leading to a lot of inflows of dollars. However, when we look at loans in dollars, they are not growing at the same pace, and your Loan to Deposit Ratio (LDR) is very low. So how do you plan to deploy this money? What will you do with those dollar deposits? How will those deposits impact your margin? I'm trying to understand this excess of U.S. dollar deposits you have and how you are planning to work with this. Thank you.
Jorge Scarinci, CFO
Hi, Yuri. Yes, this program has a stronger effect in the fourth quarter. Of course, we will have numbers available by February next year. But to give you some ideas, yes, we, not only Banco Macro but also other peers, received many deposits in U.S. dollar cash. We saw some pickup in loan demand in U.S. dollars in the fourth quarter. However, you have to consider that in this program, if you deposited below $100,000, you could withdraw those dollars without paying any tax in the following month. Almost half of the deposits we received under this program were below $100,000. So we have to be careful in terms of liquidity, as half of those deposits could be withdrawn in the next month. But we did see some pickup in loan demand in U.S. dollars during the fourth quarter.
Yuri Fernandes, Analyst
No, super clear. And just a final question on this topic. I see a big decrease in margins for you and all the other large banks. You have the breakdown of margins in both pesos and dollars. When we look at the dollar margin, it used to be a mid-teens range of 15% to 20% NIM. It is now running at 4% to 5%. Basically, you are charging 5%, 6%, or 7% on the asset side, and paying about 2% on the liabilities. I am trying to understand what is driving this compression in margins. Is it competition amongst 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? Can this be a tailwind for next quarters?
Jorge Scarinci, CFO
Yes, basically competition is driving this compression in margins. Most of our peers are in the same trend. I think that although the dollar book is only 15% to 17% of our total book, we're reaching the bottom of the margins. In the coming quarters, we're going to see stable U.S. dollar margins and maybe some pickup in the second half of 2025. But I'm not seeing margins in U.S. dollars continuing to go down. It is primarily competition, yes.
Yuri Fernandes, Analyst
No, perfect. Thank you very much, Jorge.
Jorge Scarinci, CFO
Welcome, Yuri.
Operator, Operator
There are no more questions at this time. And thus, this concludes the question-and-answer session. I will now turn over to Mr. Nicolás Torres for the final considerations.
Nicolás Torres, 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.
Operator, Operator
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.