Earnings Call Transcript - BMA Q2 2025

Operator, Operator

Good morning, ladies and gentlemen, and thank you for waiting. We would like to welcome everyone to Banco Macro's Second Quarter 2025 Earnings Conference Call. The second quarter 2025 press release is available for download at the Investor Relations website of Banco Macro, www.macro.com.ar/relaciones-inversores. It is now my pleasure to introduce our speakers. Joining us from Argentina are Mr. Jorge Scarinci, Chief Financial Officer, and Mr. Nicolas Torres, IR. Now I will turn the conference over to Mr. Nicolas Torres. You may begin your conference.

Nicolas A. Torres, Investor Relations

Thank you. Good morning, and welcome to Banco Macro's Second Quarter 2025 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 it's available at our website. 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 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 to profit or loss, and higher FX income and the lower loss related to the result 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 administrative and personnel expenses was ARS 906.2 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, administrative and personnel 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 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 point 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 Lecaps and inflation-adjusted bond BONCER and increased 54% or ARS 118.8 billion compared with the same period of last year. This result is explained by 94% by income from government and private securities at amortized cost, and the remaining 6% is explained by income from government securities valued at fair value to 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 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 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% crawling peg, allowing the Argentine peso to float freely between ARS 1,000 and ARS 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 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 at fair value through profit or loss totaled ARS 113.7 billion gain, increasing 61% of ARS 43.3 billion compared to the first quarter of 2025. This result is mainly due to higher income from current securities. On a yearly basis, net income from financial assets and liabilities at fair value through 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 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, the efficiency ratio reached 33.9%, improving from 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 for employee benefits plus general and administrative expenses, depreciation and impairment of assets increased 2%, while income, net interest income, net fee income, plus differences in quoted prices of gold and foreign currency, plus other operating income and net income from financial assets at fair value through 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 203.9 billion loss, 28% or ARS 79.3 billion lower than the loss posted in the first quarter of 2025 and 68% or ARS 439 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 to 6.01% from 8.57% in the first quarter of 2025. In the second quarter of 2025, Banco Macro's effective income tax rate was 39%, lower than the one registered in the first quarter of 2025. Further information is provided in Note 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, at 19% or ARS 243.5 billion and a 14% or ARS 200.6 billion increase, respectively. 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 $65 million. It is important to mention that Banco Macro's 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 10.62 trillion and increased 13% or ARS 1.2 trillion year-on-year. Private sector deposits increased 4% or ARS 414 billion quarter-on-quarter, while public sector deposits decreased 1% or ARS 8.3 billion quarter-on-quarter. The increase in private sector deposits was led by term deposits, which increased 12% or ARS 514.6 million, while demand deposits increased 5% or ARS 209.9 billion quarter-on-quarter. Within private sector deposits, peso deposits increased 1% or ARS 45.9 billion, while U.S. dollar deposits increased 2% or $45 million. As of June 2025, Banco Macro's transactional accounts represented approximately 48% of total deposits. Banco Macro's market share with private sector deposits as of June 2025 totaled 7.3%. In terms of asset quality, Banco Macro's nonperforming to total financial ratio reached 2.06%. The current ratio measured as total allowances under expected credit losses over nonperforming loans reached 137%. The consumer portfolio and nonperforming loans deteriorated 100 basis points, up to 2.81% from 1.81% in the previous quarter, while the commercial portfolio and nonperforming 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 had an excess capital of ARS 3.13 trillion, representing a capital adequacy ratio of 30.5% and a Tier 1 ratio of 29.9%. 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 67%. Overall, we have accounted for another positive quarter. We continue to show a solid financial position. We keep a well-optimized deposit base. Asset quality remains under control and closely monitored, and we keep on working to improve our efficiency standards. At this time, we would like to take the questions you may have.

Operator, Operator

Our first question comes from Ernesto Gabilondo with Bank of America.

Ernesto María Gabilondo Márquez, Analyst

I have a couple of questions from my side. The first one will be on what could be the potential impact on NIMs 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 3-year maturity and high fixed rates. So I just want to understand if this should help to compensate the temporary higher cost of funding. And 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 would appreciate your thoughts. And my second question is on your ROE expectations. So 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. So how are you thinking about your ROE in the second half and full year?

Jorge Francisco Scarinci, CFO

Good morning, Ernesto. This is Jorge Scarinci, thank you for your questions. To start, we are experiencing higher volatility compared to the first quarter of this year. The government is attempting to navigate the midterm elections while managing foreign exchange and inflation expectations, aiming to keep these macroeconomic factors stable. Inflation is currently under control at below 2% monthly, and the spot market for foreign exchange is also stable. However, we are noticing an increase in funding costs, particularly for time deposits as interest rates rise. Despite this, our optimized deposit base, especially in the interior of the country, allows us to offer relatively lower interest rates than competitors based in Buenos Aires. We're also actively participating in debt auctions to meet significantly increased reserve requirements over the past month and a half. Regarding personal lending, we are extending loans at high fixed rates. While we have been able to improve our net interest margins in the second quarter and the first half of 2025, we anticipate a slight reduction in net interest margins in the third quarter due to rising funding costs and higher reserve requirements. Overall, we expect that the third quarter net interest margin will be modestly below that of the second quarter. As for your second question about non-performing loans (NPLs), we are observing an increase in NPLs system-wide. Although Banco Macro maintains the best asset quality standards among our peers, we expect NPLs to rise further due to the current high real interest rates, with monthly inflation at 2% and real interest rates on personal loans near 6% or 7%. This environment makes repayment more challenging for borrowers. The government's economic program has focused on keeping wages below inflation, which also impacts repayment capabilities. We predict further deterioration in asset quality in the third and fourth quarters, estimating NPLs to rise to between 2.5% and 3% of total loans. Finally, regarding our return on equity (ROE) expectations, we are maintaining our forecast of 8% to 10% ROE in 2025 in real terms, and we are holding onto our guidance in that area.

Ernesto María Gabilondo Márquez, Analyst

No, excellent. Just a follow-up in terms of the asset quality. You mentioned your expectations for the NPL in the second half. How should we think about cost of risk?

Jorge Francisco Scarinci, CFO

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

Operator, Operator

Our next question comes from Brian Flores with Citi.

Brian Flores, Analyst

And I have only one question. What do you estimate your Tier 1 ratio will be for the year?

Jorge Francisco Scarinci, CFO

In terms of the Tier 1 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 1 ratio in the area of 28.75.

Brian Flores, Analyst

And thinking on another question, what are your thoughts on the quality of the retail loan portfolio for the system?

Jorge Francisco Scarinci, CFO

Sorry, can you repeat that, sorry?

Brian Flores, Analyst

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

Jorge Francisco Scarinci, CFO

Sorry. 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, and we could see some relaxation of these interest rates in the fourth quarter, but in terms of delinquency rate, 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. And I would say that across the board, it's going to be similar or might be a bit worse in other banks, Brian.

Operator, Operator

Next question from Yuri Fernandes with JPMorgan.

Yuri Rocha Fernandes, Analyst

I have one regarding the funding growth, especially in peso. I know all the costs debate, but we also have a volume debate, right? Like we are seeing your LDR in local currency approach 100%. This is not only Macro. This is in the industry, it's the lack of as we get it. But what is the strategy for the funding, Jorge? What should Macro do? Or should we see loan growth deceleration because funding is getting too expensive and too difficult to find. So 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. And then I can ask a second question.

Jorge Francisco Scarinci, CFO

In terms of our funding strategy, our goal is to manage higher costs while keeping them relatively lower compared to our competitors. As I mentioned earlier, our deposit base is primarily focused on the interior of the country and is more retail-oriented than that of our peers. We intend to continue growing both our peso and dollar deposits. In terms of dollar deposits, we offer very competitive interest rates in the market. Additionally, we successfully issued a corporate bond in the second quarter, raising $530 million, which has bolstered our dollar funding. This puts us in a solid position in terms of liquidity, as we maintain the highest liquidity levels among our peers in both pesos and dollars. Regarding pesos, it's important to note that in growing our loan portfolio, we also consider the securities portfolio that can be converted into loans. Our aim is to keep expanding both our deposits in pesos and dollars, as well as our loan portfolio. For instance, in the first half of 2025, we achieved a 36% real-term growth in loans. We are maintaining our loan growth guidance at 60% for 2025. On the deposit side, our base grew by 15% in the first half of 2025, and we plan to keep our guidance at 30% for the year.

Yuri Rocha Fernandes, Analyst

Super clear, Jorge. Just a follow-up here. Do you think like government may change like reserve requirements for the elections? Is there hope from the industry here to help on this?

Jorge Francisco Scarinci, CFO

I mean, Yuri, the government at least what they have been saying is that at least in August, we are finishing August this weekend. So next Monday, we are starting September, so at least in August, they didn't want to see spare liquidity in pesos that could be fueling an increase in inflation on the FX. So that was the main reason behind the increase in reserve requirements. Honestly, I don't know what will happen 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 seventh 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 FX and inflation, everything is going to be more relaxed after that. But honestly, it is very difficult for me to answer that question right now, Yuri.

Yuri Rocha Fernandes, Analyst

I understand it's a challenging question. Jorge, I have one last inquiry regarding Ernesto's concerns about margin pressure for the third quarter. You mentioned some marginal pressure. Could you quantify or clarify the different factors at play? My struggle lies with the funding aspect. For instance, time deposits are running at around 60%, which has been the case since July. On the asset side, I know you can reprice some loans, yet we observe rising rates for commercial papers. However, looking at personal loans, there's no significant repricing happening. Additionally, considering your mortgage portfolio that won't reprice quickly, I'm finding it hard to see only marginal pressure. I would anticipate more considerable pressure for the third quarter. If you could help clarify this a bit, I know this is a quarterly issue, so it shouldn't alter our overall story, but I'm seeking to better understand the margin pressure for the third quarter and how to quantify it.

Jorge Francisco Scarinci, CFO

We are currently in the third quarter, and given the volatility, forecasting is challenging. Right now, we are observing an increase in time deposits, which is affecting short-term lending. Additionally, we have adjusted our personal loan rates, which were previously around 73%, and we have been moving those rates into the low 80s. The most significant impact is on short-term liquidity charges for large corporations in short-term financing and some discount documents. If I had to estimate, I would anticipate a compression of about 100 basis points for the third quarter, but this could change as we progress.

Yuri Rocha Fernandes, Analyst

So late August, that's your best guess. Super clear, Jorge. Congrats on your asset quality. Now a congrats to worsening is not good, but as I said, it will be a little bit better than most peers. So good on that.

Operator, Operator

Next question from Matias Cattaruzzi with Adcap Securities.

Matías Cattaruzzi, Analyst

I have a question regarding the anticipated loan and deposit growth for 2025. The guidance indicates 60% growth in loans and 45% in deposits. We've seen 25% in loans for the first quarter and 14% since then. There’s still potential for growth in loans, while deposits have only shown growth of 5% and 4% in previous quarters. What is your outlook on this trend, particularly considering the third quarter might be less liquid than previously expected?

Jorge Francisco Scarinci, CFO

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. But what we are forecasting is 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. And also in terms of the guidance in deposits that I mentioned that is 30% for 2025 is similar. I would say that some volatility in the third quarter and more normalized scenario in the fourth quarter.

Matías Cattaruzzi, Analyst

Do you still consider mergers and acquisitions, such as acquiring a midsized peer, especially given the current valuations? What is your outlook in that area?

Jorge Francisco Scarinci, CFO

I mean when you look at Banco Macro and our track record, we always are trying to find opportunities in the markets. So of course, if there is an opportunity, we are going to analyze it. Of course, price is very important. The physical presence of branches, type of businesses, overlapping of branches we consider all that. So 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 in the last 22 years.

Matías Cattaruzzi, Analyst

Great. And then on loan growth opportunities going forward, which 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?

Jorge Francisco Scarinci, CFO

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, but we are not stopping one in order to focus into the other.

Operator, Operator

Our next question comes from Shamalee Vanderpoorten. What is the inflation adjustment item in the P&L? Is it due to inflation accounting?

Jorge Francisco Scarinci, CFO

Yes, it's due to inflation accounting.

Operator, Operator

Next question from Jonty Fish. What real growth for loans can we expect for '25 and '26?

Jorge Francisco Scarinci, CFO

Well, in terms of loan growth for '25, I have been commenting that 60%. And for 2026 for the moment, we are forecasting a 45% real loan growth.

Operator, Operator

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

Nicolas A. Torres, Investor Relations

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

Operator, Operator

This concludes Banco Macro's conference. Thank you.