Banco Macro S.A.

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 2018 earnings conference call. We would like to inform you that the fourth quarter 2018 press release is available to download at the Investors Relations website of Banco Macro at 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 presentations. 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 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 Escarinchi, Chief Financial Officer and Mr. Nicolas Torres, RR. Now I will turn the conference over to Mr. Nicolas Torres. Sir, you may begin your conference.

Good morning and welcome to Banco Macro's 4Q18 conference call. Any comments we may make today may include forward-looking statements which are subject to various conditions and these are applied in our 20F which was filed to the SEC and is available at our website. 4Q18 press release was distributed on Friday and is also available at our website. From fiscal year 2018, Banco Macro results are reported under communication A6114 of the Central Bank of Argentina. Fears for fiscal year 2017 have been restated in accordance with IFRS and some items have been reclassified in order to make a comparison between periods possible. I will now briefly comment on the Banco for Q18 financial results. Banco Macro's net income for the quarter was 5.2 billion pesos, 37% or 1.4 billion pesos higher than in 3Q18, and 67% higher than the 3.1 billion pesos posted a year ago, based on an increase in net interest income and an increase in net fee income. The bank's 4Q18 accumulated return on equity and return on assets of 30.7% and 5.8%, respectively, remained healthy and showed the bank's earning potential. On a fiscal year basis, Banco Macro earned 15.8 billion pesos in fiscal year 2018, or 55% higher than the 10.1 billion pesos earned in fiscal year 2017. Net operating income before general administrative and personal expenses for 4Q18 was 16.2 billion pesos, increasing 62% or 6.2 billion pesos year-over-year. Operating income after general and administrative expenses was 7.6 billion pesos, 81% or 3.4 billion pesos higher than a year ago. In fiscal year 2018, operating income totaled 22.5 billion pesos, 51% higher than in fiscal year 2017. In the quarter, net interest income totaled 12.3 billion pesos, 19% higher than the 10 billion pesos registered in 3Q18, and 66% higher than the result posted one year ago. This performance can be traced to a 128% year-over-year increase in interest income and a 276% year-over-year increase in interest expenses. In fiscal year 2018, net interest income totaled 39.6 billion pesos, 64% higher than the 24.1 billion pesos registered in fiscal year 2017. Within interest income, interest on loans rose 26% of 3.2 billion pesos quarter-over-quarter due to a 7% increase in the average volume of loans and a 450 basis points increase in the average lending rate. On a yearly basis, interest on loans were 87% or 7.2 billion higher. In 4Q18, interest on loans represented 65% of total interest income. During fiscal year 2018, interest on loans totaled 47.5 billion pesos, increasing 68% compared to fiscal year 2017. Net income from government and private securities increased 77%, or 3.5 billion pesos, quarter over quarter, due to higher LELICs volume and higher interest rates. Compared to 4Q17, net income from government and private securities increased 294%, or 6 billion pesos. In fiscal year 2018, net income from government and private securities totaled 17.7 billion pesos, 208% higher than the results posted in fiscal year 2017. In 4Q18, differences in quoted prices of gold and foreign currency totaled a P729 million gain as a consequence of the 8% Argentine peso appreciation against the U.S. dollar and the bank's short FX position during most of the quarter. In 4Q18, interest expenses totaled 11.5 billion pesos, a 78% or 5 billion pesos increase compared to 3.18 and 280% or 8.5 billion pesos higher on a yearly basis. Within interest expenses, interest on deposits increased 87% or 5 billion pesos quarter over quarter, mainly driven by a 19% increase in the average volume of time deposits, and a 640 basis points increase in the average time deposit interest rate. On a yearly basis, interest on deposits increased 301% or 8 billion pesos. In 4Q18, interest on deposits represented 92% of the bank's financial expenses. In fiscal year 2018, interest on deposits totaled 23.2 billion pesos and were 150% higher than in fiscal year 2017. As of fourth quarter of 2018, the bank's accumulated net interest margin, including FX, was 14.9%, higher than the 14 posted in 3Q18 and the 12.7 registered in 4Q17. In 4Q18, net fee income totaled 3.1 billion pesos. On a yearly basis, net fee income increased 38% for 864 million pesos. During fiscal year 2018, net fee income totaled 11.1 billion pesos, 31% higher than in fiscal year 2017, with fees charged on checking and saving accounts standing out. In the quarter, other operating income increased 54% for 633 million pesos, other income increased stands out with a 548 million pesos decrease compared to 3 quarter 18, given that there was no buyback of corporate bonds during 4Q18. On a yearly basis, other operating incomes increased 69% or 218 million pesos. In 4Q18, Bank of Macro's personal and administrative expenses totaled 5.2 billion pesos and increased 16% quarter over quarter. Employee benefits increased 15% per quarter as a result of salary increases agreed with the union. Compared to 4Q17, general administrative and personal expenses in 4Q18 were 46% higher. As of December 2018, the accumulated efficiency ratio reached 37.9%, improving from the 39.1% posted in 3Q18 and the 40.2% posted in 4Q17. This was a result of a 16% increase in expenses and a 27% increase in net interest income. Net fee income and other operating income as a whole. Banco Macro continues to be the most efficient bank in Argentina. In fiscal year 2018, the accumulated efficiency ratio was 37.9%, significantly better than the 40% posted in fiscal year 2017. This was a result of a 38% increase in expenses and a 45% increase in income. In fiscal year 2018, Banco Macro's effective income tax rate was 30.6%, compared to 32.7% in fiscal year 2017. The statutory tax rate was cut in the latest tax reform bill, and as of January 2018, stands at 30%, and it will be further reduced in January 2020 to 25%. In terms of loan growth, The bank's financing to the private sector grew 2% quarter-on-quarter, 36% year-on-year. It is important to mention that Banco Macro's market share over private sector loans as of December 2018 reached 7.9%. On the funding side, total deposits grew 12% quarter-on-quarter and 65% year-on-year. Private sector deposits grew 14% quarter-on-quarter and 67% compared to sector deposits decreased 4% for oil. As of December 2018, Banco Macro's transactional accounts represented approximately 43% of total deposits. Banco Macro's market share over private deposits as of December 2018 totaled 7%. In terms of asset quality, Banco Macro's non-performing to total financial ratio reached 1.91%. The cover-up ratio reached 117.74%. In terms of capitalization, Banco Macro accounted an excess capital of 45.7 billion pesos, which represented a total regulatory capital ratio of 26.5 and a tier one ratio of 19.7%. The bank's aim is to make the best use of this excess capital. The bank's liquidity remains more than appropriate, liquid assets total deposit ratio reached 57.1%. Overall, we have accounted for another positive quarter we continue showing a solid financial position. Asset quality continues under control and closely monitored. We keep on working to improve more our efficiency standards. We have one of the cleanest balance sheets in Argentina's banking sector, and we keep a well-atomized deposit base. At this time, we would like to take the questions you may have.

And we will now begin the question and answer session. If you would like to ask a question, please press star, then one. Please... And if you would like to withdraw that question, please press star, then two. Please hold for the first question. And our first question today comes from Nicolas Riva with Bank of America. Please go ahead with your question.