Banco Macro S.A.

Good morning, ladies and gentlemen. Thank you for waiting. At this time, we would like to welcome everyone to Banco Macro's first quarter 2020 earnings conference call. We would like to inform you that the first quarter 2020 press release is available to download at the Investor Relations website at Banco Macro, www.macro.com.ar forward slash relaciones Also, this event is being recorded. 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. Should any participant need assistance during this call, please press star then zero to single an operator. It is now my pleasure to introduce our speakers. Joining us from Argentina are Mr. Gustavo Manriquez, Chief Executive Officer, Mr. Jorge Scarrinzi, Chief Financial Officer, and Mr. Nicolás Torres from Investor Relations. I would now like to turn the conference over to Mr. Nicolás Torres. You may begin.

Good morning and welcome to Banco Macro's first quarter 2020 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 20F, which was filed to the SEC, and it's available at our website. First quarter 2020 press release was distributed yesterday, and it's also 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 the first quarter of 2020, the bank began reporting results applying hyperinflation accounting. in accordance with the IFRS IAS 29 established by the central bank. For ease of comparison, figures of previous quarters of 2019 have been restated applying IAS 29 to reflect the accumulated effect of the inflation adjustment for each period through March 31st, 2020. I will now briefly comment on the bank's first quarter 2020 financial results. Banco Macro's net income for the quarter was 7.1 billion pesos, 15% higher than in Q19, and 80% higher than the 3.9 billion pesos posted a year ago, based on an increase in net interest income. The bank's first quarter 2020 accumulated ROE and ROA of 27.3% and 4.9% respectively, remained healthy, and showed the bank's earnings potential. Net operating income before general and administrative and personal expenses for first quarter of 2020 was 23.3 billion pesos, decreasing 25% or 7.6 billion pesos quarter on quarter, but 16% higher than a year ago. Operating income after general administrative expenses and personal expenses was 10.7 billion pesos, 31% or 4.8 billion pesos lower than in fourth quarter of 2019, but 68% or 4.3 billion pesos higher than the first quarter of 2019. In the quarter, net interest income total 21.3 billion pesos, 17% or 4.2 billion pesos lower than the result posted in 4Q19, but 1.3 billion pesos higher than the result posted one year ago. In the first quarter of 2020, interest income total 30.9 billion pesos, 16% or 6 billion pesos lower than in 4Q19, and 18% or 6.8 billion pesos lower than the previous year. Within interest income, interest on loans decreased 22% or 5.4 billion pesos quarter on quarter due to an 8% decrease in the loan portfolio and a 600 basis point decrease in the average lending rate. Interest income decreased 14% or 3.1 billion pesos year on year. The first quarter of 2020, interest on loans represented 63% of total interest income. Net income from government and private securities decreased 1%, or 148 million pesos, quarter on quarter, due to lower income from private securities. Compared to the first quarter of 2019, net income from government and private securities decreased 25%, or 3.6 billion pesos. In the first quarter of 2020, FX gains, including investments in the royalty financing, totaled 568 million pesos gain, due to the 8% Argentine peso depreciation against the U.S. dollars and the bank loan dollar spot position. FX gains decreased 96% or 1.1 billion pesos quarter on quarter due to lower results from trading given the stricter currency controls and regulations. In the first quarter of 2020, interest expense totaled 9.6 billion pesos, a 50% or 1.8 billion pesos decrease compared to the fourth quarter of 2019 and 46% percent or 8.1 billion pesos lower on a yearly basis. Within interest expenses, interest on deposits decreased 17 percent or 1.8 billion pesos quarter on quarter, mainly driven by a 400 basis points decrease in the average time deposit interest rates, as a consequence of lower interest rates that came down from 55 percent at the beginning of the quarter to a level of 38 at the end of the first quarter of 2020. On a yearly basis, interest on deposits decreased 47% or 7.6 billion pesos. In the first quarter of 2020, interest on deposits represented 91% of the bank's financial expenses. As of the first quarter of 2020, the bank's net interest margin was 19.2%, lower than the 24.8% posted in 4Q19 and 1Q19. In the first quarter of 2020, net fee income totaled 4.4 billion pesos, 4% lower than in the fourth quarter of 2019. And on a yearly basis, net fee income decreased 14% or 700 million pesos. In the first quarter of 2020, net income from financial assets and liabilities at fair value to profit are lost, total of 4.1 billion pesos lost as a consequence of the inflation adjustment applied to our late holdings and a lower income from government securities. In the quarter, other operating income total 1.1 billion pesos, Decreasing 9% compared to the fourth quarter of 2019. On a yearly basis, other operating income increased 77% of 3.7 billion pesos. In the first quarter of 2020, Banco Macro's personal administrative expenses totaled 7.4 billion pesos, 20% or 1.9 billion pesos lower than the previous quarter due to lower expenses related to employee benefits and lower maintenance and conservation fees. On a yearly basis, personal and administrative expenses decreased 9% or 690 million pesos. As of March 2020, the efficiency ratio reached 39.8, deteriorating from the 35.5 posted in 4Q19. In the first quarter of 2020, Bank of America's effective tax rate was 35.8, lower than the 41.4 registered during the fourth quarter of 2019, and the 38.3% registered a year ago. In terms of loan growth, the bank's financing to the private sector decreased 4% or 9.2 billion pesos quarter-on-quarter and 15% or 38.7 billion pesos year-on-year. Within commercial loans, documents and others stand out with an 8% and a 14% increase quarter-on-quarter respectively. On the consumer side, personal and credit card loans decreased 4% and 3% respectively in the quarter. Within private sector financing, peso financing decreased 4% or 7.6 billion pesos, while U.S. dollar financing decreased 11% or $74 million. It is important to mention that Banco Macro's market share over private sector loans as of March 2020 reached 8.1%. On the funding side, total deposits increased 10% or 27.9 billion pesos quarter-on-quarter and decreased 23% or 93.1 billion pesos year-on-year. Private sector deposits increased 7% quarter-on-quarter, while public sector deposits increased 44% quarter-on-quarter. The increase in private sector deposits was led by demand deposits, which increased 6% or 8.1 billion pesos quarter-on-quarter, while time deposits increased 11% or 12.9 billion pesos. Within private sector deposits, peso deposits increased 14% or 26.3 billion pesos, while U.S. dollar deposits decreased 8% or 106 million pesos. As of March 2020, Bank of Macro's transactional accounts represented approximately 51% of total deposits. Bank of Macro's market share over private sector deposits as of March 2020 totaled 6.1%. In terms of asset quality, Bank of Macro's non-performing total financial ratio reached 1.36%. The cover-up ratio measured as total allowances under expected credit losses over non-performing loans under central bank rules reached 173.49%. The improvement in asset quality is related to recent measures adopted by the Central Bank of Argentina in the current pandemic COVID-19 context, particularly today's grace period that was added to debt through classification before a loan is considered non-performing. In terms of capitalization, Banco Macro accounted an exit capital of 96.4 billion pesos, which represented a total regulatory capital ratio of 32% and a tier one ratio of 25.4%. 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 our deposit ratio reached 66%. 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 efficiency standards, and we keep a well-atomized deposit base. At this time, we would like to take the questions you may have.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question is from Gabriel de Nobrega from Citi. Go ahead.