Banco Macro S.A.

Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to Bankro Macro's second quarter 2020 earnings conference call. We'd like to inform you that Q2 20 press release is available to download at the investor relations website of Bankro Macro at www.macro.com.ar forward slash Relaciones dash Inversios. 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, and at that time, further instructions will be given. Should any participant need assistance during the call, please press stars and zeros to signal the operator. It is now my pleasure to introduce our speakers for today. Joining us from Argentina are Mr. Gustavo Manriquez, Chief Executive Officer, Mr. Jorge Scardinci, Chief Financial Officer, and Mr. Nicolas Torres, IR. Now, I will turn the call over to Mr. Nicolas Torres. You may begin your conference.

Thank you. Good morning, and welcome to Banco Macro's second quarter 2020 conference call. Any comments we may make today may include forward written statements, which are subject to various conditions, and these are outlined in our 28th, which was filed through the SEC, and it's available at our website. Second quarter 2020 press release was distributed yesterday, and it's also available at our website. All figures are in our site in Texas and have been restated in terms of the measuring unit at the end of the reporting period. As of January 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 of 2019 had been restated applying IAS 29 to reflect the accumulated effect of the inflation adjustment for each period through June 30, 2020. I will now briefly comment on the bank's second quarter 2020 financial results. Banco Macro's net income for the quarter was 6.4 billion pesos, 14% lower than in the first quarter of 2020, and 111% higher than the 3 billion pesos posted a year ago. The bank's second quarter 2020 accumulated ROE and ROA of 23.5% respectively, remained healthy, and showed the bank's earning potential. Net operating income before general and administrative and personal expenses Second quarter of 2020 was 22.2 billion pesos, decreasing 9% or 2.3 billion pesos. Quarter on quarter, that's 27% or 4.7 billion pesos higher than a year ago. Operating income after general and administrative expenses was 8.5 billion pesos, 24% or 2.7 billion pesos lower than the first quarter of 2020, but 8.3 billion pesos higher than the second quarter of 2019. In the quarter, net interest income totaled 20 billion pesos, 11% or 2.4 billion pesos lower than the result posted in 1Q20, and 19% or 4.6 billion pesos lower than the result posted one year ago. In the second quarter of 2020, interest income totaled 29.6 billion pesos, 9% or 3 billion pesos lower than in 1Q20. Due to lower income from loans and lower income from government securities, and 36% or 16.4 billion pesos lower than the previous year. With an interest income, interest on loans decreased 12% or 2.5 billion pesos quarter-on-quarter due to a 408 basis points decrease in the average lending rate down to 31.5 from 35.6 registered in the first quarter of 2020, while the average volume of the loan portfolio remained practically unchanged. interest income decreased 17% or 3.6 billion pesos year on year. In second quarter of 2020, interest on loans represented 61% of total interest income. Net income from government and private securities decreased 12% or 1.3 billion pesos quarter on quarter due to lower income from private securities. Compared to second quarter of 2019, net income from government and private securities decreased 56% or 12.2 billion pesos In the second quarter of 2020, FX gains, including investments in the realty financing, totaled 805 billion pesos. Due to the 9% Argentine peso depreciation against the U.S. dollar and the bank's long spot dollar position, FX trading results continue to be impacted by stricter currency controls and regulations. In the second quarter of 2020, interest expense totaled 9.6 billion pesos, a 6% or 560 million pesos decrease compared to the first quarter of 2020, and 55% or 11.8 billion pesos lower on a yearly basis. Within interest expenses, interest on deposits decreased 6% or 566 million pesos quarter on quarter, mainly driven by a 262 basis points decrease in the average interest rates paid on deposits. Rates came down from 16.3% in the first quarter of 2020 to 13.6% in the second quarter of 2020. On a yearly basis, interest on deposits decreased 57% or 11.3 billion pesos. In the second quarter of 2020, interest on deposits represented 91% of the bank's financial expenses. As of the second quarter of 2020, the bank's accumulated net interest margin, including the tax, was 22.3%. lower than the 25.2 posted in the first quarter of 2020 and higher than 20% registered one year ago. In the second quarter of 2020, net fee income totaled $4.6 billion and changed from the first quarter of 2020. On a yearly basis, net fee income decreased 7% or $324 million. In the second quarter of 2020, net income from financial assets and liabilities of fair value, profit, or loss total 2 billion pesos loss, as a consequence of the inflation adjustment applied to our LELIC holdings. In the quarter, other operating income totaled 1.1 billion pesos, decreasing 8% compared to the first quarter of 2020. On a yearly basis, other operating income increased 11% or 137 billion pesos. The second quarter of 2020, Bank of America's personal and administrative expenses totaled 8.6 billion pesos, 11% or 840 million pesos higher than the previous quarter, due to higher expenses related to employee benefits and higher administrative expenses. On a yearly basis, personal administrative expenses decreased 18% or 1.9 billion pesos. In the second quarter of 2020, the efficiency ratio reached 43.3%, deteriorating from the 39.8% posted in the previous quarter. Excluding inflation adjustment on analytics holding shown under income from financial instruments of fair value support or loss, from the efficiency ratio calculation, the efficiency ratio would have been 37.2 in the second quarter of 2020 and 31.6 in the first quarter of 2020. In the second quarter of 2020, Banco Macro's expected tax rate was 28.9, lower than the 35.8 registered during the first quarter of 2020. In terms of loan growth, the bank's financing to the private sector decreased 5% or 12.2 billion pesos quarter on quarter and 12% or 30.4 billion pesos year on year. Within commercial loans, others stand out with a 30% or 9 billion pesos increase quarter on quarter, mainly due to the loans extended to SMEs at a 24% interest rate as part of the relief package given the COVID-19 pandemic. On the consumer side, personal and credit card loans decreased 5% and 3% respectively in the quarter. Within private sector financing, PESA financing increased 244 million pesos, while U.S. dollar financing decreased 36% of $232 million. It is important to mention that Banco Marcos market share over private sector loans as of June 2020 reached 7.5%. On the funding side, Total deposits increased 24% for 78 billion pesos quarter-on-quarter and increased 214 million pesos year-on-year. Private sector deposits increased 16% quarter-on-quarter, while public sector deposits increased 107% quarter-on-quarter. The increase in private sector deposits was led by time deposits, which increased 18% for 23.5 billion pesos quarter-on-quarter while demand deposits increased 13% for 20.5 billion pesos. Within private taxable deposits, taxable deposits increased 24% for 52.3 billion pesos, while U.S. dollar deposits decreased 15% for 179 million pesos. As of June 2020, Bank of America's transactional accounts represented approximately 49% of total deposits. Bank of America's market share of its private deposits As of June 2020, total 6.3%. In terms of asset quality, Bank of America's non-performing total financial ratio reached 1.52%. The coverage ratio measured as total allowances under expected credit losses over non-performing loans under central bank rules improved significantly and totaled 210.64%. As the quality continues to be possibly affected by recent pressures, adopted by the Central Bank of Argentina in the current pandemic COVID-19 context, particularly the 60-day grace period that was added to debtor classification before a loan is considered as non-performing. In terms of capitalization, Banco Macro accounted an excess capital of 101 billion pesos, which represented a total regulatory capital ratio of 32.1 and a tier one ratio of 25%. The bank saying, is to make the best use of this capital. Once liquidity remains more than appropriate, liquid assets' total deposit ratio reached 54%. Overall, we have accounted for another positive quarter. We continue showing a solid financial position. Asset quality remains under control and closely monitored. We keep on working to improve more our efficiency standards, and we keep a well-automized 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'd like to ask a question, please press stars and 1 on your touch-tone phone. Please unmute your phone when your name is prompted. One moment, please, for the first question. And our first question today will come from Ernesto Gabilondo with Bank of America. Please go ahead.