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 third quarter 2020 earnings conference call. We would like to inform you that the 3Q20 press release is available to download at the Investor Relations website of Banco Macro, www.macro.com.ar slash relations hyphen 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. 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 Scorinci, Chief Financial Officer, and Mr. Nicolas Torres, IR. Now, I will turn the conference over to Mr. Nicolas Torres. You may begin your conference.

Good morning, and welcome to Banco Macro's third quarter 2020 conference calls. 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. Third 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 IFRS IAS 29 established by the central bank. For ease of comparison, figures of previous quarter 2019 have been restated applying IAS 29 to reflect the accumulated effect of inflation adjustment for each period through September 30, 2020. I will now briefly comment on the bank's third quarter financial results. Banco Macro's net income for the quarter was 6.1 billion pesos, 12% lower than in the second quarter of 2020, and 33% lower than the result posted a year ago. The bank's third quarter 2020 accumulated ROE and ROA of 21.5 and 4.6 respectively remained healthy and showed the bank's earnings potential. Net operating income before general and personal expenses for the third quarter of 2020 was 19.6 billion pesos, decreasing 18% of 4.3 billion pesos quarter-on-quarter, and 5% of 1.1 billion pesos lower than a year ago. Operating income after general and administrative expenses was 4.4 billion pesos, 52% of 4.8 billion pesos lower than in the second quarter of 2020, but 4.5 billion pesos higher than in the third quarter of 2019. In the quarter, net income totaled 21.2 billion pesos, 2% or 417 million pesos lower than the result posted in the second quarter of 2020, and 26% or 7.6 billion pesos lower than the result posted one year ago. The third quarter of 2020, interest income total 36.8 billion pesos, 15% or 4.9 billion pesos higher than in the second quarter of 2020 due to higher income from government securities, and 28% or 14.3 billion pesos lower than the previous year. Within interest income, interest on loans decreased 9% or 1.7 billion pesos quarter-on-quarter due to a 155 basis points decrease in the average lending rate down to 30% from 31.5% in the second quarter of 2020, while the average volume of private sector loans decreased 5% in the quarter. Interest income decreased 23% or 5.4 billion pesos year-on-year. In third quarter of 2020, interest on loans represented 48% of total interest income. Net income from government and private securities increased 56%, or 6 billion pesos, quarter on quarter, due to higher income from government securities and higher volume. Compared to the third quarter of 2019, net income from government and private securities decreased 39%, or 11 billion pesos. In the third quarter of 2020, FX gains, including investments in derivative financing, totaled a $1.2 billion gain due to the 8% Argentine peso depreciation against the U.S. dollar and the bank's long spot dollar precision. FX trading results continue to be impacted by stricter currency controls and regulations. In third quarter 2020, interest expense totaled $15.6 billion, 52% of $5.3 billion increase compared to the second quarter of 2020. and 30% or 6.8 billion pesos lower on a yearly basis. Within interest expenses, interest on deposits increased 54% or 5.4 billion pesos quarter on quarter, mainly driven by a 300 basis points increase in the average interest rates paid on deposits. The average budget rate increased 458 basis points quarter on quarter. On a yearly basis, interest on deposits decreased 28% or 5.8 billion pesos. In the third quarter of 2020, Interest on deposits represent 94% of the bank's financial expense. As of the second quarter of 2020, the bank's accumulated net interest margin, including FX West 20.3, lower than the 22.3 posted in the second quarter of 2020 and the 21.5 registered one year ago. The third quarter of 2020, net fee income totaled 5.3 billion pesos, 5% or 267 million pesos higher than the second quarter of 2020. On a yearly basis, net fee income decreased 2% or 124 million pesos. In 3Q 2020, net income from financial assets and liabilities at fair value to profit or loss totaled 7.5 billion pesos lost as a consequence of the inflation assessment applied to our league holdings. Higher inflation was observed in the quarter together with higher league volume. In the quarter, other operating income totaled 1.2 billion pesos, increasing 3% compared to the second quarter of 2020. On a yearly basis, other operating income decreased 22% or 328 million pesos. In 3Q20, bank of matters personal and administrative expenses totaled 9.6 billion pesos, 3% or 299 million pesos higher than in the previous quarter due to higher administrative expenses. On a yearly basis, personal and administrative expenses decreased 9% or 904 million pesos. In the third quarter of 2020, the efficiency ratio reached 45.9, deteriorating from the 41.6 posted in the second quarter of 2020. Excluding the inflation adjustment on early-league holdings shown under income from financial instruments and fair value to property or loss from the efficiency ratio, Deficiency ratio would have been 34.7 in the third quarter of 2020 and 33.7 in the second quarter of 2020. In the third quarter of 2020, Bank of America's expected tax rate was 34.2, higher than the 28.9 registered in the previous quarter. In terms of loan growth, the bank's financing to the private sector decreased 2% of 3.9 billion pesos quarter-on-quarter and 12% of 31.9 billion pesos year-on-year. Within commercial loans, others stand out with a 7% or 2.8 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, credit card loans increased 8% or 3.7 billion pesos in the quarter. Within private sector financing, PESA financing increased 2% or 4.7 billion pesos while U.S. dollar financing decreased 32% or $147 million. It is important to mention that Bancomat's market share over private sector loans as of September 2020 reached 7.6%. On the funding side, total deposits increased 13% or 56 million pesos quarter-on-quarter and increased 138 billion pesos year-on-year. Private sector deposits increased 4% quarter-on-quarter while public sector deposits increased 64% quarter-on-quarter. The increase in private sector deposits was led by time deposits, which increased 17%, or 29.4 billion pesos quarter-on-quarter, while demand deposits decreased 6%, or 11.8 billion pesos. Within private sector deposits, vessel deposits increased 6%, or 17.2 billion pesos, while U.S. dollar deposits decreased 11%, or 124 million dollars. As of September 2020, Banco Macro's transactional accounts represented approximately 44% of total deposits. Banco Macro's market share over private sector deposits as of September 2020 totaled 6.6%. In terms of asset quality, Banco Macro's non-performing to total financial ratio reached 1.14%, and the coverage ratio measured as total allowances under expected credit losses over non-performing loans under central bank rules improved significantly and totaled 302.9%. Asset quality continued to be positively affected by recent measures adopted by the Central Bank of Argentina in the current pandemic context, particularly the 60-day grace period that was added to debt classification before a loan is considered as non-performing. In terms of capitalization, Banco Macro accounted an excess capital of 116.9 billion pesos, which represented a total regulatory capital ratio of 34.8%, and a Tier 1 ratio of 27.3%. It should be noted that on October 21, 2020, the Special Shareholders' Meeting decided on a complementary dividend of up to $3.8 billion. The supplementary dividend is calculated by multiplying the $20 per share dividend already declared and approved by the Shareholders' Meeting, held in April, by the variation in the Consumer Price Index between April and the date in which the central bank's approval is granted. That 3.8 billion pesos from the complementary dividend will be deducted from shareholders' equity in the fourth quarter of 2020. 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 87%. 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-affirmated deposit base. At this time, we would like to take the questions you may have.

We will now begin the question and answer session for investors and analysts. If you would like to ask a question, please press star 1 on your touchtone phone. If you are 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 comes from Ernesto Gabilondo with Bank of America. Please go ahead.