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 4Q21 earnings conference call. We would like to inform you that the 4Q21 press release is available to download at the Investor Relations website of Banco Macro, www.macro.com, AR, forward slash, Relaciones, hyphen, Inversal Race, forward slash. Also, this event is being recorded and all participants will be enabled to know me 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 Enriquez, Chief Executive Officer, Mr. Jorge Scarinzi, Chief Financial Officer, and Mr. Nicholas Torres, IR. Now, I will turn the conference over to Mr. Nicholas Torres. You may begin your conference.

Thank you, Chad. Good morning, and welcome to Banco Macro for 2021 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 is available at our website. Fourth quarter 2021 press release was distributed yesterday and is available on 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, 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 December 31st, 2021. I will now briefly comment on the bank's fourth quarter 2021 financial results. Bank of America's net income for the quarter was 10.5 billion pesos, 30% higher than the third quarter of 2021 and 120% higher than the results posted a year ago. The bank's fourth quarter 2021 accumulated ROE and ROA of 12.2% and 2.8% respectively remain healthy and show the bank's earnings potential. In fiscal year 2021, total comprehensive income total 27.1 billion pesos, 26% lower than the result posted in fiscal year 2020. Net operating income before general administrative and personal expenses in the fourth quarter of 2021 was 49.7 billion pesos, increasing 4% or 2.1 billion pesos quarter on quarter due to higher net interest income and higher effects gains which were partially offset by higher loan loss provisions. On a yearly basis, net operating income before general administrative and personal expenses increased 5% or 2.4 billion pesos. In fiscal year 2021, net operating income before general administrative and personal expenses totaled 194.5 billion pesos, 3% lower than the previous year. In the fourth quarter of 2021, provision for loan losses for 2 billion pesos, 1.7 billion pesos higher than in the previous quarter. The bank decided to increase loan loss provisions given the uncertainty and probably adverse macroeconomic scenario arising from a non-agreement with the IMF regarding the restructuring of Argentina's debt. On a yearly basis, provision for loan losses decreased 40% for 1.3 billion pesos. Operating income after general and administrative expenses was 32.2%. 4 billion pesos, 1% or 167 million pesos lower than in the third quarter of 2021, and 2% or 511 million pesos higher than the fourth quarter of 2020. In the quarter, net interest income totaled 35.7 billion pesos, 9% or 2.9 billion pesos higher than the result posted in the third quarter of 2021, and 9% or 2.8 billion pesos higher than the result posted one year ago. In fiscal year 2021, net interest income was 10% lower than fiscal year 2020 as a result of different regulations adopted by the central bank to affect caps on lending rates and floors on deposit plans. In the fourth quarter of 2021, interest income totaled 56.9 billion pesos, 3% of 1.9 billion pesos higher than in third quarter of 2021, due to higher income from government securities and 9% of 5.9 billion pesos lower than the previous year. Within interest income, interest on loans increased 8% or 2.1 billion pesos quarter on quarter due to a 5% increase in the average volume of private sector loans and 93 basis points increase in the average lending rate. On a yearly basis, income from interest on loans was practically unchanged with a 17 million pesos decrease. In the fourth quarter of 2021, interest on loans represented 52% of total interest income. In fiscal year 2021, interest on loans totaled 114.8 billion pesos and decreased 11% compared to fiscal year 2020. Net income from government and private securities increased 2% of 520 million pesos quarter on quarter due to higher income from government securities. Compared to the fourth quarter of 2020, net income from government and private securities decreased 13% of 3.8 billion pesos. In the fourth quarter of 2021, FX gains, including investments in direct financing, total a 1.6 billion pesos gain due to the 4% Argentine peso depreciation against the US dollar and the bank's long spot position. In the fourth quarter of 2021, interest expense totaled 20.3 billion pesos, a 4% or 1 billion pesos increase compared to the third quarter of 2021, and 29% or 8.7 billion pesos higher on a yearly basis. Within interest expenses, interest on deposits decreased 4% or 894 million pesos one quarter, mainly driven by a 3% decrease in the average volume of private sector deposits, while the average interest rate paid on deposits was unchanged. On a yearly basis, interest on deposits increased 28% or 8 billion pesos. In the fourth quarter of 2021, interest on deposits represented 96% of the bank's financial expenses. fiscal year 2021 interest expense increased three percent compared with fiscal year 2020. in the fourth quarter of 2021 the bank's net interest margin including the tax was 21.2 percent higher than the 19.1 posted in the third quarter of 2021 and then the 16.3 percent registered in the fourth quarter of 2020. in the fourth quarter of 2021 net fee income total 8.8 billion pesos, 2% or 136 million pesos higher than third quarter of 2021. On a yearly basis, net fee income increased 3% or 217 million pesos. In fiscal year 2021, net fee income was 2% lower than the previous year. In the fourth quarter of 2021, net income from financial assets and liabilities at fair value department are lost, total of 3.5 billion pesos gain. 7% or $268 million lower than the previous quarter. On a yearly basis, net income from financial assets and liabilities at fair value and profit or loss decreased 29% or 1.4 billion pesos. In fiscal year 2021, net income from financial assets and liabilities at fair value and profit or loss was 18% higher than the fiscal year 2020, mainly due to higher income from government securities. In the quarter, other operating income totaled 2 billion pesos, increasing 2% compared to the third quarter of 2021. On a yearly basis, other operating income decreased 6% or 116 million pesos. In the fourth quarter of 2021, bank matters personal and administrative expenses totaled 15.6 billion pesos, 5% or 727 million pesos higher than the previous quarter due to higher administrative expenses. On a yearly basis, personal and administrative expenses decreased 4% for 608 million pesos. In fiscal year 2021, administrative expenses plus employee benefits decreased 4% compared to fiscal year 2020, showing the strict cost of policies adopted by the bank's senior management. As of the fourth quarter of 2021, the efficiency ratio reached 37.5%, improving from the 37.6% posted in the third quarter of 2021. Expenses decreased 3% when net interest income plus net fee income plus other operating income decreased 8%. In the fourth quarter of 2021, the results from the net monetary position totaled a 15.2 billion pesos loss, 7% or 1.1 billion pesos higher than the loss in the third quarter of 2021, as a consequence of higher inflation observed in the quarter, which was 93 basis points above the third quarter level as inflation was 10.21% in the fourth quarter up from 9.28 in the third quarter of 2021. In fiscal year 2021, Franco-Macro's expected tax rate was 5.8%, lower than the 33.1% tax rate registered during fiscal year 2020. It should be noted that in fiscal year 2021, the expected tax rate was affected by the implications of inflation adjustment and accruing and tax balances and the determination of the income tax deal and deferred income tax. Further information is provided in Note 23 to our financial statements. In terms of loan growth, the banks financing to the private sector totaled $349 billion, increasing 4% or $11.9 billion per quarter, and decreasing 8% or $32.1 billion year-on-year. Within commercial loans, Overdraft stand out with an 8% or 1.8 billion pesos increase quarter on quarter mostly due to loans extended to SMEs. On the consumer side, mortgages increased 13% or 2.6 million pesos while credit card loans increased 9% or 8 billion pesos in the quarter. In fiscal year 2021, pledge loans stand out with a 49% increase while other loans decreased 41% as loans extended to SMEs as part of the COVID-19 relief package started to become due. It is important to mention that Banco Madras market share over private sector loans as of December 2021 reached 6.9%. On the funding side, total deposits decreased 1% or 8.7 billion pesos quarter on quarter and decreased 20% or 148.9 billion pesos year on year. Private sector deposits decreased 1% quarter on quarter while private sector deposits decreased 5% in the quarter. The increase in private sector deposits was led by 10 deposits, which decreased 8% or 19.8 billion pesos quarter-in-quarter, while given deposits increased 5% or 14.6 billion pesos. Within private sector deposits, personal deposits increased 1% or 5.6 billion pesos, while U.S. dollar deposits decreased 16% or 182 million dollars. As of December 2021, Banco Macro's transactional accounts represented approximately 55% of total deposits, Bank of America's market share over five sectors as of December 2021 totaled 5.4%. In terms of asset quality, Bank of America's non-performing total financial ratio reached 1.3%. The current ratio measured as total allowances under expected credit losses over non-performing loans under central bank rules improved significantly and totaled 209.61%. Consumer portfolio non-performing loans improved 65 basis points down to 1.4% from 2.5% in the previous quarter, while commercial non-performing loans deteriorated 43 basis points in the fourth quarter of 2021, up to 0.99% from 0.57 in the previous quarter. The improvement in commercial non-performing loans can be traced to the sale of part of the consumer loan portfolio. In terms of capitalization, Banco Macro counted an excess capital of 197.8 billion pesos which represented a total regulatory capital ratio of 36.1% and a tier one ratio of 30.9%. The bank's aim is to make the best use of this sector's capital. The bank's liquidity remained more than appropriate. Liquid assets stolen ratio reached 19%. 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 for our efficiency standards and we keep a well-atomized deposit base. At this time, we would like to take the questions you may have.

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star then 1 on your telephone keypad. One moment, please, for our first question. And the first question will come from Ernesto Gaviondo with Bank of America. Please go ahead.

Hi, good morning, Jorge and Nicolás. Thanks for the opportunity. So my first question is on the implications of the IMF agreement. How do you see this will translate into loan and deposit growth this year? What do you think will be the challenges for the year? Because, well, we still have high rates and high inflation levels, so I think that could put some pressure for real on growth. and in the results of the net monetary position. And also, another question, I would say, related to cost of risk. We saw you in the quarter, you have created upfront provisions related to the uncertainty of the IMS agreement. However, I just want to know what is the base case scenario? I think at the end, it could be accepted by Congress, and there could be an IMF agreement. So, if that is the case, do you expect to release some of those provisions during the year, or do you expect to keep a high research coverage ratio? And then, my last question is, what would be your expectations for the ROE of this year? Thank you.

Hi, Ernesto. How are you? Let me answer first your second question related to the provisions that we made in the fourth quarter. From an accounting point of view, those provisions were basically done at the end of December. And at that time, there was a bit of uncertainty whether Argentina was going to reach an agreement with the IMF. Now that we are in February, reaching the end of the month, I would say that the due date is the 27th of March, the most probable scenario is that Argentina would reach an agreement with the IMF. So if that is the case, and depending on economic conditions and how the economy evolves in 2022, we could be reverting parts of these provisions along 2022. But we have to see how the economic conditions perform in Argentina. Now answering your first question, I would say that reaching an agreement with IMF is preventing Argentina to collapse from the world. So even though the agreement would be reached in the beginning of March, let's say, according to local economies, my expectation for this year is, let's say inflation need to high 50s, GDP growing real terms between one and a half and 2%. In that case, And considering that scenario, we are forecasting deposit and loans growing in the area of inflation. Could be slightly higher in terms of loans. In terms of rates, honestly, the central bank has increased interest rates in January and in February. I would say that the central bank is going to keep on monitoring the monthly evolution of inflation before increasing again rates, but we are not expecting many increases along 2022 for the moment. Could be another increase between one or two percentage points, maybe between May, June, July, but we depends on inflation evolution. So let's say that margins could be slightly wider compared to 2021. And your third question in terms of ROE, if that is the case, we could be getting an ROE in 2022 that could be above 2021, maybe in the area of 15 or maybe in the higher teams. Again, this is very early to forecast because it depends on many issues. But for the moment, we are working with that scenario.

Thank you very much, Jorge. Just to follow up on the ROE, so in 2021, full year, making the numbers, I think the ROE was at around 12%. So do you think it could be more at around 15% in this year, or it will be more 13%? And then what are the assumptions behind on the dividend? As you know, the regulator has allowed the banks to pay 20% of the accumulated earnings as of 2021. So what will be embedded in your guidance of your ROE in terms of dividends?

Yeah, assuming that what I mentioned before, I mean, like the wider margin, and maybe could be reworking part of the provisions and having loans growing inflation, et cetera, et cetera. We are forecasting that an approximately 15% ROE for could be achievable. In terms of the dividends, remember that the dividends are already taken out from the equity in the case of Banco Macro. So the ROE calculation that I'm making is already considering that.

Excellent. Thank you very much.

Thank you. And the next question will be from Yuri Fernandez with JPMorgan. Please go ahead.

Thank you, Jorge. I have a quick one on taxes. We saw a tax regression this quarter, so if you can provide more details. And I know it's very hard to forecast an effective tax rate given the inflation, but if you can give us a guidance for 2022, what to expect on the effective tax rate. And I have a second question regarding a sale of your consumer portfolio. You don't provide a number in the release, so I don't know if this was big, if this helped any PLs or not. I guess... Asset quality trends in Argentina, they have been overall okay, right? They have been overall good. But just checking if you can provide some color on the sale of the consumer loans, why you sold, what was the size. Anyway, anything you can share with us. Thank you.

How are you? Thanks for the question. Basically, what happened in 2021 was the difference between the fiscal balance and the accounting balance in Argentina with inflation involved there, and that's why we reached an effective tax rate so low in 2021. But I would say that if you want to forecast 2022, I would have a number more close to maybe 30% going back to normal levels. there was some difference between the fiscal and accounting balance in inflation adjustments in the bank, and that's why the reversion on taxes has happened in the fourth quarter. In terms of the sale on the consumer was a small sale. Basically, the bank usually, sometimes, make this type of transaction, but they're small transactions, meaning that for the size of the bank, In terms of asset quality, as we have been saying, we keep a very close eye on having the best standards in asset quality with elevated coverage ratios. The idea is to continue on that. I would say that the recovery in the economy in 2021 that was slightly above 10% has shown that it was a big recovery compared to the low that we have in 2020 because of the pandemic. For this year, we are forecasting, as we mentioned, real GDP growth between 1.5% to 2%. And for the moment, we are not considering big changes in the behavior of the NPLs. So the idea is to have this under control with similar levels of the one that we are seeing for the moment, I would say. ranging below, of course, below 2% in terms of MPLs, and the coverage will be above the 100 level.

No, perfect, Jorge. If I may just follow up on SS quality, historically, I guess, you had like a 2% cost of risk in the past, and in 2021, it was very low because of all the additional provisions from 2020. Okay. And as you said, like overall, like the deferral programs overall are good asset quality, low leverage from in Argentina. Do you have any view if provisional denormalizing 2022 or given you have this 2 billion additional for IMF, like your base case is to still run with cost of risk below the historical level?

I would say that it would be running below the 2% in 2022. Basically, yes, that is what we have in mind.

Perfect. Thank you very much.

You're welcome.

And the next question is from Robert Gilman, a private investor. Please go ahead.

Hello. First of all, what is the situation with the dividend? It looks like it will be paid soon.

Good morning, Robert. In terms of the dividend situation, we are still asking the central bank for permission to pay the dividends. For the moment, there's no answer from the central bank. So we are in a wait-and-see position. And that is all what we have for the moment.

And the second question is, have you considered five-factor stocks? because of the surplus capital you have?

I mean, the buyback is something that the boards sometimes consider. Honestly, for the moment, that is not on the table. That is not meaning that could be on the table in the next month or so. But for the moment, we do not have that

on the table thank you you are welcome and thank you once again if you would like to ask a question please press star then one the next question will come from carlos gomez with hsvc please go ahead well okay um i also wanted to ask about the dividend

First, if we understand correctly, the central bank said that you could pay dividends in 12 installments, which seems quite unwieldy. I mean, is that a schedule that you might consider if there is no other option? a bit more rational comes along. And second, do you have clarification as to whether the dividend payments refer to the ones that you have already declared or to the ones that you might declare for 2021? A different question on taxes. Some of your colleagues presented claims to the tax authority for tax adjustments in previous years and they actually prevailed and they received rebates for taxes already paid. Do you have pending litigation like that? Is that something that we could expect in the future or your past tax payments are already settled?

Thank you. Hi Carlos, how are you? In terms of rebates, Yes, I mean, that is what the central bank has been saying that when they are approved, we have to pay that in 12 monthly installments. Again, this is a, this scenario can change if we reach an agreement with the IMF and maybe Argentina receive back between $4 to $5 billion. So this situation could maybe change in the future. For the moment, the 12 installments in pesos are still there. For the moment, we have not received a confirmation from the central bank that we can pay dividends. According to the new formula, from the 26 billion that we have provision, approximately we can pay between 20 and 21 billion pesos. But again, we still do not have the approval to pay them. Sense of taxes, no, we do not have any tax plan spending on the local authority or in our balance. Nothing about that.

Thank you so much.

And once again, if you'd like to ask a question, please press star and one. The next question will come from Rodrigo Nistor with AR Partners. Please go ahead.

Hi, how are you? Thank you for the opportunity of asking questions. Just first a quick follow-up on the ROE guidance or expectations of 15% if that implies any kind of relaxation on the regulatory front.

No, I think it's impossible to say that regulations are going to be relaxed. Basically, what we are seeing is a slightly better margin and maybe slightly better recovery on the loan book. Again, I'm saying about area 15%. So that could be, I don't know, 13, 14, 15, 16. So imagine that in Argentina to make forecasts on anything is extremely difficult. So for the moment, that is what we are seeing, a slight improvement in ROE. If the case is 15 from 12 to 15 is a marginal improvement. So I'm not saying that we are going to double the money in 2022 compared to 21. It's a slight or marginal improvement that we are forecasting in ROE and we are now in February. So we have 10 months to go and in Argentina with inflation being between 55 and 50% according to local economy. Imagine that this forecast could change in the next quarter. So with the elements that we have right now, that is what we are forecasting.

Okay, thanks. And then a second one regarding your strategy to protect the equity from this high inflation environment you are describing. We see that the deposit base contracted in real terms by 20%. What are you doing in order to defend your equity from inflation?

What we are doing is what we can. I mean, we are long dollars as much as we can according to local regulations, and then we have all what we can in terms of bonds tied to inflation. Basically, that is the way that we are trying to hedge the equity on this complicated scenario.

Okay.

Thanks so much. You're welcome.

Ladies and gentlemen, as there are no further questions, this concludes our question and answer session. I would like to turn the call back over to Mr. Nicholas Torres for final considerations.

Thank you all for your interest in Banco Macro. We appreciate your time and look forward to speaking with you again soon. Good day.

Thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your line.