Banco Macro S.A. ADR (representing Ten Class B Common Shares)

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 2024 earnings conference call. We would like to inform you that the third quarter 2024 press release is available to download at the Investor Relations website at Banco Macro at www.macro.com.ar slash Relaciones hyphen Investores slash. 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 the call, please press star, zero, to signal the operator. It is now my pleasure to introduce our speakers. Joining us from Argentina are Mr. Jorge Scarnci, and Chief Financial Officer, as well as Mr. Nicholas Torres, IR. Now, I will turn the conference over to Mr. Nicholas Torres. You may begin your conference.

Thanks, Wyatt. Good morning, and welcome to Bank of Macros' third quarter 2024 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. Third quarter 2024 press release was distributed last Wednesday and it's 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 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 have been restated applying IAS 29 to reflect the accumulated effect of the inflation adjustment for each period through September 30th I will now briefly comment on the bank's third quarter 2024 financial results. In the third quarter of 2024, Banco Macro's net income totaled 91.3 billion pesos. This result was 293% or 68.1 billion pesos higher than in the third quarter of 2023. As of the third quarter of 2024, the accumulated annualized return on average equity and the accumulated annualized return on average assets were 6.8% and 2.1% respectively. In the third quarter of 2024, operating income before general administrative and personal expenses totaled 829.2 billion pesos, 61% or 313 billion pesos higher than the second quarter of 2024, and 25% or 272.3 billion pesos lower than the same period of last year. Net operating income before general administrative and personal expenses in the third quarter of 2024 was 403.7 billion pesos, increasing 263% or 299.6 billion pesos when compared to the previous quarter and 44% or 322.5 billion pesos lower on a yearly basis. Banco Macro's third quarter 2024 net income totaled 91.3 billion pesos, recovering from the loss posted in the previous quarter and 293% or 68.1 billion pesos higher than in the third quarter of 2023. This result is mainly due to higher net interest income and a lower loss related to the net monetary position as inflation is during the quarter. It is important to notice that during the quarter, as it's probably known, Banco Macro exercised about half of some put options that it held on certain inflation-adjusted securities, leading to a $50 billion loss related to the exercise of said put options. It is also worth mentioning that the bank continues to hold put options on the remaining position of those bonds. In the third quarter of 2024, provision for loan losses totaled 23 billion pesos, 24% or 4.5 billion pesos higher than in the second quarter of 2024. On a yearly basis, provision for loan losses increased 53% or 7.9 billion pesos. In the quarter, net income totaled 569.1 billion pesos, 167% or 356.1 billion pesos higher than in the second quarter of 2024, and 53% or 220.9 billion pesos higher year on year. Interest income increased 23% when interest expenses decreased 40%. In the third quarter of 2024, interest income totaled 857.6 billion pesos, 23% or 160.4 billion pesos higher than in the second quarter of 2024, and 35% or 468.4 billion pesos lower than in the third quarter of 2023. Income from interest on loans and other financing totaled 408.4 billion pesos, 13% or 56.9 billion pesos lower compared with the previous quarter, mainly due to a 15.4 percentage point decrease in the average lending rate, which was partially offset by a 20% increase in the average volume of private sector loans. On a yearly basis, income from interest on loans decreased 28% or 161.1 billion pesos. In the third quarter of 2024, interest and loans represented 47% of children's interest income. In the third quarter of 2024, income from government and private securities increased 143%, or 253 billion pesos quarter-on-quarter, and decreased 33%, or 210.1 billion pesos compared with the same period of last year. In the third quarter of 2024, income from Rivos totaled 18.6 billion pesos, 66% or 36 billion pesos lower than the previous quarter, and 84% or 97.5 billion pesos lower than a year ago. In the third quarter of 2024, FX income totaled 16.3 billion pesos gain, 43% or 12.5 billion pesos lower than the previous quarter, and 98% or 719.4 billion pesos lower than a year ago. FX income gain was due to the 6.5% Argentine peso depreciation against the U.S. dollar and the bank's long dollar position during the quarter. In the third quarter of 2024, interest expense totaled 288.4 billion pesos, increasing 40% or 195.7 billion pesos compared to the previous quarter, and 71% or 689.4 billion pesos lower compared to the third quarter of 2023. Within interest expenses, interest on deposits decreased 41% or 191.3 million pesos, quarter and quarter, due to a 12.4 percentage point decrease in the average rate paid on deposits, while the average volume of deposits from the private sector decreased 11%. On a yearly basis, interest on deposits decreased 71% or 682.4 billion pesos. In the third quarter of 2024, the bank's net interest margin, including FX, was 31.5%, higher than the 20% posted in the second quarter of 2024, but lower than the 60% posted in the third quarter of 2023. In the third quarter of 2024, Bank of America's net fee income totaled $117.8 billion, 8% or $9.2 billion higher than the second quarter of 2024, and 7% or $8.1 billion higher than the same period of last year. In the third quarter of 2024, net income from financial assets and liabilities of fair value to profit or loss totaled a 103.6 billion pesos gain, decreasing 24% or 32.3 billion pesos in the quarter. The gain was mainly due to a 4% decrease in income from government securities and a 58% decrease in income from private securities. In the quarter, other operating income totaled 45 billion pesos, 7% or 3.3 billion pesos lower than in the second quarter of 2024. On a yearly basis, other operating income increased 29 percent or 10.1 billion pesos. In the third quarter of 2024, BACOM ACROS administrative expenses plus employee benefits totaled 251.9 billion pesos, 11 percent or 24.9 billion pesos higher than the previous quarter due to higher employees' benefits, which increased 6 percent and a 22 percent increase in administrative expenses. On a yearly basis, administrative expenses plus employee benefits increased 23 percent or 47.4 billion pesos. As of the third quarter of 2024, decision rates have reached 25.5%, deteriorating from the 22.2% posted in the second quarter of 2024 and the 23% posted one year ago. In the third quarter of 2024, expenses increased 10%, while net interest income plus net fee income plus other operating income increased 68% compared to the second quarter of 2024. In the third quarter of 2024, the results from the net monetary position totaled 283.9 billion pesos loss, 45% or 234.8 billion pesos lower than the loss posted in the second quarter of 2024. And 57% or 308, 3.3 billion pesos lower than the loss posted a year ago. This result is a consequence of lower inflation observed during the quarter. Inflation is to 12.1% from 18.6% in the second quarter of 2024. In the third quarter of 2024, Macro's effective tax rate was 24.4%, lower than the 60.5% registered in the third quarter of 2023. Further information is provided in Note 21 to our financial statements. In terms of loan growth, the bank's total financing reached 4.55 trillion pesos, increasing 17% or 657.9 billion pesos quarter-on-quarter, and 28% or 988 billion pesos higher year-on-year. Within commercial loans, overdrafts stand out with a 46 percent or 212.5 billion pesos increase, while decimals decreased 12 percent or 83.5 billion pesos. Within consumer lending, personal loans increased 43 percent or 235.5 billion pesos, while credit card loans increased 25 percent or 227.1 billion pesos. Special financing increased 19 percent or 616.7 billion pesos, while U.S. dollar financing decreased 6 million dollars. It is important to mention that Banco Max's market share over private sector loans as of September 2024 reached 9.2%. On the funding side, total deposits increased 7% for 516 billion pesos for one quarter, totaling 8.1 trillion pesos, and increased 30% for 1.8 trillion pesos year on year. Private sector deposits increased 6% for 401.7 billion pesos for one quarter, while public sector deposits increased 12% or 104.6 billion pesos quarter-on-quarter. The increase in private sector deposits was led by demand deposits, which increased 28% or 999.7 billion pesos, driven by the tax amnesty, while time deposits decreased 32% or 829.5 billion pesos quarter-on-quarter. While in private sector deposits, peso deposits decreased 15% or $941.7 billion, while U.S. dollar deposits increased 87% or $1.4 billion. As of September 2024, Bank of Macros transactional accounts represented approximately 62% of total deposits. Bank of Macros market share over private sector deposits as of September 2024 totaled 7.4%. In terms of asset quality, Bank of America's non-performing total financial ratio reached 1.15%, and the coverage ratio measured as total allowances under expected trade laws over non-performing loans under central bank rules reached 177.6%. Consumer portfolio non-performing loans improved 12 basis points down to 1.4% from 1.52% in the previous quarter, while commercial portfolio non-performing loans improved six basis points in the third quarter of 2024. In terms of capitalization, Banco Macro accounted an excess capital of 2.53 trillion pesos, which represented a capital adequacy ratio of 32.8% and a CO1 ratio of 31.3%. The bank's aim is to make the best use of this excess capital. The bank's liquidity remained more than appropriate. Liquid assets' total deposit ratio reached 91%. Overall, we have accounted for another positive quarter. We continue to show that 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 questions you may have.

Okay, at this time, we're going to open it up for questions and answers. If you would like to ask a question, please press star, then 1 on your touchtone phone. And if you want to withdraw, please press star, then 2. One moment as we assemble our questions. And our first question will come from Brian Flores with Citibank. Please go ahead.

Hi, Tim. Good afternoon. Thank you very much for the opportunity to ask questions. I have maybe one that is divided in two parts. So the first one is if you have any updates on the prospects for long growth. This year we have seen some of your peers in the country maybe accelerating 2024 on different dynamics. You have maybe a the same demand and the same appetite, but also better inflation dynamics helping you in the denominator. So I just wanted to understand if you have any changes in the guidance for 2024, 2025 long growth, and also for ROE. in both 24 and 25. And then if I may, and because I think it's linked, if you could also update us into how should we think in terms of capital consumption to fuel this growth that we're discussing, right? Thank you.

Hi, Brian. Good morning. This is Jorge Carinzi answering. Thanks for your questions. The first one in terms of loan growth, yes, since May of this year, I would say that we started to see more loan demand coming. And of course, in the recent month, as a consequence of a declining inflation and some stability in the effects, we are seeing loan demand pushing harder. So we think we are going to finish 2024 with a positive or a real positive rate of growth. It is going to be between 25% and 35% in 2024. And I would say that it's going to be in the area of 40% positive real rate of growth in 2025. So that is what we are seeing in terms of loan growth that is positive And I would say that we are going to see also GDP growth according to local economies growing next year in real terms between five to 6%. In terms of your second question, in terms of ROE forecast this year, I would say as a consequence of a negative second quarter, we should be delivering in the area of 10% positive ROE this year, and next year we should be more in the low to mid-term, I would say, for next year. So that is guidance for the moment for 2024, 2025. According to capital consumption, the third question, I mean, we have the highest excess capital among RG banks. Honestly, continue with these aggressive long growth that we are forecasting for 2024, 2025, and if we move forward to 2026, we could be able to continue growing at high rates without any needs of additional capital here. So in that sense, we feel pretty comfortable there, Brian.

Super clear, Jorge. Thank you very much.

You're welcome.

Our next question will come from Ernesto Gablioba with Bank of America. Please go ahead.

Thank you. Hi, good morning, Jorge and Nicolas. Thanks for taking my call. A couple of questions from my side. The first one is, on your position on securities linked to inflation and to the dollar. Well, first, I would like to hear what would be your assumptions for inflation and FX for next year, and how should we think about your securities position linked to inflation and FX next year? I don't know, maybe you can Tell us what is your current position to total assets today and how should we think about next year? And then my second question is on your NII growth expectations plus securities plus FX. So considering the shift of the asset mix and growing the loan book again, how should we think about the evolution of the NII growth as well as financial results and net facts. It could give you an idea of what will play in terms of the profitability next year. Thank you.

Hi, Ernesto. How are you? On the question on securities or bonds, I think there is a pretty clear table in the press release where we're stating they are our position in bonds open in the different level of accountancy that we can take them or have them. As of today, we have a long position in bonds tied to inflation, and we do not have any bonds linked to the evolution of the effects. Honestly, for next year, according to local economies, there is some wide range between inflation expectations. It goes from 25% to 40% inflation expectations for next year, and a depreciation of the peso that is in the area of, again, also economies, they have a range that goes between 15% to 25% depreciation of the effect for next year in terms of a second question honestly a method is not very easy to answer because it is very dynamic and we think that the net interest income is going to continue growing of course we are switching little by little or quarter by quarter from securities into loan growth. However, this is very tough to forecast the combination between or how that shift would result, adding also the FX evolution. You know that we have a slightly positive or we are slightly positive assets on FX there. My feeling is if you have to give you an answer here, next year we should be seeing NII growing also between 30% and 35% in real terms. That is the answer I can give you right now. Of course, we could be fine-tuning this in the coming quarters.

Super helpful, Jorge. Just another question related to asset quality. So considering that you will be expanding again the loan book, how should we think about the MPL ratio and the cost of rates for next year?

Well, I mean, asset quality, I think, is quite under control, not only in Banco Macro, but also in the average of the system. I think that we are going to see some slight deterioration going forward, but next year, by December next year, we should have a NPR ratio, for sure, below 2%, if that is the question.

Perfect, perfect. Thank you very much, Jorge.

Welcome, Alberto.

The next question comes from Nicolas Riva with Bank of America. Please go ahead.

Thanks very much, Jorge and Nico, for taking my questions. Jorge, I have a question. Do you have any plans to raise debt in the international market? I mean, we have seen one of your large peers recently raise about $300 million in the international market of senior debt. You also have the maturity of your 2026 tier 2 bond. Any plans at all, really, to tap the international market for either senior or subordinated debt? Thanks.

Hi, Nicolas. No, honestly, we do not have any plans to raise new debt in the international markets. The 2025 Tier 2 bond is due by the end of 2026. So, no, for the moment, we do not have any plans on going into the markets on debt.

Thanks very much, Jorge. You're welcome.

And if you have a question, please press star, then 1. Our next question comes from Yuri Fernandez with JP Morgan. Please go ahead.

Hi, Jorge. I have a question here on your USD deposits. I know this quarter you had the blanqueo and maybe this will continue for the fourth Q. I think it was open until November, the beginning of November, so a lot of inflows of dollars. But when we look to the loans in dollars, they are not growing at the same pace. And your LDR, it is a good problem, right? Your LDR is very low. How to deploy this money? What to do with those dollar deposits? How those deposits impact your margin? So just trying to understand this excess of U.S. dollar deposits you have and how you are planning to work with this. Thank you.

Hi, Yuri. Yes, this blanqueo has a stronger effect in the fourth quarter. Of course, we are going to have numbers there by February next year. But to give you some ideas, yes, not only macro, but also other peers receive many deposits in US dollar cash. We saw some pickup in loan demand in US dollars in the fourth quarter, but take into consideration that in this blanqueo, if you were depositing below $100,000, you can or you could withdraw those dollars without paying any tax in the following month. So just to give you an idea, Almost half of the deposits that we received under the figure of Blanqueo were below $100,000. So, therefore, we have to be careful in terms of the liquidity because half of those deposits could be withdrawn in the next month or so. But we saw some pickup in long-demanding U.S. dollars in the fourth quarter.

No, super clear. And just a final one on this topic. I see a big decrease in margins for you and all the other ARG banks. You have the breakdown of margins in both pesos and dollars, right? And when we go to the dollar margin, this used to be a mid-teens, like a 15 to 20 min. It is now running at 4.5. Basically, you are charging 5, 6, 7% on the asset side. and you are paying like 2% on the liabilities. Just trying to understand, what is driving this compression in margins, Jorge? Is competition? Is all the banks landing at very low rates on the asset side? What explains the margin compression, and what is the outlook for your margins in USD? Trying to understand if this can be a tailwind for, because we are in the, I don't know, the worst point of the margins in dollars. This is becoming a bigger portion of your liabilities, so trying to understand if this can be a tailwind. for the next quarters. Thank you.

Yes, basically competition is driving this compression in margins. It's only that, that most of our peers are in the same trend. I think that even though the dollar book is, let's say, only 15% to 17% of our total book, But yes, I think we are reaching the bottom part of the margins. I think that in the coming quarters, we're going to see stable U.S. dollar margins and maybe some pickup in the second half of 2025. But I'm not seeing margins in U.S. dollars keeping on going downwards. But it's basically competition, yes.

Perfect. Thank you very much, Jorge.

Welcome, Yurik.

There are no more questions at this time, and thus this concludes the question and answer session. I'll now turn over to Mr. Nicholas Torres for the final considerations.

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

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.