Grupo Supervielle S.A.

Good morning and welcome to Grupo Supervielle's second quarter 2020 earnings conference call. A slide presentation will accompany today's webcast, which is available in the investor section of Grupo Supervielle's investor relations website, www.gruposupervielle.com. As a reminder, all participants will be in a listen-only mode. There will be an opportunity for you to ask questions at the end of today's presentation As a reminder, today's conference call is being recorded. At this time, I would like to turn the call over to Ms. Ana Bartesaghi, Treasurer and IRO. Please go ahead.

Thank you. Good afternoon. Good morning, everyone, and thank you for joining us today. Speaking during today's call will be Patricio Supervielle, our Chairman and CEO, who will discuss the overall macroenvironment. and Mariano Biglia, our Chief Financial Officer, who will review our results for the quarter. Also joining us are Alejandro Stengel, Second Vice Chairman of the Board and Bank CEO, and Jorge Ramirez, First Vice Chairman of the Board. Alejandra Noton, Board Member of several of Grupo Supervielle's subsidiaries, will also be joining us for today's call. All will be available for the Q&A session. Please note that starting first Q20, as per central bank regulation, we have been reporting results applying hyperinflation accounting in accordance with IFRS rule IAS 29. For ease of comparability, we have restated 2019 results quarterly and for the year applying IAS 29 to reflect the effects of inflation adjustment for each period. Therefore, all results in this presentation are presented adjusted for inflation as of June 30, 2020, unless otherwise noted. For your convenience, we have also included in our earnings report managerial results in nominal terms. This means we are including the second Q20 financial results, ex-IAS 29, isolating the IAS 29 impact for the quarter and also showing The quarterly figures for 2019 in nominal terms as they were previously reported until December 31, 2019. You can find more details on hyperinflation accounting in our earnings report filed yesterday after the close of the market, as well as in the investor education presentation we have uploaded to our IR site last quarter, along with the earnings materials for first Q20. Before we proceed, I would like to make the following safe harbor statement. Today's call will contain forward-looking statements which are based on management's current expectations and beliefs and are subject to a number of risks and uncertainties, including as a result of the COVID-19 pandemic, and I refer you to the forward-looking statement section of our earnings release and recent filings with the SEC. We assume no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances. I would now like to turn the call over to our chairman, Patricio Supervielle.

Thank you, Ana. Good morning, everyone. Thank you for joining us today. We hope you and your loved ones remain healthy and safe as we navigate this global pandemic. If you're following the presentation, please turn to slide two. We took early and decisive action to mitigate the impact of the COVID-19 crisis. I'm very proud of my team for the hard work and commitment as we navigate this challenging time. First, we acted rapidly to protect the well-being of our employees and our customers, establishing protocols to promote safe banking and ensure the continuity of our operations. Second, We are supporting our customers through government-sponsored lending programs and undertaking a number of initiatives to support the health and welfare needs of the communities where we operate. Third, in this low-touch economy, we are rapidly executing our strategy to transform our company into a cutting-edge, cost-efficient, and agile player with the ability to continuously serve the evolving needs and aspirations of our customers. And I will discuss in more detail shortly How we are leveraging accelerated digital adoption in this new normal. Turning to our financial performance, we delivered high profitability this quarter despite the unprecedented overall environment. We continued to improve operating efficiencies supported by the streamlining undertaken last year and strict cost controls, all while continuing to invest in our digital transformation. During the quarter we further revised our expected loss models to adjust for the current economic outlook and made additional COVID-19 specific anticipatory provisions that have resulted in increased coverage. We have taken an even deeper look at our loan book by segment and industry sectors and will continue to make adjustments as the situation evolves. Finally, Strong level of liquidity and efficient operating structure are strengthening our capital base, allowing us to navigate this complex environment. Please move to slide three. We maintain a strong commitment to our customers and the communities in which we operate, starting with our customers. We are providing support to mitigate the impact of this crisis through The different lending programs within the scope of the central bank initiatives. Assisting with the payroll and working capital needs of our SME and middle market clients, we have granted a total of 7.1 billion pesos in new loans at a preferential 24% interest rate. At quarter end, the balance of these loans accounted for 7% of our loan book. Loans to the smallest SMEs are guaranteed by Fogar. We have also disbursed a total of 264 million pesos in zero interest rate loans to eligible customers. These loans granted through credit cards in free subsequent disbursements have a 12-month tenor and a six-month grace period. They are fully guaranteed by Fogar, while Fondep also provides a 15% annual nominal rate to financial institutions over the amount disbursed. This program was recently extended until the end of September. In addition, approximately $4.5 billion in unpaid credit card bonuses and loans were automatically rescheduled in line with the deferral programs established by the central bank. We are also undertaking several initiatives to assist the communities in our main markets of operations, mainly Buenos Aires and the provinces of Mendoza and San Luis in the fight against COVID-19. For example, we have taken extraordinary steps to ensure that an additional of 136,000 people that are receiving the government COVID-19 related emergency social assistance Can rely on the national ATM network. In addition, we have also made donations to social organizations dedicated to purchasing medical equipment and supplying food for the most vulnerable communities in our main markets. Now turn to slide four for an update on our digital transformation. 19 pandemic and measures established by the regulator and government to contain the spread of the virus have accelerated the adoption of digitalization in a traditional cash-oriented culture. As a reminder, branches reopened for specific customers on April 3rd, while financial services deemed essential on April 13th. Since then, bank branches have all been allowed to open gradually for specific transaction with prior appointment and complying with certain health and safety requirements. All other banking activities have been performed through digital means. Simultaneously, in the current low-touch economy, we are rapidly executing on our digital transformation strategy and introducing new functionalities across our business segments while keeping Best in Class Cyber Security Standards. This has driven strong growth in digital and automatic transactions across our company. Starting with our banking operations, as you can see on the top of this slide. The share of home banking and mobile banking transactions so, sequential increases of over 50% and 70% respectively. Automatic transactions, including ATM and cash dispensers, accounted for 61% of total transactions, keeping a sustained trend. We're currently conducting pilots at selected branches to expand self-service areas. In total, 94% of transactions this quarter were conducted through our digital and automated channels. By contrast, transactions at traditional tellers Thank you very much. E-checks increasing rapidly to a total of 4 billion pesos in July. We are also pleased with the significant adoption observed in our E-factoring product. We are also seeing rapid adoption in our consumer finance business since we added new app functionalities beginning last February, both in terms of mobile payments and digital onboarding. Finally, our online broker, Invertir Online, experienced a spike in usage with new accounts increasing over 150% when compared in July with the levels observed in February and transactions more than tripling during that period. Please turn to slide five. You can see the use of digital channels has continued to accelerate significantly across customer segments between February and July. Growth rates are doubling to tripling in some channels and in other channels we are reporting ever even higher increases. For example, use of our dedicated senior citizens app would face recognition more than double as we have been actively promoting the accelerated adoption of digital channels among this group of customers. Also, personal mobile banking usage tripled. As this low The Argentine economy appears to be rebounding somewhat following the sharp drop in industrial production recorded in March and April. Monthly industrial production advanced sequentially in the low teens in May and June Driven by the gradual relaxation of social distancing measures and other healthcare protocols, along with the combined effects of stimulatory, fiscal, monetary, and credit measures. Other sectors like construction, cement, and vehicle production also saw improved performance. However, the pace of the recovery remained uneven, with economic sectors that are dependent on close contacts, particularly services, continuing to struggle. With labor market conditions significantly deteriorated, consensus expectations and hours currently call for a contraction in GDP of 12.5% for 2020. These dynamics have put pressure on expected inflation, while monthly inflation remains at low levels in the quarter, kept in check by the lengthy lockdown. In this context, monetary policy interest rates have remained relatively stable throughout the quarter at 38% since dropping to 40% in March, down from 55% last December. Finally, the Argentine government debt agreement with private creditors is a significant step. This clears the way to start negotiations with the IMF. as a further step towards normalization of fiscal and monetary policies. Now, please turn to slide seven for a review of the financial sector trends. Note that in the next two slides, covering system loans and deposit, we are presenting figures as published by the central bank, which are in nominal terms. Industry loans to the private sector grew above inflation sequentially. Peso-denominated loans were up nearly 15% quarter-on-quarter, mainly driven by SME loans at preferential rates. In turn, U.S. dollar system loans in original currency maintained a trend observed over the past few quarters, declining nearly 20% sequentially. Our total loan book was up 8% sequentially in line with the system growth before adjusting for inflation. Moving on to system deposits, liquidity remains high both in local currency as well as in U.S. dollar deposits. Argentine peso deposits increased above inflation on a sequential basis up 25% while U.S. denominated system deposits were down nearly 8% in original currency.