Grupo Supervielle S.A.

Good morning, everyone, and welcome to the Grupo Supervielle fourth quarter 2020 earnings call. This is Ana Bartesaghi, treasurer and IRO. A slight presentation will accompany today's webinar, which is available in the investor section of Grupo Supervielle's investor relations website, gruposupervielle.com. Today's conference call is being recorded. As a reminder, all participants will be in listen-only mode. There will be an opportunity for you to ask questions at the end of today's presentation. If you want to ask a question, you need to be connected to a Zoom platform from any device. We will not be able to take your questions if you are connected from a phone line. Also, please make sure your name and last name appear in the Zoom platform you are using. To ask a question by voice, please press the raise your hand button located in the Zoom platform. To withdraw your question, press raise your hand again. You can also send your questions in written form via the Q&A box in the Zoom platform anytime during the call. We will ask you to limit yourself to one question and a follow up, and then you can raise your hand again in another round. Speaking during today's call will be Patricio Supervielle, our chairman and CEO, and Mariano Biglia, our chief financial officer. 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 Norton, board member of several of Grupo Supervielle subsidiaries, will also be joining us for today's call. All will be available for the Q&A session. Note that starting first Q20 as per central bank regulations, we began reporting results applying hyperinflation accounting in accordance with IFRS rule IAS 29. For ease of comparability, we have restated 2019 results to reflect the effects of inflation adjustment. Therefore, all results in this presentation are adjusted for inflation as of December 31st, 2020 and Les, otherwise noted. For your convenience, our earnings report filed yesterday after market close also includes managerial results in nominal terms as well as more details on hyperinflation accounting. 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 Thank you very much. I would now like to turn the call over to our chairman, Patricio Supervielle.

Again, thank you, Ana. Good morning, everyone. Thank you for joining us today. Starting with our financial performance on slide three on our earning presentations. In a complex scenario, we continue to balance risk and profitability by managing the credit cycle and excess liquidity through assets and liability management. We achieve... Low double-digit comprehensive return on average equity in real terms during the year, notwithstanding the many challenges posed by the pandemic, a recessionary macro that deepened during the year and a shifting regulatory framework. Return on average... Return on average equity reached 9.9% for the year and was lower at 7.4% in the quarter as pressure from higher cost of funds resulting from the floor on time deposits, interest rates and subsidized rates on loans resulted in a name contraction while regulatory controls continue to impact fees. Throughout the year, we consistently increase our coverage ratio. which reached 192% at year end from 83% in the prior year end quarter reflecting a conservative stance on risk management. We also continue to review our expected loss models and are closely monitoring our loan book and risk models to adjust accordingly as the situation evolves. Excluding one time charges related to some severance charges in the quarter, the efficiency ratio Thank you very much. Strong liquidity levels and a solid capital base with a tier one ratio of 13.8% positions as well to advance on our initiatives. Now turning to our strategic initiatives. In parallel, we have been executing our transformation strategy with the goal of driving sustainable growth as demand resumes while enhancing our current competitiveness. Specifically, this includes advancing on our digital transformation, evolving our service model in our branch network, and adding API capabilities to connect to third parties. I will discuss this in more detail shortly. As you can see on slide three, sustained digital adoption continues across our business. To give some color on the progress we are seeing, for example, Monetary transactions at non-automated banking tellers declined sequentially to a historical low of 5.5% from the 19% seen prior to the pandemic, while mobile more than doubled its share during the year accounting for 11% of transactions in the fourth quarter. Adoption of e-checks was up 44% sequentially while use of e-factoring continued to grow as SMEs continued to rapidly welcome digital banking. In consumer finance, new app functionalities added early in the year are being well received with mobile payments and digital onboarding expanding consistently throughout the year. Lastly, We continue to see good traction on our digital online broker, which saw a total of 134,000 new accounts opened during last year, more than doubling the number of accounts opened in the previous year. In turn, DART, that is daily average trading revenue, revenue trading, reached nearly 24,000 in the fourth quarter, up from less and 11,000 in the same quarter of the prior year. Now moving on to our branch transformation initiative on page four. We are very encouraged with the successful results from the service model pilots we have been carrying out since last August. This includes one pilot with a value proposition for SMEs in areas of our network where we see potential, Another pilot where we are expanding self-service areas targeted to senior citizens, building on our biometric technology, and a third one which is a 100% self-service model. These pilot programs are demonstrating significant improvements on several fronts. As shown on the top right chart, transactions through human cashiers are migrating at a much faster pace to the online and automatic channels in these free pilots, vis-à-vis our senior citizens' dedicated network. In just five months, the share of transactions at Human Tellers fell significantly from a range according to branch location between 14 to 28% in late August to a range between 5 to 6% in December. For the comparable network, In the same period, the share of transactions at human tailors declined from 23% to 17%. We achieved an average increase of 35 percentage points in the net promoter score in these three pilots, with one location posting an even higher improvement. Our newly expanded 24-hour service lobbies helped increase Self-service transactions. Importantly, we saw a drop in customers operating inside the branch lobby vis-a-vis the 24-hour lobbies, with more customers operating outside of branch service hours. We're also pleased to see that our strategy to broaden our service offerings to better reach SMEs resulted in early indication of higher performance for this cluster. Following these successful results, we plan to start scaling up these new formats across our branches during the year. This will include investment in construction works and IT with an expected payback period of between 30 to 36 months. Please turn to slide five. During 2020, we implemented agile at scale the operating model Consolidating Agile Methodologies and Processes At the same time, we deepened the customer-centric cultural transformation across the company. We have organized the company into individuals, corporates and SMEs and payments, with customer service and omnichannel cutting across end-to-end interactions or experiences. These sets of experiences are managed by empowered squads as part of a tribe that works to enhance the Supervielle customer experience. Agile transformation offices aims to guarantee the alignment to the bank's strategic objectives and to scale agility across our organization, ensuring the customer centricity at all times. This is supported by centers of excellence that Distribute talent, resources, and knowledge to each squad so that they can carry out their purpose based on the best practices of each discipline. Now, please turn to slide six for a quick overview of our business and IT capabilities, which is based on three pillars. The first one is strengthen and modernize our core banking system. The second pillar is to speed up deployment of our omnichannel strategy Modern IT Architecture, including APIs to accelerate transformation, connect to third parties and prepare for open banking. And lastly, our third pillar is be prepared for the future, including leveraging digital marketing and artificial intelligence capabilities, as well as cloud services. During 2021, we plan to make capital investments of Total 4.2 billion pesos, of which 3.1 billion will be applied to deploy a digital transformation strategy and 1.1 billion to start scaling up the service model pilots across the branch network. Our goal is to offer our customers a human banking experience that combines the use of technology with our staff assistance to provide our customers the best of both worlds. Please turn to the macro on slide 7. Following a macro contraction of 10% in 2020, we see the economy beginning to rebound, benefiting also from a statistical carryover of 6%. Favorable external conditions also offer some tailwinds for the year, particularly as higher prices for agricultural commodities continue strengthening The Trade Balance, where the government continues to show signs of fiscal restraint. These provide a solid foundation for real GDP to expand above 7% in 2021. The recovery, however, is still subject to advances in the vaccination program to contain the health crisis and the resumption of IMF negotiations. While inflation for 2020 dropped 17 points year on year to 36%, Month inflation has deteriorated since last August and we anticipate it will increase to approximately 48% this year. The gap between the blue chip rate and the official exchange has somewhat contracted, although it still remains at high levels, while interest rates remain unchanged with seven days repo rates at 36.5%. Let me now turn the call to Mariano Biglia, our CTO. Please, Mariano, go ahead.

Thank you, Patricio. Good day, everyone. Please turn to slide eight. Our loan book in the quarter contracted sequentially by nearly 4% on the back of sustained over-week demand while we maintained prudent lending and focused on profitability in this uncertain context. Peso loans were flat sequentially as growth in credit card loans were offset by lower corporate loans. Dollar-denominated loans in original currency contracted as some large corporates paid down their dollar loans in line with the over-industry trend. Government-sponsored loans at preferential rates remained unchanged sequentially at 10% of our loan portfolio at year-end. This includes nearly 11 billion pesos in SME loans at preferential rates, of which 4.5 billion pesos were in short-term factoring transactions that are fully guaranteed by Fogar. Now looking at funding on slide nine. We closed the year with strong liquidity levels, both in pesos and dollars. The loans to deposit ratio remains at historically low levels of 62%. Average balances of peso deposits increased nearly 78% year over year and nearly 1% sequentially. Total peso deposits at year end declined nearly 7%. While core deposits in pesos remained flat sequentially, we delivered the balance sheet by reducing institutional funding to preserve financial margin. Dollar deposits in original currency rose 3% during quarter, representing only 14% of total deposits in line with the outflow of dollar-denominated deposits observing the industry. Turning to the P&L on slide 10. Net financial income was down 15% sequentially to 9.3 billion pesos. We saw a sequential name compression of 170 basis points during the quarter to 19.5% as higher cost of funds from the floor on the rate of time deposits along with higher market interest rates reduced spreads. Increased volumes of loans granted to SMEs at preferential interest rates together with increased volumes on credit cards from government-sponsored programs also contributed to name compression. Now, moving on to asset quality on slide 11. Loan loss provisions amounted to 1 billion pesos in the quarter, down 67% sequentially. We continue to revise our expected loss models, including additional macro variables and updated top-down analysis of some industries that could be more susceptible to the pandemic. This re-evaluation did not lead to an increase in COVID-19 specific provisions in the quarter, which stood unchanged sequentially at 2.8 billion pesos at year end. The ratio of total provisions to total loans declined to 7% from just over 8% last September. A breakdown of this ratio by key customer segment is shown on the top right chart. The NPL ratio declined 80 basis points to 3.7% in the quarter, mainly due to the write-off of atomized consumer loans in the personal and business banking segment, reflecting our policy of writing off delinquent loans at 270 days. We also continue to increase coverage in the quarter, reaching nearly 192% in the fourth quarter from 183% in the prior quarter. MPLs and coverage ratios benefited from the relief programs established by the central bank, which allows debtors to reschedule their loan payments with grace period beginning to expire starting this coming April, and to a lesser extent from the regulatory easing on debtor classification during the pandemic. Excluding regulatory easing, coverage increased to 184% in December from 158% in September as we continue to refine our models and conduct top-down industry analysis. We will continue to closely monitor events and make appropriate adjustments as required to our risk models. As shown on slide 12, our loan book maintains a well-diversified industry exposure. Agribusiness and food beverage, which comprise a large share of our portfolio, continue to perform well in this environment. At the same time, we have further reduced our exposure to higher risk sectors, which accounted for less than 9% of our portfolio from 13% in the prior quarter. Moreover, loans to the highest risk sectors have guarantees exceeding 60%. At the same time, Over 40% of our commercial loan portfolio is collateralized, while collaterals on non-performing commercial loans increased to 80% from 78% in the prior quarter. Importantly, loans to lower risk payrolls and pension clients accounted for 72% of our total loans to individuals at the bank level. Now please turn to slide 13 for some brief remarks on our perspective for the year. While guidance remains suspended due to the limited visibility ahead, on this slide we share our overall views on the key business drivers for 2021. We expect to see loans and deposits growing above inflation. Loan growth will largely depend on the size and strength of the economic rebound, advancing the vaccination program along with consumer and investor confidence. We expect loan growth will come first from export-oriented industries, particularly agribusiness. This is supported by the world economic rebound, including Brazil, and increased commodity prices. Visibility, however, still remains low. Deposit growth, in turn, should be supported by foreign exchange market restrictions and the regulatory floor on interest rate pay-to-time deposits. In terms of asset quality, we could see a potential deterioration in MPLs during the second and third quarters of the year after grace periods from the rescheduled loans begin to expire in April. That moment will reflect more accurately the behavior of our clients in terms of their payment capacity. While we feel comfortable with the current level of provisions, these could be revised upwards if economic conditions were to worsen. This is mitigated by our present approach to lending and the strength of our portfolio. Cost of risk, in turn, is expected to be below 2020 levels. We expect NIM to remain pressured by higher costs of funds resulting from the floor on interest rates on time deposits and subsidized rates on loans. Also, we expect fees to grow in line with inflation. Despite regulations limiting repricing until March this year, and some regulatory caps in place for credit card commissions and ATM fees for 2021, the bulk of our fees to individuals, mainly bundles of banking services, are not affected by regulations. Fees on loans will depend on the overall economic context. In terms of expenses, salaries are anticipated to grow with inflation and we will continue to exercise strict control on requiring costs. While investments in accelerating our digital transformation strategy and the revamping of some branches will result in some temporary increases in costs, this will contribute to enhanced efficiency in the longer term. Higher turnover tax rates, along with a recent extension of the turnover tax to LELICs and REPOs in the city of Buenos Aires, should also affect expenses. To conclude, We expect capital and liquidity to remain at adequate levels underscoring long-term sustainability. Now we are ready to open the call for questions. Ana, please go ahead.