Grupo Supervielle S.A.

Good morning everyone and welcome to the Grupo Supervielle second quarter 2021 earnings call. This is Ana Bartesaghi, Treasurer and IRO. A slide 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 the 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 questions, 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. Speaking during today's call will be Patricio Supervielle, our chairman and CEO, and Mariano Biglia, our 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 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. Therefore, all results in this presentation are adjusted for inflation as of June 30, 2021, unless otherwise noted. In addition, following the retrospective application of the Central Bank Communication A7211 effective January 1st, 2021, figures for all quarters of 2020 have been restated. For your convenience, our earnings report filed yesterday after market close also includes managerial results in nominal terms. 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. Today, Mariano Biglia, our CFO, will start the call discussing our performance for the quarter and our near-term outlook. Patricio Supervielle, our chairman and CEO, will follow with an update on our mid-term strategic initiatives.

Thank you, Ana. Good morning, everyone. Thank you for joining us today. Please turn to slide four of our earnings presentation. We are navigating recessionary environment with activity in the quarter, further penalized by the second wave of COVID-19, resulting in system loan demand growing below inflation and remaining at historical lows. Central bank regulations for volumes and prices of banking assets and liabilities have also been putting significant pressure in NIM in past quarters. These, together with higher turnover taxes, along with increased loan loss provisions after the deferral programs finalized last March, resulted in a net loss of 318 million pesos and negative ROE of 2.8% this quarter. For the first half of the year, and excluding non-recurring severance charges, we will have reported a net income of 643 million pesos and ROE in real terms In terms of efficiency, our comparable efficiency ratio, excluding non-recurring severance payments and early retirement charges, deteriorated to 72% from 66% in the prior quarter. This mainly reflects a nearly mid-single-digit decline in revenues, while comparable total expenses were relatively flat. Looking at the first six months of the year, when excluding non-recurring charges, comparable expenses were down 6%, while personal expenses dropped 9% year-on-year. Finally, we maintained strong liquidity and a solid capital base, closing the quarter with a Tier 1 ratio of 14.3%, up 50 basis bonds sequentially. Now, turning to our strategic initiatives. To deepen our commitment to long-term value creation, Patricio will discuss shortly how we are advancing on our digital transformation agenda. Moving on to our loan performance on slide 5. Our loan book posted a slight sequential contraction reflecting poor or weak credit demand. The peso loan portfolio remained relatively stable sequentially as a decline in the retail loan portfolio was partially offset by financing to corporates and mandatory SME lines. Consumer finance loans increased mid-single digits sequentially, although we maintain tight credit scoring standards in underwriting policies. Finally, U.S. dollar loans in original currency were up 5% sequentially. Note that government mandatory credit lines accounted for 10% of our loan portfolio. have 100 basis points sequentially and includes close to 14 billion pesos in SME loans at preferential rates. Turning to funding on slide six. Equity remains solid. The loan-to-deposit ratio continued to contract this quarter, reaching a record low of 53%. Peso deposits rose in the low single digits sequentially driven mainly by seasonal increase in core retail deposits following the 50% payment of the 13th salary in June. Note that average balance of peso deposits posted increases of nearly 12% year over year and over 5% sequentially. Dollar deposits in original currency were up 4% sequentially, accounting for slightly over 12% of total deposits compared to 13% in the prior quarter. Now moving on to the P&L on slide seven. Peso NIM stabilized at 18.7% after contracting several consecutive quarters pressured by regulatory controls and the recessionary macro. The bottom right chart shows how the share of average Peso loans over total average Peso interest earning assets has compressed since the highs of 85% In the first quarter of 2018, two levels of 46% this quarter, negatively impacting total need. Net financial income increased sequentially in the low single digits to 11 billion pesos, mainly reflecting increased volumes of central bank lilies, together with higher yields and volumes of peso government bonds. Loan repricing, including the new government mandatory credit lines, granted to SMEs at preferential interest rates also contributed to offset over a week loan demand. Moving on to asset quality on slide eight. Loan loss provisions net were 1.7 billion pesos up from 1 billion pesos in the prior quarter with cost of risk net rising to 5.7%, although below 2020 levels. Higher delinquency in retail loans observed since the lifting of automatic deferrals in March resulted in higher provisions this quarter. Taking a conservative stance, we did not apply the COVID-19 anticipatory provisions created in 2020 to these loans. At quarter end, COVID-19 anticipatory provisions amounted to 2.4 billion pesos versus 2.8 billion pesos as of March 31st. The top right chart of this page depicts our total provisioning ratio, which increased to 7.2% in June from 6.9% in March. The MPI ratio increased quarter-in-quarter by 40 basis points to 4.4%, driven by credit cards after the end of the grace period and the mandatory reclassification of customers performing with Supervielle but not performing with other banks. By contrast, we observed an improvement in corporate NPLs. On slide nine, we provide an update on our loan performance and asset quality for July. Keep in mind, this is management information. In terms of asset quality, NPLs for July increased to 5.5% from 4.4% in the second quarter, mainly driven by retail customers and to a much lesser extent by corporates which reflects a single fully collateralized loan that was reclassified as NPL for the wind central bank regulations. Fortunately, 80% of our non-performing commercial loans are collateralized. Now on slide 10. While guidance remains suspended due to the continued limited visibility ahead, On slide 10, we share our views on the main drivers of the business for the remainder of the year. Basically, nominated loans, which are today's historical lows, are expected to grow below inflation for both commercial and consumer loans. At the same time, we see deposits growing above inflation, but dampened by FX restrictions and interest rate flows and time deposits. Note, the mix has been changing with non-remunerated Thank you very much. We expect cost of risk to be below 2020 figures, but above the historical average in line with our expected loss models. With respect to margins, short-term NIMs remain pressured by several factors. Weak credit demand, the impact on cost of funds from the forward interest rates on time deposits, and subsidized rates on loans. Personal and administrative expenses are likely to grow above inflation, Thank you very much. to remain at comfortable levels supporting long-term sustainability. As I mentioned earlier, note that 100% of our capital is hedged against inflation. Now let me turn the call to Patricio Supervielle, who will provide an update on our strategic initiatives. Patricio, please go ahead. Thank you, Mariano.

You've heard Mariano address our financial results and expectations for the remainder of the year as we navigate a challenging backdrop characterized by three years of economic recession, further deepened by the pandemic, which drove industry loan demand to historical lows. As Mariano also discussed, increasing central bank regulations on budgets and prices of banking assets and liabilities since 2018 have continued to put significant pressure on me. At the same time, the pandemic accelerated digital adoption and remote working. In this context, we decided to accelerate our transformation program and increase efficiencies, prioritizing long-term value creation. We are working on three key fronts. First, accelerating the digital and operational transformation at Banco Supervielle. Second, Udo, our consumer finance subsidiary, is building a full digital banking service. Third, diversifying revenue regeneration beyond Argentina. On the next few slides, I will provide greater visibility on this transformation. In the exhibit at the back of our earnings call presentation, you can find additional information on the progress of our digital KPIs. and as well as a more detailed description of these initiatives and timeline. Moving to slide 12, let's start with our strategy of accelerating the digital and operational transformation of the group. Our goals are twofold. On the one hand, we seek to expand our clan base while retaining loyalty and primary banking relationship remain in a solid position when demand resumes. At the same time, we expect to accelerate cost efficiencies while preserving an 11% tier one ratio by 2024. These goals run investments of approximately 20 billion pesos in real terms of which close to 8 billion pesos are anticipated to be deployed this year Slightly over 7 billion pesos next year and 4.5 billion pesos in 2023. Note this does not include investments in the regionalization initiatives, which I will discuss briefly, starting with the transformation of Banco Supervielle. First, we are executing our IC strategy, adding APIs to Accelerate Digital Development and Time to Market, a data lake to become a data-driven enterprise and migrate into a hybrid multi-cloud to provide us with the required flexibility to grow efficiently. We are advancing at full speed to transform the journeys of our customers into a superlative experience. Second, our branch network has been transformed using best-in-class technologies to facilitate self-service banking and expand SMEs reach with the vision of everywhere and anytime banking. Third, we are right-sizing our branch network and accelerating headcount efficiencies. Fourth, we are moving towards a hybrid work-based model optimizing our real estate infrastructure and providing for more flexibility among our colleagues. In this sense, we are gradually reducing rental space in our corporate headquarters with the resulting cost savings of $5 million over the next three years. We expect that these efficiency measures will be repaid in 24 to 30 months through cost savings and revenue growth when demand resumes. Please turn to slide 13. In terms of the transformation of UDO, our consumer finance divisions, our goals are to offer the best digital banking mobile platform for retail customers while stepping up revenue, free revenue growth and lowering cost of funds by attracting retail deposits. The launch on August 15 of UDO's mobile We have an attractive pipeline for the next six months with a planned edition of payment, wallet, insurance, investment products, U.S.-denominated accounts, and well-being services. This move also allows us to target high-income customers looking for digital-only banking services. Importantly, We recently renewed the financial services agreement with the Denarvaez Group, which acquired Wallmet Operations in Argentina under more flexible conditions. Now, please move to slide 14. In terms of diversifying revenue origination beyond Argentina, we plan to approach this through two businesses, starting with our broker, The goal is to offer US investment products to select countries in Latam, excluding Brazil, through mobile apps and online applications. Our subsidiary in Uruguay has recently submitted a request for approval from the central bank to operate as a digital securities broker. In the next 12 months, we expect to launch a mobile-first investment marketplace and to gradually expand in key countries of the region where access to online trading in the U.S. market is limited to high-end customers. This initiative will be fully financed by funds at the subsidiary. In addition, this month, our board of directors also approved the crypto strategy we plan to deploy in the region, again tapping unsatisfied market needs. YOL Invertir Online aims to offer the possibility of buying and selling cryptocurrencies to customers through a wallet, concentrating stock and crypto asset investments in the same platform. This service will be offered to individuals in Argentina, which are the core of current YOL business and will be powered by a third party. Now please turn to page 15. The other business that will spur our geographical diversification is Udo Servicios, for which we will deploy well-being and health services under the B2C or B2B2C format in certain countries, in Latam excluding Brazil. We aim to leverage over 15 years of successful experience as a leading service aggregator and marketeer of non-financial services in banking industry in Argentina. These services provided by third parties seek to tap unmet demands in health, dentistry, ophthalmology, among other areas that contribute to the well-being of our customers in their everyday lives. As of today, we have reached agreements with two world-class healthcare providers present in the region, one of which we have been working with in Argentina for many years, and we plan to continue adding services over the next month. In closing, we expect near-term profitability to remain impacted by overall weak demand and pressure on needs, coupled with the required costs and investments of the transformation strategy. We are stepping up our transformation strategy to meet and anticipate the new banking and wellness demands of our clients, while also attracting new digital clients. We are aggressively pursuing cost savings opportunities While offering flexibility to our workforce through a hybrid working structure and have set in motion strategies to expand and diversify our revenue streams beyond Argentina. With a comfortable capital position, we expect to achieve our ambitious goals. Now we are open to the questions.