Grupo Supervielle S.A.

Ana Bartesaghi, Trasher and Arrow Today's conference call is being recorded. As a reminder, all participants will be in listen only mode. If you want to ask questions at the end of our presentation, you need to be connected to a Zoom platform from any device. We will not be able to answer questions if you are connected from a phone. Also, please make sure your first and last name appear in the Zoom platform you are using. You will be able to ask a question by voice or send questions in written form via the Q&A box in the Zoom platform anytime during the call. Speaking during today's call will be Patricio Supervielle, our Chairman and CEO, and Mariano Biglia, our Chief Financial Officer. Also joining us is Alejandro Stengel, Fairfax Chairman of the Board and CEO of Banco Supervielle. All will be available for the Q&A session. As a reminder, today's call will contain certain forward-looking statements based on management's current expectations and beliefs and subject to severe risks and uncertainties. I refer to the forward-looking statements 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. Patricio, please go ahead.

Thank you, Ana. Good morning, everyone. Thank you for joining us today. I will begin my presentation with slide three. In a challenging macro environment and pleased with the result we have delivered, we reported record high return on average assets. And return on average equity of 27% in real terms in the fourth quarter contributed to return on equity of 17% for the full year. Operating in a complex environment characterized by high inflation, market volatility, and weak loan demand, we prioritize profitable loan origination and asset quality while leveraging agile assets and liability management capabilities, which contributed to an unusually high NIM, which continued into January. In this context, Total assets declined 5% year-on-year, while the loan book, including off-balance sheet items, contracted 25%. Deposits, in turn, outperformed the industry as we attracted a higher share of low-cost corporate side deposits towards year-end. Asset quality improved further in quarter, with the NPL ratio reaching a record low of 1.2% by year-end. A third year, A healthier loan mix reflecting a shift in loans to middle market, corporate and payroll customers where we have reciprocity with our transactional products together with significantly lower exposure to consumer loans and tighter credit scoring during the year contributed to this improvement. During the year, we continue to develop our operating model by deepening empowerment of our customers As we move forward, becoming an increasingly digital bank, we continue to enhance our service model, improving digital, virtual, and automatic channels while transforming our branch network to deliver higher-value transactions to customers while boosting cross-selling We have a strategic position to navigate the current challenges with confidence. A strong capitalization which is fully shielded against inflation provides us with a solid foundation while our long book is exposed to highly attractive export-oriented sectors such as oil and gas, mining, and agribusiness. With this resilient framework in place, we are prepared to drive robust expansion once the economy stabilizes and resumes its growth trajectory. Now let me show you the progress we have achieved to date across different fronts of our organizations and our key priorities for the year. Enhancing the customer experience has been a key initiative which has The share of digital customers expanded by 10 percentage points to 62% by year-end. Only 13% of our customers transacted through our branches last December, reflecting digital adoption. Our digital wallet continues to gain traction with the number of transfers more than doubling to 7 million while posting increase of 10 times in QR code payments and 84% in bill payments. In this Inversión Rápida disrupted the retail value proposition In the banking industry by allowing customers to invest 24-7 in money market funds and safeguard them against inflation. This contributed to year on year increases of nine times in the number of retail clients investing in our money market funds and assets under management expanding seven times in nominal terms. As we look to the current year, We will remain focused on further increasing share of wallets from existing retail customers, prioritizing profitable products, driving high engagement and cross-sell. Now moving to the corporate segment on slide five, where we expanded the number of entrepreneurs, SMEs, and middle markets clients by 5% over the last 12 months. We are seeing and many others rolled out during the year. Notably, by year end, digital transactions by SMEs accounted for 93% of factoring, 72% of commercial unsecured loans and 52% of overdraft just months after making them available. Our efforts to capture share of wallet are also paying off as we increase cross-sell while improving NPS across all segments for the second consecutive year. The penetration of insurance policies sold to entrepreneurs and SME customers increased to 10% from 7% a year ago, while the renewal rate increased close to 90%, underscoring customer retention. We gained further share in side deposits during the year, up 43 basis points to nearly 2.4%, and continued to expand foreign exchange transactions Foreign exchange transactions are gaining over 130 basis points in market share to 4.8%. Noteworthy, we were recently recognized by Euromoney as the best trade financed Argentine bank. During the year, we will continue to work towards attracting new clients. Expanding our base of SME and middle market customers and driving loan growth as demand resumes. Additionally, we will continue to drive high penetration cash management as we pursue our goal of becoming our customers' principal bank, further contributing to expand sustainable funding. Please turn to slide six. Invertit Online, your online broker, continue to drive strong free growth We have achieved remarkable year-on-year growth across all key KPIs, underscoring our ability to attract and retain customers. Monthly active users increased by five times to over 230,000 new accounts by three times The ease of use of our app, evidenced by our high ratings 4.6 in the Play Store and 4.8 in the App Store, is a contributing factor to this growth. We are excited about the promising opportunities that lie ahead. Our primary focus for the year encompasses First, we're rolling out our crypto offering through our partnership with Ripio as we further expand access to non-traditional financial services securely and simply enabling customers to buy, sell and save the main cryptocurrencies. Second, complementing our local offering as regulations are lifted, we plan to escalate the offering of U.S. And lastly, we're also working on expanding our product offerings for SMEs. With this, let me turn the call to Mariano. Please, go ahead.

Thank you, Patricio. And good day, everyone. Please refer to slide seven for an overview of our performance for 2023. Net income increased and many more. In the last two years, the company's revenue growth was mainly driven by revenue growth combined with lower operating expenses and low-loss provisions. With respect to revenues, net financial income was up 44% I will discuss this in more detail shortly. Finally, higher taxable income resulted in a 45 billion pesos increase in the income tax charge for the year. Net financial income increased sequentially by nearly 65% to 193 billion pesos, reflecting unusually high yield on lower investment portfolio volumes, combined with low repricing and a decline in the average leverage ratios. Moving on to page 9. Service fee income, excluding insurance activities, declined nearly 6% sequentially, lagging at 53% inflation. Nevertheless, we continue to see strong performance at IOL, which accounted for 22% of Moving on to slide 10, robust NIEM contributed to further improve the efficiency ratio of 43% in the fourth quarter from 52% in the prior quarter. This sequential improvement was mainly driven by revenue growth of nearly 57% above the 16% increase in expenses Our efforts to become an increasingly digital bank have led us to enhance our service model, improve digital channels and transform our branch network. Throughout 2023, we consolidated a total of 28 branches, reducing our branch count from 183 in 2020 to 137. This consolidation, along with an additional 4% reduction in staff, has allowed us to advance digital adoption and increase the number of customers per branch by 17%. These achievements, combined with strong revenue performance, drove the improvement in our efficiency ratio. Turning to slide 11. We further strengthened our capitalization in the quarter, expanding our tier one ratio by 417 basis points, sequentially to 21% at year end. Higher capitalization was mainly driven by strong results, risk with assets growing below inflation, and tax efficiencies for the merger of U2 into the bank. Turning to slide 12. Looking ahead and from a big-picture view, President Millet remains committed to achieving fiscal surplus and introducing significant structural reforms. Following the 100 basis of devaluation in December, central bank reserves began to improve while achieving a financial and commercial surplus in January. Inflation in turn has started to decline in a recessionary context. Challenges ahead At his address to Congress on March 1st, President Milley reaffirmed his libertarian agenda and invited governors and political forces to join a national pact around ten state policies, aiming to create stable rules for the development of Argentina. Turning to slide 13, and a contraction in GDP of 3% as per the Central Bank's Market Expectations Survey published in February. The most recent survey published yesterday considers a slightly lower inflation at 210% and GDP contracting to 3.5%. Peso loans are expected to grow slightly above inflation, with credit demand recovering gradually in the second half as inflation eases and interest rate regulations are lifted. Peso deposits are anticipated to grow slightly above inflation. Again, here we expect to see a decline in the first half, more than offset by a recovery in the second half of the year as inflation recedes. In terms of asset quality, We expect the NPR ratio to remain at low levels but above the historical low reported in December as we resume growth. Cost of risk is expected to remain at 2023 levels or higher. We anticipate NIN to remain at high levels with a decrease in trend as inflation eases. In terms of fee income, the bulk of bank fees to individuals are expected to reprice in line with inflation. In terms of profitability, ROE is expected to remain strong in the first quarter as we continue to see good results from our investment portfolio as observed in January. This followed by a more challenging second quarter as we expect negative interest rates will remain. For the second half of the year, we expect ROE to benefit from lower inflation and lifting of punitive regulations. In sum, for the full year, we expect ROE of approximately 10%. Lastly, we expect strong capital levels, 100% hedge against inflation, supporting long-term sustainability. Tier 1 capital

Thank you, Mariano. At this time, we will be opening the Q&A session. Remember, to ask a question, you need to be connected to a Zoom platform. To ask a question, please press the raise your hand button or you can send it in written form through the Q&A box. The first question Rodrigo Nistor from Latin Securities. Hi Rodrigo, how are you?

Hi, good morning. My question is focusing on 2025. How has the recent change in your strategy prepared the banks for the growth that should come in the future once the economy has stabilized? I mean, where do you think you will be able to capture growth in the future? Thank you.

Good morning, Rodrigo. Thank you for the question. Well, we believe that 2024 is a transition year coming from 2023 where we had strong financial gains and and more operating games with the franchise starting from 2024. Remember also that we ended the year with a strong capital We see that there is a potential for, there is already a demand. We've seen demand from dollar loans from particularly in export industries. And this is something that we believe that will grow. We see demand for peso loans, but fixed rates with a certain duration, like a year duration. This reflects the expectations of a decrease in inflation in the market. and also expectations that the foreign exchange is starting to be in better shape in the central bank. With inflation receding and going down, there will be other types of loans We believe that this year 2024 will be a year for enterprises, so we will focus more on enterprises. We expect the revenue to focus with the expansion of our PFM platform. But we will be cautious on the credit size with individuals because they were hit by the purchasing power with all the high inflation. And that was a feature that was already going on in the past A couple of years and particularly if the heat was quite important in terms of purchasing power at the end of 2023. So we will remain cautious but we plan to be quite aggressive on car financing and we launch a new product which is very successful which is attested by inflation in car financing. In sum, we plan to be commercially aggressive and to resume growth as soon as the loan demand starts. And we believe that by the end of the, if inflation starts to go down and continue to go down, we believe that growth could be coming Maybe it's the second half of the year, maybe the end of the second quarter, and we are ready for that growth.

Do you want to answer? Okay, thank you very much. That was really clear. Thank you.

Thank you, Rodrigo. We have a question now from Marlon Medina, JP Morgan. Hello, good morning, Marlon. Thank you for your question.

Hello, good morning, Patricio, Mariano, Alejandro, and Ana. Thank you for the opportunity to ask questions. My first question is on IOL. I think it's becoming a nice tailwind for the bank. So I don't know if you could dive a bit deeper on today, what are the main products that you offer? I understand that you mentioned crypto and US products, but more for the future. But today, what's the main product that IOL offers? and also are the IOL fees, are you able to reprice them or do you also need regulatory approval for repricing? And a second question as a follow up on the loan question, what level of inflation should trigger this better demand? Like under which level do you see demand like more, improving more materially? Thank you.

Okay. Maybe you can help me with IOL, but my answer for IOL in Bertino 9 is that basically it's a digital brokerage house, so we are offering a full suite of all the brokerage services. What has driven last year were mainly... and other investment products for enterprises. We believe that there will be a transition. We already start to see in the first few months of 2024 more brokerage fees. So we hope to replace Dollar Map with more brokerage fees. And also there will be a lot of focus on enterprises because we believe that enterprises, there is a market for

Aspen Sima, EFT Online. Do you want to add something? Simply that we're also seeing a renewed interest on the crypto and this, I think, would be an interesting growth avenue going forward. Particularly lately, there's been a lot of

Thank you very much. And regarding fees, YOL doesn't need an authorization to increase fees. And most of the fees it charges are stated as a percentage of the assets traded. So if with inflation or devaluation, The level of inflation that could trigger loan demand, we believe when inflation goes down, Thank you very much. Thank you, Marlon.

We also have a question from Carlos Gomez Lopez from HFDC. Hello, good morning, Carlos. Thank you for your question.

Thank you very much and thank you for answering our questions. First, congratulations on the results and congratulations on the increase in the capital ratio. That's very good news. Going into 2024, to what extent do your earnings depend on the level of interest rates? And do you think you can have positive earnings through the year if inflation remains at the current levels? Thank you.

Yes, thank you, Carlos, for your comments and your question. We expect the second quarter when Thank you very much. will be more challenging. What happens if inflation recedes more slowly and we still have two digits inflation for a longer period? At that moment, I think it will event if the government reacts and increases interest rates or if they keep negative interest rates for longer. If negative interest rates last longer than we expected, So again, to understand, you are planning to see a return to real interest rates or at least to less negative real interest rates going into the second half? We think they will go to probably neutral or very slightly negative or very slightly positive, but not a strong positive interest rate because the government still has some challenges remaining with the interest rate.

I think, let me add, Carlos, also a little bit of more color. I think that the challenge of the government today is based on two anchors, the foreign exchange and the fiscal. Argentina is a big monetary economy, which is quite peculiar for the rest of the world. And so you need the foreign exchange anchor. So there is a possibility that they will continue, I think they will try to maintain the peg, the crawling peg at 2%. This is at least their intention. And if and when, I mean, for the time being, they are quite successful in regaining reserves, but still, there are still On a negative front, in terms of central bank reserves. When they start to be more comfortable with foreign exchange reserves, it is highly possible that with inflation coming down, rates will come down. And particularly, there is one regulation which is very harmful for, I think, and many more. In the financial industry, we will be inclined to be much more aggressive in terms of providing loans to the private sector. And even though it is possible that those loans might be yet still a negative rate in terms of inflation, the banks, our bank, will have Thank you, Carlos.

We have now some questions in the Q&A box, so we can go through them. We have a more general one from an individual investor, I think. It says, given the macroeconomic challenges and the new government policies, how does Grupo Supervielle plan to navigate potential impacts on the operations and growth?

Do you want for that? Yes. Well, We see that many of these SMEs belong to value chains that are positively impacted by the devaluation and bringing In that regard, we are very happy because we were recognized by EuroMoney in our trade finance, which obviously supports a lot of this strategy and where we see the growth in 2024. And we also focus on cash management and improving all the transactions. As you see in part of our presentation, it's All this is really very positive and reinforcing the investments we've done in technology to become more customer-centric and agile at the same time. Okay.

We have some others in the Q&A box. We have some from Ernesto Gabinondo at Bank of America. He left his question. Two in terms of maybe a bit more detail on guidance. How do you see return on equity for this year? It's the first one. The second one is what do you expect for long growth this year?

Yes. Okay. For this year, We expect an ROE of approximately 10%, but with the following dynamic, we see a strong first quarter with still recognizing unusually high spreads on our portfolio, on our investment portfolio, mainly from treasury securities. And a more challenging second quarter, as I explained before, negative interest rates expect to still remain. And then returning to higher profitability in the third and fourth quarter. First, as interest rates turns to neutral. Second, we expect that at some point in the year for the most relative regulations to be lifted, mainly the interest rates on time deposits. and also because, as I also explained earlier, with inflation going to single digits, we will start to see low growth in real terms and that will allow us also to replace income from securities by income from the low growth.

Can I add something? In addition to what Mariano said, In terms of the return on equity, you have to remember that over the past few years, and particularly 2022-2023, we did a huge consolidation and captured a lot of efficiency. Thank you very much. In terms of loan growth, I think we already answered this question. But it's basically export-oriented industries. We focus a lot in... In the value chains of export of industries like for instance oil and gas or agribusiness and we are in the agricultural belt. We have a very strong franchise in there and we are focusing for a lot of mid-sized companies that are exporting. And so this is what we see now. There is, as I said before, long demands in dollars that reflect also an attitude of companies. They believe that the foreign exchange is under control, or it's at least starting to be under control, so they're willing And also you are seeing some companies asking for fixed rate special loans for one year duration or more and reflecting also an idea that the inflation is going down. So, okay.

Yes, thank you, Patricio. How much is left in the leaks? Well, the leaks, the last portion of the leaks that we had in our balance as of December 31st, it was 6% of our investment portfolio. But those were the leaks that matured in January. So right now we don't have more leaks. The central bank also stopped issuing these securities. So we only have a remaining Of our total investment portfolio, 80% is in central bank securities, that includes the leaks I mentioned, but the bulk of central bank securities are passes, the repos, one-day repos, and 20% is in treasury bonds. These treasury bonds, remember that we have a put option So it's a put option that doesn't guarantee a fixed price. It's at the price of the prior day of the put execution, but it guarantees liquidity. Most of them are just by inflation and some of them are dual bonds which are just by the higher of inflation or devaluation. These bonds mature between 2024 and 2025, most of them, but as I said earlier with this put option that we can exercise at any time.

Okay, I think we also have some questions from Brian Flores at Citibank in the Q&A box. The first one says, NII was benefited by dual bonds and central bank securities. As you explained in the release, most of these shocks are unlikely to repeat in magnitude, given the economic stabilization. How are you thinking about the recurrence of these results in 2024? Maybe, I think it was answered, but I don't know, Mariano. I think we'll read the answer.

Yes.

and yes, others, some others only it says, some we didn't answer, even the yield Q on Q increases in the loan book. Can you remind us of the average duration of your assets and liabilities?

Yes, I can answer this. In our loan portfolio, So almost 60% of our loan book is loans to corporations, which are mainly factory and some foreign exports loans, which are all very short term. And then on the individual side, we have personal loans, which is 10% of our loan portfolio. Then we have credit cards, which of course are very short term. And we have also our mortgages that were granted.

I think for today, I think we answered most of the questions we had in the Q&A box. So, okay, ladies and gentlemen, we have reached the end of today's Q&A session. Thank you for joining us today. We appreciate your interest in our company. We look forward to meeting more of you over the coming months and providing financial and business updates next quarter. In the interim, we remain available to answer any questions that you may have. Thank you and have a good day.