Grupo Supervielle S.A.

Good morning, everyone, and welcome to the Grupo Supervielle first quarter 2024 conference call. This is Ana Bartesaghi, treasurer and IRO. Today's conference call is being recorded. As a reminder, all participants will listen on the phone. 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. and 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, first vice 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 forward-looking statements based on management's current expectations and beliefs and subject to several risks and uncertainties. I refer you to a forward-looking statement section of our news 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. Starting with a discussion of the quarter results on slide three. We are pleased to have started the year delivering robust profitability and market share gains in loans. At the same time, we maintain healthy asset quality metrics Profitability achieved another record high ROE of nearly 34% in real terms. This good performance was driven by an unusually high net interest margin of 62%, reflecting our effective asset and liability management and increased spreads. Our strong bottom line was also supported sequentially, improved efficiencies as we continue to improve The digital, virtual and automatic channels while transforming our branch network, establishing a solid base to drive higher productivity as growth resumes. In turn, a healthier loan mix following the shifting loans towards middle market corporates and payroll customers where we have reciprocity with our transactional products together with significantly lower exposure to consumer loans and tight credit scoring contributed to the NPL ratio hitting another record low of 1.5%. So how have we been able to achieve our good results? Let me provide a brief overview of the progress we have made across and many more. Starting with SMEs and corporate, we are firmly committed to attracting new clients and expanding our share of wallet. To accomplish this, we are focused on enhancing the corporate experience, improving our net promoted score and driving operational efficiency. During the quarter, we successfully scaled our virtual half service model to cater the companies in the entrepreneurs and SMEs segment, which received gold recognition in the country's award for financial innovators in the Americas presented by Fintech Americas. On the back of improved dynamics, we're actively developing products tailored to highly attractive export-oriented value chains, such as oil and gas, mining and agribusiness, while keeping a strong focus on selectively tapping regional economies and with attractive prospects. On retail, digital client base have expanded significantly, now comprising and many more, reflecting the strong adoption of our digital wallet. Over half of our retail transactions are now completed through our app, a remarkable increase from just 37% a year ago. Moreover, our pioneering 24-7 Inversión Rápida feature YOL, our online retail brokerage platform, continues to The new crypto offering, introduced in January, in collaboration with Ripio, has been well received by existing customers, and while it is still in its early days, we are seeing consistent growth in both customers and transactions. Our efforts to drive remaining close to our customers continue to bear fruit with bank branches and headcount down year-on-year by 12% and 4% respectively while further improving NPS. Turning to slide four, President Millet remains fully committed to achieving fiscal surplus and implementing bold structural reforms. While there is still much work to do, the policies implemented over the past five months are resulting in a gradual transition in Argentina to a more positive economic environment, conducive to a more sustainable, robust and competitive financial system. To date, interest withdrawals on time deposits have been lifted. The central bank has acquired $17 billion in reserves Measures were also taken to address the challenge related to importers, commercial debt, and unpaid dividends. And we are pleased to see that inflation is decreasing faster than anticipated. Despite the recessionary environment, it is worth noting that social support remains strong. In this context, the financial industry is experiencing a gradual resurgence in loan demand. However, passing the necessary reforms are crucial to resume sustainable growth and attracting investors. At Supervielle, we have a strong capital base and solid agile foundation that positions us well to resume growth as demand continues to recover. Now, moving to slide five. Reflecting anticipated macro improvements, The share of central bank repos over total assets declined seven percentage points to 33%, while loans expanded their share by six and many more. As this transition unfolds, we anticipate this positive loan growth trend to continue as demand continues to recover while NIMH adjusts gradually from the exceptionally high levels experienced in wisdom waters and converging to and others. Turning to an overview of our loan book performance on slide 6. Total loans were up 3% sequentially in real terms, while we gained 40 basis points in total market share as the economic environment began to normalize and confidence returned. Reflecting our focus on lower risk segments accounted for 64% of our total loan, while retained loans represented the remaining 36%. Corporate loans saw a 60 basis points share increase in the first quarter. For the remainder of the year, we expect to maintain our focus on SMEs and mid-market clients, placing particular emphasis We are expected to grow above retail loans. Within retail loans, we are selectively tapping lower risk segments. Reflecting this, we're expanding our share of car loans by 40 basis points in the quarter. More recently, we became the first private bank in the country to relaunch new 30-year mortgage loans. and return to adding mortgage products to our portfolio is an attractive value proposition in today's market. We're also scaling car, personal and credit card loans. We're optimistic that there is room for further growth once inflation and nominal interest rates decrease. With this, let me turn the call to Mariano. Please go ahead.

Thank you, Patricio, and good day, everyone. Now let's turn our attention to slide seven. which provides an overview of our performance for the quarter. Net income increased to nearly 47 billion pesos Thank you very much. resulted in a 40% sequential decrease in net loan loss provisions. Other net losses declined 15%, mainly reflecting valuation adjustments of real estate to market value in 4Q23 and higher provisions for strategic initiatives. All these more than offset As shown on the left chart of slide 8, we have been diversifying our asset base, gradually shifting towards a larger share of private sector loans while significantly reducing our holdings in central bank securities. On the right, you can see the composition of our commercial and retail portfolios at quarter end, where we have gained share across most loan products. Followed closely by mortgages at 32%, personal loans at 24%, and car loans accounting for 9% of the total retail book. Moving on to slide 9. Net financial income increased sequentially in the low single digits and nearly 140% year-on-year to 299 billion pesos, with NIMH practically stable sequentially at an unusually high. Following the lifting of floors on time deposits and decreasing interest rates, cost of funds posted a sharp sequential drop of over 740 basis points. In turn, interest rate on loans increased over 300 basis points mainly due to a higher adjustment of inflation-linked corporates. and a higher yield on increased volumes of inflation-linked government securities capturing the inflation peak in last December and January. Turning to slide 10, our successful strategy execution has contributed to further improving the efficiency ratio reaching 34%, down from 43% in the prior quarter and over 70% a year ago. The sequential improvement in efficiency was mainly driven by exceptionally high mean driving revenue growth, while we also continued to reduce personnel and administrative expenses. Turning to slide 11. Capitalization strengthened further in the quarter, with the tier one ratio expanding 370 basis points sequentially to nearly 25% at the quarter end. The increase in capitalization reflects strong results, along with inflation adjustment of capital and taxes efficiencies from the merger of U2 into the bank, which more than offset growth in risk-weight assets. Now, moving on to our perspectives for 2024, on slide 12. Considering the recent trends discussed, We have updated our perspective on the following line items. When we continue to expect peso laws to grow above inflation, we now see credit demand recovering gradually, starting in the second quarter as inflation eases. In terms of deposits, while expectation for peso deposits remain unchanged, growing slightly above inflation, total denominated deposits are now anticipated to increase in their original currency. With respect to fee income, In terms of profitability, we are increasing our ROE expectation for the year to approximately 15%, up from the 10% discussed in our prior call. For the remainder of the year, we expect to see a softer second Q reflecting negative interest rates, Thank you, Mariano. At this time, we will be conducting

The question and answer session. As a reminder, to ask a question, you need to be connected to the Zoom platform. To ask a question, please press the raise your hand button and press it again to withdraw it. You can also send your questions in written form via the Q&A box. We will ask you to limit yourself to one question and a follow-up, and then you can raise your hand again. That's one moment when we poll for questions. Our first question comes from Ernesto Gavilondo with Bank of America. Hello and good morning, Ernesto. Please go ahead.

Thank you. Good morning, Ana. Good morning, Patricio, Mariano, and all the team. Thanks for the opportunity to ask questions. My first question will be on your long-run expectations and what would be the macro assumptions that you're expecting for this and next year in terms of GDP, the level of inflation, the level of interest rates, I think those should be important to consider in order to think about the long road in this and next year. Well, we know that Argentina has a very low credit penetration, so considering all these assumptions, how would you see the long road for the second half of this year and next year? Thank you.

Okay, I will start and then Mariano will further expand. After the extraordinary high NIMS that we saw in fourth Q 2023 and as well as first Q 2024, we anticipate a decline in NIMS alongside falling inflation. Inflation figures Declining interest rates have several effects. First, in March, we saw already a surge in demand for loans from SMEs and the corporate segment, both in pesos and dollars, as well as on the retail sector, positively impacting our market share. For the remaining of the year, With declining inflation, we expect the loan book to grow in real terms of all inflation starting this quarter. Second, we also foresee a shift from repos to T-bills as they better preserve our financial margin. Do you want to expand on that?

Sure, Patricio. We expect, following what Patricio mentioned, loans to start growing in real terms in the second quarter and increasing the pace of growth in the second half of the year. For the full year, it's still, of course, hard to tell, but with increasing inflation even faster than Thank you very much. It's difficult to say whether it will be 50% in real terms, 60%, but we can see very high rates of growth in 2025. Then you asked about our projections of Thank you very much. Thank you very much. In the third quarter of this year. But at some point in time, we think those controls will be lifted and that will also unlock growth. And in that regard, we expect next year, that's 2025, to see a growth in GDP of approximately 3 to 3.5%.

Excellent. Thank you. And just a follow up on these macro assumptions. So you were also saying, Patricia was saying inflation declining from 50% to 20% levels in the second half. But can you provide us this number also in annual terms? How do you see inflation for this year, inflation for next year, and also your expectations for the interest rate?

Inflation for this year, we expect it to be in 160%. And for next year, it will definitely keep decreasing. and others. We believe that the interest rate will keep the sharp decrease that the central bank did during these first five months of the year. We think for the following months it will keep the interest rate in the actual levels, also the implicit interest rate in the last Thank you for coming down.

No, perfect. Excellent. And then just a second question. This will be on your ROE expectations. For this second quarter, in your press release, you mentioned you have a record high ROE of 34% in this quarter. But at the same time, you're getting for the full year to have an ROE of around 15%. So just wanted to understand how will be this evolution of the ROE throughout the year. I think that the second quarter will be the most challenging one. Thank you very much.

It's starting to grow, but we are seeing negative interest rates in real terms. So that's also a challenge to hedge our equity. But I would say ROE for the second quarter will be in single digits, maybe ranging from 5% to 10%. And then the evolution of the ROE will be increasing during the third and fourth quarter. Thank you, Ernesto. And our next question comes from Brian Flores with Citibank. Hello, good morning, Brian. Thank you for your question.

Hi, Tim. Good morning. Thank you. Thank you a lot for the opportunity. Maybe I want to start with a more strategic question on your consumer franchise. As you have mentioned in the presentation, a lot of the digital efforts are already evolving, right? So more of your transactions are already happening with your apps. You're deploying these digital efforts. I just want to maybe get your ideas here on how are you thinking about the digital competition, right? Because for the consumer franchises, we have a lot of competition, maybe Mercado Pago, Wallah. I just want to maybe ask you strategically, how do you think on this competition? How are you preparing yourselves to compete against them now that, as you mentioned in your guidance, we should expect a long road to become more and more relevant in the strategy? Thank you.

Thank you, Brian, and good morning. We have, as you probably know, been focused on developing We are also making a big effort and we've been recognized by the mobile platform and we see there too using the Modo platform as a strategic response to the Mercado Paro moves. A lot of the answer to your question depends on what the regulator will do moving forward. As you know, the central bank has ruled that there has to be interoperable QR and there has been a little bit of and many more. Thank you. and all the car loans, for example, which have been our focus initially for growth. So we are very confident that these capabilities together with our new operating model are positioning us very well in this new

Let me add to the answer of Alejandro. Last year, the beginning of the year, we launched a new service, an investment proposal for individuals, which is called Inversión Rápida, which is basically an answer to what Mercado Pago Thank you very much. Thank you very much. So this is a way, and the interesting thing is that although, let's say, of course we lost some deposits, 0% deposits on savings accounts, but overall when you see the profitability and many more. And the adoption was fantastic because we grew 10 times in terms of adoption or even more than that in terms of adoption during the year. So that's a way that we believe that we can compete It's surprising that we are the only bank to do this yet.

Perfect. Super helpful. And maybe just a quick follow-up on Ernesto's question. Are you going to prioritize a specific segment? Because as you mentioned, we might see a 10-20% growth this year in real terms, but Half percent of your long portfolio is corporate. You have a big consumer franchise. So are you going to prioritize one more of the other? And if you could just remind us on how fast you can reprice in terms of duration each of the segments would be really helpful. Thank you.

We have initially focused in SMEs. As you know, SMEs have very low leverage from the starting point and are the ones that have been reacting quickly to the change and the fall of inflation, particularly in export-oriented More cautious on the retail side, but we see increasing demand there too, and we're focusing on payroll clients

Great, this is perfect. Thank you very much.

Thank you, Brian. So our next question comes from Marina Mertens with Latin Security. Hello, good morning, Marina. Please go ahead and thank you for your question.

Hi, good morning. Thank you. And congratulations on the results. So the banking business in Argentina for the reminder of the year should look quite different since The central bank has been lowering rates and inflation has been coming down. So what do you expect? What do you envision for the remainder of the year and 2025?

Yes, we are leading, Marina. We are transitioning from a very low weight of our loan book in our total assets or a very low loans to deposit ratio to higher weights of the loan book. This will be achieved by replacing all the ways that now central banks Corporations.

Great, thank you.

Thank you, Marina. So we have another question, a new question. This is from a Carlos Gomez Lopez with Citibank. Hello. Good morning, Carlos.

Hello, thank you. Thank you from HSBC.

Sorry, I don't know what did I say. I'm sorry, from HSBC.

I used to be at Citibank, it's okay. So I'm looking at slide eight in your presentation, and we see the big decline in central bank exposure. How do you expect this to evolve for the rest of the year? Will you continue to decrease your exposure to the central bank and government securities? And traditionally, the banks have been reluctant to take on treasury securities. We understand that may be changing. Is there a limit as to how much exposure to the government you're willing to take?

Yes. Hi, Carlos. Thank you for your question. Yes, correct. As you said, Our loans to deposit ratio. Also recently, during this month, the central bank allowed us to replace short-term treasury notes. The change that the central bank made is that for the amount that we decrease repos, we can increase short-term treasury notes without exceeding the limit of exposure to the public sector. So that's on the regulatory side. And then for the longer term, we are, as I explained before, increasing in loans and that will be finally replacing the overall exposure to the government sector, whether it's central bank or the treasury.

This is a transition. We are in a transition year. But of course, expecting that the business we are in is providing loans to the private sector. But this is definitely a transition year.

Yes, and you also asked about limits. There are limits. So we can increase it to the

Well, I guess that is the question. What is your own policy? Because, again, from what you described, to see if I understand correctly, the central bank allows you to, at this point in time, increase your exposure to the treasury without that counting as increased exposure to the public sector. I mean, they're obviously giving a waiver there. I imagine you don't want to do that indefinitely, right?

Definitely not. As I said, I mean, essentially, when you have on the other side the central bank or the government, it's a different animal, I would say. So this is, as I said, a transition, and we have our own limits in order to take treasury securities, which are not the same limits we had on repos.

This is a lot for this very short term, the caps only. It's not for any other threshold we may have. So it's for this time when we wait for the long book or long print demand to accelerate.

So that's only for the caps in the short term?

Yes, exactly.

And only for the amount you have in repos as of May 15, I think it was the date we

Okay.

It's a transition, as Patricio mentioned.

Okay, and to change the subject and go back to the future, which is the loans. I mean, we are all very excited about the new UVA loans, mortgages, and you have been at the forefront making an offer. I just wanted to know if we have already seen, you know, any of these loans granted. We know there have been inquiries and petitions, but when do you expect to actually lend that? And what is a realistic prospect as to, you know, what amount you could give, let's say, this year or next year?

We already know that there are already mortgages that have been already granted.

And next, I think in the coming days we should be having more from our side as well. But we know one loan at least, as we saw in Bloomberg yesterday, was granted by one non-profit

But definitely there is a huge demand in expectation. I would say most of the people in Argentina, they need, they're looking forward to mortgages. This is unbelievable. The potential demand is absolutely unbelievable. It reflects probably what happened in the last few years when people were forced to stay in houses, renting apartments and so on. They want to move on. So it's unbelievable the demand that is already in there. We know it.

But we understand there are operational problems. There are some definitions that have to be made before you can actually start lending in large amounts. Is that correct?

Yes, the effects measures, some of them, they are not good for the final buy and sell of the houses. These are operations and things that we understand will be removed soon in the coming days. They told us they were working on this.

This will help a lot, Carlos, to increase demand and to make it more agile. But these things, as soon as they start working out, it will be very, very important in driving demand up very quickly.

Thank you so much.

Thank you, Carlos. We have a new question from Ernesto Babilondo with BOFA. Ernesto, please go ahead.

Thank you, Ana. Just a couple of questions. The first one is on your loan-to-deposit ratio. So considering this excess cash that you have in securities and that you will use them to expand the loan book, How should we think about the loan-to-deposit ratio evolving in the next years? And my second question is on regulation. Do you think that the big part of the tough regulation is already lifted, or do you think still there are some things that can be removed or lifted? And if that is true, do you have an estimate on how this Can removal of top regulation help your business?

Yes, Ernesto, I will take the first part of your question regarding the loans to deposit ratio. We came from just over 30% as of December last year. We are now over 40%. By the end of the year, we can be Thank you very much. So when we start to issue also that type of instruments in order to manage liquidity, we will also see the loss of deposits increasing significantly.

Concerning your second question, I tried to make an answer. Maybe Alejandro can help me also. First of all, I think that the main regulation that is restricting the entire economy and of course the financial system is the foreign exchange restrictions It's critically important that they are being lifted as soon as possible because it will instill new investments, it will bring confidence to the market and hopefully instill growth and getting out of recession. For us, for the banks, I mean, having clear rules on FX restrictions will help also all export-oriented industries. And for us, it has been a traditional business. When you lift foreign exchange restrictions, you have individuals, our clients, that they want maybe to... Thank you very much.

Thank you very much. Thank you. There should be also some easing on the conditions for securitization to provide a good support so that the banks can originate the mortgages and then descend through some securitization, which in turn leads to the question of the creation of investment funds So it is a huge opportunity when you look at all these

Excellent. Thank you very much, Patricio, Alejandro, and Mariano.

Pleasure, Ernesto.

Thank you, Ernesto. Thank you all. So, ladies and gentlemen, we have reached the end of today's Q&A session. Thank you for joining us today and for the questions. We appreciate your interest in our company. We look forward to meeting more of you over the coming months. In the interim, we remain available to answer any questions that you may have. So have a good day.