1Q21 Earnings Conference Call Transcript

Operator

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. 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.

Slide 2

Ana Bartesaghi

Good morning everyone and welcome to the Grupo Supervielle First Quarter 2021 earnings call. This is Ana Bartesaghi, Treasurer and IRO.

Speaking during today's call will be Patricio Supervielle, our Chairman & 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 Ramírez, First-Vice Chairman of the Board. Alejandra Naughton, 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.

Note that starting 1Q20, 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 March 31, 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.

Given this new strict lockdown in Argentina, and to avoid connectivity issues we have decided to revert to a conference call format for this quarter only.

I would now like to turn the call over to our Chairman, Patricio Supervielle.

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Slide 3

Patricio Supervielle. Thank you, Ana. Good morning everyone. Thank you for joining us today.

Please turn to slide 3 our earnings presentation:

During the quarter we moved into a second wave of Covid-19. While today we are better prepared to confront this with the many initiatives we have accelerated or put in place to serve our clients while securing the health and safety of our employees, the scenario in our market remains complex.

During this period, we continued to exercise liquidity management to protect our financial margin and reinforce our strategy to protect our capital.

  • In terms of our financial results, we reported attributable net income of nearly 200 million pesos in the quarter, despite higher turnover taxes, the impact of the regulatory framework and continued weak loan demand in a recessionary economic environment. ROAE in real terms was 1.8% in the quarter, and 4.5% when excluding the consumer lending business, as NIM remained pressured from higher cost of funds resulting from the floor on time deposit on interest rates and subsidized rates on loans, while fees remained weak.
  • Maintaining a prudent approach to risk management, we continued to increase our Coverage Ratio this quarter which reached 205% from 192% last December. And we are closely monitoring our loan portfolio and risk models after the end of the Central Bank automatic loan deferrals last March.
  • Efficiency, excluding non-recurring severance and early retirement charges, increased 120 basis points to 66.3% impacted by lower revenues. By contrast, comparable personnel and administrative expenses excluding non-recurring charges in both periods declined 6% as we maintain strict cost controls while advancing on our transformation strategy.
  • In this environment, we are focused on capital preservation and retaining strong liquidity. We have a solid capital base with a TIER 1 ratio of 13.8% and are deploying hedging strategies against inflation which include real estate investments, mortgages and sovereign bonds.
  • Now, turning to our strategic initiatives, with an unprecedented number of people going online and turning to self-service to transact during the pandemic, and our belief that these habits will continue, we have accelerated the execution of our transformation strategy with the goal of driving sustainable growth as demand resumes while enhancing our current competitiveness. These include assessing the future of our work model and real estate management, advancing our digital transformation, evolving our service model in our branch network and adding API capabilities. I will discuss the latter in more detail shortly.

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Slide 4

Turning to the macro front slide 4.

Easier comps following the sharp economic contraction last year and favorable external conditions, support a GDP rebound. However, economic activity still remains below pre-pandemic levels as we face the second Covid-19 wave.

While monthly inflation has remained high in recent months even despite soft domestic demand, higher global commodity prices since mid-last year are driving increased FX flows. In this context, the Central Bank is reversing the downtrend in international reserves, and lowering the risk of a near-term peso devaluation. In addition, despite lower than planned subsidy reductions, pensions and public salary adjustments, increased taxes and export duties are contributing to strengthen the fiscal balance.

So, while the gap between the blue-chip rate and the official exchange has somewhat contracted, it still remains at high levels while interest rates remained unchanged with 7-days repo rates at 36.5%.

For the year, we expect inflation of approximately 47% and GDP growth of approximately 6%, with an economic recovery also dependent on the rollout of the vaccination program, the resumption of IMF negotiations that are most likely to take place after the mid-term elections in October and business confidence.

Let me now turn the call to Mariano Biglia, our CFO. Please Mariano, go ahead.

Slide 5

Mariano Biglia, Chief Financial Officer.

Thank you, Patricio. Good day everyone.

Please turn to page 5. Reflecting both overall weak credit demand, and our focus on prudent lending in this challenging environment, our loan book contracted nearly 6% sequentially, better than the industry's performance.

In turn, Peso loans were down 7% sequentially.

  • Note that credit card loans and factoring are both seasonally lower in the first quarter of the year vs the fourth quarter.
  • In addition, government sponsored loans at preferential rates declined to 9% of our loan portfolio, from 10% at the close of the prior quarter. This primarily included close to 10 billion pesos in SME loans at preferential rates, of which slightly over 4 billion pesos were in short-term factoring transactions.
  • By contrast, we saw a sequential increase of nearly 12% in leasing transactions which contributed to 2 percentage points in market share of close to 11%.

In addition, US dollar loans in original currency, were up 5% sequentially reflecting short term financing to corporates.

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Slide 6

Now, moving on to funding on slide 6. Liquidity levels remained strong, both in pesos and dollars, with the loans to deposits ratio at a record low of 55%.

In line, AR$ peso deposits were up 8% sequentially, driven by higher institutional funding following a strong reduction in these types of deposits in the prior quarter as we deleveraged the balance sheet. Additionally, non-remunerated retail deposits posted a QoQ contraction in line with the industry and largely reflecting seasonal trends.

Average balances of AR$ deposits, increased nearly 29% YoY and were down 2% sequentially as we continued to exercise liquidity management to protect our financial margin.

US$ deposits in original currency rose up 2% during quarter, accounting for 13% of total deposits following the industry outflow of FX deposits.

Slide 7

Turning to the P&L on slide 7. Net Financial income and margin remained pressured by overall industry lower loan demand, as well as lower holdings in Leliqs and Repos. Higher cost of funds from the regulatory floor on the rate of time deposits further reduced spreads, while a lower yield on the investment portfolio also impacted NIM.

As a result, financial income was down 9% sequentially to 10 billion pesos and NIM contracted 90 basis points in the quarter to 19.3%. The latter, was partly mitigated by a 40-basis point increase in loan portfolio NIM, mainly reflecting higher margins in the US$ loan portfolio along with a lower weight of loans to SMEs at preferential rates.

Slide 8

Moving on to Asset Quality on slide 8. Loan loss provisions were relatively stable sequentially at 1.4 billion pesos with cost of risk increasing to 5%, but below historical levels.

Covid-19 specific provisions remained unchanged sequentially at AR$2.8 billion at quarter-end.

On the top right chart of this page, we show our total provisioning ratio, which was 6.9% in March, and a breakdown by key customer segments.

The NPL ratio improved sequentially by 30 basis points in the quarter down to 3.4%. This was principally due to an improvement in non-performing corporate loans, while NPLs in other products had variations in different directions that offset each other.

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We also continued to increase coverage in the quarter to 205% from 192% in the fourth quarter. Note that the coverage ratio is distorted by two factors, the loans and credit cards that had been automatically deferred until March 2021, and the addition of 60 days until last March to each debtor classification. Both effects also impacted our NPL ratio.

Excluding regulatory easing, coverage was 173% in March, compared with 184% in December, but above 86% in March of last year, as we refined our models. We will continue to closely monitor events and make appropriate adjustments as required to our risk models.

With regulatory easing ended, in the coming months we expect the coverage ratio to decrease and it may also be impacted by some new NPL creation if some clients that deferred their maturities along 2020 and 2021 do not resume payments.

Slide 9

Moving on to risk management on slide 9. The chart on the left depicts the well-diversified industry exposure of our loan book.

Industries that account for a large share of our portfolio, such as agribusiness, food & beverage and wine, continue to perform well in this context.

At the same time, we have further reduced our exposure to higher risk sectors which accounted for less than 7% of our portfolio from 9% in the prior quarter. Moreover, loans in the highest risk sectors have guarantees exceeding 60%.

In addition, over 41% of our commercial loan portfolio is collateralized. We also continued to increase collaterals on non-performing commercial loans, which reached 82% this quarter, up from 80% in 4Q20.

Importantly as well, 71% of total loans to individuals at the bank are held by lower-risk payroll and pension clients.

Now, let me turn the call back to Patricio for comments on our digital transformation strategy and some brief remarks on our perspectives for the rest of the year.

Slide 10

Patricio Supervielle

Thank you, Mariano. As you can see on slide 10, we continued making consistent progress on the execution of our digital transformation strategy. For example:

  • Monetary transactions at non-automated banking tellers stood at 4%, down from 17% prior to the pandemic. The share of mobile transactions adjusted down to 8% after reaching a high of 10% in the fourth quarter, but remained above the 6% pre-pandemic level.

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Grupo Supervielle SA published this content on 31 May 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 31 May 2021 23:49:06 UTC.