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Grupo Supervielle SA (SUPV) CEO Jorge Ramírez on Q2 2019 Outcomes – Earnings Name Transcript

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Grupo Supervielle SA (SUPV) CEO Jorge Ramírez On Q2 2019 Outcomes - Earnings Name Transcript

Grupo Supervielle SA (NYSE:SUPV) Q2 2019 Earnings Convention Name August 13, 2019 9:00 AM ET

Firm Individuals

Ana Bartesaghi – IR Officer & Treasurer

Julio Supervielle – Chairman

Jorge Ramírez – First Vice-Chairman & CEO

Convention Name Individuals

Gabriel Nóbrega – Citigroup

Jason Mollin – Scotiabank

Yuri Fernandes – JPMorgan Chase & Co.

Operator

Good morning, and welcome to the Grupo Supervielle Second Quarter 2019 Earnings Name. A slide presentation will accompany immediately’s webcast, which is out there within the Traders part of Grupo Supervielle’s Investor Relations web site, www.gruposupervielle.com. [Operator Instructions]. As a reminder, immediately’s convention name is being recorded.

At the moment, I wish to flip the decision over to Ana Bartesaghi, Treasurer and IRO. Please go forward.

Ana Bartesaghi

Thanks. Good morning, everybody, and thanks for becoming a member of us immediately. Talking immediately’s name will likely be Patricio Supervielle, our Chairman of the Board of Administrators, who will focus on the general banking surroundings; and Jorge Ramirez, our Chief Govt Officer and Vice Chairman of the Board, who will evaluate our outcomes for the quarter. Additionally becoming a member of us is Alejandra Naughton, Chief Monetary Officer; and Alejandro Stengel, Chief Working Officer of the Financial institution. All will likely be obtainable for the Q&A session.

Earlier than we proceed, I wish to make the next secure harbor statements. As we speak’s name will include forward-looking statements, and I refer you to the forward-looking assertion part of our earnings launch and up to date filings with the SEC. We assume no obligation to replace or revise any forward-looking statements to replicate new or modified occasions or circumstances.

I might now like to show the decision over to our Chairman, Patricio Supervielle.

Julio Supervielle

Thanks, Ana. Good morning, everybody. Thanks for becoming a member of us immediately. For those who’re following the presentation, please flip to Slide 3. I’ll start my presentation this morning referring to the important thing highlights of the second quarter outcomes. We’re planning to spend time updating you on our digital initiatives on this name.

Given current political occasions, we are going to deal with our efficiency and go away extra time for Q&A. The resiliency and adaptability of our enterprise mannequin was evidenced in outcomes for the quarter. Total credit score demand stays weak as we’re conducting enterprise in an ongoing difficult macro surroundings. Towards this backdrop, pretax revenue greater than doubled. Extra with the leverage had been good income technology and enhance in our NPL protection to nearly 108%.

Changing into a leaner and extra environment friendly group is a key strategic focus for us — of ours. And though we’re making progress, a few of this has been upset by weaker efficiency in Client Finance and wage inflation. Jorge will focus on this in higher element in a second.

We delivered strong ends in the quarter, however we stay cautious by way of the rest of the 12 months as rates of interest stay persistently excessive and weak financial exercise has been impacting a number of key trade sectors. Consequently, we proceed to carefully monitor our mortgage portfolio. Whereas we face difficult instances within the close to time period, we do have an extended observe document of working in unsure environments. It is vital for us to proceed to make the mandatory investments to function in a altering capital and banking world and to take action effectively.

Shifting on to the macro on Slide 4. Macroeconomic imbalances have been trending in direction of normalization over the previous quarters. Whereas traditionally, Argentina has been characterised by persistent governmental spending and consequent deficits, we’re at present observing a drop in combination spending equal to over 10 share factors of GDP. Furthermore, financial exercise hit backside in November. And since then, we’ll share a shy, enhancing development. The stabilization within the quarter within the FX led to three consecutive months of decrease inflation price. Consequently, the financial coverage or Leliq charges declined for 4 consecutive months. Following the stance from the election outcomes, it’s nonetheless too quickly to ascertain which is the brand new baseline.

Now trying on the Argentine monetary sector on Slide 5. The system stays extremely liquid, with whole trade deposits up practically 7% quarter-on-quarter. Administration in forex of our origins, trade deposits had been up practically 10% in pesos and 4% in U.S. {dollars}. As of Might, the newest Central Financial institution publicly obtainable knowledge, system liquidity in pesos in addition to in {dollars} stood at nearly 6% of whole deposits. Furthermore, the stock of whole trade U.S. greenback deposits as of final week was on the highest degree of share over the previous 16 years.

Reflecting weak macro and excessive rates of interest, loans had been flat sequentially in nominal phrases. This was the case of Argentinian-denominated loans and dollar-denominated loans in forex of origin. We skilled a comparatively related development in loans this quarter and a barely decrease development in deposits as we proceed to deal with liquidity administration.

I’ll now flip to Jorge, who will evaluate our monetary efficiency and outlook. Please Jorge, go forward.

Jorge Ramírez

Thanks, Patricio. Good day, everybody. Turning to Slide 6, whole belongings had been up practically 38% year-on-year, rising above mortgage development and comparatively secure sequentially. The share of high-margin 7-day Leliq securities issued by the Central Financial institution accounted for near 24% of whole belongings at quarter finish in comparison with 20% within the first Q ’19.

Now on to Slide 7. Our mortgage portfolio stays flat as we keep a cautious method within the recessionary surroundings. On this context, we proceed to cut back our publicity to the Client Finance phase, which now represents 8% of our whole portfolio, down from 9% within the first Q ’19 and 11% a 12 months in the past. Total, Client Finance loans declined 10% sequentially and practically 22% year-on-year. The share of company loans remained secure at 50% of whole loans and rising 2% sequentially. Current mortgage development remained tender, rising barely or 2% sequentially, reflecting ongoing weak shopper sentiment.

Please flip to Slide 8. We noticed a slowdown in deposit development charges this quarter as we proceed to deal with legal responsibility managements as perks from investments in high-margin 7-day Central Financial institution Leliqs had been going in direction of the top of the quarter diminished our publicity to wholesale and institutional deposits. The mix of those elements proceed to weigh on our loan-to-deposits and loan-to-assets ratios, which decreased by 170 and 50 foundation factors to just about 73% and barely over 49%, respectively.

Our liquidity ratio in pesos and {dollars} remained wholesome at 65% and 56% of whole deposit as of June 30 respectively, in contrast with 60% for the general monetary system. On the similar time, in forex of origin, international alternate deposits rose practically 4% sequentially. The share of international alternate deposits or whole deposits declined 30 foundation factors sequentially to barely over 32%, primarily reflecting the peso appreciation within the quarter.

Shifting on to funding on Slide 9. As we have been discussing over the previous quarters, we’re actively managing our wholesale and institutional deposit base to maximise spreads. We imagine rate of interest declining in direction of the top of the quarter will scale back our publicity to wholesale and institutional deposits to 35% of whole deposits from 40% within the first Q ’19. On the similar time, the share of retail and senior residents deposits elevated by 400 foundation factors to 46% at quarter finish whereas company deposits elevated 160 foundation factors to 19%. Subsequently, whereas the share of non- or low-interest-bearing deposit balances accounted for 35% of whole deposits in contrast with 33% within the prior quarter, the common steadiness of those deposits elevated to just about 44% within the quarter from 41% within the prior quarter.

Now on to the P&L on Slide 10. We imagine our sturdy internet monetary revenue development this quarter, up practically 20% Q-on-Q; bigger common volumes of belongings and deposits, along with increased market rates of interest, had been the principle drivers behind this prudent efficiency. Whole NIM, in flip, was up 300 foundation factors sequentially, reaching 22% within the quarter, up from 19% within the prior quarter. This was principally pushed by increased common Leliq yield within the quarter along with a decrease share of nonremunerated reserve necessities. Our Argentine peso loans portfolio additionally contributed to this efficiency with a 60 foundation level enhance in NIM as we proceed to expertise repricing in retail loans.

Turning to Slide 11. Web service payment revenue stays secure sequentially. We noticed a superb development in charges charged, pushed by — earlier than repricing on charges on bundled providers, bank card commissions and in noncredit-related insurance coverage merchandise. This good efficiency nevertheless was largely offset by weak mortgage origination and better commissions paid primarily to debit and bank card processors. Revenue from insurance coverage actions was up mid-single digits sequentially. Written premiums rose up 15% Q-on-Q supported primarily by sturdy development in mortgage and residential insurance coverage in addition to expertise insurance coverage supported by development throughout all different insurance coverage merchandise. We additionally noticed decrease claims paid as we applied the annual rebalancing of the seasonal accident price curve.

Taking a look at asset high quality on Slide 10 — pardon me, Slide 12. We delivered sequential enchancment in mortgage loss provisions, price of danger and the general NPL ratio. Mortgage loss provisions had been down 36% sequentially after totally provisioning a business mortgage that grew to become delinquent within the prior quarter in extra of the 25% regulatory requirement. Price of danger declined to six%. And the whole NPL ratio was down 20 foundation factors to five.1%. Maintaining a cautious method given the persistently excessive rates of interest and weak exercise ranges noticed throughout a number of financial sectors, this quarter we elevated NPL protection to just about 108%.

Lastly, the NPL ratio declined 20 foundation factors sequentially to five.1%, reflecting secure company mortgage NPL ratios and the decrease incidence of the Client Finance phase. And the place we noticed Client Finance mortgage NPL ratios enhance barely sequentially, this was primarily because of decrease mortgage origination the place we noticed a decline in NPL creation.

Turning to Slide 13. We stay targeted on reflecting asset high quality on the Client Finance lending enterprise. This enterprise, which has been essentially the most impacted by the excessive inflationary surroundings, continued to publish improved asset high quality since we applied extra stringent credit score scoring requirements early final 12 months. We skilled sustained, good efficiency in 3-month vintages following the height noticed in February of final 12 months and the slight deterioration within the fourth quarter of final 12 months. Most significantly, Client Finance NPL creation declined for the second consecutive quarter and stood effectively beneath peak ranges reported within the first half of 2018.

Shifting on to bills on Slide 14. We skilled a sequential deterioration within the effectivity ratio. Excluding nonrecurring severance prices of ARS 273 million this quarter and ARS 91 million in first quarter ’19 from streamlining of operations, evaluate of effectivity was practically 59% this quarter in contrast with 58% within the prior quarter. Whereas enhancing working effectivity vary is certainly one of our key strategic goals, effectivity stays impacted by increased personnel bills primarily pushed by necessary wage will increase to regulate to the inflationary surroundings.

Shifting right down to the underside line on Slide 15. Revenue earlier than taxes doubled sequentially, underscoring the power of the franchise and the income technology functionality. This was so even after rising NPL protection to just about 108% and regardless of no recurring bills from the financial institution’s reorganization earlier within the quarter. 12 months-on-year, pretax revenue greater than tripled, reflecting simple comps as second Q ’18 was a very weak quarter. Return on common fairness for the quarter elevated sequentially to 42.2% from 13.6% within the prior quarter whereas return on common belongings improved to 4.7% from 1.5% in first Q ’19.

Notice that beginning this quarter, we’re recognizing inflation adjustment within the revenue tax provision as inflation for the present 12 months based mostly on market consensus is more likely to surpass the 30% threshold established by the tax reform handed by Congress in 2017. Consequently, internet revenue within the second quarter contains the advantage of ARS 664 million comparable to inflation affect from the primary half of the 12 months. Roughly half of this optimistic affect was generated within the first quarter and the opposite half within the second quarter.

On the similar time, our Client Finance lending enterprise remained impacted by increased market rates of interest in its wholesale funding construction whereas asset high quality continued to indicate enchancment after the tightening of its underwriting insurance policies and decreasing publicity. Normalized return on common fairness for Grupo Supervielle excluding the Client Finance lending enterprise would have been 48.5% within the second Q ’19.

Please flip to capitalization on Slide 16. As we defined in additional element in our earnings report, this quarter the Central Financial institution clarified an interpretation with respect to deductions on Tier 1 capital in reference to deferred taxes. Till the primary quarter ’19 and following the IFRS and Basel frameworks, deferred taxes had been deducted from regulatory Tier 1 capital on a internet foundation.

Beginning second Q ’19, we’re required to deduct deferred tax belongings with out offsetting deferred tax liabilities, which resulted in increased deductions on Tier 1 capital. If this standards had been adopted in first Q ’19, the Tier 1 capital ratio for the primary quarter would have been 11.8% as a substitute of 12.1% as reported. Importantly, capital creation contributed with a 90 foundation level enhance in Q1, exceeding the 50 foundation factors consumed by our weighted asset will increase within the interval. Throughout the quarter, we made capital injections of ARS 500 million in our finance firm. We additionally paid ARS 303 million in dividends and obtained ARS 353 million in dividends from our subsidiaries. A complete of ARS 442 million remained on the holdco for future capital injections.

Shifting to the outlook on Slide 17. When trying on the first half outcomes, we’re monitoring forward of full 12 months internet revenue steering supplied earlier within the 12 months. And we’re cautious in regards to the again half of the 12 months. It has at all times been our intention to supply steering of the important thing drivers that will help you perceive the enterprise. This quarter, we’re taking the bizarre and non permanent step of inserting our prior steering underneath revision whereas we proceed to navigate a difficult surroundings compounded by elevated volatility surrounding the presidential election. This makes it more difficult to calibrate steering round a lot of our key enterprise drivers for the again half of the 12 months. We anticipate to replace the funding neighborhood on the important thing metrics when volatility recedes.

This concludes our ready remarks. Operator, now please open the decision for questions.

Query-and-Reply Session

Operator

[Operator Instructions]. Our first query comes from the road of Gabriel Nóbrega with Citi.

Gabriel Nóbrega

I might identical to to know the way has the financial institution ready itself forward of the elections on Sunday. And whereas I do know it could be too early to grasp the impacts from the market actions that we noticed yesterday, might you simply remind us in case you had been internet lengthy or quick {dollars}? And in addition making it in parallel with the peso depreciation that we noticed in 2018, what may very well be doable read-through in your internet monetary margin within the coming quarters? And I am going to ask a second query afterwards.

Jorge Ramírez

Concerning your — the primary a part of your query, we had a impartial place. We closed all of our positions on Friday. We took benefit of the Friday upward market and closed down. So we remained impartial for the election weekend, which was in hindsight the precise factor to do given the excessive uncertainty we had on Friday. No pollster anticipated the outcomes of — this Sunday and positively not the distinction between the two candidates. So we determined the extra cautious method given the uncertainty was to stay impartial.

By way of the second a part of your query, it is a very completely different surroundings, 2019 and the second half of the 12 months to what we skilled in 2018, basically as a result of after we had the main devaluations at the start of final 12 months, second quarter of final 12 months, we nonetheless had the LEBACs in place. And the Central Financial institution had a number of issues when it comes to renewing the LEBACs each 35 days. So clearly, we’re dealing with a really completely different steadiness sheet through which loans to belongings is 49% of whole belongings. So it is considerably decrease than what it was final 12 months. We now have — though we retained — we had plenty of liquidity affect final 12 months, we now have a considerably increased degree of liquidity now. So I do not suppose that we are able to use the expertise of final 12 months when it comes to predicting the affect of the pass-through that this might need on our NIMs going ahead. And it is nonetheless too early within the recreation after the outcomes of the presidential election to have the ability to provide you with a significant forecast. By the best way, that is the explanation why, as I simply defined, we suspended steering in the meanwhile till we now have a transparent image when it comes to what we see coming right here.

Gabriel Nóbrega

All proper. That was very clear. And as for my second query, I do know that it could be too early to say however have you ever begun to expertise any kind of a deposit run? And on this case, might you simply remind us how are your liquidity ratios and if you’re apprehensive on any elements of this?

Jorge Ramírez

We have not seen any runs within the deposits. And as I defined within the presentation, our liquidity ranges as of the top of the quarter and even immediately stand at 65% for peso deposits and 56% — or round 56% for greenback deposits. So we’re extraordinarily liquid. The entire system is extraordinarily liquid and really effectively ready to face any systemic run. So personally and collectively, we — as a workforce, we do not foresee that, that is going to be a serious drawback. We would see the mutual fund trade dealing with some withdrawals and of individuals altering portfolios. And which may affect the costs of some securities as [indiscernible]. However I believe that every thing, the entire system and together with the mutual fund trade as effectively, I believe they’re in a significantly better place than the place they had been final 12 months after we had this one towards the peso.

Operator

Our subsequent query comes from the road of Jason Mollin with Scotiabank.

Jason Mollin

You discuss your liquidity and the asset composition with loans reducing in significance. We have seen, alternatively, a really substantial enhance within the publicity to Leliq and authorities securities, which on the finish of the second quarter represented about 27% of belongings. If we glance final 12 months, taking into account the LEBACs and the federal government securities, I believe it was most likely about half of that or about 14% of belongings. How do you are feeling about your publicity to authorities securities and the Central Financial institution notes? And is that one thing that you’d contemplate adjusting given the present surroundings?

Jorge Ramírez

I imply that is a part of the flexibilization technique that we have been putting in. And it was additionally mentioned a few weeks in the past in New York that clearly mortgage demand has been significantly nonexistent. And our loans in pesos have been flat year-on-year with a cumulative inflation price over 50%, nearer to 60%, for that very same interval.

So we now have had a pointy enhance in liquidity. The entire trade has had that on account of the unwinding of the entire LEBACs program. And the large distinction we now have now’s that the Leliqs are — solely banks can spend money on Leliqs. So these are instruments that the Central Financial institution makes use of for — to keep up and handle liquidity for the general system. So until there’s a large run in deposits systematically towards the peso deposits, there isn’t any place that may go over the LEBACs — over the Leliqs.

So we do not really feel apprehensive about it. If even talked about in greenback phrases, the share of the Leliqs is considerably decrease than what the LEBACs had been at their peak. Yesterday, the analysis had even [indiscernible] the excellent in U.S. {dollars}. The Central Financial institution nonetheless has loads of reserves and is being very cautious and is displaying to be very cautious when it comes to how they’re utilizing them. So clearly, this isn’t the kind of enterprise we might prefer to run. However that is the correct of asset composition and steadiness sheet composition we have to have given the present circumstances and the present surroundings that we’re dealing with.

Jason Mollin

That is useful. Possibly just a few feedback on the FX and what you are seeing, the intervention on behalf of the Central Financial institution and the way your financial institution is managing FX for shoppers? What sort of spreads are you providing them for getting and promoting pesos within the present surroundings?

Jorge Ramírez

Properly, the bid and supply yesterday had been actually very, very huge as a result of it was a extremely unsure day and extremely unstable day. So it is solely now that it has been consistent with what the regional banking trade has been doing. By way of our general publicity, we’re impartial as I defined earlier. And we have been utilizing our greenback mortgage portfolio measured in its authentic forex in addition to with corporates. So we do not anticipate to have a serious affect coming from that.

Operator

[Operator Instructions]. Our subsequent query comes from the road of Yuri Fernandes with JPMorgan.

Yuri Fernandes

I’ve a query relating to Alberto Fernández. For those who can remark any sort of proposal he has for banks like in case you had heard something particularly that it is value flagging? I recall he was a critic of Leliqs previously of this high-yield rate of interest. So if you may as well focus on what could be the affect in your financial institution? And I believe like this may very well be a consent for the market, proper? Because the earlier questions, you have got a giant publicity to authorities secured. And what would occur if there’s a materials change there? So in case you can touch upon the entire of public banks, the entire of Leliqs, any sort of previous laws comparable to subsidizing loans for West and East, I do not know. Something you may present colours that perhaps Fernández had been commenting could be good.

Jorge Ramírez

Sure. I imply Alberto Fernández and the Frente para Todos have not been nonetheless very outspoken when it comes to what they are going — when it comes to the financial insurance policies. Yesterday, he is beginning to — or began to attempt to carry some calm to the market, saying that they don’t seem to be pondering when it comes to any international central issues, that they do not — that they need to — that they are going to honor Argentina’s money owed, that they could sit down with the IMF to renegotiate phrases and situations, however that they are going to — that they’ve the willingness to fulfill all of Argentina’s obligations. And so they have not been any extra particular than that up to now. I believe we will have a bit of extra readability within the subsequent couple of weeks or within the subsequent month, 1.5 months.

Concerning his feedback about Leliqs, I believe that was a part of — I imply that was in the course of the marketing campaign. One in all his chief financial advisers, Guillermo Nielsen, got here out and defined that, effectively, he can’t simply merely not pay the Leliqs and use that cash to pay us. And so I believe that was extra a factor — or extra an expression used within the warmth of the marketing campaign to chastise the federal government due to the present degree of rates of interest slightly than an precise menace when it comes to what they’re planning on doing with the Leliqs going ahead. So once more, summing up only a extra trendy tone after Sunday however not but sufficient readability when it comes to specifics when it comes to what they’re planning on doing.

Only one — let me add only one factor. And I believe — a few of you that we met in New York a few weeks in the past, we had this very same dialogue about what could also be accomplished with the remainder of the earnings. Our financial institution, our group grew plenty, I imply most likely 2/Three of our market share. We grew underneath the years of — when Cristina was in energy. Primarily, if — historically, they’ve been of the thoughts of — that consumption brings development to the financial system. In the event that they need to do and go forward with that sort of insurance policies, our franchise may be very effectively ready to benefit from that due to our Client Finance enterprise plus our window enterprise within the financial institution.

So in a way, what I am attempting to — I believe the message I am attempting to make right here is that in case you’ve labored a few years within the Argentine monetary system as [indiscernible] has had, we have seen our fair proportion of those sadly, if I could add. We want issues to be completely different. However we kind of are used to being on the helm underneath stormy climate. And we have been capable of climate by way of completely different storms all through our skilled careers. That is the rule and that is the best way or the spirit underneath which we’re dealing with this difficult state of affairs.

It is very tough to plan forward long run. However we will deal with issues that won’t change irrespectively of who wins the elections and stay very versatile for the remainder. And I believe that we now have ready the corporate and the completely different corporations of the group in an effort to face this difficult state of affairs. And we’re attempting to maintain as versatile as doable when it comes to attempting to use the precise technique on the completely different moments that we now have to face.

Operator

We now have no additional questions right now. Ms. Bartesaghi, I might now like to show the ground again over to you for closing feedback.

Ana Bartesaghi

Becoming a member of us immediately, we recognize your curiosity in our firm. We stay up for assembly extra of you over the approaching months and offering monetary and enterprise updates subsequent quarter. Within the interim, we stay obtainable to reply any questions that you could have. Thanks, and luxuriate in the remainder of your day.

Operator

Girls and gents, this does conclude immediately’s teleconference. You might disconnect your strains right now. Thanks in your participation, and have an exquisite day.

Grupo Supervielle SA (SUPV) CEO Jorge Ramírez On Q2 2019 Outcomes - Earnings Name Transcript

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Grupo Supervielle SA (SUPV) CEO Jorge Ramírez On Q2 2019 Outcomes - Earnings Name Transcript
Grupo Supervielle SA (SUPV) CEO Jorge Ramírez On Q2 2019 Outcomes - Earnings Name Transcript
Grupo Supervielle SA (SUPV) CEO Jorge Ramírez On Q2 2019 Outcomes - Earnings Name Transcript
Grupo Supervielle SA (SUPV) CEO Jorge Ramírez On Q2 2019 Outcomes - Earnings Name Transcript
Grupo Supervielle SA (SUPV) CEO Jorge Ramírez On Q2 2019 Outcomes - Earnings Name Transcript

Grupo Supervielle SA (SUPV) CEO Jorge Ramírez On Q2 2019 Outcomes - Earnings Name Transcript

Grupo Supervielle SA (SUPV) CEO Jorge Ramírez On Q2 2019 Outcomes - Earnings Name Transcript

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