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Banco Macro S.A. (NYSE:BMA)

Q4 2012 Earnings Call

February 15, 2013 11:00 am ET

Executives

Jorge Scarinci – Finance and IR Manager

Analysts

Federico Rey – Raymond James

Alonso Aramburo – BTG Pactual

Boris Molina – Santander Investment Securities Inc.

Operator

Good morning ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to the Banco Macro’s Fourth Quarter 2012 Earnings Conference Call. We would like to inform you that the fourth quarter 2012 press release is available to download at the Investor Relations website of Banco Macro, www.ri-macro.com.ar.

Also this event is being recorded and all participants will be in a listen-only mode during the Company’s presentation. After the Company’s remarks are completed, there will be a question-and-answer session. At that time, further instructions will be given. (Operator Instructions)

It is now my pleasure to introduce our speakers. Joining us from Argentina are Mr. Jorge Pablo Brito, member of the Executive Committee; Mr. Guillermo Goldberg, Commercial Deputy General Manager; Mr. Jorge Scarinci, Finance and IR Manager; and other members of the Bank’s management team.

Now, I will turn the conference over to Mr. Jorge Scarinci, Finance and IR Manager. You may begin your conference.

Jorge Scarinci

Good morning and welcome to Banco Macro fourth quarter 2012 conference call. Any comment we will make today may include forward-looking statements which are subject to various conditions and these are outlined in our 20-F which was filled to the SEC and is also available at our website. The fourth quarter 2012 press release was distributed yesterday and now it is also available at our website.

Banco Marco is one of the leading private banks in Argentina, with a strong presence in the interior of the country and a branch network of 428 branches. Even though we are a universal bank, we focus on low-to-middle income individuals and SMEs. Banco Marco is a financial agent of four provinces in Argentina, Salta, Jujuy, Misiones, and Tucuman.

I will now briefly comment on the Bank’s fourth quarter 2012 financial results. Banco Marco’s net income for the quarter was Ps.425.8 million, or 23% higher than the Ps.346.4 million earned one year ago. The Bank’s accumulated annualized 2012 ROE and ROA of 27.1% and 3.3% respectively remains healthy and shows the Bank’s earnings potential.

Nevertheless, Banco Marco accounted additional provisions for the payment of bonuses and a one-time payment of Ps.80 million in the quarter. This payment of bonuses and provisions had been excluded four quarter 2012 net income would have been Ps.505.8 million, and the result would have represented an ROAE and ROAA of 33.1% and 4.2% respectively.

On a fiscal year basis, Banco Macro earned Ps.1.5 million into 2012, or 27% higher than the Ps.1.2 billion earned in 2011. In the quarter, net financial income totaled Ps.1.1 billion or 24% higher than the Ps.902.3 million registered one year ago. This performance can be traced to a 31% year-on-year increase in the financial income, and a 40% year-on-year increase in financial expenses.

Within financial income interest on loans rose 35% year-on-year due to a 26% growth in the average loan portfolio, and a 165 basis point increase in the average lending interest rates. In the fourth quarter 2012, interest on loans represented 86% of total financial income, compared to the 84% in the fourth quarter of 2011. On the other hand, net income from government and private securities decreased 29% year-on-year due to lower income from government securities, mainly LEBACs and NOBACs, which was justified by a smaller average portfolio of these securities.

Meanwhile, within financial expenses, interest on deposits grew 44% year-on-year due to a 26% increase in the average volume of deposits, and a 144 basis points increase in the average time deposit interest rates. The former combined effects resulted in an increase of the Bank’s net interest margin from 10.9% in the fourth quarter of 2011 to 11.9% in [Technical Difficulty]

Operator

Ladies and gentlemen, this is the operator. I apologize that there will be a slight delay in today’s call. Please hold and the conference will resume momentarily. Thank you for your patience.

Jorge Scarinci

Okay everyone, I would like to apologize for this cut off. I was just commenting on the Bank’s loan growth. I will repeat that the Bank’s financing to the private sector grew 9% quarter-on-quarter and 28% year-on-year along which loans for productive investments have been included, credit cards and personal loans also good in the quarter.

On the funding side, total deposit grew 4% quarter-on-quarter and 24% year-on-year, private sector deposits grew 5% on a quarterly basis, and public sector deposits also grew 1%. Within private sector deposits, an increase in peso deposits of 7% was observed, while foreign currency deposits decreased 4%. As of December 2012, Banco Marco transactional account represented approximately 46% of total deposits, and therefore the Bank’s average annualized cost of funds was 8%.

In terms of asset quality, the Banco Macro’s non-performing to total financing ratio reached 1.78% compared to last year’s level of 1.49%, and the coverage ratio reached 154.5%. In terms of capitalization, Banco Marco accounted with excess capital of Ps.2.1 billion, which represented a capitalization ratio of 19%. Even though in the fourth quarter of 2012, the new operational risk requirement increased to 100% from 75% on the previous quarter and the credit risk requirement increased due to the loan portfolio growth. The Bank’s aim is to make the best use of this excess capital.

The Bank’s liquidity remains healthy. Liquid assets to total deposits ratio reached 31.7%. Therefore, Banco Marco accounted for another positive quarter. We continue showing a solid financial position. Asset quality is under control, and closely monitored. We continue working to improve more over efficiency standard. We got one of the cleanest balance sheet in Argentina’s banking sector, and we keep a well optimized deposit base, which is one of the lowest cost of funds in Argentina’s banking sector.

So operator at this time we would like to take the questions that people might have. Thanks.

Question-and-Answer Session

Operator

Thank you. (Operator instructions) And your first question comes from the line of Federico Rey with Raymond James.

Federico Rey – Raymond James

Yes. Hi, good afternoon.

Jorge Scarinci

Hi.

Federico Rey – Raymond James

I have two questions with regarding to the varying credit losses. Have you mentioned, tell us what’s the reason of the increase in the quarter. Is this related to the transfer of the loan portfolios of the corporate client that you mentioned in the press release? And the second question is regarding margins, I would like to have your view in (inaudible) of what do you think going forward, considering expansion of the loan book and the expansion that could be driven by the implementation of the New Central Bank, in relation that would like banks to expand or what you will allocated, an additional 5% of the deposits into investment process? Thank you.

Jorge Scarinci

Hi, Federico. Your first question in terms of the credit losses. Now, we highlighted to you that part of the provisions in the quarter was related to this commercial client, basically, and to a minor extent, increasing the loan portfolio impact on the provision for the quarter. The main factor was the change in the category or the downgrade in the category on this commercial client that impacted in the provisions of the quarter.

Second question, related on margins going forward, in terms of interest rates, we are expecting margins to be relatively stable. Honestly, we are not expecting the impact on these additional 5% of deposits to be extended on these investment productive loans, to impact on our others margins and we demonstrated that in the third and the fourth quarter of 2012, when we continue maintaining or even increasing or widening our margins, even though we were extending those type of loans. So going forward in 2013 in terms of interest rate margins, we are seeing them relatively stable.

Federico Rey – Raymond James

Okay. Well, thank you.

Jorge Scarinci

Thank you.

Operator

(Operator Instructions) Now, we’ll pause for just a moment to compile the Q&A roster. Your next question comes from the line of Alonso Aramburo with BTG Pactual.

Alonso Aramburo – BTG Pactual

Hi, good morning. Thank you for the call. Two questions. One is can you give us some clarity of as to what was that $80 million provision that you have booked in the quarter? And second, can you give us a sense of what sort of pledged loans or NPL that you’re expecting for 2013? And what kind of levels of provisions should we expect in the back of that?

Jorge Scarinci

Hi, Alonso, how are you?

Alonso Aramburo – BTG Pactual

Fine…

Jorge Scarinci

To your first question, so mentioned in the press release, the provision for the payment for bonuses that we allocated in the fourth quarter, and also the one-time payment to the bank deed, and also that the whole banking sector is for the Bankers Day. So that accounted for the Ps.80 million provisions that we accounted in the administrative expenses, in the quarter.

In terms of your second question, pledged loans, going forward we’re expecting to, of course, nominally keep on growing in loans that will be reflected in the provisions. In terms of that view, we are not foreseeing or forecasting an increase in employment, we are seeing that relatively stable. The economy is expected to grow a little bit higher than what it grew in 2012. Therefore, we are not forecasting major change in deposit loans. We could be a in the range of 2% of pledged loans to total loans in 2013.

Alonso Aramburo – BTG Pactual

Great. Thank you.

Jorge Scarinci

You’re welcome.

Operator

Your next question comes from the line of Boris Molina with Santander.

Boris Molina – Santander Investment Securities Inc.

Yes, good morning Jorge Scarinci. Thanks for taking my call. A couple of questions. The first one is a little bit related to your outlook for the year in terms of volume growth. So there was a substantial pick up in consumer credit in the fourth quarter, a bit more stronger than we’d probably expected. So, I don’t know if you detected a change in the behavior of consumers related to restriction in dollars where they’re borrowing more with some mortgage as they substantially done in many, many banks, or maybe you could add some color what you’re seeing in terms of demand of credit and how the outlook looks for the year where you still continue to expect mid 20% loan growth or lower or if these things could happen? Thank you.

And my second question has to do with a little bit of an outlook of, you know, what we would expect from capital consumption, capital regulation going forward? I would see the last of the operating and market cap consumption increases that that were stated for the year or could we expect more capital consumption going forward or other regulatory actions that might affect this one…

Jorge Scarinci

Hey, Boris. In loan growth we’re expecting to have a nominal loan growth of, range of 30 or plus percent in 2013. We are not seeing major changes on consumers basically on their behavior on taking loans. I would think that we could see a pick up in between the first and second quarter of this year, basically because we are expecting salaries increases to be made in throughout the economy, between March and May. So the capacity for taking loans will increase there. But in terms of the behavior, we are not seeing changes, which I’m not seeing changes in the past; we’re expecting major changes in the near future or at least in 2013.

In terms of your second question of capital regulation, the Central Bank is putting out several measures and requirements in order to conduct a capital requirement to be vis-a-vis what this process requirement. So this is going to take at least a couple of more years, and the Central Bank is working on that. You have to take into account that the whole banking sector in Argentina is very well capitalized with very low level of due and low level of capital risk. And therefore, I am not seeing major impacts on the banking or at least on the major bank in Argentina to acquire, to adequate to these new regulations that the Central Bank has been putting out. And again that will take at least two or three more years in order to be…

Boris Molina – Santander Investment Securities Inc.

Thank you. One question do you expect any changes in terms of a couple of commercial credit demand, or is it still going to remain some dividend growth more driven by the consumers and mortgages?

Jorge Scarinci

We are seeing that consumers continue to demand our personal loans or credit cards loans in order to have a total pace against the increasing price over the inflation. In terms of the commercial behavior, we’re seeing that that is picking up basically on some companies that want to take these loans for their productive investment that’s been put out by the government. Apart from that, what we’re seeing that demand for commercial lending continues to be relatively shortened between one month or six months, no further than that, but no other changes or different things than that.

Boris Molina – Santander Investment Securities Inc.

Okay, wonderful. Thank you.

Jorge Scarinci

You’re welcome.

Operator

Your next question comes from the line of (inaudible).

Unidentified Analyst

Yes. Hi. Thank you for taking question. I was just wondering what you saw the prospect this year as for the peso and in particular, if there happen to be a very sharp devaluation at some point, what impact would that have on the Bank? Thank you

Jorge Scarinci

Probably, thanks for your question. And what we are seeing for this year (inaudible) loan loss for the depreciation on the peso. Is that correct?

Unidentified Analyst

Yes, that’s correct. Yes.

Jorge Scarinci

According to our estimate, we expect that the peso to depreciate against the U.S. dollar between 17% and 20% this year, and in relation to that on the impact on Banco Macro’s balance sheet, you would know well that is also stated and posted in our press release. We have a long position in U.S. dollars. And therefore, that will represent an income between 17% and 20% and that position that would have U.S. dollars.

Unidentified Analyst

Okay, thank you.

Jorge Scarinci

You’re welcome.

Operator

(Operator Instructions) And there are no questions at this time. This concludes the Q&A session. I will now turn call over to Mr. Jorge Scarinci for final considerations.

Jorge Scarinci

Okay. We’d like to thank everyone for taking your time to listen to our call. Of course, this call is also recorded. Well, thanks everyone. Have a good weekend. Bye-bye.

Operator

This concludes today’s conference call. Thank you for your participation. You may now disconnect.

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