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Banco Macro SA (NYSE:BMA)

Q3 2013 Earnings Conference Call

November 12, 2013 11:00 ET

Executives

Ines Lanusse - IR Officer

Jorge Scarinci - Finance and IR Manager

Analysts

Federico Rey - Raymond James

Arthur Byrnes - Deltec

Alonso Aramburo - BTG Pactual

Operator

Good morning, ladies and gentlemen and thank you for waiting. At this time, we would like to welcome everyone to Banco Macro’s Third Quarter 2013 Earnings Conference Call. We would like to inform you that the third quarter 2013 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 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 Mrs. Ines Lanusse, IR Officer. You may begin your conference.

Ines Lanusse - IR Officer

Good morning and welcome to Banco Macro’s third quarter 2013 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 filed to the SEC and is available at our website. Third quarter 2013 press release was distributed last Friday and it is also available at our website.

Banco Macro 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 Macro is a financial agent of four provinces in Argentina; Salta, Jujuy, Misiones, and Tucuman.

I will now briefly comment on the Bank’s third quarter 2013 financial results. Banco Macro’s net income for the quarter was 571.9 million pesos, or 39% higher than the 411.9 million pesos earned one year ago. The Bank’s accumulated annualized third quarter 2013 ROE and ROA of 28.3% and 3.8% respectively remains healthy and shows the Bank’s earnings potential. In the quarter, net financial income totaled 1.6 billion pesos or 46% higher than the 1.1 billion pesos registered one year ago. This performance can be traced to a 47% year-on-year increase in financial income and 48% year-on-year increase on financial expenses.

Within financial income, interest on loans rose 42% year-on-year due to a 24% growth in the average loan portfolio and a 283 basis point increase in the average private sector lending interest rates. In third quarter 2013, interest on loans represented 82% of total financing income. On the other hand, net income from government and private securities increased 167% year-on-year due to higher income from government securities, mainly variable interest rates, in which Banco Marco had invested in previous quarters. Meanwhile within financial expenses, interest on deposits grew 47% year-on-year due to a 21% increase in the average volume of interest bearing to process at a 287 basis points increase in the average time deposit interest rates.

The former combined effect resulted in an increase of the Bank’s net interest margin from 11.7% as of third quarter 2012 to 13.3% as of third quarter 2013. And we excluded bond days and warranty loss, including CER adjustment on the calculation the Bank’s net interest margin would have returned to a further 13.6% from last year’s levels of 12.2%. The Bank’s net fee grew 22% year-on-year based on debit and credit card fees and fees on deposits.

Administrative expenses rose 34% year-on-year, mainly due to an increase in personnel expenses and higher operating expenses. The increase in personnel expenses can be traced to the salary increase agreed with the unions back in May 2013 and other additional provisions accounted. The accumulated efficiency ratio reached 50.9% compared to the 50.4% posted in third quarter of 2012.

As of September 2013, Banco Macro’s effective income tax rate was 42.5%, compared to the 38% registered as of September 2012. This increase was due to certain concepts which are deductable from the financial statements, but are not deductable from the taxable financial statement resulted in a higher taxable income. In terms of loan growth, the Bank’s financing to the private sector grew 8% quarter-on-quarter. On a yearly basis the Bank’s financing to the private sector grew 27% year-on-year among which mortgages and pledged loans stand out indicating the impact of the productive investment loans in our loan portfolio. Credit card loans and personnel loans also grew during the quarter.

On the funding side, total deposits grew 6% quarter-on-quarter and 20% year-on-year. Private sector deposits grew 9% on a quarterly basis, while public sector deposits decreased 7%. As of September 2013, Banco Macro’s transactional accounts represented approximately 44% of the total deposits and therefore the Bank’s average annualized cost of funds was 9.4%.

In terms of asset quality, Banco Macro’s non-performing to the total financing ratio reached 1.76% from last year’s levels of 1.60%. The coverage ratio reached 147.45%. In terms of capitalization, Banco Macro accounted an excess of capital of 3.0 billion peso, which represented a capitalization ratio of 23.1%. The Bank’s aim is to make the best use of this excess capital.

The Bank’s liquidity remains appropriate. Liquid assets to total deposits ratio reached 30.2%. Banco Macro accounted for another positive quarter. We continued showing a solid financial position. Asset quality is under control and closely monitored. We continue working to improve more our efficiency standard. We have one of the cleanest balance sheets in Argentine’s banking sector. And we keep a well optimized deposit base, with one of the lowest cost of funds in Argentine’s banking sector.

At this time, we would like to take the questions you may have.

Question-and-Answer Session

Operator

Okay, at this time we are going to open it up for questions-and-answers. (Operator Instructions) The first question comes from Federico Rey of Raymond James. Please go ahead.

Federico Rey - Raymond James

Hi, good morning and thank you for the call. I have a question regarding the income line. During the quarter you posted a higher charge – I mean higher fee expenses and you are mentioning that this is related to the position of the credit card brand. I would like to understand if this is a non-recurring item or you expect to continue having this type of expenses? Thanks.

Jorge Scarinci

Hey, Frederico, this is Jorge Scarinci. Yes, I think that was a kind of non-recurring expense in the third quarter. We expect that level of expense not to be seen in the coming quarters. There were big company loans by the Bank in terms of credit cards that was provisioned in the third quarter.

Federico Rey - Raymond James

Okay, thank you.

Jorge Scarinci

You’re welcome.

Operator

The next question comes from Arthur Byrnes of Deltec. Please go ahead.

Arthur Byrnes - Deltec

Could you remind us investors what portion of your lending portfolio has to confirm to government standards and what the effect is on your bottom line. What I am talking about is so much money to the agricultural sector, so much percentage to whatever other sectors you were forced to lend?

Jorge Scarinci

Hi. Thanks for your question. You know that these kind of loans to the productive sector, the Central Bank has been pushing through the last requirements accounts to 50% of our private sector deposits. And that’s the level or even a level this 5% in three tranches. Of course, the first tranche that’s finished that will feature in the second half of 2012 is now amortizing. So that exposure of these kind of loans. In terms of the impact in bottom line you know that these type of loans had a fixed rate in pesos that was originally 15%, now the last tranche is 15.25%. Of course if you look at compared to the average lending rate that we are having is like between six to seven percentage points below. Nevertheless, this type of loans is not effected the Bank’s liquidity or any other issues that we are investing or issuing these type of loans at a lower rate than the other rates. So in terms of earnings, we are of course earnings a bit less that we should be learning if we were lending that amount of loans at the average lending rate.

Operator

(Operator Instructions) And we have a question from Alonso Aramburo of BTG Pactual. Please go ahead.

Alonso Aramburo - BTG Pactual

Hi, good morning. Thank you for the call. I was wondering if you can comment a little bit on margins, there has been increases in the deposit rates in recent months and then how you expect this to evolve over the next couple of quarters?

Jorge Scarinci

Hi, well, even though what are a slight increasing in the CDs rates in the last month, we have deposit in the quarter even though larger banks was able to expand the net interest margin, that means that the banks have the ability to translate that into the re-pricing of assets at the same time or even slightly faster. Going forward, we are seeing some stability of slightly increasing trend in terms of funding rates.

Alonso Aramburo - BTG Pactual

Okay, thanks. So you will expect the deposit rates or the (indiscernible) rates roughly to stay at current levels?

Jorge Scarinci

Current levels are slightly increasing. Of course, it will depend on what happens with the Central Bank printing money and it will have a more flow of pesos coming to the market depending what’s happening with the Central Bank. On the FX market the Central Bank will buy or sell dollars, so depending on those factors we are seeing stable or rather slightly increasing CDs interest rate.

Alonso Aramburo - BTG Pactual

Okay, thank you.

Operator

(Operator Instructions) There are no questions at this time. This concludes the question-and-answer session. I will now turn the call over to Ms. Ines Lanusse for final considerations.

Ines Lanusse - IR Officer

Thank you all for your interest in Banco Macro. We appreciate your time and look forward to speaking with you again. Have a good day.

Operator

This concludes the conference. You may now disconnect your lines.

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