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Banco Macro SA (NYSE:BMA)

Q2 2014 Earnings Conference Call

August 8, 2014 11:00 AM ET

Executives

Ines Lanusse – IR Officer

Jorge Scarinci – Finance and IR Manager

Analysts

Chris Salgardo – JPMorgan

Santiago Louis – Raymond James

Operator

Good morning ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to Banco Macro’s Second Quarter 2014 Earnings Conference Call. We would like to inform you that the second quarter 2014 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; Ines Lanusse, IR Officer 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

Good morning and welcome to Banco Macro second quarter 2014 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 second quarter 2014 press release was distributed last Wednesday and 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 431 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 second quarter 2014 financial results. Banco Marco’s net income for the quarter was Ps.732.6 million, or 59% higher than the Ps.460.4 million earned one year ago. In the quarter net financial income totaled Ps.1.7 billion or 44% higher than the Ps.1.2 billion registered one year ago,

This performance can be traced to a 63% year-on-year increase in financial income, and an 88% year-on-year increase in financial expenses.

Within financial income interest on loans rose 47% year-on-year due to an increase of 580 basis points in the average private lending interest rates. The second quarter 2014, interest on loans represented 80% of the total financial income, compared to the 69% in the first quarter of 2014.

On the other hand, net income from government and private securities increased 109% quarter-on-quarter due to higher income from government securities, especially LEBACs and NOBACs, and a higher volume also of these LEBACs and NOBACs.

Income from foreign currency also decreased 74% year-on-year due to a lower asset position revaluation caused by a deceleration in the depreciation of the Argentine business.

Meanwhile, within financial expenses, interest on deposits grew 100% year-on-year due to an increase of 810 basis points in the average time deposits interest rates, and a higher average volume of these deposits. Excluding asset gains, the former combined effects resulted in an increase of the Bank’s net interest margin from 12.3% as of the second quarter 2013 to 15.7% as of the second quarter of 2014.

Had we also excluded bond days and warranty loss in this calculation, the Bank’s net interest margin would have also remained stable on a yearly basis. The Bank’s net fee grew 29% year-on-year mainly driven by fee charges on deposits account and debit and credit card fees.

Administrative expenses rose 31% year-on-year, mainly due to an increase in personnel expenses mainly higher salaries and operating expenses. The increase in personnel expenses is based on the effective payment for salary increases in line with the salary increases as we leave the unions on April 2014. The accumulated efficiency ratio reached 44% compared largely improving from the 52.8% level posted on second quarter of 2013.

As of June 2014, Banco Macro’s effective income tax rate was 34.7%, compared to the 38.9% registered as of June 2013. In terms of loan growth, the Bank’s financing to the private sector slightly decreased 0.5% quarter-on-quarter and increased 16% year-on-year among which commercial loans from productive investments have been included. Credit card loans and personal loans also grew year-on-year.

On the funding side, total deposits grew 9% quarter-on-quarter and 30% year-on-year. Private sector deposits grew 7% on a quarterly basis, and public sector deposits also grew 22%.

Also on a quarterly basis, within private sector deposits, an increase in foreign currency and peso deposits was observed of 13% and 6% respectively. As of June 2014, Banco Macro’s transactional accounts represented approximately 46% of the total deposits and therefore the Bank’s average annualized cost of funds was 12%.

In terms of asset quality, Banco Macro’s non-performing to total financing ratio reached 2.02% from last year’s levels of 1.88%. The coverage ratio reached 133.07%. In terms of capitalization, Banco Macro accounted an excess of capital of Ps.5.1 billion, which represented a capitalization ratio of 23.2%. The Bank’s aim is to make the best use of this excess capital.

The Bank’s liquidity remained healthy. Liquid assets to total deposits ratio reached 44.3%. 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 standards. We have one of the cleanest balance sheets in Argentina’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

(Operator Instructions) The first question comes from Chris Salgardo of JPMorgan. Please go ahead.

Chris Salgardo – JPMorgan

Hi, good morning. Thanks for taking my call. Just a quick question in terms of consumer loans. I know that you very recently announced rate caps on consumer loans. I just wanted to get a sense of what you thought the financial impacts might be in terms of net interest margin and then also in terms of loan growth?

Jorge Scarinci

Hi, Chris, this is Jorge Scarinci. In terms of caps, I think that the impact on the net interest margin is not going to be a big one. Of course, I think that it is hard to say or to quantify right now the impact on the – this is much about, what we have seen in the quarter is that this decrease in the margin was basically accountable so far decline on the rates.

Going forward in terms of loan demand, I think that this cap rates may be marginally felt in terms of loan demand, but I think that the base of the economy in Argentina are much more going to influence on the loan demand rather than the caps on the interest rate.

So, bottom-line I am not seeing major impacts on these – cap on these rates in order to influence the loan demand, I mean.

Chris Salgardo – JPMorgan

Okay, great. Thanks.

Operator

(Operator Instructions) The next question comes from Santiago Louis of Raymond James. Please go ahead.

Santiago Louis – Raymond James

Hi, my question has been answered. Thank you.

Operator

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

Ines Lanusse

Okay, thank you for your time. Have a good day. Bye.

Operator

The conference call has ended you may disconnect your lines.

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