Banco BBVA Argentina S.A. (BBAR) on Q4 2021 Results - Earnings Call Transcript
Operator: Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to BBVA Argentina's Fourth Quarter and Fiscal Year 2021 Results Conference Call. We would like to inform that this event is being recorded. First of all let me point that some of the statements made during this conference call may be forward-looking statements within the meaning of the Safe Harbor provisions found in Section 27A of the Securities Act of 1933 under US Federal Securities Law. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. Additional information concerning these factors is contained in BBVA Argentina's annual report on Form 20-F for the fiscal year 2019 filed with the US Securities and Exchange Commission. Today with us we have Mr. Ernesto Gallardo, CFO; Ms. Ines Lanusse, IRO; and Ms. Belén Fourcade, Investor Relations. Ms. Fourcade, you may begin your conference.
Belén Fourcade : Good morning, everyone, and welcome to the BBVA Argentina fourth quarter and fiscal year 2021 earnings conference call. Before we begin our formal remarks, let me stress that some of the statements made during the course of this conference call may constitute forward-looking statements which are based on management's current expectation and beliefs, and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements, including factors that may be beyond the company's control. For a description of this risk, please refer to our SEC filings and our earnings release, which are available at our Investor Relations website ir.bbva.com.ar. Speaking during today's call will be Ines Lanusse and Ernesto Gallardo, our Chief Financial Officer, who will be available for the Q&A session. Please note that starting January 1, 2020 as per Central Bank's regulations, we have begun reporting results applying hyperinflation accounting in pursuant to IFRS rule IAS 29, for ease of comparability, 2020 and 2021 figures have been restated to reflect the accumulated effect of the inflation adjustment for each period through September 31, 2021. Now let me turn the call over to Ines.
Ines Lanusse: Thank you, Belén. And thank you all of you for joining us today. The pandemic situation improved during the second half of 2021, which enabled the recovery of the economic activity. This situation has had a positive impact on the financial system as a whole, which holds strong to cope with a challenge that still persist in the short term. BBVA Argentina has a corporate responsibility with society inherent into the bank's business model, which bolsters inclusion, financial education and support scientific research and culture. The bank works with the highest integrity, long-term vision and best practices. And it is present through the BBVA Group in the main sustainability indexes. With respect to digitalization, our service offering has evolved in such way that by December 2021, digital clients penetration reached 74% from 72% a year back while that mobile clients reach 64% from 60% in the same period, the response on the sight of customers has been satisfactory, and we are convinced this is the path to pursue in the aim of sustaining and expanding our competitive position in the financial system. The bank actively monitors its business, financial conditions and operating results in the aim of keeping a competitive position to face the contextual challenges. I will not comment on the banks fourth quarter 2021 and fiscal year 2021 financial results. BBVA Argentina 2021 net income was $21.2 billion, $27.1 million higher than the $16.6 billion reported in 2020. This implied and accumulate analyze ROAE of 13.5% and an ROAA of 2% in 2021 compared to the accumulated annualized ROAE of 10.9% and an ROAA of 1.7% in 2020. The increment in the bank's operating income is mainly explained by one, an increase in interest on fee income, the later mostly hazed by the implementation of a new reward program with credit card benefits, which meant savings in fee expenses, two, lower net loss from write-down of asset at amortized cost and fair value through OCI and three, lower loan loss allowances, mainly due to a good evolution in the behavior of our loan portfolio. It should be noted that in 2020, results were affected by the partial collection of payments and voluntary swap of the National Treasury US dollar link notes, LELINK, which had been restructured in August 28, 2019. And that generated a loss in the line net loss from write-down of asset at amortized cost and fair value through OCI. Another factor to be highlighted is the income tax line, accumulated income tax during 2021 recorded a gain of $80 million. The first and second quarter of 2021 were affected by the reversal of a provision connected to the repayment of income tax inflation adjustments for 2016, 2017 and 2018 fiscal years, excluding the effect of actions of declaratory judgment during the year, the effective tax rate would have been 30% for 2021, compared to an effective tax rate of 43% in 2020. The accumulated net income for 2021 net of the effect of actions of the declaratory judgment on the tax line would have been $15.7 billion decreasing 5.6% versus the accumulated net income for 2020. This exclusion would have meant an accumulated ROAE of 10.2% and an accumulated ROAA of 1.5%. Additional to these factors, net income was affected by the income from the monetary position in a context of higher inflation. BBVA Argentina fourth quarter 2021 net income was $4.8 billion increasing 27.8% quarter-over-quarter. This implied our quarterly ROAE of 11.8% and a quarterly ROAA of 1.8%. Quarterly results are mainly explained by one; lower loan loss allowances, especially due to a satisfactory behavior of the loan portfolio, two; a greater fall in interest expenses and three, lower administrative expenses. The increase in the result is offset by one; lower net fee income due to higher activity, two; higher expenses in other operating expenses line item due to the recording of a new provision for amortization charges and three, a higher loss from the net monetary position. Turning into the P&L lines, net interest income for the fourth quarter of 2021 was $33.6 billion increasing 4.3% quarter-over-quarter and 13.9% year-over-year. In the fourth quarter of 2021, interest income decrease less than interest expenses, mainly due to one; higher income from interest from loans another financing, two, increases in the income from 0:08:58.9 said workflows adjustment and three, an improvement in the funding mix. In the fourth quarter 2021, interest income total $55.9 billion falling 2.5% compared to the third quarter of 2021 and increasing 15.7% compared to the fourth quarter of 2020, quarterly decrease is mainly driven by lower income from premium or reverse repo transactions, especially due to a lower position in this 0:09:30.9 instrument as a result of higher activity. This fall was partially offset by a 4.7% increase in loss adjustment, mostly on income from government securities linked to SAT indexes, and a 4.5% increase in interest from loans and other financing. Interest expenses totaled $22.3 billion denoting an 11.3% decrease quarter-over-quarter and an 18.4% increase year-over-year. Quarterly decrease is described by lower checking account expenses partially offset by higher expenses by inter financial loans received by the bank subsidiaries. Interest from term deposits and investment accounts explained 76.6% of interest expenses versus 71.5% the previous quarter. Net fee income as of the fourth quarter 2021 total $5.8 billion, falling 14.5% quarter-over-quarter and increasing 37.9% year-over-year. In the fourth quarter of 2021, fee income total $11.6 billion growing 1.6% quarter-over-quarter and 1.8% year-over-year. The quarterly growth is mainly explained by an increased income from credit cards due to higher activity and those links to loans. Regarding fee expenses, these totaled $5.7 million growing 25.6% for a quarter and falling 19.6% year-over-year. Higher expenses in the quarter are partially explained by higher expenditures linked to an increase in marketing actions, higher consumption and a strategy of favorable business acquisition. During the fourth quarter of 2021, personnel benefits and administrative expenses totaled $16.2 billion falling 8.9% compared to the third quarter of 2021 and growing 11% compared to the fourth quarter 2020. The accumulated efficiency ratio as of the fourth quarter of 2021 was 69.1% improving compared to the 69.7% and deteriorating versus 56.8% reported in the third quarter of 2021 and in the fourth quarter of 2020 respectively. The quarterly improvement is explained by a higher percentage increase in the denominator that the numerator which has been positively affected by improvement in net fee income and net interest income, excluding inflation adjustment considered in the income from the monetary position line item, the fourth quarter 2021 accumulated efficiency ratio would have been 49.4% marginally improving compared to the 49.7% of the third quarter of 2021 and deteriorating compared to the 45.1% in the fourth quarter of 2020. In terms of activity, private sector loans as of the fourth quarter of 2021 total $388.4 billion increasing 3.7% quarter-over-quarter and falling 11.1% year-over-year. Loans to the private sector in pesos increased 6.8% in the fourth quarter of 2021 and decrease 6.5% year-over-year. During the quarter growth is especially driven by a 23.6% increase in other loans, and 19.9% increase in discount instruments and 3.2% increase in credit cards. The later primary explained by our Ahora programs. Loans to the private sector denominated in foreign currency fell 29.2% quarter-over-quarter and 51.8% year-over-year, quarterly decrease is mainly explained by a 24.8% fall in pre-financing and financing of exports and 100% fall in discounted instruments and a 17.7% fall in other loans. All the aforementioned indicates a lack of demand of loans in foreign currency. In real terms, retail loans have increased 2.2% quarter-over-quarter and fallen 7.9% year-over-year. During the quarter the greater increase are seen in consumer lines with a 4.1 increment, followed by a 3.1 growth in credit cards. Commercial loans grew 6.1% quarter-over-quarter and contracted 16.2% year-over-year both in real terms, growth in commercial loans in the quarter was primarily motivated by marketing campaigns during the fourth quarter of 2021. Loan portfolios are mainly impacted by the effects of inflation in the fourth quarter of 2021, which lead 10.2%, in nominal terms, the retail, commercial and total loan portfolio all increased 12.6%, 17% and 14.3% respectively during the quarter, well beyond real term growth. BBVA Argentina consolidated market share of private sector loans reached 8.05% as of the fourth quarter of 2021, from 8.49% a year ago. As of the fourth quarter of 2021, the total loans and other financing over deposit ratio was 55.4%, above the 54.5% recorded in the third quarter of 2021 and below the 61.2% in the fourth quarter of 2020. In the fourth quarter of 2021, asset quality ratio was 1.87% compared to the 2.54% recorded in the third quarter of 2021. The decrease is mainly explained by one, a satisfactory behavior of the loan portfolio, two, and the write- off of non-performing loans mainly retail, and three, an important increase in the total loan portfolio. The coverage ratio was 181.89% in the fourth quarter of 2021 versus the 181.75% recorded in the third quarter of 2021. The change in the ratio reflects a similar variation in allowances mainly due to the update and improvement of the IFRS 9 impairment loss model parameters with most impact on the retail portfolio and the total nonperforming low portfolio. Cost of risk reached 0.46% as of the fourth quarter 2021 lower than the third quarter of 2021, 2.80%. This is mainly explained by the reduction in loan loss allowances as a result of the annual update of IFRS 9 impairment model parameters and an improvement in the sovereign rating for the commercial portfolio, upgrading the commercial loans portfolio rating. This was offset by the negative effects of the new default definition implemented in November 2021. Exposure to the public sector excluding Central Bank instruments in the fourth quarter of 2021 represented 8% of total assets above the 6.9% in the third quarter of 2021 and the 5.6% in the fourth quarter 2020. On the funding side as of the fourth quarter of 2021, total deposits reach $708.3 billion growing 1.9% quarter-over-quarter and falling 1.9% year-over-year. Private non-financial sector deposits in the fourth quarter of 2021 total $394.8 billion, increasing 1.6% quarter-over-quarter and falling 2.4% year-over-year. Private non-financial sector deposits in pesos filled up $531.9 billion increasing 6.1% compared to the third quarter of 2021 and 4.7% compared to the fourth quarter of 2020. The quarterly growth is mainly explained by the increase site deposits, especially checking accounts, non-interest bearing and saving accounts. This was partially offset by a 7.8% decrease in time deposits. Private loans financial sector deposits in foreign currency expressed in pesos fell 10.6% quarter-over-quarter and 20% year-over-year. Measured in US dollars this deposits fell 5.3% quarter-over-quarter and 1.2% year-over-year. As of the fourth quarter of 2021, the banks transaction and deposit, checking accounts and savings accounts represent 65.6% of total non-financial private deposits versus 63% in the third quarter of 2021. The bank's consolidated market share of private deposits reach 6.95% as of a fourth quarter of 2021 from 7.13% a year ago. In terms of capitalization BBVA Argentina continues to show strong solvency indicators as of the fourth quarter 2021. Capital ratio reach 20.8% lower than third quarters of 2021, 23.5% mostly due to the announcement of dividends distribution on November 3, 2021 for $6.5 billion. Tier 1 ratio was 20.3% and capital excess over regulatory requirements was $88.5 billion or 154.5%. It is worth mentioning that since 2020, the bank shareholders meeting have announced dividends for a total of $28 billion which remain pending of distribution. Given that the Central Bank started a suspension in the distribution of results of financial institutions until December 31, 2021. Now that the suspension has been lifted, the bank will proceed to work on the authorization request to the regulator once its 2021 results are approved by the shareholders meeting. The bank's liquidity duration pesos and dollars remain healthy at 72% and 92.9% of total deposits as of December 31, respectively. This concludes our prepared remarks. We will now take your questions. Operator, please open the line for questions.
Operator: First question is from Carlos Gomez with HSBC.
Carlos Gomez: Hello, good morning. First of all, congratulations on your 2021 results. And in particular on your victory in the back front. I have two questions. One is in general, what type of growth you expect for this year and next year, I realize that is a lot of uncertainty. And you still have to see the economic plan that is next for the IMF. But I mean, you must have a budget and you must have some ideas. What is it that you expect that you will do be able to get this year in terms of volumes? And in terms of returns? That will be my first question.
Ines Lanusse: Hi, Carlos, this is Ines speaking, yes, I imagine there is uncertainty in Argentina but we have some feelers that we can share with you. The loan book as you can see, in real terms ended decreasing 11% in a year, but for mainly driven by US dollar as a lack of demand for that total of loans. But for 2022, we're seeing our real growth around 5%. We are seeing assets and contracting around 11% in real terms, just to mention we are projecting inflation for 2020 to around 55% that's for private loans. Regarding private deposits, the year 2021 ended with a contraction of two defense mainly also driven by the US Dollars deposits. For 2022, we are expecting there a contraction around 3% but the system will leave in contract more around 7% although
Carlos Gomez: So if you can clarify, do you expect that the system will expand loans so that we contract loans by 11% in real terms in 2022 or that wasn’t figure for 2021?
Ines Lanusse: Yes, 2022, the system would be contracting 11% in real terms and we should be growing around 5% in real terms, so we should be gaining some market share.
Carlos Gomez: That’s a lot of difference, right, it's almost 15% difference. Why do you expect to do so much within the system?
Ines Lanusse: Mainly because we have been in 2021 not that active as you can see, in the fourth quarter, we were --presented a lot of marketing solutions to attract more customers, we have grown in number of customers. So we believe there could be some more demand on particularly that we are trying to tackle and bring more customers into the bank. So I know some on the side over individuals, we can see some more demand. Is that answered your question? You can see, yes, we have extended more in acquisition in the fourth quarter, we have been quite stable in the first three quarters. And that was less than the amount of customers that we have increased particularly in SMEs.
Carlos Gomez: Okay, so you expect to grow more, fair enough. And in terms of profitability for the bank?
Ines Lanusse: Profitability we presented ROAE, positive ROAE, if you exclude the Santa Clara US, the ROAE would be around 10.2% compared to the 13.5% that was presented and an ROAA which ended up 2%. Without the declaratory actions would have been 1.5%. For the following year, we are seeing stable figure slightly lower probably, because we are seeing inflation a little bit higher. And then we need to see how also the cost of funds keeps evolving. We have improved our mix in the fourth quarter, we need to see what happens for 2022. On the income side of interest, there we should see a better performance mainly because the monetary policy rate has increased. But basically, stable divested lower probably.
Carlos Gomez: So, again, because rates are going to be higher, shouldn't that in principle improve your margins and improve you ROAE?
Ines Lanusse: Yes, it could increase but we are going to have more inflation. And we are going to spend a little more in acquisition costs. For 2021, the company -- the fee line evolves very well, mainly because we spend it less we have less income expenses. And that started to increase in the fourth quarter because we're being more active in trying to attract new customers.
Carlos Gomez: Very good. And the following can I ask another question, I think there are so many on the dividends. So we understand that you have been allowed to pay dividends, but in a very particular fashion, which is this 12 installment that the Central Bank has allowed? Is that subject to change? And would you be willing to pay in such a schedule or you're trying to negotiate something different with a Central Bank? And second, what is eligible to be distributed? Given that you have already declared dividends for the last two years that have not been distributed yet?
Ines Lanusse: Yes, we have already declared $28 billion that are already in the liability side. That's why also our capital ratio has decreased. The net said we are going to have the lamentation test that the results for 2021 need to be approved by the annual shareholders meeting that is going to be held on April 29. Last night was the relevant event was released. We're going to present after those results have been approved, we're going to present our proposal to the Central Bank, we believe we'll be able to distribute around $13billion in the 12 installment as recommendation says, but again then that needs to be approved by the Central Bank one that 2021 results have been approved by the annual shareholders meeting. We are not projecting extra dividends to be declared in 2022 for the time being.
Carlos Gomez: So, let me get this straight so you think that of the $28 billion that you already have declared $13 billion, 13 would be distributable.
Ines Lanusse: Exactly.
Carlos Gomez: Okay. The other $15 billion would not be distributable this year but probably will be distributable in the future.
Ines Lanusse: We need to see how lamentation evolved, it’s very difficult to say what probably because fund realization could change and you can see what happens. I don't have to because I am talking about the situation and the IMF and many things happen, we need to see what happens in that front.
Carlos Gomez: Okay. Now and you, again, if I understand correctly, your intention is not to declare additional dividends for now until the other ones are paid or you will declare dividends on the 2021 earnings.
Ines Lanusse: We need to see to again what happens in 2022 and how the macroeconomic scenario will –
Carlos Gomez: Okay, so should I say you could do later in the year?
Ines Lanusse: Yes, we need to see, yes, it could be a possibility. Yes. But as of today we are okay with $13 billion that we expect that we will be able to distribute during 2022?
Carlos Gomez: 13, 1, 3 not 30 right, 13, 1, 3.
Ines Lanusse: Yes, 13.
Carlos Gomez: 13, okay. So do you need to call for another AGM to declare multi gains in the future or you can do it, or the board can do it without shareholders’ approval?
Ines Lanusse: We have the other shareholders’ meeting of April 29. Or we should call to an extraordinary shareholder meeting as we did two in 2020 and two in 2019.
Carlos Gomez: Okay, and then in terms of the timing, as you said, you have the possibility of paying over 12, in 12 installments, that seems logistically complicated, but you are willing to go through to that particular process or you have hopes that it will be changed in the future.
Ines Lanusse: We have the other shareholders meeting in April 29. We still have two months to go, and then we need to present the option proposal to the Central Bank which need to be approved. That timeframe will depend a lot on how long the Central Bank takes to approve our proposal.
Ernesto Gallardo: It is nonspecific amount of time.
Ines Lanusse: Exactly.
Ernesto Gallardo: For the Central Bank to answer our request to pay the dividends.
Carlos Gomez: Okay, no, I understand. So the DCRA can respond to your request at any point in time. And it can take longer but my question is specifically whether you will be willing to make throughout the small payments over the year, or do you think that it can be changed?
Ernesto Gallardo: I don't know if this is going to be changed in the future. To be honest, I don't know. For the time being what we know is that we have to pay the same 12 installments and we will do as soon as we have the permission from the Central Bank. Showing no further questions. This concludes the question-and-answer session. At this time, I'd like to turn the floor back to Ms. Lanusse for any closing remarks.
Ines Lanusse: Thank you very much for your time and let us know you have further questions.
Operator: Thank you. This concludes today's presentation. You may disconnect your line at this time and have a nice day.
