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Edited Transcript of FRAN.BA earnings conference call or presentation 12-Aug-19 4:30pm GMT

Q2 2019 BBVA Banco Frances SA Earnings Call

Buenos Aires Aug 17, 2019 (Thomson StreetEvents) -- Edited Transcript of BBVA Banco Frances SA earnings conference call or presentation Monday, August 12, 2019 at 4:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Cecilia Acuña

BBVA Banco Francés S.A. - IR

* Ines Lanusse

BBVA Banco Francés S.A. - IR Officer

* Martín Ezequiel Zarich

BBVA Banco Francés S.A. - CEO

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Conference Call Participants

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* Carlos Gomez-Lopez

HSBC, Research Division - Senior Analyst, Latin America Financials

* Gabriel da Nóbrega

Citigroup Inc, Research Division - Research Analyst

* Ricardo Alonso Garcia

Crédit Suisse AG, Research Division - Research Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to BBVA Argentina's Second Quarter 2019 Results Conference Call. We would like to inform you that this event is being recorded. (Operator Instructions)

First of all, let me stress 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 U.S. federal security law. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in forward-looking statements. Additional information concerning these factors is contained in BBVA Argentina annual report on Form 20-F for the fiscal year 2018 filed with the U.S. Securities and Exchange Commission.

Today with us we have Mr. Ernesto Gallardo, CFO; Ms. Ines Lanusse, IRO; and Mrs. Cecilia Acuña, Investor Relations Manager. Mrs. Acuna, you may begin.

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Cecilia Acuña, BBVA Banco Francés S.A. - IR [2]

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Thank you. Good morning, everyone, and thanks for joining us today for a discussion on BBVA Argentina's Second Quarter 2019 Results.

On June 10, 2019 the BBVA Group globally adopted a single unit brand, BBVA. In Argentina, BBVA Francés is now BBVA. The corporate name is also changed to Banco BBVA Argentina, which has been approved by the Central Bank and will begin to be used once registered in the Public Registry of Commerce.

I will now read the comments on the most important topics of the quarter and then we will be open to questions.

BBVA Argentina's net income reached ARS 6.8 billion for the second quarter of 2018, a 16.9% increase compared to the previous quarter. Net income during the first quarter included the impact of the sale of 51% of the bank stake in Prisma Medios de Pago and the market valuation of the remaining 49%. Including such impact, the growth in the quarter would have been 74.1%.

During the second quarter of the year, BBVA reached an average return on assets of 7% and an ROE of 68.4%. Net operating income amounted to ARS 20.9 billion including ARS 3.2 billion accounting for as other operating income. Such amount is related to the results from the application of the inflation adjustment to the 2018 income tax calculation. At the same time, a provision for the same amount is accounted for in other operating expenses line item.

Operating expenses reached ARS 12.1 billion including tax provision. Efficiency ratio for the quarter reached 44.2%, registering an improvement compared to the ratios of the previous quarter and the second quarter of 2018. In terms of activities, the private sector loan portfolio totaled ARS 186.6 billion remaining at a similar level compared to the previous quarter while increasing 15.1% in the last 12 months. Including the Volkswagen Financial Services, portfolio growth would have reached 1.1% and 19.9%, respectively. On a consolidated basis including the JVs, BBVA loans book reached an 8.5% market share, showing an increase of 27 basis points in the last 12 months. In the last quarter, credit growth in Argentina was affected by the devaluation of the peso and higher interest rates. Loans in pesos including Volkswagen increased 4.7% compared with the previous quarter and increased 11.3% compared with the second quarter of 2018. Regarding U.S. dollar loans expressed in peso, it fell by 5.1% in the quarter and increased 40.3% in the last 12 months mainly due to the restoration of the new value of the currency. Measured in dollars, it fell in both periods by 3% and 4.6%, respectively.

Regarding retail loans, credit card financing grew 5.6% during the quarter and 36.4% annually, while mortgages loans reflected the impact of inflation. Personal loans remained stable during the quarter and increased 18.1% in the last 12 months. Commercial loans fell 2.4% compared to the previous quarter mainly due to the decrease in the foreign currency denominated portfolio. Compared to the second quarter of 2018, it grew 9.2%.

At the end of June, the asset quality ratio measure as nonperforming loans over total loans reached 2.66%, with a coverage ratio of 112.87%. The cost of risk reached 2.5%, 41 basis points above last quarter mainly due to some deterioration in the commercial portfolio. During the quarter, the provision for Molino Cañuelas increased to 50% from 31% in the previous quarter. Total deposits amounting to ARS 285.2 billion at the end of June increasing 2.3% and 47.9% compared to the previous quarter and the second quarter of 2018, respectively. Deposits in local currency grew by 2.7% and 34.5% compared to the quarters ending as of March 8, 2019 and June 2018, respectively. Foreign currency denominated deposits expressed in pesos grew 2% during the quarter and 65.9% in the last 12 months. Measured in the currency of origin, they increased 4% and 12.8% in the same periods, respectively. As of the end of June, BBVA had a total consolidated capital ratio of 16.7%, which represents an excess of ARS 24.2 billion or 103.6% over the minimum requirement. The Tier 1 ratio reached 16%, and liquid assets accounted for 60.7% of the bank deposits at the end of June 2019.

Thank you very much. We are now ready to answer your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question today will come from Gabriel Nóbrega with Citi.

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Gabriel da Nóbrega, Citigroup Inc, Research Division - Research Analyst [2]

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What I would like to further understand is about the ARS 2.2 billion being -- that's booked in your other operating income during this quarter. I understand that this is similar to what was done in 2016 and 2017. But I would just maybe like to understand why have you done this again? And also what could be the time frame for further decision to come out so that we will know if you will be able or not to reverse the provisions that you made in other operating income? And I'll make a second question afterwards.

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Cecilia Acuña, BBVA Banco Francés S.A. - IR [3]

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Okay, Gabriel, how are you? As I explain you with this, this in 2016 and 2017. And is this because the income tax effective rate, if we consider the effects of inflation, is like, is statutory, it's more than 90%. So as the Central Bank or the regulator asked in 2017, we made a provision for the same amount. So it's neutral, the effect in the net income. And if in the future, we have a positive result of this situation, we will reverse it.

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Gabriel da Nóbrega, Citigroup Inc, Research Division - Research Analyst [4]

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Just a follow-up here, Cecilia. What could be a time frame for us to know when you will be able to revert this and have a positive result?

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Cecilia Acuña, BBVA Banco Francés S.A. - IR [5]

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I don't know, probably in 6 years.

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Gabriel da Nóbrega, Citigroup Inc, Research Division - Research Analyst [6]

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Okay. And as for my second question looking at the sharp peso depreciation that we are seeing today, could you just maybe remind us what is your exposure to foreign currency and also to inflation rates? And how do you expect this sharp depreciation to affect your results over the incoming months?

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Cecilia Acuña, BBVA Banco Francés S.A. - IR [7]

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(inaudible)

That is a (inaudible)

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Ines Lanusse, BBVA Banco Francés S.A. - IR Officer [8]

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Gabriel, this is Ines speaking. Regarding the dollar position with the loan position, to give you an idea, our loans in dollars represent approximately 36%, and our deposits 47%. And regarding inflation, I'm sure you're familiar with what's going on with the primary elections. We have projection for this year around 40%. But definitely given the scenario, we need to recalculate and see what's going to happen for the remaining months of the year.

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Operator [9]

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Our next question will come from Alonso Garcia with Credit Suisse.

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Ricardo Alonso Garcia, Crédit Suisse AG, Research Division - Research Analyst [10]

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My question is, I want to ask, probably it is early to ask, I don't know you are seeing a deposit runoff in terms of better deposit runoff in these first few hours after the electoral results last night and probably if it's too early, do you, if you anticipate this, the risk of a significant deposit runoff after election results? And my second question would be regarding, we already reviewed some issues with the home banking platforms of some bank in Argentina. Given the large amount of effects on elections that clients were trying to do so, if you could comment on this. If the issues have been solved. And if there is enough liquidity in banks to make, to respond to the demand of FX.

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Ines Lanusse, BBVA Banco Francés S.A. - IR Officer [11]

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Hello, this is Ines speaking. Regarding your question, we -- it's probably too early to say what's going to be the effect on deposit withdraw. What we can tell you is we have a huge, more than 50% liquidity in U.S. dollars. Again what we have in the branches, which is what we have at the Central Bank at 0 interest rate, what we have of government securities, so we are prepared to reach fund at least 0.5% of the dollar deposit, so we are not concerned about that. The bank, and the entire financial system has a very healthy position. We've been through all this experience in the past, so we are prepared to respond in case we see a withdrawal of deposits.

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Martín Ezequiel Zarich, BBVA Banco Francés S.A. - CEO [12]

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The U.S. dollar denominated loan portfolio is very short on maturities, so.

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Ricardo Alonso Garcia, Crédit Suisse AG, Research Division - Research Analyst [13]

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Okay. And regarding the banking platform, the home banking platform, have issue -- the issue's been solved already? Or can you elaborate on the reason for the issues?

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Ines Lanusse, BBVA Banco Francés S.A. - IR Officer [14]

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No. Nothing to be -- at least for now we haven't heard nothing that is uncommon. Ordinary [debt is a morning] with typical situations. But nothing we should be alarmed.

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Operator [15]

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(Operator Instructions) Our next question will come from Carlos Gomez with HSBC.

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Carlos Gomez-Lopez, HSBC, Research Division - Senior Analyst, Latin America Financials [16]

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Two questions. The first one is going back to your ForEx position. I know you are balanced, and you are really good. But can you give us, if you can, your net ForEx position as of now and what percentage of your regulatory capital it represents? We understand that it (inaudible) to launch, but if you can give us the net position that would be great. Second, your NIM this quarter was extremely high. (inaudible) was very elevated. But including the extraordinary element in this NIM, is this the level of NIM that you think you could replicate in the coming 1 or 2 quarters or there was something extraordinary in the result?

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Cecilia Acuña, BBVA Banco Francés S.A. - IR [17]

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Hi, Carlos. Regarding the NIM, no, there is the effects of the high levels of (inaudible) and the high rates. There's nothing extraordinary on that.

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Carlos Gomez-Lopez, HSBC, Research Division - Senior Analyst, Latin America Financials [18]

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But again, if I look at the numbers, (inaudible) I think it goes from 17% to 25%, that's a big jump. We understand that the link is very high, but it didn't change that much from 1 quarter to the other. Why does it increase so much for you?

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Cecilia Acuña, BBVA Banco Francés S.A. - IR [19]

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The levels of the rates in peso for public instruments are from 49% to 64% and an average of ARS 44 billion to ARS 58 billion. So it has high impact on that. In the assets rate, up from 44% to 61%, so. And we have a very good manage of prices in terms of liabilities because we have no say in corporate deposits at higher rate. I will send you the charts by email.

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Carlos Gomez-Lopez, HSBC, Research Division - Senior Analyst, Latin America Financials [20]

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Okay. And the ForEx?

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Martín Ezequiel Zarich, BBVA Banco Francés S.A. - CEO [21]

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In terms of ForEx, we are under the limits that the Central Bank has, and we are around 10% of loan position in U.S. dollars. I think, it's changing every day, as you can imagine. So we are seeing that the most important thing to comment right now in this issue is that we are long, we are not short in U.S. dollar, and considering the situation that we have, this is the right position to have, to maintain right now.

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Carlos Gomez-Lopez, HSBC, Research Division - Senior Analyst, Latin America Financials [22]

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And again to remind us, quite literally right now it's 15 or 10?

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Martín Ezequiel Zarich, BBVA Banco Francés S.A. - CEO [23]

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It's 5% -- up to 5%. But depending on the different investments that you have, you can maintain, you can achieve 30%. So there are -- you have other considerations in order to understand or to know exactly the maximum position you are -- you can have in ForEx. So I should say that you can go from 5% to 30%. And yes, we are a little bit above this 5%.

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Carlos Gomez-Lopez, HSBC, Research Division - Senior Analyst, Latin America Financials [24]

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5%. So you're a bit above 5%, not above 10%?

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Martín Ezequiel Zarich, BBVA Banco Francés S.A. - CEO [25]

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Yes. Well, we're close to 10%.

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Carlos Gomez-Lopez, HSBC, Research Division - Senior Analyst, Latin America Financials [26]

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Close to 10%. Okay.

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Martín Ezequiel Zarich, BBVA Banco Francés S.A. - CEO [27]

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But I am speaking right now -- well, if we consider the position that we have at the end of June, it's more close to 5%.

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Operator [28]

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This concludes the question-and-answer section. I would like to turn the floor back to Mrs. Acuña for any closing remarks.

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Cecilia Acuña, BBVA Banco Francés S.A. - IR [29]

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Okay. Thanks again, to all of you (inaudible) and do not hesitate to contact us directly for any further questions. Thank you.

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Operator [30]

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Thank you. This concludes today's presentation. Thank you for attending and you may now disconnect.