Business Context and Reporting Period
Company: Macro Bank Inc. (Banco Macro S.A.)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: First Quarter ended March 31, 2019 (1Q19)
Release Date: May 9, 2019
Currency: Argentine Pesos (Ps.)
Banco Macro reported strong financial results for 1Q19, driven by a significant one-time gain from the sale of a 51% stake in Prisma Medios de Pago. The bank operates in Argentina and reported figures in accordance with the Central Bank of Argentina's framework, which temporarily excludes IFRS 9 and IAS 29.
Key Financial Metrics
| Metric | 1Q19 Value | 4Q18 Value | 1Q18 Value |
|---|---|---|---|
| Net Income | Ps. 7.3 billion | Ps. 5.2 billion | Ps. 3.5 billion |
| Earnings Per Share (EPS) | Ps. 11.49 | Ps. 8.15 | Ps. 5.29 |
| Return on Average Equity (ROAE) | 50.0% | 38.8% | 29.4% |
| Return on Average Assets (ROAA) | 8.4% | 6.4% | 6.4% |
| Net Interest Margin (NIM) | 17.2% | 14.9% | 15.4% |
| Efficiency Ratio | 28.6% | 39.7% | 35.6% |
| Total Deposits | Ps. 272.6 billion | Ps. 238.0 billion | Ps. 149.5 billion |
| Private Sector Financing | Ps. 172.9 billion | Ps. 171.8 billion | Ps. 142.4 billion |
| Non-Performing Loans (NPL) Ratio | 2.03% | 1.91% | 1.11% |
| Regulatory Capital Ratio | 27.7% | 26.5% | 27.3% |
| Liquid Assets / Total Deposits | 66.0% | 57.1% | 45.3% |
Material Changes vs. Prior Period
- Profitability Surge: Net income increased 40% quarter-over-quarter (QoQ) and 106% year-over-year (YoY). EPS rose 41% QoQ and 117% YoY, aided by a share buyback program reducing the share count.
- Prisma Sale Impact: A Ps. 1.9 billion net gain from the sale of 51% of Prisma Medios de Pago significantly boosted results. Excluding this item, recurring ROAE would have been 37.2% and ROAA 6.3%.
- Deposit Growth: Total deposits grew 15% QoQ to Ps. 272.6 billion, with private sector deposits up 12% and public sector deposits up 46%.
- Asset Quality: The NPL ratio increased to 2.03% from 1.91% in 4Q18, driven by a 40 basis point increase in the consumer portfolio, partially offset by a decrease in the commercial portfolio due to a specific write-off (Molino Cañuelas).
- Cost of Risk: The cost of risk rose to 4.9% (2.5% excluding Prisma effects) due to increased provisions for loan losses (Ps. 2.2 billion).
Outlook, Risks, and Unusual Items
- Unusual Items: The primary driver of 1Q19 performance was the Ps. 1.9 billion gain from the Prisma sale. Additionally, the bank executed a successful FX strategy, selling dollars in the spot market and investing in LELIQs while hedging with derivatives, resulting in a Ps. 250 million gain when including derivative income.
- Regulatory Changes: The Central Bank of Argentina (BCRA) mandated the restatement of financial statements in accordance with IAS 29 (Hyperinflationary Economies) starting January 1, 2020. The bank has not yet quantified the impact but expects figures to differ significantly from current reporting, though net income is expected to remain positive.
- Risks: Key risks include high inflation, exchange rate fluctuations, changes in interest rates, government regulation, and credit risk in the Argentine economy. The bank maintains a short spot dollar position which contributed to FX losses in the quarter before hedging gains.
- Dividends: The bank declared a cash dividend of Ps. 10 per share (Ps. 6.4 billion total), payable on May 14, 2019.
Investor Verification Checklist
- Recurring Earnings: Verify the sustainability of profitability by analyzing metrics excluding the Ps. 1.9 billion Prisma sale gain (Recurring ROAE: 37.2%).
- IAS 29 Impact: Monitor upcoming filings for the application of IAS 29 starting in 2020, which will restate financials for hyperinflation and could alter reported equity and income.
- Asset Quality Trends: Track the NPL ratio (currently 2.03%) and coverage ratio (119.2%) to ensure the increase in consumer non-performing loans does not accelerate.
- Liquidity Position: Confirm the maintenance of high liquid assets (66% of deposits) amidst potential regulatory changes regarding LELIQ positions.
- FX Strategy: Assess the bank's exposure to Argentine peso devaluation and the effectiveness of its hedging strategies in future quarters.