Business Context and Reporting Period
Company: Grupo Supervielle S.A. (NYSE: SUPV)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Third Quarter 2018 (ended September 30, 2018)
Filing Date: November 21, 2018
Context: Supervielle is a universal financial services group headquartered in Argentina. The report details consolidated results for the three and nine months ended September 30, 2018, prepared in accordance with IFRS and expressed in nominal Argentine pesos (AR$). The company operates through Banco Supervielle, Cordial Compañía Financiera (CCF), and various subsidiaries including insurance and asset management arms.
Key Financial Metrics
| Metric | 3Q18 Value | YoY Change | QoQ Change |
|---|---|---|---|
| Attributable Comprehensive Income | AR$874.5 million | +55.9% | +84.0% |
| Attributable Net Income | AR$867.4 million | +56.0% | +220.4% |
| Net Financial Income | AR$4,386.2 million | +55.1% | +21.3% |
| Net Interest Margin (NIM) | 20.9% | +130 bps | +170 bps |
| Net Financial Margin (NFM) | 18.2% | -160 bps | +80 bps |
| Efficiency Ratio | 59.3% | -420 bps | -700 bps |
| Return on Average Equity (ROAE) | 22.4% | +170 bps | +980 bps |
| Return on Average Assets (ROAA) | 2.7% | -40 bps | +90 bps |
| Total Assets | AR$146.1 billion | +79.2% | +21.0% |
| Total Loans | AR$83.4 billion | +56.9% | +10.0% |
| Total Deposits | AR$97.2 billion | +106.0% | +28.4% |
| Loans to Deposits Ratio | 85.8% | -2,690 bps | -1,440 bps |
| Non-Performing Loans (NPL) Ratio | 3.7% | +60 bps | +10 bps |
| Cost of Risk | 5.9% | N/A | N/A |
| Proforma CET1 Ratio | 12.5% | N/A | -60 bps |
Material Changes vs. Prior Period
- Profitability Surge: Net income tripled sequentially (+220.4%) and grew 56% year-over-year, driven by higher Net Financial Income and tight cost control.
- Margin Expansion: NIM expanded to 20.9% due to increased investment in high-yield Central Bank securities (Leliqs) and higher interest rates, partially offset by lagged loan repricing.
- Balance Sheet Growth: Total assets grew 21% QoQ, outpacing loan growth (10%) due to a strategic shift toward holding Central Bank securities to fund high-margin investments.
- Deposit Inflow: Deposits surged 28.4% QoQ, primarily in wholesale and institutional accounts, reducing the loans-to-deposits ratio to 85.8% from 100.2% in 2Q18.
- Asset Quality: NPL ratio increased slightly to 3.7%. The company made an additional voluntary provision of AR$120 million to raise the coverage ratio to 94.0%.
- Consumer Finance Contraction: The Consumer Finance segment reported a net loss of AR$185.3 million, reflecting tightened credit standards, lower origination volumes, and higher cost of funds.
Guidance, Outlook, and Risks
Management Commentary
CEO Jorge Ramirez highlighted solid results despite a challenging macro environment. Key strategic moves included expanding the AR$ deposit base to fund high-margin Central Bank securities and reducing exposure to the consumer finance segment (now <10% of the portfolio). Management noted that NPL creation decreased in the consumer finance business due to tighter credit scoring, though the segment remains under pressure from inflation and wage stagnation.
Guidance
The company confirmed its FY2018 guidance as previously outlined in August 2018. Specific numerical targets for the full year were not restated in this filing but rely on market expectations for inflation and interest rates.
Risks and Contingencies
- Macroeconomic Volatility: High inflation and currency devaluation (AR$ devaluation at end of September) impacted capital ratios and cost of funds.
- Regulatory Changes: Significant increases in minimum cash reserve requirements by the Central Bank (up to 44% for demand deposits) increased non-remunerated liquidity costs.
- Credit Quality: Deterioration in the consumer finance segment due to reduced disposable income; NPL creation in retail and corporate segments increased slightly.
- Hyperinflation Accounting: While IAS 29 requires restatement for hyperinflationary economies, the company has not applied IAS 29 due to a local executive decree, creating a divergence between IFRS and local GAAP reporting.
- Rating Outlook: Fitch Ratings revised the outlook on Banco Supervielle to "Negative" from "Stable" in November 2018, following a revision of Argentina's sovereign rating.
Investor Verification Checklist
- Voluntary Provisions: Verify the impact of the AR$120 million voluntary loan loss provision on the reported Cost of Risk (5.9% vs. 5.3% excluding the provision).
- FX Exposure: Assess the impact of the AR$ devaluation on the proforma Tier 1 capital ratio (decreased 60 bps QoQ) and the valuation of foreign currency loans.
- Reserve Requirements: Monitor the liquidity impact of the Central Bank's increased minimum cash reserve requirements (up to 44% for demand deposits) and the shift to non-remunerated reserves.
- Consumer Finance Segment: Review the sustainability of the Consumer Finance segment's loss (AR$185.3 million) and the effectiveness of tightened credit standards in curbing NPL creation.
- Investment Portfolio: Analyze the concentration of assets in Central Bank securities (Leliqs) and the associated interest rate and liquidity risks.
- Capital Retention: Confirm the availability of the AR$2.0 billion retained at the holding company level for future capital injections.