BMA

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, 2020 (1Q20)
Reporting Date: June 8, 2020
Accounting Framework: As of 1Q20, the Bank began reporting results applying Hyperinflation Accounting (IFRS IAS 29) and Expected Credit Losses (IFRS 9). All figures are in Argentine pesos (Ps.) restated to the measuring unit current at the end of the reporting period.

Key Financial Metrics

Material Changes vs. Prior Periods

• Profitability: Net income increased 15% quarter-over-quarter (QoQ) and 80% year-over-year (YoY). This growth was driven by a significant improvement in the net monetary position, which swung from a Ps.5.1 billion loss in 4Q19 to a Ps.295 million gain in 1Q20.
• Income Statement: Net operating income decreased 25% QoQ to Ps.23.3 billion, primarily due to lower net interest income (down 17% QoQ) and a Ps.4.1 billion loss on financial instruments at fair value. However, operating income (after expenses) rose 68% YoY.
• Balance Sheet:
  • Loans: Financing to the private sector decreased 4% QoQ to Ps.219.8 billion. Commercial loans (Documents and Others) grew, while overdrafts and personal loans declined.
  • Deposits: Total deposits increased 10% QoQ to Ps.311.3 billion. Private sector deposits grew 7% QoQ, led by demand and time deposits.
  • Public Sector Assets: Leliqs (Central Bank notes) increased 44% QoQ, while provincial loans decreased 41%.
• Asset Quality: The non-performing loan ratio improved significantly to 1.36% (down from 2.07% in 4Q19), largely due to Central Bank measures extending grace periods for debtor classification during the pandemic.

Outlook, Risks, and Unusual Items

• COVID-19 Impact: The Bank is operating under mandatory social isolation measures in Argentina. Branches were closed or operating by appointment only. The Central Bank implemented measures including loan payment postponements, frozen mortgage installments, and a suspension of dividend distributions until December 31, 2020.
• Dividend Suspension: A cash dividend of Ps.20 per share was approved by shareholders but distribution is suspended by the Central Bank until at least December 31, 2020.
• Credit Ratings: Moody's and Fitch downgraded the Bank's ratings in line with the downgrade of Argentine sovereign debt. Moody's lowered senior unsecured debt to Ca, and Fitch lowered it to CC/RR4.
• Regulatory Changes: New rules regarding debtor classification (60-day grace period) and reserve requirements (allowing Leliqs to cover time deposit reserves) were implemented to mitigate economic impact.
• Forward-Looking Statements: Management notes that actual results may differ due to inflation, interest rate changes, government regulation, and the duration of the health emergency.

Investor Verification Checklist

• Dividend Timing: Verify the exact date for the release of the suspended Ps.20 per share dividend, as it is contingent on Central Bank authorization post-December 31, 2020.
• Hyperinflation Adjustments: Confirm the methodology for IAS 29 restatement to ensure accurate comparison with historical non-adjusted figures.
• Asset Quality Sustainability: Monitor the non-performing loan ratio post-grace period, as the current 1.36% figure benefits from regulatory forbearance measures.
• FX Exposure: Review the net foreign currency position (long spot dollar) and its impact on earnings given the volatility of the Argentine peso (EOP FX: 64.47 Ps/USD).
• Rating Implications: Assess the impact of the sovereign downgrade on the Bank's cost of funding and access to international capital markets.