Macro Bank Inc. (BMA) - 2Q18 Earnings Summary
Business Context and Reporting Period
This Form 6-K filing reports the financial results for Macro Bank Inc. (Banco Macro S.A.) for the second quarter ended June 30, 2018. The bank operates in Argentina and reports figures in Argentine pesos (Ps.). Starting in FY2018, results are reported in accordance with IFRS standards (Communication "A" 6114), with prior year figures restated for comparability.
Key Financial Metrics
- Net Income: Ps. 3.1 billion (Parent Company), a 40% increase year-over-year (YoY) but a 12% decrease quarter-over-quarter (QoQ).
- Earnings Per Share (EPS): Ps. 4.65, up 24% YoY.
- Profitability Ratios: Accumulated annualized Return on Average Equity (ROAE) was 27.2%; Return on Average Assets (ROAA) was 5.7%.
- Revenue: Net Interest Income totaled Ps. 9.1 billion (up 66% YoY). Net Fee Income was Ps. 1.9 billion (up 28% YoY).
- Efficiency: Accumulated efficiency ratio improved to 42.4% (down from 45.0% in 2Q17).
- Balance Sheet: Total Assets reached Ps. 271.7 billion. Total Deposits grew to Ps. 179.5 billion (81% of total liabilities).
- Liquidity: Liquid assets totaled Ps. 93.8 billion, representing 52.3% of total deposits.
- Capital: Regulatory capital ratio stood at 27.6% (Basel III) with a Tier 1 Ratio of 21.5%. Excess capital was Ps. 41.5 billion.
- Asset Quality: Non-performing loans (NPL) to total financing ratio was 1.38%. Coverage ratio was 149.3%.
Material Changes vs. Prior Period
- Income Volatility: While net income grew significantly YoY, it declined 12% QoQ. This was primarily driven by a Ps. 1.0 billion loss in "Differences in quoted prices of gold and foreign currency" due to a 43% depreciation of the Argentine peso against the US dollar and the bank's short dollar position.
- Expense Growth: Interest expense surged 92% YoY and 33% QoQ, driven by higher rates on time deposits and the accrual of interest on new Series "C" Notes. Personnel and administrative expenses increased 35% YoY due to salary increases and IFRS adoption impacts.
- Asset Growth: Financing to the private sector grew 44% YoY to Ps. 151.3 billion, driven by commercial loans and consumer lending (mortgages, personal loans, credit cards).
- Asset Quality Deterioration: The NPL ratio increased from 1.11% in 1Q18 to 1.38% in 2Q18, with the consumer portfolio showing a slight worsening in performance.
Outlook, Risks, and Unusual Items
- Regulatory Changes: The Central Bank of Argentina (BCRA) increased reserve requirements multiple times in 2018 (totaling 800bp increases across the year) and tightened the Net Global FX Position limit to 5% of integrated capital.
- Share Repurchase: The Board authorized a share repurchase program of up to Ps. 5 billion. As of August 21, 2018, the bank had repurchased approximately Ps. 1.03 billion worth of shares.
- Strategic Acquisitions: The bank acquired a 10% stake in Banco del Tucumán S.A. and extended its role as the province's financial agent.
- Risks: Management highlights risks related to high inflation, interest rate volatility, government regulation, and exchange rate fluctuations. Forward-looking statements are subject to these uncertainties.
Investor Verification Checklist
- Verify the impact of the 43% peso depreciation on future quarters, specifically regarding the "short dollar position" and foreign currency translation adjustments.
- Monitor the trend of the non-performing loan ratio (currently 1.38%) and the coverage ratio (149.3%) to assess credit risk in a high-inflation environment.
- Assess the sustainability of the 27.6% regulatory capital ratio given the BCRA's tightening of reserve requirements and potential capital calls.
- Review the execution of the Ps. 5 billion share repurchase program and its impact on earnings per share.
- Confirm the bank's ability to maintain net interest margins (currently 15.2%) as deposit costs continue to rise (interest expense up 92% YoY).