BMA

Macro Bank Inc. 3Q20 Financial Summary

Business Context and Reporting Period

This Form 6-K summarizes the results for Banco Macro S.A. (Macro Bank Inc.) for the third quarter ended September 30, 2020 (3Q20). The bank operates in Argentina and applies Hyperinflation Accounting (IAS 29) and IFRS 9 Expected Credit Losses. All figures are presented in Argentine pesos (Ps.) restated to the measuring unit current at the end of the reporting period. The period was characterized by high inflation (7.65% in 3Q20), significant peso depreciation (8% QoQ), and ongoing regulatory measures related to the Covid-19 pandemic.

Key Financial Metrics

• Net Income: Ps. 6.1 billion (down 12% QoQ, down 33% YoY).
• Earnings Per Share (EPS): Ps. 9.51 (down 12% QoQ, down 33% YoY).
• Profitability Ratios: Accumulated annualized Return on Average Equity (ROAE) was 21.5%; Return on Average Assets (ROAA) was 4.6%.
• Net Interest Income: Ps. 21.2 billion (down 2% QoQ, down 26% YoY).
• Net Interest Margin (NIM): 18.6% (Pesos) and 1.8% (USD) for the quarter; 20.3% accumulated annualized (including FX).
• Asset Quality: Non-performing loans (NPL) to total financing ratio was 1.14%. Coverage ratio improved to 302.9%.
• Liquidity: Liquid assets totaled Ps. 429.9 billion, representing 87% of total deposits.
• Capital: Regulatory capital ratio was 34.8% (Basel III) with an excess capital of Ps. 116.9 billion.
• Efficiency Ratio: 45.9% (accumulated annualized).

Material Changes vs. Prior Period

• Revenue Decline: Net operating income decreased 18% QoQ to Ps. 19.6 billion. This was driven by a Ps. 7.5 billion loss on financial instruments at fair value (primarily due to inflation adjustments on Leliq holdings) and a 2% drop in net interest income.
• Loan Portfolio: Financing to the private sector decreased 2% QoQ to Ps. 232.2 billion. While credit card loans increased 8% and SME loans (at 24% rates) grew 24%, overdrafts fell 22%.
• Deposit Growth: Total deposits increased 13% QoQ to Ps. 493 billion. Public sector deposits surged 64% QoQ, while private sector deposits grew 4%.
• Expense Management: Personnel and administrative expenses increased 3% QoQ. The efficiency ratio deteriorated to 45.9% from 41.6% in 2Q20, largely due to the volatility in fair value adjustments.
• Asset Quality Improvement: The NPL ratio improved significantly to 1.14% from 1.52% in 2Q20, aided by Central Bank measures extending grace periods and refinancing options.

Outlook, Risks, and Unusual Items

• Hyperinflation Impact: The bank continues to face significant volatility due to Argentina's inflationary environment. A Ps. 8.3 billion loss was recorded on the inflation adjustment of Leliq holdings, which significantly impacted the efficiency ratio and net income.
• Regulatory Environment: The Central Bank of Argentina (BCRA) has implemented frequent changes, including increases in Leliq and Repo rates (up to 38% and 36.5% respectively), restrictions on foreign currency purchases, and mandates for SME lending.
• Covid-19 Measures: The bank continues to manage loan deferrals and refinancing programs. While these measures have improved asset quality metrics, they impact interest income and collection timelines.
• Corporate Governance: The Chairman of the Board, Mr. Jorge Horacio Brito, passed away on November 23, 2020. The Vice Chairman has assumed the role pending a new election.
• Dividends: A supplementary dividend was approved in October 2020, to be deducted from shareholders' equity in 4Q20.

Investor Verification Checklist

• Verify the impact of the Ps. 8.3 billion inflation adjustment loss on Leliq holdings on the reported efficiency ratio (which would be 34.7% excluding this item).
• Monitor the sustainability of the 1.14% NPL ratio given the expiration of pandemic-related grace periods and refinancing measures.
• Assess the bank's exposure to further peso depreciation and its ability to maintain a positive net foreign currency position (currently Ps. 9.8 billion).
• Review the implications of the BCRA's mandate to reduce Leliq excess positions by 20 percentage points on future liquidity and yield.
• Confirm the timeline and execution of the supplementary dividend payment and its effect on 4Q20 equity.