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: Second Quarter ended June 30, 2019 (2Q19)
Reporting Date: August 7, 2019
Currency: Argentine Pesos (Ps.)
Banco Macro is an Argentine financial institution reporting results under the accounting framework of the Central Bank of Argentina (BCRA), based on IFRS but temporarily excluding IFRS 9 (Expected Credit Losses) and IAS 29 (Hyperinflationary Economies).
Key Financial Metrics
| Metric | 2Q19 Value | 1Q19 Value | 2Q18 Value |
|---|---|---|---|
| Net Income | Ps. 7.0 billion | Ps. 7.3 billion | Ps. 3.1 billion |
| Recurring Net Income | Ps. 7.8 billion | Ps. 5.7 billion | N/A |
| Earnings Per Share (EPS) | Ps. 11.01 | Ps. 11.49 | Ps. 4.65 |
| Net Interest Income | Ps. 16.8 billion | Ps. 12.9 billion | Ps. 9.1 billion |
| Net Fee Income | Ps. 3.4 billion | Ps. 3.3 billion | Ps. 2.7 billion |
| Total Assets | Ps. 401.0 billion | Ps. 390.3 billion | Ps. 271.7 billion |
| Total Deposits | Ps. 284.3 billion | Ps. 272.6 billion | Ps. 179.5 billion |
| Private Sector Financing | Ps. 174.7 billion | Ps. 174.0 billion | Ps. 150.8 billion |
| Shareholders' Equity | Ps. 62.7 billion | Ps. 62.1 billion | Ps. 50.4 billion |
Profitability and Efficiency Ratios (Accumulated Annualized)
- Return on Average Equity (ROAE): 47.0%
- Return on Average Assets (ROAA): 7.7%
- Net Interest Margin (NIM): 17.6% (17.5% excluding FX)
- Efficiency Ratio: 33.5%
- Cost of Risk: 3.4%
Liquidity and Capital
- Liquid Assets to Total Deposits: 66.4%
- Regulatory Capital Ratio (Basel III): 26.3%
- Tier 1 Ratio: 19.6%
- Excess Capital: Ps. 51.0 billion
Material Changes vs. Prior Period
Quarter-over-Quarter (vs. 1Q19):
- Net Income: Decreased 4% (Ps. 312 million) primarily due to the absence of a one-time gain from the sale of the remaining stake in Prisma Medios de Pago recorded in 1Q19.
- Recurring Net Income: Increased 37% (Ps. 2.1 billion), driven by higher Net Interest Income (+30%) and improved asset quality management.
- Operating Expenses: Increased significantly due to a 57% rise in employee benefits (driven by salary increases and higher social security contributions) and a 27% rise in other operating expenses.
- Asset Quality: Non-performing loans (NPL) ratio increased slightly to 2.12% from 2.03%, with consumer portfolio NPLs rising 27 basis points.
Year-over-Year (vs. 2Q18):
- Net Income: Increased 124% (Ps. 3.9 billion).
- EPS: Increased 137% due to higher net income and a reduction in outstanding shares from buybacks.
- Net Interest Income: Increased 85% (Ps. 7.7 billion), reflecting higher interest rates and portfolio growth.
- Deposits: Increased 58% (Ps. 104.8 billion), with private sector deposits growing 63%.
Outlook, Risks, and Unusual Items
Unusual Items and One-Time Events:
- Prisma Medios de Pago: 1Q19 results included a significant gain from the sale of the remaining 49% stake in Prisma. This non-recurring item is absent in 2Q19, explaining the divergence between reported Net Income and Recurring Net Income.
- Social Security Contributions: The bank entered a payment plan with AFIP for social security contributions dating back to November 2012. This resulted in a significant increase in "Other Operating Expenses" in 2Q19 due to charges and penalties, though the payment plan offers lower interest rates than prevailing rates.
Regulatory and Economic Risks:
- Accounting Standards: The Central Bank of Argentina (BCRA) mandated the adoption of IAS 29 (Hyperinflationary Economies) and IFRS 9 starting January 1, 2020. The bank estimates this will reduce equity to approximately Ps. 72.6 billion and net income for the first half of 2019 to ~Ps. 4.8 billion under the new standards.
- Reserve Requirements: BCRA reduced reserve requirements for time deposits by 3 percentage points in July 2019 and modified how institutions meet reserve requirements.
- Macroeconomic Factors: Risks include inflation, interest rate volatility, exchange rate fluctuations (peso appreciation in 2Q19 impacted FX results), and government regulation.
Investor Verification Checklist
- Recurring vs. Reported Income: Verify the sustainability of earnings by focusing on Recurring Net Income (Ps. 7.8 billion) rather than reported Net Income, which was impacted by the absence of the Prisma sale gain.
- Expense Trajectory: Monitor the impact of the social security payment plan and rising personnel costs on the efficiency ratio, which deteriorated to 33.5% (accumulated) from 28.6% in 1Q19.
- Asset Quality Trends: Track the NPL ratio (2.12%) and coverage ratio (116.1%) closely, noting the slight deterioration in the consumer portfolio.
- Regulatory Impact: Assess the potential impact of the upcoming IAS 29 and IFRS 9 adoption on reported equity and net income starting in 2020.
- Liquidity Position: Confirm the stability of the 66.4% liquid assets to deposits ratio amidst changing reserve requirement regulations.