BMA

Business Context and Reporting Period

Company: Banco Macro S.A. (Macro Bank Inc.)
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal year ended December 31, 2018
Accounting Standards: International Financial Reporting Standards (IFRS). This is the Bank's first annual report prepared under IFRS. Prior to January 1, 2018, the Bank used Central Bank Rules. Financial statements are restated for inflation (IAS 29) as Argentina is considered a hyperinflationary economy for periods ending after July 1, 2018.
Operations: Leading private-sector bank in Argentina with the most extensive branch network (471 branches), focusing on low- and middle-income individuals and PyMEs (small and medium enterprises) outside the City of Buenos Aires.

Key Financial Metrics

Key Ratios

• Net Interest Margin: 17.94% (2018) vs 16.55% (2017)
• Return on Average Equity (ROE): (1.05)% (2018) vs 9.29% (2017)
• Return on Average Assets (ROA): (0.21)% (2018) vs 1.87% (2017)
• Non-Performing Loans (NPL) Ratio: 1.88% (2018) vs 1.08% (2017)
• Allowance Coverage of NPLs: 112.40% (2018) vs 183.28% (2017)
• Regulatory Capital to Risk-Weighted Assets: 26.47% (2018) vs 28.10% (2017)

Material Changes vs. Prior Period

• Profitability Reversal: The Bank reported a net loss of Ps. 734 million in 2018 compared to a net income of Ps. 6.02 billion in 2017. This decline is primarily attributed to a significant "Loss on net monetary position" of Ps. 15.7 billion in 2018 (compared to Ps. 9.2 billion in 2017) due to inflation adjustments and a loss on foreign currency/gold price differences of Ps. 1.75 billion (compared to a gain of Ps. 2.25 billion in 2017).
• Loan Portfolio Contraction: Total loans decreased by approximately 8.5% to Ps. 179.2 billion, reflecting a reduction in demand for long-term credit due to monetary policy tightening and economic contraction in Argentina.
• Asset Quality Deterioration: The NPL ratio increased to 1.88% from 1.08%, and the coverage ratio of allowances to NPLs dropped to 112.40% from 183.28%.
• Equity Reduction: Shareholders' equity decreased by approximately 15% to Ps. 60.9 billion, driven by the net loss and inflation adjustments.

Guidance, Outlook, and Risks

Management Commentary: Management notes that the Argentine economy contracted in 2018 and remains unstable. The Bank is focusing on financial inclusion, expanding its customer base, and managing liquidity in a high-inflation environment. The Bank approved a cash dividend of Ps. 10 per share for 2018.

Key Risks and Contingencies:

• Macroeconomic Instability: High inflation (47.6% in 2018), currency devaluation (Peso lost ~50% value vs USD in 2018), and economic contraction pose significant risks to asset quality and profitability.
• Regulatory Environment: Strict Central Bank regulations on liquidity, capital, and dividend distribution. The Bank is subject to "Large Exposures" rules and mandatory credit quotas for productive investment (phased out in 2018).
• Accounting Transition: The shift to IFRS and the application of IAS 29 (hyperinflation) significantly alter financial presentation and comparability with prior years.
• Political Risk: Upcoming presidential elections in October 2019 create uncertainty regarding future economic policies and regulations.

Investor Verification Checklist

• Verify Inflation Adjustments: Confirm the impact of IAS 29 restatements on the reported loss, specifically the "Loss on net monetary position."
• Assess Asset Quality: Review the increase in non-performing loans and the adequacy of loan loss provisions given the deteriorating economic environment.
• Monitor Liquidity: Check the Bank's compliance with Central Bank liquidity coverage ratios (LCR) and minimum cash reserve requirements amidst potential deposit outflows.
• Review Dividend Policy: Verify the Bank's ability to sustain dividend payments given the net loss and regulatory capital constraints.
• Track Regulatory Capital: Monitor the regulatory capital ratio (26.47%) against the minimum requirements and the capital conservation buffer.