BMA

Business Context and Reporting Period

Company: Banco Macro Bansud S.A. (Macro Bank Inc.)
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal year ended December 31, 2005
Jurisdiction: Argentina (Incorporated); Listed on NYSE (ADS) and Buenos Aires Stock Exchange.
Business Overview: One of Argentina's leading private-sector banks with the most extensive branch network in the country. The bank focuses on low- and middle-income individuals and small- to medium-sized businesses, primarily outside the Buenos Aires metropolitan area. It serves as the financial agent for four provincial governments (Salta, Jujuy, Misiones, and Tucumán).

Key Financial Metrics (Year Ended Dec 31, 2005)

Note: Figures are in thousands of Argentine Pesos (Ps.) unless otherwise noted, prepared under Central Bank Rules.

Material Changes vs. Prior Period

• Profitability Growth: Net income increased 36% to Ps. 262.7 million, driven by a 51% increase in gross intermediation margin and a 96% increase in service charge income.
• Acquisition Impact: Results for 2005 include the full-year consolidation of Nuevo Banco Suquía (acquired Dec 2004), which significantly expanded the bank's asset base and branch network. Without this acquisition, standalone growth was still robust.
• Loan Portfolio Expansion: Loans to the non-financial private sector grew 33% to Ps. 2,948.8 million, reflecting a recovery in private sector lending and organic growth.
• Asset Quality Improvement: The non-performing loan ratio declined from 6.50% in 2004 to 5.34% in 2005. Allowances for loan losses increased to Ps. 247.5 million, covering 126% of non-performing loans.
• Expense Management: Administrative expenses rose 74% on a consolidated basis, primarily due to the integration of Nuevo Banco Suquía and personnel costs, though the efficiency ratio remained stable at 59.08%.

Guidance, Outlook, and Risks

Management Outlook: The bank anticipates continued growth driven by Argentina's economic recovery, particularly in export-led sectors outside Buenos Aires. Management plans to reduce exposure to public sector debt and increase private sector lending. The bank intends to pursue further strategic acquisitions to complement its branch network.

Key Risks:

• Macroeconomic Instability: High inflation (12.3% in 2005) and potential peso devaluation could impact the economy and banking sector.
• Public Sector Exposure: Significant holdings of Argentine government securities (approx. 15% of total assets) expose the bank to sovereign debt restructuring risks.
• Regulatory Environment: Dividend distributions require Central Bank authorization. Exchange controls and capital flow restrictions remain a concern.
• Competition: Increasing competition in the banking sector is compressing interest rate spreads.

Recent Developments:

• Completed acquisition of Banco del Tucumán (25 branches) in May 2006.
• Entered into an agreement to acquire Banco Bisel (158 branches), pending regulatory approval.
• Completed a global offering of Class B shares/ADSs in March 2006.

Investor Verification Checklist

• Accounting Standards: Verify the reconciliation between Central Bank Rules and U.S. GAAP, as significant differences exist (e.g., treatment of inflation adjustments and government securities).
• Public Sector Exposure: Confirm the current valuation and risk profile of the Ps. 543 million exposure to public sector debt (net of LEBACs).
• Acquisition Integration: Assess the progress and cost synergies of integrating Nuevo Banco Suquía and the pending Banco Bisel acquisition.
• Dividend Policy: Monitor Central Bank authorizations required for future dividend distributions, as they are not automatic.
• Exchange Rate Sensitivity: Evaluate the impact of potential peso devaluation on the bank's net asset position and U.S. dollar-denominated earnings.