Business Context and Reporting Period
Company: Grupo Supervielle S.A. (NYSE: SUPV; BYMA: SUPV)
Filing Type: Form 6-K (Report of Foreign Issuer)
Reporting Period: Third Quarter 2019 (ended September 30, 2019)
Reporting Date: November 11, 2019
Accounting Basis: Argentine Banking GAAP (IFRS convergence plan in effect, with specific waivers for IFRS 9 Impairment and IAS 29 Hyperinflationary Economies until January 1, 2020). All figures are in nominal Argentine Pesos (AR$).
Key Financial Metrics
| Metric | 3Q19 | 2Q19 | 3Q18 |
|---|---|---|---|
| Net Financial Income | AR$ 5,278.1 million | AR$ 6,560.3 million | AR$ 4,386.2 million |
| Net Service Fee Income | AR$ 1,348.5 million | AR$ 1,241.7 million | AR$ 1,026.9 million |
| Loan Loss Provisions (LLP) | AR$ 2,007.4 million | AR$ 1,210.8 million | AR$ 1,122.5 million |
| Profit Before Income Tax | (AR$ 116.5 million) | AR$ 1,566.1 million | AR$ 1,027.6 million |
| Attributable Net Income | AR$ 301.0 million | AR$ 1,901.5 million | AR$ 867.4 million |
| Comprehensive Net Income | AR$ 732.1 million | AR$ 1,909.3 million | AR$ 874.5 million |
| Return on Equity (ROAE) | 6.2% | 42.2% | 22.2% |
| Return on Assets (ROAA) | 0.7% | 4.7% | 2.7% |
| Net Interest Margin (NIM) | 17.4% | 22.1% | 18.2% |
| Efficiency Ratio | 70.4% | 62.4% | 59.3% |
| Non-Performing Loan (NPL) Ratio | 6.9% | 5.1% | 3.7% |
| Coverage Ratio | 86.1% | 107.7% | 94.0% |
| Total Assets | AR$ 159.8 billion | AR$ 166.1 billion | AR$ 146.1 billion |
| Total Deposits | AR$ 102.1 billion | AR$ 112.6 billion | AR$ 97.2 billion |
| Total Loans | AR$ 87.5 billion | AR$ 82.1 billion | AR$ 83.4 billion |
Material Changes vs. Prior Period
- Debt Reprofiling Impact: The primary driver of QoQ deterioration was an AR$ 2.0 billion mark-to-market loss on short-term AR$ and US$ treasury notes following the Argentine government's debt reprofiling announcement. Fixed income instrument prices declined 35-45%. Excluding this impact, pre-tax profit would have been AR$ 1.9 billion (up 23% QoQ).
- Asset Quality Deterioration: Loan loss provisions increased 65.8% QoQ and 78.8% YoY. The NPL ratio rose to 6.9% (up 180 bps QoQ), driven by delinquencies in the Corporate segment (Public Works and Retailer sectors). The Corporate NPL ratio jumped from 3.0% to 7.2%.
- Deposit Outflows: Total deposits decreased 9.4% QoQ. US$ deposits fell 45.2% QoQ due to industry-wide outflows, while AR$ deposits declined 1.8% QoQ.
- Profitability: Attributable Net Income fell 84.2% QoQ to AR$ 301 million. However, the Consumer Finance segment returned to profitability (AR$ 206.6 million) after losses in prior quarters, aided by lower NPL creation.
- Income Tax Benefit: A positive income tax result of AR$ 417.8 million was recorded, largely due to inflation adjustments in the tax provision allowed under the 2017 tax reform (inflation exceeded the 30% threshold for 2019).
Guidance, Outlook, and Risks
- Management Commentary: CEO Jorge Ramirez highlighted the challenging macro environment but noted underlying franchise strength. Excluding the debt reprofiling loss, the company would have delivered strong growth. Management expects to foreclose and divest collateralized commercial NPLs in upcoming quarters.
- Liquidity: Liquidity remains a priority. Liquid AR$ Assets to AR$ Deposits ratio is 50.2%, and Liquid US$ Assets to US$ Deposits ratio is 57.5%. The Liquidity Coverage Ratio (LCR) stands at 141.7%.
- Capitalization: Common Equity Tier 1 Ratio (Proforma) is 11.8%. The bank holds excess capital of AR$ 4.8 billion above regulatory requirements.
- Regulatory Risks:
- Capital Controls: New Central Bank measures restrict FX access for households, companies, and dividend payments, requiring prior authorization.
- Hyperinflation Accounting: The Central Bank will require full application of IAS 29 (Financial Reporting in Hyperinflationary Economies) starting January 1, 2020. Management estimates this would restate 9M19 comprehensive income to a loss of approximately AR$ 1.4 billion.
- Dividend Restrictions: Banks now require Central Bank authorization to distribute retained earnings.
- Credit Ratings: Fitch and Moody's downgraded the bank's ratings to 'CC' and 'Caa2' respectively, following the sovereign downgrade.
Investor Verification Checklist
- Debt Reprofiling Exposure: Verify the remaining exposure to Argentine government securities and the potential for further mark-to-market volatility.
- Corporate NPL Resolution: Monitor the timeline and recovery rates for the collateralized non-performing commercial loans (55% of total NPLs) in the Public Works and Retailer sectors.
- IAS 29 Impact: Assess the full financial statement restatement impact when IAS 29 becomes mandatory in 2020, which could significantly alter reported equity and income.
- FX Liquidity: Track the sustainability of US$ deposit levels given the 45% QoQ outflow and strict capital controls on FX access.
- Dividend Policy: Confirm the ability to pay dividends given the new Central Bank requirement for prior authorization on retained earnings distribution.