Business Context and Reporting Period
Company: Grupo Supervielle S.A. (NYSE: SUPV)
Reporting Period: Fourth Quarter and Full Year ended December 31, 2018
Filing Date: March 13, 2019
Context: Supervielle is a universal financial services group headquartered in Argentina. The reporting period was characterized by a challenging macroeconomic environment, including high inflation and recessionary pressures. The Company achieved its goal of 100% Non-Performing Loan (NPL) coverage one year ahead of schedule.
Key Financial Metrics (4Q18)
| Metric | Value (AR$) | YoY Change | QoQ Change |
|---|---|---|---|
| Attributable Comprehensive Income | 935.3 million | +97.9% | +7.0% |
| Attributable Net Income | 706.8 million | +51.2% | -18.5% |
| Net Financial Income | 5.3 billion | +56.5% | +19.9% |
| Net Interest Income | 2.0 billion | -20.7% | -25.7% |
| Total Assets | 141.1 billion | +53.0% | -3.4% |
| Total Loans | 80.2 billion | +32.1% | -3.8% |
| Total Deposits | 94.9 billion | +68.2% | -2.3% |
| ROAE | 22.6% | +930 bps | +20 bps |
| ROAA | 2.6% | +40 bps | -10 bps |
| Net Financial Margin (NFM) | 20.3% | +30 bps | +210 bps |
| Efficiency Ratio | 61.9% | -630 bps | +260 bps |
| NPL Ratio | 4.1% | +100 bps | +40 bps |
| NPL Coverage Ratio | 100.0% | +1,200 bps | +600 bps |
| Cost of Risk | 7.0% | +260 bps | +110 bps |
| Proforma CET1 Ratio | 12.9% | N/A | +40 bps |
Material Changes vs. Prior Period
- Profitability Drivers: Attributable Comprehensive Income surged 98% YoY, driven by higher Net Financial Income from increased volumes and higher interest rates on Central Bank securities (Leliqs). However, Attributable Net Income fell 19% QoQ primarily due to AR$231 million in additional voluntary loan loss provisions to reach 100% NPL coverage.
- Asset Quality: The NPL ratio increased to 4.1% (from 3.1% in 4Q17) due to the recession and inflation impacting consumer disposable income. The Consumer Finance segment saw NPLs rise to 19.4%. Despite this, the Company achieved 100% coverage of NPLs.
- Balance Sheet: Total assets grew 53% YoY, outpacing loan growth, largely due to increased holdings of Central Bank securities and higher regulatory reserve requirements. Loans decreased 3.8% QoQ due to lower credit demand and excess liquidity management.
- Cost Structure: Personnel and administrative expenses rose 38% YoY, reflecting multiple salary increases throughout 2018 to catch up with inflation. The efficiency ratio weakened QoQ to 61.9% as expenses grew faster than revenues.
Guidance, Outlook, and Risks
- 2019 Guidance:
- Net Income: AR$3.3 billion to AR$3.9 billion (implying 28% to 52% YoY growth).
- Net Interest Margin (NIM): 18.5% to 20.5%. Note: The definition of NIM changed in 2019 to include exchange rate differences and derivatives results for accuracy.
- Management Commentary: CEO Jorge Ramirez expressed cautious optimism, noting the macro environment would remain challenging in the first half of 2019 before gradually improving. The upcoming Presidential elections add uncertainty. The focus remains on healthy loan origination and credit quality.
- Risks and Contingencies:
- Macroeconomic: High inflation, recession, and currency volatility in Argentina.
- Regulatory: Changes in minimum cash reserve requirements and the potential application of IAS 29 (hyperinflation accounting) starting in fiscal year 2020.
- Asset Quality: Continued deterioration in the Consumer Finance segment due to inflation eroding disposable income.
Investor Verification Checklist
- Voluntary Provisions: Verify the impact of the AR$231 million voluntary loan loss provision on Q4 net income and confirm the sustainability of the 100% NPL coverage ratio.
- Margin Definition Change: Confirm how the new 2019 NIM definition (including FX and derivatives) affects comparability with historical NFM data.
- IAS 29 Adoption: Assess the potential impact of the Central Bank's decision to apply IAS 29 (hyperinflation accounting) for fiscal years starting January 1, 2020, on future financial statement restatements.
- Consumer Finance Segment: Monitor the NPL ratio in the Consumer Finance segment (19.4% in 4Q18) and the effectiveness of tightened credit scoring standards.
- Liquidity Management: Review the QoQ decrease in deposits and loans (-2.3% and -3.8% respectively) to ensure it reflects strategic liquidity management rather than deposit flight.