Business Context and Reporting Period
Company: Grupo Supervielle S.A. (Supervielle Group S.A.)
Filing Type: Form 6-K (Report of a Foreign Private Issuer)
Reporting Period: Six months ended June 30, 2017 (Interim)
Filing Date: August 25, 2017
Business Overview: Grupo Supervielle is the fourth largest Argentine private domestically-owned bank by assets. Its primary asset is Banco Supervielle S.A., which comprises 97.2% of total assets. The group operates through Retail Banking, Corporate Banking, Treasury, Consumer Finance, Insurance, and Asset Management segments. As of June 30, 2017, the group served over 2 million customers with total assets of Ps. 67.2 billion (approx. US$4.0 billion).
Key Financial Metrics
| Metric | Six Months Ended June 30, 2017 | Six Months Ended June 30, 2016 |
|---|---|---|
| Net Income | Ps. 961.6 million (US$57.9 million) | Ps. 342.6 million (US$20.7 million) |
| Financial Income | Ps. 6.74 billion | Ps. 4.90 billion |
| Gross Financial Margin | Ps. 4.06 billion | Ps. 2.41 billion |
| Net Interest Margin (NIM) | 19.3% | 20.3% |
| Return on Average Equity (ROAE) | 26.6% | 20.0% |
| Return on Average Assets (ROAA) | 3.1% | 1.9% |
| Efficiency Ratio | 66.2% | 72.9% |
| Total Assets (as of June 30) | Ps. 67.2 billion | Ps. 53.2 billion (Dec 31, 2016) |
| Total Deposits (as of June 30) | Ps. 42.8 billion | Ps. 35.9 billion (Dec 31, 2016) |
| Loan Portfolio (as of June 30) | Ps. 40.4 billion | Ps. 35.8 billion (Dec 31, 2016) |
| Non-Performing Loans (NPL) Ratio | 2.9% | 3.1% (Six months ended June 30, 2016) |
| Cost of Risk | 4.0% | 4.0% |
| Shareholders' Equity (as of June 30) | Ps. 7.8 billion | Ps. 6.9 billion (Dec 31, 2016) |
Material Changes vs. Prior Period
- Profitability Surge: Net income increased 180.7% year-over-year to Ps. 961.6 million, driven by a 68.5% increase in gross financial margin and a 48.0% increase in net services fee income.
- Asset Growth: Total assets grew 26.3% from December 31, 2016, to Ps. 67.2 billion. The loan portfolio grew 51.3% year-over-year (June 2016 to June 2017), outpacing the Argentine private financial system average of 40.3%.
- Deposit Expansion: Total deposits increased 19.3% from the prior year-end, with a significant 146.2% increase in deposits from the non-financial public sector.
- Margin Compression: Net Interest Margin decreased 100 basis points to 19.3%, primarily due to a higher proportion of lower-yielding U.S. dollar-denominated assets and investments in Central Bank notes following liquidity increases from a February 2017 bond issuance.
- Expense Growth: Administrative expenses rose 41.6% to Ps. 3.9 billion, largely due to a 47.6% increase in personnel expenses driven by collective bargaining agreements and inflation adjustments.
- Asset Quality: The NPL ratio improved to 2.9% from 3.1% in the prior year, though the Consumer Finance segment saw an increase in NPLs to 13.9%.
Guidance, Outlook, Risks, and Unusual Items
Management Commentary and Outlook
Management attributes the strong performance to the deployment of capital raised in the May 2016 IPO, which fueled loan growth and allowed for the replacement of high-cost liabilities. The group continues to focus on cross-selling opportunities through its multi-channel platform, including partnerships with Walmart Argentina.
Unusual Items
- FX Impact: Net income included a Ps. 50 million net loss due to the appreciation of the Peso against the U.S. dollar between pricing and settlement of a Ps. 4.77 billion global term note issued in February 2017.
- Asset Sales: The group recorded a Ps. 73.3 million non-recurring net gain from the sale of Viñas del Monte S.A. and a non-strategic real estate property.
- Regulatory Changes: Income from insurance activities decreased 21.1% as the Bank and CCF began self-insuring credit-related risks effective September 1, 2016, per regulatory changes.
Risks and Contingencies
- Macroeconomic Volatility: Significant exposure to Argentine economic conditions, including inflation (CPI grew 13.0% in the first six months of 2017), exchange rate fluctuations, and potential political instability following mid-term legislative elections in October 2017.
- Regulatory Risk: Changes in Central Bank regulations regarding interest rates, fee structures (MDR reductions), and capital requirements.
- Credit Risk: Deterioration in asset quality within the Consumer Finance segment due to inflation outpacing salary adjustments and increases in public service tariffs.
Key Facts for Investor Verification
- Capital Adequacy: Verify the Regulatory Capital to Risk-Weighted Assets ratio of 11.7% and Tier 1 Capital ratio of 10.3% against Central Bank minimum requirements.
- FX Exposure: Assess the impact of the Ps. 14.9 billion in foreign currency assets versus Ps. 12.8 billion in foreign currency liabilities on future earnings given Peso volatility.
- Consumer Finance NPLs: Monitor the 13.9% NPL ratio in the Consumer Finance segment, which is significantly higher than the consolidated average of 2.9%.
- Fee Income Sustainability: Evaluate the sustainability of the 48.0% increase in net services fee income in light of Central Bank mandates to gradually reduce Merchant Discount Rates (MDR) for credit and debit cards.
- Liquidity Position: Confirm the Liquidity Coverage Ratio (LCR) Pro Forma of 126.5% and the ability to fund loan growth without excessive reliance on wholesale funding.