Grupo Supervielle S.A. — FY 2018 Form 20-F
Reporting period: Year ended December 31, 2018. This is an annual report, not a standalone fourth-quarter filing; the supplied text does not provide a clear, complete Q4 income statement. Grupo Supervielle is an Argentina-focused financial group, principally a bank, with consumer finance, insurance, asset management and online brokerage businesses.
Accounting basis: Audited consolidated statements use IFRS for the first time, with 2017 comparative figures restated, and apply IAS 29 hyperinflation accounting. Amounts below are in Argentine pesos (Ps.) and, unless stated otherwise, billions. Comparisons should be read with these accounting changes in mind.
Key financial results and position
| Metric | FY 2018 / Dec. 31, 2018 | FY 2017 / Dec. 31, 2017 |
|---|---|---|
| Net financial income | Ps.20.44bn, up 14.2% | Ps.17.89bn |
| Net interest income | Ps.13.00bn, down 6.8% | Ps.13.96bn |
| Net service fee income | Ps.5.36bn, down 6.7% | Ps.5.74bn |
| Loan-loss provisions | Ps.5.18bn, up 28.4% | Ps.4.03bn |
| Net loss | Ps.3.06bn; Ps.3.03bn attributable to parent shareholders | Ps.0.76bn; Ps.0.75bn attributable to parent shareholders |
| Total assets | Ps.141.73bn | Ps.135.23bn |
| Loans and other financing, net | Ps.77.21bn; gross before allowances Ps.82.14bn | Ps.87.11bn net |
| Deposits | Ps.94.91bn, up 14.0% | Ps.83.28bn |
| Shareholders’ equity | Ps.16.97bn | Ps.20.29bn |
- Margins and efficiency: Net interest margin was 17.7% versus 18.3%; net financial margin was 17.0% versus 18.4%. The reported efficiency ratio improved to 53.7% from 57.5%, while cost/assets fell to 9.2% from 10.8%.
- Asset quality: NPLs were 4.1% of total loans versus 3.1%; allowances were 6.0% of loans versus 5.0%; cost of risk rose to 5.4% from 5.0%. Coverage declined to 147.2% from 162.3%. Consumer finance was particularly stressed, with a 19.4% NPL ratio versus 14.7%; corporate NPLs rose to 1.1% from 0.2%.
- Liquidity and capital: Loans/deposits were 86.6% versus 110.1%; pro forma LCR was 173.4% versus 113.9%. Bank-and-CCF regulatory capital/RWA was reported as 11.9% (Tier 1: 10.8%), down from 13.9% (Tier 1: 12.6%). The filing also reports pro forma total capital/RWA of 14.0%, including holding-company liquidity and a capital contribution; definitions and presentation differ across tables.
- Debt and funding: Deposits remained the main funding source. At year-end, the group reported Ps.8.03bn of financing from the Central Bank and other financial institutions, Ps.9.31bn of unsubordinated negotiable obligations and Ps.1.38bn of subordinated obligations. Most time deposits were short-term: Ps.18.55bn of deposits over Ps.100,000 matured within three months.
- Cash flow: Operating activities provided Ps.3.99bn, compared with Ps.18.10bn used in 2017. Investing activities used Ps.3.10bn; financing activities used Ps.0.89bn. Cash and cash equivalents ended at Ps.46.98bn versus Ps.31.63bn. The reported increase includes substantial exchange-rate and inflation effects, so it should not be read as operating cash generation alone.
Material changes versus the prior period
- Despite higher net financial income, net loss widened substantially. Interest expense more than doubled, exceeding the growth in interest income; net interest income contracted.
- Argentina’s 47.6% CPI inflation and sharp peso depreciation materially affected results. The IAS 29 loss from exposure to changes in purchasing power increased to Ps.6.02bn from Ps.2.59bn.
- Loan impairment expense rose as delinquency increased and the recession, high rates and inflation weakened borrowers. Management said it tightened consumer credit standards and slowed originations; delinquency formation improved from its Q2 peak but worsened again in Q4.
- Loans and other financing net fell from Ps.87.11bn to Ps.77.21bn, while deposits grew. The group shifted liquidity toward Central Bank securities and cash amid higher reserve requirements and weaker credit demand.
- Net service fee income declined, partly reflecting lower deposit and card commissions and regulated reductions in merchant discount rates. Personnel expense was broadly stable; administration expense rose 13.9%.
- The group acquired used-car lender MILA and online broker InvertirOnline in 2018. These acquisitions increased intangible assets and goodwill; the filing reports goodwill of Ps.1.74bn at year-end.
Outlook, commentary and risks
- Management described the outlook as challenging, particularly in the first half of 2019, with a gradual recovery anticipated thereafter. It expected financial-system recovery around late 2019 or early 2020, conditional on economic growth, lower inflation and reduced volatility. These are management expectations, not quantified company earnings guidance.
- Management’s stated priorities include prudent risk management, deposit diversification, operating efficiency, digital transformation, cross-selling and targeted lending. Consumer finance was reorganized, with tighter underwriting, reduced higher-risk activity and cost controls.
- Major risks include Argentina’s recession, inflation, peso and interest-rate volatility, the October 2019 elections, possible changes in government or banking regulation, and effects on funding costs, margins, borrowers and asset quality. The group is concentrated in Argentina and in retail, SME and middle-market borrowers.
- Other material exposures include public-sector and Central Bank securities; deposit confidence and short-term funding; consumer-protection and class-action claims; cybersecurity and operational risks; and reliance on agreements with ANSES and Walmart. The Walmart financial-services agreement expires in August 2020 and may not renew on the same terms.
- The company reported no legal or administrative proceeding likely to have a material adverse effect, while noting that the Bank and CCF face ordinary-course claims, including class actions. The filing also cautions that subsidiaries’ ability to pay dividends to the holding company is subject to regulatory and other restrictions.
- The board approved a Ps.303m cash dividend from 2018 results, with Ps.1.353bn allocated to a discretionary reserve for future investment. Bank dividend capacity remains subject to Central Bank requirements.
Important facts for investors to verify
- Reconcile the reported capital ratios: the filing gives 11.9% regulatory capital/RWA and 14.0% pro forma total capital/RWA; confirm the applicable entity scope, adjustments and regulatory basis.
- Review IAS 29 and first-time IFRS transition reconciliations, especially the purchasing-power loss, comparative restatements and differences from Argentine Banking GAAP.
- Track NPLs, Stage 2 and Stage 3 exposures, provisions and recovery trends, especially in consumer finance and SME/corporate lending.
- Assess the sensitivity of funding costs and net interest margins to deposit repricing, market rates, reserve requirements and the group’s increased Central Bank securities holdings.
- Verify liquidity and capital after year-end events, including the Central Bank’s January 2019 recognition of a Ps.1bn bank capital contribution, and the sustainability of the reported LCR and pro forma capital.
- Monitor execution and returns from the MILA and InvertirOnline acquisitions, the Walmart and ANSES agreements, and the approved dividend and discretionary reserve.