Business Context and Reporting Period
Company: Grupo Supervielle S.A. (Supervielle Group S.A.)
Filing Type: Form 6-K (Report of Foreign Issuer)
Reporting Period: Nine months ended September 30, 2019 (Unaudited)
Business Overview: Grupo Supervielle is a financial holding company operating in Argentina. Its primary activity involves investment in financial entities, with its main subsidiary being Banco Supervielle S.A. The Group offers a multi-channel platform including retail banking, corporate banking, treasury, consumer finance, insurance, and mutual fund administration.
Accounting Basis: Financial statements are prepared in Argentine Pesos (AR$) in accordance with Argentine Central Bank (BCRA) regulations. While the Group is converging toward IFRS, it currently waives the application of IFRS 9 (Impairment) and IAS 29 (Hyperinflationary Economies) until January 1, 2020.
Key Financial Metrics
| Metric (in thousands AR$) | Sept 30, 2019 | Dec 31, 2018 |
|---|---|---|
| Total Assets | 159,815,806 | 141,115,541 |
| Total Liabilities | 139,688,658 | 123,945,364 |
| Shareholders' Equity | 20,127,148 | 17,170,177 |
| Net Income (9 months) | 2,794,055 | 1,909,862 |
| Net Interest Income | 4,112,716 | 8,439,218 |
| Net Service Fee Income | 4,497,241 | 3,393,536 |
| Loan Loss Provisions | (5,111,125) | (2,837,880) |
| Cash and Cash Equivalents | 51,073,004 | 46,976,558 |
| Deposits | 102,060,282 | 94,906,014 |
| Loans and Other Financing | 84,919,410 | 78,791,903 |
Key Ratios:
- Liquidity Ratio: 50.04% (Sept 2019) vs 49.50% (Dec 2018)
- Solvency Ratio: 14.41% (Sept 2019) vs 13.85% (Dec 2018)
- Return on Equity (ROE): 20.4% (Calculated on a daily basis for the period)
Material Changes vs. Prior Period
- Profitability: Net income attributable to the parent company increased significantly to AR$ 2,791,702 thousand for the nine months ended Sept 30, 2019, compared to AR$ 1,860,737 thousand in the same period of 2018. This growth was driven primarily by results from equity investments in subsidiaries.
- Revenue Mix: Net interest income decreased to AR$ 4.1 billion from AR$ 8.4 billion in the prior year, while Net Service Fee Income increased to AR$ 4.5 billion from AR$ 3.4 billion. This shift reflects a strategic move toward fee-based income.
- Financial Instruments: Net income from financial instruments at fair value through profit or loss surged to AR$ 13.9 billion (2019) from AR$ 2.9 billion (2018), largely due to income from securities issued by the Argentine Central Bank.
- Provisions: Loan loss provisions increased substantially to AR$ 5.1 billion from AR$ 2.8 billion, reflecting a more conservative approach to credit risk in a volatile economic environment.
- Balance Sheet Growth: Total assets grew by approximately 13.3% year-over-year, driven by increases in debt securities at fair value and loans to the non-financial private sector.
Outlook, Risks, and Contingencies
Economic Context: The Group operates in a complex and volatile environment. Key macroeconomic factors include a 2.5% year-to-year fall in GDP, accrued inflation of 37.7% (Jan-Sept 2019), and significant peso devaluation starting in August 2019. These factors led to a reference interest rate exceeding 74% and unexpected outflows of dollar deposits.
Government Measures: The Argentine government has implemented capital controls, including limits on foreign currency acquisition, specific terms for export settlements, and prior authorization requirements for external asset transfers and debt payments to related foreign companies.
Accounting Risks: The Group notes that the application of IFRS 9 (Expected Credit Losses) and IAS 29 (Hyperinflationary Economies), which are currently waived, would significantly impact reported equity and results if applied immediately. Full application is required starting January 1, 2020.
Outlook: Management expects to maintain its contribution to the Argentine economy through credit origination in 2019. The Board is actively monitoring economic variables to mitigate potential impacts on equity and financial stability.
Investor Verification Checklist
- IFRS Adoption Impact: Verify the potential impact on equity and earnings when IFRS 9 and IAS 29 are fully applied in 2020, as current figures exclude these standards.
- Currency Volatility: Assess the exposure to Argentine Peso devaluation and the effectiveness of hedging strategies given the significant foreign currency net position.
- Credit Quality: Review the sharp increase in loan loss provisions (up ~80% YoY) and the classification of loans under the Central Bank's debtor classification system (DCS).
- Regulatory Compliance: Confirm compliance with BCRA liquidity and solvency requirements, particularly given the high interest rate environment and capital controls.
- Subsidiary Performance: Analyze the divergent performance of key subsidiaries, specifically the strong results from Banco Supervielle versus losses in Cordial Compañía Financiera and Tarjeta Automática.