Business Context and Reporting Period
Company: Macro Bank Inc. (Banco Macro S.A.)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Third Quarter ended September 30, 2018 (3Q18)
Filing Date: November 27, 2018
Currency: Argentine Pesos (Ps.)
Accounting Standards: Results reported in accordance with IFRS (Communication "A" 6114 of the Central Bank of Argentina). FY2017 figures have been restated for comparability.
Key Financial Metrics
| Metric | 3Q18 Value | 3Q17 Value | YoY Change |
|---|---|---|---|
| Net Income (Parent Company) | Ps. 3.83 billion | Ps. 2.73 billion | +40% |
| Earnings Per Share (EPS) | Ps. 5.78 | Ps. 4.09 | +41% |
| Net Interest Income | Ps. 10.32 billion | Ps. 6.09 billion | +70% |
| Net Fee Income | Ps. 2.09 billion | Ps. 1.58 billion | +32% |
| Operating Income | Ps. 5.54 billion | Ps. 4.23 billion | +31% |
| Total Assets | Ps. 311.15 billion | Ps. 209.14 billion | +49% |
| Total Deposits | Ps. 212.57 billion | Ps. 136.53 billion | +56% |
| Private Sector Financing | Ps. 167.89 billion | Ps. 117.18 billion | +43% |
| Return on Average Equity (ROAE) | 27.8% (Accumulated) | 31.6% (Accumulated) | -3.8 pp |
| Return on Average Assets (ROAA) | 5.6% (Accumulated) | 5.4% (Accumulated) | +0.2 pp |
| Efficiency Ratio | 39.1% | 41.6% | -2.5 pp |
| Regulatory Capital Ratio | 26.4% | 25.8% | +0.6 pp |
| Non-Performing Financing Ratio | 1.63% | 1.00% | +63 bps |
| Coverage Ratio | 131.05% | 199.25% | -68.2 pp |
Material Changes vs. Prior Period
- Profitability Surge: Net income increased 22% quarter-over-quarter (QoQ) and 39% year-over-year (YoY), driven by a 70% YoY increase in Net Interest Income and a 32% increase in Net Fee Income.
- Balance Sheet Expansion: Total assets grew 15% QoQ and 49% YoY. Private sector financing expanded 11% QoQ, led by overdrafts (+52% QoQ) and commercial loans.
- Deposit Growth: Total deposits rose 18% QoQ, with private sector deposits growing 20%. Time deposits were the primary driver, increasing 23% QoQ.
- FX Impact: The bank recorded a Ps. 1.24 billion loss on differences in quoted prices of gold and foreign currency due to a 42% depreciation of the Argentine peso against the US dollar and a short dollar position. This was partially offset by gains in government securities.
- Asset Quality Deterioration: The non-performing to total financing ratio increased to 1.63% from 1.38% in 2Q18 and 1.00% in 3Q17. Both commercial and consumer portfolios saw increases in non-performing loans.
- Share Repurchases: The bank repurchased 21.46 million shares in 3Q18 for Ps. 3.11 billion, reducing the regulatory capital ratio by 120 basis points and the Tier 1 ratio by 260 basis points.
Guidance, Outlook, and Risks
- Forward-Looking Statements: The filing contains forward-looking statements subject to risks including inflation, interest rate changes, government regulation, and exchange rate fluctuations.
- Regulatory Environment: The Central Bank of Argentina (BCRA) significantly increased reserve requirements for sight and time deposits throughout 3Q18 (total increase of 24 percentage points for transactional deposits). New reserve requirements for foreign capital inflows were also established to discourage short-term speculative funds.
- Inflation Adjustment: As of September 30, 2018, regulations prevented the application of inflation adjustment (IAS 29) to financial information, meaning reported figures are not restated for inflation effects.
- Capital Management: The bank maintains a strong solvency position with excess capital of Ps. 44.1 billion (222% over requirements). Management aims to utilize this excess capital efficiently.
- Unusual Items: Other operating income increased 44% QoQ, largely due to a Ps. 565 million gain related to the buyback of corporate bonds.
Investor Verification Checklist
- FX Exposure: Verify the impact of the short dollar position and peso depreciation on future earnings, given the Ps. 1.24 billion FX loss in 3Q18.
- Asset Quality Trends: Monitor the rising non-performing loan ratio (1.63%) and the declining coverage ratio (131.05%) to assess credit risk in the current economic climate.
- Regulatory Reserve Requirements: Assess the liquidity impact of the cumulative 24 percentage point increase in reserve requirements mandated by the BCRA.
- Share Buyback Impact: Confirm the remaining authorized amount for share repurchases (Ps. 1.89 billion pending) and its effect on future capital ratios.
- Interest Rate Sensitivity: Review the 334 basis point increase in average interest rates on time deposits and its sustainability given the high inflation environment.