Business Context and Reporting Period
Company: Grupo Supervielle S.A. (NYSE: SUPV)
Reporting Period: Second Quarter ended June 30, 2023 (2Q23)
Filing Type: Form 6-K (Report of Foreign Issuer)
Accounting Basis: Results reported under Hyperinflation Accounting (IAS 29) and IFRS 9. Comparative figures for 2022 have been restated retrospectively.
Grupo Supervielle is a universal financial services group headquartered in Argentina. The quarter was characterized by high inflation (23.8% QoQ, 115.6% YoY) and aggressive monetary tightening by the Central Bank of Argentina, with the LELIQ rate rising to 97% by June 2023. The Company executed a strategy to optimize operations, streamline its branch network, and maximize Net Interest Margin (NIM) through asset and liability management.
Key Financial Metrics
| Metric | 2Q23 | 1Q23 | 2Q22 |
|---|---|---|---|
| Attributable Net Income | AR$6.3 billion | AR$0.69 billion | (AR$3.8 billion) Loss |
| Profit Before Tax | AR$9.0 billion | AR$2.1 billion | (AR$4.7 billion) Loss |
| Revenues (Net Financial + Fee Income) | AR$58.0 billion | AR$49.9 billion | AR$49.8 billion |
| Net Financial Income | AR$48.4 billion | AR$40.2 billion | AR$40.5 billion |
| Net Interest Margin (NIM) | 26.7% | 21.9% | 18.8% |
| Return on Average Equity (ROAE) | 17.6% (Real Terms) | 2.0% (Real Terms) | (10.2%) (Real Terms) |
| Efficiency Ratio | 62.5% | 71.8% | 81.4% |
| Non-Performing Loan (NPL) Ratio | 2.5% | 4.1% | 4.1% |
| Cost of Risk | 4.3% | 4.8% | 5.5% |
| Total Assets | AR$1,033 billion | AR$942 billion | AR$1,167 billion |
| Total Deposits | AR$805.9 billion | AR$576.5 billion | AR$425.5 billion |
| Common Equity Tier 1 Ratio | 15.7% | 14.7% | 13.6% |
Material Changes vs. Prior Period
- Profitability Turnaround: The Company swung from a net loss in 2Q22 to a net income of AR$6.3 billion in 2Q23. This was driven by a 19.4% YoY increase in Net Financial Income and a 51.6% YoY decrease in loan loss provisions.
- Margin Expansion: NIM expanded to 26.7% (from 18.8% YoY) due to higher yields on Central Bank securities and government bonds, which offset lower loan volumes. The yield on Central Bank securities increased by 1,380 bps sequentially.
- Asset Quality Improvement: The NPL ratio dropped significantly to 2.5% from 4.1% in 1Q23, driven by the sale of a non-performing consumer finance loan portfolio and the upgrade of a corporate customer.
- Cost Reduction: Total expenses declined 5.9% YoY. The efficiency ratio improved to 62.5% from 81.4% YoY, reflecting branch network optimization and lower administrative costs.
- Deposit Growth: Total deposits grew 39.8% QoQ in nominal terms, aided by public sector deposits, corporate inflows, and the seasonal "thirteenth salary" payment. However, in real terms, deposits decreased 12.1% YoY due to inflation.
- Loan Contraction: The loan portfolio contracted in real terms (down 7.0% QoQ) due to weak credit demand and high interest rates. The Company maintained a prudent lending approach, prioritizing high-value customers.
Guidance, Outlook, and Risks
Management Commentary
Management highlighted the successful execution of the strategic plan, resulting in a 17.6% ROAE in real terms for 2Q23. The Company expects to benefit from a lower turnover tax burden following legal challenges against local tax authorities regarding Leliqs and Repos. Management anticipates a more business-friendly environment following the October 2023 presidential elections.
Outlook and Strategy
- Digital Expansion: Launched "Inversión Rápida" (Quick Investment) 24/7 via the App, allowing customers to invest in money market funds to hedge against inflation. 90,000 clients have utilized this feature.
- Capital Position: The Company maintains a strong capital buffer with a 15.7% Tier 1 ratio, hedged against inflation.
- Macro Environment: The outlook remains cautious due to high inflation (projected 140.7% for 2023) and GDP contraction (-2.8% for 2023). The Central Bank raised the LELIQ rate to 118% in August 2023 following a currency devaluation.
Risks and Contingencies
- Macroeconomic Volatility: High inflation and currency devaluation impact real loan growth and deposit balances.
- Regulatory Changes: Ongoing disputes over the constitutionality of turnover taxes on Central Bank securities. The Company has ceased paying this tax in Buenos Aires and Mendoza pending Supreme Court resolution.
- Credit Demand: Persistent weak credit demand from the private sector due to high real interest rates.
- Political Risk: Upcoming presidential elections in October 2023 create uncertainty regarding future economic policies.
Investor Verification Checklist
- Real vs. Nominal Growth: Verify the distinction between nominal and real-term figures for deposits and loans, as inflation (115.6% YoY) distorts nominal growth.
- Turnover Tax Status: Monitor the status of the legal challenge regarding the turnover tax on Leliqs/Repos, as this significantly impacts net income.
- Loan Portfolio Quality: Confirm the sustainability of the NPL ratio decline (2.5%) given the sale of non-performing assets and the contraction in the loan book.
- Interest Rate Sensitivity: Assess the impact of the Central Bank's aggressive rate hikes (LELIQ at 118% in August) on future cost of funds and net interest margins.
- Capital Adequacy: Review the Common Equity Tier 1 ratio (15.7%) to ensure it remains sufficient to absorb potential inflation adjustments and credit losses.