Business Context and Reporting Period
Company: Grupo Supervielle S.A. (NYSE: SUPV)
Filing Type: Form 6-K (Report of Foreign Issuer)
Reporting Period: Second Quarter 2019 (Ended June 30, 2019)
Submission Date: August 21, 2019
Currency: Argentine Pesos (AR$) - Nominal
Accounting Basis: IFRS (with specific waivers for IFRS 9 Impairment and IAS 29 Hyperinflationary Economies until Jan 1, 2020).
Key Financial Metrics (2Q19)
| Metric | 2Q19 Value | YoY Change | QoQ Change |
|---|---|---|---|
| Net Financial Income | AR$ 6,560.3 million | +81.5% | +19.8% |
| Net Service Fee Income | AR$ 1,241.7 million | +23.6% | +1.1% |
| Profit Before Income Tax | AR$ 1,566.1 million | +243.4% | +109.2% |
| Attributable Net Income | AR$ 1,901.5 million | +602.4% | +222.8% |
| ROAE (Return on Equity) | 42.2% | vs 7.2% (2Q18) | vs 13.6% (1Q19) |
| ROAA (Return on Assets) | 4.7% | vs 1.0% (2Q18) | vs 1.5% (1Q19) |
| Net Interest Margin (NIM) | 22.1% | +470 bps | +300 bps |
| Cost of Risk | 6.0% | vs 5.6% (2Q18) | -390 bps |
| NPL Ratio | 5.1% | +140 bps | -20 bps |
| NPL Coverage Ratio | 107.7% | vs 89.9% (2Q18) | +770 bps |
| Total Assets | AR$ 166.1 billion | +37.5% | +1.4% |
| Total Loans | AR$ 82.1 billion | +8.3% | +0.4% |
| Total Deposits | AR$ 112.6 billion | +48.8% | +2.7% |
| Loans to Deposits Ratio | 72.9% | vs 100.2% (2Q18) | vs 74.6% (1Q19) |
| CET1 Ratio (Proforma) | 11.9% | vs 13.1% (2Q18) | vs 12.1% (1Q19) |
Material Changes vs. Prior Period
- Profitability Surge: Net income increased 602% YoY and 223% QoQ. This was significantly driven by a AR$ 664.2 million inflation adjustment in the income tax provision, which reduced tax expense. Excluding this adjustment, ROAE would have been 34.6%.
- Revenue Drivers: Net Financial Income rose 81.5% YoY, fueled by higher interest rates and increased volumes in high-yield Central Bank securities (Leliqs). Net Interest Margin expanded to 22.1%.
- Asset Quality: The Cost of Risk improved sequentially to 6.0% (down 390 bps), largely because 1Q19 was penalized by a specific delinquent commercial loan. The NPL ratio decreased slightly QoQ to 5.1%, while coverage increased to 107.7%.
- Balance Sheet Composition: Total assets grew 37.5% YoY, primarily due to a larger portfolio of Central Bank securities (23.6% of total assets) rather than loan growth, which remained flat QoQ (+0.4%) due to weak credit demand.
- Efficiency: The efficiency ratio was 62.4%, up 340 bps QoQ. This increase included AR$ 273 million in non-recurring severance charges related to management streamlining. Adjusted for these charges, the ratio would have been 58.7%.
Guidance, Outlook, and Risks
- Guidance Revision: Management has temporarily placed full-year 2019 guidance under revision. While H1 performance tracked ahead of earlier outlooks, heightened volatility from the Argentine presidential election and currency depreciation has increased uncertainty.
- Macro Risks: The company cites persistently high interest rates and weak economic activity as risks to asset quality. High monetary policy rates support margins but increase the cost of funds and pressure borrowers.
- Consumer Finance Segment: This segment remains impacted by high wholesale funding costs and reported a net loss of AR$ 264.2 million. However, NPL formation has decreased for two consecutive quarters following tightened underwriting standards.
- Regulatory Changes: The Central Bank clarified Tier 1 capital deductions regarding deferred tax assets in 2Q19, resulting in a higher deduction and a slight decrease in the reported CET1 ratio compared to the prior quarter.
- Strategic Moves: The company acquired Deautos.com in June 2019 to advance its digital strategy and automotive ecosystem. Management changes were implemented to streamline operations.
Investor Verification Checklist
- Tax Provision Impact: Verify the sustainability of the AR$ 664 million tax benefit derived from inflation adjustments under the 2017 tax reform and IAS 29 applicability.
- Consumer Finance Viability: Monitor the trajectory of the Consumer Finance segment's losses and NPL ratios, given its high cost of funding and exposure to lower-income borrowers.
- Loan Demand: Assess the impact of weak credit demand on future loan growth and the reliance on Central Bank securities for asset yield.
- Capital Adequacy: Review the impact of the new Central Bank interpretation on Tier 1 capital deductions and the resulting CET1 ratio of 11.9%.
- Political Risk: Evaluate the potential impact of the upcoming presidential election on currency stability, inflation rates, and regulatory policy.