BMA

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: Three months ended March 31, 2017 (Unaudited)
Filing Date: May 24, 2017
Business Overview: A commercial bank authorized by the Central Bank of Argentina, operating primarily in regional areas outside Buenos Aires. The bank offers traditional banking products to companies and individuals and operates through subsidiaries including Banco del Tucumán SA and Macro Bank Limited.

Key Financial Metrics

Figures in thousands of Argentine Pesos (ARS), unless otherwise noted.

Material Changes vs. Prior Period

• Profitability: Net income increased by approximately 25% to 1.76 billion ARS compared to 1.41 billion ARS in Q1 2016. Gross Intermediation Margin rose significantly to 4.17 billion ARS from 2.83 billion ARS.
• Loan Portfolio: Net loans grew to 86.29 billion ARS from 81.04 billion ARS at year-end 2016. Personal loans and credit card loans remain the largest segments.
• Provisions: The provision for loan losses more than doubled to 316 million ARS from 149 million ARS in the prior year period, indicating increased risk provisioning.
• Administrative Expenses: Increased to 2.68 billion ARS from 1.93 billion ARS in Q1 2016, driven largely by a rise in personnel expenses (1.68 billion ARS vs 1.14 billion ARS).
• Securities: Holdings of instruments issued by the Central Bank of Argentina increased to 18.64 billion ARS from 13.76 billion ARS.

Guidance, Outlook, Risks, and Unusual Items

• Accounting Standards Transition: The bank is in the process of converging to International Financial Reporting Standards (IFRS) with a transition date of January 1, 2017. Reconciliations show significant adjustments to assets, liabilities, and equity under IFRS compared to local Central Bank rules.
• Regulatory and Legal Risks:
  • Central Bank Summaries: Several summaries regarding foreign exchange regime infringements and anti-money laundering supervision are pending or in process. Some have been dismissed or statute-barred, while others remain under judicial review.
  • Penalties: Various penalties imposed by the Central Bank and the Financial Information Unit (UIF) regarding foreign currency purchases and AML compliance are being appealed. Total monetary penalties pending payment or appeal amounted to 8,780 thousand ARS.
  • Tax Claims: Ongoing disputes with AFIP and City of Buenos Aires tax authorities regarding income tax deductions and turnover tax on compensation bonds.
• Macroeconomic Environment: Management notes uncertainty regarding the international and local macroeconomic context, including political matters and economic growth, though volatility in interest rates and exchange rates has decreased recently.
• Dividends: The Shareholders' Meeting approved a cash dividend distribution of 701,476 thousand ARS, pending Central Bank approval.

Investor Verification Checklist

• IFRS Reconciliation: Verify the impact of the transition to IFRS on reported equity and net income, as significant adjustments (e.g., fair value of securities, deferred taxes) differ from local GAAP.
• Provision Adequacy: Assess the doubling of loan loss provisions in Q1 2017 and its impact on future earnings stability.
• Regulatory Exposure: Review the status of pending Central Bank summaries and UIF penalties to estimate potential future cash outflows or reputational risk.
• Cost Management: Analyze the sharp increase in personnel expenses and administrative costs to determine if this is a structural shift or a one-time adjustment.
• Liquidity Position: Confirm the composition of cash and cash equivalents, noting the significant holdings of Central Bank instruments.