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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 6-K

 

 

Report of Foreign Issuer

Pursuant to Rule 13a-16 or 15d-16

under the Securities Exchange Act of 1934

 

For the month of August, 2019

 

Commission File Number: 001-37777

 

 

GRUPO SUPERVIELLE S.A.

(Exact name of registrant as specified in its charter)

 

SUPERVIELLE GROUP S.A.

(Translation of registrant’s name into English)

 

 

Bartolomé Mitre 434, 5th Floor

C1036AAH Buenos Aires

Republic of Argentina

(Address of principal executive offices)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

 

Form 20-F  x            Form 40-F  o

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

 

Yes  o             No  x

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

 

Yes  o             No  x

 

 

Table of Contents

 

Explanatory Note

 

All figures presented throughout this document are expressed in Argentine pesos (AR$) and all financial information has been prepared in accordance with the valuation and disclosure criteria set forth by the Argentine Central Bank, which differ in certain material aspects from IFRS as issued by the IASB.

 

For the Grupo Supervielle 20-F filed with the SEC on May 10, 2019 financial statements should be prepared in accordance with IFRS, as issued by the IASB, or in accordance with US GAAP or provide a reconciliation with US GAAP. As the Argentine Central Bank is in a convergence plan towards the application of IFRS for entities under its supervision, Grupo Supervielle S.A. prepared its financial statements included in its SEC annual report in accordance with IFRS, as issued by the IASB.

 

The abovementioned convergence plan, effective for fiscal years beginning on or after January 1, 2018, has two exceptions to the application of IFRS: (i) item 5.5 (Impairment) of IFRS 9 “Financial Instruments”, and (ii) IAS 29 “Financial Reporting in Hyperinflationary Economies”, both of which were waived until January 1, 2020, at which time entities will be required to apply the provisions of IFRS in full.

 

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GRUPO SUPERVIELLE S.A.

 

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Item
1.		Grupo Supervielle S.A. Reports 2Q19 Consolidated Results.

 

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Grupo Supervielle S.A. Reports 2Q19 Consolidated Results

 

2Q19 Net Income of AR$1,902 million up 602% YoY and 223% QoQ, Pre-tax Net Income up 243% YoY and 109% QoQ

 

Buenos Aires, August 12, 2019 - Grupo Supervielle S.A. (NYSE: SUPV; BYMA: SUPV), (“Supervielle” or the “Company”) a universal financial services group headquartered in Argentina with a nationwide presence, today reported results for the three- and six-month periods ended June 30, 2019. All figures presented throughout this document are expressed in nominal Argentine pesos (AR$) and all financial information has been prepared in accordance with IFRS in compliance with the adoption ruled by the Argentine Central Bank.

 

Second Quarter 2019 Highlights

 

·                  Revenues up 14.6% QoQ, driven by increases of 19.8% in Net Financial Income and 1.9% in Net Service Fee Income. YoY total revenues rose 72.4% supported by growth of 81.5% in Net Financial Income and 26.8% in fee income.

 

·                  Net Financial Income of AR$6.6 billion up 81.5% YoY and 19.8% QoQ reflecting increases in average asset and deposit volumes and higher interest market rates. Interest on loans benefitted from additional repricing in personal loans.

 

·                  Net Interest Margin (NIM) of 22.1% up 470 bps YoY and 300 bps QoQ. YoY growth reflects higher volumes invested in high-yield Central Bank 7-days Leliqs while QoQ increase was driven by higher Leliqs yields and a lower proportion of non-remunerated minimum reserve requirements. Sequential growth was also supported by the 60 bps increase in AR$ Loan portfolio NIM in the quarter to 23.8% driven by continuing repricing in loans to individuals.

 

·                  Loan Loss Provisions decreased 36.0% QoQ and Cost of Risk declined 390 bps to 6.0% in 2Q19 while increasing NPL Coverage to 107.7%. 1Q19 LLPs and Cost of Risk were penalized by a delinquent commercial loan that was fully anticipated in FY19 guidance.

 

·                  Efficiency ratio was 62.4% in 2Q19 improving 390 bps YoY, but increasing 340 bps QoQ. Excluding non-recurring severance charges mainly at the Bank of AR$ 273 million in 2Q19, the efficiency ratio would have been 58.7% which compares with a 57.6% 1Q19 efficiency ratio, also adjusted by non-recurring severance costs.

 

·                  Profit before income tax was AR$ 1.6 billion increasing 243.4%, or AR$ 1.1 billion YoY and 109.2%, or AR$817.4 million QoQ. Attributable Net income of AR$1,901.5 million, increasing 602.4% YoY, or AR$1,630.8 million, and 222.8% QoQ, or AR$1,312.4 million. 2Q19 results include AR$664,2 million of inflation adjustment in the income tax provision.

 

·                  ROAE improved to 42.2% in 2Q19, from 7.2% in 2Q18 and 13.6% in 1Q19. ROAA increased to 4.7% in 2Q19, from 1.0% in 2Q18 and 1.5% in 1Q19. If inflation adjustment in the income tax provision would have been accounted for as of March 31, 2019, the impact would have been AR$331 million and AR$333 million in 2Q19 and 1Q19, respectively. Accordingly, attributable net income would have been AR$1.6 billion and AR$923 million in 2Q19 and 1Q19, respectively, and ROAE would have been 34.6% and 21.1% in 2Q19 and 1Q19, respectively.

 

·                  2Q19 ROAE, excluding Consumer finance lending losses, was 57.4%. This compares to Grupo Supervielle consolidated ROAE of 42.2%. Consumer finance lending business remained impacted by high market interest rates in its wholesale funding structure, while asset quality continued to show improvement after the tightening of underwriting policies and reducing exposure.  If inflation adjustment in the income tax provision would have been accounted for as of March 31, 2019, 2Q19 ROAE, excluding Consumer finance lending losses, would have been 48.5%.

 

·                  Loans to deposits ratio of 72.9% in 2Q19 compared to 100.2% in 2Q18, and 74.6% in 1Q19, reflecting higher deposit base and weak loan demand. Loan to assets of 49.4% in 2Q19 compared to 49.9% in 1Q19 and 62.8% in 2Q18.

 

·                  Deposits increased 48.8% YoY and 2.7% QoQ to AR$112.6 billion. AR$ deposits rose 42.1% YoY and 3.2% QoQ, while foreign currency deposits (measured in US$) increased 12.3% YoY and 3.9% QoQ.

 

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·                  Loans up 8.3% YoY and flat (+0.4%) QoQ at AR$82.1 billion. AR$ Loan portfolio rose 7.5% YoY and 3.6% QoQ. FX loans, measured in US$, declined 24.8% YoY and 5.7% QoQ.  Measured in local currency FX loans increased 10.6% YoY and decreased 7.7% QoQ.

 

·                  Total assets up 37.5% YoY and 1.4% QoQ, to AR$ 166.1 billion outpacing loan growth, mainly due to larger holdings of Central Bank securities, which accounted for 23.6% of total assets at quarter-end, while average balance of these securities represented 22.9% of average interest-earnings assets. YoY comps also reflect higher cash regulatory minimum reserve requirements.

 

·                  NPL ratio increased by 140 bps YoY and decreased 20 bps QoQ to 5.1% in 2Q19. QoQ performance reflects a stable Corporate Segment NPL, and a decrease in the Consumer Finance NPL formation (showing a lower incidence over total portfolio). Both Retail and Consumer Finance loans posted a higher NPL ratio mainly due to low loan portfolio origination. Consumer Finance NPL portfolio decreased 7.4% QoQ, or AR$ 130.4 million, but the segment loan portfolio declined 10.3%, or AR$734 million sequentially.

 

·                  Common Equity Tier 1 Ratio (Consolidated Proforma) of 11.9% in 2Q19 compared to 12.1% as of March 31, 2019. During 2Q19 the Central Bank clarified an interpretation regarding deductions on Tier1 Capital related to deferred tax assets. Until 1Q19 we deducted deferred tax assets net of deferred tax liabilities, as they are shown in our balance sheet according to IFRS, and following the Basel framework. Starting 2Q19 we deduct deferred tax assets without offsetting deferred tax liabilities. This means the deduction to our Tier 1 capital in accordance to the Central Bank interpretation is higher than the deferred tax asset shown in our balance sheet. Had this criteria been adopted in 1Q19, Common Equity Tier 1 Ratio (Consolidated Proforma) as of March 31, 2019 would have been 11.8%.

 

Commenting on second quarter 2019 results, Jorge Ramirez, Grupo Supervielle’s CEO, noted: “We reported solid results in the quarter with pre-tax income doubling sequentially. Overall, our franchise demonstrated once again its resiliency and flexibility to adapt to a more volatile environment coupled with low credit demand. While our consumer finance operation continues to face higher cost of funding, this business posted the second consecutive quarter of improvement in NPL formation contributing to a 390 basis point sequential decline in its cost of risk.

 

This good sequential pre-tax income performance was achieved despite AR$273 million in non-recurring severance charges in 2Q19 in connection with the recent management streamlining at our Bank subsidiary. Moreover, this quarter we also increased the coverage ratio by 770 basis points sequentially to 107.7%, as we remain cautious given the persistently high interest rates and weak activity levels observed across several economic sectors.

 

Our strategy to deepen our customer centric culture remains at the center of our execution plan. We are doing this by developing an agile digital strategy aimed at improving the customer experience and increasing efficiency of the organization. The June 2019 acquisition of Deautos.com, one of the leading online platforms for consumers to buy new and pre-owned cars, enabled us to take another step towards completing the construction of an ecosystem centered around automobiles which also further strengthens our position as a key player in this market while advancing on our digitalization strategy. Moreover, the reorganization of our Bank subsidiary early in the quarter propelled us ahead towards our goal of operating as a more efficient organization.

 

Our first half performance would have net income tracking ahead of the annual net income guidance provided earlier in the year. However, the current macro risks together with the presidential elections have added a higher level of uncertainty. As such, we are temporarily placing our guidance under revision since we remain cautious about the second half of the year. While high monetary policy rates could support high margins, we continue to closely monitor asset quality given high market interest rates and weak activity levels across several sectors. We expect to update the investment community on our guidance when volatility recedes.

 

In sum, business conditions remain challenging, but we have a long track record of operating under such scenarios,” concluded Mr. Ramirez.

 

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Financial Highlights & Key Ratios

 

(In millions of Argentine Ps.)																	% Change
INCOME STATEMENT				2Q19				1Q19			4Q18		3Q18		2Q18		QoQ		YoY		1H19		1H18		% Chg.
Net Interest Income				1,370.7				1,218.3			2,023.2		2,722.9		2,898.2		12.5	%	-52.7	%	2,589.0		5,716.3		-54.7	%
NIFFI & Exchange Rate Differences				5,189.6				4,259.4			3,235.0		1,663.4		716.8		21.8	%	624.0	%	9,449.0		1,522.2		520.7	%
Net Financial Income				6,560.3				5,477.7			5,258.1		4,386.2		3,615.0		19.8	%	81.5	%	12,038.0		7,238.6		66.3	%
Net Service Fee Income (excluding income from insurance activities)				1,241.7				1,227.8			1,065.1		1,026.9		1,004.9		1.1	%	23.6	%	2,469.5		1,889.6		30.7	%
Income from Insurance activities				217.2				204.0			180.4		183.1		145.3		6.5	%	49.5	%	421.1		294.0		43.2	%
Loan Loss Provisions				-1,210.8				-1,893.0			-1,382.8		-1,122.5		-989.2		-36.0	%	22.4	%	(3,103.8	)	(1,715.4	)	80.9	%
Personnel & Administrative Expenses				-4,395.8				-3,597.7			-3,591.2		-3,045.2		-2,760.9		22.2	%	59.2	%	(7,993.5	)	(5,207.3	)	53.5	%
Profit before income tax				1,566.1				748.7			903.8		1,027.6		456.0		109.2	%	243.4	%	2,314.8		1,476.5		56.8	%
Attributable Net income				1,901.5				589.1			706.8		867.4		270.7		222.8	%	602.4	%	2,490.7		993.3		150.7	%
Attributable Comprehensive income				1,909.3				615.4			935.3		874.5		475.3		210.2	%	301.7	%	2,524.6		1,220.1		106.9	%
Earnings per Share (AR$)				4.16				1.29			1.55		2.01		0.59		222.8	%	602.4	%
Earnings per ADRs (AR$)				20.82				6.45			7.75		10.03		2.96		222.8	%	602.4	%
Average Outstanding Shares (in millions)				456.7				456.7			456.7		456.7		456.7
BALANCE SHEET			jun 19				mar 19				dec 18		sep 18		jun 18		QoQ		YoY
Total Assets			166,144.7				163,849.3				141,115.5		146,122.7		120,789.0		1.4	%	37.5	%
Average Assets(1)			162,952.7				156,054.4				143,525.2		128,633.2		104,287.2		4.4	%	56.3	%
Total Loans & Leasing			82,117.7				81,827.1				80,171.5		83,378.1		75,830.0		0.4	%	8.3	%
Total Deposits			112,638.3				109,676.8				94,906.0		97,185.5		75,672.7		2.7	%	48.8	%
Attributable Shareholders’ Equity			19,377.6				17,771.0				17,155.6		16,220.0		15,345.4		9.0	%	26.3	%
Average Attributable Shareholders’ Equity(1)			18,015.9				17,361.2				16,547.0		15,638.9		15,044.8		3.8	%	19.7	%
KEY INDICATORS			2Q19				1Q19				4Q18		3Q18		2Q18						1H19		1H18
Profitability & Efficiency
ROAE			42.2		%		13.6		%		17.1	%	22.2	%	7.2	%					28.2	%	13.3	%
ROAA			4.7		%		1.5		%		2.0	%	2.7	%	1.0	%					3.1	%	2.0	%
Net Interest Margin (NIM)			22.1		%		19.1		%		20.3	%	18.2	%	17.3	%					20.6	%	18.4	%
Net Fee Income Ratio			18.2		%		20.7		%		19.2	%	21.4	%	24.3	%					19.4	%	23.3	%
Cost / Assets			11.3		%		9.7		%		10.3	%	9.7	%	10.9	%					10.5	%	10.8	%
Efficiency Ratio			62.4		%		59.0		%		61.9	%	59.3	%	66.3	%					60.8	%	62.6	%
Liquidity & Capital
Loans to Total Deposits(3)			72.9		%		74.6		%		84.5	%	85.8	%	100.2	%
Liquidity Coverage Ratio (LCR)(4)			164.5		%		143.9		%		173.4	%	132.1	%	139.0	%
Total Equity / Total Assets			11.7		%		10.8		%		12.2	%	11.1	%	12.7	%
Capital / Risk weighted assets (Proforma Consolidated) (5)			12.9		%		13.2		%		14.0	%	13.8	%	14.5	%
Tier1 Capital / Risk weighted assets (Proforma Consolidated ) (6)			11.9		%		12.1		%(7)		12.9	%	12.5	%	13.1	%
Risk Weighted Assets / Total Assets			68.5		%		67.9		%		73.0	%	70.5	%	78.8	%
Asset Quality
NPL Ratio			5.1		%		5.3		%		4.1	%	3.7	%	3.6	%
Allowances as a % of Total Loans			5.5		%		5.3		%		4.1	%	3.5	%	3.3	%
Coverage Ratio			107.7		%		100.0		%		100.0	%	94.0	%	89.9	%
Cost of Risk(8)			6.0		%		9.9		%		7.0	%	5.9	%	5.6	%					7.9	%	5.1	%
MACROECONOMIC RATIOS
Retail Price Index (%)(9)			9.2		%		11.8		%		11.5	%	14.1	%	8.8	%
Avg. Retail Price Index (%)			55.6		%		51.2		%		46.9	%	35.1	%	27.2	%
UVA (var)			12.0		%		9.4		%		16.2	%	10.0	%	7.5	%
Pesos/US$ Exchange Rate			42.45				43.35				37.81		40.90		28.86
Badlar Interest Rate (eop)			47.5		%		45.7		%		49.5	%	43.3	%	32.7	%
Badlar Interest Rate (avg)			50.9		%		41.8		%		50.2	%	37.1	%	27.3	%
Monetary Policy Rate (eop)			62.7		%		68.2		%		65.4	%	48.0	%	35.7	%
Monetary Policy Rate (avg)			66.8		%		55.8		%		59.3	%	65.0	%	40.0	%
OPERATING DATA
Active Customers (in millions)			1.8				1.8				1.8		1.9		1.9
Access Points(10)			325				325				325		351		351
Employees(11)			5,196				5,264				5,307		5,281		5,451		-1.3	%	-4.7	%

 

(1)                       Average Assets and average Shareholder´s Equity calculated on a daily basis

(2)                       Total Portfolio: Loans and Leasing before Allowances. According to IFRS, this line item includes Securitized Loan Portfolio and loans transferred with recourse.

(3)                       Loans/Total Deposits ratio was restated in previous quarters due to the inclusion in the balance sheet of the securitized and transferred loans.

(4)                       This ratio includes the liquidity held at the holding company level.

(5)                       Regulatory capital divided by risk weighted assets taking into account operational and market risk. The regulatory capital ratio applies only to the Bank and CCF on a consolidated basis and does not include the liquidity held at the holding company level- The Proforma consolidated capital ratio, includes the liquidity retained at Grupo Supervielle level after the equity offering, which is available for growth. As of June 30, 2019, the liquidity amounted to AR$ 442 milion.

(6)                       Tier 1 capital divided by risk weighted assets taking into account operational and market risk. The regulatory Tier 1 capital ratio applies only to the Bank and CCF on a consolidated basis and does not include the liquidity held at the holding company level. The. Proforma Consolidated Tier 1 capital ratio includes AR$442 million retained at the holding company which are available for growth.

(7)                       During 2Q19 the Central Bank clarified an interpretation regarding deductions on Tier1 Capital related to deferred tax assets, requesting not to offset deferred tax assets and liabilities even when offsetting is required by IFRS (IAS 12) and Basel framework, hence increasing the deductions on Tier 1 Capital. If the Central Bank criteria would have been adopted in 1Q19, Common Equity Tier 1 Ratio (Consolidated Proforma) would have been 11.8%.

 

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(8)                       Excluding a voluntary AR$462 million LLP in 1Q19, in excess of the 25% regulatory provisioning related to a delinquent commercial loan, Cost of risk would have been 7.5%. Cost of Risk in 4Q18, excluding the AR$ 231 million additional voluntary loan loss provisions made to increase coverage, was 5.9%.

(9)                       Source: INDEC

(10)                  The decrease in the number of Access Points in 4Q18, reflects the closing of certain consumer finance sales points.

(11)                  The decrease in the number of employees in 3Q18 reflects the reorganization process in the consumer finance business. The decrease in the number of employees in 2Q19 mainly reflects the streamlining at the Bank

 

2Q19 Earnings Call Dial-In Information

 

Date:	Tuesday, August 13, 2019
Time:	9:00 AM (US ET); 10:00 AM (Buenos Aires Time)
Dial-in Numbers:	1-877-407-0789 (U.S. and Canada), 1-201-689-8562 (International), 0-800-444-6247 (Argentina), or 0800-756-3429 (U.K.)
Webcast:	http://public.viavid.com/index.php?id=135429
Replay:	From August 13, 2019 at 2:00 PM US ET through August 27, 2019 at 11:59 pm US ET.  Dial-in number: +1-844-512-2921 (U.S./Canada) or +1-412-317-6671 (international). Pin number: 13692700

 

REVIEW OF CONSOLIDATED RESULTS

 

Supervielle offers financial products and services mainly through Banco Supervielle (the “Bank”), a universal commercial bank, and Cordial Compañía Financiera (“CCF”), a consumer finance company which is consolidated with the Bank’s operations. The Bank and CCF, Supervielle’s main assets, comprised 92.3% and 4.6% respectively of total assets as of June 2019. Supervielle also operates Tarjeta Automática, a consumer finance company with a distribution network mainly in southern Argentina; Supervielle Seguros, an insurance company; Supervielle Asset Management; Espacio Cordial, a retail company cross-selling related non-financial products and services. Supervielle also operates MILA, a car financing company, and InvertirOnline.com an online broker, two businesses it acquired in May 2018.

 

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Comprehensive Income & Profitability

 

Income Statement												% Change
(In millions of Argentine Ps.)		2Q19		1Q19		4Q18		3Q18		2Q18		QoQ		YoY
Argentine Banking GAAP:
Interest income		8,546.5		7,937.5		8,394.8		6,835.9		5,568.9		7.7	%	53.5	%
Interest expenses		(7,175.8	)	(6,719.2	)	(6,371.6	)	(4,113.1	)	(2,670.7	)	6.8	%	168.7	%
Net interest income		1,370.7		1,218.3		2,023.2		2,722.9		2,898.2		12.5	%	-52.7	%
Net income from financial instruments at fair value through profit or loss		4,918.8		4,587.8		2,700.1		2,737.4		(509.3	)	7.2	%	-1065.8	%
Exchange rate differences on gold and foreign currency		270.8		(328.3	)	534.8		(1,074.1	)	1,226.1		NA		-77.9	%
NIFFI & Exchange Rate Differences		5,189.6		4,259.4		3,235.0		1,663.4		716.8		21.8	%	624.0	%
Net Financial Income		6,560.3		5,477.7		5,258.1		4,386.2		3,615.0		19.8	%	81.5	%
Fee income		1,665.8		1,561.8		1,387.8		1,319.0		1,262.4		6.7	%	32.0	%
Fee expenses		(424.0	)	(334.1	)	(322.7	)	(292.2	)	(257.5	)	26.9	%	64.7	%
Income from insurance activities		217.2		204.0		180.4		183.1		145.3		6.5	%	49.5	%
Net Service Fee Income		1,458.9		1,431.7		1,245.5		1,209.9		1,150.2		1.9	%	26.8	%
Other operating income		521.0		532.9		539.4		553.1		442.3		-2.2	%	17.8	%
Loan loss provisions		(1,210.8	)	(1,893.0	)	(1,382.8	)	(1,122.5	)	(989.2	)	-36.0	%	22.4	%
Net Operating Revenue		7,329.4		5,549.3		5,660.2		5,026.8		4,218.3		32.1	%	73.8	%
Personnel expenses		(2,876.5	)	(2,317.2	)	(2,273.4	)	(1,865.7	)	(1,585.2	)	24.1	%	81.5	%
Administrative expenses		(1,519.4	)	(1,280.5	)	(1,317.8	)	(1,179.6	)	(1,175.6	)	18.7	%	29.2	%
Depreciation & Amortization		(208.8	)	(200.4	)	(122.0	)	(87.8	)	(76.3	)	4.2	%	173.6	%
Other expenses		(1,158.7	)	(1,002.5	)	(1,043.2	)	(866.1	)	(925.1	)	15.6	%	25.2	%
Operating income		1,566.1		748.7		903.8		1,027.6		456.0		109.2	%	243.4	%
Profit of Associated companies and Joint ventures		—		—		—		—		—		—		—
Profit before income tax		1,566.1		748.7		903.8		1,027.6		456.0		109.2	%	243.4	%
Income tax expense from continuing operations				—		—		—		—		—		—
Profit from continuing operations		1,566.1		748.7		903.8		1,027.6		456.0		109.2	%	243.4	%
Profit/(loss) from discontinued operations		—		—		—		—		—		—		—
Income tax expense		337.1		(159.1	)	(220.8	)	(155.9	)	(155.6	)	-311.9	%	-316.7	%
Net income		1,903.2		589.5		683.0		871.6		300.5		222.8	%	533.4	%
Attributable to owners of the parent company		1,901.5		589.1		706.8		867.4		270.7		222.8	%	602.4	%
Attributable to non-controlling interests		1.7		0.4		(23.8	)	4.2		29.7		330.6	%	-94.3	%
Other comprehensive income, net of tax		7.7		26.3		228.7		7.1		204.8		—		—
Comprehensive income		1,911.0		615.8		911.7		878.8		505.3		210.3	%	278.2	%
Attributable to owners of the parent company		1,909.3		615.4		935.3		874.5		475.3		210.2	%	301.7	%
Attributable to non-controlling interests		1.7		0.4		(23.6	)	4.2		29.9		—		—
ROAE		42.2	%	13.6	%	17.1	%	22.2	%	7.2	%
ROAA		4.7	%	1.5	%	2.0	%	2.7	%	1.0	%

 

Profit before income tax was AR$ 1.6 billion, increasing 243.4%, or AR$ 1.1 billion YoY and 109.2%, or AR$817.4 million QoQ.

 

Attributable Net income of AR$1,901.5 million, increasing 602.4% YoY, or AR$1,630.8 million, and 222.8% QoQ, or AR$1,312.4 million. 2Q19 results include AR$664.2 million of inflation adjustment in the income tax provision.

 

The income tax reform passed in December 2017 allowed the deduction of losses arising from exposures to changes in the purchasing power of the currency, only if inflation as measured by the Consumer Price Index (CPI) issued by the INDEC would exceed the following thresholds applicable for each fiscal year: 55% in 2018, 30% in 2019 and 15% in 2020. For 2021 and subsequent periods, inflation must exceed 100% in 3 years on a cumulative basis in order to deduct inflation losses.

 

In 2018 the 55% threshold was not met, but as of the present date, inflation is very likely to exceed 30% in fiscal year 2019. Therefore, the income tax provision recorded for the first half of 2019 considers the losses arising from exposures to changes in the purchasing power of the currency, which lower significantly the income tax expense for the current period. The impact of considering inflation adjustment for tax purposes in the income tax line item for 2Q19 is AR$664 million.

 

Attributable Comprehensive Income in 2Q19 increased 301.7%, or AR$1,434 million YoY, to AR$1,909.3 million, and 210.2% QoQ, or AR$1,293.9 million.

 

Other Comprehensive Income in 2Q19 was AR$7.7 million compared to AR$204.8 million in 2Q18 and AR$26.3 million in 1Q19. 2Q18 mainly reflected the revaluation of properties in AR$ to adjust for market value.

 

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ROAE of 42.2% in 2Q19 compares with 7.2% in 2Q18 and 13.6% in 1Q19.

 

ROAA of 4.7% in 2Q19 versus 1.0% in 2Q18 and 1.5% in 1Q19.

 

If inflation adjustment in the income tax provision would have been reported as of March 31, 2019, the impact would have been AR$331 million and AR$333 million in 2Q19 and 1Q19, respectively, attributable net income would have been AR$1.6 billion and AR$923 million in 2Q19 and 1Q19, respectively, and ROAE would have been 34.6% and 21.1% in 2Q19 and 1Q19, respectively.

 

The table below shows managerial restatement of Income Tax, Net Income, Attributable Net Income, and ROAE, as if inflation adjustment in the income tax provision would have been reported in 1Q19.

 

(AR$ million)		2Q19		1Q19
Profit before Income tax		1,566.1		748.7
Income Tax, net		3.6		174.4
Income Tax Before Inflation adjustment in Income Tax provision		(327.0	)	(159.2	)
Inflation adjustment in income tax provision		330.6		333.6
Net Income		1,569.7		923.1
Attributable Net Income		1,567.9		922.7
ROAE		34.6	%	21.1	%

 

Comprehensive Income & Profitability Breakdown

 

Excluding the Consumer Finance lending business, 2Q19 ROAE reached 57.4%, above the reported consolidated ROAE of 42.2%.

 

Consumer finance lending business remained impacted by high market interest rates in its wholesale funding structure, while asset quality continued to show improvement after the tightening of its underwriting policies and reducing exposure.

 

		2Q19						1Q19
		GS		Consumer Finance Lending*		GS excl. Consumer Finance Lending		GS		Consumer Finance Lending*		GS excl. Consumer Finance Lending
Net Financial Income / Avg. Assets**		16.1	%	12.1	%	16.4	%	14.0	%	16.0	%	13.9	%
LLP / Avg. Assets**		3.0	%	15.9	%	2.2	%	4.9	%	19.9	%	3.9	%
Operating Expenses / Avg. Assets**		11.3	%	19.1	%	10.8	%	9.7	%	17.7	%	9.2	%
ROAA Reported**		4.7	%	-14.5	%	5.8	%	1.5	%	-14.0	%	2.5	%
ROAA Restated (incl. inflation adjustment in the income tax provision in each Q)		3.8	%	-14.5	%	5.0	%	2.4	%	-14.0	%	3.4	%
ROAE**		42.2	%	-55.0	%	57.4	%	13.6	%	-61.6	%	24.2	%
ROAE Restated (incl. inflation adjustment in the income tax provision in each Q)		34.6	%	-55.0	%	48.5	%	21.1	%	-61.6	%	32.8	%
Total Assets / Shareholder Equity		9.04		3.79		9.86		8.99		4.41		9.64

 

*Includes CCF / MILA and TA

**Annualized

 

If inflation adjustment in the income tax provision would have been accounted for as of March 31, 2019, 2Q19 ROAE would have been 34.6% and 2Q19 ROAE excluding Consumer finance lending buiseness, would have been 48.5%.

 

Net Financial Income (Net Interest Income -NII-, Net Income from Financial Instruments -NIFFI- & Exchange Rate Differences on Gold and Foreign Currency)

 

Net Financial Income of AR$6.6 billion up 81.5% YoY and 19.8% QoQ reflecting higher interest rates and increases in average volumes of interest-earning assets and deposits. Interest on loans benefitted from continuing repricing in loans to individuals.

 

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Net Financial Income		2Q19		1Q19		4Q18		3Q18		2Q18		QoQ		YoY
Net Interest Income		1,370.7		1,218.3		2,023.2		2,722.9		2,898.2		12.5	%	-52.7	%
NIFFI & Exchange rate differences		5,189.6		4,259.4		3,235.0		1,663.4		716.8		21.8	%	624.0	%
Net Financial Income		6,560.3		5,477.7		5,258.1		4,386.2		3,615.0		19.8	%	81.5	%

 

Net Interest Income was AR$1.4 billion, down 52.7% YoY but up 12.5% QoQ.

 

YoY performance reflects the 1,600 bps increase in the interest rate of the AR$ portfolio, while the average Badlar rate increased 2,360 bps, following sharp increases in the monetary policy rate. These actions impacted cost of funds in the banking business portfolio and even more so in the consumer finance portfolio.

 

Moreover, additional deposits to fund marginal investments in high margin 7-day Central Bank securities, resulted in higher marginal interest expenses, reflected in Net Interest Income, while yields from the investment in those securities held for trading purposes, are recorded in the Net Income from Financial Instruments -NIFFI- item. As of June 30, 2019, AR$39.2 billion of short-term securities issued by the Central Bank -7 day high-yield Leliqs- were held for trading purposes and accordingly valued at market price recording profits in NIFFI while the cost of the higher balance of interest-bearing liabilities raised to fund those investments, were recorded as interest expenses within Net Interest Income.

 

QoQ performance benefitted from the continued repricing in AR$ loans to individuals and commercial loans, and a lower proportion of non-remunerated minimum reserve requirements.

 

Below is a breakdown of the securities portfolio held as of June 30, 2019, between securities held for trading purposes, securities held to maturity, and securities available for sale. The accounting methodology is different for each security class.

 

Securities Breakdown (1)(AR$ MM)		jun 19		mar 19		dec 18
Held for trading		41,912.5		35,258.0		15,130.2
Government Securities		2,608.1		3,048.7		3,762.4
Securities Issued by the Central Bank		39,237.1		32,205.8		11,305.3
Corporate Securities		67.3		3.6		62.4
Held to maturity		3,168.8		3,323.4		4,173.4
Government Securities		3,142.0		3,282.9		4,130.7
Corporate Securities		26.8		40.4		42.7
Available for sale		9.1		14.5		119.6
Government Securities		—		4.4		119.6
Securities Issued by the Central Bank		—		—		—
Corporate Securities		9.1		10.1		10.4
Total		45,090.4		38,595.9		19,423.2

 

(1)                   Includes securities denominated in AR$ and US$

 

Net Income from financial instruments and Exchange rate differences of AR$5.2 billion, up 624.0% YoY and 21.8% QoQ. Sequential performance mainly reflects higher income from holdings of securities issued by the Central Bank due to higher yields of such securities.

 

NIFFI & Exchange rate differences on gold and foreign currency												% Change
(In millions of Argentine Ps.)		2Q19		1Q19		4Q18		3Q18		2Q18		QoQ		YoY
Income from:
- Government and corporate securities		171.3		594.5		318.5		704.8		554.6		-71.2	%	-69.1	%
- Term Operations		(53.3	)	59.2		(20.5	)	400.9		(1,557.3	)
- Securities issued by the Central Bank		4,800.8		3,934.0		2,402.1		1,631.8		493.5		22.0	%	872.9	%
Subtotal		4,918.8		4,587.8		2,700.1		2,737.4		(509.3	)	7.2	%	-1065.8	%
Exchange rate differences on gold and foreign currency		270.8		(328.3	)	534.8		(1,074.1	)	1,226.1
Total		5,189.6		4,259.4		3,235.0		1,663.4		716.8		21.8	%	624.0	%

 

Net Income from US$ denominated operations and securities was a net gain of AR$257.6 million mainly explained by higher trading gains from retail FX operations.

 

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