SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PURSUANT TO SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 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)
REPUBLIC OF ARGENTINA
(Jurisdiction of incorporation or organization)
Bartolomé Mitre 434, 5th Floor
C1036AAH Buenos Aires
Republic of Argentina
(Address of principal executive offices)
Bartolomé Mitre 434, 5th Floor
C1036AAH Buenos Aires
Republic of Argentina
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
|American Depositary Shares, each representing 5 Class B shares of Grupo Supervielle S.A.||SUPV||New York Stock Exchange|
|Class B shares of Grupo Supervielle S.A.||SUPV||New York Stock Exchange*|
*Not for trading, but only in connection with the registration of American Depositary Shares pursuant to the requirements of the New York Stock Exchange.
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
The number of outstanding shares of each of the issuer’s classes of capital or common stock as of December 31, 2019 was:
|Class B ordinary shares, nominal value Ps.1.00 per share||394,984,134|
|Class A ordinary shares, nominal value Ps.1.00 per share||61,738,188|
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐ No ☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|Large accelerated Filer||☐||Accelerated Filer||☒|
|Non-accelerated Filer||☐||Emerging Growth Company||☐|
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
|U.S. GAAP ☐||
International Financial Reporting Standards as issued
by the International Accounting Standards Board ☒
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
TABLE OF CONTENTS
|Certain Defined Terms and Conventions||iii|
|Presentation of Financial and Other Information||iv|
|Item 1 Identity of Directors, Senior Management and Advisors||1|
|Item 2 Offer Statistics and Expected Timetable||1|
|Item 3 Key Information||1|
|Item 3.A Selected Financial Data||1|
|Item 3.B Capitalization and indebtedness||5|
|Item 3.C Reasons for the offer and use of proceeds||5|
|Item 3.D Risk Factors||5|
|Item 4 Information of the Company||27|
|Item 4.A History and development of the Company||27|
|Item 4.B Business Overview||32|
|Item 4.C Organizational structure||137|
|Item 4.D Property, plants and equipment||138|
|Item 5 Operating and Financial Review and Prospects||162|
|Item 5.A Operating Results||162|
|Item 5.B Liquidity and Capital Resources||210|
|Item 5.C Research and Development, patents and licenses, etc.||217|
|Item 5.D Trend Information||217|
|Item 5.E Off-balance sheet arrangements||218|
|Item 5.F Contractual Obligations||219|
|Item 5.G Safe Harbor||219|
|Item 6 Directors, Senior Management and Employees||220|
|Item 7 Shareholders and Related Party Transactions||246|
|Item 7.A Major Shareholders||246|
|Item 7.B Related Party Transactions||247|
|Item 7.C Interests of Experts and Counsel||249|
|Item 8 Financial Information||249|
|Item 8.A Consolidated Statements and Other Financial Information.||249|
|Item 8.B Significant Changes||252|
|Item 9 The Offer and Listing||252|
|Item 9.A Offer and Listing Details||252|
|Item 9.B Plan of Distribution||252|
|Item 9.C Markets||252|
|Item 9.D Selling Shareholders||253|
|Item 9.E Dilution||253|
|Item 9.F Expenses of the Issue||253|
|Item 10 Additional Information||253|
|Item 10.A Share Capital||253|
|Item 10.B Memorandum and Articles of Association||253|
|Item 10.C Material Contracts||253|
|Item 10.D Exchange Controls||253|
|Item 10.E Taxation||259|
|Item 10.F Dividends and Paying Agents||271|
|Item 10.G Statement by Experts||271|
|Item 10.H Documents on Display||271|
|Item 10.I Subsidiary Information||271|
|Item 11 Quantitative and Qualitative Disclosures about Market Risk||271|
|Item 12 Description of Securities Other Than Equity Securities||277|
|Item 12.A Debt Securities||277|
|Item 12.B Warrants and Rights||277|
|Item 12.C Other Securities||277|
|Item 12.D American Depositary Shares||277|
|Item 13 Defaults, Dividend Arrearages and Delinquencies||278|
|Item 14 Material Modifications to the Rights of Security Holders and Use of Proceeds||278|
|Item 15 Controls and Procedures||278|
|Item 16.A Audit committee financial expert||279|
|Item 16.B Code of Ethics||280|
|Item 16.C Principal Accountant Fees and Services||280|
|Item 16.D Exemptions from the Listing Standards for Audit Committees||280|
|Item 16.E Purchases of Equity Securities by the Issuer and Affiliated Purchasers||281|
|Item 16.F Change in Registrant’s Certifying Accountant||281|
|Item 16.G Corporate Governance||281|
|Item 16.H Mine Safety Disclosure||287|
|Item 17 Financial Statements||287|
|Item 18 Financial Statements||287|
|Item 19 Exhibits||287|
Certain Defined Terms and Conventions
In this annual report, we use the terms “we,” “us,” “our” and the “Group” to refer to Grupo Supervielle S.A. and its consolidated subsidiaries, including Banco Supervielle S.A., unless otherwise indicated. References to “Grupo Supervielle” mean Grupo Supervielle S.A. References to the “Bank” mean Banco Supervielle S.A. and its consolidated subsidiaries. References to “Tarjeta” mean Tarjeta Automática S.A. References to “SAM” mean Supervielle Asset Management S.A. References to “Sofital” mean Sofital S.A.F.e I.I. References to “CCF” mean Cordial Compañía Financiera S.A. References to “Supervielle Seguros” mean Supervielle Seguros S.A. References to “Espacio Cordial” or “Cordial Servicios” mean Espacio Cordial Servicios S.A. References to “InvertirOnline” mean InvertirOnline S.A.U. and InvertirOnline.com Argentina S.A.U. References to “MILA” mean Micro Lending S.A.U. References to “Supervielle Productores Asesores de Seguros” mean Supervielle Productores Asesores de Seguros S.A. References to “Supervielle Agente de Negociacion” mean Supervielle Agente de Negociación S.A.
References to “Class A shares” refer to shares of our Class A common stock, with a par value of Ps.1.00 per share, references to “Class B shares” refer to shares of our Class B common stock, with a par value of Ps.1.00 per share, and references to “ADSs” are to American depositary shares, each representing five Class B shares.
The term “Argentina” refers to the Republic of Argentina. The terms “Argentine government” or the “government” refers to the federal government of Argentina, the term “Central Bank” refers to the Banco Central de la República Argentina, or the Argentine Central Bank, and the term “CNV” refers to the Argentine Comisión Nacional de Valores, or the Argentine securities and capital markets regulator. The term “ByMA” refers to the exchange Bolsas y Mercados Argentinos S.A. The term “MAE” refers to the exchange Mercado Abierto Electrónico S.A. The term “Argentine Capital Markets Law” refers to Law No. 26,831, as amended and supplemented. The term “Argentine Negotiable Obligations Law” refers to Law No. 23,576, as amended and supplemented. The term “AGCL” refers to Argentine General Corporations Law No. 19,550, as amended and supplemented. The term “Argentine Productive Financing Law” refers to Law No. 27,440.
“Argentine GAAP” refers to generally accepted accounting principles in Argentina and “Argentine Banking GAAP” refers to the accounting rules of the Central Bank. “IFRS” refers to the International Financial Reporting Standards, as issued by the International Accounting Standards Board (“IASB”).
The term “GDP” refers to gross domestic product and all references in this annual report to GDP growth are to real GDP growth, the term “CPI” refers to the consumer price index and the term “WPI” refers to the wholesale price index.
The term “customers” refers to individuals or entities that have at least one of our products without any requirement of customer activity during any time period. The term “active customer” refers to customers that had activity in the previous 90 days.
Unless the context otherwise requires, the term “financial institutions” refers to institutions regulated by the Central Bank. The term “Argentine banks” refers to banks that operate in Argentina. The term “Argentine private banks” refers to banks that are not controlled or owned by the Argentine federal government or any Argentine provincial, municipality or city government.
For information up to December 31, 2017, the term “small businesses” refers to individuals and businesses with annual sales of up to Ps.40.0 million, the term “SMEs” refers to individuals and businesses with annual sales over Ps.40.0 million and below Ps.200.0 million, the term “middle-market companies” refers to companies with annual sales over Ps.200.0 million and below Ps.1.0 billion and the term “large corporates” refers to companies with annual sales over Ps.1.0 billion. For information since January 1, 2018, the term “small businesses” refers to individuals and businesses with annual sales up to Ps.70.0 million, the term “SMEs” refers to individuals and businesses with annual sales over Ps.70.0 million and below Ps.550.0 million, the term “middle-market companies” refers to companies with annual sales over Ps.550.0 million and below Ps.2.0 billion and the term “large corporates” refers to companies with annual sales over Ps.2.0 billion. For information since January 1, 2019, the term “small businesses” refers to individuals and businesses with annual sales up to Ps.100 million, the term “SMEs” refers to individuals and businesses with annual sales over Ps.100 million and below Ps.700 million, the term “middle-market companies” refers to companies with annual sales over Ps.700 million and below Ps.2.5 billion and the term “large corporates” refers to companies with annual sales over Ps.2.5 billion.
PRESENTATION of FINANCIAL and Other Information
This annual report contains our audited consolidated financial statements as of December, 2019 and 2018, and for the years ended December 31, 2019, 2018 and 2017 (our “audited consolidated financial statements”), which have been audited by Price Waterhouse & Co. S.R.L., Buenos Aires, Argentina, a member firm of PricewaterhouseCoopers, an independent registered public accounting firm (“Price Waterhouse & Co.”), whose report is included herein.
We have prepared our audited consolidated financial statements under IFRS for the first time for our financial year ended December 31, 2018, with a transition date of January 1, 2017.
“Financial Reporting in Hyperinflationary Economies” (IAS 29) requires that the financial statements of an entity whose functional currency is one of a hyperinflationary economy be measured in terms of the current unit of measurement at the closing date of the reporting period, regardless of whether they are based on the historical cost method or the current cost method. This requirement also includes the comparative information in financial statements. Our audited consolidated financial statements are stated in the measurement unit current as of December 31, 2019.
In order to conclude on whether an economy is categorized as highly inflationary, IAS 29 outlines a series of factors to be considered, including the existence of an accumulated inflation rate in three years that is approximate or exceed 100%. As of July 1, 2018, Argentina reported a cumulative three-year inflation rate higher than 100% and therefore financial information published as from that date should be adjusted for inflation in accordance with IAS 29. Therefore, we have applied IAS 29 to our audited consolidated financial statements.
Effective January 1, 2019, we adopted IFRS 16 “Leases” using the simplified retrospective approach, so that the cumulative impact of the adoption was recognized in retained earnings at the beginning of the year starting on January 1, 2019, and the comparative figures were consequently not modified. Accordingly, certain comparisons between periods may be affected. See Note 10 to our audited consolidated financial statements and “Operating and Financial Review and Prospects—New Accounting Standards” for a more comprehensive discussion of the effects of the adoption by the Group of this and other new standards.
We are subject to the provisions of Article 2 – Section I – Chapter I of Title IV: Periodical Reporting Requirements of the rules issued by the CNV according to General Resolution No. 622/2013, as amended and supplemented (the “CNV Rules”) and we are required to present our financial statements in accordance with the valuation and disclosure criteria set forth by the Argentine Central Bank. The Argentine Central Bank, through Communications “A” 5541, as amended, set forth a convergence plan towards the application of IFRS as issued by the IASB and the interpretations issued by the IFRIC, for entities under its supervision, effective for fiscal years beginning on or after January 1, 2018. The convergence plan had 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. We presented our local financial statements under these rules on February 21, 2020.
Our consolidated financial statements contained in this annual report differ in certain material respects from our financial statements as of December 31, 2019 and 2018 and for the years ended December 31, 2019, 2018 and 2017 prepared in accordance with Argentine Banking GAAP and filed with the CNV.
Unless otherwise indicated, all financial information of our company included in this annual report is stated on a consolidated basis under IFRS and in Argentine Pesos subject to inflation accounting adjustment, except for certain regulatory capital information, statistical information for years 2015 and 2016, information about the Argentine financial sector, and national statistical data, which is expressed following Argentine Banking GAAP in nominal historic Peso amounts (i.e., not adjusted for inflation).
Overview of IAS 29
Pursuant to IAS 29, the financial statements of an entity whose functional currency is that of a highly inflationary economy, as mentioned above, should be reported measured in terms of the measuring unit current as of the date of the financial statements. All the amounts included in the statement of financial position which are not stated in terms of the measuring unit current as of the date of the financial statements should be restated adjusted applying the general price index. All items in the statement of income should be stated in terms of the measuring unit current as of the date of the financial statements, applying the changes in the general price index occurred from the date on which the revenues and expenses were originally recognized in the financial statements.
Adjustment for inflation in the initial balances has been calculated considering the indexes based on the price indexes published by the National Institute of Statistics and Census (Instituto Nacional de Estadística y Censos or “INDEC”, per its initials in Spanish).
The principal inflation adjustment procedures are the following:
|·||Monetary assets and liabilities that are recorded in the current currency as of the financial position’s closing date are not restated because they are already stated in terms of the currency unit current as of the date of the financial statements.|
|·||Non-monetary assets and liabilities are recorded at cost as of the financial position date, and equity components are restated applying the relevant adjustment ratios.|
|·||All items in the consolidated income statement are restated applying the relevant conversion factors, as described in Note 1.1(b) to our consolidated financial statements contained in this annual report.|
|·||The effect of inflation in the Group’s net monetary position is included in the consolidated income statement, in the item “Results from exposure to changes in the purchasing power of money.”|
|·||Comparative figures have been adjusted for inflation following the procedure explained in the previous bullets.|
|·||Upon initially applying inflation adjustment, the equity accounts were restated as follows:|
|o||Capital stock was restated as from the date of subscription or the date of the most recent inflation adjustment for accounting purposes, whichever is later.|
|o||The resulting amount was included in the “Results from exposure to changes in the purchasing power of money” account.|
|o||Consolidated Statement of Comprehensive Income were restated as from each accounting allocation.|
|o||The legal reserve and other reserves in the statement of income were not restated as of the initial application date.|
Certain Financial Data
The term “ROAE” refers to return on average shareholders’ equity, calculated based on daily averages. The term “ROAA” refers to return on average assets, calculated based on daily averages. ROAE and ROAA are frequently used by financial institutions as benchmarks to measure profitability compared to peers but not as benchmarks to determine returns for investors, which is affected by multiple factors that ROAE and ROAA do not consider.
Currencies and Rounding
The terms “U.S. dollar” and “U.S. dollars” and the symbol “U.S.$” refer to the legal currency of the United States. The terms “Peso” and “Pesos” and the symbol “Ps.” refer to the legal currency of Argentina.
We have translated certain of the Peso amounts contained in this annual report into U.S. dollars for convenience purposes only. Unless otherwise indicated, the rate used to translate such amounts as of December 31, 2019 was Ps.59.895 to U.S.$1.00, which was the reference exchange rate reported by the Central Bank for U.S. dollars as of December 30, 2019. The Federal Reserve Bank of New York does not report a noon buying rate for Pesos. The U.S. dollar equivalent information presented in this annual report is provided solely for the convenience of investors and should not be construed as implying that the Peso amounts represent, or could have been or could be converted into, U.S. dollars at such rates or at any other rate. The reference exchange rate reported by the Central Bank was Ps.66.635 per U.S.$1.00 as of April 28, 2020.
Certain figures included in this annual report have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures that precede them.
Market Share and Other Information
We make statements in this annual report about our competitive position and market share in, and the market size of, the Argentine banking industry. We have made these statements on the basis of statistics and other information derived from the Central Bank’s publications and other third-party sources that we believe are reliable. Although we have no reason to believe any of this information or these reports are inaccurate in any material respect, we have not independently verified the competitive position, market share and market size or market growth data provided by third parties or by industry or general publications.
In January 2007, the INDEC, which is the only institution in Argentina with the statutory authority to produce official nationwide statistics, modified the methodology used to calculate certain of its indices. On January 8, 2016, the Macri administration issued Decree No. 55/2016 declaring a state of administrative emergency with respect to the national statistical system and the INDEC until December 31, 2016. During this state of emergency, the INDEC suspended the publication of certain statistical data until it completed a reorganization of its technical and administrative structure capable of producing sufficient and reliable statistical information. Following the implementation of certain methodological reforms and the adjustment of macroeconomic statistics on the basis of these reforms, on June 15, 2016, the INDEC published the INDEC Report including revised GDP data for the years 2004 through 2015. As of the date of this annual report, the INDEC has resumed publishing certain revised data, including GDP, foreign trade, poverty and balance of payment statistics.
This annual report contains estimates and forward-looking statements, principally in “Item 3.D Risk Factors”, “Item 5.A Operating Results”, and “Item 4.B Business Overview.” We have based these forward-looking statements largely on our current beliefs, expectations and projections about future courses of action, events and financial trends affecting our business. Many important factors, in addition to those discussed elsewhere in this annual report, could cause our actual results to differ substantially from those anticipated in our forward-looking statements, including, among others:
|(i)||the ongoing COVID-19 pandemic and government measures to contain the virus, which are disrupting economic activity globally and in Argentina;|
|(ii)||changes in general economic, financial, business, political, legal, social or other conditions in Argentina, including the performance of the new Fernández administration, or elsewhere in Latin America or changes in either developed or emerging markets;|
|(iii)||the effects of the Argentine government’s ongoing restructuring of the country’s sovereign debt;|
|(iv)||fluctuations in the exchange rate of the Peso and inflation;|
|(v)||changes in interest rates and the cost of deposits, which may, among other things, affect margins;|
|(vi)||unanticipated increases in financing or other costs or the inability to obtain additional debt or equity financing on attractive terms, which may limit our ability to fund existing operations and to finance new activities;|
|(vii)||changes in capital markets in general that may affect policies or attitudes toward lending to or investing in Argentina or Argentine companies, including expected or unexpected volatility in domestic and international financial markets;|
|(viii)||changes in government regulation, including tax and banking regulations;|
|(ix)||adverse legal or regulatory disputes or proceedings;|
|(x)||credit and other risks of lending, such as increases in defaults by borrowers;|
|(xi)||exposure to Argentine government liabilities and fluctuations and declines in the value of Argentine public debt;|
|(xii)||increased competition in the banking, financial services, credit card services, asset management and related industries;|
|(xiii)||a loss of market share by any of our main businesses;|
|(xiv)||increase in the allowances for loan losses;|
|(xv)||technological changes or an inability to implement new technologies, changes in consumer spending and saving habits;|
|(xvi)||ability to implement our business strategy; and|
|(xvii)||other factors discussed under “Item 3.D Risk Factors” in this annual report.|
The words “believe,” “may,” “will,” “aim,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “forecast” and similar words are intended to identify forward-looking statements. Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, industry environment, potential growth opportunities, the effects of future regulation and the effects of competition. Forward-looking statements speak only as of the date they were made, and we do not undertake any obligation to update publicly or to revise any forward-looking statements after we distribute this annual report because of new information, future events or other factors, except as required by applicable law. In light of the risks and uncertainties described above, the forward-looking events and circumstances discussed in this annual report might not occur and do not constitute guarantees of future performance. Because of these uncertainties, you should not make any investment decisions based on these estimates and forward-looking statements.
|Item 1||Identity of Directors, Senior Management and Advisors|
|Item 2||Offer Statistics and Expected Timetable|
|Item 3||Key Information|
|Item 3.A||Selected Financial Data|
The following selected consolidated financial data should be read in conjunction with our audited consolidated financial statements and related notes beginning on page F-1, the “Presentation of Financial and Other Information” section and the discussion in Item 5 “Item 5.A Operating Results” included elsewhere in this annual report. The selected consolidated statement of income data for the years ended December 31, 2019, 2018 and 2017 and the selected consolidated statement of financial position data as of December 31, 2019 and 2018 have been derived from our audited consolidated financial statements included in this annual report which have been audited by Price Waterhouse & Co., member firm of PricewaterhouseCoopers an independent registered public accounting firm. The selected consolidated statement of financial position data as of December 31, 2017 have been derived from our audited consolidated financial statements that are not included in this annual report.
Our consolidated financial statements were prepared and presented in accordance with IFRS. We applied IFRS for the first time for the year ended December 31, 2018, with a transition date of January 1, 2017.
Our consolidated financial statements are presented in Argentine Pesos which is our functional currency.
IAS 29 establishes the conditions under which an entity shall restate its financial statements if it is located in an economic environment considered hyperinflationary. This standard requires that the financial statements of an entity that reports in the currency of a highly inflationary economy shall be stated in terms of the measuring unit current at the closing date of the latest reporting period, regardless of whether they are based on a historical cost approach or a current cost approach. To this end, in general terms, the inflation rate must be computed in the non-monetary items as from the acquisition date or the revaluation date, as applicable. These requirements also comprise the comparative information of the financial statements. Accordingly, the following selected consolidated financial data is stated in the measuring unit current as at December 31, 2019.
Solely for convenience of the reader, we have translated certain Peso amounts as of and for the year ended December 31, 2019 into U.S. dollars at the reference exchange rate reported by the Central Bank as of December 31, 2019 which was Ps.59.895 to U.S.$1.00. U.S. dollar equivalent information should not be construed to imply that the Peso amounts represent, or could have been or could be converted into, U.S. dollars at such rates or any other rate.
Our consolidated financial statements contained in this annual report differ in certain material respects from our financial statements as of December 31, 2019 and 2018 and for the years ended December 31, 2019, 2018 and 2017 prepared in accordance with Argentine Banking GAAP and filed with the CNV.
|Grupo Supervielle S.A.|
|For the year ended December 31,|
|(in thousands of Pesos or U.S. dollars, as indicated)|
|Consolidated Income Statement Data IFRS:|
|Net interest income||164,974||9,881,144||20,002,646||21,467,567|
|Net income from financial instruments (NIFFI) at fair value through profit or loss||349,962||20,960,966||9,707,395||5,454,354|
|Exchange rate difference on gold and foreign |
|NIFFI and Exchange Rate Differences||344,551||20,636,896||11,440,632||6,059,088|
|Net Financial Income||509,525||30,518,040||31,443,278||27,526,655|
|Service fee income||143,578||8,599,607||9,118,706||9,327,965|
|Service fee expenses||(37,465||)||(2,243,970||)||(2,181,620||)||(1,877,412||)|
|Income from insurance activities||23,263||1,393,356||1,305,522||1,383,709|
|Net Service Fee Income||129,376||7,748,993||8,242,608||8,834,262|
|Result from exposure to changes in the purchasing power of money||(89,483||)||(5,359,565||)||(9,253,021||)||(3,986,190||)|
|Other operating income||46,002||2,755,267||3,805,134||2,827,476|
|Loan loss provisions||(129,174||)||(7,736,868||)||(7,967,031||)||(6,204,348||)|
|Net Operating Income||466,246||27,925,867||26,270,968||28,997,855|
|Depreciations and impairment of non-financial assets||30,298||1,814,671||665,154||956,819|
|Other operating expenses||106,157||6,358,291||6,633,161||6,394,542|
|Income / (loss) before taxes||(33,141||)||(1,984,927||)||(3,147,043||)||641,035|
|Net loss for the year||(35,958||)||(2,153,622||)||(4,702,117||)||(1,161,834||)|
|Net loss for the year attributable to owners of the parent company||(35,924||)||(2,151,600||)||(4,658,050||)||(1,160,465||)|
|Net loss for the year attributable to non-controlling interest||(34||)||(2,022||)||(44,067||)||(1,369||)|
|Other Comprehensive Income||(798||)||(47,833||)||371,617||72,120|
|Other comprehensive income attributable to parent company||(796||)||(47,701||)||371,231||72,100|
|Other comprehensive income attributable to non-controlling interest||(2||)||(132||)||386||20|
|Comprehensive loss for the year attributable to owners of the parent company||(36,720||)||(2,199,301||)||(4,286,819||)||(1,088,365||)|
|Comprehensive loss for the year attributable to non-controlling interest||(36||)||(2,154||)||(43,681||)||(1,349||)|
|Grupo Supervielle S.A.|
|As of December 31,|
|(in thousands of Pesos or U.S. dollars, as indicated)|
|Cash and due from banks||440,823||26,403,099||51,822,372||25,205,322|
|Financial institutions and correspondents||294,716||17,651,988||44,454,260||18,302,938|
|Argentine Central Bank||265,922||15,927,336||42,132,824||16,011,978|
|Other local financial institutions||28,295||1,694,742||2,305,439||2,177,115|
|Debt Securities at fair value through profit or loss||9,492||568,501||23,247,329||25,902,184|
|Other financial assets||35,009||2,096,866||2,612,157||3,674,743|
|Loans and other financing||1,469,405||88,010,011||118,771,635||134,001,359|
|To the non-financial public sector||482||28,872||50,460||74,060|
|To the financial sector||1,077||64,522||613,101||902,009|
|To the non-financial private sector and foreign residents||1,467,846||87,916,617||118,108,074||133,025,290|
|Other debt securities||174,615||10,458,556||6,631,861||815,144|
|Financial assets in guarantee||89,051||5,333,704||3,087,750||2,955,457|
|Current income tax assets||1,711||102,458||910,777||277,603|
|Investments in equity instruments||243||14,579||16,005||105,961|
|Property, plant and equipment||66,818||4,002,078||3,359,290||3,169,795|
|Deferred income tax assets||27,902||1,671,195||1,264,222||1,779,810|
|Non-current assets held for sale||—||—||4,307||—|
|Other non-financial assets||21,610||1,294,351||1,367,029||1,082,140|
|Non-financial public sector||91,329||5,470,177||17,083,822||14,017,493|
|Non-financial private sector and foreign residents||1,394,272||83,509,902||128,873,558||114,066,134|
|Liabilities at fair value through profit or loss||3,165||189,554||412,403||—|
|Other financial liabilities||152,192||9,115,565||6,564,396||8,883,137|
|Financing received from the Argentine Central Bank and other financial institutions||150,557||9,017,597||12,357,106||8,008,155|
|Unsubordinated negotiable Obligations||101,619||6,086,475||14,317,445||19,507,851|
|Current income tax liabilities||—||—||1,217,233||1,873,619|
|Subordinated negotiable obligations||35,393||2,119,888||2,128,759||1,557,801|
|Deferred income tax liabilities||8,453||506,291||343,586||45,854|
|Other non-financial liabilities||137,055||8,208,914||8,314,639||8,634,696|
|Shareholders’ equity attributable to owners of the parent company||390,947||23,415,797||26,080,725||30,873,343|
|Shareholders’ equity attributable to non-controlling interests||328||19,598||21,670||341,971|
|TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY||2,482,422||148,684,691||218,032,810||208,027,788|
|Grupo Supervielle S.A.|
|As of and for the year ended December 31,|
|Return on average equity (1)||(9.2%||)||(16.2%||)||(4.7%||)|
|Return on average assets (2)||(1.1%||)||(1.9%||)||(0.6%||)|
|Net Interest Margin (3)||21.0%||17.0%||18.4%|
|Net Fee Income Ratio (4)||28.6%||28.6%||31.4%|
|Efficiency Ratio (5)||62.7%||61.8%||66.3%|
|Basic earnings per share (in Pesos) (7)||(4.7||)||(10.2||)||(2.5||)|
|Diluted earnings per share (in Pesos)||n/a||n/a||n/a|
|Basic earnings per share (in U.S.$.) (8)||(0.1||)||(4.7||)||(0.0||)|
|Diluted earnings per share (in U.S.$.) (8)||n/a||n/a||n/a|
|Liquidity and Capital|
|Loans to Total Deposits (9)||106.5%||86.6%||110.1%|
|Total Equity / Total Assets||15.7%||12.0%||14.8%|
|Pro forma Consolidated Capital / Risk weighted assets (10)||12.1%||14.0%||19.6%|
|Pro forma Consolidated Tier1 Capital / Risk weighted assets (10)||11.3%||12.9%||17.2%|
|LCR Pro forma(10)||150.3%||173.4%||113.9%|
|Risk Weighted Assets/Assets (10)||87.2%||73.0%||81.7%|
|Non-performing loans as a percentage of Total Loans||7.4%||4.1%||3.1%|
|Allowances as a percentage of Total Loans||7.1%||6.0%||5.0%|
|Cost of risk (11)||7.5%||5.4%||5.0%|
|Cost of risk, net (12)||7.1%||5.1%||4.7%|
|Dividends paid to ordinary shares (Ps.million)||426.0||466.1||505.1|
|Dividends per ordinary share (Ps.)||0.9||0.7||1.1|
|Branch and sales points||316||317||326|
|ATMs, self service terminals and cash dispensers with biometric identification||955||920||704|
|(1)||Attributable comprehensive income divided by average shareholders’ equity, calculated on a daily basis and measured in local currency.|
|(2)||Attributable Comprehensive Income divided by average assets, calculated on a daily basis and measured in local currency.|
|(3)||Net interest income + Net income from financial instruments at fair value through profit or loss + Exchange rate differences on gold and foreign currency, divided by average interest-earning assets. Since 2019, the Net Interest Margin ratio (“NIM”) also includes the exchange rate differences and net gains or losses from currency derivatives representing more accurately our financial margin and spreads. This ratio coincides with the net financial margin ratio published in previous years (now renamed as NIM).|
|(4)||Net services fee income + Income from insurance activities divided by the sum of Net interest income + Net income from financial instruments at fair value through profit or loss + Exchange rate differences on gold and foreign currency, net Services fee income, Income from insurance activities, etc.|
|(5)||Personnel, Administrative expenses and Depreciation & Amortization divided by the sum of Net interest income + Net income from financial instruments at fair value through profit or loss + Exchange rate differences on gold and foreign currency, net Services fee income, Income from insurance activities and Other net operating income.|
|(6)||Administration expenses divided by average assets, calculated on a daily basis.|
|(7)||Basic earnings per share (in Pesos) are based upon the weighted average of Grupo Supervielle’s outstanding shares, which were Ps.456.7 million for the year ended December 31, 2019 and 2018 and 392.8 million for the year ended December 31, 2017.|
|(8)||Peso amounts have been translated into U.S. dollars at the reference exchange rate reported by the Central Bank as of December 31, 2019 which was Ps.59.895 to U.S.$1.00.|
|(9)||Loans and Leasing before allowances divided by total deposits.|
|(10)||For the calculation of these line items, see “Item 4.B – Business Overview – Banking Regulation and Supervision.” Proforma ratios include the liquidity retained at the holding company (Grupo Supervielle) level, which are available for future capital injections to our subsidiaries in order to fund our growth strategy.|
|(11)||Loan loss provisions divided by average loans, calculated on a daily basis.|
|(12)||Loan loss provisions including recovered loan loss provisions divided by average loans, calculated on a daily basis.|
|(13)||Allowances for loan losses divided by non-performing loans.|
|Item 3.B||Capitalization and indebtedness|
|Item 3.C||Reasons for the offer and use of proceeds|
|Item 3.D||Risk Factors|
You should carefully consider the risks described below, as well as the other information in this annual report. Our business, results of operations, financial condition or prospects could be materially and adversely affected if any of these risks occurs. In general, investors take more risk when they invest in the securities of issuers in emerging markets such as Argentina than when they invest in the securities of issuers in the United States and other more developed markets. The risks described below are those known to us and that as of the date of this annual report believe may materially affect us.
Risks Relating to Argentina
Substantially all of our operations, property and customers are located in Argentina. As a result, the quality of our assets, our financial condition and the results of our operations are dependent upon the macroeconomic, regulatory, social and political conditions prevailing in Argentina from time to time. These conditions include growth rates, inflation rates, exchange rates, taxes, foreign exchange controls, changes to interest rates, changes to government policies, social instability, and other political, economic or international developments either taking place in, or otherwise affecting, Argentina.
The ongoing COVID-19 pandemic and government measures to contain the virus are adversely affecting our business and results of operations, and, as conditions are evolving rapidly, we cannot accurately predict the ultimate impact on the Group.
In December 2019, a novel strain of coronavirus (SARS-COV-2) causing a severe acute respiratory syndrome (“COVID-19”) was reported to have surfaced in Wuhan, China. COVID-19 has since spread across the world, including Argentina, and on March 11, 2020, the World Health Organization declared COVID-19 a pandemic. By late April, around 4,000 cases had been confirmed in Argentina. In response, countries have adopted extraordinary measures to contain the spread of the virus, including imposing travel restrictions and closing borders, requiring closures of non-essential businesses, instructing residents to practice social distancing, issuing stay at home orders, implementing quarantines and similar actions. The ongoing pandemic and these extraordinary government measures are disrupting global economic activity and resulting in significant volatility in global financial markets. According to the IMF, the global economy has recently entered into a recession.
The Argentine government has adopted multiple measures in response to the COVID-19 pandemic, including a nationwide mandatory lockdown that began on March 19, 2020 and has been extended several times, most recently through May 10, 2020. The government has also required the mandatory shutdown of businesses not considered essential, including initially the closure of bank branches.
At the same time, in order to mitigate the economic impact of the COVID-19 pandemic and mandatory lockdown and shutdown of non-essential businesses, the Argentine government has adopted social aid, monetary and fiscal measures. We cannot assure you whether these measures will be sufficient to prevent a severe economic downturn in Argentina, particularly if current conditions are prolonged and if Argentina’s main trading partners are concurrently facing an economic recession. However, the Argentine government may have more limited resources at this time to support the country’s economy; the pandemic has struck at a time when Argentina is struggling to pull out of a two year recession and the government is seeking to restructure the country’s large sovereign debt.
Some of the measures adopted by the Argentine government may adversely affect financial institutions, such as our Group. These temporary measures include (i) postponement of loan payments without punitive interests, (ii) prohibiting banks to charge fees for ATM transactions, (iii) freezing mortgage payments and suspending foreclosures, (iv) the automatic refinancing of credit card payments and reduction of the maximum interest rates that can be charged on credit cards, (v) imposing a minimum interest rate to be paid on time deposits under Ps.1 million made by individuals, and (vi) forbidding bank account closures. Additionally, some of the government measures are aimed at encouraging bank lending, such as (i) limitations on banks’ holdings of notes from the Central Bank (LELIQ), in order to make liquidity available and encourage the provision of credit lines to SMEs, (ii) lowering of reserve requirements on loans to households and SMEs, and (iii) the easing of bank loan classification rules (providing an additional 60 days of non-payment before a loan is required to be classified as non-performing). Moreover, banks may not distribute dividends until at least June 30, 2020 or carry out employees’ layoffs until at least May 30, 2020. For more information on regulations in connection with the COVID-19 pandemic and their impact on our Group, see “Item 4.B.—Business Overview—Argentine Banking Regulations – Government Measures in Response to the Ongoing COVID-19 Pandemic” and “Item 5.A Operating Results – The Ongoing COVID-19 Pandemic.” Although these measures may help attenuate the economic impact on the Argentine economy overall, they may have a negative impact on our business and results of operations.
The ongoing COVID-19 pandemic and government measures taken to contain the spread of the virus are adversely affecting our business and results of operations. Our branches were required to remain closed during the second half of March 2020, and were subsequently only gradually allowed to open with limited operations. As of the date of this annual report, banks are permitted to open to provide limited services to clients, in each case with prior appointment, provided that certain health and safety requirements set forth by the Central Bank are complied with. Additionally, we have transitioned a significant part of our workforce to work remotely, which may exacerbate certain risks to our business, including an increased reliance on information technology resources, increased risk of phishing and other cybersecurity attacks, and increased risk of unauthorized dissemination of sensitive personal information. Moreover, we face various risks arising from the economic impact of the pandemic and government measures which are difficult to predict accurately at this time, such as (i) a higher risk of impairment of our assets, (ii) lower revenues as a consequence of the temporary restrictions on charging certain fees to customers, and as a result of lower interest rates on loans promoted by the Central Bank, (iii) a possible significant increase in loan defaults and credit losses, with a consequent increase in loan loss provisions, and (iv) a decrease in credit demand and in our business activity in general, particularly new retail lending.
We are continuing to monitor the impact of the ongoing COVID-19 pandemic on the Group. The ultimate impact of the pandemic on our business, results of operations and financial condition remains highly uncertain and will depend on future developments outside of our control, including the intensity and duration of the pandemic and the government measures taken in order to contain the virus or mitigate the economic impact. To the extent the COVID-19 pandemic adversely affects our business, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section.
Economic and political instability in Argentina may adversely and materially affect our business, results of operations and financial condition.
The Argentine economy has experienced significant volatility in recent decades, characterized by periods of low or negative growth, high levels of inflation and currency devaluation. As a consequence, our business and operations have been, and could in the future be, affected from time to time to varying degrees by economic and political developments and other material events affecting the Argentine economy, such as: inflation; price controls; foreign exchange controls; fluctuations in foreign currency exchange rates and interest rates; governmental policies regarding spending and investment, national, provincial or municipal tax increases and other initiatives increasing government involvement with economic activity; civil unrest and local security concerns. You should make your own investigation into Argentina’s economy and its prevailing conditions before making an investment in us.
During 2001 and 2002, Argentina went through a period of severe political, economic and social crisis. Among other consequences, the crisis resulted in Argentina defaulting on its foreign debt obligations, introducing emergency measures and numerous changes in economic policies that affected utilities, financial institutions, and many other sectors of the economy. Argentina also suffered a significant real devaluation of the Peso, which in turn caused numerous Argentine private sector debtors with foreign currency exposure to default on their outstanding debt. In the past three years, GDP grew 2.7% in 2017, but it contracted 2.5% in 2018 and 2.2% in 2019.
A decline in international demand for Argentine products, a lack of stability and competitiveness of the Peso against other currencies, a decline in confidence among consumers and foreign and domestic investors, a high rate of inflation and future political uncertainties, among other factors, may affect the development of the Argentine economy, which could lead to reduced demand for our services and adversely affect our business, financial condition and results of operations.
The primary elections (Elecciones Primarias, Abiertas y Simultáneas y Obligatorias - “PASO”, per its acronym in Spanish), which define which political parties and which candidates of the different political parties may run in the general elections, took place in August 11, 2019. In these elections, the Frente de Todos coalition (a political coalition composed of, among others, the Justicialist Party and the Renovating Front, which was at the time part of the opposition and included former president Fernandez de Kirchner as a candidate to the vice-presidency) obtained 47.78% of the votes, while Juntos por el Cambio coalition (then president Mr. Mauricio Marcri’s coalition), obtained 31.79% of the votes.
After the results of the primary elections, the Peso devalued almost 30% and the share price of Argentine listed companies dropped approximately 38% on average. In turn, the emerging market bond index (EMBI) peaked to one of the highest levels in Argentine history, above 2000 points on August 28, 2019. As of April 28, 2020 the EMBI was 3,995 points. As a consequence of the aforementioned effects, in order to control the currency outflow and restrict exchange rate fluctuations, the Central Bank re-implemented exchange controls, in hopes of strengthening the normal functioning of the economy, fostering a prudent administration of the exchange market, reducing the volatility of financial variables and containing the impact of the variations of financial flows on the real economy.
Presidential and Congressional elections in Argentina took place on October 27, 2019, which resulted in Mr. Alberto Fernández being elected President of Argentina, having earned 48.1% of the votes. The Fernández administration assumed office on December 10, 2019. As of such date, the Argentine Congress was composed as follows: Frente de Todos commanded a majority in the Senate with 41 seats, with the first minority being Juntos por el Cambio with 28 seats; while in the House of Representatives Juntos por el Cambio commanded the first minority with 119 seats and the second minority belongs to the Frente de Todos with 116 seats.
The political uncertainty in Argentina about the measures that the new Fernández administration could take with respect to the economy, including with respect to the crisis resulting from the ongoing COVID-19 pandemic, could generate volatility in the price of the Argentine companies’ securities or even a decrease in their prices, in particular companies in the financial sector like us.
We can offer no assurances as to the policies that may be implemented by the new Fernández Argentine administration, or that political developments in Argentina will not adversely affect the Argentine economy and our financial condition and results of operations. In addition, we cannot assure you that future economic, regulatory, social and political developments in Argentina will not impair our business, financial condition or results of operations, or cause the market value of our shares to decline.
If the current levels of inflation continue or increase, the Argentine economy and our financial position and business could be adversely affected.
In the past, inflation has materially undermined the Argentine economy and Argentina’s ability to create conditions that would permit growth. High inflation may also undermine Argentina’s competitiveness abroad and lead to a decline in private consumption which, in turn, could also affect employment levels, salaries and interest rates. Moreover, a high inflation rate could undermine confidence in the Argentine financial system, reducing the Peso deposit base and negatively affecting long-term credit markets.
The INDEC reported a cumulative variation of the CPI of 24.8% for 2017, 47.6% for 2018 and 53.8% for 2019.
There can be no assurances that inflation rates will not continue to escalate in the future or that the measures adopted or that may be adopted by the new Fernández administration to control inflation will be effective or successful. Inflation remains a challenge for Argentina. Significant inflation could have a material adverse effect on Argentina’s economy and in turn could increase our costs of operation, in particular labor costs, and may negatively affect our business, financial condition and results of operations.
A high level of uncertainty with regard to these economic variables, and a general lack of stability in terms of inflation, could have a negative impact on economic activity and adversely affect our financial condition.
The Argentine government’s ability to obtain financing from international markets is limited, which may impair its ability to implement reforms and foster economic growth, which may negatively impact our financial condition or cash flows.
In 2005 and 2010, Argentina conducted exchange offers to restructure part of its sovereign debt that had been in default since the end of 2001. As a result of these exchange offers, Argentina restructured over 92% of its eligible defaulted debt. However, litigation initiated by bondholders that did not accept Argentina’s settlement offers continued in several jurisdictions and limited the country’s access to international capital markets. In April 2016, the Argentine government settled U.S.$4.2 billion outstanding principal amount of untendered debt.
In 2018, due to Argentina’s limitation of access to international markets, the Argentine government and the IMF entered into a “stand-by” credit facility agreement for an amount of U.S.$57.1 billion with a 36-month maturity. As of the date of this annual report, Argentina has received disbursements under the agreement for U.S.$46.1 billion. Notwithstanding the foregoing, the new Fernández administration has publicly announced that they will refrain from requesting additional disbursements under the agreement, and instead vowed to renegotiate its terms and conditions in good faith.
The new Fernández administration has initiated negotiations with creditors in order to restructure the country’s current Peso and U.S. dollar-denominated public debt. In this context, on February 5, 2020, the Argentine Congress passed Law N° 27,544, by virtue of which the sustainability of the sovereign debt is declared a national priority, authorizing the Ministry of Economy to renegotiate new terms and conditions with Argentina’s creditors within certain parameters.
Additionally, in the midst of debt restructuring negotiations, on April 5, 2020 the Argentine government issued Decree No. 346/2020, through which the repayment of Argentine law-governed dollar-denominated notes was postponed.
On April 21, 2020, the Argentine government launched an exchange offer with the aim of refinancing its external indebtedness in a manner which does not compromise the development and potential growth of Argentina in the next years. For more information on this offer, see “Item 5.A—Operating Results—The Argentine Economy and Financial System—Argentina’s Sovereign Debt Restructuring”. As of the date of this annual report, the exchange offer is still open and there is uncertainty as to whether the Argentine government will be able to successfully carry out the exchange offer and restructure its foreign financial indebtedness, under the proposed terms or at all.
If the Argentine government is not able to successfully renegotiate the terms of the sovereign debt, or if the negotiations with creditors are prolonged beyond May 22, 2020, or if significant litigation with holdout bondholders results from such negotiations, the country’s ability to access international credit markets may be adversely affected. Additionally, the pressure from creditors may result in restructured terms that are not sustainable for Argentina, or the IMF may impose strict austerity measures as a condition to restructuring its debt. As a result, the Argentine government may not have the ability or the financial resources necessary to foster economic growth, which, in turn, could have a material adverse effect on the country’s economy and, consequently, our business and results of operations. Furthermore, Argentina’s inability to obtain credit in international markets could have a direct impact on our own ability to access international credit markets to finance our operations and growth, which could adversely affect our results of operations and financial condition.
Fluctuations in the value of the Peso could adversely affect the Argentine economy, and consequently our results of operations or financial condition.
Fluctuations in the value of the Peso may also adversely affect the Argentine economy, our financial condition and results of operations. In 2017, 2018 and 2019, the Peso lost approximately 18.4%, 101% and 58% of its value against the U.S. dollar, respectively. The devaluation of the Peso in real terms can have a negative impact on the ability of certain Argentine businesses to honor their foreign currency denominated debt, and also lead to very high inflation and significant reduced real wages. The devaluation can also negatively impact businesses whose success is dependent on domestic market demand, and adversely affect the Argentine government’s ability to honor its foreign debt obligations. A substantial increase in the value of the Peso against the U.S. dollar also represents risks for the Argentine economy since it may lead to a deterioration of the country’s current account balance and the balance of payments which may have a negative effect on GDP growth and employment, and reduce the revenues of the Argentine public sector by reducing tax revenues in real terms, due to its current heavy dependence on export taxes.
As of April 28, 2020, the exchange rate was Ps.66.635 per dollar.
As a result of the greater volatility of the Peso, the former administration announced several measures to restore market’s confidence and stabilize the value of the Argentine Peso. Among them, during 2018, the Argentine government negotiated two agreements with the IMF, increased the interest rates and the Central Bank decided to intervene in the exchange market in order to stabilize the value of the Peso. During 2019, based on a new agreement with the IMF, the government established a new regime for a stricter control of the local monetary base, which would remain in place until December 2019, in an attempt to reduce the amount of Pesos available in the market and reduce the demand for foreign currency. Complementing these measures, in September 2019, foreign currency controls were reinstated in Argentina. As a consequence of the reimposition of exchange controls, the spread between the official exchange rate and other exchange rates resulting implicitly from certain common capital market operations (“dolar MEP” or “contado con liquidación”) has broadened significantly, reaching a value of approximately 50% above the official exchange rate. The success of any measures taken by the Argentine government to restore market’s confidence and stabilize the value of the Argentine Peso is uncertain and the continued depreciation of the Peso could have a significant adverse effect on our financial condition and results of operations.
The maintenance or implementation in the future of new exchange controls, restrictions on transfers abroad and capital inflow restrictions could limit the availability of international credit and could threaten the financial system, which may adversely affect the Argentine economy and, as a result, our business.
In 2001 and 2002, following a run on the financial system triggered by the public’s lack of confidence in the continuity of the convertibility regime that resulted in massive capital outflows, the Argentine government imposed exchange controls and transfer restrictions, substantially limiting the ability of companies to retain foreign currency or make payments abroad. Although several of such exchange controls and transfer restrictions were subsequently suspended or terminated, in June 2005 the federal government issued a decree that established new controls on capital inflows, which resulted in a decrease in the availability of international credit for Argentine companies. From 2011 until 2015, the Argentine government increased controls on the sale of foreign currency and the acquisition of foreign assets by local residents, limiting the possibility of transferring funds abroad.
After former Macri’s administration eliminated a significant portion of the foreign exchange restrictions, on September 1, 2019 it temporarily reinstated exchange restrictions, followed by new exchange restrictions imposed by the new Fernandez’s administration. The new controls apply with respect to access to the foreign exchange market by residents for savings and investment purposes abroad, the payment of external financial debt abroad, the payment of dividends in foreign currency abroad, payments of imports of goods and services, and the obligation to repatriate and settle for Pesos the proceeds from exports of goods and services, among others. For more information on foreign exchange restrictions, see “Item 10.D—Exchange Controls.”
Exchange control measures may negatively affect Argentina’s international competitiveness, discouraging foreign investments and lending by foreign investors or increasing foreign capital outflow which could have an adverse effect on economic activity in Argentina, and which in turn could adversely affect our business and results of operations.
The Argentine economy may be adversely affected by economic developments in other markets and by more general “contagion” effects, which could have a material adverse effect on Argentina’s economic growth, and consequently, could adversely affect our business, financial condition and results of operations.
Argentina’s economy is vulnerable to external shocks that could be caused by adverse developments affecting its principal trading partners. A significant decline in the economic growth of any of Argentina’s major trading partners (including Brazil, the European Union, China and the United States), including as a result of the ongoing COVID-19 pandemic, could have a material adverse impact on Argentina’s balance of trade and adversely affect Argentina’s economic growth. In addition, Argentina may be affected by economic and market conditions in other markets worldwide, as was the case in 2008/2009, when the global financial crisis led to a significant economic contraction in Argentina in 2009.
Since 2015, the Brazilian economy, Argentina’s largest export market and the principal source of imports, has experienced heightened negative pressure due to the uncertainties stemming from the ongoing political crisis, including the impeachment of Brazil’s president, which resulted in the Senate of Brazil removing Ms. Dilma Rousseff from office for the rest of her term on August 31, 2016. Mr. Michel Temer, who previously held office as vice president of Brazil, subsequently took office until the end of the presidential period and in October 2018, Mr. Jair Bolsonaro was elected president. Mr. Bolsonaro has liberal, conservative and nationalist tendencies and assumed office on January 1, 2019. Given that Brazil is the largest economy in Latin America, the measures taken to clean up its economy can have a great impact in the region. A further deterioration in economic conditions in Brazil may reduce the demand for Argentine exports to the neighboring country and, if this occurs, it could have a negative effect on the Argentine economy and potentially on our operations.
In addition, financial and securities markets in Argentina have been influenced by economic and market conditions in other markets worldwide. Although economic conditions vary from country to country, investors’ perceptions of events occurring in other countries have in the past substantially affected, and may continue to substantially affect, capital flows into, and investments in securities from issuers in, other countries, including Argentina. International investors’ reactions to events occurring in one market sometimes demonstrate a “contagion” effect in which an entire region or class of investment is disfavored by international investors.
The Argentine financial system and securities markets could be also adversely affected by events in developed countries’ economies, such as the United States and Europe. On June 23, 2016, the United Kingdom voted in favor of the United Kingdom exiting the European Union (“Brexit”). The United Kingdom formally left the European Union on January 31, 2020. Even when the United Kingdom agreed its departure from the European Union, negotiations on the terms and conditions are expected to continue during the transition period, which is due to expire on December 31, 2020. The effects of the Brexit vote and the perceptions as to the impact of the withdrawal of the United Kingdom from the European Union may adversely affect business activity and economic and market conditions in the United Kingdom, the Eurozone and globally, and could contribute to instability in global financial and foreign exchange markets. In addition, Brexit could lead to additional political, legal and economic instability in the European Union and have a negative impact on the commercial exchange of Argentina with that region.
On November 8, 2016, Mr. Donald Trump was elected president of the United States. His presidency has created significant uncertainty about the future relationships between the United States and other countries, including with respect to the trade policies, treaties, government regulations and tariffs that could apply to trade between the United States and other nations. We cannot predict how Mr. Trump’s protectionist measures will evolve or how they may affect Argentina, nor will the effect that the same or any other measure taken by the Trump administration could cause on global economic conditions and the stability of global financial markets. Moreover, the next presidential elections in the United States are expected to take place in November 2020, and we cannot predict the outcome of such elections.
In July 2019, the Common Market of the South (“MERCOSUR”) signed a strategic partnership agreement with the European Union (the “EU”), which is expected to enter into force in 2021, once approved by the relevant legislatures of each member country. The objective of this agreement is to promote investments, regional integration, increase the competitiveness of the economy and achieve an increase in GDP. However, the effect that this agreement could have on the Argentine economy and the policies implemented by the Argentine government is uncertain.
Changes in social, political, regulatory and economic conditions in other countries or regions, or in the laws and policies governing foreign trade, could create uncertainty in the international markets and could have a negative impact on emerging market economies, including the Argentine economy. Also, if these countries fall into a recession, the Argentine economy would be impacted by a decline in its exports, particularly of its main agricultural commodities. All of these factors could have a negative impact on Argentina’s economy and, in turn, our business, financial condition and results of operations.
Furthermore, the financial markets have also been affected by the oil production crisis in March 2020 arising from the OPEC’s failure to reduce production. For more information, see in this section “Sustained declines in the international prices for oil could have an adverse material effect on the Argentine and the global economy.” Any of these factors could depress economic activity and restrict our access to suppliers and could have a material adverse effect on our business, financial condition and results of operations.
Government measures, as well as pressure from labor unions, could require salary increases or added benefits, all of which could increase the company’s operating costs.
In the past, the Argentine government has passed laws and regulations forcing privately owned companies to maintain certain wage levels and provide added benefits for their employees. Additionally, both public and private employers have been subject to strong pressure from the workforce and trade unions to grant salary increases and certain worker benefits.
Labor relations in Argentina are governed by specific legislation, such as labor Law No. 20,744 and Collective Bargaining Law No. 14,250, which, among other things, dictate how salary and other labor negotiations are to be conducted. Every industrial or commercial activity is regulated by a specific collective bargaining agreement that groups companies together according to industry sectors and by trade unions. While the process of negotiation is standardized, each chamber of industrial or commercial activity separately negotiates the increases of salaries and labor benefits with the relevant trade union of such commercial or industrial activity. In the banking activity, salaries are established on an annual basis through negotiations between the chambers that represent the banks and the banking employees’ trade union. The National Labor Ministry mediates between the parties and ultimately approves the annual salary increase to be applied in the banking activity. Parties are bound by the final decision once it is approved by the labor authority and must observe the established salary increases for all employees that are represented by the banking union and to whom the collective bargaining agreement applies.
In addition, each company is entitled, regardless of union-negotiated mandatory salary increases, to give its employees additional merit increase or variable compensation scheme.
Argentine employers, both in the public and private sectors, have experienced significant pressure from their employees and labor organizations to increase wages and to provide additional employee benefits. Due to the high levels of inflation, employees and labor organizations are demanding significant wage increases. In August 2018, the National Labor Ministry resolved to increase the minimum salary to Ps.12,500 in four stages: an increase (i) to Ps.10,700 in September 2018, (ii) to Ps.11,300 in December 2018, (iii) to Ps.11,900 in March 2019, and to 12,500 in June 2019.
Due to high levels of inflation, employers in both the public and private sectors are experiencing significant pressure from unions and their employees to further increase salaries. Through Decree No. 610/2019, a staggered increase of the minimum salary was approved as follows: (i) Ps.14,125 as of August 1, 2019; (ii) Ps.15,625 as of September 1, 2019; and (iii) Ps.16,875 as of October 1, 2019. In addition, the Argentine government has arranged various measures to mitigate the impact of inflation and exchange rate fluctuation in wages. Moreover due to high levels of inflation, both public and private sector employers continue to experience significant pressure to further increase salaries. In December 2019, the Argentine government issued Decree No. 34/2019, which established that in case of dismissals without cause during six (6) months after the publication in the official gazette of such Decree, employees have the right to collect double indemnification. This Decree was enacted due to the economical emergency and the increase of the unemployment, and its aim was to dissuade employers to dismiss personnel. This measure was further reinforced through Decree No. 329/2020, issued amid the COVID-19 pandemic crisis, by virtue of which dismissals without cause or with cause under the argument of force majeure or lack of/reduction of work not imputable to the employer for 60 business days (this last cause also applies for temporary suspensions). Also, in January 2020, the Argentine government issued Decree No. 14/2020 which established a general increase for all employees of Ps.3,000 in January 2020, and an additional amount of Ps.1,000 in February 2020 (total Ps.4,000 as from February 2020).
In the future, the Argentine government could take new measures requiring salary increases or additional benefits for workers, and the labor force and labor unions may apply pressure for such measures. Any such increase in wage or worker benefit could result in added costs and reduced results of operations for Argentine companies, including us. Such added costs could adversely affect our business, financial condition, results of operations and our ability to make payments under the notes.
Government intervention in the Argentine economy could adversely affect our results of operations or financial condition.
The Argentine government exercises substantial control over the economy and may increase its level of intervention in certain areas of the economy, including through the regulation of market conditions and prices.
By way of example, in 2008, the Fernández de Kirchner administration absorbed and replaced the former private pension system for a public “pay as you go” pension system. As a result, all resources administered by the private pension funds, including significant equity interests in a wide range of listed companies, were transferred to a separate fund (Fondo de Garantía de Sustentabilidad, or “FGS”) to be administered by the National Social Security Administration (Administración Nacional de la Seguridad Social, or “ANSES”, per its acronym in Spanish). The dissolution of the private pension funds and the transfer of their financial assets to the FGS have had important repercussions on the financing of private sector companies. Debt and equity instruments which previously could be placed with pension fund administrators are now entirely subject to the discretion of the ANSES. Since it acquired equity interests in privately owned companies through the process of replacing the pension system, the ANSES is entitled to designate government representatives to the boards of directors of those entities. Pursuant to Decree No. 1,278/12, issued by the Executive Branch on July 25, 2012, the ANSES’s representatives must report directly to the Ministry of Public Finance are subject to a mandatory information-sharing regime, under which, among other obligations, they must immediately inform the Ministry of Public Finance of the agenda for each Board of Directors’ meetings and provide related documentation.
Also, in April 2012, the Fernández de Kirchner administration decreed the removal of directors and senior officers of YPF S.A. (“YPF”), the country’s largest oil and gas company, which was controlled by the Spanish group Repsol, and submitted a bill to the Argentine Congress to expropriate shares held by Repsol representing 51% of the shares of YPF. The Argentine Congress approved the bill in May 2012 through the passage of Law No. 26,741, which declared the production, industrialization, transportation and marketing of hydrocarbons to be activities of public interest and fundamental policies of Argentina, and empowered the Argentine government to adopt any measures necessary to achieve self-sufficiency in hydrocarbon supply. In February 2014, the Argentine government and Repsol announced that they had reached an agreement on the terms of the compensation payable to Repsol for the expropriation of the YPF shares. Such compensation totaled U.S.$5 billion payable by delivery of Argentine sovereign bonds with various maturities. The agreement, which was ratified by Law No. 26,932, settled the claim filed by Repsol before the International Centre for Settlement of Investment Disputes (“ICSID”).
Historically, actions carried out by the Argentine government concerning the economy, including decisions regarding interest rates, taxes, price controls, wage increases, increased benefits for workers, exchange controls and potential changes in the market of foreign currency, have had a substantial adverse effect on Argentina’s economic growth.
It is widely reported by private economists that expropriations, price controls, exchange controls and other direct involvement by the Argentine government in the economy have had an adverse impact on the level of investment in Argentina, the access of Argentine companies to international capital markets and Argentina’s commercial and diplomatic relations with other countries. If the level of government intervention in the economy continues or increases, the Argentine economy and, in turn, our business, results of operations and financial condition could be adversely affected.
We cannot assure that measures implemented in connection with the Law of Solidarity and Productive Reactivation No. 27,541 will not adversely impact our operations, financial condition and results of operations.
On December 20, 2019, the Argentine Congress enacted Law of Solidarity and Productive Reactivation No. 27,541 , declaring public emergency in economic, financial, fiscal, administrative, social and energetic matters, among others, thus delegating in the Executive Branch the ability to ensure the sustainability of public indebtedness, regulate the energetic tariffs through an integral review of the current tariff regime and the intervention of supervisory entities, among others.
From a tax standpoint, the main measures are the following:
|·||Tax amnesty for MiPyMEs (i.e., micro, small and medium businesses).|
|·||Increase in personal assets tax rate and delegation of power in the Executive Branch to increase tax rates on foreign financial assets.|
|·||Changes to the formula of inflation adjustment in income tax.|
|·||Creation of the tax for a solidary and inclusive Argentina (Impuesto para una Argentina Inclusiva y Solidaria or “PAIS,” per its Spanish acronym) for a 5-fiscal-period term on the purchase of foreign currency for saving purposes and on the payment of goods and services purchased abroad through credit cards. This tax rate oscillates between 8% and 30%, depending on the operation.|
|·||Suspension of the pension and retirement adjustment mechanism for a 180-day period.|
There is uncertainty as to the impact that Law N° 27,541 and/or any of its regulatory orders issued or that may be issued might have on our business, financial condition and results of operations. We can offer no assurances as to the measures that may be implemented by the current Argentine administration in relation to the public emergency and the general conditions of Argentine economy will not adversely affect our financial condition and results of operations.
High public expenditure could result in long lasting adverse consequences for the Argentine economy, which in turn could adversely affect our business, financial condition and results of operations.
The Argentine government has high public expenditures, and has in the past resorted to the Central Bank and to the ANSES to source part of its funding requirements. For 2017, the government pursued a fiscal deficit target of 4.2% of GDP, while achieving a primary fiscal deficit of 3.9% of GDP, below such target. In 2018, the Argentine government updated the fiscal targets in order to achieve fiscal balance. The government’s goal for 2018 regarding the primary fiscal deficit was 2.7% of GDP. The fiscal result for 2018 showed a primary fiscal deficit of 2.4% of GDP, which represented a decrease of 1.4% with respect to 2017 and an over-compliance of 0.3% of GDP target with respect to the target tax rate of 1.1%. Although the objective of the former Macri administration was to achieve a primary fiscal deficit equivalent to 1.3% of GDP in 2019, in the context of the negotiations with the IMF, the fiscal deficit target was adjusted to 0% of GDP for 2019 and a surplus of 1% for 2020. The fiscal result for 2019 showed a primary fiscal deficit of 0.4%. However, the new Fernández administration has indicated that will seek to foster economic growth, which may require additional public spending. Additionally, the economic impact of the COVID-19 pandemic and the nationwide lockdown may also require the Argentine government to increase public spending.
If the new Fernández administration were to seek to finance its deficit by increasing the exposure of local financial institutions to the public sector, our liquidity and assets quality could be affected, and as a consequence, impact negatively on clients’ confidence.
A continuous decline in international prices for Argentina’s main commodity exports could have an adverse effect on Argentina’s economic growth, which could adversely affect our business, financial condition and results of operations.
Argentina’s financial recovery from the 2001-2002 crisis occurred in a context of price increases for Argentina’s commodity exports. High commodity prices contributed to the increase in Argentine exports since the third quarter of 2002 and to high government tax revenues from export withholdings. Consequently, the Argentine economy has remained relatively dependent on the price of its main agricultural products, primarily soy. This dependence has rendered the Argentine economy more vulnerable to commodity prices fluctuations.
A continuous decline in the international prices of Argentina’s main commodity exports could have a negative impact on the levels of government revenues and the government’s ability to service its sovereign debt, and could either generate recessionary or inflationary pressures, depending on the government’s reaction. Either of these results would adversely impact Argentina’s economy and, therefore, our business, results of operations and financial condition.
Failure to adequately address actual and perceived risks of institutional deterioration and corruption may adversely affect Argentina’s economy and financial condition, which in turn could adversely affect our business, financial condition and results of operations.
A lack of a solid institutional framework and corruption have been identified as, and continue to be a significant problem for Argentina. In Transparency International’s 2019 Corruption Perceptions Index survey of 180 countries, Argentina was ranked 66, improving from the previous survey in 2018. In the World Bank’s Doing Business 2020 report, Argentina ranked 126 out of 190 countries, down from 119 in 2019.
Recognizing that the failure to address these issues could increase the risk of political instability, distort decision-making processes and adversely affect Argentina’s international reputation and ability to attract foreign investment, former Macri administration announced several measures aimed at strengthening Argentina’s institutions and reducing corruption. These measures include the reduction of criminal sentences in exchange for cooperation with the government in corruption investigations, increased access to public information, the seizing of assets from corrupt officials, increasing the powers of the Anticorruption Office (Oficina Anticorrupción) and the passing of a new public ethics law, among others. The current Argentine administration’s ability and determination to implement these initiatives taken by the former administration is uncertain, as it would require, among other things, the involvement of the judicial branch, which is independent, as well as legislative support.
In addition, certain senior executive officers and directors of companies operating in the Argentine energy, infrastructure, oil and gas and other sectors, are currently facing judicial investigations in Argentina relating to payments allegedly made to government officials.
These investigations may have an adverse impact on the ability of the companies involved and their affiliates to access financing, on their ability to participate in significant projects and ultimately on their financial condition and results of operations.
However, we do not consider potential losses that could arise from our exposure to the individuals and the companies involved in the investigations to be material.
We cannot predict for how long the corruption investigations will continue, or the effects on the different sectors in the Argentine economy.
Sustained declines in the international prices for oil could have an adverse material effect on the Argentine and the global economy.
Between March 5 and March 30, 2020, the price of Brent crude oil dropped by 50%, falling to the lowest price since the beginning of the century. On April 20, 2020, U.S. oil futures with expiration in May 2020 even reached negative values. Similarly, the price of U.S. West Texas Intermediate crude dropped below U.S.$20 a barrel, almost a two-decade low. Mainly, this sharp decline in price was explained by the failure to agree to cut production between the members of the Organization of the Petroleum Exporting Countries and Russia, and the drop in oil demand caused by the COVID-19 pandemic.
A decline in oil prices could harm the Argentine government’s revenues, availability of foreign currency and the government’s ability to service its sovereign debt, and affect Argentina’s growth prospects and, therefore, our business, financial condition and results of operations.
Moreover, the recent crude price crash could also affect the economic and financial sustainability of companies exploring and drilling oil and gas at the Vaca Muerta formation, the fourth biggest resource of non-conventional oil in the world.
We cannot anticipate for how long the current volatility in oil prices will continue, nor the consequences it might have for the Argentine and the global economies.
Risks Relating to the Argentine Financial System
The stability of the Argentine financial system depends upon the ability of financial institutions, including the Bank, to retain the confidence of depositors.
The measures implemented by the Argentine government in late 2001 and early 2002, in particular the restrictions imposed on depositors to withdraw money freely from banks and the pesification and restructuring of their deposits, resulted in losses for many depositors and undermined their confidence in the Argentine financial system.
Although the financial system had seen a recovery in the amount of deposits since then, this trend ended after the PASO results of August 2019 which affected the U.S. dollar-denominated deposit base of the Argentine financial system, including the U.S. dollar-denominated deposit base of our main subsidiary, the Bank. This U.S. dollar-denominated deposit base drop has affected the Argentine financial system since its growth strongly depends on deposit levels, due to the small size of its capital markets and the absence of foreign investments during the previous years.
Although liquidity levels are currently reasonable, no assurances can be given that these levels will not be reduced in the future due to adverse economic conditions that could negatively affect the Bank’s business.
If, in the future, depositor confidence further weakens and the deposit base continues to contract, such loss of confidence and contraction of deposits will have a substantial negative impact on the ability of financial institutions, including the Bank, to operate as financial intermediaries. If the Bank is not able to act as a financial intermediary and otherwise conduct its business as usual, the results of its operations could be adversely affected or limited, affecting its ability to distribute dividends to us, which in turn could affect our results of operations and financial condition.
The growth and profitability of Argentina’s financial system partially depend on the development of long-term funding.
Since most term deposits (more than 95%) are short-term deposits with a term of less than three months, a substantial portion of the loans have very short maturity, and there is a small portion of medium- and/or long-term credit lines.
The uncertainty about the ability to reduce inflation in the future is a principal obstacle preventing a faster recovery of Argentina’s private sector long-term lending and thus the financial system size. This uncertainty has had, and may continue to have, a significant impact on both the supply of, and demand for, long-term loans as borrowers try to hedge against inflation risk by borrowing at fixed rates while lenders hedge against inflation risk by offering loans at floating rates.
If longer-term financial intermediation activity does not grow, the ability of financial institutions, including us, to generate profits will be negatively affected.
Our asset quality and that of other financial institutions may deteriorate if the Argentine private sector does not fully recover.
As a result of Argentina’s current macroeconomic environment, including the economic recession since 2018, high interest rates, high inflation and depreciation of the Peso, the capacity of many Argentine private sector debtors to repay their loans has deteriorated significantly, materially affecting the asset quality of financial institutions, including the Bank and CCF. Additionally, due to the ongoing COVID-19 pandemic and the government measures taken to contain the spread of the virus, since mid-March 2020 economy activity has been disrupted. The new Fernández administration has recently taken fiscal, monetary and social measures to address the effects of the current macroeconomic environment;however, these measures may not be sufficient to offset the significant impacts of Argentina’s economic recession and the COVID-19 pandemic. Consequently, the quality of the Bank’s and CCF’s assets may further deteriorate, if customers are not able to repay their loans, thereby also increasing loan loss provisions. In such event our results of operations and financial condition would be adversely affected.
Increased competition and consolidation in the banking and financial industry could adversely affect our operations.
We expect competition in the banking and financial sector to continue to increase. Such increased competition in the banking and financial sector could reduce prices and margins and the volume of operations and our market share. Therefore, our results of operations could be adversely affected.
Enforcement of creditors’ rights in Argentina may be limited, costly and lengthy.
In order to protect debtors affected by the economic crisis in 2001-2002, the Argentine government adopted measures in the beginning of 2002 that suspended proceedings to enforce creditors’ rights upon debtor default, including mortgage foreclosures and bankruptcy petitions. Recently, in order to mitigate the economic impact resulting from the ongoing COVID-19 pandemic and government measures taken to contain the spread of the virus, the new Fernández administration has, among other things, suspended mortgage foreclosures until September 30, 2020. For more information on regulations in connection with the COVID-19 pandemic, see “Item 4.B.—Business Overview—Argentine Banking Regulations – Government Measures in Response to the Ongoing COVID-19 Pandemic.”
Any such measures, and any other measures which may limit the ability of creditors, including us, to bring legal actions to recover unpaid loans or restricting creditors’ rights generally could have a material adverse effect on the financial system and on our business.
The Consumer Protection Law and the Credit Card Law may limit some of the rights afforded to us and our subsidiaries.
Argentine Consumer Protection Law No. 24,240, as supplemented or amended (the “Consumer Protection Law”) establishes a number of rules and principles for the protection of consumers. Although the Consumer Protection Law does not contain specific provisions for its enforcement in relation to financial activities, it contains general provisions that might be used as grounds to uphold such enforcement, as it has been previously interpreted in various legal precedents. Moreover, the Argentine Civil and Commercial Code has captured the principles of the Consumer Protection Law and established their application to banking agreements. Additionally, Law No. 25,065 (as amended by Law No. 26,010 and Law No. 26,361, the “Credit Card Law”) also sets forth several mandatory regulations designed to protect credit card holders.
The application of both the Consumer Protection Law and the Credit Card Law by administrative authorities and courts at the federal, provincial and municipal levels has increased. Moreover, administrative and judicial authorities have issued various rules and regulations aimed at strengthening consumer protection. In this context, the Central Bank issued Communication “A” 5460, as supplemented and amended, granting broad protection to financial services customers, limiting fees and charges that financial institutions may validly collect from their clients. In addition, the Argentine Supreme Court issued the Acordada 32/2014, creating the Public Registry of Collective Proceedings for the purpose of registering collective proceedings (such as class actions) filed with national and federal courts. In the event that we or our subsidiaries are found to be liable for violations of any of the provisions of the Consumer Protection Law or the Credit Card Law, the potential penalties could limit some of our rights or our subsidiaries’ rights. For example, reducing our or their ability to collect payments due from services and financing provided us and adversely affect our or their financial results of operations.
On September 18, 2014, a new pre-judicial service of dispute resolution was created by Law No. 26,993, in order for consumers and providers to resolve any dispute within the course of 30 days, including fines for companies that do not attend to the hearings.
Furthermore, the rules that govern the credit card business provide for variable caps on the interest rates that financial entities may charge clients and the fees that they may charge merchants. Moreover, general legal provisions exist pursuant to which courts could decrease the interest rates and fees agreed upon by the parties on the grounds that they are excessively high. A change in applicable law or the existence of court decisions that lower the cap on interest rates and fees that clients and merchants may be charged would reduce the Bank’s and CCF’s revenues and therefore negatively affect our consolidated results.
Class actions against financial institutions for an indeterminate amount may adversely affect the profitability of the financial system and of the Bank, specifically.
Certain public and private organizations have initiated class actions against financial institutions in Argentina, including the Bank. See “Item 8.A Consolidated Statements and Other Financial Information.” The Argentine National Constitution and the Consumer Protection Law contain certain provisions regarding class actions. However, their guidance with respect to procedural rules for instituting and trying class action cases is limited. Nonetheless, Argentine courts have admitted class actions in certain cases, including various lawsuits against financial entities related to “collective interests” such as alleged overcharging on products, interest rates and advice in the sale of public securities. Recently, some of these lawsuits have been settled by the parties out of court. These settlements have typically involved an undertaking by the financial institution to adjust the fees and charges. If class action plaintiffs were to prevail against financial institutions, their success could have an adverse effect on the financial industry and on our business.
In the future, court and administrative decisions may increase the degree of protection afforded to our debtors and other customers, or be favorable to the claims brought by consumer groups or associations. This could affect the ability of financial institutions, including us, to freely determine charges, fees or expenses for their services and products, therefore affecting their business and results of operations.
We operate in a highly regulated environment, and our operations are subject to regulations adopted, and measures taken, by several regulatory agencies.
Financial institutions are subject to significant regulation relating to functions that historically have been determined by the Central Bank and other regulatory authorities. The Central Bank may penalize our main subsidiary, the Bank, as well as our subsidiary CCF, in case of any breach of applicable regulations. Similarly, the CNV, which authorizes our securities offerings and regulates the public markets in Argentina, has the authority to impose sanctions on us and our Board of Directors for breaches of corporate governance.
The Financial Information Unit (Unidad de Información Financiera or “UIF”) regulates matters relating to anti-money laundering and has the ability to monitor compliance with any such regulations by financial institutions and, eventually, impose sanctions. Any such regulatory agencies could initiate proceedings against us, our shareholders or directors and, accordingly, impose sanctions on us or any of our subsidiaries.
Our industry is the subject of a tight regulatory framework, including measures that have affected the profitability of financial institutions and limit the possibility of covering their positions against currency fluctuations. See “Item 4.B Business overview—Argentine Banking Regulation.”
The absence of a stable regulatory framework and the imposition of measures that may affects the profitability of financial institutions and limit the possibility of covering their positions against currency fluctuations results in important limitations with respect to the decisions of financial institutions, as is the case of us, in relation to the allocation of the asset. In turn, this situation could cause uncertainty and may adversely affect future financial activities and our result of operations. On the other hand, current or future laws and regulations may require substantial expenses or otherwise have an adverse effect on our consolidated operations.
There can be no assurances that new and tighter regulations will not be implemented in the future, which could cause uncertainty and could negatively affect our future financial activities and results of operations. Also, the imposition of measures that may affect the profitability of financial institutions and limit the capacity to hedge against currency fluctuations could result in significant limits to financial institutions’ decisions, such as the Bank and CCF, regarding asset allocation. In addition, existing or future legislation and regulation could require material expenditures or otherwise have a material adverse effect on our consolidated operations.
Exposure to multiple provincial and municipal legislation and regulations could adversely affect our business or results of operations.
Argentina has a federal system of government with 23 provinces and the Autonomous City of Buenos Aires, each of which, under the Argentine national constitution, has full power to enact legislation concerning taxes and other matters. Likewise, within each province, municipal governments have broad powers to regulate such matters. Due to the fact that our branches are located in multiple provinces, we are also subject to multiple provincial and municipal legislation and regulations. Future developments in provincial and municipal legislation concerning taxes, provincial regulations or other matters may adversely affect our business or results of operations.
Future governmental measures or regulations may adversely affect the economy and the operations of financial institutions.
The Argentine government has historically exercised significant influence over the economy, and financial institutions, in particular, have operated in a highly regulated environment. Laws and regulations currently governing the economy or the banking sector may continue to change in the future, and any changes may adversely affect our business, financial condition and results of operations.
In the past, several different bills to amend the Argentine Financial Institutions Law No. 21,526 (the “FIL”) have been put forth for review by the Argentine Congress, seeking to amend different aspects of the FIL, including the qualification of financial services as a public service, an increase in governmental regulations affecting the activities of financial entities and initiatives to make financial services more widely available. A thorough amendment of the FIL would have a substantial effect on the banking system as a whole. If such a bill were passed, or any other amendment to the FIL be made, the subsequent changes in banking regulations may have adverse effects on financial institutions in general, and on our business, financial conditions and results of operations.
The asset quality of financial institutions, including the Bank, our main subsidiary, may be affected by exposure to public sector debt and short term securities issued by the Central Bank.
Argentine financial institutions usually hold public sector debt issued by the national, provincial and municipal governments and securities – generally short term – issued by the Central Bank as part of their portfolios. As of December 31, 2019, the financial institutions’ exposure to the public sector represented 8.4% of total assets and their holdings of short term securities issued by the Central Bank represented 5.6% of total assets. As of December 31, 2019, our exposure to the public sector amounted to Ps.4.0 billion, representing 2.7% of our total assets as of that date and our exposure to short term securities issued by the Central Bank amounted to Ps.7.2 billion or 4.9% of our total assets as of such date.
By virtue of Executive Decrees 596/2019 and 609/2019, the Executive Branch resolved to restructure the maturity schedule of short-term public sector debt securities(“Letes”, “Lecaps”, “Lelink” and “Lecer”), extending the maturity date to February 2020. Afterwards, through Decree No. 49/2019, the Argentine government further extended the maturity date of certain “Letes” to August 31, 2020. In addition, on February, 2020, the Secretary of the Treasury and the Secretary of Finance issued Joint Resolution 6/2020, by which certain “Lecaps” and “Letes” which had already been reprofiled pursuant to Executive Decrees No. 596/2019 and 609/2019 were subsequently exchanged by peso-denominated treasury bills (“Lebads”) maturing on September 18, 2020. On April 5, 2020 the Argentine government also issued Decree No. 346/2020, by which the repayment of Argentine law-governed U.S. dollar-denominated notes was postponed. Our holdings of “Letes” and “Lecaps” were affected as a result of the aforementioned restructuring measures of Argentine law-governed sector public debt adopted by the Argentine goverment.
In addition to the public sector debt restructuring process described in the aforementioned paragraph, the Argentine government has also launched an exchange offer with the aim of refinancing its foreign law-denominated external indebtedness. For more information on this offer, see “Item 5.A—Operating Results—The Argentine Economy and Financial System—Argentina’s Sovereign Debt Restructuring”.
To some extent, the value of the assets held by Argentine financial institutions, as well as their income generation capacity, is dependent on the public sector’s creditworthiness, which is in turn dependent on the Argentine and the provincial government’s ability to promote sustainable long-term economic growth, generate tax revenues and control public spending. Should the public sector fail to fulfill its commitments in due time and proper form, this could have a negative adverse effect on our business, financial situation and results of operations. Moreover, failure by the Argentine government to successfully carry out the restructuring of its foreign financial indebtedness may further affect the public sector’s creditworthiness and negatively affect the Bank’s exposure to public sector debt and therefore its asset quality.
Risks Relating to Our Business
Due to our exposure to middle and lower-middle-income individuals and SMEs, the quality of our consolidated loan portfolio is more susceptible to economic downturns and recessions.
Our consolidated loan portfolio is exposed to the segments of SMEs and middle and lower-middle-income individuals, which are more vulnerable to economic recessions than large corporations and higher income individuals. The quality of our portfolio of loans to SMEs and to individuals is therefore dependent to a large extent on domestic and international economic conditions. Consequently, we may experience higher levels of past due amounts, which could result in higher provisions for loan losses. See “Item 4.D Property, plants and equipment.”
The loan portfolio of the retail segment, which includes individuals and companies with annual sales of up to Ps.100 million, depending on commercial activity, represented approximately 43% of the consolidated loan portfolio (net of provisions) as of December 31, 2019. If the economy in Argentina experiences a significant downturn, this could materially and adversely affect the liquidity, businesses and financial condition of our customers, which may in turn cause us to experience higher levels of past due loans, thereby resulting in higher provisions for loan losses and subsequent write-offs. This may materially and adversely affect the credit quality of our loan portfolio, our asset quality, our results of operations and our financial condition.
We may continue to seek potential acquisitions, but we may not be able to complete such acquisitions or successfully integrate businesses that we acquire.
In the past, in addition to organic growth, we have significantly expanded our business through acquisitions. We expect to continue considering acquisition opportunities that we believe may add value and are compatible with our business strategy.
In this respect, we may not be able to continue to identify opportunities or consummate acquisitions leading to economically favorable results or that any future acquisition will, if required, be authorized by the Central Bank, which would limit our ability to implement an important component of our growth strategy. In addition, in the event that an acquisition opportunity is identified and authorized, successful integration of the acquired business entails significant risks, including compatibility of operations and systems, unexpected contingencies, employee retention, compliance, customer retention, and delays in the integration process.
Changes in market conditions and any associated risks, including interest rate and currency exchange volatility, could materially and adversely affect our consolidated financial condition and results of operations.
We are directly and indirectly affected by changes in market conditions. Market risk, or the risk that values of assets and liabilities or revenues will be adversely affected by variations in market conditions, including interest rate and currency exchange volatility, is inherent in the products and instruments associated with our operations, including loans, deposits, long-term debt and short-term borrowings.
In particular, our results of operations depend to a great extent on our net financial income. Net financial income represented 87.5% of our net operating revenue in 2019 and 85.2% in 2018. Changes in market interest rates could affect the interest rates earned on our interest-earning assets differently from the interest rates paid on our interest-bearing liabilities, leading to a reduction in our net financial income or a decrease in customer demand for our loan or deposit products. In addition, increases in interest rates could result in higher debt service obligations for our customers, which could, in turn, result in higher levels of delinquent loans or discourage customers from borrowing. Interest rates are highly sensitive to many factors beyond our control, including the minimum reserve policies of the Central Bank, regulation of the financial sector in Argentina, domestic and international economic and political conditions and other factors.
Any changes in interest rates and currency exchange rates could adversely affect our business, our future financial performance and the price of our securities.
Reduced spreads between interest rates on loans and those on deposits, without corresponding increases in lending volumes, could adversely affect the Bank’s and CCF’s profitability.
Historically, the Argentine financial system witnessed a decrease in spreads between the interest rates on loans and deposits as a result of increased competition in the banking sector and the Argentine government’s tightening of monetary policy in response to inflation concerns. The interest rate spreads of the Bank and CCF follow the same trend. If inflation reduces, competition continues or increases and interest rate spreads decrease, without corresponding increases in the volume of loans such decrease could adversely affect our consolidated results of operations and financial condition.
We are a holding company and we conduct our business through our subsidiaries. Our ability to invest in our business developments will depend on our subsidiaries’ ability to pay dividends to us.
As a holding company, we conduct our operations through our subsidiaries, the largest of which is the Bank. Consequently, we do not operate or hold substantial assets, except for equity investments in our subsidiaries and temporary liquidity. Except for such assets, our ability to invest in our business developments and to repay obligations is subject to the funds generated by our subsidiaries and their ability to pay cash dividends. In the absence of such funds, we may have to resort to financing options at unappealing prices, rates and conditions. Additionally, such financing could be unavailable when we may need it.
Each of our subsidiaries is a separate legal entity and due to legal or contractual restrictions, as well as to their financial condition and operating requirements, they may not be able to distribute dividends to us. Our ability to develop our business, meet our payment obligations and pay dividends to our shareholders could be limited by restrictions preventing our subsidiaries from paying us dividends. Investors should take such restrictions into account when analyzing our investment developments and our ability to cancel our obligations.
Our estimates and established reserves for credit risk and potential credit losses may prove to be insufficient, which may materially and adversely affect our asset quality and our financial condition and results of operations.
A number of our products expose us to credit risk, including consumer loans, commercial loans and other receivables. Changes in the income levels of our borrowers, increases in the inflation rate or an increase in interest rates could have a negative effect on the quality of our loan portfolio, causing us to increase provisions for loan losses and resulting in reduced profits or in losses.
We estimate and establish reserves for credit risk and potential credit losses. This process involves subjective and complex judgments, including projections of economic conditions and assumptions on the ability of our borrowers to repay their loans.
Overall, if we are unable to effectively control the level of non-performing or poor credit quality loans in the future, or if our loan loss reserves are insufficient to cover future loan losses, our asset quality and our financial condition and results of operations may be materially and adversely affected.
The Bank’s revenues from its business with senior citizens could decrease or cease to grow if the Bank’s agreement with ANSES is terminated or not renewed.
Since 1996, the Bank has acted as one of the paying agents of social security payments to senior citizens on behalf of the government pursuant to an agreement with ANSES. In December 2014, pursuant to Resolution No. 648/14, ANSES renewed its agreement with the paying agents for a six-year period. In December 2019, the Bank made payments on behalf of ANSES to approximately 988,000 senior citizens and beneficiaries. Offering this service to senior citizens allows the Bank ready access to a pool of potential consumers of financial services. The Bank derives an important part of its revenues (26% as of December 31, 2019) from the sale of financial services to senior citizens in our service branches. The Bank’s agreement with ANSES provides that it will continue in effect as long as the parties continue performing their obligations for a six-year term. ANSES has the right to terminate the agreement with 90 days prior notice.
The termination of the agreement with ANSES, a decision by ANSES not to renew the agreement in December 2020, or ANSES’s failure to add new senior citizens to the payment service could have a negative effect on our business and results of operations.
Since deposits are one of our main sources of funds, a sudden shortage of the term of our deposits could cause an increase in costs of funding, affect our liquidity ratios and have an adverse effect on our revenues.
Deposits are one of our primary sources of funding, representing 71.3% of our total liabilities as of December 31, 2019. A significant portion of our assets has longer maturities, resulting in a mismatch between the maturities of liabilities and the maturities of assets. If a substantial number of our depositors withdraw their sight deposits or do not roll over their time deposits upon maturity, our liquidity position, results of operations and financial condition may be materially and adversely affected. In the event of a sudden or unexpected shortage of funds in the banking system, money markets in which we operate may not be able to maintain levels of funding without incurring high funding costs or the liquidation of certain assets. If this were to happen, we may be unable to fund our liquidity needs at competitive costs and our results of operations and financial condition may be materially adversely affected.
Because our main subsidiary, the Bank, as well as CCF, are financial institutions, any insolvency proceeding against them would be subject to the intervention of the Central Bank, which may limit the remedies otherwise available and extend the duration of any insolvency proceeding.
Under Argentine law, the commencement of bankruptcy or liquidation proceedings against financial institutions, until the revocation by the Central Bank of their banking license, may only be commenced by the Central Bank. If the Bank and/or CCF are unable to pay their debts as they come due, the Central Bank would intervene and revoke their respective banking and “compañía financiera” licenses, and file a bankruptcy petition before a commercial court. If the Central Bank intervenes, the reorganization proceeding could take longer and it is likely that the shareholders’ remedies would be restricted. During any such process, the Central Bank would have to consider its interests as a regulator and, as a result, could prioritize the claims of other creditors and third parties against the Bank and/or CCF. As a result of any such intervention, shareholders may realize substantially less on the claims than they would in a regular bankruptcy proceeding in Argentina, the United States or any other country.
Our controlling shareholder has the ability to direct our business, and potential conflicts of interest could arise.
Our controlling shareholder, Julio Patricio Supervielle, directly or beneficially owned as of April 28, 2020, 61,738,188 Class A shares and 98,684,713 Class B shares. Virtually all decisions made by shareholders will continue to be directed by our controlling shareholder. He may, without the concurrence of the remaining shareholders, elect a majority of our directors, effect or prevent a merger, sale of assets or other business acquisition or disposition, cause us to issue additional equity securities, effect a redemption of shares, effect a related party transaction and determine the timing and amounts of dividends, if any. According to our bylaws, a two-thirds vote by our Class A shares is required, regardless of the percentage of our total capital they represent, in order for us to duly resolve a merger with another company, a voluntary dissolution, our relocation abroad, and the fundamental change in our corporate purpose. Mr. Supervielle’s interests may conflict with your interests as a holder of Class B shares or ADSs, and he may take actions that might be desirable to him but not to other shareholders.
Early termination of CCF’s business agreement with Walmart could have an adverse effect on our revenue.
In April 2000, CCF (formerly GE Compañía Financiera) and Walmart entered into a commercial agreement pursuant to which CCF became the sole provider of financial services for Walmart’s customers in Argentina. The agreement was renewed in 2005, in 2010 and in December 2014. Such agreement is key to CCF’s overall performance. This agreement expires in August 2020 and, while a renewal is currently being negotiated, it may not be renewed on the same terms or at all. In addition, the agreement is subject under certain conditions to voluntary termination by Walmart Argentina. The decision by Walmart Argentina not to renew or to terminate the agreement could negatively affect our expected benefit from this alliance and could result in a material adverse effect on CCF’s financial condition and results of operations.
Cybersecurity events could negatively affect our reputation, our financial condition and our results of operations.
We depend on the efficient and uninterrupted operation of internet-based data processing, communication and information exchange platforms and networks, including those systems related to the operation of our ATM network. We have access to large amounts of confidential financial information and control substantial financial assets belonging to our customers as well as to us. In addition, we provide our customers with continuous remote access to their accounts and the possibility of transferring substantial financial assets by electronic means. Accordingly, cybersecurity is a material risk for us. Cybersecurity incidents, such as computer break-ins, phishing, identity theft and other disruptions could negatively affect the security of information stored in and transmitted through our computer systems and network infrastructure and may cause existing and potential customers to refrain from doing business with us.
In addition, contingency plans in place may not be sufficient to cover liabilities associated with any such events, and we do not have insurance to cover cyber risks and breaches. Our operational systems and networks have been, and will continue to be, subject to an increasing risk of continually evolving cybersecurity or other technological risks.
Although we intend to continue to implement security technology devices and establish operational procedures to prevent such damage, it is possible that not all of our systems are entirely free from vulnerability and these security measures will not be successful. If any of these events occur, it could damage our reputation, entail serious costs and affect our transactions, as well as our results of operations and financial condition.
Our business is highly dependent on properly functioning information technology systems and improvements to such systems.
Our business is highly dependent on the ability of our information technology systems and the third party managers of such systems to effectively manage and process a large number of transactions across numerous and diverse markets and products in a timely manner. In addition, we provide our customers with continuous remote access to their accounts and the possibility of transferring substantial financial assets by electronic means. The proper functioning of our financial control, risk management, accounting, customer service and other data processing systems is critical to our business and our ability to compete effectively. Our business activities may be materially disrupted if there were a partial or complete failure of any of our information technology systems communication networks. Such failures could be caused by, among other things, software bugs, computer virus attacks or intrusions, phishing, identity theft or conversion errors due to system upgrading. In addition, any security breach caused by unauthorized access to information or systems, or intentional malfunctions or loss or corruption of data, software, hardware or other computer equipment, could have a material adverse effect on our business, results of operations and financial condition.
Our ability to remain competitive and achieve further growth will depend in part on our ability to upgrade our information technology systems and increase our capacity on a timely and cost effective basis. Any substantial failure to improve or upgrade information technology systems effectively or on a timely basis could materially affect us.
We are susceptible to fraud, unauthorized transactions and operational errors.
As with other financial institutions, we are susceptible to, among other things, fraud by employees or outsiders, unauthorized transactions by employees and other operational errors (including clerical or record keeping errors and errors resulting from faulty computer or telecommunications systems). Given the high volume of transactions that may occur at a financial institution, errors could be repeated or compounded before they are discovered and remedied. In addition, some of our transactions are not fully automated, which may further increase the risk that human error or employee tampering will result in losses that may be difficult to detect quickly or at all. Losses from fraud by employees or outsiders, unauthorized transactions by employees and other operational errors could have a material adverse effect on us.
Our policies and procedures may not be able to detect money laundering and other illegal or improper activities fully or on a timely basis, which could expose us to fines and other liabilities.
We are required to comply with applicable anti-money laundering laws, anti-terrorism financing laws and other regulations. These laws and regulations require us, among other things, to adopt and enforce “know your customer” policies and procedures and to report suspicious or large transactions to the applicable regulatory authorities. While we have adopted policies and procedures aimed at detecting and preventing the use of banking networks for money laundering activities and by terrorists and terrorist-related organizations and individuals generally, such policies and procedures may not completely eliminate instances where they may be used by other parties to engage in money laundering and other illegal or improper activities. If we fail to fully comply with applicable laws and regulations, the relevant government authorities to which they report have the power and authority to impose fines and other penalties. In addition, our businesses and reputation could suffer if customers use our financial institutions for money laundering or illegal or improper purposes. As of the date of this annual report, we have not been subject to fines or other penalties, and we have not suffered business or reputational harm, as a result of any money laundering activities in the past.
Risks Relating to Our Class B Shares and the ADSs
Holders of our Class B shares and the ADSs may not receive any dividends.
We are a holding company and our ability to pay dividends depends on the cash flow and distributable income of our operating subsidiaries, particularly the Bank. We and our subsidiaries are subject to contractual, legal and regulatory requirements affecting our ability to pay dividends. In particular, dividend distribution by the Bank is subject to the requirements established by the rules of the Central Bank, as amended from time to time. Pursuant to such regulations, dividend distributions shall be admitted as long as none of the following circumstances apply (i) the financial institution is subject to a liquidation procedure or the mandatory transfer of assets ordered by the Central Bank in accordance with section 34 or 35 bis of the FIL; (ii) the financial institution is receiving financial assistance from the Central Bank; (iii) the financial institution is not in compliance with its reporting obligations to the Central Bank; (iv) the financial institution is not in compliance with minimum capital requirements (both on an individual and consolidated basis and excluding any individual franchise granted by the Superintendency) and with minimum cash reserves (on average), whether in Pesos, foreign currency or securities issued by the public sector; (v) if the average minimum cash reserve is lower than the amount of cash required by the latest reported position or the pro forma position after making the dividend payment; and/or (vi) if the financial institution did not comply with the applicable Additional Capital Margins (as defined below). Financial institutions that comply with all of the above mentioned conditions may distribute dividends up to an amount equal to: (i) the positive balance of the account “unappropriated earnings” (resultados no asignados) at the end of the fiscal year, plus (ii) voluntary reserves for future payments of dividends, minus (iii) voluntary reserves and mandatory statutory reserves registered as of that date and other items, such as (a) 100% of the debit balance of each of the items recorded under “Other accumulated comprehensive income”, (b) the result from the revaluation of property, plant, equipment and intangible assets and investment properties, (c) the net positive balance of the book-value and the market-value of certain public debt securities and Central Bank notes that the financial institution owns that are not marked to market, (d) unrecorded adjustments of asset value informed by the Superintendency of Financial and Exchange Entities (Superintendencia de Entidades Financieras y Cambiarias, or “Superintendency”) or mentioned by external auditors on their report, and (e) individual exemptions for asset valuation granted by the Superintendency.
In addition, financial entities may not distribute profits with the profit arising from the application of IFRS for the first time, and must set up a special reserve that can only be canceled for capitalization or to absorb any negative balances from the item “Unassigned Results.” See “Item 4.B Business overview—Argentine Banking Regulation—Liquidity and Solvency Requirements—Requirements Applicable to Dividend Distribution.”
Although distribution of dividends to us by the Bank has been authorized by the Central Bank in the past, it is possible that in the future the Central Bank may limit the Bank’s ability to distribute dividends approved by its shareholders at the annual ordinary shareholders’ meeting without its prior consent, or such authorization may not be for the full amount of distributable dividends.
Furthermore, on March 19, 2020, in the midst of the coronavirus’ outbreak crisis, the Central Bank issued Communication “A” 6939, by virtue of which the distribution of dividends by financial entities was temporarily suspended until June 30, 2020. We cannot assure this measure will not be extended after this period nor the extent to which the measure may affect the Bank’s ability to pay dividends to us.
Restrictions on transfers of foreign exchange and the repatriation of capital from Argentina may impair your ability to receive dividends and distributions on, and the proceeds for any sale of, the Class B shares underlying the ADSs.
Exchange controls currently in place could impair or prevent the conversion of anticipated dividends, distributions, or the proceeds from any sale of Class B shares, as the case may be, from Pesos into U.S. dollars and the remittance of the U.S. dollars abroad. In particular, with respect to the dividends and distributions on any sale of Class B shares underlying the ADSs, as of the date of this annual report, the conversion from Pesos into U.S. dollars and the remittance of such U.S. dollars abroad is subject to prior Central Bank approval, which may not be granted. Access to the free exchange market (“MLC,” as per its Spanish acronym) to pay dividends to non-resident shareholders is granted subject to the following conditions:
|·||Maximum amounts: the total amount of transfers made through the MLC for payment of dividends to non-resident shareholders may not exceed the 30% of the total value of the capital contributions made in the relevant local company that entered and settled through the MLC as of January 17, 2020. The total amount paid to non-resident shareholders shall not exceed the corresponding amount denominated in Argentine Pesos determined by the shareholders’ meeting to be distributed as dividends.|
|·||Minimum Period: access to the MLC will only be granted after a period of not less than thirty (30) calendar days has elapsed as from the date of the settlement of the last capital contribution that is taken into account for determining the aforementioned 30% cap.|
|·||Documentation requirements: dividends must be the result of closed and audited balance sheets. When requesting access to the MLC for this purpose, evidence of the definitive capitalization of capital contributions must be provided or, in lack thereof, evidence of filing of the process of registration of the capital contribution before the Public Registry shall be provided. In this case, evidence of the definitive capitalization shall be provided within 365 calendar days from the date of the initial filing with the Public Registry. If applicable, the external assets and liabilities reporting regime set forth by Communication “A” 6401 of the Central Bank (the “External Assets and Liabilities Reporting Regime”) shall have been complied with.|
If the exchange rate fluctuates significantly during a time when the depositary cannot convert or reinvest the foreign currency, you may lose some or all of the value of the dividend distribution. Also, if payments cannot be made in U.S. dollars abroad, the repatriation of any funds collected by foreign investors in Pesos in Argentina may also be subject to restriction. Moreover, available mechanisms to receive dividends in U.S. dollars may involve a significantly higher implicit exchange rate. See “Item 10.D Exchange Controls—Other Regulations—Sale of Foreign Currency to Non-residents.”
We are traded on more than one market and this may result in price variations; in addition, investors may not be able to easily move shares for trading between such markets.
In addition to the trading of our ADSs in the United States and countries other than Argentina, our Class B shares are traded in Argentina. Trading in the ADSs or our Class B shares on these markets will take place in different currencies (U.S. dollars on the New York Stock Exchange (“NYSE”) and Pesos on BYMA), and at different times (resulting from different time zones, different trading days and different public holidays in the United States and Argentina). The trading prices of these securities on these two markets may differ due to these and other factors. Any decrease in the price of our Class B shares on the ByMA could cause a decrease in the trading price of the ADSs on the NYSE. Investors could seek to sell or buy our shares to take advantage of any price differences between the markets through a practice referred to as arbitrage. Any arbitrage activity could create unexpected volatility in both our share prices on one exchange, and the ADSs available for trading on the other exchange. In addition, holders of ADSs will not be immediately able to surrender their ADSs and withdraw the underlying Class B shares for trading on the other market without effecting necessary procedures with the depositary. This could result in time delays and additional cost for holders of ADSs.
Under Argentine Corporate Law, shareholder rights may be fewer or less well defined than in other jurisdictions.
Our corporate affairs are governed by our bylaws and by the AGCL, which differ from the legal principles that would apply if we were incorporated in a jurisdiction in the United States (such as Delaware or New York), or in other jurisdictions outside Argentina. Thus, your rights or the rights of holders of our Class B shares under the AGCL to protect your or their interests relative to actions by our Board of Directors may be fewer and less well defined than under the laws of those other jurisdictions. Although insider trading and price manipulation are illegal under Argentine law, the Argentine securities markets may not be as highly regulated or supervised as the U.S. securities markets or markets in some of the other jurisdictions. In addition, rules and policies against self-dealing and regarding the preservation of shareholder interests may be less well defined and enforced in Argentina than in the United States, or other jurisdictions outside Argentina, putting holders of our Class B shares and the ADSs at a potential disadvantage.
Holders of our Class B shares and the ADSs located in the United States may not be able to exercise preemptive rights.
Under the AGCL, if we issue new shares as part of a capital increase, our shareholders may have the right to subscribe to a proportional number of shares to maintain their existing ownership percentage. Rights to subscribe for shares in these circumstances are known as preemptive rights, pursuant to the AGCL. In addition, shareholders are entitled to the right to subscribe for the unsubscribed shares remaining at the end of a preemptive rights offering on a pro rata basis, which are known as accretion rights. Upon the occurrence of any future increase in our capital stock, United States holders of Class B shares or ADSs will not be able to exercise the preemptive and related accretion rights for such Class B shares or ADSs unless a registration statement under the Securities Act is effective with respect to such Class B shares or ADSs or an exemption from the registration requirements of the Securities Act is available. We are not obligated to file a registration statement with respect to those Class B shares or ADSs. We may not file such a registration statement, or an exemption from registration may not be available. Unless those Class B shares or ADSs are registered or an exemption from registration applies, a U.S. holder of our Class B shares or ADSs may receive only the net proceeds from those preemptive rights and accretion rights if those rights can be sold by the depositary; if they cannot be sold, they will be allowed to lapse. Furthermore, the equity interest of holders of Class B shares or ADSs located in the United States may be diluted proportionately upon future capital increases.
Your voting rights with respect to the ADSs are limited by the terms of the deposit agreement.
Holders may exercise voting rights with respect to the Class B shares underlying ADSs only in accordance with the provisions of the deposit agreement. There are no provisions under Argentine law or under our bylaws that limit ADS holders’ ability to exercise their voting rights through the depositary with respect to the underlying Class B shares, except if the depositary is a foreign entity and it is not registered with the IGJ, and in this case, the depositary is registered with the IGJ. However, there are practical limitations upon the ability of ADS holders to exercise their voting rights due to the additional procedural steps involved in communicating with such holders. For example, Argentine Capital Markets Law requires us to notify our shareholders by publications in certain official and private newspapers of at least 20 and no more than 45 days in advance of any shareholders’ meeting. ADS holders will not receive any notice of a shareholders’ meeting directly from us. In accordance with the deposit agreement, we will provide the notice to the depositary, which will in turn, if we so request, as soon as practicable thereafter provide to each ADS holder:
|·||the notice of such meeting;|
|·||voting instruction forms; and|
|·||a statement as to the manner in which instructions may be given by holders.|
To exercise their voting rights, ADS holders must then provide instructions to the depositary how to vote the shares underlying ADSs. Because of the additional procedural step involving the depositary, the process for exercising voting rights will take longer for ADS holders than for holders of Class B shares.
Except as described in this annual report, holders will not be able to exercise voting rights attaching to the ADSs.
The relative volatility and illiquidity of the Argentine securities markets may substantially limit your ability to sell Class B shares underlying the ADSs at the price and time you desire.
Investing in securities that trade in emerging markets, such as Argentina, often involves greater risk than investing in securities of issuers in the United States. The Argentine securities market is substantially smaller, less liquid, more concentrated and can be more volatile than major securities markets in the United States, and is not as highly regulated or supervised as some of these other markets. There is also significantly greater concentration in the Argentine securities market than in major securities markets in the United States. As of December 31, 2019, the ten largest companies in terms of market capitalization represented approximately 66% of the aggregate market capitalization of ByMA. Accordingly, although you are entitled to withdraw the Class B shares underlying the ADSs from the depositary at any time, your ability to sell such shares at a price and time at which you wish to do so may be substantially limited. Furthermore, exchange controls imposed by the Central Bank could have the effect of further impairing the liquidity of the ByMA by making it unattractive for non-Argentines to buy shares in the secondary market in Argentina. See “Item 10.D Exchange Controls.”
Substantial sales of our Class B shares or the ADSs could cause the price of the Class B shares or of the ADSs to decrease.
We have shareholders that own a substantial amount of our Class B shares or ADSs. If such shareholders decide to sell a substantial amount of our Class B shares or the ADSs, or if the market perceives they intend to sell a substantial amount of our Class B shares or the ADSs, the market price of our Class B shares or the ADSs could drop significantly.
Our shareholders may be subject to liability for certain votes of their securities.
Our shareholders are not liable for our obligations. Instead, shareholders are generally liable only for the payment of the shares they subscribe. However, shareholders who have a conflict of interest with us and who do not abstain from voting may be held liable for damages to us, but only if the transaction would not have been approved without such shareholders’ votes. Furthermore, shareholders who willfully or negligently vote in favor of a resolution that is subsequently declared void by a court as contrary to the AGCL or our bylaws may be held jointly and severally liable for damages to us or to other third parties, including other shareholders.
|Item 4||Information of the Company|
|Item 4.A||History and development of the Company|
We are a financial group with a long-standing presence in the Argentine financial system and a leading competitive position in certain attractive market segments. We are controlled by Julio Patricio Supervielle. We trace our history back more than 130 years, when the Supervielle family, predecessors of our controlling shareholder, first entered the Argentine financial services industry in 1887. Below is a brief history of our company, including the participation of the Supervielle family.
Supervielle y Cía. Banqueros
The predecessors of our controlling shareholder emigrated from France in the second half of the 19th century and established L.B. Supervielle y Cía. Banque Francaise (later Banco de Montevideo S.A.) in Montevideo, Uruguay. In 1887, they established Supervielle y Cía. Banqueros (a subsidiary of L.B. Supervielle y Cía. Banque Francaise) in Buenos Aires. Supervielle y Cía. Banqueros offered demand deposits, time deposits, savings accounts, securities trading orders, purchases and sales of foreign currency and drafts and letters of credit payable in European financial centers. Luis Bernardo Supervielle managed the bank until his death in 1901, whereupon the bank’s management transferred to his son, Luis Supervielle, and subsequently to Esteban Barón, son-in-law of Luis Bernardo Supervielle, who in 1905 became president of Supervielle y Cía. Banqueros. Mr. Barón managed the bank from 1905 until 1930, and subsequently served on the board of the bank as an honorary president until 1964. Mr. Barón’s son, Andrés Barón, joined the bank in 1925 and took over its general management in 1930, also becoming chairman of the board of the bank in 1940. He carried out these functions until 1964, and then served on the board of the bank as an honorary president.
On December 30, 1940, Banco Supervielle de Buenos Aires S.A., a bank controlled by the Barón and Supervielle families, acquired the assets and liabilities of Supervielle y Cía. Banqueros and listed its shares on the Buenos Aires Stock Exchange. Esteban Barón and his son, Andrés Barón Supervielle, continued to manage the operations of this bank until 1964.
In 1964, Société Générale (Paris) acquired a majority of the capital stock of Banco Supervielle de Buenos Aires S.A. from the Baron and Supervielle families, transforming it into a universal bank with 60 branches and a significant presence in the corporate market. Following the acquisition of control by Société Générale, the Supervielle family had no role in the management of Banco Supervielle. In 1997, Banco Supervielle de Buenos Aires S.A. created Société Générale Asset Management Sociedad Gerente de FCI S.A. In March 2000, the name Banco Supervielle de Buenos Aires S.A. was changed to Banco Société Générale S.A.
Banco Banex S.A.
In 1969, Jules Henri Supervielle, the father of Julio Patricio Supervielle, our controlling shareholder, and cousin of the Supervielle family members who had owned and managed Banco Supervielle de Buenos Aires S.A. until 1964, founded Exprinter de Finanzas S.A., which became Exprinter Banco S.A. in 1991. Exprinter Banco S.A. acquired 100% of the capital stock of Banco San Luis S.A. in 1996 pursuant to a public bidding process organized by its owner, the Province of San Luis. On July 25, 1996, the Province of San Luis entered into a financial agency agreement with Banco San Luis S.A. (the “Contrato de Vinculación”), pursuant to which the Province designated Banco San Luis as its financial agent. The acquisition of Banco San Luis S.A. by Exprinter Banco S.A. was part of a strategic plan aimed at growing in the interior of the country and penetrating the middle and lower-middle-income individual consumer and the SMEs segments. In 1998, Exprinter Banco S.A. and Banco San Luis S.A. merged to create Banco San Luis S.A. Banco Comercial Minorista, and was later renamed Banco Banex S.A. In December 2006, the government of the Province of San Luis extended the term of this financial agency agreement until 2021. On January 17, 2017, the Province of San Luis notified us of its decision to exercise its right to terminate the agreement, as of February 28, 2017. Since February 2017, the Bank has continued to provide financial services to the government of the Province of San Luis and its employees despite the termination of the financial agency agreement. In January 2019, the government of the Province of San Luis released the terms and conditions of the auction to be held by the Province for the new financial agency agreement. On December 6, 2019, the provincial government issued the Decree No. 8,589 that resolved to close the auction process without awarding the financial agency agreement to any financial institution. Supervielle is continuing to render services as financial agent until the Province of San Luis names a new financial agent.
Creation of Holding Company
Grupo Supervielle was incorporated in the City of Buenos Aires on in 1979, under the name Inversiones y Participaciones S.A., changing the name to Grupo Supervielle S.A. in November 2008.
Acquisition of Banco Société Générale S.A. by Banco Banex S.A.
In March 2005, the Central Bank approved the purchase by Banco Banex S.A. of a majority stake in Banco Société Générale S.A., Supervielle Asset Management Sociedad Gerente de FCI S.A. and Sofital S.A.F.e I.I. Upon consummation of this acquisition, Banco Société Générale S.A.’s corporate name was changed to Banco Supervielle S.A. At the time of the purchase, the total assets of Banco Banex S.A. were 61.3% of the total assets of Banco Societé Générale S.A.
Merger of Banco Banex S.A. and Banco Supervielle S.A.
In July 2007, with the prior approval of the Central Bank, Banco Banex S.A. merged into the Bank.
Acquisition of Banco Regional de Cuyo S.A.
In September 2008, the Bank finalized the acquisition of 99.94% of the capital stock of Banco Regional de Cuyo S.A. The Banco Regional de Cuyo S.A. merged with and into the Bank in November 2010.
Acquisition of Tarjeta Automática S.A.
In December 2007, we acquired 51% of Tarjeta’s capital stock. The remaining 49% was held by Acalar S.A., an Argentine sociedad anónima wholly owned by the Coqueugniot family (Gabriel A. Coqueugniot, Cecilia B. Coqueugniot, Mónica I. Coqueugniot, and Diana I. Coqueugniot), in equal parts. Following several stock transfers that took place in 2009 and 2010, Tarjeta’s capital stock is, as of the date of this annual report, held 87.5% by Grupo Supervielle, 10.0% by the Bank, and 2.5% by CCF.
Acquisition of Cordial Compañía Financiera S.A. (formerly known as “GE Compañía Financiera S.A.”)
In July 2010, Grupo Supervielle and the Bank agreed to acquired 100% of Cordial Compañía Financiera S.A. (“Cordial Compañía Financiera”), a financial services company that specialized in credit cards, personal loans and the distribution of certain third-party insurance products. In August 2011, the purchase was completed through a stock transfer in which 5% and 95% of the total shares were transferred to Grupo Supervielle and the Bank, respectively.
Through a strategic alliance with Walmart Argentina, Cordial Compañía Financiera has exclusive rights to promote and sell financial and credit products in Walmart Argentina stores nationwide through August 2020 (with a renewal currently being negotiated).
We acquired Cordial Compañía Financiera to further our strategy of increasing our market share in the Argentine banking and financial services industry through the strategic purchase of financial services companies and financial institutions.
In August 2011, the shareholders of Cordial Compañía Financiera approved the name change from GE Cordial Compañía Financiera S.A. to Cordial Compañía Financiera S.A.
Creation of Espacio Cordial Servicios S.A.
In October 2012, the Board of Directors created a new entity called ECM S.A., which was later renamed Espacio Cordial Servicios S.A. Espacio Cordial was created to sell insurance plans and coverage, health insurance and health services, tourism packages, electric appliances and furniture and alarm systems. Espacio Cordial deals with insurance services that can be delegated or assigned to third party insurance companies, such as Supervielle Seguros.
Acquisition of Supervielle Seguros S.A. (formerly known as Aseguradores de Créditos del Mercosur S.A.)
In February 2013, we and Sofital accepted an offer for the acquisition of 100% of the shares of Aseguradores de Créditos del Mercosur S.A., which in October 2013 was renamed Supervielle Seguros S.A. In June 2013, 95% of the shares of Aseguradores de Créditos del Mercosur S.A. were transferred to us and the remaining 5% of the shares were transferred to Sofital.
Sale of Adval S.A.
In May 2014, Grupo Supervielle S.A. and Sofital entered into an agreement for the sale of 100% of the shares of Adval S.A. to CAT Technologies S.A. The purchase price was paid in installments between July 2014 and July 2019.
Successful IPO in May 2016
Since May 19, 2016, the ordinary Class B shares of Grupo Supervielle S.A. are listed on ByMA, and its American Depositary Shares (“ADSs”), representing five ordinary Class B shares, are listed in the NYSE under the ticker “SUPV”. At the time, Grupo Supervielle made an initial public offer of its Class B shares in Argentina and of its ADSs in the international markets for an aggregate amount of U.S.$323 million. Through the offering, Grupo Supervielle placed 146,625,087 ordinary Class B shares, of which 137,095,955 were placed internationally in the form of ADSs In the offering, 114,807,087 were newly issued ordinary Class B shares while 31,818,000 were sold pursuant to a secondary offering.
Sale of Cordial Microfinanzas S.A.
On March 20, 2017, Grupo Supervielle and the Bank accepted an offer from Ciudad Microempresas S.A. to purchase Grupo Supervielle’s and the Bank’s shares of Cordial Microfinanzas S.A. Ciudad Microempresas S.A. is a company owned by Corporación Buenos Aires Sur and Banco de la Ciudad de Buenos Aires. Grupo Supervielle and the Bank transferred on March 31, 2017 all their shares of Cordial Microfinanzas S.A. to Ciudad Microempresas
The decision to sell Cordial Microfinanzas S.A. was based on our need to focus our resources in designated strategic segments. As of December 31, 2016, Cordial Microfinanzas S.A. operated through five branches, had a total loan portfolio of Ps.192 million, and held assets representing 0.4% of the total assets of Grupo Supervielle. Its contribution to the net income of Grupo Supervielle in 2016 was 0.8%. Cordial Microfinanzas S.A. was created in 2007 by Grupo Supervielle to service the microfinance market in Argentina and with the objective of providing technical and financial assistance to micro-entrepreneurs to meet the needs related to their productive, commercial and service activities, thereby contributing to the development of their entrepreneurial capacity.
Capitalization of an in-kind contribution and resulting capital stock increase
At the ordinary and extraordinary shareholders’ meeting of Grupo Supervielle held on April 27, 2017, the shareholders of Grupo Supervielle approved the capitalization of an in-kind contribution of 7,672,412 shares of common stock of Sofital S.A.F. e I.I. made by Mr. Julio Patricio Supervielle and an increase of the capital stock of Grupo Supervielle through the issuance of up to 8,032,032 new Class B shares. In connection with the capital increase, a total of 7,494,710 new Class B shares were subscribed as follows: on July 18, 2017, 4,321,208 were issued to Mr. Julio Patricio Supervielle in return for the in-kind contribution, representing 57.7% of the total capital increase, and 3,173,502 Class B shares were issued to existing shareholders of Grupo Supervielle who exercised their preemptive and accretion rights with respect to the capital increase, representing 42.3% of the total capital increase.
Sale of shares of Viñas del Monte S.A.
On May 26, 2017, Grupo Supervielle, Sofital S.A.F. e I.I. and Mr. Julio Patricio Supervielle completed the transfer of their shareholdings in Viñas del Monte S.A., which were sold for an aggregate amount of U.S.$1,500,000 to Ramón Francisco Federico and Guillermo Héctor Federico.
Successful completion of capital increase
In September 2017, Grupo Supervielle made an increase of capital stock through an offer of Class B shares. Simultaneously with the offer, Grupo Supervielle made an offer of preemptive and accretive rights of Class B shares to existing shareholders. As a result of the offer, Grupo Supervielle issued a total of 85,449,997 new Class B shares for a total of U.S.$344.0 million.
Creation of Adquisición y Desarrollo S.A.
On December 18, 2017, our Board of Directors approved the creation of Adquisición y Desarrollo S.A. to sell credit and non-credit product and services through new indirect channels. As of the date of this annual report, Adquisición y Desarrollo S.A. registration process with the IGJ is dormant.
Creation of Fideicomiso Financiero Fintech Supervielle I
On February 16, 2018, the Board of Directors approved the creation of Fideicomiso Financiero Fintech Supervielle I to invest in financial technology (fintech) and insurance technology (insurtech) start up projects for an amount up to U.S.$3 million.
Acquisition of Micro Lending S.A.U.
On April 6, 2018, Grupo Supervielle approved an offer to acquire 100% of the share capital of Micro Lending S.A.U. (“MILA”). MILA specializes in car financing, particularly for used cars. On May 2, 2018, Grupo Supervielle closed the acquisition of MILA for a total price of U.S.$20 million, subject to final adjustments.
Acquisition of the capital stock of InvertirOnline S.A.U. and InvertirOnline.com Argentina S.A.U.
On May 24, 2018, we acquired the capital stock of the online trading platform InvertirOnline (“InvertirOnline”), through the purchase of both InvertirOnline S.A.U. and InvertirOnline.com Argentina S.A.U.
Conversion of Class A shares
On April 24, 2019, and as per the request of Mr. Julio Patricio Supervielle, the Board of Directors of Grupo Supervielle authorized the conversion of 65,000,000 Class A shares, with a par value of Ps.1.00each and entitled to five votes per share, held by Mr. Supervielle, into Class B shares, with a par value of Ps.1.00 each and entitled to one vote per share, in the the terms of article 6 (b) our bylaws. On May 9, 2019, the aforementioned conversion was approved by the CNV.
Creation of Bolsillo Digital S.A.U.
On June 12, 2019, Bolsillo Digital S.A.U. was created with the exclusive purpose of providing design, programming and developing services for software, mobile phone applications, web pages and/or any other digital medium, commercializing products and services related to the management and processing of payments made by and in favor of third parties and developing and operating platforms and tools of payment methods of any type and in any of its forms. We are the sole shareholder of Bolsillo Digital S.A.U.
Acquisition of deautos.com by Espacio Cordial de Servicios S.A.
On June 18, 2019, Espacio Cordial de Servicios S.A. acquired deautos.com, a platform of new and pre-owned cars and one of the leading sites in its category with more than 10 years in the market.
Through this acquisition, the Consumer Division of Grupo Supervielle seeks to continue enhancing the customer experience through digital transformation, widening the offering of consumer products and increasing cross selling to drive higher efficiency and profitability.
The acquisition of deautos.com platform will allow us to create an innovative and disruptive business model in the online car market powered by Mila’s relationship with agencies and dealers, provide a new car digital platform experience for users, integrating and simplifying the financial offer, insurance and services of the Company.
Creation of Supervielle Productores Asesores de Seguros S.A. (formerly known as Supervielle Broker de Seguros S.A.)
On December 21, 2018, Supervielle Broker de Seguros S.A. was created, which has the exclusive purpose of carrying out the insurance intermediation activity, promoting the contracts of life insurance, wealth and pension insurance premiums, and advising customers and potential customers. Grupo Supervielle owns all of its share capital directly and indirectly. Supervielle Productores Asesores de Seguros S.A began operating in the second half of 2019.
Acquisition of Futuros del Sur S.A. (in the process of being renamed Supervielle Agente de Negociacion S.A.U.)
On December 18, 2019, Supervielle acquired 100% of the share ownership of brokerage firm Futuros del Sur S.A., seeking to broaden the investment and financial services it provides to institutional and corporate customers and also drive efficient and profitable cross selling. Futuros del Sur S.A. is in the process of being renamed Supervielle Agente de Negociación S.A.U.
Our principal executive offices are located at Bartolomé Mitre 434, 5th floor, Buenos Aires, Argentina. Our general telephone number is +54-11-4340-3100. Our website is http://www.gruposupervielle.com. Information contained or accessible through our website is not incorporated by reference in, and should not be considered part of, this annual report.
We file reports, including our annual reports on Form 20-F, and other information with the SEC pursuant to the rules and regulations of the SEC that apply to foreign private issuers. The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. Any filings we make electronically with the SEC are available to the public over the Internet at the SEC’s web site at http://www.sec.gov.
Our agent for service of process in the United States is CT Corporation System, located at 111 Eighth Avenue, New York, New York, 10011.
|Item 4.B||Business Overview|
We own the eighth largest Argentine private bank in terms of loans. We maintain a strong geographic presence in the City of Buenos Aires and the Greater Buenos Aires metropolitan area, which is Argentina’s most commercially significant and highly populated area, and we are leaders in terms of our banking network in some of Argentina’s most dynamic regions, including Mendoza and San Luis. The Bank, which consolidated with CCF, is our main asset, comprising 96.4% of our total assets, and has a history of strong growth. As of December 31, 2019, we served 1.8 million active customers, and our assets totaled Ps.146.5 billion (approximately U.$.S.2.4 billion), in addition to Ps.16.8 billion (approximately U.$.S. 281 million) of assets managed by SAM and Ps.12.5 billion (U.$.S.209 million) of assets managed by InvertirOnline. As of December 31, 2019, the Bank and CCF accounted for 91.1% and 5.3% of our total assets, respectively.
As of December 31, 2019 and 2018, according to calculations performed based on Central Bank and other third-party information, our share for the following products or segments was as follows:
|·||Personal loans (advanced by the Argentine private financial system): our market share as of December 31, 2019 was 7.0%, compared to a 7.3% market share as of December 31, 2018;|
|·||Leasing (made by the Argentine private banks): a 19.9% market share as of December 31, 2019, compared to a market share of 17.6% as of December 31, 2018;|
|·||Our factoring market share of the Argentine private financial system as of December 31, 2019 was 9.5%, compared to a 7.4% market share as of December 31, 2018; and|
|·||MasterCard credit cards with a 9.3% market share as of December 31, 2019, compared to a 8.6% market share as of December 31, 2018;|
Based on the latest information published by ANSES, we made 13.7% of all social security payments to senior citizens in Argentina in June 2019, compared to 14.0% in December 2018.
We have a leading position in both the Provinces of Mendoza and San Luis, in which we have 198,000 and 192,000 active customers, respectively. According to calculations based on Central Bank information, as of December 31, 2019 in these Provinces we had a market share of loans among private banks of 21.2% and 49.6%, respectively, and a market share of deposits among private banks of 7.1% and 62.8% respectively.
We offer diverse financial products and services that are specifically tailored to cover the different needs of our customers through a multi-brand and multi-channel platform. We have developed a multi-brand business model to differentiate the financial products and services we offer to a wide spectrum of individuals, small businesses, SMEs, middle-market companies and large corporates in Argentina. Our infrastructure supports our multi-channel distribution strategy with a strategic national footprint through 316 access points which include 185 bank branches, 13 banking payment and collection centers, 79 CCF sales points located in Walmart supermarkets, Tarjeta’s 34 consumer finance sales points, 5 Mila customer support offices, a network of 393 car dealers, 536 ATMs, 217 self-service terminals and 202 cash dispensers with biometric identification.
We complement our existing physical network by offering solutions through our different digital channels such as our Online Banking platforms for Business and for Individuals, the Supervielle Mobile and the specific apps and solutions developed for different business segments such as the app for retirees, the Walmart app, and chatbots. We also offer products and services through InvertirOnline.com, our online broker with more than 51,800 active customers located countrywide.
As of December 31, 2019, the Bank’s loan portfolio to branches ratio, which we calculate by dividing the total amount of loans outstanding at the end of the period by the number of branches at the end of such period, was Ps.443.4 million, compared to Ps.393.0 million as of December 31, 2018. Based on the Peso amounts of the loan portfolios reported by the following Argentine private banks in their respective financial statements as of December 31, 2019, the loan portfolio to branches ratio of (i) Banco Macro S.A. was Ps.476.1 million, (ii) Banco de Galicia y Buenos Aires S.A. was Ps.934.5 million and (iii) BBVA Banco Francés S.A. was Ps.740.5 million. The loan portfolio to branches ratio as of December 31, 2018 of (i) Banco Macro S.A. was Ps.379.2 million, (ii) Banco de Galicia y Buenos Aires S.A. was Ps.739.4 million and (iii) BBVA Banco Francés S.A. was Ps.711.1 million.
Building on our banking sector expertise, we identify cross-selling opportunities and offer targeted products to our customers at each point of contact.
As of December 31, 2019 and 2018 on a consolidated basis, we had:
|·||approximately 1.8 million active retail customers (including 1.4 million active retail customers of the Bank and approximately 0.4 million active consumer finance customers of our other subsidiaries), 22,012 small businesses and 4,981 SMEs, middle-market companies and large corporates as of December 31, 2019, compared to approximately 1.8 million active retail customers (including 1.4 million active retail customers of the Bank and approximately 0.4 million active consumer finance customers of our other subsidiaries), 21,905 small businesses and 4,934 SMEs, middle-market companies and large corporates as of December 31, 2018;|
|·||Ps.148.7 billion in total assets as of December 31, 2019, compared to Ps.218.0 billion in total assets as of December 31, 2018;|
|·||Ps.92.2 billion in loans as of December 31, 2019, compared to Ps.123.4 billion in loans as of December 31, 2018;|
|·||Ps.89.0 billion in deposits, including Ps.5.5 billion from the non-financial public sector, Ps.29.1 million from the financial sector and Ps.83.5 billion from the non-financial private sector as of December 31, 2019 compared to Ps.146.0 billion in deposits, including Ps.17.1 billion from the non-financial public sector, Ps.38.8 million from the financial sector and Ps.128.9 billion from the non-financial private sector as of December 31, 2018;|
|·||Ps.23.4 billion in attributable shareholders’ equity as of December 31, 2019 compared to Ps.26.1 billion in attributable shareholders’ equity as of December 31, 2018; and|
|·||5,019 employees as of December 31, 2019, compared to 5,253 employees as of December 31, 2018.|
In our cross-selling segments we had as of December 31, 2019:
|·||Ps.16,809 million (approximately U.S.$281 million) in assets under management through Supervielle Asset Management Sociedad Gerente de FCI S.A.;|
|·||Ps.12,520 million (approximately U.S.$209 million ) in assets under management through InvertirOnline;|
|·||Ps.1,781.2 million in gross written premiums (approximately U.S.$30.2 million) calculated as of December 31, 2019, through Supervielle Seguros S.A. for the year ended December 31, 2019; and|
|·||Ps.630.4 million in net revenue (approximately U.S.$10.5 million), through Espacio Cordial Servicios S.A., our retail non-financial products and services, for the year ended December 31, 2019.|
We have developed a segmentation strategy of our customer base to target the specific needs of each category of customers.
The following charts set forth the breakdown of our loan portfolio by segment, and of the specific customer categories in our corporate banking and retail segments as of December 31, 2019.
|(1)||As of December 31, 2019, the term “small businesses” refers to individuals and businesses with annual sales up to Ps.100 million, the term “SMEs” refers to individuals and businesses with annual sales over Ps.100 million and below Ps.700 million, the term “middle-market companies” refers to companies with annual sales over Ps.700 million and below Ps.2.5 billion and the term “large corporates” refers to companies with annual sales over Ps.2.5 billion.|
The following charts set forth the breakdown of our deposits by type of account and customer category as of December 31, 2019.
Between 2017 and 2019, according to financial information made publicly available by the Central Bank and expressed following the Argentine Banking GAAP -nominal historic Peso amounts (i.e.,not adjusted for inflation)- and not including expected loss provisioning, our loan portfolio grew at a CAGR of 33.6%, as compared to 31.7% for the Argentine private financial system (excluding public banks). Our ROAE was 19.1%, 16.5% and 22.6% for the years ended December 31, 2017, 2018 and 2019, compared to an average ROAE of 25.0%, 33.5% and 53.4% for the Argentine private financial system over the same periods. We achieved net interest margins of 20.1%, 19.4% and 21.6% for the fiscal years ended December 31, 2017, 2018 and 2019, which compares favorably to averages for Argentine private financial system of 13.4%, 15.3% and 21.2% for the years ended December 31, 2017, 2018 and 2019, respectively. As of December 31, 2019, we accounted for 5.0% of all loans and leasing held by Argentine private financial sector (excluding public banks) and 3.2% of all deposits maintained with the Argentine private financial sector.
The Bank has made significant investments in its ATMs, self-service terminals, and cash dispensers with biometric identification network, multiplying by three the network from 2010 to 2019. We were the first bank in Argentina to use biometrics technology as part of our distribution channels. We also have technology scoring systems that allow for an efficient credit-related decision-making process.
Changes in Management
In late 2018, we started to implement changes intended to continue integrating the management of our operations, looking for more agility and flexibility. In February 2019, the CEO of Grupo Supervielle was also appointed CEO of Banco Supervielle, and subsequently, in April 2019, Mr. Alejandro Stengel (already member of our Board of Directors) was appointed as CCO in Banco Supervielle, reporting to the CEO. In addition, certain business areas of Banco Supervielle were redefined, such as the Personal and Business Banking area, Corporate Banking and Products and Communication area, reporting to the COO. Since May 2019, the new area of Personal and Business Banking started to implement a strategic view, focused on individual customers and SMEs, which demand and value close and digital service models. This focus was a transition to January 1, 2020, when the new Personal and Business Banking Division received our SMEs portfolio from the Corporate Banking Division.
The following areas also report to the COO: Technology, Operations and Central Services, Customer Experience and Business Intelligence, and Processes.
The COO also leads the Bank’s digital transformation, ensuring its adequate implementation organization-wide. Digital transformation involves the use of new working methodologies, new technologies and a strong cultural change within the organization. Agile methodologies are implemented in response to current needs, where the willingness to change and the prompt delivery of value are a competitive advantage. Under this methodology, independent and highly efficient work teams are formed with short turnaround times.
We conduct our operations through the following business segments:
|·||Asset Management and Other Services.|
Until December 31, 2019, we offered services to SMEs through our Corporate Banking segment. On January 1, 2020, our Retail Banking segment was named Personal and Business Banking and our SMEs portfolio was transferred to the Personal and Business Banking segment.
Retail Banking: The Bank offers wide range of financial products and services designed to meet the needs of individuals and entrepreneurs and small businesses: personal loans, mortgage loans, unsecured loans, loans with special facilities for project and work capital financing, leasing, bank guarantee for tenants, salary advances, car loans, domestic and international factoring, international guarantees and letters of credit, payroll payment plan (planes sueldo), credit cards, debit cards, savings accounts, time deposits, checking accounts, and financial services and investments such as mutual funds, insurance and guarantees, and senior citizens benefit payments. As part of the organizational changes, since January 1, 2020, SMEs portfolio has been included under the Personal and Business Banking segment.
Corporate Banking: The Bank, through its Corporate Banking segment, works with middle-market companies and large corporates. The customer service model is formed in turn by three commercial managements: AMBA Corporate Banking Management, Interior Corporate Banking Management and Mutual Guarantee Societies Division. The Bank believes that its proximity to its corporate banking customers gives it a competitive advantage. Until December 31, 2019, SMEs portfolio was included under the Corporate Banking segment.
Treasury: It is primarily responsible for the allocation of the Bank’s liquidity according to the needs of the Retail Banking segment, the Corporate Banking segment and its own needs. The Treasury segment implements the Bank’s financial risk management policies, manages the Bank’s trading desks, distributes treasury products such as debt securities, and develops businesses with wholesale financial and non-financial clients. Below is a description of the services offered under this segment:
Consumer Finance: Through CCF and Tarjeta Automática, Supervielle offers credit card services and loans to the middle and lower-middle-income sectors. Product offerings also include consumer loans, credit cards and insurance products through an exclusive agreement with Walmart Argentina, as well as with other agreements with retailers such as Hiper Tehuelche and through Tarjeta Automática branch network. Moreover, through Espacio Cordial, which is reported in the Consumer Finance segment since 2018, Supervielle offers non-financial products and services. Since the MILA acquisition, the new portfolio of used car loans and its respective results are also recorded under Consumer Finance segment.
Insurance: Through Supervielle Seguros, Grupo Supervielle offers insurance products, primarily personal accidents insurance, protected bag insurance, life insurance and integral insurance policies for entreprenuers and SMEs. In 2018 the company incorporated the marketing of special multiple peril policies focused on the entrepreneurs and SMEs segment. Supervielle Seguros is continuously offering new products to the different customer segments of Grupo Supervielle companies: high net worth individuals (Identité), senior citizens, entrepreneurs and SMEs, customers of the Consumer Financing and Corporate Banking segments.
Asset Management and Other Services: Grupo Supervielle offers a variety of other services to its customers, including mutual fund products through Supervielle Asset Management. Since its acquisition in May 2018, Supervielle also offers products and services through InvertirOnline S.A.U. Also since the MILA acquisition, the MILA portfolio outstanding at the moment of the acquisition and its respective results are recorded under Asset Management and Others segment, while the new portfolio of used car loans and its respective results are recorded under Consumer Finance segment.
For more information on our operating segments, see Note 3 to our consolidated financial statements included in this annual report.
Products and Services
We offer our products and services in Argentina’s main regions and cities through our main operating subsidiaries, which include:
|·||Banco Supervielle S.A,. a universal commercial banking institution;|
|·||Cordial Compañía Financiera S.A., a consumer financing company;|
|·||Tarjeta Automática S.A., consumer financing company and distribution network;|
|·||Supervielle Seguros S.A., an insurance company;|
|·||Supervielle Asset Management Sociedad Gerente de FCI S.A., an asset management company;|
|·||Espacio Cordial de Servicios S.A., a retail company selling non-financial products and services;|
|·||InvertirOnline S.A.U. and InvertirOnline.com Argentina S.A.U., an online broker;|
|·||Micro Lending S.A.U., a company specialized in car financing;|
|·||Supervielle Productores Asesores de Seguros S.A., an insurance brokerage Company; and|
|·||Futuros del Sur S.A. (in the process of being renamed Supervielle Agente de Negociación S.A.U.).|
The following diagram illustrates our organizational structure as of the date of this annual report. Percentages indicate the ownership interest held.
The following information is related to our subsidiaries as of the date of this annual report:
|Banco Supervielle S.A.||Argentina||Supervielle|
|Cordial Compañía Financiera S.A.||Argentina||Walmart
Servicios Financieros Hipertehuelche
|Tarjeta Automática S.A.||Argentina||Carta
|Supervielle Seguros S.A.||Argentina||Supervielle Seguros|
|Supervielle Asset Management S.A. Sociedad Gerente de Fondos Comunes de Inversión S.A.||Argentina||Supervielle Asset Management|
|Espacio Cordial de Servicios S.A.||Argentina||Cordial|
|Sofital S.A.F. e I.I.||Argentina||N/A|
|Micro Lending S.A.U.||Argentina||MILA|
|InvertirOnline.com Argentina S.A.U.||Argentina|
|Supervielle Productores Asesores de Seguros S.A.||Argentina||N/A|
|Futuros del Sur S.A. (in the process of being renamed Supervielle Agente de Negociación S.A.U.)||Argentina||N/A|
|Bolsillo Digital S.A.U.||Argentina|
We have achieved a strong competitive position in our core products (personal loans, factoring, leasing and social security payments to senior citizens), as well as a strong presence in certain geographical regions in Argentina.
We have developed a leading position in the Argentine market in a number of attractive products to different customer segments.
We are leaders in the Argentine market in the following areas:
Individual Customers. We maintain leading positions in attractive retail banking and consumer financing segments, offering a variety of products, from personal loans and credit cards to social security payment services to senior citizens. As of December 31, 2019, we had approximately 1.8 million retail customers, accounting for Ps.59.6 billion (approximately U.S.$995 million) in deposits. As of December 31, 2019, loans to retail customers of the Bank and of CCF represented 7.0% of the Argentine financial private system market for personal loans, which ranked fifth out of 65 private financial institutions in Argentina. Based on information published by ANSES, as of June 30, 2019, the Bank made 13.7% of all monthly social security payments to senior citizens (who collect their payments on a monthly basis). Additionally, we have a leading position as issuer of Mastercard credit cards and the exclusive on-site provider of financial services to Walmart Argentina customers, with a contract extended through August 2020 (and a renewal currently being negotiated).
|·||Corporate Customers. We are also a leading provider of specially tailored financial services and products to the corporate sector, with a particular focus on SMEs and middle-market companies. As of December 31, 2019, we had a 19.9% market share in leasing, ranking second out of 50 private banks in Argentina, according to our estimates based on Central Bank information. As of December 31, 2019, we had a 9.5% market share in factoring in terms of Argentine private banks.|
|·||Capital Markets. We have a leading position in Argentine capital markets, which we have developed as part of our funding strategy. Since our IPO and after the expansion of our capital base, we have reduced securitization of our originated assets, and intend to take advantage of our capital markets capabilities and expertise to serve corporate customers in connection with capital markets transactions. In 2019, however, the macroeconomic conditions were volatile and affected by high inflation, high interest rates, uncertainty and an increased country risk index, which made it difficult for companies to issue debt instruments. However, we continued participating in the debt market in the issuance of certain third party corporate bonds and financial trusts. Additionally, during 2019, the area provided advice to different companies on valuations and mergers and acquisitions.|
Leading position in certain geographical regions in Argentina. being one of the most active players in the Cuyo region and with a leading position in terms of our banking network
Mendoza: We have a leading position in the Province of Mendoza, where as of December 31, 2019 we had 198,000 customers and a market share of loans and deposits among private banks of 21.2% and 7.1%, respectively. In terms of banking network we have 27 branches out of a total of 180 bank branches in the province and 7 collection centers.
San Luis: We have a leading position in the Province of San Luis, where as of December 31, 2019 we had 192,000 customers and a market share of loans and deposits among private banks of 49.6% and 62.8%, respectively. In terms of banking network we have 24 branches out of a total of 50 bank branches in the province and 6 collection centers.
Solid sources of funding
We have traditionally had access to diversified, competitive and stable sources of funding. Our low cost demand deposit base comprises 49% of our funding base as of December 31, 2019 (33% savings accounts, and 16% checking accounts) while our franchise allowed us also to capture interest bearing deposits according to our treasury management liquidity needs.
We occasionally use medium-term debt securities and securitization operations of consumer loans among our funding strategies. Additionally, our consolidated pro forma Tier I ratio was 11.4% as of December 31, 2019 and we have maintained at the holding company level, excess liquidity for future capital injections to our subsidiaries in order to fund our growth strategy.
Creation of value for shareholders through the implementation of prudent financial risk management policies and the primary focus on the intermediation activities.
Along the years, we have generated value and strong growth, while managing financial risks under policies designed to protect our capital and liquidity. In the past, in addition to our organic growth, we have successfully acquired and integrated strategic businesses. We have consistently limited our exposure to the non-financial public sector and limited term, currency and other mismatches in our assets and liabilities. We strategically decide to have high proportion of loans over total assets to derive our net income primarily from financial intermediation activities rather than from trading or financial investments, which has resulted in more stable sources of income and reduced the exposure of our earnings to market volatility. Since mid 2018, following the sudden changes in the macroeconomic conditions, and the consequent decline in credit demand, cash minimum reserve requirements were extraordinarily increased (some of such reserves being allowed to be set up in Central Bank short term securities). Therefore,, we opportunistically increased our holdings in Central Bank short term securities applying our excess liquidity, decreasing our proportion of loans over total assets.
Access to multiple customer segments through differentiated brands and channels positions us to capture future growth in the Argentine financial system.
We target a broad spectrum of socioeconomic segments and companies of varying sizes using a multi-brand model to offer a wide range of financial services. The Bank offers customized financial products and services to corporate clients in SMEs and middle-market companies, as well as to high net worth and middle-income individuals and to middle and lower-middle-income senior citizens. CCF and Tarjeta focus their products and services on the middle and lower-middle-income segments of the urban population. Our multi-brand model allows us to access segments of the population that are underserved and we believe offer growth opportunities once the macroeconomic conditions in Argentina stabilize.
We consistently seek to leverage the strong cross-selling potential of our multi-brand and multi-channel business model and our stable pool of almost two million customers.
Through our multi-brand and multi-channel approach, we are able to cross-sell and create synergies across our segments. Bancassurance specifically allows us to cross-sell value added insurance products in compliance with the regulations of the National Superintendency of Insurance (Superintendencia de Seguros de la Nación) and of the Central Bank, as applicable. We offer an attractive platform for cross-selling certain credit cards and loans through 113 consumer finance points of sale as of December 31, 2019 (compared to 114 consumer finance points of sale as of December 31, 2018). We cross-sell non-financial services and products such as insurance products and plans, tourism packages, health insurance and health services, electric appliances and furniture, and alarm systems through Espacio Cordial and our senior citizens branches.
We believe our investment in developing a strategic national footprint positions us to capture profitable growth and benefit from economies of scale, once credit demand resumes.
Through the Bank, we have a focused presence in Argentina’s major regions and cities. Through our consumer finance business, we have presence in all the provinces of Argentina. Through our current infrastructure, we serve our customers through 316 access points including branches, 13 banking payment and sales and collection centers, 79 consumer finance, branches and access points within Walmart stores, Tarjeta’s 34 consumer finance sales points through other retailers, 5 MILA customer support offices, a network of 393 car dealers and 536 ATMs, 217 self service terminals and 202 cash dispensers with biometric identification, our call center and home banking and mobile services. The Bank has an important presence in the City of Buenos Aires and the Greater Buenos Aires metropolitan area (where approximately 20.3 million or 46% of Argentina’s population resides), through 113 branches and 1 collection center, and CCF has 27 sales points within Walmart locations in the City of Buenos Aires and Greater Buenos Aires. The Bank is also one of the most active players in the Cuyo region, which includes the Province of Mendoza, San Juan and San Luis where it operates through 52 branches, 1 mobile branch and 13 collection centers. The Bank has approximately 198,000 active customers in Mendoza and approximately 192,000 in San Luis. CCF has eight sales points in the Cuyo region. We offer consumer finance services through our Tarjeta distribution platform mainly in the Patagonia region, where we rely on 20 branches and 14 sales and collection centers.
We complement our existing physical network by offering solutions through our different digital channels such as our Online Banking platforms for Business and for Individuals, the Supervielle Mobile and the specific apps and solutions developed for different business segments such as the app for retirees, the Walmart app, and chatbots. We also offer products and services through InvertirOnline.com, our online broker with more than 51,800 active customers located countrywide.
Given the strength of our network in commercially significant and high income regions in Argentina, we believe we are well positioned to benefit from economies of scale by leveraging our existing network and growing our revenues without significant investments in additional expansion of our platform.
Long-standing presence in Argentina’s financial sector, committed controlling shareholder and experienced Board of Directors and management team.
Through our main subsidiary, the Bank, we trace our origins to the banking house Supervielle y Cía. Banqueros, established in 1887. Our long-standing presence in Argentina’s financial sector has allowed us to establish strong long-term relationships with our customer base, build a reputation for personalized customer service and establish the Supervielle brand as a recognized household name in the Argentine banking industry for both individuals and corporations, as well as in the securitization and corporate bond segments of the local capital markets. Our controlling shareholder has a strong commitment to the Argentine financial system. Julio Patricio Supervielle is the Chairman of the Board of Directors and has led Grupo Supervielle for over 18 years. During his tenure, we have experienced growth in terms of net worth, assets, deposits and our network, and we have successfully completed some of our most significant acquisitions. We rely on a Board of Directors whose members collectively have extensive experience in retail and commercial banking, a deep understanding of local business sectors and strong capabilities in risk management, finance, capital markets, M&A and corporate governance. In addition, our senior management team is comprised of seasoned officials and experts in their fields that foster a business culture of high performance.
Our Vision and Strategy
The Argentine market is one of the least penetrated financial systems in Latin America, with a fragmented, competitive landscape. We believe the Argentine market has significant underused financial infrastructure, in the form of checking and savings accounts, but also good mobile and internet penetration levels. This situation presents a number of growth opportunities. We believe we are positioned to capture these growth opportunities given our focus on a differentiated customer experience, product offerings, extensive distribution network and leading technology.
Even though we ran into external headwinds during 2019, we remained focused on executing our strategy to strengthen our brand and improve operating performance. The following items are the key components of our strategy:
1. Digital transformation
2. Enhance value proposition for our target segments
3. Increase customer acquisition and cross selling
4. Streamline operations
5. Develop new products and businesses to expand our franchise
The key components of our strategy are described below:
Transform our company into a modern, leading edge, cost efficient player and position our business to serve consumer’s evolving needs and aspirations
We have made significant progress on digital transformation. Increasingly, customers want and expect to engage with us anytime from anywhere. Our digital strategy is aimed at responding to that demand. We have a three-pronged approach:
|·||Transformation of core businesses (banking, consumer finance and insurance) to enhance customer experience, agility and efficiencies. For example, we recently launched a groundbreaking senior citizens app which addresses their transactional needs and launched a 100% digital onboarding platform for new customer acquisition.|
Development of digital attackers to broaden access to financial services. This includes Invertir Online, our online broker, and a new digital brand to be launched in the coming months which will refocus our strategy in the consumer finance business and allow acquisition of multisegment clients with full digital financial services.
|·||Development of a new system by building traffic from financial services into new platforms enhancing and deepening customer engagement.|
Increase our market presence among attractive customers through an effective segmentation strategy and strengthened value proposition
We continue to strengthen and improve the customer experience. We are working hard to give customers new ways to connect with us. Additionally, we are consistently adding new products and services which increase our value proposition to customers. A few to mention include: insurance products for entrepreneurs and small businesses, online FX purchases within InvertirOnline which has enabled us to almost triple our customer base for this subsidiary, and the refocusing and re-profiling of the car sales platform deautos.com. These are just a few examples of the initiatives that we believe will enable us to grow our customer base as well as drive cross-selling opportunities.
We seek to increase revenues through cross-selling enabled by customer relationship management:
High net worth customers: We successfully launched the Identité brand in 2014 with an attractive value proposition designed to capture and monetize the high net worth customer segment. That value proposition includes a wide range of components like premium credit cards, loyalty programs and exclusive events for customers. To reach high net worth individuals, the bank leverages three key assets: a premium, differentiated brand, a highly trained workforce and an excellent branch network in high income neighborhoods.
Senior citizens: We intend to maintain our leadership position in the senior citizen segment, providing unique services and benefits catered to its specific needs. Leveraging our network of branches we seek to expand our credit card and personal loan business, finance travel packages and consumer goods and services, and distribute insurance products, including life, burial, health, personal accident insurance and home insurance. This segment is adopting technology rapidly, which we anticipate will increase efficiency of service delivery.
Middle and lower-middle-income population: This segment has one of the lowest banking penetration rates in Latin America and represents an important opportunity to attract new customers. CCF’s exclusivity agreements with Walmart Argentina and Hipertehuelche Supermarkets position us to reach this segment with a powerful value proposition, particularly consumer finance loans and credit cards. This customer base also offers opportunities for cross-selling of other banking products. Additionally, we continuously analyze opportunities for new product launches to serve this segment, as well as opportunities to forge new alliances with other retailers.
Entrepreneurs and Small Businesses: We aim at continuing expanding our market share within our customer base of entrepreneurs and small businesses. We intend to leverage our branch network as a primary means of attracting business and focus on building our customized cash management services.
SMEs: Our aim is to become the premier bank for SMEs by deploying outstanding transactional and cash management services. We intend to continue developing strategic partnerships with key industry players to provide financial services through direct lending or factoring transactions to their critical providers and suppliers along their value chains. We intend to target specific opportunities and customers in the agroindustry sector, energy, infrastructure and other specific sectors. With respect to the agri-industrial sector, we strive to deepen our existing relationships with leading industry players, providing financing to their customer base. In San Luis, Mendoza, and Tucumán, where we have a well-established distribution base, we intend to continue targeting clients and value chains related to their main regional economies. With respect to the wine industry, we seek to continue developing partnerships with premium wine producers and key industry suppliers. With respect to the energy and infrastructure sectors, we target SMEs and middle-market companies along the supply chains of oil and gas (exploration and production)and renewable energy projects.
Middle markets and large corporate customers: We intend to offer a full range of products and services, including financial advisory, transactional services, treasury management, short, medium and long term financing to the middle market and large corporate customers that we have historically targeted. We aim to achieve this goal through quick decision-making with respect to our credit evaluation process, personal attention, increasing transactional services (such as check maintenance, payroll management, payments to suppliers and tax payment services) and building upon our cash management products, payroll management and other products that translate into higher balances of immediately available deposits. As we follow a customized approach across the value chain, suppliers and clients of our large corporate customers will be another source of SMEs client origination for the bank.
Leverage our proximity to customers through our extensive distribution network of branches and sales points to provide a superior customer experience
We have a direct presence in Argentina’s major regions and cities. The Bank has a particularly important presence in the Greater Buenos Aires metropolitan area and the Cuyo region, which includes the provinces of Mendoza, San Juan and San Luis. Given the geographical concentration of our network in commercially significant and high-income regions in Argentina, we believe we are well positioned to benefit from economies of scale by growing our revenues without significant investments in additional platform expansion.
We may selectively expand the Bank’s network of branches, emphasizing services for high net worth and upper-middle income individuals, small businesses and SMEs, with a focus on the City of Buenos Aires and the Greater Buenos Aires metropolitan area.
We intend to build upon our leadership position in retail and corporate banking services in the Provinces of Mendoza and San Luis. We plan to continue our partnerships with premium retail stores and shopping outlets to obtain differentiated discounts and benefits for our retail customers, relying on our existing network, which is the largest in the Cuyo region.
We plan to continue to expand our dedicated sales force with a focus on new entrepreneurs, small businesses and payroll services, to drive revenues and cross-selling.
We intend to seek new strategic partnerships in the agribusiness sector to provide financial services to leading national and international players catered to their customer base. We plan to broaden our offering of commodity warrants and livestock leasing, leveraging our strong market leadership in San Luis and Córdoba.
Continue capitalizing on synergies by developing new businesses to increase our share of wallet
Our nearly two million customers provide a base from which to expand our share of wallet and increase customer loyalty. The Bancassurance business allows us to cross-sell historically profitable and low-claims products to our existing customer base. We have access through our distribution networks and aim to further develop our bancassurance distribution model by expanding the variety of insurance products offered by Supervielle Seguros. Espacio Cordial allows us to reach our clients with a wide variety of non-financial products and services, including travel and home appliance financing and health services. Moreover, as mentioned above, we are developing digital attackers to broaden access to financial services. This includes Invertir Online, our online broker, and a new digital brand to be launched in the coming months which will refocus our strategy in the consumer finance business and allow acquisition of multisegment clients with full digital financial services. We are also developing a new system by building traffic from financial services into new platforms enhancing and deepening customer engagement.
Grow our statement of financial position while maintaining our conservative risk management policies
Over the past 15 years we have differentiated ourselves from our competition by systematically securitizing assets, becoming the leader in Argentine capital markets in this segment. Since our IPO and after the expansion of our capital base, we have reduced securitization of our originated assets relative to our total assets, and we grew systematically above industry growth levels until the loan demand slowdown and the sudden macroeconomic backdrop.
Our conservative financial policies based on a diversified deposit base, low portfolio concentration, short term high liquidity and low interest rate, term and currency mismatches have allowed us along the years to build a strong franchise in retail and corporate banking.
Continue to improve our efficiency by focusing on innovation and technology
We will seek to increase commercial productivity by redesigning processes with two goals: (i) making life simpler for our clients and enhancing customer experience and satisfaction, and (ii) extending processes automation to achieve greater efficiency.
Our strong culture of innovation supports our constantly keeping abreast of customer needs and global trends, creating and efficiently implementing solutions focused on local customer preferences.
We intend to expand our digital channels. Our goal is to offer an outstanding digital experience to our clients. We intend to continue increasing the number of active online users and migrating our services to digital channels, which we expect will allow us to increase low-cost distribution and convert service centers into full bank branches. We also intend to continue launching mobile banking applications, which will enable “one click” payment and “one click” loan functionalities, with anytime and everywhere financial services and provide alerts and messages to customers in order to achieve cost efficiencies through low-cost social network advertising. We have significantly improved the digital experience of our factoring product line, cash management and payroll services.
We expect the future of financial services to be marked by a transformation towards a digital business model. The challenge for organizations is to optimize the technological innovation of traditional banking to attract new consumers of financial services, with the aim of creating the bank of tomorrow, today.
As a further step towards the acceleration of Supervielle’s digital transformation, during 2018 we hired a top management consulting firm to boost our approach. The core idea relies on simple and modular propositions for selected customer episodes. Those value propositions will seek to design in the following years an agile operating model and methodology (“Agile”) for each relevant customer profile as a way of working for customer-centric change based on digital adaptable and radically lower cost IT and Operations environment. As a counterpart, our funding, growth and efficiency targets will be benefited. Therefore, during 2019, the Agile methodology began to be implemented as a work tool, which generated significant benefits in the business development, leading to better results. Interaction and communication gave members a comprehensive view of the needs and restrictions so as to establish clear targets, design the best actions and favor the speed of implementation of required changes. The service model continued changing, striking a balance between maximum contact efficiency (through autonomous management channels and personalized services) and service levels required by each customer profile and each strategic segment of Banco Supervielle. Agile teams developed projects for our different segments and products.
Segment Reporting during 2019
The following table sets forth the breakdown of our net revenue and net income by segment for the periods indicated.
|As of December 31, 2019|
|(in thousands of Pesos)|
|Asset Management and Other Services||872,600||2.5%||(101,689||)||(4.2%||)|
|Total Allocated to Segments||34,289,044||100.00%||(2,428,369||)||100.00%|
|(1)||Includes financial expenses incurred by Grupo Supervielle at the holding level in connection with its funding arrangements the net interest income received from the investment of liquidity at the holding company, as well as transactions between segments.|
The following table sets forth the breakdown of our assets by segment as of December 31, 2019.
|As of December 31, 2019|
|(in thousands of Pesos)|
|Cash and due from banks||7,691,602||1,022,915||16,870,526||321,145||3,385||2,420,972||(1,927,446||)||26,403,099|
|Debt Securities at fair value through profit or loss||—||—||312,306||92,762||—||163,433||—||568,501|
|Loans and other financings||36,757,453||43,426,550||3,720,408||5,036,973||453,978||30,746||(1,416,097||)||88,010,011|
|(1)||Includes elimination of inter-segment loans and assets not directly allocated to a single segment, such as unlisted equity investments, miscellaneous receivables, premises and equipment, miscellaneous assets and intangible assets.|
The following table sets forth the breakdown of our active customers in 2019 and 2018.
|As of December 31,|
Retail Banking segment. The Bank’s Retail Banking segment offers a wide range of financial products and services designed to meet the needs of individuals and entrepreneurs and small businesses: personal loans, mortgage loans, unsecured loans, loans with special facilities for project and work capital financing, leasing, bank guarantee for tenants, salary advances, pledge loans, domestic and international factoring, international guarantees and letters of credit, payroll payment plan (planes sueldo), credit cards, debit cards, savings accounts, time deposits, checking accounts, and financial services and investments such as mutual funds, insurance and guarantees, and senior citizens benefit payments. Until December 31, 2019, we offered services to SMEs through our Corporate Banking segment. On January 1, 2020 our SMEs portfolio was effectively transferred to the Retail Banking segment, which has been renamed as our Personal and Business Banking segment.
To promote digital transformation, focus was placed on development and strengthening of autonomous management channels, with special emphasis on digital contact channels. Face to face automatic platforms continued expanding, supported by biometric assistance, marking the beginning of a radical change in the daily operations of customers. Digital platforms were strongly boosted thanks to developments focused on increasing their capabilities, both in assistance and in credit supply and product marketing, seeking a greater agility in operations and an improvement in the customer’s perception in respect of the Bank.
With the aim of accelerating digital transformation, during 2019, we started implementing the Agile methodology as a work tool, which generated significant benefits in the business development, leading to better results. Interaction and communication gave members a comprehensive view of the needs and restrictions so as to establish clear targets, design the best actions and favor the speed of implementation of required changes.
The service model continued changing, striking a balance between maximum contact efficiency (through autonomous management channels and personalized services) and service levels required by each customer profile and each strategic segment of Banco Supervielle.
Based on the assessment of their distinctive features, their needs and specific requirements, the Bank’s customers are grouped in four strategic groups which are further described below: (i) SMEs customers, composed of natural persons engaged in commercial activities, small one-person ventures and small and medium sized companies with a billing lower than Ps.700 million per year, (ii) Identité customers, which gathers natural personas belonging to serial ACB1 segments, (iii) personal customers, which includes individual customers with no commercial activities (not included in the Identité segment), and (iv) senior citizens customers, which includes senior citizens who are paid their pension benefits through the Bank.
|·||Personal customers. Agile teams developed projects focused on the generation of open market and wage salary payment plan customers. In addition, work was done on the readjustment of processes for customers of the segment to have a better experience in their relationship with the Bank and more focused on the agility of digital operations. Moreover, campaigns were launched to encourage digitalization, and value propositions and benefits were communicated digitally to customers for the development of self-management channels, through the placement of products transactions and other customer transactions.|
|·||Identité customers (High Net Worth Customers). We offer our high net worth customers exclusive services such as priority access to our branches with minimal waiting time, concierge services, exclusive back offices for conducting banking activities, dedicated customer service representatives at the call center, a remote investment center and dedicated locations at our branches.|
In 2019, this segment established three strategic pillars for business development: funding, customer base growth and profitability.
As part of the profitability strategy, tools were used to strengthem the idea that we are the first-choice bank in new customers, so that they are offered benefits and bonuses taking into account the use they make of bank products, such as transactional accounts or fixed term deposits.
As regards the service model of the segment, focus was on digitalization, increasing its penetration by 3% and exceeding 75% of the high net worth customer base. In addition, work was done on automatization within the first 60 days with a view to leading customers to use digital channels and achieve an early activation of their products.
|·||SMEs customers. The Bank considers small businesses to be fundamental drivers for strengthening productivity in the Argentine economy. For this reason, the Bank redefined its approach to the small business segment in order to develop the necessary tools and services to help small businesses grow and to respond to their needs with convenient and simple solutions. Until December 31, 2019, we served SMEs through our Corporate Banking segment. Since January 1, 2020 this portfolio was transferred to the Personal and Business Banking segment.|
|o||Specific Subsegments. Customized Value Proposition. The proposals launched between 2017 (Franchise and Transportation) and 2018 (Health) consolidated in 2019 as Franchises, Transportation and Health subsegments. The number of customers increased by 49.9% in Franchises, 38.2% in Transportation and 28.8% in Health, as compared to December 2018. During 2020, Supervielle intends to continue launching to the market special proposals for different sectors/industries which gather over 50% of the SMEs in the country.|
|o||Franchises. The Bank has introduced innovative loan models including franchise system options to support the growth of entrepreneurship in Argentina through a professional system. The Bank finances up to 40% of the initial investment (capped at Ps.800,000 for new franchisees), offering preferential rates and a five month grace period on principal payments. Through the agreement with mutual guarantees companies, maximum financing caps may be increased according to each brand’s performance.|
|o||Transportation. The Bank has developed products for the cargo transportation segment activities and the value chain that enhances the growth of entrepreneurs and SMEs in general. For example, one of the attributes deemed key for a value proposition for this segment is the prompt response for the approval of loans for expansion of their truck fleet. The Bank has implemented single-day approvals of preferential rate financing for secured loans and leasing for the purchase of trucks and/or semitrailers. This allows SMEs to face new business opportunities and plan their activities more accurately. Despite the economic conditions and the increase in interest rates during 2019, the pace of origination of new customers was 36%, which implies growth above the average growth in the SMEs segment in 2019.|
|o||Health. In November 2019, a new value proposition was presented, intended to cater for the needs of health and diagnostic centers, outpatient doctors’ offices, laboratories and pharmaceutical companies and wholesalers. Focus groups were held with sector companies and customers. This value proposition is characterized by promptness in loan granting and agreements with vendors. As regards to credit, requests for amounts lower than Ps.10 million were answered within 24 hours and requests for amounts above Ps.10 million were answered within 72 hours. The subsegment consolidated in 2019 achieving a growth pace exceeding that of the sector prior to the creation of the value proposition.|
|·||Senior Citizens customers. Since 1996, the Bank has acted as one of the paying agents of social security payments to senior citizens on behalf of the government pursuant to an agreement with ANSES. The Bank facilitates ANSES payments to close to 950 thousand beneficiaries per month, including senior citizens and pensioners, and we believe it is the private bank with the largest presence in this segment.The Bank’s agreement with ANSES provides that it will continue in effect as long as the parties continue performing their obligations for a six-year term. ANSES has the right to terminate the agreement with 90 days prior notice.|
In 2019, the Bank continued offering products and services addressing the needs of senior citizens, while further improving its value proposition and service model. Based on the knowledge of the customers’ life cycle and their distinctive characteristics, we promoted the redesign of the commercial management model with focus on the penetration in high net worth customers and the implementation of specific policies to obtain the greatest risk/benefit ratio in low income segments.
The service model continued moving forward through Caja Rápida (Cash dispenser with biometric identification) in its Service Centers, reaching a 100% coverage of the network and focusing on communication of this system to and adoption by senior citizens, with clear benefits in terms of waiting times and agility.
In line with the efforts to improve our service level, a new queue management system was implemented. This system allows a better experience, management and control of transactions and of the customer segment.
The innovation milestone for the segment was the launching of “Supervielle Jubilados", an app offering our customers a new proof of life method required to receive their monthly payment, adapted to new technologies. The platform includes facial recognition which identifies the customer and certifies that they are alive through a photograph. The idea is to make it easier for senior citizens who are Bank customers to provide their proof of life on a monthly basis, without the need to go to the bank and to do so any time anywhere. This is an advantage too for those customers’ agents or relatives as they may download such app in their cell phones.
Digital Banking – Business: In 2019, the Digital Banking - Business sector continued focusing on improving existing capabilities and developing and incorporating new capabilities within the new digital asset, Online Banking Business, and also within the Mobile Banking - Business module.
The creation of a new cheque app which is simple and quick and is intended to radically improve the digital experience and to align the user experience to the remaining digital assets of the Group is worthy of mention. In addition, the new technology used for its creation enables scalability and improves efficiency by creating new capabilities.
During 2019, these milestones allowed the net promoter score (“NPS”) of digital channels of companies to go from 12.9 to 29.2, a significant 16.3 point growth.
All business digital assets incorporated tools which allow the online transaction monitoring and the verification of the adequate functioning of tools in real time.
Digital Banking – Individuals: The Digital Banking – Individuals sector continued working strongly on digital adoption focused on the evolution of platforms in terms of utility, particularly in the generation and improvement of capabilities both in the Online Banking platform and in Supervielle Mobile; and in the access of customers to digital operations, promoting specific actions and implementing highly attractive campaigns.
E-channels: In 2019 the self-management model continued being enhanced with deployment and strengthening of the Caja Rápida channel (cash dispenser with biometric identification), with at least two terminals per branch dedicated to payment of pensions. Likewise, improvements were made to increasing usability, adoption and speed in customers’ operations
Customers’ attention centers: The Contact Center manages queries and complaints by and sales to customers by phone, e-mail and social media. Work continued on the improvement of the automatic banking sector so as to make customer online time and experience more agile, to improve answer quality and to increase sales. The Investment Center that operates since September 2017 within the telephone banking management is formed by a team of experts on capital markets who provide advice on and manage the transactions of customers in all Bank segments. In line with the Bank’s strategy, the area favors the unification of management platforms, achieving agility, a larger number of products and better investment alternatives, securing a greater penetration in terms of managed funds and an increase in high net worth customer generation.
Total deposits from the Retail Banking segment (now, Personal and Banking segment) as of December 31, 2019 amounted to Ps.59.6 billion (approximately U.S.$994.6 million). Retail branch deposits in Pesos and senior citizens deposits continued to represent a high portion of total deposits. In 2019, retail branch deposits in Pesos plus senior citizen deposits represented 55% of total deposits.
The Bank, through its corporate banking segment, works with middle-market companies and large corporates with annual billing exceeding Ps. 700 million in 2019. Until December 31, 2019, SMEs customers were included under the Corporate Banking segment. The customer service model is formed in turn by three commercial managements:
|(1)||AMBA Corporate Banking which deals with companies operating in the city of Buenos Aires, Greater Buenos Aires, Rosario and Mar del Plata.|
|(2)||Provinces Corporate Banking which deals with the commercial relations in the Provinces of Mendoza, Córdoba, Tucumán, San Juan and Neuquén.|
|(3)||Mutual Guarantee Companies “MGC” Division which operates at the headquarters in the City of Buenos Aires.|
The Bank believes that its proximity to its corporate banking customers gives it a competitive advantage.
As of December 31, 2019, the corporate banking segment had Ps.36.8 billion of outstanding loans and other financings, and contributed almost 40% of our net operating revenues before adjustments.
The customer service model is based on regionalization. Services to large companies in the city of Buenos Aires and its vicinities are provided through regional branches located in the most densely populated industrial and commercial areas. Communication, assistance, negotiation and operational management are centralized in banking nodes.
In 2019, the synergy strengthened among the teams of the different areas, focusing on improvement of existing processes and the acquisition of new technologies intended to significantly improve customer service quality.
The main guidelines on which the management focused were:
|·||Development of comprehensive proposals seeking to become the first-choice bank in terms of reciprocity and cross-selling|
|·||Protection of business profitability improving effectiveness, productivity and efficiency of commercial and operational areas|
|·||Generation of work sessions with other areas seeking to improve existing processes, increasing synergies and strengthening results|
Wines Division. During 2019, the Wine Division continues consolidating its position as a leader in the wine industry, remaining the only Argentine bank among the top 20 to have an expert team to deal with the sector.
The Bank’s target market consists of wine estates with high added value products, that focus mainly on the export market. However, Banco Supervielle continued supporting all industry players in the entire value chain of wine production, from leading grape producers to major wine estates as well as suppliers of wine manufacturing and bottling supplies.
This broad based strategy also allows us to develop our Retail Banking products with these customers
Sociedad de Garantía Recíproca (Mutual Guarantee Agents or “SGRs”, per its Spanish acronym). In 2019, the Bank maintained a sector leadership, operating with approximately 78% of the SGRs authorized in the country (33 out of 47 authorized SGRs and Guarantee Funds). The Bank is recognized as the bank of the SGRs by the Cámara Argentina de Sociedades y Fondos de Garantías and the Ministry of Production/Sepyme, the authority that supervises SGRs.
The Bank also remained a leader in terms of development and innovation for being the first private Bank to offer a Business Credit Card with guaranteed purchase limit backed by a MGC and for operating with cheque discounts in the Securities Market directly and through Invertir Online, a subsidiary of Grupo Supervielle.
Also during 2019, by decision of the Ministry of Production, the Bank renewed the agreement entered into for receipt of guarantees issued by the Fondo de Garantía Argentina, being the first private bank in the country to develop these operations basically oriented to loans for SMEs.
Together with some MGCs, financing facilities were developed for SMEs, members of the value chain, entrepreneurs and franchises.
Oil & Gas Project
The Bank considers that the oil and gas sector has a high growth potential. Therefore, in 2018, the Bank decided to lay the bases for the development of a project in this sector. Subsequently, in April 2018, a new branch was opened in the city of Neuquén in addition to the existing customer service model. This allows for a close contact with the value chain of large operators and an improved competitiveness through the incorporation of new wage payment plans of individuals with high purchasing power residing in the area.
During 2019 the Bank’s Oil & Gas Division organized strategic events with sector companies seeking to position the brand.
In addition, several financing agreements were entered into with operators’ suppliers, such as YPF, whereby the Bank could develop a commercial relationship with SMEs that are suppliers of the oil industry.
However, 2019 has been a complex year for the sector due to macroeconomic conditions: it was hard for sector companies to access markets to obtain financing for their projects in an industry highly dependent on intensive capital investments.
As long as the sector activity stabilizes, the Bank expects to strengthen the actions on value chains of large operators, taking advantage of the experience gained with the new customers obtained due to the focus placed during 2018 and 2019.
Products and Communication
The Products and Communication department is formed by five teams focused on products and by the Marketing and Communications team.
All of them are based in the City of Buenos Aires and provide cross-functional services to all of the Bank’s commercial channels and make available their products to all customers, whether they are individuals or legal entities.
Teams focused on products include the Assets Management, Liabilities and Insurance, International Commerce (Comercio Exterior, or “Comex”), Leasing and Transactional Banking areas.
The Assets Management area offers personal, corporate, secured and unsecured loans, checking account agreements, factoring and/or guarantees issued, among other products, at fixed, variable or UVA adjusted rate.
The Liabilities and Insurance area is responsible for products such as fixed time deposits, accounts, safe deposit boxes and insurances and other marketed in the commercial network.
The Comex area not only manages customer financing through export prefinancing, import financing and international collections and payments which include import letters of credit (“ILC”), export letters of credit (“ELC”), international factoring, collections and transfers, but is also responsible, together with the Finance area, for the negotiation of commercial and financial facilities with correspondent banks.
The Leasing area structures and markets Leasing, Sale & Lease Back products, pledge loans to companies denominated in U.S. dollars, Pesos and at fixed or variable rate, on property in general, mainly oriented to transportation (trucks, cars, etc.) as well as industrial equipment and hardware in general.
Transactional Banking team deals with collection and payment services to human and legal persons, cash management, e-cheques, among others.
The Comex, Leasing and Transactional Banking areas have highly skilled officers providing advice and generating new businesses with Finance, Corporate Banking and Individuals and Business customers.
In addition, the Transactional Banking area comprises the Plan Sueldo area and its sales force, as well as the Means of Payment Management, mainly through the Debit and Credit Card products oriented to individuals or companies.
The following sets forth additional information on the main products and services offered by the different banking segments:
|·||Loans. The bank offers offers personal, corporate, secured and unsecured loans, overdraft, factoring and/or guarantees issued, among other products, at fixed, variable or UVA adjusted rate .|
The Bank decided to provide dynamic personal loans supported by efficient processes and an agile management which have allowed improvements in the delivery times of credit ratings to enhance the tools and sales channels and expand placement, in addition to the launching of new financing facilities and the developments carried out to increase supply through digital platforms, which led to a better user experience and a more assertive segmentation of our customers.
Regarding commercial loans-, special facilities were developed to suit the needs of the different corporate segments together with sales in digital and face-to-face channels, enhancing the placement of factoring, checking account and loan agreements.
The Bank participates in the check discounting market by offering three categories of products: (i) with recourse, where the customer who discounts the check with the Bank assumes the insolvency risk, (ii) first loss, where the customer assumes part of the insolvency risk, and (iii) non-recourse, where the Bank assumes all insolvency risk. The share of the factoring market of Argentine financial system as of December 31, 2019 was approximately 9.5%, according to the most recent publicly available information published by the Central Bank.
During 2019 a communication and management strategy was designed to align the Bank with the highest standards in order to obtain a greater market share in the different regions where it does business, which resulted in the Bank’s participation in different credit and financing programs as well as in supply of subsidized credit facilities for development and investment. To such end, the Bank participated in development programs and entered into agreements with financial institutions intended to foster production activities.
With the aim of generating a better customer experience, the Bank fully reviewed the management process of credit products. As a result, it launched an agile cell focused on factoring, to analyze current processes, detect points of improvement in internal and external processes and obtain significant benefits both for the Bank and for the customers.
As regards customers, a more fluid communication was achieved with the real time viewing of the status, agility in credit product management and a significant reduction in times from the first contact to loan disbursement.
These improvements had a positive impact on the performance of financial loans during the year but could not avoid the effect of the fall in the demand of loans derived from recession and high real interest rates in Argentina in 2019.
|·||Means of Payment: During 2019, we continued working on the transition from magnetic band debit cards to chip technology, which we had started in 2018, ensuring a better operation and the reduction of skimming fraud. The Bank thus managed to improve its position in the industry regarding the implementation of this technology in debit cards.|
As of December 31, 2019, the Bank maintained approximately 740,000 Visa and MasterCard accounts.
In connection with the digital transformation proposal, focus was maintained on the use of contactless technology for all debit cards of the Individuals and Identité segments and in the credit cards for Mastercard International and Gold products and for all Visa products, such as International and Signature. The main goal is to offer an innovative product to make payments in a quick, comfortable and safe way, enhancing customer experience. In addition, migration continued from physical to digital credit card account statements, through email delivery. In the same line, Telephone Banking was created as a new channel for password resetting, in addition to Online Banking and Supervielle Mobile.
In 2019, a smart platform was implemented, through a multi-collection project, for collection of fees intended to improve the collection percentage of product packages in all of the Bank’s segments
|·||Leasing. The Bank’s leasing area meets the leasing needs of all commercial banking areas of the Bank, through lease agreements of machinery, equipment and truck manufacturers and dealers, in a variety of industries and segments. While leasing remains a very attractive instrument for companies to finance investments related to business growth and operating efficiency, the rise in interest rates and the contraction of the economy in 2018 and 2019 caused a significant fall in the volume of contracts executed. As of December 31, 2019, we had a 19.9 % market share in leasing in terms of private banks in Argentina.|
|·||Foreign Trade. The Bank is an active participant in foreign trade financing and offers personalized advice regarding technical, commercial and regulatory matters related to foreign trade. The Bank has a trained staff that allows it to advise customers on foreign trade, foreign exchange transactions, international transfers, credit assistance in connection with products offered, and operating issues.|
During the first three quarters of 2019 simplification of exchange transactions related to foreign trade continued, following the trend of the last two years. However, due to the market uncertainty following the PASO elections, the Executive passed Decree 609/2019 authorizing the Central Bank to issue new temporary and urgent exchange provisions to further regulate the exchange scheme and thus strengthen the normal operation of economy, contribute to a prudent administration of the exchange market, reduce volatility of financial variables and soften the impact of financial flow fluctuation on the real economy.
The set of exchange regulations then issued by the Central Bank restored documentary control and verification of terms for import payments and export collections, limited the purchase of foreign exchange for natural and legal persons as well as exchange transactions among related companies.
In March 2019, the Bank was once again invited by Banco de Inversión y Comercio Exterior to participate with a US$12 MM facility in the Argentina Exporta program, a project designed by the Ministry of Production and Labor together with FONDEAR, which allowed for the reduction of interest rates in the granting of export prefinancing facilities to SMEs customers for up to US$200 thousand per customer, at a maximum annual nominal rate of 4.5% and for a maximum term of 180 days.
As regards foreign exchange settlements and transaction processing, the Bank grew by 10.4% in terms of number of processed transactions and 27% in terms of settled volumes during 2019.
By mid-August 2019 the digital offer to legal persons for purchase and sale of U.S. dollars through the Bank’s digital platform was completed.
In addition, and in line with the objective of improving the customer comprehensive experience, the Bank was GPI certified. GPI (Global Payment Innovation) is an initiative developed by SWIFT which is an absolute innovation in the international collections and payments system at global level. Thus, the Bank become the first Argentine bank to be Application Programming Interface (APIS) certified and the fourth in the market to implement GPI. Payments are now forwarded immediately within the business banking hours of the receiving entity. On the other hand, thanks to its new system, users may track their transactions until they are received by the final beneficiary.
The Bank remains the only bank in the Argentine financial system to operate in the International Factoring market, through FCI (formerly called Factor Chain International).
|·||Plan Sueldo: During 2019 the Bank implemented a deep restructuring of product operation, aimed at attaining high efficiency standards both in onboarding and in the customer cross selling and subsequent profitability.|
In line with digital transformation, new agile services were developed to support the admission processes of new agreements. Thus, agreement admissions were generated, with mass generation of online banking Business accounts, and packages and new bonus rules were offered, which were a significant incentive for customer early profitability.
In such regard, a specific application was developed for mass onboarding reaching a milestone in online payroll processing.
In addition to the actions based on the adopted digital path, new and better generation proposals were developed for target companies. With the use of opportunity maps, a greater efficiency was obtained in contact with companies, incorporating new tools for generation of quality agreements and lead generation and customer retention campaigns were launched.
All the actions taken inured in a greater efficiency in contact customer and lead generation and in a greater efficiency in customer relations and credit offer.
|·||Cash Management and Transaction Services. The Bank offers a range of products and services designed to assist in the corporate administration process, including payments to suppliers, electronic banking, payments and collections, cash management and armored transportation. Supplier payment services ensure timely payment, optimize the use of customers’ funds and simplify our customers’ administrative tasks. The various payment options are designed to meet each company’s needs and include short-term advances based on deferred payment checks, with their respective statements and tax payment receipts, as well as transfers and payments against revolving credit facilities. Additionally, the Bank offers a convenient integrated check issuance, delivery and discounting service. Under various collection agreements entered into with service providers and public sector agencies, the Bank offers a comprehensive invoice and tax collection service using tellers, as well as a range of electronic payment options. Moreover, in the event that a company is paid for its products or services by credit card or voucher, the Bank serves as a payor bank for the major brands in the market, which enables credit card or voucher payments to be credited to the company’s account with us.|
As members of the Red Interbanking (a network comprised of Argentina’s major financial institutions), the Bank offers an electronic communications system which enables our customers to optimize their banking transactions. The Bank’s corporate customers can connect to the service from their personal computers at any time and review their accounts at any member bank, send us messages, transfer funds, make electronic wage payments, supplier payments and tax payments, and display market data. The Bank offers different electronic products for each segment of its corporate clientele, for example, Datanet Plus, Datanet Manager and InterPYME. Datanet Plus and Manager target SMEs, middle-market companies and large corporates and InterPYME is a product designed for small businesses. The Bank processes online transfers, allowing debit and credit transactions to be settled automatically and to be reflected in the relevant accounts in real time.
The Bank offers corporate electronic home banking services, which allows customers to access their bank accounts and information regarding our primary products and services online without having to leave their offices. People and businesses can access their account balance information and monitor account activity, factoring transactions, payments, deferred checks in custody and the status of checks written through the supplier payments service. Customers can also check the status of payments to leasing and foreign trade transactions, request checkbooks, carry out account transfers, pay paychecks, suppliers and corporate credit card bills, access electronic payment services for foreign trade services and discount checks remotely through the e-Factoring service with the electronic platform.
During 2019, the Bank focused on the strengthening of supply, especially on strategic products, collections, direct payment, payments to suppliers, remote cheque scanners and e-cheque. The primary objective was to provide agile and simple solutions to customer treasury management, seeking to generate high value positive experiences. To such end, the Bank focused on the increase of collection and payment capabilities and on the training and communication to increase the service level in internal operations.
|·||Packages of banking services. As of December 31, 2019, the Bank maintained almost 3.2 million savings accounts and more than 140,000 checking accounts. In 2019, the Bank serviced more than 860,000 product bundles for senior citizens, more than 420,000 Plan Sueldo accounts and more than 72,000 product bundles for high net worth customers.|
The Treasury segment is primarily responsible for the allocation of the Bank’s liquidity according to the needs of the Personal and Business Banking segment, the Corporate banking segment and its own needs. The Treasury segment implements the Bank’s financial risk management policies, manages the Bank’s trading desks, distributes treasury products such as debt securities, and develops businesses with wholesale financial and non-financial clients. Below is a description of the services offered under this segment:
Trading Desk and Institutional Sales
The Bank’s trading desks trade financial assets on a proprietary and third-party basis, sell financial products, and implement the Asset and Liability Management Committee (“ALCO”) decisions, within the board’s policies, regarding the Bank’s liquidity and financial risk management policies. The Bank’s trading operations include money market instruments, which include institutional investor deposits, public debt instruments, Central Bank debt notes, foreign exchange, stocks, futures, swaps and repos. Trades develop within the limits of a comprehensive risk map which sets limits on counterparty risk and on long and short positions for each asset class, depending on volatility, traders’ seniority level, and other factors. The risk map also determines stop-loss policies. Banco Supervielle managed to grow in volume in all products operated, including foreign currency, public and private securities, stocks and derivatives. The Bank managed to position itself as one of the benchmarks of the market among institutional investors in all types of operations.
During 2019, commercial relationships were maintained with foreign banks both as to financing of foreign trade transactions and to guarantees and letters of credit.
A syndicated loan was entered into in August 2019 and subsequently disbursed in September 2019 through the FMO, the Dutch Development Bank, and Proparco, a subsidiary of the French Development Agency, for US$80 million, with a 3-year term, intended to strengthen the Bank’s support to SMEs.
Capital Markets and Structuring
The Bank’s Capital Markets and Structuring department objective is to originate and structure financing products for the Argentine corporate capital markets. The idea is to provide financial advice services which allow both its customers and Grupo Supervielle and its subsidiaries to optimize their financial resources and capital structure in order to maximize the profitability of their operations.
The sector is mainly focused on the structuring of financial trusts and syndicated credit facilities, in the organization and placement of negotiable obligations and in equity capital markets transactions and mergers and acquisitions, with a view to providing a comprehensive advice on each product, generating long term relationships with customers and investors.
In 2019, the economic conditions were volatile and characterized by high inflation, high interest rates, uncertainty and an increased country risk index which made it difficult for companies to issue financial instruments. However, the Bank continued participating in the debt market, specifically providing services to YPF Energía Eléctrica S.A. in the reopening of Class I negotiable obligations for US$25 million, YPF S.A. in the issuance of Class II, III and IV negotiable obligations for Ps.1,683 million, Ps.1,157 million and US$19 million, respectively, and the Bank itself in the issuance of its Class F negotiable obligations for Ps.3,000 million. As regards the financial trust market, the Bank acted as arranger and dealer of the trusts Unicred Cheques Series 6 and 7 and CCF Créditos Series 20, 21 and 22. Additionally, during 2019, the Capital Markets and Structuring area provided advice to different companies on valuations and mergers and acquisitions.
Public Sector and Intermediaries
The Bank has maintained a presence in the Province of San Luis for more than 20 years. In 1996 the Bank acquired Banco de San Luis and was appointed as exclusive paying agent for the government of the Province of San Luis to provide financial agency and tax collection services to the Province and serve as payor bank for provincial government employees. This financial agent contract was renewed twice and was due to expire on 2021.
On January 17, 2017, the Province of San Luis notified the Bank of its decision to terminate, effective as of February 28, 2017, the financial agency agreement. Since February 2017, the Bank has continued to provide financial services to the Provincial government of the Province of San Luis and its employees despite the termination of the financial agency agreement.
On June 7, 2018, the Province ratified an agreement signed with the Bank for a term of 12 months formalizing its role as exclusive paying agent which the Bank has continued to provide since the termination of the financial agency agreement with the Province in February 2017.
In January 2019, the government of the Province of San Luis released the terms and conditions of the auction to be held by the Province for the new financial agency agreement. Only two proposals were presented on March 15, 2019. On December 6, 2019, the provincial government issued the Decree No. 8,589 that resolved to close the auction process without awarding the financial agency agreement. The Bank is continuing to render services as financial agent until the Province of San Luis names a new financial agent.
Also, on May 23, 2018, the Municipality of the city of San Luis appointed the Bank as financial agent for a term of 2 years with automatic renewal for 2 additional years, commencing with the first payroll payment on June 29, 2018. With the appointment by the City of San Luis, the Bank became financial agent for all the municipalities in the Province.
As of the date of this annual report, the Bank continues to provide financial services to the government of the Province of San Luis and its employees.
The Bank has a private sector business franchise in the Province of San Luis as well and provides full banking services to individual consumers and SMEs and middle-market companies. Further, the Bank provides its corporate customers in the Province of San Luis with a wide range of financial services and has a primary focus on infrastructure and construction projects.
As of December 31, 2019, the Bank’s exposure in the Province of San Luis was as follows:
|As of December 31, 2019|
|(in thousands of Pesos, except for ratios and operating data)|
|Banco Supervielle Total Loan Portfolio||82,038|
|Payroll loan to the Province of San Luis employees||1,023|
|Payroll loans to the Province of San Luis employees / Banco Supervielle Total Loan Portfolio||1.2%|
|Loans to the provincial government||—|
|Consolidated Total Deposits||89,737|
|Deposits made by the Province of San Luis||1,738|
|Deposits made by the Province of San Luis / Consolidated Total Deposits|
|Related Net Revenue / Banco Supervielle’s Consolidated Net Revenue||2.0%|
|Senior Citizen Service Center||3|
|ATM’s & Self Service Terminals||154|
Of the Bank’s approximately 192,000 active customers in San Luis, it offers payroll services to about 30,000 employees that were covered by the services provided under the financial agency agreement.
In addition to the services rendered in San Luis, the Bank works with the public sector in municipalities in the provinces of Mendoza, San Juan, Cordoba, and Buenos Aires. It also works with some national universities.
The Consumer Financing business of Grupo Supervielle is developed through its subsidiaries CCF and Tarjeta Automática S.A, Mila and Espacio Cordial de Servicios. Mila and Espacio Cordial were annexed to this segment in 2018.
Through CCF and Tarjeta Automática, the Bank offers credit card services and loans to the middle and lower-middle-income sectors. Product offerings also include consumer loans, credit cards and insurance products through an exclusive agreement with Walmart Argentina, as well as with other agreements with retailers such as Hiper Tehuelche and through Tarjeta Automática branch network. Moreover, through Espacio Cordial, Supervielle offers non-financial products and services. Since the MILA acquisition, the new portfolio of used car loans and its respective results are recorded under Consumer Financing Segment.
Consumer Financing business model is based on providing financing solutions to specific target groups, mainly middle and lower-middle income population, with focus on two core pillars:
|(i)||Accessibility: flexible customer centric proposals.|
|(ii)||Diversification: tailored products to meet customers’ needs in every stage of their life with distinct value propositions for each stage.|
The Consumer Financing segment’s loan portfolio totaled approximately Ps.5.0 billion (approximately U.S.$84 million) as of December 31, 2019.
The multichannel concept allows the Bank to be present countrywide through 116 branches of its 3 main marketing channels:
|·||Walmart financial services|
|·||“Tu Crédito Hipertehuelche”|
During the second half of 2018 the Group’s strategy had to adapt to face the adverse scenario resulting from the challenging macroeconomic context and its negative impact on the business. Managers have a robust experience in the financial system which allowed for a strategic business reshaping for 2019 and the quick implementation of the following measures:
|·||New strategic pillars were established: enhance the customer experience through digital transformation, expand the consumer product offer and increase cross selling to drive a greater efficiency and profitability.|
|·||The application assessment process was reengineered and more adjustments were made on credit policies, with a view to limiting the loan offer to segments more exposed to macroeconomic uncertainty.|
|·||Changes were implemented in collection strategies and teams so as to support non-performing customers, implementing statistical tools to set priorities in collection management, through data enrichment processes and improvement of allocation and control tools of collection agencies. These changes led to the stabilization of early NPL indicators and non-performing portfolio.|
|·||Product cross selling increased.|
|·||The structure was tailored to the new situation and expenses were cut.|
|·||Focus was placed on the portfolio quality, reducing exposure.|
While the placement of financial products decelerated during 2019 as a result of the macroeconomic context, the following products continued to be marketed:.
Open Credit Card: it is a financial tool that may be used for purchases in the stores of merchants accepting MasterCard and for cash advances, within the limits determined by the entity, which may be obtained in the Permanent Promotion Booths located in Walmart stores, Hipertehuelche and Tarjeta Automática stores.
Personal Loans: fixed rate cash loans using the french amortization system
Consumer Loans: Credit lines for the purchase of certain products, the transaction is completed upon delivery of the purchased products.
Car Loans: In order to be positioned as the company with the largest financing products offer, CCF reached an agreement with MILA (a subsidiary of Grupo Supervielle specialized in the marketing of car loans) to offer car loans through car dealers using MILA channels. Thus, CCF contributes to Grupo Supervielle’s strategy to become a player in the car financing market. As this new product is backed by a security interest, the impairment of non-performing loans is reduced.
Insurance: a wide array of personal accidents, protected bag, unemployment, total protection and pets insurance policies.
New products under development: borrowing products: CVU, remunerated account, fixed term deposits, among others.
The agreement as exclusive provider of financial services to Walmart’s customers in its stores is in force until August 2020, pursuant to the third consecutive renewal of this agreement executed in December 2014. This is the fourth consecutive period in which this agreement has been in effect, and a renewal is currently being negotiated.
Due to the deterioration of the purchasing power of the consumer segment in 2019, CCF focused on improving and adapting the credit card’s value proposition to the new scheme.
Through Supervielle Seguros, Grupo Supervielle offers insurance products, primarily personal accidents insurance, protected bag insurance, life insurance and integral insurance policies for entrepreneurs and SMEs. In 2019 Supervielle Seguros started marketing new products focused on the marketing of the special multiple peril insurance to the entrepreneurs and SMEs segment. Supervielle Seguros is continuously offering new products to the different customer segments of Grupo Supervielle such as: high net, worth individuals (Identité), senior citizens, entrepreneurs and SMEs, customers of the consumer financing and medium and large companies segments. Additionally, different marketing channels are being developed to reach more customers.
Supervielle Seguros began issuing its policies in October 2014 starting with a few non-credit related insurance products, such as protected bag insurance and personal accident insurance.
By the end of year 2015, Supervielle Seguros began issuing credit-related policies. Supervielle Seguros’s business substantially grew since then, partly because of the growth of the loans and credit card portfolio balances and partly because of the migration of some of the portfolio previously booked in a third party insurance company.
In March 2016, the Central Bank issued a new resolution, effective as of September 1, 2016, which prohibits financial institutions from charging individuals any fee and/or charge associated with credit related insurance policies. This resolution also specifies that financial institutions must purchase life insurance and total and permanent disability insurance for debit balances for their clients. As a result, since September 1, 2016 the Bank and CCF assume these risks by self-insuring and no longer contract new credit related insurances.
During 2019, the company started a digital transformation process, which includes a customer focused end-to-end digital process. In addition, the digital innovation permits the exploration of new businesses, processes and technologies to establish the vision of an insurer of the future, focused on efficiency and customer experience. The transformation comprises the use of new work methodologies, new technologies and a cultural change within the Group.
In 2019, Supervielle Seguros consolidated its offers in the following products:
Protected Bag Insurance. Protected bag insurance is insurance for personal property contained in a bag, backpack, wallet, fanny pack or other bag that is either lost or stolen. Protected bag insurance can cover items such as cellular phones, makeup, planners, lost documents, keys and locks. In addition, protected bag insurance may cover a certain amount of charges from fraudulent credit card use as a result of a lost or stolen bag.
Personal Accident Insurance. Personal accident insurance covers policy holders in the event that they suffer an accident, subject to certain exclusions.
Life Insurance. Supervielle Seguros markets its life insurance products to the Bank’s senior citizen customers and sells its products through its own sales force that works within the Bank’s service center network. The basic life insurance product includes coverage for death, and customers can add varying degrees of coverage for accidents, serious and terminal illnesses and transplants.
Life Insurance and Total and Permanent Disability Insurance for Debit Balances. In the third quarter of 2015, Supervielle Seguros began to offer an insurance product that covers debit balances in the event of death or total and permanent disability. However, as mentioned above, since September 1, 2016, Banco Supervielle and CCF assume these risks by self-insuring and no longer contract new credit related insurances.
Home Insurance. Home insurance coverage includes fire insurance (building and content), theft of content, theft and damage of appliances, glass breakage, civil liability, personal accident coverage for domestic staff and home assistance service in cases of emergencies.
Technology Insurance. Technology insurance covers theft or accidental damage as a result of theft of electronic equipment (includes notebooks, cell phones, tablets, smartphones, cameras and GPSs). In case of theft or accidental damage as a result of theft, the cost of the stolen property or the cost of repair will be compensated up to the maximum insured amount (once the repair invoice is provided).
ATM Insurance. ATM insurance covers robbery at ATMs, death at the time of the assault and reimbursement of the costs of stolen documentation.
Protected Content. Protected content insurance covers theft and accidental damage of the personal effects that are inside a vehicle.
Broken Bones. The broken bones insurance covers death as result of an accident up to the amount of the insured capital. A certain amount will be paid in the event of quadriplegia or paraplegia, according to the respective insurance plan and once such condition has been verified by a medical audit. This insurance also covers the simple breakage of bones produced as an immediate consequence of an accident.
Integral insurance product for entrepreneurs and SME: Integral insurance product for entrepreneurs and SMEs completes the offer of services for our priority segment entrepreneurs and SMEs, with the particularity that is fully processed by Supervielle Seguros.
Supervielle Seguros reported gross written premiums of Ps.404.9 million in the first quarter of 2019, Ps.407.6 million in the second quarter of 2019, Ps.530.0 million in the third quarter of 2019 and Ps.438.7 million in the fourth quarter of 2019.
The following table sets forth the breakdown of Supervielle Seguros’s gross written premiums per quarter as of December 31, 2019.
Gross written premiums by product
(in millions of Pesos)
|Life insurance and total permanent disability insurance for debit balances||0.9||2.8||6.8||6.8||13.1||33.2%||7.0%|
|Personal Accident Insurance||25.8||27.3||27.2||28.6||29.7||94.4%||86.9%|
|Protected Bag Insurance||55.0||62.4||57.7||59.3||61.2||88.1%||90.0%|
Asset Management and Other Services
Grupo Supervielle offers a variety of other services to its customers, including mutual fund products through Supervielle Asset Management. Since May 2018, Supervielle also offers products and services through InvertirOnline S.A.U. Since the MILA acquisition, the new portfolio of used car loans and its respective results are recorded under Consumer Financing segment. MILA portfolio outstanding at the moment of the acquisition and its respective results are recorded under Asset Management and Others segment.
Mutual Funds. SAM offers mutual funds services designed to meet customers’ particular investment objectives and risk profiles through its Premier funds family. As of December 31, 2019, SAM had Ps 16.8 billion of assets under management.
As of December 31, 2019, SAM had approximately 4,590 customers.
The PREMIER family of funds consists of 14 mutual funds: a Money Market Fund (Premier Renta Corto Plazo en Pesos), three Argentina short-term fixed income funds in Pesos (Premier Renta Plus, Premier Renta Fija Ahorro, Premier Capital), five Argentina fixed income and mixed income funds in Pesos (Premier Renta Fija Crecimiento, Premier Commodities, Premier Inversión, Premier Balanceado and Premier Renta Mixta), two Argentina fixed income funds in US dollars (Premier Renta Mixta en Dólares and Premier Performance), a variable income fund (Premier Renta Variable), an investment fund in SME securities (Premier FCI Abierto PyMEs) and a fixed income LatAm fund (Premier Global Dólares).
The money market fund showed an increase of 143%, mainly due to the investments of corporate and institutional customers, representing 79% of the managed funds in December 2019, as compared to 40% in December 2018.
The Argentina Short Term Fixed Income funds in Pesos (t+1) fell by 85%, and its share on the total managed funds fell to 3% in December 2019 as compared to 28% in December 2018. As from August, due to the devaluation and the rise of interest rates, the return became significantly volatile and corporate and individual customers began to redeem their funds. As from the last quarter, funds managed stabilized as a result of the low volatility of interest rates and exchange rates.
The Argentina fixed and mixed income funds in U.S. dollars recorded an 81% fall in terms of Pesos. However, in terms of its currency of origin the funds recorded a 90% fall. The share on the total managed funds fell from 21% in December 2018 to 3% in December 2019. In spite of the fact that during the last quarter of 2019 the downward trend ceased, investments in this segment have not yet recovered.
The Bank places funds through the face-to-face channel of its branch network, through its call center (centro integral de inversiones) and mainly through the home banking online channel.
In June 2013, SAM was ISO 9001 certified for meeting the requirements of the quality management system on “design and development, marketing, management, administration and control of mutual funds.” In October 2018, IRAM’s review audit recertified SAM, updated to the IRAM ISO 9001:2015 standard.
In April 2019 the Premier Global in Dollars was launched to the market, with investments in LatAm fixed income assets. These assets represent 5% of the funds managed by SAM, as per the average balance of December 2019.
InvertirOnline is an online platform that offers brokerage and savings and investment services, with a focus on improving the quality of life of persons, through the increase of their income.
As part of Grupo Supervielle, InvertirOnline can leverage its growth and take advantage of the synergy of the different businesses of Grupo Supervielle.
InvertirOnline’s assets under management amounted to Ps.12.5 billion as of December 31, 2019.
As of December 31, 2019,InvertirOnline had approximately 51,829 active customers located country-wide.
Corporate Social Responsibility
Grupo Supervielle has become an important leader in the Argentine financial system with a high visibility potential in its community actions. Its social engagement has grown on a sustained basis and, at present, Corporate Social Responsibility has a significant place in Grupo Supervielle’s agenda. In 2019 we continued focusing on our social and community activities with 20 programs grouped in 4 main lines of action: Education, Childhood, Senior Citizens, and Institutional Strengthening. In addition, during the year we launched three new environmental programs related to efficient management of energy, plastic reduction and technological scrap recycling.
Grupo Supervielle issues a Sustainability Report on a yearly basis, following the guidelines and standards established by the Global Reporting Initiative (GRI). The report surveys the achievements made and the challenges ahead in its ongoing commitment towards sustainability, describing the performance of the different companies controlled by Grupo Supervielle in the economic, social and environmental areas. In the process of drafting the 2019 report we conducted a new materiality assessment survey with our stakeholders to identify those issues that are relevant to the business.
We have four strategic objectives for all actions taken:
|·||Become an agent of change and creator of sustainable social value.|
|·||Develop an innovative and transforming strategy with measurable and high-impact actions.|
|·||Synergize CSR initiatives with local communities in which the bank has commercial activity.|
|·||Build a cooperative and co-responsible organizational culture, through initiatives in partnership with different NGOs and corporate volunteering.|
The CSR strategic plan is developed through 20 programs grouped in four core axis:
|(i)||Senior Citizens: Programs for senior citizens aim to promote active and healthy aging, social participation and the prevention of dependency.|
|(ii)||Childhood: Programs for children help fight child poverty and malnutrition.|
|(iii)||Education: Education programs promote opportunities through education.|
|(iv)||Institutional Strengthening: Programs designed to contribute to the strengthening of public institutions and the construction of a long-term public agenda.|
In 2019, we carried out 20 programs. Three of our main programs are aimed at senior citizens and reached 7,675 individuals. Four programs target childhood and fighting poverty and malnutrition, seven are related to education and four are part of our institutional strengthening programs. We also supported 24 volunteering actions that 164 volunteers carried out in the City of Buenos Aires and Greater Buenos Aires, Mendoza, Córdoba and San Luis.
This past year we also started working on two projects related to sustainability: one related to the disposal of technological scrap, which includes recycling, and the other focused on the substantial reduction of single-use plastic and correct recycling in our biggest buildings.
Banco Supervielle S.A.
We own 97.10% of the share capital of the Bank and Sofital owns the remaining 2.79%. The Bank is a universal commercial bank and our largest subsidiary. When consolidated with CCF, the Bank accounted for 96.4% of our total assets as of December 31, 2019. The Bank operates in Argentina, and substantially all of its customers, operations and assets are located in Argentina. It offers a wide variety of financial products and services to retail and corporate customers.
According to the Central Bank, as of December 31, 2019, the Bank ranked 10 in terms of deposits, 8 in terms of total loans and 10 in terms of total assets among private banks in Argentina. In 2019, the Bank continued to be a leader among private banks with respect to the payment of federal benefits to senior citizens in terms of the number of payments made. The Bank is also one of the leading providers of (i) factoring services in Argentina with a 9.5% share among private banks as of December 31, 2019 and (ii) leasing services, with a market share estimated to be above 19% as of December 31, 2019.
As of December 31, 2019, the Bank on a consolidated basis had total assets for Ps.142.3 billion, a total loan portfolio of Ps.87.5 billion and total deposits for Ps.91.5 billion, and its shareholders’ equity totaled Ps.18.2 billion.
Cordial Compañía Financiera S.A.
In August 2011, we purchased CCF, a company formerly known as GE Compañía Financiera S.A., a financial services division of General Electric. GE Compañía Financiera had been operating for more than ten years in the Argentine market with financial products such as credit cards, personal loans, consumer loans and a wide range of insurance products.
The Bank owns 95% of CCF’s common shares and Grupo Supervielle owns the remaining 5%. As of December 31, 2019, CCF had total assets of Ps.8.1 billion, net shareholders’ equity of Ps.2.5 billion and a personal loan portfolio, credit card and car loan on balance of Ps.5.9 billion.
Since 2000, through an agreement with Walmart Argentina, CCF has had exclusive rights to promote and sell financial and credit products to Walmart Argentina customers nationwide, including Changomas stores. The Walmart Argentina agreement grants CCF access, on an exclusive basis, to a distribution channel that includes Walmart Argentina and Changomas stores located throughout Argentina and all future stores to be opened by Walmart Argentina during the term of the agreement. On July 6, 2010, CCF renewed the Walmart Argentina agreement through August 31, 2015 and in December 2014, CCF renewed the agreement again, through August 2020. A renewal of the agreement is currently being negotiated.
CCF specializes in specific credit products and financial consumer services. Its business model is based on offering financial products to mainly the middle and lower-middle-income sectors and is focused on two fundamental pillars:
|(i)||Accessibility: Convenient services centered on the customer and adapted to the concept of multi-channel banking.|
|(ii)||Diversification: Products that satisfy the customers’ needs in every stage of life with personalized offers and differentiated value propositions.|
The multichannel concept requires that CCF be present countrywide, and as of December 31, 2019 it was present in 22 provinces through 113 branches and three main channels of distribution:
|·||Walmart Financial Services: Through this channel, CCF offers loans, credit card origination and insurance through an exclusive agreement with Walmart Argentina, reaching approximately 309,000 customers as of December 31, 2019.|
|·||Tarjeta Branches: Through this channel, CCF offers financing to middle and lower-middle-income customers. This service has a strong presence in the Patagonia region, reaching approximately 36,600 customers as of December 31, 2019.|
|·||“Tu Crédito Hipertehuelche”: Through this channel, CCF offers loans, credit card origination and insurance through an exclusive agreement with Hipertehuelche Supermarkets, reaching approximately 11,800 customers as of December 31, 2019.|
Tarjeta Automática S.A.
In December 2012 CCF began to market loans and credit cards under “$YA” and “Carta Automática” brands through Tarjeta branch channel which supplements the consumer division network.
Tarjeta consists of a network of branches created in 1996 with a strong positioning in the Patagonia region. At present it has 20 own branches in 9 provinces. CCF’s commercial strategy in this channel is to offer a wide ranche of financial services and insurance.
The channel’s objective is to reach the leadership in the Patagonia region through a differential proposal: services similar to those of a bank but with an approach similar to that of a regional financial entity. To meet the demand of our customers the network focuses on the marketing of loans as the gateway.
CCF is the leader in the consumer loan segment in the Carta Automática markets, with high satisfaction and brand awareness levels among its customers (source: 2018 Quantitative Survey).
Supervielle Seguros S.A.
In June 2013, Grupo Supervielle and Sofital purchased 100% of the shares of Supervielle Seguros (formerly known as Aseguradores de Créditos del Mercosur S.A.). Supervielle Seguros began operations in October 2014.
Supervielle Seguros began issuing its first policies in October 2014 starting with a few non-credit related insurance products, such as protected bag insurance and personal accident insurance. By the end of 2015, it began issuing credit-related policies substantially growing its business since then, partly through the growth of the loans and credit card portfolio balances and partly through the migration of some of the portfolios previously booked in a third party insurance company. A Central Bank resolution issued in March, 2016 and effective September 1, 2016, prohibits financial institutions from charging individuals any fee and/or charge associated with credit related insurance policies. This resolution also specifies that financial institutions must purchase life insurance on debit balances or alternatively, self-insure the risk of death and permanent total disability of their clients. As a result, since September 1, 2016, both Banco Supervielle and CCF are self-insured against these risks and only contract new credit related insurances for mortgages loans. We intend to continue to expand this business and launch new insurance products previously offered to our customers by other insurance companies.
The challenge for 2020 is to continue consolidating the current insurance business and to make the necessary developments for the issuance of health and unemployment insurance policies, among other, focusing on the entrepreneur and SMEs, medium and large companies, senior citizens and Consumer Financing segments. Additionally, work will be done to develop new sales channels and to assess all those products that contribute to the provision of financial services and insurance to customers.
Supervielle Asset Management S.A.
Through SAM, we have become a player in the mutual funds market with the “Premier” funds family.
As of December 31, 2019, SAM offered 14 mutual funds services designed to meet customers’ particular investment objectives and risk profiles through its Premier funds family. As of December 31, 2019, SAM had U.S.$281 million of assets under management. Based on data from the Argentine Association of Mutual Funds, we estimate that we have a market share of approximately 2,12% of the mutual fund industry in Argentina and that SAM is ranked 18 out of 52 managers in the market.
Espacio Cordial de Servicios S.A.
Espacio Cordial was created in October 2012 and began operating in December 2012. The business was created to sell various types of goods and services related to insurance, tourism, health care plans and/or services and other goods and services set forth in its corporate by-laws.
As a result of the restructuring conducted in August 2018, Cordial Servicios became part of the consumer financing sector of Grupo Supervielle.
During 2019 Espacio Cordial continued operating in the direct and indirect channels already developed. The direct channel continued developing through sales points located at the Bank’s branches throughout the country, trading mainly home appliances, health care and security plans, prepaid services and tourism services. It was also present in the Carta Automática branch of La Plata, where the first prototype of integrated branch and home appliances outlet was launched, increasing the traffic in the branch and a larger product turnover. The home appliances category strategy continued seeking for stocks optimization and product mix under the motto: “Primer precio, Primera marca” (“Best price for a leading brand”) during 2019. The services and assistance category developed a new channel in partnership with Walmart, obtaining 100 additional sales points.
As regards indirect channels, the telephone channel continued to be used for the sale of prepaid health care services.
The digital channel, through Tienda Supervielle Marketplace, was used to sell home appliances, technology, home and furniture, sports, wellness and beauty, toys, perfumes, tires and accessories. As regards the tourism category, Tienda Supervielle continued growing as a sales channel, with the introduction of technological changes, a new “look & feel” and the integration to the Rewards program of Banco Supervielle, as the main vertical portal for flights and hotels. In March 2019 the corporate trip management platform was launched for Grupo Supervielle companies. New group packages were developed, fully managed by the area, offering domestic destinations under the Rewards Groups program for employees of the group’s companies.
The services and assistance category continued developing the digital channel with the sale of health care plans through a strong online strategy in the social media and developing digital self-management products for the companies of the consumer division and the launching of new digital products such as “Doctor en línea” (“Online doctor”).
In June 2019, the company purchased Deautos.com, a new and second-hand vehicle purchase and sale platform, one of the leading sites in its category with over 10 years in the market. The aim was to create a digital ecosystem, integrating and simplifying the offer of services and increasing the synergy with other Grupo Supervielle companies to deliver a higher customer experience through the best market offers.
During 2019, 41,500 home appliances were sold, which accounted for an income of over $186 million, and 137,000 service plans, which accounted for an income of over $501 million.
Micro Lending S.A.U.
MILA is a company devoted to originating car financing loans and was acquired by Grupo Supervielle on May 2, 2018.
In 2019, MILA originated car financing loans for a total of Ps.605 million from 3,316 transactions.
In 2019 a total of 440,452 new cars (76,990 of which were financed through car loans) and 1,592,965 used cars (61,603 of which were financed through car loans loans) were sold in Argentina.
Throughout 2019, MILA operated with six insurance companies, offering a wide array of products, and generated an income from these concepts that represents about 20% of the total income of MILA.
The goal for 2020 is to expand the placement of transactions. This goal will be pursued through three strategic pillars: (i) greater commercial efficiency, (ii) a greater capillarity to its network, and (iii) launch of new financial products while taking advantage from synergies within the group holding.
InvertirOnLine.com is a fintech Company which was established at the end of 2000 and was acquired by Grupo Supervielle from its founder in May 2018. At present InvertirOnline is an online platform that offers brokerage and savings and investment services, with a focus on improving the quality of life of persons, through the increase of their income.
In 2019 there was a 155% increase in the number of transactions made, as compared to 2018, totaling 1,123,000 transactions. In 2018 the number of transactions through InvertirOnline hit a record, with over 724,000 transactions. Also, the transacted amount in 2019 exceeded the Ps.76 billion, representing a 213% increase as compared to the previous year, and over 59,000 accounts opened by new customers during that period, which represents an increase of more than 750% as compared to the 7,800 accounts opened during the prior period.
During 2019 the services offered through the Invertironline.com platform continued to improve and in order to enhance the customer experience work continued to be done in the automatic crediting of online deposits, which enables the immediate transfer of funds made by customers.
During 2019, InvertirOnline offered 24x7 services for the purchase and sale of U.S. dollars to all of its customers.
As from August the amount of the maximum fee charged was reduced, and account maintenance and withdrawal charges were eliminated, thus attracting more customers to capital markets at very affordable costs and favoring financial inclusion.
With the same objective of facilitating market access to people countrywide, during this period the 100% digital onboarding was launched, therefore the account opening process is automatic, immediate and is available 24x7.
Since the beginning of 2019 InvertirOnline also started to offer the possibility to make transactions in the US market through different investment instruments, so as to diversify the assets invested in one of the largest markets at global level. This business has to comply with the FATCA and the IRS QI agreements.
Supervielle Productores Asesores de Seguros S.A.
On December 21, 2018, Supervielle Broker de Seguros S.A. was created. The company has the exclusive corporate purpose of carrying out the insurance intermediation activity, promoting the contract of life insurance, wealth and pension insurance premiums, and advising customers and potential customers. Grupo Supervielle directly owns 95% of its share capital (and indirectly owns 100% of its share capital). The company was renamed Supervielle Productores Asesores de Seguros S.A and began operation in the second half of 2019.
The 2020 goal is to expand the offer to the group’s customers with a focus on the entrepreneurs and SMEs, SMEs and Medium and Large companies. This will improve risk management through the advice to customers, adding value to Grupo Supervielle’s comprehensive proposal.
A team of insurance experts will be working in every region so as to advice customers and create synergies to detect new business opportunities.
Bolsillo Digital S.A.U.
On June 12, 2019 Bolsillo Digital S.A.U. was created with the purpose of providing design, programming and development services for software, mobile phone applications, web pages and/or any other digital medium, commercializing products and services related to the management and processing of payments made by and in favor of third parties and developing and operate platforms and tools of payment methods of any type and in any of its forms.
Futuros del Sur S.A. (in process of changing its corporate name to Supervielle Agente de Negociación S.A.U.)
On December 18, 2019, Grupo Supervielle acquired 100% of the capital stock of Futuros del Sur S.A., a trading agent registered with the Argentine Securities Commission. Through this acquisition Grupo Supervielle seeks to expand the financial and investment services to institutional and corporate customers and increase cross selling in an efficient and profitable way.
Sofital S.A.F. e I.I.
Sofital S.A.F. e I.I. is a sociedad anónima whose main activity consists of holding participations in other companies.
As of the date of this annual report, Sofital holds 2.7944% of the capital stock of the Bank, a 5.0% of the capital stock of Cordial Servicios, 5.0% of the capital stock of Supervielle Seguros and 5.0% of the capital stock of SAM.
We maintain a strong geographic presence in the City of Buenos Aires and the Greater Buenos Aires metropolitan area, which is Argentina’s most commercially significant and highly populated area, and we are leaders in terms of our banking network in some of Argentina’s most dynamic regions, including Mendoza and San Luis.
City of Buenos Aires. The City of Buenos Aires is the capital of Argentina and the center of commerce and seat of the national government in Argentina. Based on company estimates, the City of Buenos Aires had a GDP per capita in 2019 of approximately U.S.$28,000 and the INDEC estimated a population of approximately 2.9 million (approximately 7.2% of Argentina’s overall population) as of December 31, 2019. As of December 31, 2019, the unemployment rate in the City of Buenos Aires was 6.9%, same rate as of December 31, 2018. In terms of the banking sector, there are 855 bank branches (out of a total of 4,773 bank branches in Argentina) in the City of Buenos Aires.
Province of Buenos Aires. The Province of Buenos Aires, which includes the Greater Buenos Aires metropolitan area, is an agricultural center focused primarily on the production of soy, wheat, corn and other agricultural products. Based Company estimates, the Province of Buenos Aires had a GDP per capita in 2019 of approximately U.S.$7,000 and the INDEC estimate a population of approximately 15.6 million (approximately 38.9% of Argentina’s overall population) as of December 31, 2019. As of December 31, 2019, the unemployment rate in the Province of Buenos Aires decreased to 10.0% from 11.4% as of December 31, 2018. During the last decade, agricultural production has been strong as a result of high commodity prices which has contributed to Argentina’s economic growth. It is expected that agriculture production will continue to be a key driver of economic growth in Argentina in the coming years. In terms of the banking sector, there are 1,504 bank branches (out of a total of 4,773) bank branches in Argentina) in the Province of Buenos Aires.
Mendoza. The Province of Mendoza is located in the Cuyo region and is the center of the wine industry in Argentina. Based on Company estimates, Mendoza had a GDP per capita in 2019 of approximately U.S.$7,000 and the INDEC estimated a population of approximately 1.7 million (approximately 4.3% of Argentina’s overall population) as of December 31, 2019. As of December 31, 2019, the unemployment rate in Mendoza increased to 7.3% from 5.9% as of December 31, 2018. In terms of the banking sector, there are 179 bank branches (out of a total of 4,773 bank branches in Argentina) in Mendoza.
San Luis. The Province of San Luis is located in the Cuyo region. The primary industries in the Province of San Luis are agricultural production and tourism. As of December 31, 2019, the unemployment rate in the Province of San Luis increased to 2.9% from 2.8% as of December 31, 2018. In terms of the banking sector, there are 50 bank branches (out of a total of 4,773 bank branches in Argentina) in the Province of San Luis.
Our infrastructure supports our multi-channel distribution strategy with a strategic national footprint through 316 access points, which include 185 bank branches, 13 banking payment and collection centers, 79 CCF sales points located in Walmart supermarkets, 34 consumer financing branches of Tarjeta and other points of sale, 5 Mila’s customer support offices, network of 393 car dealers and 536 ATMs, 217 self-service terminals and 202 Cash Dispensers with biometric identification..
As of December 31, 2019, the Bank’s loan portfolio to branches ratio, which we calculate by dividing the total amount of loans outstanding at the end of the period by the number of branches at the end of such period, was Ps.443.4, compared to Ps.393.0 million as of December 31, 2018.
The following table shows the detail of our distribution network:
|As of December 31, 2019|
|Banco Supervielle S.A. Branches||185|
|Banco Supervielle S.A. Sales and Collection Centers||13|
|Tarjeta Automática S.A. Branches||20|
|Tarjeta Automática S.A. Sales and Collection Centers||14|
|Cordial Compañía Financiera Sales Points||79|
|Micro Lending S.A.U.||5|
|“Caja Rapida” - Cash Dispensers with biometric identification||202|
The following tables compare the composition of the Bank’s (on a consolidated basis) total funding with those of all Argentine private banks’ in each case as of December 31, 2019:
|Year ended December 31, 2019|
|Liabilities and Shareholders equity||Banco Supervielle||Private Banks|
|(in millions of Pesos)||%||(in millions of Pesos)||%|
|Year ended December 31, 2019|
|Deposits Breakdown||Banco Supervielle||Private Banks|
|(in millions of Pesos)||%||(in millions of Pesos)||%|
Due to the importance of the franchise of our deposit network, retail plus senior citizens deposits in Pesos continued to account for a significant portion of total deposits. As of December 31, 2019, retail plus senior citizens deposits in Pesos represented 55% of total deposits.
Loan Portfolio – General Overview
Each loan category in our loan portfolio faces different risks. We have established underwriting policies, standards and pricing mechanisms designed to mitigate the risks posed by each loan category. As of December 31, 2019, we had a loan portfolio of Ps.92.2 billion (equivalent to U.S.$1.5 billion converted to U.S. dollars at the reference exchange rate as of December 31, 2019).
Our policies require that most loans only be approved for borrowers that are able to provide proof of a source of repayment and demonstrate an ability to service existing and future debt. Our underwriting procedures for all loan types require consideration of the borrower, including with respect to the borrower’s financial condition, cash flow, the management skills and industry of our corporate customers, and the economic environment surrounding the issuance of any given loan.
We generally expect customers to repay loans with unencumbered cash available to them. A significant part of our loan portfolio is secured, and we assess the quality and liquidity of collateral before we grant any secured loan.
Interest Rate Terms
We price loans: (i) on both a fixed rate and floating rate basis; (ii) over different terms; and (iii) based upon different rate indices. Our pricing structures are consistent with our interest rate risk management policies and procedures. For more information on these policies and procedures, See “—Credit Risk Management.”
Loans to individuals (personal loans, credit card loans, car loans and mortgages) are priced only on a fixed rate basis. UVA Mortgage loans and some UVA car loans principal is adjusted for inflation. Loans to small businesses and SMEs are priced on both a fixed rate and floating rate basis as follows:
|·||Fixed rate: promissory notes (checking and invoice discounts, work certificates for government projects and warrants), overdrafts, foreign trade loans, automobile, personal loans and mortgages with adjustable principal, based on inflation.|
|·||Floating rate: automobile and other secured loans, receivables from financial leases.|
|·||Both rates: corporate unsecured loans.|
Below we list our loan categories from lowest risk to highest risk in terms of repayment ability and historical default rates:
|(1)||Promissory notes (checking and invoice discounts and warrants)|
|(2)||Receivables from financial leases|
|(3)||Foreign trade loans|
|(5)||Corporate unsecured loans|
|(6)||Corporate credit cards|
|(8)||Automobile and other secured loans|
|(9)||Personal loans and credit card loans (from the Personal and Business segment)|
|(10)||Personal loans and credit card loans (from the Consumer Financing segment)|
Summary of Loan Portfolio Categories
Promissory notes (factoring and check discounting and warrants)
Factoring and check discounting. Check discounting is used to finance working capital needs for businesses that have a diversified accounts receivable portfolio and customers or parties that issue checks and have a favorable credit history. Most of our check discounting transactions are with recourse to the assignor (i.e., we secure repayment with a pledge over an assignment of the borrower’s cash flow). However, some of our check discounting transactions are without recourse to the assignor, in which case we only have recourse to the endorser of the check. With respect to our operations with recourse, we evaluate the creditworthiness of both the assignor and the endorser of the check, specifically assessing each party’s payment history, credit history and legal history by requiring a variety of documents to aid us in our underwriting process. We accept checks that are issued in the ordinary course of business from the customer with a payment date generally no longer than 180 days.
Warrants. Warrants are granted to finance working capital needs for producers or sellers of commodities or non-commodities such as sugar, soy, wheat, corn, sunflower, peanuts, cotton and yerba mate. We take collateral in respect of the warrants for at least 20% to 35% in excess of the value of the products, depending on the type of product. The most significant risk we face when extending warrant financing relates to the quality and preservation of the underlying assets. To mitigate this risk, we select third-party companies to assess and monitor the value and quality of the underlying products. We establish maximum warranty amounts ranging from U.S.$5.0 million to U.S.$ 40.0 million depending on the type of product. We set interest rates for our warrants based on the term of the warrant and the quality of the underlying product.
Receivables from financial leases
Our financial leases are granted for financing acquisitions of capital assets, industrial equipment, road equipment and automobiles. The terms of these loans are typically between 18 and 60 months, varying based on the type of product or equipment and the useful life of such product or equipment.
The primary source of repayment for this product is cash flows from the borrower, and, therefore, we evaluate the borrower’s repayment ability before granting such loans. We also evaluate the type of asset for which the financial lease is granted in the event the borrower is unable to repay the loan. If the borrower is unable to repay the loan, we may sell the asset to recover all or part of the outstanding amount of the loan.
The primary risk associated with our financial leases is that the borrower may default on the loan and the collateral may be insufficient to recover the outstanding amount of the loan. We mitigate this risk by: (i) granting financial leases in respect of new assets that have historically shown adequate resale values, (ii) requiring a down payment of 10% to 30% (depending on the repayment ability of the customer); and (iii) for certain types of assets, requiring a commitment from the supplier of the asset to buy or find a buyer for the asset in the event of the borrower’s default. We set floating interest rates for our financial leases based on prevailing market rates.
The Bank grants inflation adjusted mortgage loans. The Bank sets a fixed interest rate but the remaining capital is adjusted on a monthly basis according to the UVA monthly evolution. Therefore, the loan has index-linked capital payments (the value of the capital and the installment is updated by inflation). The Bank evaluates the creditworthiness of the client based on credit and legal track records, a minimum credit score and income level. The loan is granted based on a loan-to-value ratio up to 75% of the property value (with a unlimited maximum amount). The terms of the mortgage loans are from 12 months to 360 months.
Foreign trade loans
Foreign trade loans are granted to finance exports and imports through pre-financing and financing loans for exports, international factoring and letters of credit for imports.
In the case of pre-financing and financing loans for exports, we analyze the repayment ability of both the borrower and its foreign client. Specifically, we ensure that the credit line that we grant is tailored to the borrower’s historical export levels and projected export levels (based on contracts, purchase orders and other documentation). We generally grant pre-financing and financing loans for exports with terms ranging from 90 to 180 days, depending on the transaction and such loans are solely denominated in U.S. dollars. Interest rates for pre-financing and financing loans for exports depend on the term of the loan and range from 2% to 7.5%.
In the case of letters of credit for imports, we face a risk that we will have to pay for the imports in the event that the borrower defaults. To mitigate this risk, we ensure that the loan is granted once the merchandise to be imported can be shipped and the relevant shipment documentation can be issued. Generally, the term of our letters of credit do not exceed one year. We receive a fee for the letters of credit we issue instead of charging interest.
Corporate unsecured loans
Corporate financial loans. Our corporate financial loans finance short term working capital needs of up to one year or medium term working capital needs of up to three years for businesses that require monthly or periodic amortization. These loans are granted to customers with annual revenues in excess of Ps.150 million. We evaluate the customer’s repayment ability using the general criteria and analysis for corporate customers. We also analyze the following factors: the shareholders and management of the borrower, the financial and economic environment, regulatory risk and projected cash flow for the entire period during which the loan will be outstanding to ensure that the borrower will be able to comply with the scheduled payments under the loan. We take into account the potential effects that economic variables such as exchange rate volatility and inflation could have on projected cash flow. We set either a floating or fixed interest rate for our corporate financial loans based on the creditworthiness of the borrower’s business and the term of the loan.
Loans to small businesses. Our loans to small businesses are originated at the Bank’s branches based on a policy that requires adequate credit and legal history, a minimum credit score and a certain level of revenues. Our loans to small businesses finance the working capital needs of businesses with annual revenues of up to Ps.150 million. The maximum loan assistance that we provide is Ps.12.5 million for unsecured loans and Ps.16.6 million for factoring services. Our general policy is that our small business loan portfolio be composed 50% of unsecured loans and 50% of secured loans and factoring transactions. The Bank’s branches may grant up to Ps.2.5 million of unsecured loans and Ps.3.3 million of factoring transactions, and any excess amount must be evaluated by the Bank’s specialized credit analysis unit. We set either a floating or fixed interest rate for our loans to small businesses based on the creditworthiness of the borrower’s business and the term of the loan. The interest rates for our loans to small business are generally higher than the interest rates for our corporate financial loans reflecting the difference in size and revenues of the businesses.
We grant overdrafts to businesses to finance working capital needs and ordinary course business activity. We assess whether the borrower has the ability to meet its payment obligations over a maximum 180-day period, placing an emphasis on the borrower’s line of business. Businesses with operations that do not produce short-term revenues or with cyclical operations generally must seek other types of financing. We are able to anticipate a customer’s ability to repay overdrafts by analyzing daily accounts payable, accounts receivable, credits and fluctuations. We set interest rates for our overdrafts on a monthly basis.
Automobile and other secured loans
We grant secured loans to finance automobile purchases. The maximum amount of our automobile loans is Ps.1,500,000 with a maximum term of 60 months. Before granting this automobile and other secured loans, we evaluate a customer’s ability to meet monthly payment obligations by taking into account the prospective borrower’s earnings, minimum credit rating and financial and legal background. We also require that the vehicle serve as collateral in the event of a payment default by the borrower. We set interest rates based on the term of the automobile loan and a loan-to-value ratio ranging from 50% to 75% of the value of the vehicle at the time of sale.
Personal loans and credit card loans (from the Personal and Business Banking segment)
Our Personal and Business Banking segment originates loans based on scoring systems and policies specifically tailored to our Plan Sueldo services, pension and retiree services and general clientele. For a detailed discussion of the Bank’s credit application process, credit monitoring and review process and the risks associated with personal loans and credit card loans, See “ —Credit Risk Management—Banco Supervielle S.A.”
Retail banking in Argentina is heavily regulated, including with respect to maximum interest rates and fees. See “Item 4.B Business overview—Argentine Banking Regulation—Interest Rate and Fee Regulations.” We tailor our policies related to issuing and granting loans and credit to comply with these regulations.
Personal loans and credit card loans (from the Consumer Financing segment)
The personal and consumer loans offered by CCF and Tarjeta are unsecured products for personal use and are offered to the middle and lower-middle-income sectors. Due to the nature of these products, our pricing structure is high compared to the Argentine financial system.
To mitigate the risks associated with personal and consumer loans, the initial term of any such loan is limited during the first loan, and performing borrowers may receive offers to extend the terms of the loans.
One of the principal sales channels for personal and consumer loans is through telemarketing typically targeting credit card customers or customers that took out a loan previously with CCF, Tarjeta or another company and performed in accordance with the terms of such loan.
The maximum amount of our personal and consumer loans is Ps.0.2 million, while the average loan as of December 31, 2019 was Ps.32,500. The average term of our personal and consumer loans as of December 31, 2019 was 17 months, with a maximum of 60 months. The loans are granted at a fixed rate and are paid back in monthly installments and amortized based on the French amortization system, which consists of equal monthly installments amortized in a manner in which (i) interest payments are higher at the beginning of the loan and decrease over the life of the loan, while (ii) principal payments are lower at the beginning of the loan and increase over the life of the loan.
Credit Risk Management
We define credit risk as the risk that arises from losses and/or a decline in the value of our assets as a result of our borrowers or counterparties defaulting on or not complying with their obligations. Credit risk includes any event that may cause a decline in the present value of our loans, but does not necessarily require the counterparty’s default. This risk also encompasses liquidity risk, which exists whenever a financial transaction cannot be completed or generate liquidity in accordance with an agreement. The magnitude of credit risk losses hinges upon two factors:
|·||the amount of exposure at the time of the default; and|
|·||the amounts recovered by the Bank based on the payments received from the borrower and the execution of risk mitigation policies, such as guarantees that may limit losses.|
With regard to risk appetite, the Credit Risk Management is the process that leads to the identification, measurement or evaluation, mitigation and monitoring or follow-up of the risk, as considered in the entire credit cycle, since its origin until collection, recovery or loss, and in case of non-compliance. Likewise, the definition of the Bank’s risk appetite is generated through the development and monitoring of indicators, with their respective thresholds and limits for Credit Risk.
Our credit risk management policies also monitor concentration risk. This risk arises when the concentration of exposure has the capacity to generate enough losses (relating to results of operations, minimum capital requirements, assets or global risk levels) to impact the entity’s financial strength or capacity to maintain its operations and significantly change the entity’s risk profile.
The Board of Directors approves credit risk policies and strategies presented by the Risk Management Committee, in consultation with the Credit team, the Legal Affairs team and the Corporate Banking team, and in accordance with Central Bank regulations. The Bank’s credit risk policies and strategies seek to develop commercial opportunities and business plans, while maintaining a prudent level of risk. The credit policy is tailored to corporations and individuals from every segment.
The pillars of the Bank’s credit policy are based on an analysis of the client’s cash flow and its repayment capacity.
The Bank focuses on supporting companies belonging to sectors with great potential which tend to be successful in their activity. Within the range of credit products offered for the corporate business segment, the Bank aims to develop and lead the factoring and leasing market, as well as being leader in foreign trade.
Within the corporate banking segment, we seek to have a solid proposal for the SMEs and middle-market seeking to maintain proximity with customers through customer service centers, agreements with customers throughout their value chain and providing agile responses through existing credit processes.
With regard to individuals, in addition to the payroll customers and senior citizens, the retail banking is specially focused on entrepreneurs and SMEs as well as the Identité customers
We believe that loan portfolio diversification is a staple of the Bank’s credit risk management objective of distributing risk appropriately by economic segment, client type and loan amount. The same importance is given to the risk mitigation mechanisms that ensure adequate risk coverage, such as the use of credit instruments in the corporate segment that cover substantial amounts of the loan. Finally, we continuously use early detection processes to monitor the performance of the loan portfolio.
Credit Risk Measuring Models
The Bank relies on several models that estimate the distribution of possible losses arising out of the loan portfolio to calculate expected losses and minimum capital requirements. These models include:
|·||Credit risk measurement models. The Bank’s models estimate distribution of possible loan portfolio losses, which depend on counterparties’ default (probability of default (“PD”)), as well as the exposure assumed with them (EAD—Exposure at the time of default) and the proportion of each unfulfilled loan that the Entity is able to recover (Loss in the event of default (“LGD”)). Based on these parameters, the expected loss (“PE”) and economic capital are estimated. As a result of this, a methodological and developmental plan has been developed in order to calculate the Risk Adjusted Return (“RAROC”) at Banco Supervielle in order to optimize the management linked to Credit Risk.|
|·||Expected Losses Calculation. This is calculated based on the results of the PD, EAD and LGD models. The expected loss calculation analyzes portfolio information to estimate the average value of loss distributions for a one year time horizon in the case of performing loans and for a lifetime horizon in the case of underperforming or non-performing loans.|
|·||Minimum Capital Requirement Calculation. This is represented by the difference between the portfolio’s risk value and expected losses within a 99.9% confidence interval for individuals and 99.0% confidence interval for corporate customers. We have two minimum capital requirement models (one for corporate customers and one for individuals), which include the economic capital required for our concentration risk and securitization risk.|
Allowance for Loan Losses
Grupo Supervielle recognizes an impairment in the value to financial assets measured at amortized cost, debt instruments measured at fair value through other comprehensive income, loan commitments and financial guarantee contracts that are not measured at fair value.
The impairment for expected credit losses is recorded with a charge to the consolidated income statement for the period in which the impairment arises. In the event of occurrence, the recoveries of previously recognized impairment losses are recorded in the consolidated income statement for the period in which the impairment no longer exists or is reduced.
In the case of assets measured at fair value with changes in other comprehensive income, the changes in the fair value due to expected credit losses are charged in the consolidated income statement of the year where the change happened, reflecting the rest of the valuation in other comprehensive income.
As a rule, the expected credit loss is estimated as the difference between the contractual cash flows to be recovered and the expected cash flows discounted using the original effective interest rate. In the case of purchased or originated credit-impaired assets, this difference is discounted using the effective interest rate adjusted by credit rating.
Depending on the classification of financial instruments, which is mentioned in the following sections, the expected credit losses may be over 12 months or during the life of the financial instrument:
|·||12-month expected credit losses: arising from the potential default events, as defined in the following sections that are estimated to be likely to occur within the 12 months following the reporting date. These losses will be associated with financial assets classified as Stage 1.|
|·||Expected credit losses over the life of the financial instrument: arising from the potential default events that are estimated to be likely to occur throughout the life of the financial instruments. These losses are associated with financial assets classified as Stage 2 or Stage 3.|
With the purpose of estimating the expected life of the financial instrument all the contractual terms have been taken into account (e.g. prepayments, duration, purchase options, etc.), being the contractual period (including extension options) the maximum period considered to measure the expected credit losses. In the case of financial instruments with an uncertain maturity period and a component of undrawn commitment (e.g.: credit cards), the expected life is estimated through quantitative analyses to determine the period during which the entity is exposed to credit risk, also considering the effectiveness of management procedures that mitigate such exposure (e.g. the ability to unilaterally cancel such financial instruments, etc.).
|b)||Financial instruments presentation|
For the purposes of estimating the impairment amount, and in accordance with its internal policies, Grupo Supervielle classifies its financial instruments (financial assets, commitments and guarantees) measured at amortized cost or fair value through other comprehensive income in one of the following categories:
|·||Normal Risk (“Stage 1”): includes all instruments that do not meet the requirements to be classified in the rest of the categories.|
|·||Normal risk under watchlist (“Stage 2”): includes all instruments that, without meeting the criteria for classification as doubtful risk, have experienced significant increases in credit risk since initial recognition.|
|·||Doubtful Risk (“Stage 3”): includes financial instruments, overdue or not, in which there are reasonable doubts about their total repayment (principal and interests) by the client in the terms contractually agreed. Likewise, off-balance-sheet exposures whose payment is probable and their recovery doubtful are considered in Stage 3.|
|c)||Impairment valuation assessment|
The asset impairment model in IFRS 9 applies to financial assets measured at amortized cost, debt instruments at fair value with changes in other comprehensive income, lease receivables and commitments and guarantees granted that are not measured at fair value.
The impairment represents the best estimation of the financial assets expected credit losses at the balance sheet date, assessed both individually and collectively.
|·||Individually: for the purposes of estimating the provisions for credit risk arising from the insolvency of a financial instrument, Grupo Supervielle individually assesses impairment by estimating the expected credit losses on those financial instruments that are considered to be significant and with sufficient information to make such an estimate|
The individually assessed impairment estimate is equal to the difference between the gross carrying amount of the financial instrument and the estimated value of the expected cash flows receivable discounted using the original effective interest rate of the transaction. The estimate of these cash flows takes into account all available information on the financial asset and the effective guarantees associated with that asset.
|·||Collectively: Grupo Supervielle also assesses impairment by estimating the expected credit losses collectively in cases where they are not assessed on an individual basis. This includes, for example, loans with individuals, sole proprietors or businesses in retail banking subject to a standardized risk management.|
For the purposes of the collective assessment of expected credit losses, Grupo Supervielle has consistent and reliable internal models. For the development of these models, instruments with similar credit risk characteristics that are indicative of the debtors’ capacity to pay are considered.
The credit risk characteristics used to group the instruments are, among others: type of instrument, debtor’s sector of activity, geographical area of activity, type of guarantee, aging of past due balances and any other factor relevant to estimating the future cash flows.
Grupo Supervielle performs retrospective and monitoring tests to evaluate the reasonableness of the collective estimate.
On the other hand, the methodology required to estimate the expected credit loss due to credit events is based on an unbiased and weighted consideration by the probability of occurrence of a series of scenarios, considering a range of three possible future scenarios which could have an impact on the collection of contractual cash flows, always taking into account the time value of money, as well as all available and relevant information on past events, current conditions and forecasts of the evolution of macroeconomic factors that are shown to be relevant for the estimation of this amount (for example: GDP (Gross Domestic Product), Interest Rate, unemployment rate, etc.).
For the estimation of the parameters used in the determination of the allowance for loan losses (EAD – Exposure at Default, PD – Probability of Default, LGD – Loss Given Default), Grupo Supervielle based its experience in developing internal models for the estimation of parameters both in the regulatory area and for management purposes, adapting the development of the impairment models under IFRS 9.
|·||EAD: is the amount of risk exposure at the date of default by the counterparty.|
|·||PD: is the estimated probability that the counterparty will default on its principal and/or interest payment obligations.|
|·||LGD: is the estimate of the severity of the loss incurred in the event of non-compliance. It depends mainly on the updating of the collaterals associated with the operation and the future cash flows that are expected to be recovered.|
The definition of default implemented by Grupo Supervielle for the purpose of calculating the impairment provision models is based on the requirements of IFRS 9, which considers that a “default” exists in relation to a specific customer/contract when at least one of the following circumstances exists: the entity considers that there are reasonable doubts about the payment of all its credit obligations or that the customer/contract is delinquent for more than 90 days with respect to any significant credit obligation.
Rebuttable presumption that the credit risk has increased significantly when payments are more than 30 days past due for commercial loans is used as an additional, but not primary, indicator of significant risk increase due to the credit evaluation complexity and as a result of studies that show a low correlation of the significant risk increase with this past due threshold. In order to do so other information is taken into account as financial and economic analysis, repayment capacity, among others.
Assets with low credit risk at the reporting date: Grupo Supervielle assesses the existence of significant risk increase in all its financial instruments.
For the estimation of the expected credit losses, the prospective information is taken into account. Specifically, Grupo Supervielle considers three prospective macroeconomic scenarios, which are updated periodically, for a time horizon of 12 months. Grupo Supervielle considers the following variables for estimating expected credit losses on the different scenarios:
|Probability of Default||Retail||Real Wage|
|Consumer Finance||Monthly Economic Activiy Estimator|
|Loss Given Default||Retail||Private sector real wage|
Country Risk Management
Country risk arises from losses in investments or loans to individuals, corporations or governments, due to adverse changes in a foreign country’s economic, political or social environment. The risk is present in loans granted to non-residents, loans in which the borrower’s or its guarantor’s solvency is significantly tied to another country’s circumstances, investments made abroad and contracts with foreign service providers.
We believe that the Bank has an adequate framework in place to manage this risk, given the complexity of its operations and its exposure to country risk. The Bank has no significant exposure to country risk except for credit lines with correspondents and international factoring. Country risk is a special consideration when granting credit lines and is analyzed on a case by case basis.
We have a Credit House Limit committee which is composed of at least three members of our Board of Directors, one of whom is the Chairman of the Board. The CEO of the Bank, the Chief Credit Officer (“CCO”) and the Bank’s heads of Retail Banking and/or Corporate Banking and/or Global Markets, are also members. The CCRO acts as chairman of the committee.
The Credit House Limit Committee is the highest authority in our and our subsidiaries’ credit risk decision-making structure with respect to assessing situations in which any credit approval limit is exceeded.
Banco Supervielle S.A.
The Bank’s Board of Directors sets its credit policy and risk limits, with information from its risk department and the various commercial banking units and in compliance with Central Bank regulations. The credit policy is aimed at taking advantage of business opportunities within the scope and terms of the Bank’s business action plan, while maintaining prudent levels of exposure to counterparty risk. The Bank’s credit policy focuses on companies and individuals of all segments, with a special focus on small businesses, entrepreneurs and SMEs.
The pillars of the Bank’s credit policy include:
|·||maintaining independence between the risk management function and the business and management team;|
|·||maintaining a highly professional corporate structure around risk management;|
|·||keeping the Board of Directors and senior management involved in risk management decision-making;|
|·||ensuring that risks are consistent with the risk appetite framework and subject to ongoing monitoring; and|
|·||propose limits for credit risk tolerance to be approved by the Board of Directors.|
Credit Application Process
The credit approval process is designed to facilitate an accurate risks analysis, expedient decisions and complete support information.
Potential customers are interviewed and asked to submit documentation to efficiently evaluate risk. The risk area performs a risk evaluation using computer software and issues an opinion on the requested assistance. If credit assistance is deemed feasible, the customer’s application is submitted for approval at the appropriate level, pursuant to credit authority guidelines and depending on the facility amount requested, the term and security.
Applications by prospective retail customers are analyzed using an electronic application. Prospective corporate customers are evaluated on a case-by-case basis. There are no pre-approved lines of credit, except for individuals who may obtain a pre-approved line of credit based on their maximum debt burden ratio.
Credit Monitoring and Review Process
It is the Bank’s policy to continually track and monitor risk in order to anticipate or foresee changes in the macroeconomic environment and anomalies that may affect the course of customers’ activities and the repayment of loans. The Management and Credit Administration Department traces alert indicators for signals that may affect credit collection. Signals could be late payments of more than 30 days, alerts from credit bureaus, lawsuits from third parties, customers or suppliers and bounced checks. Action plans are in place to anticipate or mitigate potential nonperformance situations. The Credit and Risk Departments tracks alert indicators by:
|·||analyzing loan portfolio evolution;|
|·||verifying compliance with credit regulatory requirements;|
|·||reviewing the factoring portfolio on a daily basis by operation, maturity, concentration, direct and indirect risk;|
|·||verifying and analyzing customer arrears;|
|·||detecting market alerts, customer behavior in the market and the financial system, lawsuits, etc.;|
|·||proposing action plans;|
|·||involving the Corporate Committee and the Small Enterprises Committee;|
|·||reporting customer alerts to officials and managers; and|
|·||establishing allowances for estimated loan losses.|
Credit Approval Process
The following chart describes the levels of approval for the different types of loans:
|Credit Approval Limit|
(in millions of Pesos)
|House Limit (Senior Committee + Board of Director’s Chairman)||Total|
Maximum Approval Limit
|Credit Approval||Senior Committee (Credit Manager + Commercial Coordinator Manager + CEO + Credit Coordinators + One Member of the Board of Directors)||300||300|
|Committee||Coordinating Officers Committee (Credit + Corporate Banking)||80||140|
|Corporate Banking||Regional Committee (Credit Manager or Credit Officers + Commercial Manager)||40||70|
|Retail Financing||Small Businesses (Retail Credit Manager + Commercial Manager)||25||35|
|Small Businesses (Retail Credit Manager or Credit Supervisors)||25||35|
|Retail Automatic credit analysis process||1.5||—|
|Retail Manual credit analysis process||—||10|
The Risk Management Committee has the following responsibilities regarding credit policies:
|·||Approves credit retail policies and oversees correct implementation and compliance with such policies.|
|·||Defines credit evaluation criteria, including the cut-off points concerning scoring models, minimum income levels required and others.|
|·||Monitors the evolution of the credit portfolio.|
The Bank’s Recovery Area handles the collection of past due credits. Collections are handled by different units for individual and corporate customers.
With respect to individual customers, the Recovery Area begins a collection process when credits become past due by three days. The recovery team issues automatic notice actions from the 3rd to the 8th past due days in order to warn the customers. After this period, the collection of the overdue credit is handled by a third-party collection agency. After 150 days, the Recovery Area determines whether the past due credit should be sent to a different collection agency or it made subject to legal proceedings.
In the case of corporate clients and SMEs, payment defaults are analyzed on a case-by-case basis, taking into consideration the loan amount and the number of days in arrears, among other factors. The Early Delinquency area of the Recovery Management once a week monitors clients overdue more than 15 days. As the delay progresses, the members of that team assist the commercial officers and join the direct management of the case for its solution: structuring, extension of terms, refinancing with the aim of improving the debt profile and obtaining better guarantees. If the SMEs and corporate clients’ obligatios have been due for more than 90 days, or if they request their Extrajudicial Preventive Agreement, Bankruptcy or reorganization process (Concurso Preventivo) or there are indications of insolvency, they enter under the orbit of the direct management of the Recovery team that determines whether to treat the case internally or refer ir to a law firm. The Recovery Department can participate in out-of-court and judicial settlement negotiations and approve debtor payment proposals in amounts for up to Ps. 10 million. Likewise, the Recovery Department meets in forums with the commercial areas to review the totality of cases overdue for more than 30 days. In the case of SME the forums are biweekly and in the case of corporate clients they are monthly. In these forums, the commercial, credit, or recovery areas can present proposals to the Coordinating Committee on how to deal with loan defaults that are beyond their reach.
This process allows the Recovery Department to manage risk earlier and also take steps such as refinancing a loan, reducing interest, or improving a guarantee.
The Corporate Committee meets every month to review the past due credits after 35 days, while the Retail SME Committee meets biweekly to review the outstanding dues after 15 days. This process allows the Corporate Recovery department to manage risk earlier, and also to take actions such as refinancing a loan, reducing the interest or using a guarantee.
The Corporate and Retail SME Committee, jointly with the Corporate Recovery department, can submit proposals to the Coordinating Officers Committee on how to address loan defaults that are outside their scope.
CCF and Tarjeta
CCF and Tarjeta carried out a reengineering of the application assessment process to update its processes and assessment systems. This reengineering allowed CCF and Tarjeta a faster and more flexible implementation of its credit policy. The assessment process continues to be centralized and seeks to automatize and streamline most controls using information available from credit bureaus (such as Equifax) or, Central de Deudores (“Debtors Central”).
However, the management of credit policies was included in the Integral Risk Committee, securing a more encompassing view of the assessment of said policies.
Since late 2018 changes were implemented to the origination and cross selling policies intended to improve credit portfolio and guarantee loan repayment capacity in all segments, particularly those more exposed to the macroeconomic context’s uncertainty. In addition, the internal behavior scoring model used in cross selling activities was improved and updated, and an improved model is being developed for the evaluation of leads and customers without the required length of bank-customer relationship.
Income prediction models provided by credit bureaus were added to the existing processes, thus improving the repayment capacity assessment and limiting customer indebtedness.
Taking into account the increase of the nonperforming portfolio ratio during 2018, a thorough review was conducted and changes were implemented in strategies and collection teams so as to offer adequate assistance to nonperforming customers. Statistical tools were added to set collection management priorities, introducing data enrichment processes and improving collection agencies’ allocation and control tools.
As a result of all those changes and adjustments in credit and collection processes, indicators of early non-performing loans and non-performing portfolios stabilized during the second half of 2019.
Information Technology and Operations
During 2019, the Corporate Technology and Operations Management of the Bank continued adapting its functional scheme to its strategy, in line with the business, and enhancing the existing capacity.
The area’s strategic planning was updated, with a three-year plan, incorporating digital capacities as a way to achieve an external differentiation and consolidate the Banks’s positioning in the domestic market. The guidelines of the Corporate Management of Technology and Operations result from the strategic lines defined by the business. Such guidelines include the evolution of technology and systems (through evolution of their technological architecture to ensure an efficient processing model with adequately managed and contained technological risks), acceleration of the digital transformation (implementing the capacities required to build a new digital business); excellence in operational processes (putting up a technological operational model based on the best practices ensuring an efficient management of technological services and supporting the transformation of operational processes) and the search for a high performance organization (setting up a result oriented organization with clear cut roles and responsibilities and service vision).
This update on the strategic planning was done on the basis of two pillars: execution of plans related to business strategic projects (initiatives executed in line with the Bank’s strategies) and the definition and execution of strategic IT plans that pave the way for the evolution in areas such as technological infrastructure, applications, service operation, quality and governance.
The business’ strategic projects were grouped in 5 programs: Cash Management, Digital Banking, Service Model, Senior Citizens, Commercial Platform and Efficiency. Within these programs the following projects are worthy of mention: a technological solution was developed for e-cheque management, implementation continued of a new queue management solution, advance was made on Plan Sueldo onboarding programs and on the new scoring and offer system and a new tool was implemented for campaign management.
The strategic IT projects are grouped in five chapters: Applications, Quality, Technological Infrastructure, Service Operation and Security. They include the new reengineering of the entity’s batch process, launching of API for cards, individuals, signatures and powers of attorney, reengineering of ESB services, improvements in credit card app, migration of all terminals to Windows 10, improvements in networking and in data architecture and implementation of a new tool for application.
During 2019, the Information Technology area of CCF, aligned with the corporate general strategy, worked on the exploration and implementation of new technologies to offer a competitive, innovative and flexible value proposition, and started transitioning to digital transformation, through the implementation of new platforms, apps and processes.
The creation of the Digital Strategy area, focused on onboarding and customer experience, was key for the consumer segment.
Thus, the “Mobile” app continued evolving, offering new capabilities that enhance experience, enabling new services and customer service models (100% digital).
In 2019, we have made significant progress on Digital Transformation. Increasingly, customers want and expect to engage with us anytime from anywhere. Our digital strategy is aimed at responding to that demand. We have a three-prongued approach:
|·||Transformation of core businesses (banking, consumer financing and insurance) to enhance customer experience, agility and efficiencies. For example, we recently launched a groundbreaking senior citizens app which addresses their transactional needs and launched a 100% digital onboarding platform for new customer acquisition.|
|·||Development of digital attackers to broaden access to financial services. This includes Invertir Online, our online broker, and a new digital brand to be launched in the coming months which will refocus our strategy in the consumer financing business and allow acquisition of multisegment clients with full digital financial services.|
|·||Development of an ecosystem by building traffic from financial services into new spaces enhancing and deepening customer engagement.|
In April 2019, the COO of the Bank was appointed. The COO leads the Bank’s digital transformation, ensuring its adequate implementation organization-wide. Digital transformation involves the use of new working methodologies, new technologies and a strong cultural change within the organization. Agile methodologies are implemented in response to current needs, where the willingness to change and the prompt delivery of value are a competitive advantage. Under this methodology, independent and highly efficient work teams are formed with short turnaround times.
Digital Innovation Developments
The strong belief that Fintech capabilities have a direct impact on the “customer centric” culture boosted the creation of the Fondo Corporativo de Capital Emprendedor (Fideicomiso Fintech Supervielle I), which allows the Bank to partner with Fintech companies (digital solutions applied to finance) and Insurtech companies (digital solutions applied to insurance) which are within the strategic verticals of Grupo Supervielle. The goal is double fold: to generate a financial profit from investments made and to create commercial synergies to add mutual value.
With the vision to create incremental business opportunities for the companies of the portfolio and of Grupo Supervielle, four investments were made: 123Seguro, an online car insurance broker; Increase, a financial solutions platform for stores and businesses; Avancargo, a Company that uses technology to facilitate cargo freight contracts to match demand and supply; and more recently, in January 2020, Blended, a comprehensive school management platform for kinder, primary and secondary levels.
The Bank continues participating in the Arfintech fund together with another 7 local capital Banks and participates in investment rounds; the Arfintech fund portfolio already has 10 companies in the insurance, payment, security, SMEs and blockchain segments.
Bolsillo Digital SAU
With the aim of broadening the portfolio of product and services offered by Grupo Supervielle, we have created Bolsillo Digital S.A.U. This company is a fintech that belongs to the collecting payment’s industry. It will design, program and develop products and services related to the management and processing of payments, offering payment solutions to retail businesses and individuals. Mobile POS and mobile wallet will be the first products to be launched during 2020. Commercial efforts will be directed, initially, to the Cuyo Region where the Bank is one of the main market players.
Bolsillo Digital will enrich Supervielle’s value proposition in those client segments, and will also seek to establish new sales alliances & partnerships with social, educational and public institutions based on possibilities and flexibility of mobile payments and wallet platforms.
Retail Banking, Corporate Banking and Treasury
The Argentine financial system remains highly fragmented compared to the rest of Latin America.
As of December 31, 2019, the Argentine financial system had 78 financial entities, of which 63 were banks 13 public and 50 private). In terms of ownership, as of December 31, 2019, while the participation of the public sector was 20.6%, the portion of banks controlled by Argentine entities represented 54.0% and the portion of banks controlled by foreign entities represented 25.4%.
As of December 31, 2019, the number of financial companies was 15, six of which were controlled by Argentine entities and nine of which were controlled by foreign entities, and only one credit union remained.
In recent years, following the main global trends, digital banking begins to develop in Argentina. As of December 31, 2019, the main digital banks were: Wilobank, Brubank, Rebanking, Openbank, Naranja, Wenance and Ualá. The main features of each are outlined below:
(1). Wilobank offers credit cards even to unbanked people. It operates with a virtual card that will replace Mastercard Contactless. (2). Brubank offers savings accounts in Pesos and U.S. dollars and loans and transfers from an app. It uses contactless technology and allows purchases made with debit card to be paid in installments, allowing the partition of the expenses. (3). Rebanking aims at the lowest economic sectors with a corresponding banking offer. (4) Openbank, owned by the Santander Group, offers savings accounts, credit cards, loans and facilitates investments. In Spain it already has more than one million customers. (5). Naranja, owned by Banco Galicia, has more than 1 million of digital users. This company developed an app that enables merchants and professionals billing by using a dongle. (6). Wenance has two platforms: one for people who are in remote areas (not near branches) and the other one is aimed at unbanked people, enabling them to operate through the mobile phone. (6). Ualá is associated with the prepaid MasterCard and allows people to pay for services and bill payment service by scanning a barcode from the mobile phone.
We were one of the top 10 private banks in the Argentine financial system with respect to loans, deposits, assets and equity as of December 31, 2019, as presented in the following tables (figures are expressed in original currency and not adjusted for inflation):
|As of December 31, 2019|
|(in millions of Pesos)||Share of Total (%)|
|Banco Santander Río S.A.||621,110.3||15.2||%|
|Banco de Galicia y Buenos Aires S.A.||596,094.4||14.6||%|
|BBVA Banco Francés S.A.||431,493.2||10.6||%|
|Banco Macro S.A.||425,324.1||10.4||%|
|HSBC Bank Argentina S.A.||298,800.6||7.3||%|
|Credicoop Cooperativo Limitado||232,241.3||5.7||%|
|Banco Patagonia S.A.||188,176.2||4.6||%|
|Banco Supervielle S.A.||138,034.4||3.4||%|
|Nuevo Santa Fe||93,537.2||2.3||%|
|Banco Hipotecario S.A.||83,065.1||2.0||%|
|Total Private Banks||4,088,862.5|
Source: Central Bank
|As of December 31, 2019|
|(in millions of Pesos)||Share of Total (%)|
|Banco de Galicia y Buenos Aires S.A.||302,307.5||18.3||%|
|Banco Santander Río S.A.||266,431.1||16.1||%|
|Banco Macro S.A.||218,772.0||13.3||%|
|BBVA Banco Francés S.A.||184,200.4||11.2||%|
|HSBC Bank Argentina S.A.||107,099.7||6.5||%|
|Banco Patagonia S.A.||83,241.0||5.0||%|
|Banco Supervielle S.A.||78,851.4||4.8||%|
|Itau Argentina S.A.||40,261.6||2.4||%|
|Banco Hipotecario S.A.||39,013.4||2.4||%|
|Credicoop Cooperativo Limitado||37,665.6||2.3||%|
|Nuevo Santa Fe||32,975.1||2.0||%|
|Total Private Banks||1,650,907.7|
Source: Central Bank
|As of December 31, 2019|
|(in millions of Pesos)||Share of total (%)|
|Banco Santander Río S.A.||474,903.3||17.2||%|
|Banco de Galicia y Buenos Aires S.A.||397,839.6||14.4||%|
|BBVA Banco Francés S.A.||293,411.8||10.6||%|
|Banco Macro S.A.||262,383.5||9.5||%|
|HSBC Bank Argentina S.A.||219,362.3||7.9||%|
|Credicoop Cooperativo Limitado||184,876.4||6.7||%|
|Banco Patagonia S.A.||119,535.4||4.3||%|
|Banco Supervielle S.A.||89,737.1||3.2||%|
|Nuevo Santa Fe||69,869.9||2.5||%|
|Banco Comafi S.A.||44,226.1||1.6||%|
|Banco Santander Río S.A.||474,903.3||17.2||%|
|Total Private Banks||2,763,645.4|
Source: Central Bank.
When consolidated with CCF, we were one of the top five private banks in the Argentine financial system with respect to personal loans as of December 31, 2019, as presented in the following table (figures are expressed in original currency and not adjusted for inflation):
|As of December 31, 2019|
|(in millions of Pesos)||Share of total (%)|
|Banco Macro S.A||55,586.5||23.2||%|
|Banco Santander Río S.A.||26,564.9||11.1||%|
|Banco de Galicia y Buenos Aires S.A.U.||22,281.1||9.3||%|
|BBVA Banco Francés S.A.||19,969.3||8.3||%|
|Banco Supervielle S.A.(1)||16,844.5||7.0||%|
|Nuevo Banco de Santa Fe||13,781.9||5.8||%|
|Banco Patagonia S.A.||8,388.8||3.5||%|
|Nuevo Banco de Entre Rios||7,259.4||3.0||%|
|Banco Hipotecario S.A.||6,305.4||2.6||%|
|HSBC Bank Argentina S.A.||5,464.5||2.3||%|
|Financial Private System||239,562.0|
Source: Central Bank.
|(1)||Consolidated with CCF.|
We were one of the top five private banks in the Argentine financial system with respect to leasing, as presented in the following table as of December 31, 2019 (figures are expressed in original currency and not adjusted for inflation):
|As of December 31, 2019|
|(in millions of Pesos)||Share of total (%)|
|Banco Comafi S.A.||3,972.4||24.7||%|
|Banco Supervielle SA||3,186.7||19.9||%|
|Banco de Galicia y Buenos Aires S.A.||2,332.2||14.5||%|
|BBVA Banco Francés S.A.||1,660.2||10.3||%|
|HSBC Bank Argentina S.A.||1,191.9||7.4||%|
|Credicoop Cooperativo Limitado||521.4||3.2||%|
|Banco Patagonia S.A.||509.1||3.2||%|
|Banco Santander Río S.A.||479.9||3.0||%|
|Total Private Banks||16,053.3|
Source: Central Bank
The Bank, when consolidated with CCF, ranked second among private banks in the Argentine financial system with respect to MasterCard active accounts as of December 31, 2019 as presented in the following table:
|As of December 31, 2019|
|MasterCard active accounts with billing statement|
|1||Banco de Galicia y Buenos Aires S.A||10.3||%|
|2||Banco Supervielle S.A.(1)||9.3||%|
|3||BBVA Banco Francés S.A.||8.2||%|
|4||Banco Macro S.A.||6.0||%|
|5||Banco Patagonia S.A||5.7||%|
|6||HSBC Bank Argentina S.A.||4.8||%|
|7||Industrial and Commercial Bank of China (Argentina) S.A.||3.6||%|
|8||Banco Itaú Argentina S.A||1.9||%|
|9||Banco Columbia S.A.||1.9||%|
|10||Banco Comafi S.A.||1.2||%|
Source: First Data Cono Sur S.R.L.
|(1)||Consolidated with CCF.|
The Bank faces a high degree of competition in virtually all core financial products with respect to pricing (interest rate or fee) and term. The Bank’s strategy in the face of this competition is to maintain aggressive business policies, differentiate itself with respect to product offering and customer service, and redesign processes for greater sales productivity.
Notwithstanding this competitive challenge, our strategy for growth, both organic and through acquisitions, has resulted in an increase in our financial system market share (excluding public banks) since 2005 according to the Central Bank. Throughout this period, we gained some of the market share lost by several of our larger competitors.
The following graph shows the Bank’s loan market share on a consolidated basis since 2001.
Source: Central Bank.
Taking into consideration total loan portfolio and receivables from financial leases portfolio, total loans and leasing market share was 5.0% as of December 31, 2019.
The graph below shows a comparison of the Bank’s loan portfolio CAGR as of December 31, 2019 compared to the average loan portfolio CAGR of Argentine private Banks and the private financial system (excluding public banks).
Source: Central Bank. Figures are expressed in Pesos in original currency and not adjusted for inflation.
The graph below shows a comparison of the Bank’s loan portfolio growth compared to the average loan portfolio growth of the Argentine financial system.
Source: Central Bank. Figures are expressed in Pesos in original currency and not adjusted for inflation.
CCF offers its products primarily to the middle and lower middle income sectors. CCF’s main competitors can be divided into two groups: (1) those that are not subject to Central Bank oversight such as Tarjeta Naranja, Tarjetas Cuyanas and Credial and (2) those that are subject to Central Bank oversight such as Compañía Financiera Argentina and Banco Columbia.
With respect to its Walmart Argentina private label credit card, CCF’s primary competitors in terms of the types of products offered are Tarjeta CENCOSUD (issued at Jumbo and Easy and used in Jumbo, Easy, Disco, Vea and Blaisten), Tarjeta Carrefour (issued and used exclusively at Carrefour) and Tarjeta Coto (issued and used exclusively at Coto). However, CCF was the first to also issue an open MasterCard credit card, therefore operating in the banking and retail sectors. Currently, Tarjeta CENCOSUD is the only other competitor with a similar strategy. In addition, CCF is the sole provider of in store personal cash loans and consumer loans that may be granted and used immediately at the retail stores.
Tarjeta’s competitors vary in terms of region and type of product. Competitors in the lending space include Compañía Financiera Argentina, Banco Columbia, Credil, Corefin and Empresur. In terms of the credit card space, Tarjeta’s main competitor is Tarjeta Naranja, followed by regional competitors.
MILA is a financial company focused on car financing solutions that had been providing products in the Argentine market for almost 14 years. MILA’s main competitors can be divide into two groups: (1) those that are banks or financial companies such as Santander, ICBC, BBVA, MG Group and HSBC and (2) those that are financial institutions owned by car manufacturers such as Renault Credit, Fiat Credito and Peugeot Finance. MILA’s main product is car loan with pledge that helps to maintain a low risk level portfolio. Currently MILA is ranked as one of the top five players in the new car financing market with 3.0% market share and achieved the fifth position in the used car financing market with 4.9% market share (source ACARA, December 2019). Regarding its distribution channel, MILA sells its products through 393 active dealers that allow the company to have presence in the whole country.
With respect to the mutual fund market, based on the Chamber of Mutual Funds information we estimate our market share was 2.12% as of December 31, 2019, and that SAM is ranked eightteenth out of 52 managers in the industry. Our main competitors are Galicia Administradora de Fondos S.A.S.G.F.C.I., Macro Fondos S.G.F.C.I.S.A., ICBC Investments S.A.S.G.F.C.I., Francés Administradora de Inversiones S.A.G.F.C.I., Itaú Asset Management S.A.S.G.F.C.I., HSBC Administradora de Inversiones S.A.S.G.F.C.I., BNP Paribas Asset Management Arg S.A.S.G.F.C.I. and Santander Río Asset Management G.F.C.I.S.A.
Online trading broker
According to BYMA information, InvertirOnline ranked 3 out of 205 broker With respect to the InvertirOnline operations, according to BYMA, as of December 31, 2019, our equity trading volume market share was 3.3% and InvertirOnline was ranked 8 out of 235 brokers.
Argentine Banking Regulation
Founded in 1935, the Central Bank is the principal monetary and financial authority in Argentina. Its mission is to promote monetary and financial stability, employment and economic development with social equity. It operates pursuant to its charter, which was amended in 2012 by Law No. 26,739 and the provisions of the FIL. Under the terms of its charter, the Central Bank must operate independently from the Argentine government.
Since 1977, banking activities in Argentina have been regulated primarily by the FIL, which empowers the Central Bank to regulate the financial sector. The Central Bank regulates and supervises the Argentine banking system through the Superintendency. The Superintendency is responsible for enforcing Argentina’s banking laws, establishing accounting and financial reporting requirements for the banking sector, monitoring and regulating the lending practices of financial institutions and establishing rules for participation of financial institutions in the foreign exchange market and the issuance of bonds and other securities, among other functions.
The powers of the Central Bank include the authority to fix the monetary base, set interest rates, establish minimum capital, liquidity and solvency requirements, regulate credit, approve bank mergers, approve certain capital increases and transfers of stock, grant and revoke banking licenses, and to authorize the establishment of branches of foreign financial institutions in Argentina and the extension of financial assistance to financial institutions in cases of temporary liquidity or solvency problems.
The Central Bank establishes different technical ratios that must be observed by financial entities with respect to levels of solvency, liquidity, the maximum credits that may be granted per customer and foreign exchange asset and liability positions.
In addition, financial entities need authorization from the Central Bank for the disposition of their assets, such as opening or changing branches or ATMs, acquiring share interests in other financial or non-financial corporations and establishing liens over their assets, among others.
As the supervisor of the financial system, the Central Bank requires financial institutions to submit information on a daily, monthly, quarterly, semiannual and annual basis. These reports, which include balance sheets and income statements, information related to reserve funds, use of deposits, classifications of portfolio quality (including details on principal debtors and any allowances for loan losses), compliance with capital requirements and any other relevant information, allow the Central Bank to monitor the business practices of financial entities. In order to confirm the accuracy of the information provided, the Central Bank is authorized to carry out inspections.
If the Central Bank’s rules are not complied with, various sanctions may be imposed by the Superintendency, depending on the level of infringement. These sanctions range from a notice of non-compliance to the imposition of fines or, in extreme cases, the revocation of the financial entity’s operating license. Additionally, non-compliance with certain rules may result in the compulsory filing of specific adequacy or restructuring plans with the Central Bank. These plans must be approved by the Central Bank in order for the financial institution to continue to operate.
Banking Regulation and Supervision
Central Bank Supervision
Since September 1994, the Central Bank has supervised the Argentine financial institutions on a consolidated basis. Such institutions must file periodic consolidated financial statements that reflect the operations of head offices or parent companies, as well as those of their branches in Argentina and abroad, and their significant subsidiaries, whether domestic or foreign. Accordingly, requirements in relation to liquidity and solvency, minimum capital, risk concentration and loan loss provisions, among others, should be calculated on a consolidated basis.
Permitted Activities and Investments
The FIL governs any individuals and entities that perform habitual financial intermediation and, as such, are part of the financial system, including commercial banks, investment banks, mortgage banks, financial companies, savings and loan companies for residential purposes and credit unions. Except for commercial banks, which are authorized to conduct all financial activities and services that are specifically established by law or by regulations of the Central Bank, the activities that may be carried out by Argentine financial entities are set forth in the FIL and by related Central Bank regulations. Commercial banks are allowed to perform any and all financial activities inasmuch as such activities are not forbidden by law. Some of the activities permitted for commercial banks include the ability to (i) receive deposits from the public in both local and foreign currency; (ii) underwrite, acquire, place or negotiate debt securities, including government securities, in both exchange and over-the-counter (“OTC”) markets (subject to prior approval by the CNV, if applicable); (iii) grant and receive loans; (iv) guarantee customers’ debts; (v) conduct foreign currency exchange transactions; (vi) issue credit cards; (vii) act, subject to certain conditions, as brokers in real estate transactions; (viii) carry out commercial financing transactions; (ix) act as registrars of mortgage bonds; (x) participate in foreign exchange transactions; and (xi) act as fiduciary in financial trusts. In addition, pursuant to the FIL and Central Bank Communication “A” 3086, as amended, commercial banks are authorized to operate commercial, industrial, agricultural and other types of companies that do not provide supplemental services to the banking services (as defined by applicable Central Bank regulations) to the extent that the commercial bank’s interest in such companies does not exceed 12.5% of its voting stock or its capital stock. Nonetheless, if the aforementioned limits were to be exceeded, the bank should (i) request Central Bank’s authorization; or (ii) give notice of such situation to the Central Bank, as the case may be. However, even when commercial banks’ interests do not reach such percentages, they are not allowed to operate such companies if (i) such interest allows them to control a majority of votes at a shareholders’ or board of directors’ meeting, or (ii) the Central Bank does not authorize the acquisition.
Furthermore, according to the rules regarding “Complementary Services of the Financial Entities and Allowed Activities”, as amended, commercial banks are authorized to operate in local or foreign companies that have one or two of the exclusive corporate purposes listed in section 2.2 of Communication “A” 5700 as amended by Communication “A” 6342, in which the commercial bank’s interest either exceeds 12.5% of such companies’ voting stock or allows the commercial bank to control a majority of votes at a shareholders’ or board of directors’ meeting. The financial entities shall give notice to the Superintendency if the corporate purposes of such companies include any of the corporate purposes listed in section 2.2 of that rule.
Operations and Activities that Banks Are Not Permitted to Perform
Section 28 of the FIL prohibits commercial banks from: (a) creating liens on their own assets without prior approval from the Central Bank, (b) accepting their own shares as collateral, (c) conducting transactions with their own directors or managers and with companies or persons related thereto under terms that are more favorable than those regularly offered in transactions with other clients, and (d) carrying out commercial, industrial, agricultural or other activities without prior approval of the Central Bank, except those considered financial activities under Central Bank regulations. Notwithstanding the foregoing, banks may own shares in other financial institutions with the prior approval of the Central Bank, and may own shares or debt of public services companies, if necessary to obtain those services.
Liquidity and Solvency Requirements
As of 1994, the Central Bank supervision of financial institutions is carried out on a consolidated basis. Therefore, all the documentation and information filed with the Central Bank, including financial statements, must show the operations of each entity’s headquarters and all of its branches (in Argentina and abroad), the operations of significant subsidiaries and, as the case may be, of other companies in which such entity holds stock. Accordingly, all requirements relating to liquidity, minimum capital, risk concentration and bad debts’ reserves, among others, are calculated on a consolidated basis.
Pursuant to the FIL, we are required to maintain a legal reserve to be funded with no more than 20% and no less than 10% of yearly income. Notwithstanding the aforementioned, pursuant to Central Bank rules, we are required to maintain a legal reserve which is funded with 20% of our yearly income determined in accordance with such rules. This reserve can only be used during periods in which a financial institution has incurred losses and has exhausted all other reserves. If a financial institution does not comply with the required legal reserve, it is not allowed to pay dividends to its shareholders. For further information, please see “Item 5. Operating and Financial Review and Prospects–Item 5.A Operating Results.”
Since February 2004, non-liquid assets (computed on the basis of their closing balance at the end of each month, and net of those assets that are deducted to compute the regulatory capital) plus the financings granted to a financial institution’s related parties (computed on the basis of the highest balance during each month for each customer) cannot exceed 100% of the Argentine regulatory capital of the financial institution, except for certain particular cases in which it may exceed up to 150%.
Non-liquid assets consist of miscellaneous assets and receivables, bank property and equipment, assets securing obligations, except for swaps, futures and derivative transactions, certain intangible assets and equity investments in unlisted companies or listed shares, if the holding exceeds 2.5% of the issuing company’s equity. Non-compliance with the ratio produces an increase in the minimum capital requirements equal to 100% of the excess on the ratio.
Unless otherwise indicated, the regulations described in this section should be applied to financial information of the banks calculated in accordance with Central Bank rules. IFRS differs in certain significant respects from Central Bank rules.
Minimum Capital Requirements
The Central Bank requires financial institutions to maintain minimum capital amounts measured as of each month’s closing. The minimum capital is defined as the greater of (i) the basic minimum capital requirement, which is explained below, or (ii) the sum of the credit risk, operational risk and market risk. Financial institutions (including their domestic Argentine and international branches) must comply with the minimum capital requirements both on an individual and a consolidated basis.
The following table sets forth information regarding excess capital and selected capital and liquidity ratios of the Bank, consolidated with CCF:
As stated above under “Presentation of Financial and Other Information”, we have prepared our audited consolidated financial statements for 2019, 2018 and 2017 under IFRS. Minimum capital requirement has been prepared in accordance with the rules of the Argentine Central Bank, which is not comparable to data prepared under IFRS.
|Year ended December 31,(2)|
|(in thousands of Pesos except percentages and ratios)|
|Calculation of excess capital:|
|Allocated to assets at risk||7,164,842||6,090,341||4,710,391|
|Allocated to Bank premises and equipment, intangible assets and equity investment assets||826,133||370,233||191,549|
|Interest rate risk||—||—||—|
|Public sector and securities in investment account||11,472||96,882||131,109|
|Required minimum capital under Central Bank rules||10,604,138||8,345,696||6,170,705|
|Basic net worth||16,991,091||11,847,865||9,903,099|
|Complementary net worth||1,033,734||1,163,939||913,256|
|Total capital under Central Bank rules||15,025,109||12,144,006||10,430,163|
|Selected capital and liquidity ratios:|
|Regulatory capital/risk weighted assets(1)||15.6||%||15.30||%||13.9||%|
|Average shareholders’ equity as a percentage of average total assets||10.4||%||9.9||%||10.5||%|
|Total liabilities as a multiple of total shareholders’ equity||7.1||x||9.4||x||8.2||x|
|Cash as a percentage of total deposits||28.2||%||35.1||%||18.2||%|
|Tier 1 Capital / Risk weighted assets||10.8||%||10.8||%||12.6||%|
|(1)||Risk Weighted Assets includes operational risk weighted assets, market risk weighted assets, and credit risk weighted assets. Operational risk weighted assets and market risk weighted assets are calculated by multiplying their respective required minimum capital under Central Bank rules by 12.5. Credit Risk Weighted Assets is calculated by applying the respective credit risk weights to our assets, following Central Bank rules.|
|(2)||Nominal values without inflation adjustment.|
As of December 31, 2019, Banco Supervielle’s Tier 1 Capital ratio on a consolidated basis with CCF was 10.8%, just as it was as of December 31, 2018. Including Ps. 645 million retained at the holding company which are available for future capital injections to our subsidiaries in order to fund our growth strategy, the consolidated pro-forma Tier 1 Capital ratio as of December 31, 2019 stood at 11.3%. Supervielle’s Tier 1 ratio coincides with CET1 ratio.
As of December 31, 2019, the Bank’s total capital ratio on a consolidated basis with CCF was 11.6% compared to 11.9% at December 31, 2018. Including Ps.645 million retained at the holding company which are available for future capital injections to our subsidiaries in order to fund our growth strategy, the consolidated pro-forma total capital ratio as of December 31, 2019 stood at 12.1%.
The capital composition to be considered in order to determine compliance with minimum capital requirements is the financial institution’s RPC (Central Bank rules regarding to “Financial Entities Minimum Capital”, as amended).
Basic minimum capital
Minimum capital requirements of commercial banks acting as custodians of securities representing investments of the Fondo de Garantía de Sustentabilidad del Sistema Integrado Previsional Argentino and/or as registrar of mortgage securities must comply with an extra 0.25% of the value of securities in custody and/or mortgage securities and must be invested in Argentine public bonds or monetary regulation instruments.
Basic Minimum Capital
The basic minimum capital requirement varies depending on the type of financial institution and the jurisdiction in which the financial institution’s headquarter is registered, with Ps.26 million for banks under category I and II (Ps.12 million for other financial entities under this category), and Ps.15 million for banks under category III to VI (Ps.8 million for other financial entities under this category).
|I and II||Ps.26 million||Ps.12 million|
|III to VI||Ps.15 million||Ps.8 million|
Except credit entities.
Description of Argentine Tier 1 and Tier 2 Capital Regulations
Argentine financial institutions must comply with guidelines similar to those adopted by the Basel Committee on Banking Regulations and Supervisory Practices, as amended in 1995 (the “Basel Rules”). In certain respects, however, Argentine banking regulations require higher ratios than those set forth under the Basel Rules.
The Central Bank takes into consideration a financial institution’s RPC in order to determine compliance with capital requirements. Pursuant to Communications “A” 5369 and “A” 5580, as amended and supplemented, RPC consists of Tier 1 capital (Basic Net Worth) and Tier 2 capital (Complementary Net Worth).
Tier 1 capital consists of (i) ordinary capital level 1 (“COn1”), (ii) deductible items from ordinary capital level 1 (CDCOn1), (iii) additional capital level 1 (“CAn1”), and (iv) deductible items from additional capital level 1 (CDCAn1).
COn1 includes the following net worth items: (i) capital stock (excluding preferred stock), (ii) non-capitalized capital contributions (excluding share premium), (iii) adjustments to shareholders’ equity, (iv) earnings reserves (excluding the special reserve for debt instruments), (v) unappropriated earnings, (vi) other results either positive or negative, in the following terms:
|·||with respect to results from prior fiscal years, 100% of net earnings or losses recorded until the last quarterly financial statements with limited review report, corresponding to the last full fiscal year and in respect of which the auditor has not issued the audit report;|
|·||100% of net earnings or losses for the current year as of the date of the most recent audited quarterly financial statements;|
|·||50% of profits or 100% of losses for the most recent audited quarterly or annual financial statements; and|
|·||100% of losses not shown in the financial statements, arising from quantification of any facts and circumstances reported by the auditor;|
(vii) Other comprehensive results:
|(a)||100% of the results registered in the following items belonging to the account “Other comprehensive cumulative results” for the most recent audited quarterly or annual financial statements:|
|·||Revaluation of property, plant, and equipment and|
|·||intangibles; gains or losses on financial instruments at fair value with changes in other comprehensive income.|
|(b)||100% of the debit balance of each of the items recorded in other comprehensive income not mentioned in section (a). The recognition of these concepts, registered in accounts of other comprehensive income or other accumulated comprehensive income, as appropriate, will be made in accordance with the terms of points 188.8.131.52. or 184.108.40.206., as the case may be of Central Bank’s rules regarding “Financial Entities Minimum Capital”.|
|(viii)||share premiums of the instruments included in COn1, and, in the case of consolidated entities, and|
|(ix)||minority shareholdings (common shares issued by subsidiaries subject to consolidated supervision and belonging to third parties, if certain criteria are met).|
In order for the shares to fall under COn1, at the time of issuance, the financial entity must not generate any expectation that such shares will be reacquired, redeemed or amortized, and the contractual terms must not contain any clause that might generate such an expectation.
The above-mentioned items will be considered without certain deductions pursuant to subsection 8.4.1 and 8.4.2 (as applicable) of Central Bank rules regarding “Financial Entities Minimum Capital”, as amended.
Items deductible from COn1 include, among other things: (a) positive balances resulting from the application of income tax withholdings above 10% of the previous months of basic net worth and balances in favor from deferred tax assets; (b) deposits maintained in a corresponding account with a foreign financial institutions that are not rated as “investment grade,” (c) debt securities not held by the relevant financial institutions, except in the case of securities registered by or in custody of the Central Bank (CRYL), Caja de Valores S.A., or Clearstream, Euroclear and the Depository Trust Company, (d) securities issued by foreign governments whose credit rating is at least ‘investment grade’ according to Communication “A” 5671; (e) subordinated debt instruments issued by other financial institutions; (f) shareholders; (g) real property added to the assets of the financial entity and with respect to which the title deed is not duly recorded at the pertinent Argentine real property registry, except where such assets shall have been acquired in a court-ordered auction sale; (h) intangible assets; (i) items pending allocation, debtor balances and other; (j) certain assets, as required by the Superintendency resulting from differences between carry amount and the fair value of assets or actions taken to distort or disguise the true nature or scope of operations; (k) any deficiency relating to the minimum loan loss provisions required by the Superintendency; (l) equity interests in companies that have the following activities: (i) financial assistance through leasing or factoring agreements, (ii) transitory equity acquisitions in other companies in order to further their development to the extent the ultimate purpose is selling such interest after development is accomplished, and (iii) credit, debit and similar cards emissions; (m) the excess to the limits set forth for secured assets on Section 3 of the rules on “Affectation of Secured Assets” (n) the highest balance of that month’s financial assistance granted during the month, where the advance payments set forth in Section 3.2.5 of the rules on “Lending to the non-financial public sector” surpass the authorized limit and/or are not settled within the terms established therein; (o) income from sales relating to securitization transactions, as applicable, pursuant to the provisions of Sections 3.1.4., 220.127.116.11. and 18.104.22.168., and from portfolio sales or assignments with recourse. This deduction can be applied as long as the credit risk still persists and to the extent in which the capital requirement for the underlying exposures or the sold or assigned portfolio with recourse is maintained; (p) in the case of liabilities from derivatives accounted for at fair value, unrealized gains or losses due to changes in the financial institution’s credit risk will be deductible. The deduction will be limited to the financial institution’s own credit risk adjustments only plus or minus, as the case may be); such adjustments may not be offset against adjustments for counterpart risk; (q) equity interests in financial institutions subject to consolidated oversight, except where not permitted due to the existence of deductible amounts; or in the case of foreign financial institutions. In these cases, the deductions will be the net amount of the allowance for impairment and, when controlled financial institutions subject to the provisions of Section 22.214.171.124., item iii) are involved, the deductions will be 50% of the net amount of profits derived by these entities on a proportional basis to their respective interests.
CAn1 includes certain debt instruments of financial entities not included under COn1 that meet the regulatory criteria established in section 8.3.2 of the rules regarding “Financial Entities Minimum Capital”, as amended and supplemented, and share premiums resulting from instruments included in CAn1. Furthermore, in the case of consolidated entities, it includes instruments issued by subsidiaries subject to consolidated supervision and belonging to third parties, pursuant to applicable regulatory requirements.
The items mentioned in the previous points will be reduced, if applicable, by the deductible concepts provided in point 8.4.2 of the rules regarding “Financial Entities Minimum Capital”, as amended and supplemented, which are described below.
Moreover, debt instruments included under Can1 must comply with the following requirements:
|(1)||Must be totally subscribed and paid in full.|
|(2)||Must be subordinated to depositors, unsecured creditors and to the subordinated debt of the financial entity. The instruments must contemplate that in the case of the entity’s bankruptcy and once all debts with all the other creditors are satisfied, its creditors shall have priority in the distributions of funds only and exclusively with respect to the shareholders (irrespective of their class), with the express waiver of any general or special privilege.|
|(3)||Must not be insured or guaranteed by the issuer or a related entity, and with no agreement improving, either legally or economically, the payment priority in the case of the entity’s bankruptcy.|
|(4)||They shall not contemplate any type of capital payment, except in the case of liquidation of the financial entity. Provisions gradually increasing remuneration or other incentives for anticipated amortization are not allowed.|
|(5)||After five years as from the issuance date, the financial entity can buy back the debt instruments if: (i) it has the prior authorization of the Superintendency, (ii) the entity does not create any expectations regarding the exercise of the purchase option, and (iii) the debt instrument is replaced by a RPC of equal or greater value sustained by its revenue capacity, or if it is demonstrated that once the purchase option is exercised its RPC significantly exceeds at least by 20% of the minimum capital requirements.|
|(6)||Any capital repayment requires previous authorization from the Superintendency. In the case of a capital repayment, the financial entity must not create any market expectations regarding the granting of such authorization.|
|(7)||The financial entity can pay dividends/interest coupons at any time, and at its sole discretion, which shall not be considered a default in itself and shall not grant bondholders the right to claim the conversion of their notes into ordinary shares. Furthermore, there shall be no restrictions to the financial entity, except with respect to dividend distribution to the shareholders.|
|(8)||The payment of dividends/interest coupons shall be carried out through the noting of distributable entries, in the terms of the regulations on “Results Distribution” (Section III of the Central Bank’s regulations).|
|(9)||The included dividends/interest coupons shall not have periodic adjustments because of the financial entity’s credit risk.|
|(10)||They should not have been bought by the financial entity or any other entity over which the financial entity has control or significant influence.|
|(11)||They should not have been bought with direct or indirect financing from the financial entity.|
|(12)||They shall not contain elements that make re-capitalization difficult.|
Instruments considered liabilities must absorb losses once a pre-established triggering event takes place. The instruments must do so through their conversion into common shares and a mechanism assigning final losses to the instrument with the following effects:
|(a)||Reduction of debt represented by the instrument in the event of winding-up of the entity;|
|(b)||Reduction of the amount to be repaid in case a call option is exercised;|
|(c)||Total or partial reduction of the dividends/interest coupon payments of the instrument.|
Complementary Net Worth (PNc): Tier 2
Tier 2 Capital includes
(i) certain debt instruments of financial entities which are not included in Tier 1 Capital and meet the regulatory criteria established in section 8.3.3 of the Central Bank rules regarding “Financial Entities Minimum Capital” as amended and supplemented, (ii) share premium from instruments included in Tier 2 Capital, and (iii) loan loss provisions on the loan portfolio of debtors classified as being in a “normal situation” pursuant to Central Bank rules on debtor classification and on financings with class “A” preferred securities not exceeding 1.25% of the assets measured for credit risk. Additionally, in the case of consolidated entities, it includes (iv) debt instruments issued by subsidiaries subject to a consolidated supervision and belonging to third parties, if they meet the criteria in order to be included under complementary net worth.
The above-mentioned items will be considered minus deductible items pursuant to section 8.4.2 of the Central Bank rules regarding “Financial Entities Minimum Capital”, as amended and supplemented, which is described below.
Moreover, debt instruments included under complimentary net worth must comply with the following requirements:
|·||Must be totally subscribed and paid in full.|
|·||Subordinated to depositors, unsecured creditors and the subordinated debt of the financial entity.|
|·||Must not be insured or guaranteed by the issuer or a related entity, and has no agreement improving either legally or economically the payment priority in case of the entity’s bankruptcy.|
|·||Maturity: (i) original maturity date within no less than 5 years, (ii) clauses considering gradually increasing remuneration or other incentives for anticipated amortization are not allowed, and (iii) from the beginning of the last five years of life of the indebtedness, the computable amount will be diminished by 20% of its nominal issuance value. After 5 years as from the issuance date, the financial entity can buy back the debt instruments with the previous authorization of the Superintendency, and if the entity does not create any expectations regarding the exercise of the purchase option. The debt instrument must be replaced by an RPC of equal or greater value sustained by its revenue capacity, or if it is demonstrated that once the purchase option is exercised its RPC significantly exceeds at least in a 20% of the minimum capital requirements.|
|·||The investor shall not be entitled to accelerate the repayment of future projected payments, except in the case of bankruptcy or liquidation.|
|·||They cannot incorporate dividends/coupons with periodic adjustments linked to the financial entity’s credit risk.|
|·||They should not have been bought by the financial entity or any other entity over which the financial entity has control or significant influence.|
|·||They should not have been bought with direct or indirect financing from the financial entity.|
Additionally, instruments included in Tier 2 capital and Can1, shall meet the following conditions in order to assure their loss-absorbency capacity:
|(a)||Their terms and conditions must include a provision pursuant to which the instruments must absorb losses–either through a release from debt or its conversion into ordinary capital–once a triggering event has occurred, as described hereunder.|
|(b)||If the holders receive compensation for the debt release performed, it should be carried out immediately and only in the form of common shares, pursuant to applicable regulations.|
|(c)||The financial entity must have been granted the authorization required for the immediate issuance of the corresponding common shares in the case of a triggering event, as described below.|
Triggering events of regulatory provisions described above are: (i) when the solvency or liquidity of the financial entity is threatened and the Central Bank rejects the amnesty plan submitted or revokes its authorization to function, or authorizes restructuring protecting depositors (whichever occurs first) or (ii) upon the decision to capitalize the financial entity with public funds.
The Bank has issued three series of subordinated notes, all of which are outstanding as of the date of this annual report. The series issued in 2013 and 2014 comply with all the requirements described above. However, the series issued in November 2010 is not in compliance with the requirements because it was issued prior to the effectiveness of Communication “A” 5580. See “Item 5.B Liquidity and Capital Resources—Financings—Bank – Foreign currency-denominated Subordinated Notes.” On February 9, 2017, under the Bank’s global program of simple negotiable obligations, not convertible into shares, for a nominal value of up to U.S.$2,300 million (previously, U.S.$800 million) (or its equivalent in other currencies or units of value), the Bank issued Class A Negotiable Obligations, which constitute unsubordinated senior obligations, and therefore are not computable for the purpose of calculating the RPC.
Further criteria regarding the eligibility of items included in the RPC calculation must be followed pursuant to the regulatory requirements of minority and other computable instruments issued by subsidiaries, subject to consolidated supervision by third parties. A minority shareholding may be included in Con1 of the financial entity if the original instrument complies with the requirements established for its qualification as common shares regarding the RPC.
Deductible items applied to the different capital levels
|(i)||Investments in computable instruments under the financial entity’s RPC not subject to consolidated supervision when the entity owns up to 10% of the issuer’s ordinary capital according to the following criteria: (i) investments include direct, indirect or synthetic interests; (ii) investments include the acquired net position; (iii) securities issued are placed within five (5) business days; and (iv) the investments in capital instruments that do not satisfy the criteria to be classified as Con1 (Common Capital Tier 1), AT1 (Additional Capital Tier 1) or PNc (Supplementary Capital) of the financial institution shall be regarded as Con1 –common equity shares, for the purposes of this regulatory adjustment. If the aggregate amount of these interests in the capital of financial institutions, companies providing services supplementary to the financial industry and insurance companies – which individually represent less than 10% of the Con1 of each issuer – exceeds 10% of the Con1 of the financial entity, net of applicable deductions, the amount over such 10% shall be deducted from each capital tier in accordance with the following formula: i) Amount to be deducted from Con1: aggregate excess amount over 10% multiplied by the proportion represented by the Con1 holdings over the aggregate equity interests; ii) Amount to be deducted from Can1: aggregate excess amount over 10% multiplied by the proportion represented by the Can1 over the aggregate equity interests. iii) Amount to be deducted from PNc: aggregate excess amount over 10% multiplied by the proportion represented by the PNc holdings over the aggregate equity interest. If the financial institution does not have enough capital to make the deduction pertaining to a particular capital tier, the remaining amount shall be deducted from the next higher level. Amounts below the threshold, which are not deducted, are weighted based upon the risk or are taken into account in the calculation of the market risk requirement, as applicable.|
|(ii)||Investments in instruments computed as regulatory capital of financial institutions and companies rendering services supplementary to the financial industry, not subject to consolidated supervision and insurance companies, when the institution holds more than 10% of the common equity of the issuer, or when the issuer is a subsidiary of a financial institution, shall be subject to the following criteria: i) The investments include direct, indirect and synthetic interests. For these purposes, indirect interest means an investment by a financial institution in another financial institution or company not subject to consolidated oversight, which in turn has an interest in another financial institution or company not consolidated with the first one. A synthetic interest means an investment made by a financial institution in an instrument the value of which is directly related with the equity value of another financial institution or company not subject to consolidated supervision; ii) The net acquired position is included, i.e., the gross acquired position less the position sold in the same underlying exposure, when this has the same duration than the acquired position or its residual life is at least one year; iii) The holding of securities underwritten to be sold within a five business day term may be excluded; iv) Investments in capital instruments that do not satisfy the criteria to be classified as Con1, Can1 or PNc of the financial institution shall be regarded as Con1, common equity shares, for the purposes of this regulatory adjustment. The amount of these interests, taking into account the applicable type of instrument, shall be deducted from each of the applicable capital tiers of the financial institution. If the financial institution does not have enough capital to make the deduction pertaining to a particular capital tier, the remaining amount shall be deducted from the next higher level.|
|(iii)||Own repurchased instruments that satisfy the criteria for being included in Can1 or PNc must be deducted from the applicable capital tier.|
Central Bank Rules regarding “Financial Entities Minimum Capital”, as amended and supplemented, establishes minimum thresholds regarding capital integration: (i) for Con1, the amount resulting from multiplying the capital risk weighted assets (“RWA”) by 4.5%; (ii) for the basic net worth, the amount resulting from multiplying the RWA by 6% and (iii) for the RPC, the amount resulting from multiplying the RWA by 8%. It is important to note that the RWA calculation results from multiplying the required minimum capital under Central Bank rules by 12.5%. The failure to comply with any of these limitations is considered an infringement of the minimum capital integration requirements.
Pursuant to Communication “A” 5889, RWA shall be calculated as follows:
RWA = RWAc + [(MR+OR) x 12.5]
RWAc: credit risk weighted assets
MR: minimum capital requirement for market risk
OR: minimum capital requirement for operational risk
Central Bank rules regarding “Financial Entities Risk Management Guidelines”, as amended and supplemented, requires financial institutions to have an integrated global internal process in place to assess the adequacy of their economic capital based on their risk profile (the “Internal Capital Adequacy Assessment Process” or “ICAAP”), as well as a strategy aimed at maintaining their regulatory capital. If, as a result of this internal process, it is found that the regulatory capital is insufficient, financial institutions must increase regulatory capital based on their own estimates to meet the regulatory requirement.
The economic capital of financial institutions is the amount of capital required to pay not only unexpected losses arising from exposure to credit, operational and market risks, but also those arising from other risks to which the financial institution may be exposed.
Financial institutions must demonstrate that their internal capital targets are well-funded and adequate in terms of their general risk profile and operations. The ICAAP should take into consideration all material risks to which the institution is exposed. To this end, institutions must define an integral process for the management of credit, operational, market, interest rate, liquidity, securitization, graduation, reputational and strategic risks and use stress tests to assess potential adverse scenarios that may affect their regulatory capital.
The ICAAP must include stress tests supplementing and validating any other quantitative or qualitative approach employed by the institution in order to provide the Board of Directors and senior management with a deeper understanding of the interaction among the various types of risk under stress conditions. In addition, the ICAAP must consider the short- and long-term capital needs of the institution and ensure the prudent accumulation of excess capital during positive periods of the economic cycle.
The capital level of each entity must be determined in accordance with its risk profile, taking external factors such as the economic cycle effects and political scenario.
Pursuant to Communication “A” 5398, the main elements of a strict capital evaluation include:
|(a)||Policies and procedures to guarantee that the entity identifies, quantifies and informs all the important risks.|
|(b)||A process which relates economic capital with the current level of risk.|
|(c)||A process which sets forth capital sufficiency objectives related to the risk, taking a strategic approach from the entity and its business plan into consideration.|
|(d)||An internal process of controls, tests and audits, with the objective to guarantee that the general risk management process is exhaustive.|
The required amount of capital of each institution shall be determined based on its risk profile, taking into consideration other external factors such as the effects of the economic cycle and the economic scenario.
Communication “A” 6534 which replaced Communication “A” 6459, provides guidelines for the calculation of economic capital, depending on the type of financial entity. Entities considered within Group A pursuant to Central Bank rules shall use their internal models to quantify the needs of economic capital with relation to its risk profile. Conversely, Group B entities may opt for a simplified calculation methodology. Such option must be approved by the board of directors of such entity.
Group B entities which have opted for the simplified methodology shall apply the following expression:
EC = (1.05 x MC) + max [0; ρ EVE – 15 % x bNW)]
EC: economic capital
MC: minimum capital requirements
EVE: measure of risk calculated according to a standardized framework forseen in section 5.4 of Communication “A” 6534
bNW: basic net worth (tier 1 capital)
Requirements Applicable to Dividend Distribution
The Central Bank has imposed restrictions on the payment of dividends, substantially limiting the ability of financial institutions to distribute such dividends subject to compliance with the rules set forth in the “Rules on Dividend Distributions” of the Central Bank, under the criterion that the amount to be distributed cannot affect the institution’s liquidity and solvency, which shall be verified by the satisfaction of certain requirements, on a consolidated basis.
Such regulations provides that the payment of dividends (other than dividends on common shares), the acquisition of treasury shares, the payment on other tier 1 equity instruments (as determined in accordance with the provisions set forth in the rules on “Minimum capital of financial institutions”) and/or the payment of financial incentives (bonuses) to personnel – in this case, subject to the public order labor regulations (legal, statutory and contractual) governing the financial institutions’ relationships with their personnel– shall be subject to these rules.
Institutions may distribute dividends up to the positive amount derived from the off-balance sheet calculation set forth herein, without exceeding the limits set forth in these rules.
To such effect, the registered balances, as of the end of the fiscal year to which they belong, in the account “Unassigned Results” (Resultados no asignados) and in the voluntary reserve for future distributions of dividends shall be computed, deducting the amounts – recorded on the same date – of the legal and statutory reserves – whose creation is mandatory – and the following items:
1. 100% of the negative balance of each of the items recorded under the line “Other comprehensive retained earnings.”
2. The result derived from the revaluation of property, plant and equipment and intangible assets and investment properties.
3. The net positive difference resulting from the calculation at amortized cost and the fair market value recorded by the financial institution in connection with sovereign bonds and/or currency regulation instruments issued by the Central Bank for such instruments valued at amortized cost.
4. The asset valuation adjustments notified by the Superintendency – whether accepted or not by the institution– that are pending registration and/or those indicated by the external audit that have not been accounted.
5. The individual deductibles – regarding asset valuation – established by the SEFyC, including the adjustments derived from the failure to consider agreed adjustment plans.
In addition, financial entities may not distribute profits with the profit arising from the application of IFRS for the first time, and must set up a special reserve that can only be canceled for capitalization or to absorb any negative balances from the item “Unassigned results.”
The amount to be distributed, which shall not exceed the limits set forth by the Central Bank, shall not compromise the liquidity and solvency of the institution. This requirement shall be considered satisfied once it has been verified that there are no integration defects in the minimum capital position – whether individual and consolidated – as of the end of the fiscal year to which the unappropriated retained earnings pertain or in the last closed position, whichever has the lesser integration excess, recalculating them together (for such purpose only) with the following effects based on the data relevant as of each such date:
|1.||Those arising after deducting the items set forth above in points 1 to 5, if applicable, from the assets.|
|2.||The failure to consider the deductibles established by the SEFyC affecting the requirements, integrations and minimum capital position.|
|3.||The deduction of the amounts relating to the following items from the unappropriated retained earnings:|
|·||the amount to be distributed and, if applicable, the amount allocated to the creation of the reserve to repay debt instruments, capable of integrating the regulatory capital;|
|·||positive balances due to the application of the minimum presumed income tax – net of allowances for impairment – that have not been deducted from the basic shareholders’ equity, in accordance with the provisions set forth in rules on “Minimum capital of financial institutions”; and|
|·||adjustments made in accordance with points 1 to 5 above.|
|4.||The failure to consider the limit set forth in paragraph 7.2. of the rules on “Minimum capital of financial institutions.”|
The distribution of earnings shall only be admitted if none of the following events occurs:
|·||the institution is subject to the provisions of article 34 “Regularization and Recovery” and article 35 bis of the FIL;|
|·||the institution has received financial assistance from the Central Bank under section 17 of its Charter, due to illiquidity;|
|·||the institution is delayed or in breach of the reporting regime set forth by the Central Bank;|
|·||the institution records minimum capital integration deficits – whether individually or consolidated – (without computing the effects of the individual deductibles established by the SEFyC);|
|·||the integration of the average minimum cash – in Pesos, in foreign currency or in sovereign securities – is smaller than the requirement applicable to the last closed position or the projected position, taking into account the effect of the earnings distribution;|
|·||the institution has failed to comply with the additional capital margins applicable in accordance with Section 4.|
As from January 2020, in order to recalculate the minimum capital position set under Section 3 of the rules on “Dividends Distribution”, financial institutions of the Company “B” shall enforce Section 5.5 about Impairment from the IFRS Financial Instrument No. 9.
The aforementioned regulation contemplated transitory provision, effective until March 31, 2020, pursuant to which those financial institutions which, in order to determine distributable earnings, have not increased the ranges of COn1 net of deductions (CDCOn1) set forth in 1 percentage point, must obtain the prior authorization of the SEFyC for the distribution of earnings. This requirement shall also be applicable to the payment of financial services applicable to the issue of debt securities.
Unless otherwise indicated, the regulations explained in this section are applied to financial information of the banks calculated in accordance with Argentine Banking GAAP. IFRS differs in certain significant respects from Argentine Banking GAAP.
On March 19, 2020, in the midst of the coronavirus’ outbreak crisis, the Central Bank issued Communication “A” 6939, by virtue of which the distribution of dividends by financial entities was temporarily suspended until June 30, 2020.
Capital Conservation Buffer
Communication “A” 5827 of the Central Bank establishes that financial entities shall maintain a capital conservation margin in addition to the minimum capital requirements in order to ensure the accrual of owned resources to cope with eventual losses, reducing the non-compliance risk.
Financial entities considered D-SIBs or globally systemically important (“G-SIBs”), shall have a capital level that permits a greater capacity for loss absorption, by virtue of negative externalities that the effects of insolvency of such entities or their foreign holdings could create in the financial system and the economy.
The conservation capital margin shall be 2.5% of the amount of RWA. In cases of entities considered systemically important, the margin will be increased to 3.5% of the amount of capital risk weighted assets. These margins can be increased once again, according to the counter-cycle margin. The conservation capital margin, increased in the case of entities considered systemically important, must be integrated exclusively with Common Equity Tier 1 (COn1), net from deductible items (CDCOn1).
When such margin is used, the entities must raise capital with new capital contributions, or reduce future distributions.
The dividend distribution shall be limited whenever the level and composition of the computable asset liability, even when it complies with the minimum capital requirements, is within the range of the capital conservation margin. This limitation reaches solely the dividend distribution, but not the operation of the entity. Entities shall be able to operate normally when levels of Con1 are within the range of conservation margin. When the coefficient of Common Equity Tier 1 (Con1 as percentage of RWA) is within the range of margins conservation of capital, the restriction to the results distribution shall be increased whenever the coefficient of Con1 comes close to the minimum required in section 8.5.1 of regulations over “Minimum Capital for Financial Entities”. The following table shows the maximum percentages of dividend distribution, according to the compliance with the conservation margin presented:
|Coefficient of Common Equity Tier 1 (COn1) net of deductions|
(CDcon1) – as percentage of RWA -
|Financial Entities – That|
are not categorized as
D-SIBs or G-SIBs-
|D-SIBs and G-SIBs|
|Minimum coefficient of capital|
conservation – as percentage of
dividend distribution -
|4.5 – 5.13||4.5 – 5.38||100|
|> 5.13 – 5.75||> 5.38 – 6.25||80|
|> 5.75 – 6.38||> 6.25 – 7.13||60|
|> 6.38 – 7.0||> 7.13 – 8||40|
|> 7||> 8||0|
Currently, the minimum limits required by the regulations are:
COn1 must be used in the first place to satisfy the minimum capital requirement of 4.5% of RWA. Subsequently, and in the event the total does not have enough Additional Tier 1 (CAn1) or Tier 2 Capital (PNc), the COn1 shall also be applied to meet requirements of 6% and 8% of Tier 1 Capital and total capital. Only the remaining COn1, if any, can be computed to satisfy the applicable conservation margin, increased in function of the counter-cycle margin, if applicable.
Any entity that desires to exceed the dividend distribution limits shall finance this distribution by new contributions of COn1 in the excess amount.
The Central Bank also establishes the counter-cycle margin in order to allow the financial entities’ capital levels to correspond to the accumulative systematic risk associated with an excessive credit expansion and the macro-financial context. When the Central Bank considers that the credit growth is excessive, creating an increase in systematic risk, it can establish, with a twelve-month advanced notice, the obligation to constitute a counter-cycle margin within a range of 0% to 2.5% of RWA. This margin can be reduced or cancelled by the Central Bank when it considers that the systematic risk has been diminished.
Financial entities with international activity shall consider the geographic location of their credit exposure with local and foreign residents of the private sector and calculate the counter-cycle margin as the mean between the required margins in foreign jurisdictions. This includes all credit exposure to private sectors subject to the requirement of credit risk capital.
In order to determine which jurisdiction corresponds to each exposure, the principle of ultimate risk shall be applied. Pursuant to this principle, one must identify the jurisdiction where the guarantor of the risk resides. The counter-cycle margin shall be observed by means of an increase in the conservation capital margin and shall be satisfied exclusively with Common Equity Tier 1, net of deductible concepts (CDCOn1).
The minimum capital requirement in respect of counterparty risk (“CRC”) shall be calculated with the items included, which must be computed on the basis of the balances as of the last day of each month (capital, interests, premiums, restatements – by the CER – and price differences, as appropriate, net of the non-recoverability and devaluation risks provisions and of accumulated depreciation and amortization attributable to them and other regularizing accounts, without deducting 100% of the minimum amount required for the non-recoverability risk provision in the portfolio corresponding to debtors classified as in a “Normal Situation” – points 6.5.1 and 7.2.1 of the rules on “Classification of Debtors”- and financings secured by preferential guarantees “A”).
The minimum capital requirement in respect of counterparty risk must be calculated applying the following equation:
CRC = (k x 0.08 x RWAc) + INC
Variable “k” is determined by the rating (1 is the strongest, 5 is the weakest) assigned to the financial entity by the Superintendency, pursuant to the following scale: Minimum capital requirements also depend on the CAMELBIG rating (1 is the strongest, 5 is the weakest) assigned by the Superintendency, which also determines the “k” value. This rating system complies with international standards and provides a broad definition of the performance, risks and perspectives of financial entities. Financial entities have to adjust their capital requirements according to the following “k” factors:
|CAMELBIG Rating||K Factor|
For the purposes of the calculation of the capital requirement, the rating will be that of the third month after the month of the most recent rating informed to the entity. For so long as no notice is given, the “k” factor will be equal to 1.03.
RWAc: These are credit risk weighted assets, calculated by adding the following:
A * p + PFB * CCF * p + no DVP “DvP”+ (DVP + RCD + INC significant holding in other companies) * 12,50
Variable “A” refers to eligible assets/exposures; “PFB” are eligible items which are not registered on the balance sheet; “CCF” the conversion credit factor; and “p” refers to the weighting factor, expressed on a per unit basis.
In addition, “no DvP” refers to transactions that do not involve delivery against payment. The amount is determined by the addition of the amounts arrived at by applying the weighting factor (p) on the relevant transactions.
“DvP” refers to failed delivery against payment transactions (for purposes of these rules, failed payment against payment (PvP) transactions are also included). The amount is determined by the addition of the amounts arrived at by multiplying the current positive exposure by the applicable capital requirement.
“RCD” refers to requirements for counterparty risk in OTC transactions.
“INC” incremental minimum capital requirements based on any excess in the fixed assets and other ratios, the limitations established under the “Major Exposure to Credit Risk Regulations”.
“INC(investments in companies)” means the incremental minimum capital requirements based on any excess over the following limits:
|·||equity interest held in companies: 15%|
|·||total equity interests held in companies: 60%|
The established maximum limits will be applied on the financial entity’s computable regulatory capital for the last day before the relevant date, as prescribed in the rules on “Credit Risk Fractioning”.
Each type of asset is weighted according to the level of risk assumed to be associated with it. In broad terms, the weights assigned to the different types of assets are:
|Type of Asset||Weighting (%)|
|Cash and cash equivalents|
|Cash held in treasury, in transit (when the financial institution assumes responsibility and risk for transportation), in ATMs, in checking accounts and in special accounts with the Central Bank, gold coins or bars||0|
|Cash items in the process of collection, cash in armored cars and in custody at financial institutions||20|
|Exposure to governments and central banks|
|To the Central Bank denominated and funded in Pesos||0|
|To the public non-financial sector denominated and funded in Pesos, including securitized exposures||0|
|To the public non-financial sector arising from financing granted to social security beneficiaries or public employees (with discount code)||0|
|To the public non-financial sector and the Central Bank. Other. To other sovereign states or their central banks.|
|AAA to AA-||0|
|A+ to A-||20|
|BBB+ to BBB-||50|
|BB+ to B-||100|
|Entities of the non-financial public sector from other sovereigns, pursuant ot the credit rating assigned to the respective sovereign||0|
|AAA to AA-||20|
|A+ to A-||50|
|BBB+ to BBB-||100|
|BB+ to B-||100|
|Type of Asset||Weighting (%)|
|To the Bank for International Settlements, the IMF, the European Central Bank and the European Community||0|
|To the non-financial public sector of the provinces, municipalities and/or the Autonomous City of Buenos Aires arising from the acquisition of sovereign bonds issued in Pesos by the central administration, when they do not have any one of the guarantees described in the regulations on “Financing to Non-Financial Public Sector”, pursuant to the credit rating assigned to the respective jurisdiction|
|AAA to AA-||20|
|A+ to A-||50|
|BBB+ to BBB-||100|
|BB+ to B-||150|
|Exposure to the Multilateral Development Banks (MDB)|
|The International Bank for Reconstruction and Development (IBRD), the International Finance Corporation (IFC), the Inter-American Development Bank (IDB), the European Investment Bank (EIB), the Asian Development Bank (ADB), the European Investment bank (EIB), among others.||0|
|AAA to AA-||20|
|A+ to A-||50|
|BBB+ to BBB-||50|
|BB+ to B-||100|
|Exposure to local financial institutions|
|Denominated and funded in Pesos arising from transactions with an initial contractual term of up to 3 months||20|
|Other. The weighting percentage to be applied will be the one for one category less favorable than the one assigned to the exposures with the national government in foreign currency, as provided for the Exposure to the public non-financial sector and the Central Bank, with a maximum of 100%, except for the case in which the grade was less than B-, in which the weighting percentage will be 150%.||150|
|Exposure to foreign financial institutions, pursuant to the credit rating assigned to the sovereign of their jurisdiction of incorporation.|
|AAA to AA-||20|
|A+ to A-||50|
|BBB+ to BBB-||100|
|BB+ to B-||100|
|Exposure to companies and other legal entities in the country and abroad, including exchange institutions, insurance companies and stock exchange entities||100|
|Exposures included in the retail portfolio|
|Loans to individuals (provided that installments of loans granted by the institution do not exceed, at the time of the agreements, 30% of borrower’s income) and to Micro, Small- and Medium-Sized Companies (“MiPyMEs”).||75|
|Exposures guaranteed by reciprocal guaranty companies (sociedades de garantía recíproca) or public security funds registered with the registries authorized by the Central Bank||50|
|Primary mortgages and mortgages of any ranking on residential homes, to the extent the entity is the mortgagee|
|If credit facility does not exceed 75% of the appraised value of such real property|
|- Sole, permanently-occupied family home||35|
|Type of Asset||Weighting (%)|
|On the amount exceeding 75% of the appraised value of such real property||100|
|Primary mortgages and mortgages of any ranking other than on residential homes, to the extent the entity is the mortgagee|
|Up to 50% of the lower of the real property market value or 60% of the mortgage loan.||50|
|On the remaining portion of the loan.||100|
|Past due loans over 90 days|
|Weighting varies according to the loan and specific provisions Created||50-150|
|Securitization exposures, failed DvP transactions, non-DvP transactions, exposures to central counterparty institutions (CCP) and derivative transactions not included in said exposure.||*|
|Exposures to individuals or companies originated in credit card purchases made in installments of travel tickets to foreign destinations and other touristic services abroad (logding, car rental), either made directly to the service provider or through a travel agency or web platform||1250|
|Other assets and off-balance categories||100|
* They receive a special treatment.
Excluded items include: (a) securities granted for the benefit of the Central Bank for direct obligations; (b) deductible assets pursuant to RPC regulations and (c) financings and securities granted by branches or local subsidiaries of foreign financial entities by order and on account of their headquarters of foreign branches or the foreign controlling entity, to the extent: (i) the foreign entity has an investment grade rating, (ii) the foreign entity is subject to regulations that entail consolidated fiscalization, (iii) in the case of finance operations, they shall be repaid by the local branch or subsidiary exclusively with funds received from the aforementioned foreign intermediaries; and (iv) in the case of guarantees granted locally, they are in turn guaranteed by their foreign branch headquarters or the foreign controlling entity and foreclosure on such guaranty may be carried out immediately and at the sole requirement of the local entity.
Credit Risk Regulation – Large Exposures
Communication “A” 6599 of the Central Bank, as amended and restated by Communication “A” 6620, effective as of January 1, 2019, abrogated credit risk fractioning regulations (except for the provisions related to the non-financial public sector), and replaced the former regime by regulating “large exposures to credit risk”. The system seeks to limit the maximum loss that a financial entity may suffer upon the occurrence of an unexpected default of a counterparty or group of connected counterparties who do not belong to the non-financial public sector, therefore affecting its solvency. The regulations regarding the exposures to credit risk must be applied at all times with every counterparty of the entity.
In this regard, the regulations have established the concept of group of connected counterparties, which applies to all cases in which one of the counterparties of a financial entity have direct or indirect control over the rest or in those cases in which financial difficulties experimented by one of the counterparties causes a strong likelihood that its subsidiaries may struggle financially as well. According to the regulation, upon the detection of the existence of a group of connected counterparties by the financial entity, such group shall be considered as a single counterparty and the sum of the exposures to credit risk that a financial entity possesses with all the individual counterparties comprehended in that group shall be subject to the information and disclosure requirements provided in section 2.
One of the main aspects of Communication “A” 6599 is the introduction of the concept of large exposure to credit risk in Argentine banking regulations, which is defined as the sum of all values of exposure of a financial entity with a counterparty or group of connected counterparties when it is equal or above 10% of the Tier 1 Capital registered by the financial entity the immediately preceding month of its calculation.
However, the determination of the values of exposure to risk recognize the following exceptions:
|·||Intraday interbank exposures;|
|·||Exposures of financial entities with qualifying central counterparties, as defined by the Central Bank rules on minimum capital;|
|·||Exposures with the Central Bank; and|
|·||Exposures with the Argentine non-financial public sector.|
Regarding the information regime, the Central Bank has established that the financial entities shall inform the Superintendency of all the values of exposure to credit risk before and after the application of mitigation techniques, detailing:
|·||Exposures to risk with a value equal or above 10% of Tier 1 Capital of the financial entity;|
|·||Every other exposure to risk which value is equal or above 10% of the Tier 1 Capital of the financial entity, without applying credit risk mitigation techniques;|
|·||Excluded exposures to risk which values are equal or above 10% of the financial entity’s Tier 1 Capital; and|
|·||The financial entity’s 20 largest applicable exposures to risk, regardless of its value in relation with the financial entity’s Tier 1 Capital.|
Communication “A” 6620 sets at 15% the limit of exposure with a counterparty of the non-financial private sector. Nevertheless, the limit will be increased by 10 percentage points for the part of the exposures that are covered by preferred collaterals. Additionally, it sets special limits for operating with financial institutions in the country and abroad (the general rule sets it at 25%). In the case of foreign financial institutions that do not have an international risk rating included in the “investment grade” category, the maximum limit is 5%.
Similarly, Communication “A” 6599 sets the global limit of exposure to risk with respect to affiliate counterparties at 20%. In the case of stock held in an investment portfolio, the sum of all the values of exposure to risk corresponding to the total stocks not related to the portfolio shall not exceed 15% (holdings in public services companies or companies dedicated to complementary services to financial activities are excluded). The total limit of stocks and holdings shall be the sum of all the values of exposure to risk corresponding to the total amount of stock in an investment or negotiation portfolio plus the credits for forward operations and sureties entered into in authorized Argentine markets shall not exceed 50%.
Minimum controls to exposures of affiliates
The regulations set forth three stages for the control of the financial entity’s affiliates exposure:
|(1)||Reports for the entity’s management:|
|·||Report by the CEO;|
|·||Report by the supervisory committee; and|
|·||Acknowledgment of the reports by the entity’s management.|
|(2)||Evidence of the affiliation to the financial entity: the personnel responsible for the analysis and resolution of the credit operations shall expressly register whether or not the client is affiliated with the financial entity.|
|(3)||Affidavit evidencing affiliation: affiliated clients shall file an affidavit stating if they belong to the lending entity or if its relationship with such entity implies the existence of a controlling influence.|
Interest Rate Risk
Until January 1, 2013, financial entities had to comply with minimum capital requirements regarding interest rate risk. These requirements were intended to capture the sensitivity of assets and liabilities to changes in the interest rates. Communication “A” 5369 removed all rules and regulations regarding minimum capital requirements for interest rate risk. Notwithstanding this change, financial entities must continue to calculate the interest rate risk and remain subject to the Superintendency’s supervision. Communication “A” 6534, dated July 3, 2018 established that the interest rare risk shall be measured through the calculation of the Investment Portfolio Interest Rate (RTICI).
Minimum capital requirements for market risks are computed as a function of the market risk of financial entities’ portfolios, measured as their VaR. The regulation includes those assets traded on a regular basis in open markets and excludes those assets held in investment accounts, which must meet counterparty and interest rate risk minimum capital requirements.
There are five categories of assets. Domestic assets are divided into equity and public bonds/Central Bank debt instruments, the latter being classified in two categories based on whether their modified duration is less than or more than 2.5 years. Foreign equity and foreign bonds comprise two other categories and are also classified according to their duration, the latter of which is also broken up into two separate categories based on whether their modified duration is less than or more than 2.5 years. The fifth category is made up of foreign exchange positions, which are differentiated based on currency.
Overall capital requirements in relation to market risk are based on the sum of the five amounts of capital necessary to cover the risks arising from each category of assets.
Market risk minimum capital requirements must be met daily. Information must be reported to the Central Bank on a monthly basis. Since May 2003, the U.S. dollar has been included as a foreign currency risk component for the calculation of the market risk requirement and all assets and liabilities denominated in U.S. dollars are taken into account.
Pursuant to Communication “A” 5867, market risk will be defined as the possibility of incurring losses in on- and off-balance sheet recorded positions as a result of adverse changes in market prices. The market risk minimum capital requirement is the arithmetic sum of the minimum capital requirement for interest rate (trading portfolio), stock (trading portfolio), exchange rate, commodities and options risks (trading portfolio). To meet this capital requirement, entities must apply a “Standard Measurement Method” based on an aggregate of components that separately capture the specific and general market risks for securities positions.
General considerations. Risks subject to this minimum capital requirement include risks derived from positions in instruments – such as securities and derivatives – recorded as part of the trading portfolio, and risks from foreign currency and commodities positions recorded, indistinctly, as part of the investment or trading portfolio. For the purpose of the above accounting recording, the trading portfolio of financial entities comprises positions in financial instruments included among an entity’s assets for purposes of trading or of providing hedging to other items contained in the portfolio. Pursuant to Communication “A” 6690, a financial instrument may be accounted for as part of the trading portfolio – for purposes of meeting the minimum capital requirement for market risk – if such instrument may be traded free from any restriction or if the instrument may be hedged in full. Also, the portfolio must be actively managed, and its positions must be valued on a daily basis and with the required accuracy. Positions kept for trading purposes are those positions that the entity intends to sell in the short term or from which it intends to derive a profit as a result of changes, either actual or expected, in short-term prices, or by means of arbitrage activities. They include both positions that the entities keep for their own use and those they purchase in the course of services performed for customers or “market making’ activities”. Financial entities must calculate the minimum capital requirement for the counterparty credit risk involved in OTC transactions involving derivatives and securities financing transactions, such as repo transactions (repo agreements), recorded as part of the trading portfolio on a separate and additional basis to the calculation of capital requirements for general market risk and specific market risk of the underlying securities. For this purpose, entities will be required to apply the methods and weighting factors usually applicable when those transactions are recorded as part of the investment portfolio. Entities must have clearly defined policies and procedures in place, designed to determine the exposures that are to be included into or excluded from the trading portfolio in order to calculate their minimum capital requirement for market risk. On the other hand, the investment portfolio will include all securities held by the entity which are not included in the trading portfolio.
The minimum capital requirement for exchange rate risk will apply to the total position in each foreign currency. The minimum capital requirement for securities will be computed in respect of the instruments accounted for as part of the trading portfolio, which must be valued prudently (marked to market or marked to model