20-F 1 tm214268d1_20f.htm FORM 20-F
 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM 20-F

 

 

 

ANNUAL REPORT

 

PURSUANT TO SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended: December 31, 2020

 

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
C1036AAH Buenos Aires
Republic of Argentina
(Address of principal executive offices)

 

Mariano Biglia
Bartolomé Mitre 434
C1036AAH Buenos Aires
Republic of Argentina
Tel: 54-11-4340-3123
Email: mariano.biglia@supervielle.com.ar
(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.

 

Title of each class

Trading
Symbol(s)

Name of each exchange
on which registered

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, 2020 was:

 

Title of class

Number of shares outstanding

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 whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  ☒

 

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  ☒
Other  ☐

 

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

 

Page

 

Certain Defined Terms and Conventions iii
   
Presentation of Financial and Other Information iv
   
Forward-Looking Statements viii
   
PART I 1
   
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 4
Item 3.C     Reasons for the offer and use of proceeds 4
Item 3.D     Risk Factors 4
   
Item 4.   Information of the Company 32
   
Item 4.A     History and development of the Company 32
Item 4.B     Business Overview 38
   
Item 5.   Operating and Financial Review and Prospects 179
   
Item 5.A    Operating Results 179
Item 5.B     Liquidity and Capital Resources 228
Item 5.C     Research and Development, patents and licenses, etc. 235
Item 5.D     Trend Information 235
Item 5.E     Off-balance sheet arrangements 238
Item 5.F     Contractual Obligations 239
Item 5.G     Safe Harbor 239
   
Item 6.   Directors, Senior Management and Employees 240
   
Item 7.   Shareholders and Related Party Transactions 277
   
Item 7.A     Major Shareholders 277
Item 7.B     Related Party Transactions 278
Item 7.C     Interests of Experts and Counsel 281
   
Item 8.   Financial Information 281
   
Item 8.A     Consolidated Statements and Other Financial Information. 281
Item 8.B     Significant Changes 285
   
Item 9.   The Offer and Listing 285
   
Item 9.A     Offer and Listing Details 285
Item 9.B     Plan of Distribution 285
Item 9.C     Markets 285
Item 9.D     Selling Shareholders 286
Item 9.E     Dilution 286
Item 9.F     Expenses of the Issue286

i

 

Item 10.   Additional Information 286
   
Item 10.A   Share Capital 286
Item 10.B   Memorandum and Articles of Association 286
Item 10.C   Material Contracts 286
Item 10.D   Exchange Controls 286
Item 10.E   Taxation 308
Item 10.F    Dividends and Paying Agents 327
Item 10.G   Statement by Experts 327
Item 10.H   Documents on Display 327
Item 10.I    Subsidiary Information 327
   
Item 11.   Quantitative and Qualitative Disclosures about Market Risk 327
   
Item 12.   Description of Securities Other Than Equity Securities 334
   
Item 12.A   Debt Securities 334
Item 12.B   Warrants and Rights 334
Item 12.C   Other Securities 334
Item 12.D   American Depositary Shares 334
   
PART II 337
   
Item 13.   Defaults, Dividend Arrearages and Delinquencies 337
Item 14.   Material Modifications to the Rights of Security Holders and Use of Proceeds 337
Item 15.   Controls and Procedures 337
Item 16. [ Reserved] 338
   
Item 16.A   Audit committee financial expert 338
Item 16.B   Code of Ethics 338
Item 16.C   Principal Accountant Fees and Services 339
Item 16.D   Exemptions from the Listing Standards for Audit Committees 339
Item 16.E   Purchases of Equity Securities by the Issuer and Affiliated Purchasers 340
Item 16.F   Change in Registrant’s Certifying Accountant 340
Item 16.G   Corporate Governance 340
Item 16.H   Mine Safety Disclosure 346
   
Item 17.   Financial Statements 346
Item 18.   Financial Statements 347
Item 19.   Exhibit Index 347

ii

 

INTRODUCTION

 

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., which has filed to change its name to IUDÚ 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 Futuros del Sur S.A. References to “Bolsillo Digital” mean Bolsillo Digital S.A.U. References to “Easy Cambio” mean Easy Cambio S.A.

 

References to “Class A shares” are to shares of our Class A common stock, with a par value of Ps.1.00 per share, references to “Class B shares” are 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,” the “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.

iii

 

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 from January 1, 2018 to December 31, 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 from January 1, 2019 to December 31, 2020, 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. For information since January 1, 2021, the term “small businesses” refers to individuals and businesses with annual sales up to Ps.300 million, the term “SMEs” refers to individuals and businesses with annual sales over Ps.300 million and below Ps.1.5 billion, the term “middle-market companies” refers to companies with annual sales over Ps.1.5 billion and below Ps.3 billion and the term “large corporates” refers to companies with annual sales over Ps.3 billion.

 

Presentation of Financial and Other Information

 

Financial Statements

 

This annual report contains our audited consolidated financial statements as of December, 2020 and 2019, and for the years ended December 31, 2020, 2019 and 2018 (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, 2020.

iv

 

In order to conclude 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 must 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 7 to our audited consolidated financial statements 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 International Financial Reporting Standards Committee (“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. Through Communications “A” 6847 and 6938, the Argentine Central Bank excluded the financial instruments of the public sector from the requirement of IFRS 9 and carried over the first exception for financial entities within groups “B” and “C,” as these are defined by the Central Bank, until January 1, 2022. We presented our local financial statements under these rules on March 8, 2021.

 

Our consolidated financial statements contained in this annual report differ in certain material respects from our financial statements as of December 31, 2020 and 2019 and for the years ended December 31, 2020, 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 presented in terms of the measuring unit current at the end of the latest reporting period.

 

v

 

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 1.1.2 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:

 

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.

 

The resulting amount was included in the “Results from exposure to changes in the purchasing power of money” account.

vi

 

Consolidated Statement of Comprehensive Income were restated as from each accounting allocation.

 

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, 2020 was Ps.84.15 to U.S.$1.00, which was the reference exchange rate reported by the Central Bank for U.S. dollars as of December 30, 2020. 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.93.34 per U.S.$1.00 as of April 27, 2021.

 

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.

vii

 

Forward-Looking Statements

 

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 Novel Coronavirus 2019 (“COVID-19”) pandemic and government measures to contain the virus, which have disrupted and continue to disrupt 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 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 with the International Monetary Fund (“IMF”);

 

(iv)fluctuations in the exchange rate of the Peso and inflation;

 

(iv)changes in foreign exchange regulations and exchange control measures implemented by the Central Bank and the Argentine government;

 

(vi)changes in interest rates and the cost of deposits, which may, among other things, affect margins;

 

(vii)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;

 

(viii)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;

 

(ix)changes in government regulation, including tax and banking regulations;

 

(x)adverse legal or regulatory disputes or proceedings;

 

(xi)credit and other risks of lending, such as increases in defaults by borrowers;

 

(xii)exposure to Argentine government liabilities and fluctuations and declines in the value of Argentine public debt;

 

(xiii)increased competition in the banking, financial services, credit card services, asset management and related industries;

 

(xiv)a loss of market share by any of our main businesses;

 

(xv)increase in the allowances for loan losses;

viii

 

(xvi)technological changes or an inability to implement new technologies, changes in consumer spending and saving habits;

 

(xvii)ability to implement our business strategy; and

 

(xviii)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.

ix

 

PART I 

 

Item 1.Identity of Directors, Senior Management and Advisors

 

Not applicable.

 

Item 2.Offer Statistics and Expected Timetable

 

Not applicable.

 

Item 3.Key Information

 

Item 3.ASelected 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, 2020, 2019, 2018 and 2017 and the selected consolidated statement of financial position data as of December 31, 2020 and 2019 have been derived from our audited consolidated financial statements included in this annual report which have been audited by Price Waterhouse & Co. S.R.L., member firm of PricewaterhouseCoopers an independent registered public accounting firm. The selected consolidated statement of income data for the year ended December 31, 2017 and the selected consolidated statement of financial position data as of December 31, 2018 and 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, 2020.

 

Solely for convenience of the reader, we have translated certain Peso amounts as of and for the year ended December 31, 2020 into U.S. dollars at the reference exchange rate reported by the Central Bank as of December 31, 2020 which was Ps.84.15 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.

1

Our consolidated financial statements contained in this annual report differ in certain material respects from our financial statements as of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019, 2018 and 2017 prepared in accordance with Argentine Banking GAAP and filed with the CNV.

 

  

For the year ended December 31,

 
  

2020

  

2019

  

2018

  

2017

 
  

US$

  

Ps.

  

Ps.

  

Ps.

  

Ps.

 
                     
  

(in thousands of Pesos or U.S. dollars, as indicated)

 
Consolidated Income Statement Data IFRS:                         
Interest income    768,909    64,699,880    60,983,625    63,700,230    46,628,865 
Interest expenses    (339,633)   (28,578,388)   (47,531,377)   (36,468,510)   (17,402,793)
Net interest income   429,276    36,121,492    13,452,248    27,231,720    29,226,072 
Net income from financial instruments at fair value through profit or loss    39,403    3,315,582    28,536,382    13,215,705    7,425,590 
Result from derecognition of assets measured at amortized cost    7,808    657,019    

    

    

 
Exchange rate difference on gold and foreign currency    12,651    1,064,545    (441,191)   2,359,639    823,288 
Net Income from Financial instruments and Exchange Rate Differences   59,862    5,037,146    28,095,191    15,575,344    

8,248,878

 
Net Financial Income    489,138    41,158,638    41,547,439    42,807,064    37,474,950 
Services fee income    136,595    11,493,824    11,707,556    12,414,260    12,699,146 
Services fee expense    (42,169)   (3,548,269)   (3,054,954)   (2,970,070)   (2,555,920)
Income from insurance activities    19,864    1,671,455    1,896,923    1,777,345    1,883,790 
Net Service Fee Income   114,290    9,617,010    10,549,525    11,221,535    

12,027,016

 
Subtotal    603,428    50,775,648    52,096,964    54,028,599    

49,501,966

 
Result from exposure to changes in the purchasing power of the currency    (50,987)   (4,290,328)   (7,296,543)   (12,597,117)   (5,426,822)
Other operating income    44,916    3,779,451    3,751,037    5,180,332    3,849,342 
Loan loss provisions    (102,384)   (8,615,060)   (10,533,018)   (10,846,363)   (8,446,636)
Net operating income   494,973    41,649,711    38,018,440    35,765,451    

39,477,850

 
Personnel expenses    (216,018)   (18,176,866)   (19,283,346)   (18,384,833)   (18,296,158)
Administration expenses    (122,628)   (10,318,557)   (10,310,666)   (11,729,051)   (10,300,797)
Depreciations and impairment of non-financial assets    (28,606)   (2,407,028)   (2,470,504)   (905,545)   (1,302,619)
Other operating expenses    (78,136)   (6,574,779)   (8,656,215)   (9,030,424)   (8,705,568)
Operating income (loss)   49,585    4,172,481    (2,702,291)   (4,284,402)   872,708 
Income / (Loss) before taxes    49,585    4,172,481    (2,702,291)   (4,284,402)   872,708 
Income tax    (7,983)   (671,707)   (229,663)   (2,117,088)   (2,454,435)
Net income / (loss) for the year    41,602    3,500,774    (2,931,954)   (6,401,490)   (1,581,727)
Net income / (loss) for the year attributable to parent company    41,591    3,499,882    (2,929,201)   (6,341,497)   (1,579,864)
Net income / (loss) for the year attributable to non–controlling interest    11    892    (2,753)   (59,993)   (1,863)
Total other comprehensive income    9,551    803,693    (65,123)   505,922    98,184 
Other comprehensive income attributable to parent company    9,542    802,914    (64,940)   505,396    98,157 
Other comprehensive income attributable to non–controlling interest    9    779    (183)   526    27 
Total comprehensive income (loss)    51,155    4,304,467    (2,997,077)   (5,895,568)   (1,483,543)
Total comprehensive income attributable to parent company    51,135    4,302,796    (2,994,141)   (5,836,101)   (1,481,707)
Total comprehensive income attributable to non–controlling interest    20    1,671    (2,936)   (59,467)   (1,836)

2

  

As of December 31,

 
  

2020

  

2019

  

2018

  

2017

 
  

US$

  

Ps.

  

Ps.

  

Ps.

  

Ps.

 
                     
Assets 

(in thousands of Pesos or U.S. dollars, as indicated)

 
Cash and due from banks    435,853    36,674,869    35,945,335    70,551,281    34,314,675 
Cash    152,029    12,792,522    11,913,814    10,030,991    9,396,947 
Financial institutions and correspondents    283,824    23,882,347    24,031,521    60,520,290    24,917,728 
Argentine Central Bank    233,213    19,623,684    21,683,569    57,359,874    21,798,801 
Other local financial institutions    48,801    4,106,336    2,307,232    3,138,638    2,963,937 
Others    1,810    152,327    40,720    21,778    154,990 
Debt Securities at fair value through profit or loss    117,320    9,871,903    773,961    31,649,050    35,263,386 
Derivatives    1,711    143,944    350,680    33,349    83,227 
Reverse Repo transactions    265,669    22,354,735            10,358,041 
Other financial assets    50,927    4,285,221    2,854,686    3,556,206    5,002,814 
Loans and other financing    1,252,542    105,395,186    119,817,347    161,696,402    182,430,239 
To the non-financial public sector    280    23,530    39,307    68,697    100,825 
To the financial sector    143    12,062    87,841    834,679    1,228,000 
To the non-financial private sector and foreign residents    1,252,119    105,359,594    119,690,199    160,793,026    181,101,414 
Other debt securities    485,590    40,859,975    14,238,340    9,028,655    1,109,742 
Financial assets pledged as collateral    58,291    4,904,935    7,261,336    4,203,681    4,023,577 
Current income tax assets            139,487    1,239,937    377,930 
Inventories    843    70,964    60,521    146,429    327,349 
Investments in equity instruments    1,382    116,328    19,848    21,789    144,256 
Property, plant and equipment    84,421    7,103,638    5,448,454    4,573,357    4,315,378 
Investment property    71,281    5,997,945    5,520,143    865,687    601,210 
Intangible assets    80,605    6,782,538    5,919,425    5,677,261    962,156 
Deferred income tax assets    39,407    3,315,885    2,275,175    1,721,119    2,423,044 
Non-current assets held for sale                5,864     
Other non-financial assets   16,080    1,352,880    1,795,477    1,861,081    

1,473,232

 
Total Assets    2,961,922    249,230,946    202,420,215    296,831,148    283,210,256 
Average Assets   3,046,602    256,356,321    272,626,702    325,617,464    

264,967,571

 
                          
Liabilities                         
Deposits    2,123,021    178,641,594    121,176,255    198,760,086    174,422,352 
Non-financial public sector    94,019    7,911,255    7,447,131    23,258,016    19,083,497 
Financial sector    682    57,416    38,253    52,851    48,552 
Non-financial private sector and foreign residents    2,028,320    170,672,923    113,690,871    175,449,219    155,290,303 
Liabilities at fair value through profit or loss    23,792    2,002,005    258,060    561,448     
Derivatives    24    1,995        197,328     
Repo transactions            435,401         
Other financial liabilities    89,475    7,528,889    12,409,984    8,936,807    12,093,554 
Financing received from the Argentine Central Bank and other financial institutions    69,550    5,852,292    12,276,610    16,823,037    10,902,349 
Unsubordinated debt securities    50,232    4,226,748    8,286,163    19,491,854    26,558,104 
Current income tax liability    15,310    1,288,267        1,657,148    2,550,755 
Subordinated debt securities    13,554    1,140,469    2,886,028    2,898,105    2,120,799 
Provisions    8,094    681,092    921,696    182,024    247,873 
Deferred income tax liabilities    499    42,005    689,268    467,760    62,426 
Other non—financial liabilities    144,347    12,146,102    11,175,664    11,319,599    11,755,332 
Total Liabilities    2,537,898    213,551,458    170,515,129    261,295,196    240,713,544 
Average Liabilities   2,637,774    221,955,479    240,835,009    286,553,885    

231,009,734

 
Shareholders’ Equity    424,024    35,679,488    31,905,086    35,535,952    42,496,712 
Shareholders’ equity attributable to owners of the parent company    423,687    35,651,135    31,878,404    35,506,450    42,031,151 
Shareholders’ equity attributable to non-controlling interests    337    28,353    26,682    29,502    465,561 
Total Liabilities And Shareholders’ Equity    2,961,922    249,230,946    202,420,215    296,831,148    283,210,256 
Average Shareholders’ Equity    408,828    34,400,841    31,791,694    39,063,579    

33,957,837

 

3

Item 3.BCapitalization and indebtedness

 

Not applicable.

 

Item 3.CReasons for the offer and use of proceeds

 

Not applicable.

 

Item 3.DRisk 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.

4

The ongoing COVID-19 pandemic and government measures to contain the virus adversely affected, and could continue to affect, our business and results of operations, and, as conditions continue to evolve in 2021, we cannot accurately predict the ultimate impact on us.

 

In December 2019, COVID-19, a novel strain of coronavirus (SARS-COV-2) causing a severe acute respiratory syndrome, 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. As of April 27, 2020, around 2.9 million cases had been confirmed in Argentina, along with a death toll of approximately 62,000. 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 have disrupted global economic activity and resulted in significant volatility in global financial markets. According to the IMF estimates, the global economy declined 3% in 2020. In turn, Latin America’s economy is estimated to have decreased 5.2%, while Argentina’s GDP declined 9.9% according to INDEC. The outbreak of COVID-19 has caused significant social, business, economic and market disruption globally. While the long-term impact on the global economy and financial markets is still uncertain, it is expected to be significant, although the accelerated vaccination programs, could lead to a fast global recovery in 2021.

 

The Argentine government adopted and continues to adopt multiple measures in response to the COVID-19 pandemic, including a nationwide mandatory lockdown that began on March 19, 2020 and was extended until November 6, 2020, and the mandatory shutdown of businesses not considered essential, including bank offices, which extended until mid-April 2020. As of the date of this annual report, banks are considered essential businesses and are permitted to open to provide most services to clients, in each case with prior appointment, provided that certain health and safety requirements are complied with. 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. On December 29, 2020, the Argentine government started a national vaccination program initially targetted to health professionals. Several vaccines against COVID-19 have been approved for their administration in Argentina, including Sinopharm, Sputnik V and AstraZeneca. After a period of relaxation of the aforementioned restrictive measures and following a large rise in the number of infections in the previous weeks, on April 8, 2021 the government announced a national night-time curfew and additional restrictions.

 

We cannot assure you whether these measures will be sufficient to contain a severe second wave spread of the virus and prevent a more severe health crisis in Argentina, and if the government will be able to prevent a new economic downturn in 2021, following the economic recovery experienced in the second half of 2020 and first months of 2021.

5

Some of the measures adopted by the Argentine government adversely affected, and could continue to affect, financial institutions, such as our Group. These temporary measures have included: (i) postponement of loan payments without punitive interests, (ii) deferral of unpaid loan installments from April 2020 to March 2021, (iii) prohibiting banks to charge fees for ATM transactions, (iv) freezing mortgage payments and suspending foreclosures, (v) the automatic refinancing of credit card payments and reduction of the maximum interest rates that can be charged on credit cards, (vi) imposing a minimum interest rate to be paid on time deposits, (vii) imposing the grant of loans to SMEs at subsidized rates, and (viii) forbidding bank account closures. Additionally, some of the government measures were 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). Some of these measures have been lifted and other softened in the first months of 2021, although the majority of them continue in effect. Moreover, banks dividend distributions are currently suspended until June 30, 2021, and employees’ layoffs are prohibited until at least May 31, 2021. 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 had and may continue to 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 have adversely affected, and could continue to affect, our business and results of operations. Since early stages of the pandemic outbreak, we have transitioned a significant part of our workforce to work remotely, which continues as of the date of this annual report, and 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 faced and could continue to face various risks arising from the economic impact of the pandemic and government measures, such as (i) a higher risk of impairment of our assets, (ii) lower 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 and minimum interest rates imposed on deposits, (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. During 2020 we have updated and enhanced our expected loss models and have created provisions related to COVID-19, thereby increasing our coverage ratio; however, it is still uncertain how a further spread of the virus could impact in the economy and the ability of our customers to pay their obligations.

 

We are continuing to monitor the impact of the ongoing COVID-19 pandemic across our businesses. 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, whether new variants of the COVID-19 arise, and the government measures in response of the COVID-19 pandemic, including the vaccination program. 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. 

6

Our business is largely dependent upon macroeconomic, political, regulatory and social conditions in Argentina.

 

Substantially all of our operations, properties and customers are located in Argentina and, as a result, our business is to a large extent dependent upon macroeconomic, political, regulatory and social conditions prevailing in Argentina. Developments in economic, political, regulatory and social conditions in Argentina, and measures taken by the Argentine government, have had and are expected to continue to have a significant impact on our business, results of operations and financial condition. Argentina is an emerging market and investing in such markets generally carries additional risks.

 

The Argentine economy has experienced significant volatility in past decades, including multiple periods of low or negative growth and high levels of inflation and currency depreciation. According to restated information released by Argentina’s National Statistics Institute (Instituto Nacional de Estadística y Censos or “INDEC” per its acronym in Spanish), Argentina’s real GDP grew by 2.7% in 2015, decreased by 2.1% in 2016, grew by 2.7% in 2017, decreased by 2.5% in 2018, decreased by 2.2% in 2019. In 2020, Argentina’s GDP decreased by 9.9%, due in large part to the effects of the ongoing COVID-19 pandemic.

 

Argentine economic conditions are dependent on a variety of factors, including the following: (i) domestic production, international demand and prices for Argentina’s principal commodity exports; (ii) the competitiveness and efficiency of domestic industries and services; (iii) the stability and competitiveness of the Argentine peso against foreign currencies; (iv) the rate of inflation; (v) the government’s fiscal deficits; (vi) the government’s public debt levels; (vii) foreign and domestic investment and financing; and (viii) governmental policies and the legal and regulatory environment. Government policies and regulation –which at times have been implemented through informal or de facto measures and have been subject to radical shifts– that have had a significant impact on the Argentine economy in the past, have included, among others: (i) monetary policy, including exchange controls, capital controls, high interest rates and a variety of measures to curb inflation; (ii) restrictions on exports and imports; (iii) price controls; (iv) mandatory wage increases or prohibition of dismissals; (v) taxation; and (vi) government intervention in the private sector.

 

Legislative mid-term elections in Argentina will take place in October 2021, by virtue of which one third of the seats in the senate, and half of the seats in the house of representatives, will be up for election. Political uncertainty in Argentina regarding the policies that may be adopted in the future by the government could lead to further volatility and adversely affect Argentina’s economy.

7

We cannot assure you that developments in Argentina will not affect macroeconomic, political, regulatory or social conditions in the country and, consequently, affect our business, result of operations and financial condition.

 

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 47.6% for 2018, 53.8% for 2019 and 36.1% for 2020. According to the market expectations survey published by the Central Bank, this tendency is expected to persist, as expectations for 2021 CPI are around 46%.

 

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 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.

 

Fluctuations in the value of the Argentine Peso could adversely affect the Argentine economy.

 

Fluctuations in the value of the Peso continue to affect the Argentine economy. Since January 2002, the Peso has fluctuated significantly in value. Persistent high inflation, together with formal and de facto exchange controls, have resulted in the past in an overvalued official exchange rate. Compounded by the effects of exchange controls and restrictions on foreign trade, highly distorted relative prices have resulted in the loss of competitiveness of Argentine production, impeded investment and caused economic stagnation. In 2015, the Peso lost approximately 52% of its value with respect to the U.S. Dollar, including a 37.3% depreciation during the last quarter of 2015, mainly concentrated in the month of December when the former administration eased exchange restrictions. In 2016, 2017, 2018, 2019 and 2020, the Peso depreciated 8%, 15.6%, 50.7%, 36.6% and 29%, respectively, with respect to the U.S. Dollar. As of April 27, 2021, the exchange rate was Ps.93.34 per U.S. Dollar.

 

The depreciation of the Peso may have a negative impact on the ability of certain Argentine businesses to service their foreign currency denominated debt, lead to inflation, significantly reduce real wages and jeopardize the stability of businesses whose success depends on domestic market demand, and also adversely affect the Argentine government’s ability to honor its foreign debt obligations. In turn, a significant appreciation of the Peso against the U.S. Dollar also presents risks for the Argentine economy, including the possibility of a reduction in exports as a consequence of the loss of external competitiveness. Any such appreciation could also have a negative effect on economic growth and employment and reduce tax revenues in real terms.

8

The Argentine government’s ability to obtain financing from the international loan and capital markets may be limited or costly, which may impair its ability to implement reforms and foster economic growth.

 

The Argentine government has defaulted on its sovereign debt instruments several times in the past. The most recent financial difficulty to meet its foreign financial obligations occurred in 2019/2020, in the midst of restructuring negotiations with private creditors. As a result, the Argentine government may not have access to international financing, or its access may be costly, may would limit its ability to make investments and foster economic growth. Additionally, companies in the country’s private sector may also have difficulty accessing international financing at reasonable costs or at all, as has occurred on prior occasions.

 

During March 2020, the Argentine government initiated discussions with various groups of creditors to discuss a path for Argentina’s debt sustainability. With respect to Argentina’s international bonds, in April 2020, the Argentine executive branch approved the restructuring of certain eligible global bonds issued under foreign laws for up to U.S.$65 billion. On August 31, 2020, the Argentine government announced that it had obtained the consents required to exchange 99% of the aggregate principal amount outstanding of all series of eligible bonds, following which the exchange was consummated.

 

On August 18, 2020, the Argentine government offered holders of its foreign currency bonds governed by Argentine law to exchange such bonds for new bonds, in terms that were equitable to the terms of the invitation made to holders of foreign law-governed bonds. On September 18, 2020, Argentina announced that holders representing 99.4% of the aggregate principal amount outstanding of all series of eligible bonds invited to participate in the local exchange offer had participated. As a result of the exchange offer, the average interest rate paid by Argentina’s foreign currency bonds governed by Argentine law was lowered to 2.4%, compared to an average interest rate of 7.6% prior to the exchange.

 

Notwithstanding the foregoing, despite the renegotiation efforts carried out by the Argentine government during 2020, since September 2020, bond prices have dropped, and the probability of default derived from prices of credit default swaps on Argentine sovereign bonds is around 95% over a ten-year term as of the date of this annual report.

 

In addition, in June 2018, the Argentine government and the IMF signed a three-year, U.S.$50 billion loan agreement, as further amended to U.S.$57.1 billion through 2021 (the “IMF 2018 Agreement”). Following an IMF report in February 2020 stating that Argentina’s debt may not be sustainable, the Argentine government requested to begin discussions with the IMF to renegotiate the IMF 2018 Agreement. As of the date of this annual report, negotiations with the IMF are ongoing.

 

We cannot assure you that Argentina will be able to favorably complete the restructuring of its sovereign indebtedness with respect to the IMF 2018 Agreement. In addition, due to past or future defaults on its indebtedness, we cannot assure you that Argentina will have access to international financing in the future, on favorable terms or at all. If Argentina is not able to access financing, it may not be able to foster economic growth and invest in the country. As a result, we cannot assure you that private companies in Argentina will have access to financing on favorable terms or at all, which could adversely affect our business, financial condition and results of operations.

9

The maintenance or implementation of additional exchange controls regulations, 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.

 

In the past, the Argentine government has increased controls on the sale of foreign currency, limiting transfers of funds abroad. Measures taken by the Argentine government significantly curtailed access to the official foreign exchange market and, as a result, an unofficial U.S. Dollar trading market developed in which the Peso-U.S. Dollar exchange rate differed substantially from the official Peso-U.S. Dollar exchange rate. While the former administration had initially eliminated foreign exchange restrictions in 2016, in September 2019, in response to significant capital flight from the country, the Argentine Central Bank imposed restrictions on foreign exchange transactions, which were effective until December 31, 2019. Following the change in government in December 2019, the Fernández administration has extended the measures, and established further restrictions, including a new tax (impuesto PAIS) on certain transactions involving the purchase of foreign currency by Argentine residents.

 

The current exchange controls apply with respect to access to the foreign exchange market by residents for savings and investment purposes abroad, the payment of external financial debts abroad, the payment of dividends in foreign currency abroad, payments of imports and exports of goods and services, and the obligation to repatriate and settle the proceeds from exports of goods and services for Pesos, among others. For further information, see “Item 10.D – Exchange Controls”.

 

It is not possible to anticipate for how long these measures will be in force or if additional restrictions will be imposed. The Argentine government could maintain or impose new exchange controls, restrictions and take other measures in response to capital flight or a significant depreciation of the Peso, which could in turn limit access to the international capital markets and affect the Argentine economy. In addition, such evolving exchange control restrictions and measures may result in Argentine Central Banks’s information requests, enforcement actions and penalties due to diverging interpretations of foreign exchange regulatoins.

 

As a related matter, the international reserves deposited with the Argentine Central Bank have fluctuated significantly. The international reserves of the Argentine government amounted to U.S.$39.4 billion as of December 30, 2020. Future measures taken by the Argentine government could further reduce the level of international reserves deposited with the Argentine Central Bank in the future.

 

In addition, since the imposition of exchange controls, the difference between the official exchange rate, which is currently used for both commercial and financial operations, and other informal exchange rates that arise implicitly as a result of certain operations commonly carried out in the capital market (dollar “MEP” or “contado con liquidación”), have broadened deeply during 2020 creating a gap of approximately 60% with the official exchange rate as of April 27, 2021.

10

The Argentine government could maintain a single official exchange rate or create multiple exchange rates for different types of transactions, substantially modifying the applicable exchange rate at which we acquire currency for different purposes. Furthermore, existing or future measures could undermine the Argentine government’s public finances, which could adversely affect Argentina’s economy, which, in turn, could adversely affect our business, results of operations and financial condition.

 

The Argentine economy could be adversely affected by economic events in other markets.

 

Argentina’s economy remains vulnerable to external shocks that could be caused by adverse regional or global developments. 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) could have a material adverse impact on Argentina’s balance of trade and adversely affect Argentina’s economy. In addition, Argentina may be affected by economic and market conditions in markets worldwide, as was the case in 2008, when the global economic crisis led to a sudden economic decline in Argentina in 2009. In 2018, emerging market economies were affected by the change in the U.S. monetary policy, resulting in the unwinding of investments and increased volatility in the value of their currencies, including the Argentine Peso.

 

In the past, emerging market economies have been affected by changes in U.S. monetary policy, at times resulting in the unwinding of investments and increased volatility in the value of their currencies. If interest rates rise significantly in developed economies, including the United States, emerging market economies, including Argentina, could find it more difficult and expensive to borrow capital and refinance existing debt, which would negatively affect their economic growth.

 

The ongoing COVID-19 pandemic has had, and continues to have, a significant impact on the global economy and the economies of countries across Latin America, the full impact of which cannot be accurately predicted at this time.

 

Argentina could be adversely affected by negative economic or financial developments in other countries. We cannot assure you that developments in other markets will not affect macroeconomic, political or social conditions in Argentina and, consequently, our business, results of operations and financial condition.

 

Government or labor pressure to grant salary increases and/or additional benefits may affect business conditions in the country.

 

In the past, the Argentine government has passed laws and regulations forcing privately owned companies to maintain certain wage levels and provide added benefits to their employees. Additionally, both public and private sector employers have been subject to significant pressure from the workforce and trade unions to grant salary increases and other benefits. The Argentine government has increased the minimum monthly salaries on numerous opportunities. In addition, the Argentine government has arranged other measures to mitigate the impact of inflation and exchange rate fluctuation in wages, or the consequences of the ongoing COVID-19 pandemic.

11

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. Most industrial or commercial activities are regulated by a specific collective bargaining agreement that groups together companies by industry and trade unions. While the process of negotiation is standardized, each chamber of industrial or commercial activity negotiates the increases of salaries and labor benefits with the relevant trade union of such commercial or industrial 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 respective union and to whom the collective bargaining agreement applies.

 

We cannot assure you that the Argentine government will not adopt future measures requiring that employers increase salaries and/or employee benefits, prohibition of dismissals, duplication of severance payments or that our employees and/or labor unions will not pressure for such measures themselves. Any such increase could result in an increase in our operating expenses and, therefore, adversely affect our results of operations.

 

Government intervention in the Argentine economy could undermine business and investor confidence.

 

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.

 

In the past, the Argentine government has increased state intervention in the economy, including through expropriation and nationalization measures, price controls and exchange controls and restrictions on capital flows. For example, in 2008, the 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, have since been administered by ANSES. In 2014, the Argentine government enacted law No. 26,991, which enables the Argentine government to intervene in certain markets when it considers that any party to the market is trying to impose prices or supply restrictions in the market. This law applies to all economic processes linked to goods, facilities and services which, either directly or indirectly, satisfy basic needs of the population (so-called “basic needs goods”), and grants broad powers to the relevant enforcing agency (Secretariat of Commerce) to become involved in such processes. In addition, in August 2020, the executive branch issued Decree No. 690/2020 which, among other measures, amends the current legal framework to (i) declare information and communications technology services and access to telecommunications networks as essential and strategic public services, (ii) establish new rules regarding the pricing of such services, and (iii) declare mobile telephone services a public service.

 

In addition, as a result of the public health emergency declared by the Argentine government due to the ongoing COVID-19 pandemic, several measures have been adopted to limit the impact on the Argentine economy, including freezing rent prices and public services tariffs, and the prohibition of work dismissals, among others.

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In the future, the level of intervention in the economy by the Argentine government may continue or increase, which may adversely affect Argentina’s economy and, in turn, our business, results of operations and financial condition.

 

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.

 

During the last years, the Argentine government has substantially increased public expenditures, and has resorted regularly to the Central Bank and to the ANSES to source part of its funding requirements.

 

In 2018, 2019, and 2020, public sector expenditure increased approximately 22.4%, 37.2% and 52.7%, respectively, and the government achieved a primary fiscal deficit of 2.4%, 0.4% and 6.5% of GDP, respectively, according to the Ministry of Treasury. Primary fiscal deficit for 2020 was partly explained by a decrease in Argentine government income (equivalent to 0.7% of GDP) and an increase in public expenditure (equivalent to 3.5% of GDP). Additionally, the economic impact of the COVID-19 pandemic has also required and may continue to require the Argentine government to increase public spending.

 

We cannot assure you that the Argentine government will not seek to finance its deficit by gaining access to the liquidity available in the local financial institutions. In that case, government initiatives that increase the exposure of local financial institutions to the public sector could affect our liquidity and assets quality and have a negative effect on clients’ confidence in the financial system.

 

A decrease in international prices for the main commodities exported by Argentina could negatively affect Argentina’s economic condition.

 

Argentina’s reliance on the export of certain commodities, particularly soybeans and its by products, corn and wheat, has made the country more vulnerable to fluctuations in their prices. A decrease in commodity prices may adversely affect the Argentine government’s fiscal revenues and the Argentine economy as a whole. Given its reliance on such agricultural commodities, the country is also vulnerable to weather events—such as 2018’s drought—that may negatively affect the production of such commodities, reducing fiscal revenues and the inflow of US Dollars.

 

If the international prices for agricultural commodities decrease, Argentina’s economy could be adversely affected. In addition, a decline in international prices for agricultural commodities could have a negative impact on the government’s tax revenues, including its ability to repay its debt, and on the availability of foreign currency. Moreover, agriculture production— which represent an important source of Argentina’s export income— could be negatively affected due to adverse climate conditions. Any such developments may adversely affect Argentina’s economy and, as a result, our business, results of operations and financial condition.

 

In order to counterbalance and diversify its reliance on agricultural commodities as well as to add an additional source of revenue, Argentina has been focused on increasing its oil and gas exports. A long-term decrease in the international price of oil would negatively impact the country’s oil and gas prospects and result in a decrease in foreign investment in these sectors.

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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 2020 Corruption Perceptions Index survey of 180 countries, Argentina was ranked 78, down from 66 in previous survey in 2019. 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, the 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 still uncertain, as it would require, among other things, the involvement of the judicial branch, which is independent, as well as legislative support from opposing parties.

 

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.

 

Risks Relating to the Argentine Financial System

 

The stability of the Argentine financial system depends upon the ability of financial institutions, including Banco Supervielle, the main subsidiary of Grupo Supervielle, 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.

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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 contracts, 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 medium and long-term funding sources.

 

Since most term deposits (more than 95%) are short-term deposits with a maturity 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 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 is affected by economic events in Argentina or international macroeconomic conditions.

 

As a result of Argentina’s current macroeconomic environment, including the economic recession since 2018, high interest rates in 2018 and 2019, 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. Furthermore, 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 and Argentina GDP declined by 9.9% in 2020. The measures taken by the Argentine government to address the effects of the current macroeconomic environment may not be sufficient to offset the significant impacts of Argentina’s economic recession and the COVID-19 pandemic. Consequently, if customers are not able to repay their loans the quality of the Bank’s and CCF’s assets may further deteriorate and loan loss provisions may increase, which could, in turn, adversely affect our results of operations and financial condition.

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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 the past, in order to protect debtors affected by the economic crisis in 2001 and 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. More recently, in connection with the ongoing COVID-19 pandemic, the Argentine administration has suspended mortgage foreclosures until March 31, 2021. 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.

 

The application of the Argentine Consumer Protection Law No. 24,240 (the “Consumer Protection Law”), which establishes a number of rules and principles for the protection of consumers, and the Law No. 25,065 (as amended by Law No. 26,010 and Law No. 26,361, the “Credit Card Law”), which sets forth several mandatory regulations designed to protect credit card holders, 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 regulations with respect to the protection of financial services customers, which grants broad protection to financial services customers, and limits fees and charges that financial institutions may validly collect from their clients. In addition, the Argentine Supreme Court created the Public Registry of Collective Proceedings to register collective proceedings (such as class actions) filed with national and federal courts. In the event that we or our subsidiaries are found 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, with respect to their ability to collect payments due from services and financing provided by the Bank or its subsidiaries, which could adversely affect our financial results of operations.

 

Furthermore, the rules that govern the credit card business provide for variable caps on the interest rates and fees that financial entities may charge to clients and merchants, and enable courts to decrease the interest rates and fees agreed upon by the parties if they are deemed excessively high. A change in the applicable law or court decisions lowering the cap on interest rates and fees would reduce the Bank’s and CCF’s revenues, which could negatively affect our consolidated results.

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Class actions against financial institutions for an undetermined amount may adversely affect the profitability of the financial system and of the Bank.

 

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, although their guidance with respect to procedural rules for class action cases is limited. Argentine courts have admitted class actions in 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, the Financial Information Unit (Unidad de Información Financiera or “UIF”) and the CNV. The number of these regulations have increased in connection with the ongoing COVID-19 pandemic. See “Item 4.B.—Business Overview—Argentine Banking Regulations – Government Measures in Response to the Ongoing COVID-19 Pandemic.” These regulations include: (i) minimum capital requirements; (ii) mandatory reserve requirements; (iii) requirements for investments in fixed rate assets; (iv) lending limits and other credit restrictions, including mandatory allocations; (v) limits and other restrictions on fees; (vi) reduction of the period for the financial institutions to deposit the amount of sales made with credit cards in the corresponding accounts of the sellers; (vii) limits on the amount of interest banks can charge or pay, or on the period for capitalizing interest; (viii) accounting and statistical requirements; (ix) restrictions on dividends; (x) limits on market share; (xi) reporting or controlling regimes as agents or legally bound reporting parties; and (xii) changes in the deposit insurance regime.

 

We have no control over governmental regulations or the rules governing all aspects of our operations. 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.

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The absence of a stable regulatory framework in Argentina for financial institutions and the imposition of measures that affect the profitability of financial institutions and limit the possibility of covering their positions against currency fluctuations result may limit the decisions that financial institutions, including the Bank and CCF, can make on asset allocation, which may adversely affect future financial activities and our result of 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. In addition, existing or future legislation and regulation may require us to make material expenditures to avoid any material adverse effect on our consolidated operations.

 

We are exposed to compliance risks.

 

Due to the nature of our activities, we are exposed to certain compliance risks. We must comply with regulations regarding customer conduct, market conduct, the prevention of money laundering and the financing of terrorist activities, the protection of personal data, the restrictions established by national or international sanctions programs and anti-corruption laws (including the U.S. Foreign Corrupt Practices Act of 1977 and the UK Bribery Act of 2010), the violations of which could lead to very significant penalties. As part of our business, we directly or indirectly, through third parties, deals with entities whose employees are considered to be government officials. Our activities are also subject to complex customer protection and market integrity regulations.

 

Although we have adopted multiple policies, procedures, internal control systems and other measures to manage compliance risk, it is dependent on its employees and external suppliers for the implementation of these policies, procedures, systems and other measures, and it cannot guarantee that these are sufficient or that our employees or other persons related to us or our business partners, agents and/or other third parties with a business or professional relationship do not circumvent or violate current regulations or our ethics and compliance regulations, acts for which such persons could be held ultimately responsible and/or that could damage our reputation. In particular, acts of misconduct by any employee, and particularly by senior management, could erode trust and confidence and damage our reputation among existing and potential clients and other stakeholders. Actual or alleged misconduct by the Bank in any number of activities or circumstances, including operations, employment-related offenses such as sexual harassment and discrimination, regulatory compliance, the use and protection of data and systems, and the satisfaction of client expectations, and actions taken by regulators or others in response to such misconduct, could lead to, among other things, sanctions, fines and reputational damage, any of which could have a material adverse effect on the Bank’s business, financial condition and results of operations.

 

We may not be able to prevent third parties from using the banking network in order to launder money or carry out illegal or inappropriate activities. Moreover, financial crimes continually evolve and emerging technologies, such as cryptocurrencies and blockchain, could limit our ability to track the movement of funds. Additionally, in adverse economic conditions, it is possible that financial crime attempts will increase significantly.

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If there is a breach of the applicable regulations or the Banks’s ethics and compliance regulations or if the competent authorities consider that the Bank does not perform the necessary due diligence inherent to its activities, such authorities could impose limitations on our activities, the revocation of our authorizations and licenses, and economic penalties, in addition to having significant consequences for our reputation, which could have a significant adverse impact on our business, financial condition and results of operations. Furthermore, we from time to time conduct investigations related to alleged violations of such regulations and ethics and compliance regulations, and any such investigation or any related procedure could be time consuming and costly, and its results difficult to predict.

 

In 2020 the COVID-19 outbreak has led in many countries to new specific regulations, mainly focused on consumer protection measures. The difficulties associated with the need to adapt the Bank’s systems to these new regulations quickly along with the fact that the majority of our employees have been working remotely could pose new compliance risks. Likewise, despite the existing controls in place, the increase in remote account opening driven by the pandemic could increase money laundering risks. Additionally, criminals are continuing to exploit the opportunities created by the pandemic across the globe and increased money laundering risks associated with counterfeiting of medical goods, investment fraud, cyber-crime scams and exploitation of economic stimulus measures put in place by governments. Increased strain on our communications surveillance frameworks could in turn raise our market conduct risk.

 

Exposure to multiple federal, provincial and/or municipal legislation and regulations could adversely affect our business or results of operations.

 

The Argentine government has historically exercised significant influence over the economy and financial institutions. 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.

 

Laws and regulations currently governing the economy and 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 particular, 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.

 

In addition, 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.

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As an example of the aforementioned, in the second half of 2020 and after the suspension of the 2017 fiscal consensus in late 2019, certain Argentine provinces (Córdoba, San Luis, Buenos Aires and the City of Buenos Aires) raised the tax rate on gross income tax for banks. Additionally, in October 2020, the City of Buenos Aires also eliminated a tax exemption on interest income received from LELIQs (short-term debt instruments issued by the Central Bank as part of its monetary policy).

 

In January 2021, a legal action was filed against the Autonomous City of Buenos Aires in order to declare Laws No. 6,382 and No. 6,383 unconstitutional, which seek to burden the returns derived from securities, bonds, bills, certificates of participation (equity) and other instruments issued or to be issued in the future by the Argentine Central Bank with turnover tax. Such legal action was filed under File No. CAF 18156/2020 (“ADEBA Asociación Civil de Bancos Argentinos y otros c/GCBA y otro s/Proceso de Conocimiento”) by the Association of Banks and most of its members. The Argentine Central Bank has filed a legal action for the same purpose. 

 

If financial intermediation activity volumes relative to GDP are not restored to higher levels, the capacity of financial institutions, including the Bank, our main subsidiary, to generate profits may be negatively affected.

 

As a result of the 1999-2002 financial crisis, as a result of which the Argentine economy fell 18.4%, the volume of financial intermediation activity dropped dramatically: private sector credit plummeted from 24% of GDP in December 2000 to 7.7% in June 2004 and total deposits as a percentage of GDP fell from 31% to 23.2% during the same period. The depth of that crisis and the effect it had on depositors’ confidence in the financial system created uncertainty regarding its ability to act as an intermediary between savings and credit. Although in some recent years private credit relative to GDP grew, since 2018 credit contracted in real terms. Furthermore, the ratio of the total financial system’s private-sector deposits and loans to GDP remains low when compared to international levels and continues to be lower than the periods prior to the 1999-2002 crisis and also from prior years, especially in the case of private-sector deposits and loans, which amounted to 18.6% and 9.6% of GDP, respectively, as of December 31, 2020.

 

There is no assurance that financial intermediation activities will continue in a manner sufficient to reach the necessary volumes and businesses to provide financial institutions, including the Bank, with sufficient capacity to generate income, which may, in turn, impact our results of operations.

 

Argentine financial institutions, including the Bank, continue to have exposure to public sector debt, including securities issued by the Argentine Central Bank, and its repayment capacity, which in periods of economic recession, may negatively affect their results of operations.

 

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.

 

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, 2020, the exposure of the financial institutions to the public sector represented 10.3% of total assets and their holdings of short-term securities issued by the Central Bank represented 25.8% of total assets. As of December 31, 2020, our exposure to the public sector amounted to Ps.21.9 billion, representing 8.8% of our total assets as of that date and our exposure to short term securities issued by the Central Bank and Repo transactions with Central Bank amounted to Ps.51.1 billion or 20.4% of our total assets as of such date.

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By virtue of Executive Decrees No. 596/2019 and No. 609/2019, the maturity date of short-term public sector debt securities (“Letes,” “Lecaps,” “Lelink” and “Lecer”) was extended to February 2020. Afterwards, through Decree No. 346/2020, the Argentine government further extended the maturity date of certain “Letes” to December 31, 2020. In February 2020, through Joint Resolution 6/2020, certain “Lecaps” and “Letes” which had already been reprofiled pursuant to the aforementioned 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 issued the Decree No. 346/2020, by which the repayment of Argentine law-governed U.S. dollar-denominated notes was postponed, including the abovementioned “Letes.” 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 government.

 

In addition to the public sector debt restructuring process, the Argentine government also launched an exchange offer with the aim of refinancing its foreign law-denominated external indebtedness, which was successfully concluded in August 2020. For more information on the restructuring, see “Item 5.A—Operating Results—The Argentine Economy and Financial System—Argentina’s Sovereign Debt Restructuring.”

 

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 debt with the IMF may further affect the public sector’s creditworthiness and negatively affect the Bank’s exposure to public sector debt and therefore its results.

 

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.

 

The loan portfolio of the Personal & Business Banking segment, which includes individuals and small business with annual sales of up to Ps.100 million and SMEs with annual sales over Ps.100 million and below Ps. 700 million, represented approximately 51% of the consolidated loan portfolio (net of provisions) as of December 31, 2020, while the loan portfolio of the Consumer Finance Segment represented approximately 7% of the consolidated loan portfolio. Within the 51% share of the Personal & Business Banking Segment, 42% corresponds to individuals, while 9% corresponds to Small Businesses & SMEs. Morover, loans to lower-risk payroll and pension clients accounted for 72% of our total loans to individuals at the bank level. 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.

 

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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 and we cannot assure you that any future acquisition will, if required, be authorized by the Central Bank, which would limit our ability to implement 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 85.8% of our net operating revenue in 2020 and 88.0% in 2019. 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.

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Reduced spreads between interest rates on loans and those on deposits, 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.

 

Since the 2018 devaluation of the Peso and the acceleration of the inflation rate, the Central Bank raised interest rates, ending the margin contraction trend that had been taking place in the previous years. Since late December 2019, the Central Bank has resumed a process of rate reduction, and inflation expectations have been reduced slightly, although they remain high. Moreover, amid the COVID-19 outbreak, the Central Bank imposed minimum interest rates paid on time deposits, imposed maximum interest rates on credit cards financing, and established some credit lines to be granted to SMEs at preferential interest rates, pressuring margins downwards. In turn, if in the future the Central Bank is successful in reducing the pace of inflation, it could result in a renewed pressure on banking spreads.

 

Moreover, a change in the composition of the source of funding, which is currently heavily weighted by non-interest-bearing deposits, could also put downward pressure on margins. A change in the composition of the source of funding could result from lower interest rates, higher demand of credit and therefore a need to increase the amount of time deposits or other types of bearing interest liabilities. Further reduction in spreads could have a material adverse effect on our business, results of operation and financial condition. We cannot guarantee that interest rate spreads will remain attractive unless increases in our volume of lending.

 

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.

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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.

 

Pursuant to the implementation of IFRS 9, our subsidiaries, particularly the Bank and CCF, establish reserves for potential credit risk and losses related to changes in the levels of income of debtors/borrowers, increased rates of inflation, increased levels of non-performing loans or an increase in interest rates. In this process, our subsidiaries rely on several models that estimate the distribution of possible losses arising out of the loan portfolio to calculate expected losses. 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. At the same time, we assess expected credit losses on a forward-looking basis, incorporating the impact of updated macroeconomic scenarios in the variables which we consider affect credit risk.

 

The pandemic and the nation-wide lockdown established by the Argentine government since March 20, 2020 have had a significant negative impact on the Argentine economy and resulted in increased morosity levels in the financial system. The Central Bank has established several measures in favor of creditors, including an automatic rescheduling program on unpaid loans installments maturing between the months of April 2020 and March 2021. Despite the measures taken by the Argentine government in order to mitigate the negative impact, production and consumption have decreased significantly, impacting employment levels and financial flows, among others and the extent of such impact and its effects are still uncertain, and therefore difficult to measure.

 

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 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 2020, the Bank made payments on behalf of ANSES to approximately 960,000 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 (18% as of December 31, 2020) from the sale of financial services to senior citizens. The agreement with ANSES is an agreement that must be signed by any bank that intends to pay pensions or benefits on behalf of ANSES. The current agreement with ANSES expires on June 30, 2021 and negotiations between the banks and ANSES to renew the agreement have already started. In addition, ANSES has the right to terminate the agreement with a 90 day prior notice.

 

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The termination of the agreement with ANSES 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.

 

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 29, 2021, 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 the current owners of Walmart, Grupo De Narváez, and the potential change of the Walmart brand could have an adverse effect on our revenue.

 

In April 2000, CCF 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, in 2014, and more recently in May 2020.

 

On November 6, 2020, Walmart Inc. agreed to sell its business in Argentina to Grupo de Narváez, a well-known name in Argentina conducting several retail businesses in the country. Although Grupo De Narváez has not been in the supermarket business in Argentina in recent years, they have been building retail capabilities in other countries in the region.

 

The current agreement expires on August 31, 2021 and, while a renewal is currently being negotiated with Grupo De Narváez, it may not be renewed on the same terms or at all. The decision by Grupo De Narváez not to renew 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.

 

As of July 1, 2018, the Peso qualifies as a currency of a hyperinflationary economy, and the Group is required to apply inflationary adjustments to its financial statements, which adjustments could adversely affect its financial statements, results of operations and financial condition.

 

In June 2018, the International Practices Task Force categorized Argentina as a country with a projected three-year cumulative inflation rate greater than 100%. Pursuant to IAS 29 (Financial Reporting in Hyperinflationary Economies), the financial statements of entities whose functional currency is that of a hyperinflationary economy must be restated in a suitable general price index to control for the effects of changes. Argentine companies applying IFRS are required to apply IAS 29 to their financial statements for periods ending on and after July 1, 2018. In addition, certain regulatory authorities, such as the CNV, have required that financial statements submitted to the CNV for the periods ended on and after December 31, 2018 to be restated for inflation in accordance with IAS 29.

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To determine the indexation for tax purposes, Law No. 27,468 substituted the WPI for CPI and modified the standards triggering tax indexation procedures. From January 1, 2021, the tax indexation procedure is triggered under similar standards as those set forth by IAS 29.

 

We cannot predict the full impact of the application of such tax indexation procedures and the related adjustments on our financial statements or the effects of such tax indexation procedures on our business, results of operations and financial condition.

 

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 implementing security technology devices and establishing 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.

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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 material fines or other penalties, and we have not suffered business or reputational harm, as a result of any money laundering activities in the past.

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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. 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. By virtue of Communication “A” 7181 of the Central Bank, dividend distributions by financial entities is currently suspended at least until June 30, 2021.

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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 foreign 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 (as defined in “Item 12.D American Depositary Shares.”) 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 Curency to Non-residents.”

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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.

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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 Inspección General de Justicia (“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 on how to vote the shares underlying ADSs. Because of the additional procedural step involves 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, 2020, the ten largest companies in terms of market capitalization represented approximately 65% 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.”

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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.

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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.

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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. On July 15, 1996, Exprinter Banco S.A. acquired 100% of the capital stock of Banco San Luis S.A. pursuant to a public bidding process organized by its owner, the Province of San Luis. The acquisition was part of a strategic plan aimed at growing in the interior of the country and penetrating the retail 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.

 

Creation of Holding Company

 

Grupo Supervielle was incorporated in the City of Buenos Aires 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. 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, as of the date of this annual report Tarjeta’s capital stock is held 87.5% by Grupo Supervielle, 10.0% by the Bank, and 2.5% by CCF.

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Acquisition of CCF

 

In July 2010, Grupo Supervielle and the Bank agreed to acquired 100% of CCF, 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, CCF has exclusive rights to promote and sell financial and credit products in Walmart Argentina stores nationwide through August 31, 2021. In November 2020, Walmart Argentina sold the entire operation to Grupo De Narváez, which has not adversely affected the agreement since the strategic partnership with the new shareholder is maintained and negotiations to renew the agreement have already started.

 

We acquired CCF 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 CCF approved its change of corporate name from GE Cordial Compañía Financiera S.A. to Cordial Compañía Financiera S.A. On November 2, 2020, the change of its corporate name to IUDÚ Compañía Financiera S.A. was approved, although as of the date of this annual report such change of corporate name is pending registration.

 

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. Cordial Servicios was created to sell non-financial products and services, such as: insurance plans and coverage, tourism packages, health insurance and health services, electric appliances and furniture, insurance mechanisms and plans and alarm systems.

 

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 an insurance company named Aseguradores de Créditos del Mercosur 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. In October 2013, Aseguradores de Créditos del Mercosur S.A. was renamed Supervielle Seguros S.A.

 

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.

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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 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.

 

Successful completion of follow-on and 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 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. The Fideicomiso Financiero Fintech Supervielle I has made investments with minor participations in the following start up projects since its creation: 123Seguro, Increase, Avancargo, Blended and more recently in March 2021, SixClovers.

 

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.

 

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.

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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. This company is a Fintech which was introduced in the fast-growing industry of means of payment, which designs and develops products and services for payment processing, offering solutions to businesses and individuals, facilitating their integration into the digital payments system. We are the sole shareholder of Bolsillo Digital S.A.U.

 

Bolsillo Digital carries out its main activity today as a provider of payment services, actively participating in the growth of Grupo Supervielle’s business. Bolsillo Digital also seeks to promote digitization, reduce the use of cash and promote financial inclusion by providing more opportunities to merchants, professionals, SMEs and entrepreneurs.

 

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 Finance Segment 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 allows 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 segment.

 

Creation of Supervielle Productores Asesores de Seguros S.A. (“Supervielle Broker de Seguros”)

 

On December 21, 2018, Supervielle Broker de Seguros 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 more than 99% of its share capital, directly and indirectly. Supervielle Productores Asesores de Seguros S.A began operating in the second half of 2019.

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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.

 

Acquisition of Easy Cambio S.A.

 

In October 2020, Grupo Supervielle acquired Easy Cambio S.A., a foreign exchange broker authorized by the Central Bank. Through this acquisition we seek to broaden our offer of financial services by allowing individual customers countrywide to operate in the FX markets by using the latest technologies available.

 

Executive Offices

 

Our principal executive offices are located at Bartolomé Mitre 434, 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

 

Overview

 

We are a financial services platform in Argentina with a leading competitive position in certain market segments that are strategic for our Group. Our philosophy focuses on agility as a key part of our work culture, with the client at the center of all our actions through the generation of profitable value propositions and promoting digital adoption.

 

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 the CEO of Grupo Supervielle and has led Grupo Supervielle for over 20 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.

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Our subsidiaries are: Banco Supervielle, which is the 8th largest private bank in Argentina in terms of loans; the consumer finance division made up of CCF, a digital banking services platform; Tarjeta Automática, a distribution network for consumer finance mainly in southern Argentina; MILA, a company specialized in the financing of auto loans; Espacio Cordial, a retail non-financial products, assistance, services and tourism; Supervielle Seguros, an insurance company; Supervielle Productores Asesores de Seguros, an insurance broker; Supervielle Asset Management, a mutual fund management company; InvertirOnline.com, a broker specialized in online trading; Bolsillo Digital S.A.U., a company that provides payment solutions to retailers with Mobile POS and mobile wallet products through its IUDÚ PAGO brand; Futuros del Sur (in the process of registering the change of its name by Supervielle Agente de Negociación) which is a brokerage firm aimed at institutional and corporate customers, and Easy Cambio S.A., a currency exchange broker. The portfolio of companies in our Group is completed by a company whose main activity is the holding of shares in the same companies of Grupo Supervielle, Sofital S.A.F.e I.I.

 

As of December 31, 2020, our infrastructure is supported by a strategic presence through 302 access points, which include 185 bank branches, 13 bank sales and collection centers and 79 CCF sales points located within Walmart Supermarkets; 20 Tarjeta Automática branches, 5 MILA branches (added to its network of 579 related agencies), 457 ATMs, 221 self-service terminals and 256 Supervielle own-experience ATMs with integrated biometrics and not requiring the use of a password or plastic card. Moreover, we offer banking solutions through our digital channels, applications and solutions developed for different business segments, and also offer products and services through our digital attackers’ platforms to clients located countrywide.

 

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During 2020, we continued to expand our ecosystem, and served more than 1.9 million active customers.

 

 

Note. (i) Loans and Deposits Market share: Banco Supervielle Market Share among Argentine Private banks. (ii) Insurance Market share among the insurance lines we underwrite.

 

Financial Services

 

We own the eighth largest Argentine private bank in terms of loans. Through the bank, we serve 1.4 million individual active customers, around 21,000 Small Business, 2,000 SMEs and 2,300 Corporates and we maintain a competitive leading position in certain strategic segments.

 

According to calculations based on Central Bank and other third-party information, our share for the following products is as follows:

 

Personal loans (advanced by the Argentine private financial system): our market share as of September 30, 2020 was 7.4%, compared to a 7.0% market share as of December 31, 2019;

 

Leasing (made by the Argentine private banks): a 18.7% market share as of September 30, 2020, compared to a market share of 19.9% as of December 31, 2019;

 

Our factoring market share of the Argentine private financial system as of December 31, 2020 was 8.7%, compared to a 9.5% market share as of December 31, 2019; and

 

MasterCard credit cards with a 9.2% market share as of December 31, 2020, compared to a 9.3% market share as of December 31, 2019.

 

Additionally, based on the latest information published by ANSES, we made 10.8% of all social security payments to senior citizens in Argentina in September 2020, compared to 11.2% in June 2019.

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Through the Bank, 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.

 

We have a leading position in both the Provinces of Mendoza and San Luis, in which we have 200,000 and 195,000 active customers, respectively. According to calculations based on Central Bank information, as of December 31, 2020 in these Provinces we had a market share of loans to private sector of 21.7% and 53.8%, respectively, and a market share of deposits from private sector of 10.9% and 63.3% respectively.

 

Regarding our consumer finance business, during 2020 CCF consolidated its digital transformation with the launching of IUDÚ, an innovative digital financial services platform available at Google Play and App Store. CCF’s business model is based on providing financing solutions to specific target groups, mainly medium-to-low-income population (segments C2 and C3), and is currently consolidating in the field of comprehensive financial services through the development of new accounts deposits and investment and to a wider customer segment, offering a personalized and omnichannel experience.

 

The launching of the IUDÚ platform was a key player in the transformation of the industry, expanding digital proposals based on an innovative app, with 100% digital onboarding to apply for personal loans, credit cards and carry out all transactions personally, such as checking purchases made and managing payments. In the near future, customers will also have access to a comprehensive and complete offer of digital banking products and services.

 

The omnichannel concept enables CCF to be present countrywide, and it is currently settled in 22 provinces through 99 points of sales of its 2 main marketing channels: Walmart financial services and Tarjeta Automática, and the digital channel through the web, the social media and Google Play and App Store apps: Walmart Tarjeta App, Carta App and IUDÚ.

 

Finally, through the Fideicomiso Financiero Supervielle I, our corporate venture capital fund that focuses on creating incremental business opportunities for our subsidiaries, we made strategic investments in several fintechs and insurtechs start ups, including (i) Increase, a financial solutions platform for stores and businesses; (ii) Avancargo, a company that uses technology to facilitate cargo freight contracts to match demand and supply; and (iii) Blended, a comprehensive school management platform for kinder, primary and high school levels.

 

Insurance

 

The insurance business is continuously adapting its products to the needs of our customers throughout their lives. We have access to customers through our distribution networks and aim to further develop our bancassurance distribution model by expanding the variety of insurance products offered.

 

Supervielle Seguros sells insurance policies it underwrites such as personal accidents, protected bag, life, home, broken bones, among others, through our distribution network and the digital channels. In turn, Supervielle Productores Asesores de Seguros has continued focusing in 2020 on entrepreneurs and small businesses and SMEs, offering advisory services to customers and adding value to our comprehensive product proposal.

 

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Moreover, with the vision to create incremental business opportunities for our companies, we invested in 123Seguro, an online car insurance broker, through our corporate venture capital fund.

 

As of December 31, 2020, we have issued 500,000 gross written premiums reaching as of December 31, 2020, 1.76% market share among the insurance lines we underwrite.

 

Investments & Savings solutions

 

We offer investments and savings solutions to our customers through a wide range of products. Through Supervielle Asset Management, we have 15 mutual funds designed to meet customers’ particular investment objectives and risk profiles. As of December 30, 2020, assets under management reached Ps. 38.8 billion increasing 70% from December 2019.

 

On the other hand, we own InvertirOnline, a digital online broker that offers brokerage and savings and investment services based on an agile, simple, transparent and innovative platform, suitable for the profile of each client. Through this value proposition we follow a purpose of reinventing the way of investing to boost people's income and savings. The online platform ranks 2nd in the local ByMA exchange ranking on Equity, CEDEARs (Certificado de Depósito Argentinos) and options trading, and it has an 8% market share in these assets. In 2020, 134,000, new accounts were opened, more than doubling the number of accounts opened in the previous year. DART (Daily Average Revenue Trades) reached nearly 20,500 in 2020 up from less than 5,600 in 2019. Additionally, in 2020 we acquired Easy Cambio S.A. seeking to expand the offer of financial services to individual clients located countrywide, allowing them to make FX exchanges by using the latest technologies available. Finally, we contribute to improve financial education with around 23,000 participants attending financial courses education offered by InvertirOnline Academy in 2020.

 

Payments

 

In June 2020, we launched IUDÚ PAGO, a payment facilitator app through which companies and individuals with commercial activity are offered the possibility of charging with debit and credit cards, through mPOS and payment link. The value proposition is currently integrated with virtual wallet products, such as “Sube” charging, Prepaid Card (to make subscriptions, extraction and purchases) and cell phone recharge.

 

Moreover, we joined Play Digital S.A. (“Modo”, the systemic payment solution for banks in Argentina) as shareholder, with the aim of expanding the offer of financial services to our clients throughout the country, integrating technologies that facilitate the use of our applications on mobile devices, allowing them to operate in the digital market for payments and transfers through a systemic solution of the highest quality standard.

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Automotive 

 

The acquisition of deautos.com platform in 2019 allowed us to create an innovative and disruptive business model in the online car market powered by our existing MILA’s relationship with agencies and dealers, providing a new car digital platform experience for users, integrating and simplifying the financial offer, insurance and services. As of December 31, 2020 we have granted 15,000 auto loans.

 

Housing

 

We offered housing solutions to our customers, through different value propositions, such as mortgage loans and rental guarantees. As of December 31, 2020, we ranked the fifth largest private bank in terms of mortgages with a 7% UVA mortages market share.

 

Non financial services and products: Retail and Leisure, and Medical plans

 

Building on our banking sector expertise, we identify cross-selling opportunities and offer targeted products to our customers at each point of contact though our brands Cordial and Tienda Supervielle marketplace which was used to sell home appliances, technology, home and furniture, sport products, wellness and beauty, and tourism among others. In 2020, we sold more than 29,000 retail and leisure products, and as of December 31, 2020 we had 310,000 active medical plans.

 

As of December 31, 2020 and 2019 on a consolidated basis, we had:

 

Ps.249.2 billion in total assets as of December 31, 2020, compared to Ps. 202.4 billion in total assets as of December 31, 2019;

 

Ps.113.8 billion in loans as of December 31, 2020, compared to Ps.129.0 billion in loans as of December 31, 2019;

 

Ps.178.6 billion in deposits as of December 31, 2020, including Ps.7.9 billion from the non-financial public sector, Ps.57.4 million from the financial sector and Ps.170.7 billion from the non-financial private sector compared to Ps.121.2 billion in deposits as of December 31, 2019, including Ps.7.4 billion from the non-financial public sector, Ps.38.3 million from the financial sector and Ps.113.7 billion from the non-financial private sector;

 

Ps.35.7 billion in attributable shareholders’ equity as of December 31, 2020 compared to Ps.31.9 billion in attributable shareholders’ equity as of December 31, 2019; and

 

5,021 employees as of December 31, 2020, compared to 5,084 employees as of December 31, 2019.

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Our Subsidiaries

 

The following information is related to our subsidiaries as of the date of this annual report:

 

Subsidiary   Jurisdiction of
incorporation
  Name under which the
subsidiary does business
Banco Supervielle S.A.   Argentina   Supervielle
Cordial Compañía Financiera S.A. (in the process of being renamed as IUDÚ Compañia Financiera S.A.)   Argentina  

Walmart Servicios Financieros
IUDÚ
Pesos Ya

Tarjeta Automática S.A.   Argentina   Carta Automática
Pesos Ya
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
Micro Lending S.A.U.   Argentina   MILA
InvertirOnline S.A.U.   Argentina   invertirOnline
InvertirOnline.com Argentina S.A.U.   Argentina   invertirOnline.com
Supervielle Productores Asesores de Seguros S.A.   Argentina   Supervielle Broker de Seguros
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   IUDÚ PAGO
Easy Cambio S.A.   Argentina   N/A
Sofital S.A.F. e I.I.   Argentina   N/A

 

Banco Supervielle S.A.

 

We own 97.10% of the share capital of the Bank and Sofital owns 2.79%. The Bank is a universal commercial bank and our largest subsidiary. The Bank accounted for 96.2% of our total assets as of December 31, 2020. 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, corporate and institutional customers.

 

According to the Central Bank, as of September 30, 2020, the Bank ranked 8th in terms of total loans, 10th in terms of deposits, and 10th in terms of total assets among private banks in Argentina. In 2020, 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 among private banks of (i) factoring services in Argentina with a 8.7% share as of December 31, 2020 and (ii) leasing services, with a market share estimated to be around 19% as of September 30, 2020.

 

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As of December 31, 2020, the Bank on a consolidated basis had total assets for Ps.240.7 billion, a total loan portfolio of Ps.104.7 billion and total deposits for Ps.178.8 billion, and its shareholders’ equity totaled Ps.27.7 billion.

 

For information regarding banking business performance, see Personal & Business, Banking, Corporate Banking and Bank Treasury segments information under the section “Segment Reporting”.

 

Cordial Compañía Financiera S.A. (which has filed to change its name to IUDÚ Compañia Financiera S.A.)

 

In August 2011, we purchased CCF, a financial services division of General Electric in Argentina. CCF 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.

 

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 31, 2020. On May 19, 2020, the expiration date of the agreement was extended until August 31, 2021, and the parties thereto committed to make their best efforts to negotiate a new marketing contract. On November 6, 2020, Walmart Inc. agreed to sell its business in Argentina to Grupo de Narváez, a well-known name in Argentina conducting several retail businesses in the country. Although the Narvaez Group has not been in the supermarket business in Argentina in recent years, they have been building retail capabilities in other countries in the region. A renewal of the agreement and partnership with the retailer is currently being negotiated.

 

In 2020, CCF consolidated its digital transformation with the launching of IUDÚ, an innovative digital financial services platform available at Google Play and App Store. CCF’s business model is based on providing financing solutions to specific target groups, mainly C2 and C3, and is currently consolidating in the field of comprehensive financial services through the development of new accounts deposits and investment and to a wider customer segment, offering a personalized and omnichannel experience.

 

The Bank owns 95% of CCF’s ordinary shares and Grupo Supervielle owns directly the remaining 5%. As of December 31, 2020, CCF had total assets of Ps.10.7 billion, net shareholders’ equity of Ps.2.9 billion and a personal loan portfolio, credit card and car loan on balance of Ps.7.3 billion.

 

For information regarding CCF business performance see Consumer Finance segment information under the section “Segment Reporting”.

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Tarjeta Automática S.A.

 

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. 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 finance division network. 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.

 

Grupo Supervielle owns 87.50% of Tarjeta’s ordinary shares, the Bank owns the 10.0% of such shares and CCF owns the remaining 2.5%.

 

For information regarding Tarjeta business performance see Consumer Finance segment information under the section “Segment Reporting”.

 

Espacio Cordial de Servicios S.A.

 

Espacio Cordial was created in October 2012 and began operating in December 2012. The company 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.

 

We own 95% of the share capital of Cordial and Sofital owns the remaining 5%. Directly and indirectly we own 100% of total shares of Cordial.

 

As a result of the corporate restructuring conducted in August 2018, Cordial Servicios became part of the Consumer Finance segment of Grupo Supervielle.

 

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 vehicle 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.

 

For information regarding Cordial business performance see Consumer Finance segment information under the section “Segment Reporting”.

 

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. We own 100% of the share capital of MILA.

 

Currently MILA is ranked as one of the top five players in the new car financing market with 2.9% market share and achieved the second position in the used car financing market with 10.4% market share. Regarding its distribution channel, MILA sells its products through 579 active dealers that allow the company to have presence in the whole country.

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Supervielle Seguros S.A.

 

In June 2013, we and Sofital purchased 100% of the shares of Supervielle Seguros (formerly known as Aseguradores de Créditos del Mercosur S.A. with no operations at the date of the acquisition). Supervielle Seguros began operations in October 2014.

 

For information regarding Supervielle Seguros business performanc,e see Insurance segment information under the section “Segment Reporting during”.

 

Supervielle Productores Asesores de Seguros S.A.

 

In December 21, 2018, we created Supervielle Broker de Seguros S.A. 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 99.999987% of its share capital). The company was renamed Supervielle Productores Asesores de Seguros S.A and began operation in the second half of 2019.

 

For information regarding Supervielle Productores Asesores de Seguros business performance, see Insurance segment information under the section “Segment Reporting”.

 

Supervielle Asset Management S.A.

 

We own 95% of the share capital of SAM and Sofital owns the remaining 5%. Directly and indirectly we own 100% of total shares of SAM.

 

Through SAM, we have become a player in the mutual funds market with the “Premier” funds family.

 

For information regarding SAM business performance, see Asset Management & Others segment information under the section “Segment Reporting”.

 

InvertirOnline and InvertirOnline.com

 

InvertirOnline.com is a digital online broker that offers brokerage and savings and investment services based on an agile, simple, transparent and innovative platform, suitable for the profile of each client. Through this value proposition we follow a purpose of reinventing the way of investing to boost people’s income and savings. We own 100% of the share capital of InvertirOnline and InvertirOnline.com.

 

For information regarding InvertirOnline business performance, see Asset Management & Others segment information under the section “Segment Reporting”.

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Bolsillo Digital S.A.U.

 

On June 12, 2019 we created Bolsillo Digital S.A.U. This company is a fintech in the fast-growing industry of means of payment that designs and develops products and services for payment processing and offers solutions to businesses and individuals to facilitate their integration into the digital payment system.

 

Bolsillo Digital carries out its main activity today as a provider of payment services, actively participating in the growth of Grupo Supervielle’s business. Bolsillo Digital also seeks to promote digitization, reduce the use of cash and promote financial inclusion by providing more opportunities to merchants, professionals, SMEs and entrepreneurs.

 

Bolsillo Digital’s vision is to contribute to the development of a payments and collections ecosystem within Grupo Supervielle, where customers can find solutions for issuance, acquisition, wallet, collection, electronic payments, e-commerce, among others.

 

In June 2020, Bolsillo Digital launched an application under the brand “IUDÚ PAGO” through which companies and individuals with commercial activity are offered the possibility of charging with debit cards and credit, through mPOS and payment link. The value offer is currently integrated with virtual wallet products, such as the transportation card “SUBE” charging, Prepaid Card (to make subscriptions, withdrawals, and purchases) and cell phone recharge.

 

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 CNV, the Argentine Securities Commission. Through this acquisition we seeked to expand the financial and investment services to institutional and corporate customers and increase cross selling in an efficient and profitable way.

 

While in 2020 Futuros del Sur focused on proprietary trading transactions, the objective for 2021 is to boost trading operations and provide brokerage services to institutional customers.

 

Easy Cambio S.A.

 

In October 2020, we acquired 100% of the ordinary shares of Easy Cambio S.A., a foreign exchange broker authorized by the Central Bank. With this acquisition we seek to broaden our offer of financial services by allowing individual customers countrywide to operate in the FX markets using the latest technologies available for this purpose.

 

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, 5.0% of the capital stock of SAM and 4.759% of Supervielle Productores Asesores de Seguros S.A.

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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 once the economy rebounds. We believe we are positioned to capture these growth opportunities given the advancements on our digital transformation, our focus on a differentiated customer experience, our evolving branch model and online platforms and our product offerings.

 

Even though 2020 was a challenging year, including as a result of the ongoing COVID-19 pandemic, we remained focused on executing our strategy to transform our company into a modern, leading edge, cost efficient player and position our business to serve consumer's evolving needs and aspirations.

 

Increasingly, customers want and expect to engage with us anytime from anywhere. Our digital strategy is aimed at answering that demand and we have a three-prongued approach:

 

1)The transformation of our core businesses, including banking, consumer finance, insurance and asset management businesses, to drive customer experience, agility and efficiencies.

 

2)Developing digital attackers to broaden access to financial services, which includes:

 

a.IUDÚ, our new digital platform which is refocusing our strategy in the consumer finance business and will allow acquisition of multisegment clients with full digital financial services; and

 

b.Invertir Online, which during the past years has consolidated its leading position as an online retail broker while looking ahead, our goal is to scale the business and to further enhance the customer experience. By fostering the financial education of our clients, we also seek to enable them to boost their savings by investing in a wide range of financial products through a simple and intuitive platform.

 

3)Continue developing the Supervielle ecosystem by building traffic from financial services into new platforms enhancing and deepening customer engagement.

 

Our key strategic pillars are as follows:

 

1.        Customer Experience

 

2.        Efficiency

 

3.        Funding

 

4.        Customer Acquisition

 

5.        Digital Transformation

 

6.        Asset Quality

 

The unprecedented COVID-19 global health crisis accelerated significantly the adoption of digitalization in the new low touch economy confirming our strategic vision.

 

We are accelerating the initiatives on digital transformation that were already in motion, both in our digital and automatic channels. Moreover, we have extended the thorough and profound digital transformation of our business across all subsidiaries under the rubric of three axes: i) the generation of a modern technological architecture, ii) the evolution of our bank branch model, and iii) the addition of capabilities to connect to third parties and prepare for open banking. The successful implementation to date has benefitted from a deep cultural transformation across the Group, consolidating the adoption of agile working methodologies and a new operating model that places the customer at the center of all we do.

  

During 2020 we implemented an agile at scale operating model consolidating agile methodologies and process. At the same time, we deepened the customer centric cultural transformation across our Group. We have organized the company into Individuals, Corporates & SMEs, and Payments, with Customer Service and Omnichannel cutting across end-to-end interactions, or experiences. These sets of experiences are managed by empowered squads as part of a tribe that works to enhance the Supervielle customer experience. Our Agile Transformation Office aims to guarantee the alignment to the Group’s strategic objectives and to scale agility across our organization ensuring the customer centricity at all times. This is supported by centers of excellence that distribute talent, resources and knowledge to each squad so that they can carry out their purpose based on the best practices of each discipline.

 

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Over the next two years, we plan to step-up investments to scale innovations and advance on the progress started in 2020. In terms of our bank branch infrastructure, our goal is to evolve our network by improving the client experience driven by a mix of higher digital adoption, as well as effectively serving our customers in expanded 24-hour service lobbies. Pilot programs we have been implementing are demonstrating significant improvements in the Net Promoter Score and efficiency and we plan to roll out these enhancements across our branch network. 

 

We are developing our IT capabilities based on three pillars. The first one is to strengthen and modernize our Core banking system. Our second pillar is to speed up the deployment of our omnichannel strategy, with a modern IT architecture including APIs to accelerate transformation and to connect to third parties preparing for open banking. Lastly, our third pillar is to be prepared for the future and includes leveraging digital marketing and artificial intelligence capabilities, as well as cloud services.

 

Our goal is to offer our banking customers a human banking experience that combines the use of technology with our staff assistance to provide our customers the best of both worlds.

 

Our consumer finance subsidiary as part of the digital transformation, launched a new digital banking services platform with the goal of becoming the most complete range of digital banking services offering a comprehensive customer experience. This transformation that integrates the physical and digital channels, aims to enhance customer experience, capture deposits, broaden our offering to address additional client needs by plugging into the Supervielle ecosystem, while driving efficiency. In its first iteration, the App allows customers to obtain personal loans, credit cards and car loans. In a second phase, during 2021, our consumer finance business will undergo a fundamental change as IUDÚ will start taking deposits. IUDÚ will also evolve in segment acquisition from its traditional middle to low-income segments to a multi segment approach.

 

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Sustainability

 

At Grupo Supervielle we are committed to our employees, customers and communities to achieve a sustainable growth while protecting the environment and acting with social responsibility. We integrate the sustainability strategy to our business model and promote a responsible culture among our employees. We report on our non-financial performance in a clear and transparent way, in connectionwith environmental, social and corporate governance (ESG) factors.

 

In 2020 Grupo Supervielle defined its 2021-2023 Sustainability Agenda that consolidates a responsible management model oriented towards sustainability and establishes a strategy that puts people, the environment and ethics and transparency (ESG) at the center and integrates its relationships with all stakeholders (customers, employees, suppliers, community and governments). Some of the initiatives developed during 2020 within our priority lines of action: In environmental matters, we continue working to reduce the impact of our operations on the environment through the implementation of a responsible environmental management system. We were the first Argentine bank to obtain the Sustainable Generator User Certification for the installation of solar panels in the Caballito branch, whose surpluses are turned over to the public electricity grid. We supply our corporate headquarters and the building on Reconquista street 100% with renewable energy from a wind source and we continue to measure greenhouse gases resulting from activities to calculate the 2020 Carbon Footprint and Energy Intensity. In social matters, we seek to be an agent of change that creates sustainable social value and generates a positive impact on our clients, employees and communities. In 2020, a multidisciplinary team was formed to define the organization’s Diversity and Equity strategy in a participatory manner, with the understanding that a diverse and inclusive environment inspires creativity and innovation and contributes to attracting and retaining human talent.

 

We continue to promote social investment with an impact on innovative projects related to education, childhood, the elderly and institutional strengthening, and in actions that promote culture and the arts. In terms of corporate governance, we continue to operate in accordance with the highest standards of corporate governance, promoting transparency, ethical behavior, respect for the principle of legality and the sustainability of our activities and those of our value chain. In 2020, the Institutional Investor publication recognized Grupo Supervielle as the second Best ESG in Latin America in the Financial / Banks category. For its part, ByMA (Argentine Stock Exchanges and Markets) together with the IDB (Inter-American Development Bank) and with the academic endorsement of the Earth Institute of Columbia University, presented in February 2021 the rebalancing of the Sustainability Index. After this rebalancing, Grupo Supervielle continues to be part of the ByMA Sustainability Index for the third consecutive year since its launch in December 2018. The index allows us to identify and highlight the leading companies in Environmental, Social, Sustainable Development and Corporate Governance matters (ESG-D, for its initials in English).

 

Likewise, knowing that we had to be more united than ever in this health emergency to accompany and be at the side of those who need us most, during 2020 we aligned with different initiatives in the fight against COVID-19, supporting projects of organizations to respond to the needs arising from the pandemic in the communities where we operate with donations of food, artificial respirators and other medical supplies, the delivery of tablets so that low-income students could continue their virtual classes and contributions together with other companies for the construction of modules extra-hospital primary care to care for patients affected by COVID-19.

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The following are additional commitments of the Group in terms of sustainability:

 

Customers

 

We extended the use of financial products and services (financial inclusion) to those who already have an account with Grupo Supervielle, facilitating the adoption of new digital tools and promoting financial education.

 

Employees

 

We create opportunities to promote employees’ growth and potential, and foster a diverse and inclusive work culture that values individuals for who they are and what they contribute.

 

Community

 

We promote social investment with impact on projects related to education, minors, the elderly and institutional strengthening, and actions that promote culture and the arts.

 

Corporate Governance

 

We do business pursuant to the highest corporate governance standards, promoting transparence, ethical behavior, respect of the principle of legality and sustainability of our activities and those of our value chain.

 

Respect of the Principle of Legality

 

We regularly review the degree of compliance with applicable laws and regulations and we take the actions required to correct deviations.

 

Business Segments

 

We conduct our operations through the following business segments:

 

•               Personal & Business Banking;

 

•               Corporate Banking;

 

•               Bank Treasury;

 

•               Consumer Finance;

 

•               Insurance; and

 

•               Asset Management and Other Services.

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The following table sets forth the breakdown of our net revenue and net income by segment for the periods indicated.

 

   As of December 31, 2020 
Segment  Net Revenue   Percentage   Net (Loss) / Income 
             
  (in thousands of Pesos) 
Personal & Business Banking   20,347,486    42.5%   (6,356,053)
Corporate Banking   6,313,237    13.2%   (179,912)
Bank Treasury   13,119,934    27.4%   9,125,276 
Consumer Finance   4,379,944    9.1%   (577,540)
Insurance   1,816,291    3.8%   538,047 
Asset Management and Other Services   1,915,081    4.0%   401,036 
Total Allocated to Segments   47,891,973    100.0%   2,950,854 
Adjustments(1)   88,347         549,028 
Total Consolidated   47,980,320    100.0%   3,499,882 

 

 

(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, 2020.

 

   As of December 31, 2020 
   Personal and Business Banking   Corporate Banking   Bank Treasury   Consumer Finance   Insurance   Asset Management and Other Services  

Adjustments(1)

   Consolidated Total 
                                 
   (in thousands of Pesos) 
Assets                                
Cash and due from banks   12,345,695    533,466    23,288,859    238,350    2,176    399,895    (133,572)   36,674,869 
Debt Securities at fair value through profit or loss    -    -    8,827,214    1,034,836    -    9,853    -    9,871,903 
Loans and other financings    52,474,545    42,240,034    5,823,189    6,808,494    592,067    49,403    (2,592,547)   105,395,185 
Other assets   8,569,274    8,324,469    58,840,094    3,063,890    1,254,830    1,080,197    16,156,233    97,288,987 
Total Assets    73,389,514    51,097,969    96,779,356    11,145,570    1,849,073    1,539,348    13,430,114    249,230,944 

 

 

(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 as of December 31, 2020 and 2019.

 

  

Active Customers

As of December 31,

 
   2020   2019 
Personal & Business Banking   1,393,971   1,402,562 
Individuals   1,371,106    1,380,550 
Entrepreneurs   20,854    22,012 
SMEs   2,011    N/A 
Corporate Banking   2,304    4,981 
Consumer Finance (IUDÚ+ MILA)   410,580    372,168 
InvertirOnline   80,024    51,829 
Total   1,886,879    1,831,540 

 

Personal & Business Banking segment

 

The Bank’s Personal and Business Banking segment offers a wide array 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. In 2020 the offer of a wide array of financial products and services continued, in line with the needs of our customers. On January 1, 2020 our SMEs portfolio was effectively transferred from our Corporate Banking segment to the Personal and Business Banking segment, previously named Retail segment.

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To promote digital transformation, we focused on development and strengthening of autonomous management channels. Precipitated by the COVID-19 context, the digital customers segment grew by 60%, due to the need of a greater agility, which improved the perception of their relationship with the Bank. The evolution of the service model continues to evolve and we are aiming to achieve maximum efficiency and the best service in each contact.

 

In 2020 the self-management model continued to improve with the deployment and improvement of the Caja Rápida machines, which are cash dispenser with biometric identification that requires no card or password.

 

Accompanying the growth in terms of digital transformation, the development of the Agile methodology continued as a way of working in the organization. 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. The pandemic challenged the implementation of a new service model. Looking after our employees and customers’ health, operative and sanitary protocols were defined and implemented in Service Centers, which changed according to the different regulations issued by the Government and the local and national regulatory bodies.

 

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) mass affluent, 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 & Business Banking segment – retail customers:

 

Mass Affluent customers. To accelerate the growth of the customer portfolio, the customer acquisition strategy added a new digital onboarding platform, becoming the second most important channel following Plan Sueldo. In that sense a new set of digital communications was designed as part of the customer first 90-day journey, with digital setting and early activation through an aligned value proposition. Besides, the benefits proposition was strengthened through debit cards and digital platforms. As a result of the lockdown that began in March, the implementation precipitated of digitalization actions that were already part of our strategy to provide our customers a prompt response to their needs while they were not allowed to go to the bank. We rapidly adapted to solve efficiently the payment of Emergency Family Income (IFE) to 350,000 customers. We carried out commercials to promote the use of debit cards in place of cash. The Contact Center Interactive Voice Response (the “IVR”) tree was redesigned to meet the needs of new customers and to set priorities taking into account all segments.

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Identité customers (High Net Worth Customers). We offer our high net worth customers exclusive services. In 2020 lead generation in this segment continued in new niches: alliances with ABC1 schools, synergy with SMEs and a referral program focused on digital self-management.

 

The value proposition was reinforced and adapted to the new context, with incremental benefit for Plan Sueldo customers in order to improve the positioning of that subsegment, such as alliances with Rappi and Pedidos Ya, online theater with Teatrix and additional 5% discounts for Plan Sueldo customers on special dates (Mother’s Day and Christmas).

 

Senior Citizens. 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. We believe the bank remains the private bank with the largest presence in this segment, with 980,000 ANSES beneficiaries including pensions and social assistance plans.

 

In 2020, due to the pandemic, actions were taken in furtherance of the customers’ health and their transactional needs. More than 300,000 debit cards were delivered by courier to those customers who did not have an active debit card. We adapted our service model, with 100 Cajas Rápidas (cash dispensers with biometrical identification) placed at the lobby of our branches that operate during extended hours from 5 a.m. to 9 p.m. seven days a week and a withdrawal limit of Ps.80,000 (until March 2020 only 4 of these cash dispensers were placed in lobbies). Thus, our senior citizen customers or their designees could make cash withdrawals during non-bank hours. In order to get our senior citizen customers acquainted with digital tools and reduce their attendance to the bank, we communicated through mass media the implementation of the “Supervielle Jubilados” app, through which customers may provide proof of life by means of face recognition remotely, check payment dates and download the payment slip. Thus, over 130,000 customers downloaded the app. As a result of these actions in 2020, the NPS of the senior citizens segment increased 8 points against the previous year.

 

Products offered to Individuals:

 

Loans.

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The bank offers offers personal, car loans, mortgage loans, overdrafts, salary advances and guarantees for tenants.

 

Credit rating processes were improved, and alternative sales channels were developed in line with the context imposed by the pandemic, mobility restrictions and social distancing. The offer of self-managed personal loans through ATMs and Cajas Rápidas (cash dispensers with biometrical identification) increased, and a loan functionality was added to the IVR due to the increased number of incoming calls to the call center. In order to improve customer experience, the loan origination process was redesigned both for the Supervielle Móvil app and for online banking. These developments resulted in an annual 661% increase of personal loans originated through alternative channels as compared to the previous year.

 

Deposits.

 

In line with the lockdown imposed by the government and with our customer centric culture, operations through digital channels were improved, with 70.3% of operations made through those channels, and with a 53% increase in time deposits in the different segments.

 

Means of Payments. In 2020 the Means of Payment Experience established the strategic pillars for the development of the business: i) enhance the bank’s positioning in the industry, ii) acquire new debit and credit card customers, iii) participate in the system’s integration as shareholders of MODO, iv) act as an acquirer and enhance the business aggregator (Bolsillo Digital), and v) create a vision for the B2B Payments and Collections ecosystem.

 

In line with these definitions, focus was made on the ecosystem’s products, with the following milestones:

 

1.  Main Visa license, that enables a business transformation with new economic opportunities, thus generating efficiency.

 

2.  Integration of Grupo Supervielle to MODO, through Banco Supervielle and IUDÚ, as a response of the financial system to the payments business. MODO will be a central pillar of our strategy of adoption of digital channels by individual customers.

 

3. Launching of Bolsillo Digital, as a first step towards the role of acquirer with focus on the Cuyo region. Agreements were entered into with the Municipalities of Mendoza and Las Heras, with companies owned by the government of San Luis (Sol Puntano and Mercado Municipal) and with Círculo Odontológico de Mendoza.

 

Plan Sueldo. During 2020 the Bank continued with the restructuring of product operation, aimed at attaining high efficiency standards both in onboarding and in cross sell and in customer profitability. New agile methodology services were implemented to support the registration of the process of new agreements.

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Personal & Business Banking segment – Businesses

 

SMEs customers. We continued working on the generation of target leads through the digital channels, offering a value proposition to strategic subsegments, developing networks for customer contact and generation with SMEs and participating in specific events related to economy, finance and investment. We also worked on the installation of support lines for SMEs.

 

Development of the differentiated service model continued at service centers. The Bank relied on specific executive profiles for assistance of its customers, offering specialized services to larger SMEs and streamlined services to smaller SMEs, which promotes the growth of the customer base while maintaining at the same time a differentiated service level.

 

Specific Subsegments. Customized Value Proposition. In the second quarter of 2020, a value proposition was introduced for the Education subsegment, focused on private schools (all levels), with a specific offer together with the partners of the digital ecosystem. The propositions introduced in 2017 (Franchise and Transportation) and 2018 (Health) continued consolidating.

 

Total deposits from the Personal and Banking segment as of December 31, 2020 amounted to Ps.93.8 billion. Retail customers deposits continued to represent a high portion of total peso deposits. In 2020, retail customer deposits in Pesos represented 37% of total pesodeposits.

 

Corporate Banking

 

In 2020, the Bank, through its corporate banking segment, worked with middle-market companies and large corporates with annual billing exceeding Ps.700 million in 2020. On January 1, 2020 our SMEs portfolio was effectively transferred from our Corporate Banking segment to the Retail 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.

 

(2)Provinces Corporate Banking which deals with the commercial relations in the Provinces of Mendoza, Córdoba, Tucumán, San Juan, Neuquén and Santa Fé.

 

(3)Mutual Guarantee Companies “MGC” Division which operates at the headquarters in the City of Buenos Aires.

 

As of December 31, 2020, the Corporate Banking segment had Ps.42.2 billion of outstanding loans and other financings, and contributed almost 13% of our net operating revenues before adjustments.

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The objective is to become the first choice transactional bank for our customers and increase profitability.

 

We strongly believe that providing high quality customer services is one of the main drivers for generation of new businesses and support of our business relations. Our business and support officers are highly skilled and play a critical role in the relationship with companies. Therefore, we have various service points in regional branches in the most densely populated industrial and commercial areas. Communication, assistance, negotiation and operational teams are centralized in Corporate Banking nodes.

 

Focus was also placed on risk management, using RAROC tools in order to strike a balance between profitability and portfolio quality ratios.

 

Wine Division: the Bank’s Wine Division continues consolidating its position as a benchmark in the wine industry, remaining the only Argentine bank among the top 20 to have an expert team to deal with the sector.

 

The wine division provides services to grape producers, vineyards and suppliers of raw materials and related capital assets, taking part in the different parts of the Value Chain.

 

Mutual Guarantee Societies (MGS): As of December 2020, the Mutual Guarantee Societies system was made up of 51 entities (45 Mutual Guarantee Societies and 6 Official Guarantee Funds). Banco Supervielle operates with 27 of these entities (22 MGS and 5 Guarantee Funds) which represent 53% of the total companies in the sector. The bank also remained its leading position in the sector, and was recognized as the “MGS’s Bank” by the Argentine Chamber of Guarantee Societies and Funds (Cámara Argentina de Sociedades y Fondos de Garantías or Casfog), by other banks and by the Supervisory Authority (Ministry of Production/Sepyme).

 

Value Chains: In 2020 we worked in the development of value chain financing, as part of our objective to achieve comprehensive relations with each of our customers, developing value propositions for large companies that generate new businesses with their suppliers and customers. To that end, a general business model was developed which design contemplates a procedure for the bank’s commercial operations, also applicable to other subsidiaries of Grupo Supervielle.

 

Products offered to Corporate Customers:

 

Loans: a renewed offer of special facilities was developed to suit the needs of the different corporate segments together with sales in digital and in-person channels, enhancing services such as invoice discounting, ECHEQs, overdrafts and financial loans.

 

Leasing: With the focus on financing capital goods for SMEs, the financial leasing, operational leasing and sale & lease back products continue being offered through the bank’s branches and business centers under a specialized service model that provides advice and enhances the use of this financing tool that has tax benefits. During the first half of 2020 placement of this product was slowed by the economic context and the pandemic that affected the investment in capital goods. During the second half, due to subsidized production and investment loans, the placement rate of this product recovered and maintained its market leadership, with almost 200 agreements allocated mainly to the oil and mining industry, the sector of medical supplies and equipment and technology, among other.

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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.

 

Cash Management: The Bank’s Cash Management area provides end-to-end services, with technical and commercial advice throughout the process, ensuring a prompt and agile implementation and that the products are available for use from the start. Remote check readers and ECHEQs are aimed at digitalizing treasury operations of companies, thus eliminating the need to go to the bank and generating positive value experiences. Electronic checks or ECHEQs were implemented following a regulation of the Central Bank and are in use since July 2019. As a result of the exponential growth in the use of electronic checks, other functionalities were developed to cover businesses’ needs, such as the possibility to issue up to 1,500 ECHEQS at the same time.

 

Omnichannel Service Model

 

Digital Banking – Personal: In 2020, the Digital Banking area adopted a mixed building strategy with new products, digital processes and specific experiences tailored to the needs of the different segments and changing functionalities to a new UX to generate new resources for customers. Technological improvements were developed that increased stability and scalability of the digital ecosystem, with new business variables monitoring, control and measurement tools. As a result, and boosted by the COVID-19 context, the number of active customers increased by 60%.

 

Customers’ Digital Onboarding: In 2020, the Onboarding platform consolidated as a tool for lead generation. In order to promote financial inclusion and attraction of sight deposits, free-of-charge savings accounts were offered to meet the need of an increasing number of people for bank products through a digital process and to pay IFE benefits. A functionality was implemented for online customer activation through biometrics validation, strengthening the platform’s security and reducing the risk of phishing.

 

Supervielle Jubilados App: The “Supervielle Jubilados” app provides senior citizens solutions to their recurring needs, such as information on check payment date and payment receipt, ATM cash withdrawal without using a debit card.

 

Supervielle App: The App is used for a 100% digital registration to Online Banking without the need to go to the bank or an ATM, and also for activation/change of the SMS password required for online transactions.

 

Online Banking – Personal: We enhanced the mobile experience including new functionalities such as stop debit for payment of credit card balances, follow up of card delivery and new simplified experience for cash withdrawal without using a debit card.

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Online Banking – Business: Channel management procedures turned to digital and customer self-managed without delivery of any physical documents to the Bank.

 

E-Channels: In 2020 we continued improving the self-management model with the implementation and strengthening of Caja Rápida (cash dispenser with biometric identification), with 100 Cajas Rápidas placed at lobbies so that customers may during non-bank hours and even during the weekend.

 

Contact Center: The Contact Center manages queries and complaints by and sales to customers by phone, e-mail and social media. During the year improvements continued in automatic banking aimed at reducing online time and enhancing customer experience and quality of response, and increasing sales.

 

Investment Center: Operates since September 2017 within the Telephone Banking department and is formed by a Team of Experts on Capital Markets who provide advice on and manage the transactions of customers in all Bank segments.

 

Branch Network: We conducted 3 MVP in service centers to test the new lobby (now known as Espacio 24). In this new space, which is open 7 days a week, customers may use cash dispensers with and without fingerprint recognition, make deposits, transfers, payment of taxes, print of salary payment slip and statements of account and of credit cards. The 132 m2 Espacio24 is larger than the previous 22 m2 lobby. We also changed the internal service system of the automatic banking equipment located within Espacio 24, which allowed promptly solving any inconvenience with devices and thus improve availability/uptime. These developments generated a 35% increase in customer NPS regarding the involved branches.

 

Bank Treasury segment

 

The Bank 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 Bank 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.

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Correspondent Banking

 

During 2020, commercial relationships were maintained with foreign banks both as to financing of foreign trade transactions and to guarantees and letters of credit.

 

Public Sector and Intermediaries

 

The Bank has maintained a presence in the Province of San Luis for almost 25 years, acting 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 serving as payor bank for provincial government employees. On January 17, 2017, the Province of San Luis notified the Bank of its decision to exercise its right to terminate the financial agency agreement, effective as of February 28, 2017. 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 of San Luis 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. This agreement was renewed several times mostly every three months, the latter was renewed on March 1, 2021 and until June 1, 2021.

 

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.

 

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, agreement which was renewed in May 2020 for 2 additional years. With the appointment by the City of San Luis, the Bank became financial agent for all the municipalities in the Province.

 

The Bank has a private sector business franchise in the Province of San Luis 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, 2020, the Bank’s exposure in the Province of San Luis was as follows:

 

As of December 31, 2020
(in thousands of Pesos, except for ratios and operating data)
Loans    
Banco Supervielle Total Loan Portfolio    98,251 
Payroll loan to the Province of San Luis employees    1,822 
Payroll loans to the Province of San Luis employees / Banco Supervielle Total Loan Portfolio    1.9%
Loans to the provincial government    - 
Deposits     
Consolidated Total Deposits    175,216 
Deposits made by the Province of San Luis    703 
Deposits made by the Province of San Luis / Consolidated Total Deposits    0.4%
Net Revenue     
Related Net Revenue / Banco Supervielle’s Consolidated Net Revenue    1.4%
Operating Data     
Employees    238 
Branches    20 
Senior Citizen Service Center    3 
ATM’s & Self Service Terminals    148 

 

Of the Bank’s approximately 195,000 active customers in San Luis, it offers payroll services to about 34,000 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.

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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.

 

During 2020, the capital market was featured by the uncertainty generated by the impact of the COVID-19 pandemic. However, Banco Supervielle maintained its presence in the debt market and collaborated with its clients in the issuance of negotiable instruments, which totaled Ps. 30.9 billion. Some of such clients are frequent issuers such as YPF S.A., Vista Oil & Gas, Rizobacter Argentina S.A., Telecom Argentina S.A., San Miguel S.A, among other.

 

The bank successfully carried out the placement of SMEs secured and unsecured financial instruments, becoming one of the major players in this segment. In 2020 we participated in the placement of four SMEs negotiable obligations and three SMEs Financial Trusts. As regards placement of own and related parties’ instruments, we acted as arranger and dealer of Banco Supervielle Class G Negotiable Obligations for U.S.$30,000,000.

 

As regards the financial trusts market, Banco Supervielle acted as arranger and dealer of the following trusts: Unicred Cheques Serie 8 and Unicred Factoring Series XI, R.G. Albanesi Series XI and Concepción Series II. The Bank also acted as dealer and manager of the closed-end mutual fund “Adblick Ganadería Fondo Común de Inversión Cerrado Agropecuario.”

 

As regards Mergers & Acquisitions, the Bank acted as exclusive financial advisor of wineries Bodega Dante Robino S.A. and Cavas del Perdriel S.A. and their shareholders for the sale of said companies to Cervecería y Maltería Quilmes. During 2020 the sector also provided advisory support to various companies regarding Assessments and Mergers & Acquisitions.

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Consumer Finance

 

The Consumer Finance 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.

 

CCF started operations in August 2011, when Grupo Supervielle acquired GE Money, the financial services division of General Electric in Argentina.

 

During 2020, CCF consolidated its digital transformation with the launching of IUDÚ, an innovative Digital Financial Services platform available at Google Play and App Store.

 

Its business model is based on providing financing solutions to specific target groups, mainly C2 and C3, and is currently consolidating in the field of comprehensive financial services through the development of new accounts deposits and investment and to a wider customer segment, offering a personalized and omnichannel experience.

 

As from the launching of IUDÚ the company extended the digital proposal through an innovative app, 100% digital onboarding (customers may request personal loans, credit cards and self-manage all bank transactions on the mobile). This proposal will continue improving during 2021 with the launching of new products and with easier and faster ways to deal with personal finance and promote financial education with tools that help customers’ decision making process.

 

Business model is based on two main pillars: i) accessibility, flexible customer centric proposals adapted to the omnichannel concept; and ii) diversification: tailored products to meet customers’ needs in every stage of their life with customized offers and value propositions for each cluster.

 

The omnichannel concept enables the company to be present countrywide, and it is currently settled in 22 provinces through 99 points of sales of its 2 main marketing channels: Walmart financial services and Tarjeta Automática as well as the digital channel through the web, the social media and Google Play and App Store apps: Walmart Tarjeta App, Carta App and IUDÚ.

 

As a result of the pandemic, during 2020 CCF mainly focused on the care of its customers and employees, guaranteeing certain levels of services during the lockdown, while continued to focus on the business growth and strengthening and on the implementation of its strategic pillars, which were:

 

(i)            a structural transformation towards an agile and horizontal structure, with the customer at the center of the organization. The design of an agile organization was based on customers’ lifecycle and the three main tribes that are focused on customer acquisition, loyalty and delinquency/close in order to generate a better customer experience in these instances;

 

(ii)          a digital transformation both at an internal and external level, with the launching of IUDÚ in November 2020, with a 100% digital onboarding for personal loans and credit cards. The company will continue growing and developing to offer a wider array of digital financial services;

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(iii)            customer segments were extended, focused not only on mid and low socio-economic level customers but also on mid socio-economic level customers;

 

(iv)            new products were added to the value proposition, that will enable the development of retail franchise deposits;

 

(v)            the application assessment process reengineering continued to provide flexibility and speed to credit policy implementation while maintaining said policy at prudent risk levels;

 

(vi)             changes were implemented to the origination policy to maintain repayment capacity, mainly of those segments mostly affected by the macroeconomic situation resulting from the pandemic;

 

(vii)            work continued on screening strategy implementation, collection management tool optimization and review of predictive models to guarantee collection levels. Implementation of ERP- SAP S4 HANA and of the new financial CORE software began;

 

(viii)            the funding structure was modified achieving a cost reduction and implementing hedging instruments in case of rate variations;

 

(ix)             product cross selling increased;

 

(x)             the structure was tailored to the new situation and expenses were cut down;

 

(xi)            focus was placed on portfolio quality, reducing exposure.

 

Cordial Servicios. During 2020 Cordial continued operating in the already developed direct and indirect channels. The direct channel continued developing through sales points located at service branches of Banco Supervielle throughout the country, trading mainly home appliances, health care plans, security plans, prepaid services and tourism. The home appliances category strategy during 2020 continued looking for stocks optimization and product mix under the motto: “Primer precio, Primera marca” Best price for a leading brand. The Services and Assistance category continued developing in partnership with Walmart, with 100 additional sales points.

 

During 2020, 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, it continued offering its products through Tienda Supervielle and the integration to the Rewards program of Banco Supervielle, as the main vertical portal for flights and hotels.

 

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 and “Veterinario en línea” Online vet.

 

In 2019, Cordial acquired DeAutos.com. During 2020 the focus of the business was on the integration of the services platform related to the purchase of the car.

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During 2020, 18,300 home appliances and 100,000 service plans were sold.

 

MILA. In 2020, the Company granted car loans for a total of Ps.1,205 million in a total of 4,698 operations. This represented a year-on-year growth of 107% in terms of Ps., and 42% in number of operations.

 

The aforementioned performance occurred in an economic environment that presented a sharp drop in the sale of vehicles, both new and used. With respect to the previous year, patents fell 26%, while transfers fell 12%; new cars financing decreased 34%, and the decline in pre-owned cars financing was 22%.

 

Insurance

 

The Insurance business of Grupo Supervielle is developed through its subsidiaries Supervielle Seguros and Supervielle Productores Asesores de Seguros. 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. This business is carried out through the networks of the Bank and IUDÚ and the digital channel, as well as the issuance of credit related insurance and other insurance aimed at satisfying the needs of our different channels and clients. In 2020, the insurance business segment began a process of digital transformation and carried out some sales pilot tests in the digital channel for both life insurance and home insurance.

 

Supervielle Productores Asesores de Seguros began operating in the second half of 2019. In 2020 the business gained momentum, focused on entrepreneurs and SMEs and in middle-market and large companies. This allows an improvement in risk management, offering advisory services to customers and adding value to the comprehensive proposal of Grupo Supervielle.

 

In 2020, 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.

 

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.

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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 Ps596.6 million in the first quarter of 2020, Ps.570.2 million in the second quarter of 2020, Ps.532.4 million in the third quarter of 2020 and Ps.573.0 million in the fourth quarter of 2020.

 

The following table sets forth the breakdown of Supervielle Seguros’s gross written premiums per quarter as of December 31, 2020.

 

Gross written premiums by product

(in millions of Pesos)

 

   4th quarter 2020   3rd quarter 2020   2nd quarter 2020   1st quarter 2020   4th quarter 2019 
Life insurance and total permanent disability insurance for debit balances    0.2    0.3    0.6    1.2    1,3 
Mortgage Insurance    35.0    37.2    38.2    37.9    38,8 
Personal Accident Insurance    27.5    27.4    27.0    31.1    36,5 
Protected Bag Insurance    67.4    72.8    81.3    79.1    77,9 
Broken Bones    17.2    16.4    18.6    21.1    21,5 
Others    11.1    10.2    9.0    12.2    12,1 
Home Insurance    77.4    71.4    72.4    89.1    79,5 
Technology Insurance    28.5    24.6    21.4    33.1    28,6 
ATM Insurance    20.9    24.5    23.8    25.2    34,1 
Life Insurance   287.7    247.6    278.0    266.5    290,7 
Total    573.0    532.4    570.2    596.6    620,9 

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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 Finance segment. MILA portfolio outstanding at the moment of the acquisition and its respective results are recorded under Asset Management and Others segment.

 

SAM

 

Mutual Funds. SAM offers mutual funds services designed to meet customers’ particular investment objectives and risk profiles through its Premier funds family. As of December30, 2020, assets under management reached Ps. 38.8 billion increasing 70% from December 2019.

 

As of December 31, 2020, SAM had approximately 5,747 customers.

 

The PREMIER family of funds consists of 15 mutual funds: a Money Market Fund (Premier Renta Corto Plazo en Pesos), two Argentina short-term fixed income funds in Pesos (Premier Renta Plus, Premier Renta Fija Ahorro), six Argentina fixed income and mixed income funds in Pesos (Premier Renta Fija Crecimiento, Premier Capital, Premier Commodities, Premier Inversión, Premier Balanceado y 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) a fixed income LatAm fund (Premier Global Dólares) and a closed mutual fund (Adblick Ganadería).

 

The money market fund showed an increase of 118%, mainly due to the investments of corporate and institutional customers, representing 74% of the managed funds in December 2020, as compared to 79% in December 2019.

 

In 2020 SAM launched the FCI Cerrado Adblick Livestock, as a differentiated investment alternative that focuses on a specific market in the real economy.

 

InvertirOnline.com

 

InvertirOnline is a digital online broker that offers brokerage and savings and investment services based on an agile, simple, transparent and innovative platform, suitable for the profile of each client. Through this value proposition we follow a purpose of reinventing the way people investso as to help people boost their income and savings.

 

During 2020 InvertirOnline mapped and addressed the automation needs of the platform to obtain business scalability: deposits and withdrawal processes were improved as well as the onboarding automatic opening of accounts, the end-to-end process was automated and market integrations were made more efficient, for a prompt processing of all transactions.

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In 2020, APIs were made available to the public, offering an array of products to our new customers, fostering financial inclusion and making it possible for a larger number of people to obtain revenues from their savings.

 

2020 was an iconic year for InvertirOnline Academy. As a result of an increased demand of financial education the number of students increased by 300% year-on-year. Due to the increased demand the team grew to consolidate the InvertirOnline Academy business unit which comprises the areas of product development, marketing and content.

 

The company ranks 2nd in the local ByMA ranking on Equity, CEDEARs (Certificado de Depósito Argentinos) and options trading, and it has an 8% market share in these assets.

 

In 2020, 134,000, new accounts were opened, more than doubling the number of accounts opened in the previous year. In turn, DART (Daily Average Revenue Trades) reached nearly 20,500 in 2020 up from less than 5,600 in 2019.

 

As of December 31, 2020, InvertirOnline had 80,024 active customers located country-wide.

 

Easy Cambio S.A.

 

In October, Grupo Supervielle acquired Easy Cambio S.A., a foreign exchange broker authorized by the Central Bank. With this acquisition the Group seeks to broaden our offer of financial services by allowing individual customers countrywide to operate the FX markets using the latest technologies available for this purpose.

 

Market Area

 

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 Argentine government. The City of Buenos Aires has a population of 2.9 million (approximately 7.2% of Argentina’s overall population) as of December 31, 2020 and is the richest city of Argentina. As of December 31, 2020, the unemployment rate in the City of Buenos Aires was 7.2%. In terms of the banking sector, there are 829 bank branches (out of a total of 4,599 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. The Province of Buenos Aires had a population of approximately 15.6 million (approximately 38.9% of Argentina’s overall population) as of December 31, 2020 and concentrates a high portion of the agricultural activity. As of December 31, 2020, the unemployment rate in the Province of Buenos Aires increased to 12.6% from 10.0% as of December 31, 2019. 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 1,492 bank branches (out of a total of 4,599) bank branches in Argentina) in the Province of Buenos Aires.

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Mendoza. The Province of Mendoza is located in the Cuyo region and is the center of the wine industry in Argentina. Mendoza has a population of approximately 1.7 million (approximately 4.3% of Argentina’s overall population) as of December 31, 2020. As of December 31, 2020, the unemployment rate in Mendoza increased to 10.6% from 7.3% as of December 31, 2019. In terms of the banking sector, there are 174 bank branches (out of a total of 4,599 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, 2020, the unemployment rate in the Province of San Luis increased to 4.9% from 2.9% as of December 31, 2019. In terms of the banking sector, there are 47 bank branches (out of a total of 4,599 bank branches in Argentina) in the Province of San Luis.

 

Distribution Network

 

Our infrastructure supports our multi-channel distribution strategy with a strategic national footprint through 302 access points, which include 185 bank branches, 13 banking payment and collection centers, 79 CCF sales points located in Walmart supermarkets, 20 consumer finance branches of Tarjeta, 5 MILA’s customer support offices, network of 579 car dealers and 457 ATMs, 221 self-service terminals and 256 Supervielle own-experience ATMs with biometric identification and without the use of a password or card.

 

The following table shows the detail of our distribution network:

 

   Distribution Network 
   As of December 31,
2020
 
Banco Supervielle S.A. Branches    185 
Banco Supervielle S.A. Sales and Collection Centers    13 
Tarjeta Automática S.A. Branches    20 
CCF Sales Points    79 
Micro Lending S.A.U.    5 
ATMs    457 
Self-service Terminals    221 
Supervielle own-experience ATMs with biometric identification    256 

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Deposits

 

The following charts set forth the breakdown of our deposits by type of account and customer category as of December 31, 2020.

 

Our main source of funds is the Bank’s deposit base.

 

 

 

Non- or low-cost demand total deposits (including private and public-sector deposits) comprised 35.0% of the Group’s total deposits base (24.3% of savings accounts and 10.7% of checking accounts) as of December 31, 2020. Non- or low-cost demand deposits represented 49 % of total deposits as of December 31, 2019.

 

Retail customer deposits in pesos represented 37% of total deposits as of December 31, 2020, while wholesale and institutional deposits in pesos represented 43.5% of total deposits in pesos.

 

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, 2020:

 

   Year ended December 31, 2020 
Liabilities and Shareholders equity  Banco Supervielle   Private Banks 
  (in millions of Pesos)   %   (in millions of Pesos)   % 
Deposits    178,641.6    71.7%   4,744,543.4    70.8%
Other Liabilities    70,589.3    28.3%   1,958,721.0    29.2%
Total    249,230.9         6,703,264.4      

 

 

   Year ended December 31, 2020 
Deposits Breakdown  Banco Supervielle   Private Banks 
   (in millions of Pesos)   %   (in millions of Pesos)   % 
Checking accounts    16,891.0    9,5%   1,009,139.8    21,3%
Saving Accounts(1)    102,845.5    57,6%   1,805,636.3    38,1%
Time deposits    46,113.1    25,8%   1,349,726.1    28,4%
Other deposits    12,792.0    7,2%   580,041.2    12,2%
Total    178,641.6         4,744,543.4      

 

(1)Includes special checking accounts

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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, 2020, we had a loan portfolio of Ps.110.4 billion (equivalent to U.S.$1.3 billion converted to U.S. dollars at the reference exchange rate as of December 31, 2020).

 

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, 2020.

 

 

 

(1)       As of December 31, 2020, 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.

 

Underwriting Policies

 

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.

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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.

 

Risks

 

Below we list our loan categories from lowest risk to highest risk in terms of repayment ability and historical default rates:

 

(1)Promissory notes (with recourse to the assignor), Warrants - Commodities

 

(2)Foreign trade loans

 

(3)Mortgage loans

 

(4)Receivables from financial leases

 

(5)Promissory notes (without recourse to the assignor), Warrants – Others

 

(6)Automobile and other secured loans

 

(7)Corporate credit cards

 

(8)Corporate unsecured loans

 

(9)Overdrafts

 

(10)Personal loans and credit card loans (from the Personal and Business Banking segment)

 

(11)Personal loans and credit card loans (from the Consumer Finance segment)

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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 help 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.

 

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 1.5% 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.

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Mortgage loans

 

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.

 

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 or fix interest rates for our financial leases based on prevailing market rates.

 

Automobile and other secured loans

 

We grant secured loans to finance automobile purchases. The maximum amount of our automobile loans is Ps.3,100,000 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.

 

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.300 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.

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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.300 million. The maximum loan assistance that we provide is Ps.25 million for unsecured loans and Ps.25 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.3.2 million of unsecured loans and Ps.9.3 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.

 

Overdrafts

 

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.

 

Personal loans and credit card loans (within 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.

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Personal loans and credit card loans (within the Consumer Finance 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, 2020 was Ps.65,000. The average term of our personal and consumer loans as of December 31, 2020 was 35 months, with a maximum of 84 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 a loan, 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. In 2020 we developed and implemented a portfolio limits policy to fix maximum portfolio concentration ratios based on economic sectors and customer credit rating. Economic sectors were classified as Very High, High, Mid and Low, according to their risk perception. These sectors are regularly monitored to confirm or change the classification according to their evolution.

 

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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 companies 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.

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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.

 

Grupo Supervielle assesses on a forward-looking basis the expected credit losses associated to its 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.

 

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 have not experienced a significant increase in credit risk since initial recognition and is not purchased or originated credit impaired.

 

Normal risk under watchlist (“Stage 2”): includes all instruments that, have experienced significant increases in credit risk since initial recognition but are not yet deemed credit-impaired.

 

Doubtful Risk (“Stage 3”): includes financial instruments, overdue or not, which are considered to be credit impaired. Likewise, loan commitments or financial guarantees whose payment is probable and their recovery doubtful are considered to be in Stage 3.

 

Significant increase in credit risk

 

Grupo Supervielle considers a financial instrument to have experienced a significant increase in credit risk when any of the following conditions exist:

 

Individuals and Businesses

1.Portfolios between 31 and 90 days past due

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2.The credit application score has deteriorated by more than 30% with respect to the current performance score
3.Score of behavior less than accepted cut off
4.Loans and cards with facilities under Financial Services regulations within the framework of the health emergency provided by Decree No. 260/2020 Coronavirus (COVID-19) that were impaired at the time of refinancing. Or, loans that were not impaired, but deferred more than 5 installments.

 

Corporate Banking

1.Portfolios between 31 and 90 days past due
2.Maximum Argentine Central Bank a situation equal to 2
3.Credit Ratings C (Probability of default higher than 30%)
4.Its rating deteriorated by more than two notes from its credit approval rating.

 

Consumer Finance: 1. Portfolios between 31 and 90 days past due.

 

Sectoral Analysis – COVID-19 Risk

 

In virtue of the fact that internal impairment models do not reflect properly COVID-19 impact on the local and global economic situation as historical information is utilized, a sectoral analysis has been included as additional definition of the significant risk increase.

 

In such analysis, companies’ default risk is evaluated according to the type of industry and the impact such companies have suffered in face of the current economic situation, while taking into account their features, seasonal nature, etc.

 

Finally, the different activities that make up the Bank’s portfolio are classified into four types of risk. They are:

 

1. Low risk

2. Medium risk

3. High risk

4. Very high risk

 

On this occasion, this additional definition of a significant increase in risk has been applied for the SME and E&P segments, for the very-high and high risk activities (only for the single firm portfolio):

 

Very high risk  High risk
Construction  Machinery & equipment
Tourism & Gastronomy  Iron and steel industry
Real estate  Home appliances
Entertainment  Sports
Passenger transport  Textile
Professional services   

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The evaluation of significant credit increases and the calculation of ECL include prospective information. Grupo Supervielle carried out a historical analysis and identified key economic variable that affect the credit risk and expected credit losses for each portfolio. Forecasts of these economic variables (“base economic scenario”) are provided on a six-month basis by the research team at the Bank and offer a better estimated outlook of the economy for the next 12 months. The impact of such economic variables on DP and LGD resulted from the statistic regression analysis to understand the impact the changes in these variables has had historically on default rates and LGD components. In addition to the base economic scenario, the research team also provides two potential scenarios together with scenario analysis. The number of other scenarios is defined in accordance with the analysis of the main products to ensure the lineal effect between the future economic scenario and related expected credit losses. The number of scenarios and its features are re-evaluated on a six-month basis, except a situation occurs in the macroeconomic framework that justifies a greater regularity.

 

Grupo Supervielle considers the following variables for estimating expected credit losses on the different scenarios:

 

Parameter   Segment   Macroeconomic Indicators
Probability of Default   Personal and Business Banking  

Inflation

Wage increase

Private employment

Monthly Economic Activiy Estimator

  Corporate Banking  

Real Badlar Rate

Monthly Economic Activiy Estimator

  Consumer Finance  

Wage increase

Inflation

Monthly Economic Activiy Estimator

Loss Given Default   All   Wage increase

 

Atomization of the loan portfolio

 

As a result of our risk management policies, we have a diversified and atomized portfolio, where the top 10, 50 and 100 borrowers represent 17%, 30% and 36%, respectively of the Loan portfolio.

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Atomization of the loan portfolio

 

Loan portfolio atomization  4Q20    3Q20    2Q20    1Q20    4Q19  
%Top10  17 %  18 %  18 %  16 %  16 %
%Top50  30 %  33 %  35 %  33 %  32 %
%Top100  36 %  38 %  42 %  39 %  40 %

 

Loan Portfolio breakdown by economic activity

 

Ps. Change QoQ  Business Sector  4Q20 Share    3Q20 Share  
(In millions)             
6,927  Families and individuals  47.2 %  44.0 %
1,781  Agribusiness  14.3 %  13.6 %
750  Food & Beverages  9.2 %  9.2 %
(1,285)  Construction & Public works  4.1 %  5.6 %
343  Retailer  1.9 %  1.7 %
(301)  Wine  2.7 %  3.2 %
1,146  Utilities  3.8 %  3.0 %
(172)  Financial  2.6 %  2.9 %
(2.130)  Oil, Gas & Mining  0.3 %  2.4 %
(55)  Transport  1.2 %  1.4 %
(269)  Chemicals & plastics  1.2 %  1.6 %
(361)  Automobile  1.0 %  1.4 %
70  Machinery & Equipment  1.0 %  1.0 %
1,006  Others  9.5 %  9.3 %

 

Collateralized Loan Portfolio

 

As of December 31, 2020, 43% of the total commercial loan portfolio was collateralized, while 80% of the commercial non-performing loans portfolio was collateralized (compared to 58% as of December 31, 2019).

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Loan portfolio collaterall  Entrepreneurs & Small Businesse    SMEs & Middel Market    Large    Total  
Collateralized Portfolio  50 %  45 %  42 %  43 %
Unsecured Portfolio  50 %  55 %  58 %  57 %

 

Regarding the Personal and Business Banking portfolio, loans to payroll and pension clients as of December 31, 2020, represented 71.8% of the total loan portfolio to individuals in the segment.

 

Credit Policy

 

a)Banco Supervielle S.A.

 

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 Credit department 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 Credit Risk 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 Risk department 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;

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verifying and analyzing customer arrears;

 

detecting market alerts, customer behavior in the market and the financial system, lawsuits, etc.;

 

proposing action plans;

 

involving the senior credit committee or junior credit committee as applicable;

 

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)
      Unsecured  Secured
          
      Total Maximum
Approval Limit
Senior Committee  Chief Credit Officer (as Chairman of the Committee); Chairman;
CEO (as Vice chairman of the Committee);
COO;
Chief Risk Officer;
Credit Executive Manager middle-market & corporates; Credit Executive Manager SMEs;
Head of Corporate Banking;
Manager of SMEs business
Head of Treasury and Global Markets;
 

 

 

 

Limitless

 

 

 

Limitless

Junior Committee         
   Chief Credit Officer (as Chairman of the Committee);
COO;
Head of Corporate Banking;
Head of Treasury and Global Markets;
Manager of SMEs business;
Credit Executive Manager middle-market & corporates;
Credit Executive Manager SMEs;
Executive Manager Corporate Banking Bs Aires and Interior;

 

 

 

600

 

 

600

Manager     300  300

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      Credit Approval Limit
(in millions of Pesos)
      Unsecured  Secured
          
      Total Maximum
Approval Limit
Team Leaders     120  120
          
Relationship officers     25  25

 

Recovery Process

 

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 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.

 

b)CCF and Tarjeta

 

In 2020, CCF and Tarjeta made progress with the 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 new evaluation process simplified the application load and improved controls using the information available in the credit bureaus. It will seek to deepen the control automation strategy, minimizing risks while providing a more agile service to our clients. Likewise, a new admission scoring model has been developed and work will continue to improve the internal behavior scoring model used in cross-selling activities and conclude a better model for the evaluation of new and existing clients without sufficient seniority.

 

In the same period, changes have been implemented in origination policies to ensure the ability to repay loans in all segments and especially in those most exposed to the macroeconomic situation generated by the pandemic. In addition, with the aim of improving the assessment of repayment capacity, an internally developed income inference model has been incorporated that improved those provided by the credit bureaus.

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However, the management of credit policies was included in the Integral Risk Committee, securing a more encompassing view of the assessment of said policies.

 

Collections management is carried out by a specialized team and is carried out with specific processes for each instance defined by the company.

 

During 2020 CCF and Tarjeta continued working from collections on the review of sweep strategies, optimization of collection tools and review of predictive models to achieve a better approach to clients with non-compliance with their obligations, achieving a more assertive and effective management.

 

Information Security

 

The Information Security Area is responsible for the information assets protection and for the implementation and maintenance of the security policy established by the Bank’s Board of Directors.

 

The guidelines for management of the Bank’s information security generally take into account the provisions of Communications “A” 4609, “A” 6375 and companion provisions of the Central Bank which are the framework for the management of matters related to the protection of IT assets and the management of Operational and Technological risk.

 

Management of Information Security includes: strategy, policies, practices, procedures and organization structure which Banco Supervielle must rely on to identify, analyze, assess, measure, mitigate and monitor cybersecurity risks.

 

2020 was highly challenging for the Information Security Department. The following three large events had an impact on management actions:

 

1. The Covid-19 pandemic had a strong impact on the Bank’s existing operating scheme Initially, the team focused on operational changes, facilitating remote access – VPN – to most of the personnel and setting up new security and communication equipment options to provide support to this new work model.

 

2. The exponential growth of cyberattacks by expert hackers. As a result of the pandemic, the use of digital channels and remote work increased, companies at global and local level were affected by major cyberattacks. To face such situation we launched different actions to protect our technological infrastructure – antivirus upgrades, ethical hackings, vulnerability detection process upgrades, etc. - and our customers. Three material actions were: a) hiring of a Threat Intelligence service, to proactively detect attacks against its key executives, data leaks, infrastructure attacks, etc.; b) hiring of a cyberinsurance at Grupo Supervielle level, in addition to the Bank’s comprehensive insurance against digital attacks; and c) expansion of the protection shield for service denial attacks for internet apps.

 

3. Acceleration process related to Digital Transformation and IT Department transformation. Several actions and tasks were carried out to join the transformation process: creation of a Cybersecurity Center of Excellence interacting with squads, tribes and COEs that were created; definition of the Golden Rules to govern the actions of squads in respect of cybersecurity aspects; and the establishment of OKRs – Objetive & Key Results – which guided the actions of the Cybersecurity COE.

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Competition

 

Retail Banking, Corporate Banking and Treasury

 

The Argentine financial system remains highly fragmented compared to the rest of Latin America.

 

As of September 30, 2020, the Argentine financial system had 79 financial entities, of which 64 were banks, of which 13 were public and 51 privates. In terms of ownership, as of September 30, 2020, while the participation of the public sector was 20.3%, the portion of banks controlled by Argentine entities represented 54.7% and the portion of banks controlled by foreign entities represented 25.0%.

 

As of September 30, 2020, the number of financial companies was 15, six of which were controlled by Argentine entities and nine of which were controlled by foreign entities.

 

Digital Banking

 

In recent years, following the main global trends, digital banking began to develop in Argentina. As of December 31, 2020, the main digital banks were: Wilobank, Brubank, Rebanking, Openbank, Naranja and Banco del Sol. 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) Banco del Sol was launched in July 2020 and is owned by Sancor Seguros.

 

Consumer Finance

 

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.

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Tarjeta’s competitors vary in terms of region and type of product. Competitors in the lending space include Compañía Financiera Argentina (Efectivo Si), Banco Comafi, Banco Columbia, Credifacil, Credil, Corefin and Empresur. In terms of the credit card space, Tarjeta’s main competitors are Banco Nacion Argentina and other provincial Banks in each of the provinces where it operates, Tarjeta Naranja, followed by smaller regional competitors.

 

MILA is a financial company focused on car financing solutions that had been providing products in the Argentine market for almost 15 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.

 

Mutual Funds

 

With respect to the mutual fund market, based on the Chamber of Mutual Funds information we estimate our market share was 2.10% as of December 31, 2020, and that SAM is ranked 21 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

 

InvertirOnline is our digital online broker. According to ByMA information InvertirOnline ranks 2nd in the local ByMA ranking on Equity, CEDEARs (Certificado de Depósito Argentinos) and options trading, and it has an 8% market share in these assets. Our main competitors are other local participants, mainly Bull Market, Balanz and PPI (Portfolio Personal).

 

Competitive Framework

 

We were one of the top 10 private banks in the Argentine financial system with respect to loans, deposits, assets and equity as of September 30, 2020, as presented in the following tables (figures are expressed in original currency and not adjusted for inflation):

 

   As of September 30, 2020 
  

Total Assets

 
     
  

(in millions

of Pesos)

 

Share of

Total (%)

Banco Santander Río S.A.   899,223,2    14.7%
Banco de Galicia y Buenos Aires S.A.   862,438,9    14.1%
Banco Macro S.A.   716,293,1    11.7%

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   As of September 30, 2020 
  

Total Assets

 
     
  

(in millions

of Pesos)

 

Share of

Total (%)

BBVA Banco Francés S.A.   580,182,7    9.5%
Credicoop Cooperativo Limitado   385,135,2    6.3%
HSBC Bank Argentina S.A.   373,919,1    6.1%
Citibank N.A.   332,150,5    5.4%
ICBC S.A.   320,912,5    5.2%
Banco Patagonia S.A.   267,325,2    4.4%
Banco Supervielle S.A.   222,436,0    3.6%
Nuevo Santa Fe   165,823,0    2.7%
Itau Argentina   147,102,9    2.4%
Banco Hipotecario S.A.   142,987,7    2.3%
Others   705,156,9    11.5%
Total Private Banks   6,121,086,9    100.0%

 

 

Source: Central Bank

 

   As of September 30, 2020 
  

Total Loans

 
     
  

(in millions

of Pesos)

 

Share of

Total (%)

Banco de Galicia y Buenos Aires S.A.   385,490.7    19.4%
Banco Santander Río S.A.   333,404.0    16.8%
Banco Macro S.A.   236,798.7    11.9%
BBVA Banco Francés S.A.   234,900.5    11.9%
ICBC S.A.   111,927.5    5.6%
HSBC Bank Argentina S.A.   110,413.7    5.6%
Banco Patagonia S.A.   92,718.4    4.7%
Banco Supervielle S.A.   86,400.1    4.4%
Credicoop Cooperativo Limitado   56,723.1    2.9%
Itau Argentina   54,401.9    2.7%
Nuevo Santa Fe   41,473.7    2.1%
Citibank N.A.   40,211.8    2.0%
Banco Hipotecario S.A.   38,260.3    1.9%
Others   159,031.4    8.0%
Total Private Banks   1,982,155.80    100.0%

 

 

Source: Central Bank

 

   As of September 30, 2020 
  

Total Deposits

 
     
  

(in millions

of Pesos)

 

Share of

total (%)

Banco Santander Río S.A.   684,273.6    15.8%
Banco de Galicia y Buenos Aires S.A.   616,450.8    14.2%
Banco Macro S.A.   480,826.8    11.1%
BBVA Banco Francés S.A.   398,187.4    9.2%
Credicoop Cooperativo Limitado   290,609.4    6.7%
HSBC Bank Argentina S.A.   267,515.2    6.2%
Citibank N.A.   240,585.7    5.5%
ICBC S.A.   205,974.1    4.7%
Banco Patagonia S.A.   193,308.1    4.5%
Banco Supervielle S.A.   166,278.9    3.8%
Nuevo Santa Fe   129,728.9    3.0%
Itau Argentina   105,453.5    2.4%
Banco Hipotecario S.A.   79,575.4    1.8%
Others   478,171.30    11.0%
Total Private Banks   4,336,939.10    100.0%

 

 

Source: Central Bank

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We were one of the top five private banks in the Argentine financial system with respect to personal loans as of September 30, 2020, as presented in the following table (figures are expressed in original currency and not adjusted for inflation):

 

   As of September 30, 2020 
  

Personal Loans

 
     
  

(in millions

of Pesos)

 

Share of

total (%)

Banco Macro S.A   60,609.8    24.4%
Banco de Galicia y Buenos Aires S.A.U.   31,583.2    12.7%
BBVA Banco Francés S.A.   21,992.1    8.9%
Banco Santander Río S.A.   21,076.1    8.5%
Banco Supervielle S.A.(1)   18,365.5    7.4%
Nuevo Banco de Santa Fe   13,188.5    5.3%
Banco Patagonia S.A.   7,289.0    2.9%
Nuevo Banco de Entre Rios   7,257.5    2.9%
ICBC S.A.   5,320.0    2.1%
HSBC Bank Argentina S.A.   4,703.8    1.9%
Banco Hipotecario S.A.   4,475.5    1.8%
Others   52,106.5    21.0%
Financial Private System   247,967.5    100.0%

 

 

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 September 30, 2020 (figures are expressed in original currency and not adjusted for inflation):

 

   As of September 30, 2020 
   Leasing 
  

(in millions

of Pesos)

  

Share of

total (%)

 
Banco Comafi S.A.   4,451.40    30.7%
Banco Supervielle SA   2,711.60    18.7%
Banco de Galicia y Buenos Aires S.A.   1,946.90    13.4%
BBVA Banco Francés S.A.   1,417.50    9.8%
HSBC Bank Argentina S.A.   1,059.30    7.3%
Credicoop Cooperativo Limitado   684.8    4.7%
ICBC S.A.   466.9    3.2%
Itau Argentina   326.6    2.2%
Banco Santander Río S.A.   281.1    1.9%
Banco Patagonia S.A.   270.5    1.9%
Others   905.70    6.2%
Total Private Banks   14,522.30    100.0%

 

 

Source: Central Bank

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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, 2020 as presented in the following table:

 

      As of December 31, 2020 
      MasterCard active
accounts with
billing statement
 
1  Banco de Galicia y Buenos Aires S.A   11.3%
2  Banco Supervielle S.A.(1)   9.2%
3  BBVA Banco Francés S.A.   9.0%
4  Banco Macro S.A.   5.8%
5  Banco Patagonia S.A   5.5%
6  HSBC Bank Argentina S.A.   4.6%
7  Industrial and Commercial Bank of China (Argentina) S.A.   3.9%
8  Banco Itaú Argentina S.A   1.7%
9  Banco Columbia S.A.   1.7%
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.

 

The following graph shows the Bank’s loan market share on a consolidated basis since 2001.

 

 

 

Source: Central Bank.

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Taking into consideration total loan portfolio and receivables from financial leases portfolio, total loans and leasing market share was 4.6% as of December 31, 2020.

 

The graph below shows a comparison of the Bank’s loan portfolio CAGR as of December 31, 2020 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. Past 3- years average inflation was 45.8%.

 

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.

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The table below shows the inflation rates over the past 10 years:

 

   December 31,
   2011  2012  2013  2014  2015  2016  2017  2018  2019  2020
Inflation in consumer prices –INDEC (%)   9.5  10.8  10.9  23.9  26.9(1)  41.0  24.8  47.6  53.8  36.1

 

Source:

Information from 2011 to 2015: City of Buenos Aires.

Information since 2017: Indec 

 

Argentine Banking Regulation Overview

 

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 certain technical ratios that must be observed by financial entities, such as ration related to levels of solvency, liquidity, the maximum credit that may be granted per customer and foreign exchange assets and liability positions.

 

In addition, financial entities need the authorization from the Central Bank forcertain actions, 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 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.

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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 to permit the financial institution to remain in business.

 

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 of 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 12.5% of 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.

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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.

 

Under Central Bank rules regarding to “Financial Entities Minimum Capital,” the holdings of a commercial bank in the capital stock of third parties, including participations in mutual funds, shall not exceed 60% of the Computable Equity Liability (“RPC,” as per its acronym in Spanish) of such commercial bank. In addition, the total amount of a commercial bank’s holdings, considered as a whole, in (i) unlisted shares, excluding holdings in companies that provide complementary services to the financial activity and holdings in state-owned companies that provide public services, (ii) listed shares and mutual fund shares that do not trigger minimum capital requirements on a market risk bases, and (iii) publicly traded shares that do not have a “market price available to the general public,” is limited to 15% of such commercial bank’s RPC. For this purpose, a given market price of the shares is considered to be “available to the general public” when market rates that measure the daily volume of significant transactions are available, and the sale of such shares held by such bank would not materially affect the share price.

 

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 financially related 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

 

Since 1994, the Central Bank supervision of financial institutions has been 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 parent company 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.

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Legal Reserve

 

Pursuant to the FIL, we are required to maintain a legal reserve which must 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 “Operating and Financial Review and Prospects–Operating Results.”

 

Non-liquid Assets

 

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.

 

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.

95

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 2020, 2019 and 2018 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)

 
   2020   2019   2018 
             
   (in thousands of Pesos except percentages and ratios) 
Calculation of excess capital:            
Allocated to assets at risk    9,047,140    7,164,842    6,090,341 
Allocated to Bank premises and equipment, intangible assets and equity investment assets    1,350,035    826,133    370,233 
Market risk    551,765    251,739    301,724 
                
Public sector and securities in investment account    27,651    11,472    96,882 
Operational risk    3,233,793    2,349,952    1,486,516 
Required minimum capital under Central Bank rules    14,210,384    10,604,138    8,345,696 
Basic net worth    30,242,263    16,991,091    11,847,865 
Complementary net worth    1,090,865    1,033,734    1,163,939 
Deductions    (7,028,227)   (2,999,716)   (867,798)
Total capital under Central Bank rules    24,304,901    15,025,109    12,144,006 
Excess capital    10,094,517    4,420,971    3,798,310 
Selected capital and liquidity ratios:               
Regulatory capital/credit risk weighted assets(1)    19.30%   15.60%   15.30%
Average shareholders’ equity as a percentage of average total assets    11.20%   10.40%   9.90%
Total liabilities as a multiple of total shareholders’ equity    7.5x   7.1x   9.4x
Cash as a percentage of total deposits    20.3%   28.7%   35.1%
Tier 1 Capital / Risk weighted assets    14.00%   11.60%   11.90