6-K 1 tm2115747d1_6k.htm FORM 6-K

 

 

SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C.  20549

 

 

 

FORM 6-K 

REPORT OF FOREIGN PRIVATE ISSUER 

PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE 

SECURITIES EXCHANGE ACT OF 1934

 

May 10, 2021

 

 

 

Commission File Number: 001-32827

 

 

 

MACRO BANK INC. 

(Translation of registrant’s name into English) 

 

 

 

Av. Eduardo Madero 1182 

Buenos Aires C1106ACY 

Tel: 54 11 5222 6500

 

(Address of registrant’s principal executive offices)

 

 

 

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

 

Form 20-F Form 40-F

 

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

 

Yes No

 

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

 

Yes No

 

 

 

 

BANCO MACRO SA

 

Financial statements as of December 31, 2020 together with the Independent Auditor’s Reports on financial statements.

 

CONTENT

 

Cover Sheet

Consolidated statement of financial position

Consolidated statement of income

Consolidated statement of other comprehensive income

Consolidated statement of changes in shareholders’ equity

Consolidated statement of cash flows

Notes to the consolidated financial statements

Exhibits

Separate statement of financial position

Separate statement of income

Separate statement of other comprehensive income

Separate statement of changes in shareholders’ equity

Separate statement of cash flows

Notes to the separate financial statements

Exhibits

Independent Auditor’s report on consolidated Financial Statements

Independent Auditor’s report on separate Financial Statements

Earnings distribution proposal

 

 

FINANCIAL STATEMENTS 

AS OF DECEMBER 31, 2020

 

CORPORATE NAME: Banco Macro SA

 

REGISTERED OFFICE: Avenida Eduardo Madero 1182 – Autonomous City of Buenos Aires

 

CORPORATE PURPOSE AND MAIN ACTIVITY: Commercial bank

 

CENTRAL BANK OF ARGENTINA: Authorized as “Argentine private bank” under No. 285.

 

REGISTRATION WITH THE PUBLIC REGISTRY OF COMMERCE: Under No. 1154 - By-laws Book No. 2, Folio 75 dated March 8, 1967

 

BY-LAWS EXPIRY DATE: March 8, 2066

 

REGISTRATION WITH THE IGJ (SUPERINTENDENCY OF CORPORATIONS): Under No. 9777 – Corporations Book No. 119 Volume A of Sociedades Anónimas, dated October 8, 1996.

 

PERSONAL TAX IDENTIFICATION NUMBER: 30-50001008-4

 

REGISTRATION DATES OF AMENDMENTS TO BY-LAWS:

 

August 18, 1972, August 10, 1973, July 15, 1975, May 30, 1985, September 3, 1992, May 10, 1993, November 8, 1995, October 8, 1996, March 23, 1999, September 6, 1999, June 10, 2003, December 17, 2003, September 14, 2005, February 8, 2006, July 11, 2006, July 14, 2009, November 14, 2012, August 2, 2014, July 15, 2019.

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION  

AS OF DECEMBER 31, 2020, 2019 AND 2018 

(Translation of the Financial statements originally issued in Spanish – See Note 45) 

(Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2020, except that indicated otherwise)

 

Items  Notes   Exhibits  12/31/2020   12/31/2019   12/31/2018 
ASSETS                       
Cash and Deposits in Banks   9   P   129,967,486    137,066,430    156,581,272 
Cash           25,422,664    26,563,255    22,401,428 
Central Bank of Argentina           49,994,923    75,092,641    105,158,422 
Other Local and Foreign Entities           54,544,637    35,405,434    28,066,849 
Other           5,262    5,100    954,573 
Debt Securities at fair value through profit or loss   9   A and P   54,982,465    7,725,991    5,518,954 
Derivative Financial Instruments   8 and 9   P   7,232    69,003    36,216 
Repo transactions   4 and 9   P   39,421,705    1,481,096    - 
Other financial assets   9 and 12   P and R   18,886,290    8,391,566    6,282,447 
Loans and other financing   7 and 9   B, C, D, P and R   257,326,707    300,731,589    375,224,887 
Non-financial Public Sector           3,614,805    8,781,948    3,721,504 
Other Financial Entities           1,822,643    5,380,555    11,782,119 
Non-financial Private Sector and Foreign Residents           251,889,259    286,569,086    359,721,264 
Other Debt Securities   7 and 9   A, P and R   209,123,062    87,890,009    135,258,785 
Financial Assets delivered as guarantee   5, 9 and 32   P   14,292,358    14,530,739    14,149,438 
Equity Instruments at fair value through profit or loss   7, 9 and 15   A and P   1,663,017    2,091,428    107,892 
Investment in associates and joint arrangements   11   E   203,905    199,216    227,907 
Property, plant and equipment       F   34,369,465    35,052,877    32,554,081 
Intangible Assets       G   5,104,060    4,822,183    4,441,128 
Deferred Income Tax Assets   21. c)       63,189    59,115    - 
Other Non-financial Assets   12       2,232,053    1,477,587    2,063,777 
Non-current assets held for sale           2,258,182    2,383,947    3,134,634 
TOTAL ASSETS           769,901,176    603,972,776    735,581,418 

 

Delfín Jorge Ezequiel Carballo
Chairperson

- 1 -

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION  

AS OF DECEMBER 31, 2020, 2019 AND 2018 

(Translation of the Financial statements originally issued in Spanish – See Note 45) 

(Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2020, except that indicated otherwise)

 

Items  Notes   Exhibits  12/31/2020   12/31/2019   12/31/2018 
LIABILITIES               
Deposits   9   H, I and P   488,741,363    357,866,442    498,349,718 
Non-financial Public Sector           73,565,424    23,906,675    40,444,381 
Financial Sector           696,415    427,702    310,531 
Non-financial Private Sector and Foreign Residents           414,479,524    333,532,065    457,594,806 
Derivative Financial Instruments   8 and 9   I and P   230    1,046,556    2,867 
Repo Transactions   4 and 9   I and P   618,572    1,364,825    344,445 
Other Financial Liabilities   9 and 17   I and P   49,215,887    30,181,836    32,074,038 
Financing received from the Central Bank of Argentina and other financial institutions   9   I and P   919,103    3,057,451    6,278,682 
Issued Corporate Bonds   9 and 37   I and P   4,926,901    7,521,820    13,355,897 
Current Income Tax Liabilities   21       5,145,324    11,076,651    6,170,762 
Subordinated Corporate Bonds   9 and 37   I and P   34,300,292    33,098,040    32,018,221 
Provisions   16   J   1,304,524    2,006,052    2,212,870 
Deferred Income Tax Liabilities   21.c)      6,291,243    221,376    4,903,673 
Other Non-financial Liabilities   17       30,356,941    13,776,518    12,309,288 
TOTAL LIABILITIES           621,820,380    461,217,567    608,020,461 
SHAREHOLDERS’ EQUITY                       
Capital Stock   29       639,413    639,413    669,663 
Non-capital contributions           12,429,781    12,429,781    12,428,461 
Adjustments to Shareholders’ Equity           50,313,147    50,313,147    50,352,382 
Earnings Reserved           109,816,498    74,776,648    46,065,725 
Unappropriated Retained Earnings           (50,602,848)   (22,058,528)   20,090,218 
Other Comprehensive Income           (4,786,055)   176,867    (119,386)
Net Income/ (loss) for the fiscal year           30,268,992    26,475,968    (1,928,218)
Net Shareholders’ Equity attributable to controlling interest           148,078,928    142,753,296    127,558,845 
Net Shareholders’ Equity attributable to non-controlling interests           1,868    1,913    2,112 
TOTAL SHAREHOLDERS’ EQUITY           148,080,796    142,755,209    127,560,957 
TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES           769,901,176    603,972,776    735,581,418 

 

The notes 1 to 45 to the consolidated financial statements and the exhibits A to J, L, N and P to R are an integral part of the consolidated financial statements.

 

Delfín Jorge Ezequiel Carballo
Chairperson

- 2 -

 

CONSOLIDATED STATEMENT OF INCOME  

FOR THE FISCAL YEARS ENDED DECEMBER 31, 2020 AND 2019

(Translation of the Financial statements originally issued in Spanish – See Note 45)

(Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2020, except that indicated otherwise)

 

Items  Notes   Exhibits   12/31/2020   12/31/2019 
Interest income        Q    157,080,212    206,343,721 
Interest expense        Q    (60,833,919)   (87,343,660)
Net Interest income             96,246,293    119,000,061 
Commissions income   22    Q    24,742,767    26,467,679 
Commissions expense        Q    (2,047,292)   (2,191,792)
Net Commissions income             22,695,475    24,275,887 
Subtotal (Net Interest income +Net Commissions income)             118,941,768    143,275,948 
Loss from measurement of financial instruments at fair value through profit or loss        Q    (26,653,356)   (44,397,956)
Profit / (Loss) from sold or derecognized assets at amortized cost             1,292,836    37,325 
Differences in quoted prices of gold and foreign currency   23         4,229,690    4,761,247 
Other operating income   24         5,369,762    10,456,756 
Allowance for loan losses   7    7    (8,002,788)   (5,830,073)
Net Operating Income             95,177,912    108,303,247 
Employee benefits   25         (26,598,602)   (28,865,342)
Administrative expenses   26    26    (14,539,871)   (17,427,021)
Depreciation and amortization of fixed assets        F and G    (4,402,387)   (4,092,898)
Other Operating Expenses   27         (20,469,213)   (30,088,399)
Operating Income             29,167,839    27,829,587 
(Loss)/ Income from associates and joint arrangements   11         (6,856)   1,223,124 
Gain on net monetary position             13,348,858    14,429,118 
Income before tax on continuing operations             42,509,841    43,481,829 
Income tax on continuing operations   21.c)      (12,240,487)   (17,005,619)
Net Income from continuing operations            30,269,354    26,476,210 
Net Income for the fiscal year            30,269,354    26,476,210 
Net Income for the fiscal year attributable to controlling interest            30,268,992    26,475,968 
Net Income for the fiscal year attributable to non-controlling interest            362    242 

 

Delfín Jorge Ezequiel Carballo
Chairperson

- 3 -

 

CONSOLIDATED EARNINGS PER SHARE

FOR THE FISCAL YEARS ENDED DECEMBER 31, 2020 AND 2019

(Translation of the Financial statements originally issued in Spanish – See Note 45)

(Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2020, except that indicated otherwise)

     

Items  12/31/2020   12/31/2019 
Net Profit attributable to Parent’s shareholders   30,268,992    26,475,968 
PLUS: Potential diluted earnings per common share   -    - 
Net Profit attributable to Parent’s shareholders adjusted as per diluted earnings   30,268,992    26,475,968 
Weighted average of outstanding common shares for the fiscal year   639,413    639,402 
PLUS: Weighted average of the number of additional common shares with dilution effects   -    - 
Weighted average of outstanding common shares for the fiscal year adjusted as per dilution effect   639,413    639,402 
Basic earnings per share (in pesos)   47.3387    41.4074 

 

Delfín Jorge Ezequiel Carballo
Chairperson

- 4 -

 

CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME 

FOR THE FISCAL YEARS ENDED DECEMBER 31, 2020 AND 2019  

(Translation of the Financial statements originally issued in Spanish – See Note 45) 

(Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2020, except that indicated otherwise)

 

                 
Items  Notes   Exhibits   12/31/2020   12/31/2019 
Net Income for the fiscal year             30,269,354    26,476,210 
Items of Other Comprehensive Income that will be reclassified to profit or loss             -    - 
Foreign currency translation differences in financial statements conversion             119,864    116,159 
Foreign currency translation differences for the fiscal year             119,864    116,159 
Profit or losses for financial instruments measured at fair value through other comprehensive income (FVOCI) (IFRS 9(4.1.2)(a))             (5,082,786)   180,081 
Profit or losses for the fiscal year from financial instruments at fair value through other comprehensive income (FVOCI)        Q    (4,910,379)   332,274 
Income tax   21.c)        (172,407)   (152,193)
Total Other Comprehensive Income that is subsequently reclassified to profit or loss             (4,962,922)   296,240 
Total Other Comprehensive Income             (4,962,922)   296,240 
Total Comprehensive Income for the fiscal year             25,306,432    26,772,450 
Total Comprehensive Income attributable to controlling interest             25,306,070    26,772,221 
Total Comprehensive Income attributable to non-controlling interest             362    229 

 

(*)Net amount of reclassifications to the income statement of financial instruments that was classified at fair value through other comprehensive income that were derecognized or collected during the fiscal year. As of December 31, 2020 and 2019 the reclassified amounts to profit or loss was (45,699,928) and (63,011,413), respectively.

 

Had the criteria established in Communiqué “A” 7211 been applied, the amount reclassified to profit for the fiscal years ended December 31, 2020, and 2019, would have stood at (2,373,856) and (10,521,657), respectively.  

 

The notes 1 to 45 to the consolidated financial statements and the exhibits A to J, L, N and P to R are an integral part of the consolidated financial statements.  

 

Delfín Jorge Ezequiel Carballo
Chairperson

- 5 -

 

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY 

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2020 

(Translation of the Financial statements originally issued in Spanish – See Note 45) 

(Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2020, except that indicated otherwise)

 

       Capital stock    Non- capital contributions      Other comprehensive
income
   Earnings Reserved                 
Changes  Notes   Outstanding shares   In
treasury
   Additional
paid-in
capital
   Adjustments
to
Shareholders’ Equity
   Accumulative foreign currency translation difference in financial statements conversion   Other   Legal   Other   Unappropriated Retained
Earnings
   Total
Controlling Interests
   Total Non-Controlling Interests  

Total

Equity

 
Restated amount at the beginning of the fiscal year        639,413       12,429,781    50,313,147    785,443    (608,576)   20,981,650    53,794,998    4,417,440    142,753,296    1,913    142,755,209 
Total comprehensive income for the fiscal year                                                     0         0 
- Net income for the fiscal year                                                30,268,992    30,268,992    362    30,269,354 
- Other comprehensive income/ (loss) for the fiscal year                            119,864    (5,082,786)                  (4,962,922)        (4,962,922)
Distribution of unappropriated retained earnings as approved by Shareholders´ Meeting held on April 30, 2020                                                     0           
Legal reserve                                      11,109,012         (11,109,012)   0         0 
Normative reserve                                           43,911,276    (43,911,276)   0         0 
Cash dividends (1)   30 and 40                                       (19,980,438)        (19,980,438)        (19,980,438)
Other changes                                                          (407)   (407)
Amount at the end of the fiscal year        639,413         12,429,781    50,313,147    905,307    (5,691,362)   32,090,662    77,725,836    (20,333,856)   148,078,928    1,868    144,080,796 

  

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY 

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2019 

(Translation of the Financial statements originally issued in Spanish – See Note 45) 

(Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2020, except that indicated otherwise)

 

       Capital stock   Non-capital Contributions       Other comprehensive income   Earnings Reserved                 
Changes  Notes   Outstanding shares   In treasury   Additional
paid-in
capital
  

Adjustments
to
Shareholders’ Equity

   Accumulative foreign currency translation difference in financial statements conversion   Other   Legal   Other   Unappropriated Retained
Earnings
   Total
Controlling Interests
   Total Non-Controlling Interests  

Total

Equity

 
Restated amount at the beginning of the fiscal year        640,715    28,948    12,428,461    50,352,382    669,284    (788,670)   14,393,354    31,672,371    17,750,090    127,146,935    2,112    127,149,047 
Adjustment and retroactive restatements   3                                            411,910    411,9100         411,9100 
Amount at the beginning of the fiscal year adjusted and restated        640,715    28,948    12,428,461    50,352,382    669,284    (788,670)   14,393,354    31,672,371    18,162,000    127,558,845    2,112    127,560,957 
Total comprehensive income for the fiscal year                                                     0         0 
- Net income for the fiscal year                                                26,475,968    26,475,968    242    26,476,210 
- Other comprehensive income/ (loss) for the fiscal year                            116,159    180,094                   296,253    (13)   296,240 
Distribution of unappropriated retained earnings as approved by Shareholders´ Meeting held on April 30, 2019                                                     0           
Legal reserve                                      6,588,296         (6,588,296)   0         0 
Normative reserve                                           7,279,036    (7,279,036)   0         0 
Cash dividends                                           (11,580,876)        (11,580,876)        (11,580,876)
Other                                           26,353,196    (26,353,196)               
Own shares in treasury   29    (1,317)   1,317                                                   
Decrease of own shares in treasury   29         (30,265)        (41,006)                  71,271                     
Other changes   29    15         1,320    1,771                             3,106    (428)   2,678 
Amount at the end of the fiscal year        639,413         12,429,781    50,313,147    785,443    (608,576)   20,981,650    53,794,998    4,417,440    142,753,296    1,913    142,755,2091 

 

(1)Includes the complementary cash dividend approved by the Extraordinary General Meeting on October 21, 2020. See also Notes 30 and 40.

 

The notes 1 to 45 to the consolidated financial statements and the exhibits A to J, L, N, P to R are an integral part of the consolidated financial statements.

 

Delfín Jorge Ezequiel Carballo
Chairperson

- 6 -

 

CONSOLIDATED STATEMENT OF CASH FLOWS 

FOR THE FISCAL YEARS ENDED DECEMBER 31, 2020 AND 2019  

(Translation of the Financial statements originally issued in Spanish – See Note 45) 

(Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2020, except that indicated otherwise)

 

Items  Notes   12/31/2020   12/31/2019 
CASH FLOWS FROM OPERATING ACTIVITIES             
Income for the fiscal year before Income Tax        42,509,841    43,481,829 
Total monetary effect on the fiscal year        (13,348,858)   (14,429,118)
Adjustments to obtain cash flows from operating activities:        -    - 
Amortization and depreciation        4,402,387    4,092,898 
Allowance for loan losses        8,002,788    5,830,073 
Difference in quoted prices of foreign currency        (17,139,522)   (35,090,773)
Other adjustments        67,892,011    109,219,180 
Net increase / (decrease) from operating assets:        -    - 
Debt Securities at fair value through profit and loss        (83,048,429)   (2,207,037)
Derivative financial instruments        61,771    (32,787)
Repo transactions        (37,940,609)   (1,481,096)
Loans and other financing        -    - 
 Non-financial public sector        5,167,143    (5,060,444)
 Other financial entities        3,557,912    6,401,564 
 Non-financial private sector and foreign residents        26,641,990    67,937,726 
Other debt Securities        (15,409,031)   (6,045,300)
Financial assets delivered as guarantee        238,381    (381,301)
Equity instruments at fair value through profit or loss        428,411    1,421,607 
Other assets        (11,260,166)   (1,541,014)
Net increase / (decrease) from operating liabilities:        -    - 
Deposits        -    - 
 Non-financial public sector        49,658,749    (16,537,706)
 Financial sector        268,713    117,171 
 Non-financial private sector and foreign residents        80,947,459    (124,062,741)
Derivative financial instruments        (1,046,326)   1,043,689 
Repo transactions        (746,253)   1,020,380 
Other liabilities        18,319,036    (1,406,904)
Payments for Income Tax        (8,348,230)   (12,736,961)
TOTAL CASH FROM OPERATING ACTIVITIES (A)        119,809,168    19,552,935 

 

Delfín Jorge Ezequiel Carballo
Chairperson

- 7 -

 

CONSOLIDATED STATEMENT OF CASH FLOWS 

FOR THE FISCAL YEARS ENDED DECEMBER 31, 2020 AND 2019  

(Translation of the Financial statements originally issued in Spanish – See Note 45) 

(Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2020, except that indicated otherwise)

 

Items  Notes   12/31/2020   12/31/2019 
CASH FLOWS FROM INVESTING ACTIVITIES             
Payments:               
Acquisition of PPE, intangible assets and other assets        (3,676,079)   (5,635,795)
TOTAL CASH USED IN INVESTING ACTIVITIES (B)        (3,676,079)   (5,635,795)
CASH FLOWS FROM FINANCING ACTIVITIES               
Payments:               
Dividends        (407)   (11,581,304)
Acquisition or redemption of equity instruments        -    (406,710)
Non subordinated corporate bonds        (2,114,046)   (4,087,381)
Central Bank of Argentina        (9,701)   - 
Financing from local financial entities        (2,038,626)   (3,208,872)
Subordinated Corporate Bonds        (2,246,089)   (2,204,680)
Other payments related to financing activities        (537,316)   (321,154)
Proceeds:        -    - 
Central Bank of Argentina        -    4,917 
Financing from local financial entities        76    790 
TOTAL CASH USED IN FINANCING ACTIVITIES (C)        (6,946,109)   (21,804,394)
EFFECT OF EXCHANGE RATE FLUCTUATIONS (D)        29,175,803    52,181,858 
MONETARY EFFECT ON CASH AND CASH EQUIVALENTS (E)        (75,416,642)   (117,211,723)
NET INCREASE/ (DECREASE) IN CASH AND CASH EQUIVALENTS (A+B+C+D+E)        62,946,141    (72,917,119)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE FISCAL YEAR   28    200,658,604    273,575,723 
CASH AND CASH EQUIVALENTS AT THE END OF THE FISCAL YEAR   28    263,604,745    200,658,604 

 

The notes 1 to 45 to the consolidated financial statements and the exhibits A to J, L, N and P to R are an integral part of the consolidated financial statements.

 

Delfín Jorge Ezequiel Carballo
Chairperson

- 8 -

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2020

(Translation of Financial statements originally issued in Spanish – See Note 45)

(Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2020, unless otherwise expressly stated)

 

1.CORPORATE INFORMATION

 

Banco Macro SA (hereinafter, the Bank), is a stock corporation (sociedad anónima), organized in the Argentine Republic that offers traditional banking products and services to companies, including those companies operating in regional economies as well as to individuals, thus strengthening its goal to be a multiservice bank. In addition, through its subsidiaries, the Bank performs transactions as a trustee agent, manager and administrator of mutual funds and renders stock exchange services.

 

Macro Compañía Financiera SA was created in 1977, as a non-banking financial institution. In May 1988, it received the authorization to operate as a commercial bank and it was incorporated as Banco Macro SA. Subsequently, as a result of the merger process with other entities, it adopted other names (among them, Banco Macro Bansud SA) and since August 2006, Banco Macro SA.

 

The Bank’s shares have been publicly listed on Bolsas y Mercados Argentinos (BYMA) since November 1994; and as from March 24, 2006 they are listed on the New York Stock Exchange (NYSE). Additionally, on October 15, 2015, they were authorized to be listed on the Mercado Abierto Electrónico SA (MAE).

 

Since 1994, Banco Macro SA’s market strategy was mainly focused on the regional areas outside the Autonomous City of Buenos Aires (CABA, for its acronym in Spanish),. Following this strategy, in 1996, Banco Macro SA started the process to acquire entities and assets and liabilities during the privatization of provincial and other banks.

 

On May 21, 2019, the Bank acquired 100% of Argenpay SAU for an amount of 100 conformed by 100,000 common, registered shares, with a face value of Ps. 1 each one and entitled to one vote. The main activity of such company is the development of its own network or the incorporation into other networks so that it can operate with individuals or companies, in-person or remotely, by using information and communication technologies, grant, offer or accept electronic payments online or offline, digital and virtual wallets and e-commerce in general. This subsidiary started to develop its principal activities during the fourth quarter of 2019. On November 18, 2020, it was registered in the “Payment services suppliers Registry that offers payment accounts” of the Central Bank of Argentina (BCRA, for its acronym in Spanish) under Nº 33678.

 

Additionally, on July 17, August 26, and October 15, 2020 the Bank made irrevocable capital contributions in advance of future share subscription to the company Play Digital SA of 16,250, 27,250 and 61,689, respectively. On July 23, August 26, and October 15, 2020, the Extraordinary Shareholders’ Meeting of Play Digital SA accepted the irrevocable capital contributions and gave its approval to the Bank to subscribe 16,250,000, 26,634,046 and 58,017,400 common, registered shares, with a face value of Ps. 1. On December 15, 2020, the Extraordinary Shareholders’ Meeting of Play Digital SA decided a new capital stock increase. Thus, on December 16, 2020 the Bank subscribed new 18,276,059 common, registered shares with a face value of Ps. 1 for an amount of 20,727. As a consequence, the Bank’s interest in Play Digital SA amounted to 9.9545%. Initially, the shareholders’ were Banco de Galicia y Buenos Aires SAU, Banco BBVA Argentina SA, Banco Santander Río SA and Banco Macro SA. Subsequently, other banks were accepted as shareholders together with the abovementioned. Moreover, on March 4, 2021 the Bank made a new capital contribution for an amount of 19,505. The company’s purpose is to develop and market a payment solution linked to bank accounts held by financial system users in order to bring significant improvement to their payment experience.

 

On March 10, 2021, the Board of Directors approved the issuance of these consolidated financial statements. Even when the Shareholders’ Meeting has the power to amend these consolidated financial statements after issuance, in Management opinion it will not happen.

 

2.OPERATIONS OF THE BANK

 

2.1.Agreement with the Misiones Provincial Government

 

The Bank and the Misiones Provincial Government entered into a special-relationship agreement whereby the Bank was appointed, for a five-year term since January 1, 1996, as the Provincial Government’s exclusive financial agent as well as revenue collection and obligation payment agent.

 

On November 25, 1999, December 28, 2006 and October 1, 2018 extensions to such agreement were agreed upon, making it currently effective through December 31, 2029.

 - 9 -

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2020

(Translation of Financial statements originally issued in Spanish – See Note 45)

(Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2020, unless otherwise expressly stated)

 

As of December 31, 2020 and 2019, the deposits held by the Misiones Provincial Government with the Bank amounted to 16,239,739 and 9,305,984 (including 808,570 and 942,301, related to court deposits), respectively.

 

2.2.Agreement with the Salta Provincial Government

 

The Bank and the Salta Provincial Government entered into a special-relationship agreement whereby the Bank was appointed, for a ten-year term since March 1, 1996, as the Provincial Government’s exclusive financial agent as well as revenue collection and obligation payment agent.

 

On February 22, 2005, and August 22, 2014, extensions to such agreements were agreed upon, making it currently effective through February 28, 2026.

 

As of December 31, 2020 and 2019, the deposits held by the Salta Provincial Government with the Bank amounted to 3,777,068 and 5,933,781 (including 1,240,932 and 1,235,163, related to court deposits), respectively.

 

2.3.Agreement with the Jujuy Provincial Government

 

The Bank and the Jujuy Provincial Government entered into a special-relationship agreement whereby the Bank was appointed, for a ten-year term since January 12, 1998, as the Provincial Government’s exclusive financial agent as well as revenue collection and obligation payment agent.

 

On April 29, 2005 and July 8, 2014, extensions to such agreement were agreed upon, making it currently effective through September 30, 2024.

 

As of December 31, 2020 and 2019, the deposits held by the Jujuy Provincial Government with the Bank amounted to 10,910,810 and 1,607,209 (including 1,168,418 and 874,074, related to court deposits), respectively.

 

2.4.Agreement with the Tucumán Provincial Government. Merger with Banco del Tucumán SA

 

The Bank acts as an exclusive financial agent and as revenue collection and obligation payment agent of the Tucumán Provincial Government, the Municipality of San Miguel de Tucumán and the Municipality of Yerba Buena. The services agreements with the Provincial and Municipalities Governments are effective through years 2031, 2023 and 2025, respectively.

 

On July 4, 2018, the legislative body of the province of Tucumán enacted into law a bill issued by the provincial executive, authorizing the sale of the shares held by such province in Banco de Tucumán SA to Banco Macro SA. On August 10, 2018, the province of Tucumán transferred to Banco Macro SA, 43,960 Class B common registered non-endorsable shares, with a face value of Ps. 100 each one and entitled to one vote, which is equivalent to 10% of its common stock and votes and the exchange ratio was agreed at 0.65258 ordinary shares of Banco Macro SA for each face value Ps.1 of common share of Banco del Tucumán SA. Therefore, the minority shareholders of Banco del Tucumán SA were entitled to receive at 0.65258 common shares of Banco Macro SA, for each face value Ps. 1 of ordinary shares they hold in Banco del Tucumán SA. Consequently, Banco Macro SA issued 15,662 Class B common, registered shares, with a face value of Ps. 1 each one and entitled to one vote (see additionally note 29).

 

During 2019, the merger with Banco del Tucuman SA by Banco Macro SA was performed and authorized by the Board of the BCRA through Resolution No. 179. On September 25, 2019, Argentine Securities and Exchange Commission (CNV, for its acronym in Spanish), authorized the merger which was registered at the Public Registry of Commerce on September 30, 2019.

 

Through Communiqué “C” 84993 the BCRA informed that, according to the authorization gave in due time on October 15, 2019, Banco Macro SA performed the merger with Banco del Tucumán SA. Additionally, since that date, the authorization of Banco del Tucumán SA to operate as a commercial bank was revoked and its buildings were incorporated to Banco Macro SA as branches.

 - 10 -

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2020

(Translation of Financial statements originally issued in Spanish – See Note 45)

(Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2020, unless otherwise expressly stated)

 

As of December 31, 2020 and 2019, the deposits held by the Tucumán Provincial Government, the Municipality of San Miguel de Tucumán and the Municipality of Yerba Buena with the Bank amounted to 14,274,476 and 4,902,149 (including 3,536,735 and 3,342,313, related to court deposits), respectively.

 

Additionally, as of December 31, 2020 and 2019, the Bank granted loans to the Tucumán Provincial Government for an amount of 2,860,617 and 7,606,547, respectively.

 

3.BASIS FOR THE PREPARATION OF THESE FINANCIAL STATEMENTS AND APPLICABLE ACCOUNTING STANDARDS

 

Presentation basis

 

Applicable Accounting Standards

 

These consolidated financial statements of the Bank were prepared in accordance with the accounting framework established by BCRA (Communiqué “A” 6114 as supplementary rules of the BCRA). Except for the exceptions established by the BCRA which are explained in the following paragraph, such framework is based on International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and adopted by the Argentine Federation of Professionals Councils in Economic Sciences (FACPCE, for its acronym in Spanish). The abovementioned international standards include the IFRS, the International Accounting Standards (IAS) and the interpretations developed by the IFRS Interpretations Committee (IFRIC) or former IFRIC (SIC).

 

The transitory exceptions and regulatory guidelines established by BCRA to the application of effective IFRS, that have affected the preparation of these consolidated financial statements are as follows:

 

a)According to Communiqué “A” 6114, as supplementary, and in the convergence process through IFRS, the BCRA established that since fiscal years beginning on January 1, 2020 included, financial institutions defined as “Group A” by BCRA rules, in which the Bank is included, begin to apply section 5.5 “Impairment” of the IFRS 9 “Financial Instruments” (sections B5.5.1 to B5.5.55), except for the temporary exclusion for the debt securities of the non-financial public sector established by BCRA Communiqué “A” 6847. As of the date of issuance of these consolidated financial statements, the Bank is in the process of quantifying the effect of the full application of the mentioned standard.

 

b)Additionally, on April 29, 2019, the Bank received a Memorandum from the BCRA, which established specifics guidelines related to the measurement of the Bank’s holding in Prisma Medios de Pago SA as explained in note 15. Considering such guidelines, the Bank adjusted the fair value previously determined. As of the date of issuance of these consolidated financial statements, the Bank is in the process of quantifying the difference over such fair value and the fair value calculated according to IFRS, which could be material.

 

c)As explained in section “Measuring unit” of this note, through Communiqués “A” 6651 and 6849, the BCRA established the application of the comprehensive inflation adjustment method to financial statements for fiscal years begging on January 1, 2020, included. Among the specified regulations established by the regulatory authority, through such standard determined that the amounts related to change in financial assets measured at fair value through other comprehensive income will be determined in terms of the current measuring unit, so that the monetary effect generated by those financial assets will be recognized in the statement of other comprehensive income when the IAS 29 “Financial Reporting in Hyperinflationary Economies”, requires that all the monetary effect generated by those financial assets will be recognized in the statement of income, while changes to be recognized in other comprehensive income will be arose by the comparison of: (i) the reserve included in the equity at the beginning of the fiscal year, restated at the closing date, and (ii) the difference between the amortized cost of financial assets and their fair value at the closing date. According to the requirement of Communiqué “A” 7211, the Bank quantifies the monetary effect generated by those items in Exhibit Q.

 

Except for what was mentioned in the previous paragraphs, the accounting policies applied by the Bank comply with the IFRS as currently approved and are applicable to the preparation of these annual consolidated financial statements in accordance with the IFRS as adopted by the BCRA through Communiqué “A” 7183. Generally, the BCRA does not allow the anticipated application of any IFRS, unless otherwise expressly stated.

 - 11 -

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2020

(Translation of Financial statements originally issued in Spanish – See Note 45)

(Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2020, unless otherwise expressly stated)

 

Going concern

 

The Bank’s management has made an assessment of its ability to continue as a going concern and is satisfied that it has the resources to continue in business for the foreseeable future. Furthermore, management is not aware of any material uncertainties that may cast significant doubt on the Bank’s ability to continue as a going concern. Therefore, these consolidated financial statements continue to be prepared on the going concern basis.

 

Transcription into books

 

As of the date of issuance of these consolidated financial statements, they are in the process of being transcribed both the analytical detail in the Bank’s inventory book (“Libro Inventario”) and general ledger and the consolidated financial statement in the Bank’s balance book (“Libro Balances”) of Banco Macro SA as of December 31, 2020.

 

Figures expressed in thousands of pesos

 

These consolidated financial statements disclose figures expressed in thousands of Argentine pesos in terms of purchasing power as of December 31, 2020, and are rounded up to the nearest amount in thousands of pesos, unless otherwise expressly stated (see section “Measuring unit” of this note).

 

Statement of financial position - Disclosure

 

The Bank presents its assets and liabilities in order of liquidity, as established by BCRA Communiqué “A” 6324. The analysis referred to the recovery of assets and settlement of liabilities during the 12 months following the reporting date and more than 12 months after the reporting date is disclosed in note 19.

 

Financial assets and financial liabilities are generally reported gross in the consolidated statement of financial position. They are only offset and reported net when there is a legal and enforceable right to offset such financial assets and liabilities and the Management also intends to settle them on a net basis or to realize assets and settle liabilities simultaneously.

 

These consolidated financial statements were prepared on a historical cost basis except for certain financial instruments which were valued at fair value through Other Comprehensive Income (OCI) or at Fair Value through Profit or Loss. For further information see Exhibit P. In addition, derivative instruments (term and forwards transactions) both assets and liabilities were valued at Fair Value through Profit or Loss.

 

Comparative information

 

The statement of financial position as of December 31, 2020 and the statement of income and other comprehensive income, the statement of changes in shareholders’ equity and the statement of cash flows for the fiscal year ended December 31, 2020, are presented comparatively with the immediately preceding fiscal year.

 

In addition, by the application of BCRA Communiqué “A” 6868 “restatement of financial statements – IAS 29”, it is included the opening statement of financial position to the transition date (December 31, 2018).

 

The figures related to comparative information have been restated to consider the changes in the general purchasing power of the functional currency and, as a result, are stated in terms of the measuring unit current at the end of the reporting period (see the section “Measuring unit”).

 

Measuring unit

 

These consolidated financial statements have been restated for the changes in the general purchasing power of the functional currency (Argentine pesos) of the Bank, as of that date, as established by IAS 29 and considering, in addition, specifics rules established by BCRA through Communiqués “A” 6651, 6849, as amendments, which established to apply this method, on a mandatory basis, from fiscal years beginning on January 1, 2020, included and determined as the transition date on December 31, 2018.

 - 12 -

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2020

(Translation of Financial statements originally issued in Spanish – See Note 45)

(Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2020, unless otherwise expressly stated)

 

According to IFRS, the restatement of financial statements is needed when the functional currency is the currency of a hyperinflationary economy. To achieve consistency in identifying an economic environment of that nature, IAS 29 establishes (i) certain qualitative indicators, not limited to, consisting of analyzing the general population behavior, prices, interest rates and wages with changes to a price index and the loss of purchasing power, and (ii) as quantitative characteristic, which is the most used condition in practice, to test if a three-year cumulative inflation rate is around 100% or more. Due to miscellaneous macroeconomic factors, the three-year inflation rate exceeds that figures and the Argentine government goals and other available estimates also indicate that this trend will not be reversed in the short term.

 

The restatement was applied as if the economy had always been hyperinflationary; using a general price index that reflects changes in general purchasing power. To apply the restatement, a series of indexes were used, as prepared and published on a monthly basis by the Argentine Federation of Professional Councils on Economic Sciences (FACPCE, for its acronym in Spanish), which combines consumer price index (CPI) on a monthly basis published by the Argentine Institute of Statistics and Censuses (INDEC, for its acronym in Spanish) since January 2017 (baseline month: December 2016) with the wholesale prices indexes published by the INDEC until that date. For the months of November and December 2015, for which the INDEC did not publish the wholesale price index (WPI) variation, the CPI variation for CABA was used.

 

Considering the abovementioned indexes, the inflation rate was 36.14% and 53.83% for the fiscal years ended on December 31, 2020 and 2019, respectively.

 

Below is a description of the restating mechanism provided by IAS 29 and the restatement process for financial statements established by BCRA Communiqué “A” 6849, as supplementary:

 

Description of the main aspects of the restatement process for statements of financial position:

 

(i)Monetary items (the ones that are already stated in terms of the current measuring unit) are not restated because they are already expressed in terms of the monetary unit current at the end of the reporting period. In an inflationary period, an entity holding monetary assets generates purchasing power loss and holding monetary liabilities generates purchasing power gain, provided that the assets and liabilities are not linked to an adjustment mechanism that offsets, in some extend such effects. The net gain or loss on a monetary basis is included in profit or loss for the period.

 

(ii)Assets and liabilities subject to adjustments based on specific agreements is adjusted in accordance with such agreements.

 

(iii)Non-monetary items stated at current cost at the end of the reporting period, are not restated for presentation purposes in the statement of financial position, but the adjustment process must be completed to determine, in terms of constant measurement unit, the income or loss produced by holding these non-monetary items.

 

(iv)Non-monetary items carried at historical cost or at current cost at some earlier date before the reporting date, are restated by an index that reflects the general level of price variation from the acquisition or revaluation date to the closing date, proceeding then to compare the restated amounts of those assets with their recoverable amounts. Income or loss for the period related to depreciation of property, plant and equipment and amortization of Intangible Assets and other non-monetary cost are determined over the new restated amounts.

 

(v)When an entity capitalizes borrowing cost in the non-monetary assets, the part of the borrowing cost that compensates for the inflation during the same period is not capitalized.

 

(vi)The restatement of non-monetary assets in terms of a current measurement unit at the end of the reporting period, without an equivalent adjustment for tax purposes generates a taxable temporary difference and a deferred income tax liability is recognized and the contra account is recognized as profit or loss for the period. When, beyond the restatement, there is a revaluation of non-monetary assets, the deferred tax related to the restatement is recognized in profit or loss for the period and deferred tax related to the revaluation is recognized in other comprehensive income for the period.

 - 13 -

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2020

(Translation of Financial statements originally issued in Spanish – See Note 45)

(Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2020, unless otherwise expressly stated)

 

Description of the main aspects of the restatement process for statements of income and other comprehensive income:

 

(i)Income and expenses are restated from the date the items were recorded, except for those income or loss items that reflect or include, in their determination, the consumption of assets measured at the currency purchasing power from a date prior to that which the consumption was recorded, which is restated using as a basis the acquisition date of the assets related to the item, except for income or losses arising from comparing the two measurements at currency purchasing power of different dates, for which it requires to identify the compared amounts, to restate them separately and to repeat the comparison, with the restated amounts.

 

(ii)Certain income and expenses generated at fair value measurement or for derecognition of non-monetary assets and items of other comprehensive income are disclosed in terms of measuring unit current (see also Exhibit Q, in which is disclosed the quantification required by Communiqué “A” 7211).

 

(iii)The gain or loss from monetary position will be classified based on the item that generated it and will be separately disclosed reflecting the inflationary effects over such items.

 

Description of the main aspects of the restatement process for the statements of changes in shareholders’ equity:

 

(i)As the transition date (December 31, 2018), the Bank has applied the following procedures:

 

(a)The components of equity, except the ones mentioned below, were restated from the dates the components were contributed or otherwise arose according to BCRA Communiqué “A” 6849, for each item.

(b)Earnings reserved, including the special reserve for the first time application of IFRS, were stated at nominal value at the transition date (legal amount not restated).

(c)The accumulated balances of other comprehensive income were recalculated in terms of measuring unit current at the transition date.

(d)The unappropriated retained earnings were determinated as a difference between the restated net asset at the transition date and the other components of equity, restated as disclosed in the abovementioned paragraphs.

 

(ii)After the transition date restatement abovementioned in (i), all equity’s components are restated by applying a general price index as mentioned before from the beginning of the period and each variation of those components is restated from the contribution date or from the moment it was produced by any other way.

 

Other comprehensive income generated after the transition date are presented in terms of the measuring unit current at the end of the reporting period.

 

Description of the main aspects of the restatement process for the statement of cash flows:

 

(i)All items are restated in terms of the measuring unit current at the end of the reporting period.

 

(ii)The monetary gain or losses generated by cash and cash equivalents are separately disclosed in the statement of cash flows after the cash flow from operating investment activities and financing activities, in a separate and independent line, under the description “Total monetary effect on the fiscal year”.

 

Basis for consolidation

 

These consolidated financial statements include the financial statements of the Bank and its subsidiaries as of December 31, 2020.

 

Subsidiaries are all the entities controlled by the Bank. The Bank controls other entity when it is exposed, or has rights, to variable returns from its continuing involvement with such other entity, and has the ability to use its power to direct the operating and financing policies of such other entity, to affect the amounts of such returns.

 

This generally happens when there is a shareholding of more than half of its shares having voting rights.

 - 14 -

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2020

(Translation of Financial statements originally issued in Spanish – See Note 45)

(Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2020, unless otherwise expressly stated)

 

Notwithstanding the above, under certain particular circumstances, the Bank may still have control with less than a 50% participating interest or may not have the control even if it holds more than half of the shares of such other entity.

 

Upon evaluating whether it has power over the controlled entity, and therefore controls the variation of its returns, the Bank shall consider all relevant facts and circumstances, including:

 

-The purpose and design of the controlled entity.

-What the relevant activities are and how decisions about those activities are made and whether the Bank has the ability to direct such relevant activities.

-Contractual arrangements such as call rights, put rights and liquidation rights.

-Whether the Bank is exposed, or has rights, to variable returns from its involvement with such controlled entity, and whether the Bank has the ability to use its power over the controlled entity to affect the amount of the Bank’s returns.

 

The Bank has no interests in structured entities that required to be consolidated.

 

Subsidiaries are completely consolidated since the date of the effective transfer of the control over the same to the Bank and consolidation ceases when the Bank loses control over the subsidiaries. These consolidated financial statements include the assets, liabilities, income and each component of other comprehensive income of the Bank and its subsidiaries. Transactions between consolidated entities are completely eliminated.

 

Changes in a parent’s ownership interest in a subsidiary that do not result in the parent losing control of the subsidiary are equity transactions. However, if a parent company loses control of a subsidiary, it shall derecognize the assets (including any goodwill) and liabilities of the subsidiary, any non-controlling interests in the former subsidiary and other capital components, while any profit or loss derived from the transaction, event or circumstances that resulted in the loss of control shall be recognized as in profit or loss, and any investment retained in the former subsidiary shall be recognized at its fair value at the date when control is lost.

 

The financial statements of the subsidiaries have been prepared as of the same dates and for the same accounting periods as those of the Bank, using uniform accounting policies consistent with those applied by the entity. In case necessary, adjustments shall be made to the financial statements of the subsidiaries so that the accounting policies used by the group will be uniform.

 

The Bank considers the Argentine peso as its functional and presentation currency. To such effect, before consolidation, the financial statements of its subsidiary Macro Bank Limited, originally expressed in US dollars, were translated to pesos (presentation currency) using the following method:

 

a)Assets and liabilities were converted at the reference exchange rate of the BCRA, in force for that foreign currency at the closing of business on the last business day of each year.

 

b)Figures related to the owners’ contributions (capital stock, non-capital contribution and irrevocable capital contributions) were translated applying the effective exchange rates as of the date on which such contributions were paid in.

 

c)Income for the fiscal years ended December 31, 2020 and 2019 were translated to pesos on a monthly basis, using the monthly average of the reference exchange rate of the BCRA.

 

d)Foreign currency translation differences arising as a result of the preceding paragraphs are recognized as a separate component within the Shareholders’ Equity account reporting them in the statement of other comprehensive income, which is called “Foreign currency translation differences in financial statements conversion”.

 

On the other hand, non-controlling interests represent the portion of income and equity not directly or indirectly attributable to the Bank. In these consolidated financial statements they are disclosed as a separate line in the statement of financial position, the statement of income, the statement of other comprehensive income and the statement of changes in shareholders’ equity.

 - 15 -

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2020

(Translation of Financial statements originally issued in Spanish – See Note 45)

(Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2020, unless otherwise expressly stated)

 

The Bank has consolidated into its financial statements the financial statements of the following companies:

 

Subsidiaries  Principal Place of Business   Country   Main Activity
Macro Securities SA (a) and (b)  Av. Eduardo Madero 1182 – CABA   Argentina   Stock exchange services
            
Macro Fiducia SA  Av. Leandro N. Alem 1110– 1st floor. CABA   Argentina   Services
            
Macro Fondos SGFCISA  Av. Eduardo Madero 1182– 24th floor, Office B–. CABA   Argentina   Management and administration of mutual funds
            
Macro Bank Limited (c)  Caves Village, Building 8 Office 1 – West Bay St., Nassau   Bahamas   Banking entity
            
Argenpay SAU (d)  Av. Eduardo Madero 1182 – CABA   Argentina   Electronic payments services

 

(a)Consolidated with Macro Fondos SGFCI SA (80.90% equity interest and voting rights).

 

(b)The indirect interest of Banco Macro SA is held through Macro Fiducia SA.

 

(c)Consolidated with Sud Asesores (ROU) SA (100% voting rights – Equity interest 20,453).

 

(d)Consolidated with the Bank since May 2019, as the equity interest was acquired in such month.

 

The Bank’s equity interest and voting rights in the companies it consolidates is as follows:

 

As of December 31, 2020:

 

   Shares   Bank’s interest   Non-controlling interest 
Subsidiaries  Type   Number   Total capital
stock
  

Voting

rights

   Total capital
stock
  

Voting

Rights

 
Macro Securities SA   Common    12,776,680    99.925%   99.932%   0.075%   0.068%
Macro Fiducia SA   Common    46,935,318    99.046%   99.046%   0.954%   0.954%
Macro Fondos SGFCISA   Common    327,183    99.939%   100.00%   0.061%     
Macro Bank Limited   Common    39,816,899    99.999%   100.00%   0.001%     
Argenpay SAU   Common    241,200,000    100.00%   100.00%          

  

As of December 31, 2019

 

   Shares   Bank’s interest   Non-controlling interest 
Subsidiaries  Type   Number   Total capital
stock
  

Voting

rights

   Total capital
stock
  

Voting

Rights

 
Macro Securities SA       Common    12,776,680    99.925%   99.932%   0.075%   0.068%
Macro Fiducia SA   Common    46,935,318    99.046%   99.046%   0.954%   0.954%
Macro Fondos SGFCISA   Common    327,183    99.939%   100.00%   0.061%     
Macro Bank Limited   Common    39,816,899    99.999%   100.00%   0.001%     
Argenpay SAU   Common    7,700,000    100.00%   100.00%          

 - 16 -

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2020

(Translation of Financial statements originally issued in Spanish – See Note 45)

(Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2020, unless otherwise expressly stated)

 

Total assets, liabilities and Shareholders’ equity of the Bank and its subsidiaries as of December 31, 2020 and 2019 are as follows:

 

As of 12/31/2020  Banco Macro SA   Macro Bank Limited   Macro Securities SA   Macro Fiducia SA   Argenpay SAU   Eliminations   Consolidated 
Assets   749,965,030    7,561,808    19,266,913    88,400    351,736    (7,332,711)   769,901,176 
Liabilities   601,886,102    4,957,062    17,597,611    5,380    169,722    (2,795,497)   621,820,380 
Equity attributable to the owners of the Bank   148,078,928    2,604,746    1,592,455    83,020    182,014    (4,462,235)   148,078,928 
Equity attributable to non-controlling interests             76,847              (74,979)   1,868 
                             
As of 12/31/2019  Banco Macro SA   Macro Bank Limited   Macro Securities SA   Macro Fiducia SA   Argenpay SAU   Eliminations   Consolidated 
Assets   599,771,558    4,681,429    5,478,637    87,150    10,506    (6,056,504)   603,972,776 
Liabilities   457,018,262    1,983,781    3,722,427    4,280    769    (1,511,952)   461,217,567 
Equity attributable to the owners of the Bank   142,753,296    2,697,648    1,660,662    82,870    9,737    (4,450,917)   142,753,296 
Equity attributable to non-controlling interests             95,548              (93,635)   1,913 

 

The Bank’s Management considers there are no other companies or structured entities to be included in the consolidated financial statements as of December 31, 2020.

 

Summary of significant accounting policies

 

Below there is a description of the principal valuation and disclosure criteria used for the preparation of these consolidated Financial Statements as December 31, 2020:

 

3.1Assets and liabilities denominated in foreign currency:

 

The Bank considers the Argentine Peso as its functional and presentation currency. The assets and liabilities denominated in foreign currency, mainly in US dollars, were valued at BCRA benchmark US dollar exchange rate effective as of the closing date of transactions on the last business day of each fiscal year.

 

Additionally, assets and liabilities denominated in other foreign currencies were translated at the repo exchange rate in US Dollars communicated by the BCRA’s dealing room. Foreign exchange differences were recorded in the related Statements of income as “Difference in quoted prices of gold and foreign currency”.

 

3.2Financial Instruments

 

Initial Recognition and Measurement

 

The Bank recognizes a financial instrument when it becomes party to the contractual provisions thereof.

 

The purchase and sale of financial assets requiring the delivery of assets within the term generally established by the rules and regulations or the market conditions are recorded on the transaction’s trading date, i.e., on the date the Bank undertakes to acquire or sell the relevant asset.

 

At initial recognition, the financial assets and liabilities were recognized at fair value. Those financial assets and liabilities not recognized at fair value through profit or loss, were recognized at fair value adjusted for transactions costs directly attributable to the acquisition or issue of the financial asset or liability.

 - 17 -

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2020

(Translation of Financial statements originally issued in Spanish – See Note 45)

(Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2020, unless otherwise expressly stated)

 

At initial recognition, the fair value of a financial instrument is generally the transaction price. Nevertheless, if part of the consideration received or paid is for something different from the financial instrument, the Bank estimates the fair value of the financial instrument. If the fair value is based on a valuation technique that uses only data from observable markets, the Bank shall recognize the difference between fair value at the initial recognition and the transaction price as gain or loss. When the fair value is based on a valuation technique that uses data from non-observable markets, the Bank shall recognize that deferred difference in profit or loss only to the extent that it arises from a change in a factor (including time) that market participants would take into account when pricing the asset or liability, or when the instrument is derecognized.

 

Finally, in the normal course of business, the Bank arranges repo transactions. According to IFRS 9, assets involved in repurchase and reverse repurchase transactions and received from or delivered to third parties, respectively, do not qualify to be recognized or derecognized, respectively (see note 4).

 

Subsequent measurement – Business Model

 

The Bank established three categories for the classification and measurement of its debt instruments, in accordance with the Bank’s business model to manage them and the contractual cash flow characteristics thereof:

 

-At amortized cost: the objective of the business model is to hold financial assets in order to collect contractual cash flows.

-At fair value through other comprehensive income: the objective of the business model is both collecting the contractual cash flows of the financial asset and/or of those derived from the sale of the financial asset.

-At fair value from profit or loss: the objective of the business model is generating income derived from the purchase and sale of financial assets.

 

Therefore, the Bank measures its financial assets at fair value, except for those that meet the following two conditions and are measured at amortized cost:

 

-The financial assets are held within a business model whose objective is to hold financial assets in order to collect contractual cash flows.

-The contractual terms of the financial asset give rise, on specified dates, to cash flows that are solely payments of principal and interest on the principal amount outstanding.

 

The Bank’s business model is determined at a level that reflects how groups of financial assets are managed together to achieve a particular business objective.

 

The business model is not assessed on an instrument-by-instrument approach, but it should rather be determined on a higher level of aggregation and is based on observable factors such as:

 

-How the performance of the business model and the financial assets held within that business model are evaluated and reported to the Bank’s key management personnel.

-The risks that affect the performance of the business model (and the financial assets held within that business model) and, in particular, the way in which those risks are managed.

-The expected frequency, value, timing and reasons of sales are also important aspects.

 

The assessment of the business model is performed on the basis of scenarios that the Bank reasonably expects to occur, without taking into account the scenarios such as the so-called ‘worst case’ or ‘stress case’ scenarios. If after the initial recognition cash flows are realized in a way that is different from the Bank’s expectations, the classification of the remaining financial assets held in that business model does not change, but it rather considers all relevant information to assess the newly originated or newly purchased financial assets.

 

Test of solely payments of principal and interest (the SPPI test)

 

As part of the classification process, the Bank assessed the contractual terms of its financial assets in order to determine if such financial instruments give rise to cash flows on specific dates which are solely payments of principal and interest on the principal amount outstanding.

 - 18 -

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2020

(Translation of Financial statements originally issued in Spanish – See Note 45)

(Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2020, unless otherwise expressly stated)

 

For the purposes of this assessment, “principal” is defined as the fair value of the financial asset at initial recognition, provided such amount may change over the life of the financial instrument, for example, if there are repayments of principal or premium amortization or discount.

 

The most significant elements of interest within a loan agreement are typically the consideration for the time value of money and credit risk.

 

In order to SPPI test contractual cash flow characteristics, the Bank applies judgment and considers relevant factors such as the currency in which the financial asset is denominated and the period for which the interest rate is set.

 

However, contractual terms that introduce exposure to risks or volatility in the contractual cash flows that are unrelated to a basic lending arrangement, do not give rise to contractual cash flows that are solely payments of principal and interest on the principal amount outstanding. In such cases, financial assets are required to be measured at fair value through profit or loss.

 

Therefore, the financial assets were classified pursuant to the above expressed as “Financial assets at fair value through profit or loss”, “Financial assets at fair value through other comprehensive income” or “Financial assets at amortized cost”. Such classification is disclosed in exhibit P “Categories of Financial Assets and Liabilities”.

 

Financial assets and liabilities at fair value through profit or loss

 

This category presents two subcategories: financial assets at fair value held for trading and financial assets initially designated at fair value by the Management or under section 6.7.1. of IFRS 9. The Bank’s Management, has not designated, at the beginning, financial assets at fair value through profit or loss.

 

The Bank classifies the financial assets as held for trading when they have been acquired or incurred principally for the purpose of selling or repurchasing it in the near term or when they are part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking.

 

Financial assets and liabilities at fair value through profit or loss are recognized at fair value in the statement of financial position. Changes in fair value are recognized under the item “Net gain from measurement of financial instruments at fair value through profit or loss” in the statement of income, as well as interest income or expenses and dividends pursuant to the contractual terms and conditions, or when the right to receive payment of the dividend is established.

 

The fair value estimation is explained on a detail basis in section “Accounting judgments, estimates and assumptions” of this note and note 9, describes the valuation process of financial instruments at fair value.

 

Financial assets at fair value through other comprehensive income (OCI)

 

A financial asset shall be measured at fair value through other comprehensive income if (i) the financial instrument is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets and (ii) the contractual terms of the financial asset meet the determination that cash flows are solely payments of principal and interest on the principal amount outstanding.

 

Debt instruments at fair value through other comprehensive income are recognized in the statement of financial position at fair value. Profits and losses derived from changes in fair value are recognized in other comprehensive income as “Profits or losses from financial instruments measured at fair value through other comprehensive income”. Interest income (calculating by the “effective interest method”, which is explained in the following section), profit and loss from translation differences and impairment are recognized in the statement of income in the same manner as for financial assets measured at amortized cost and are disclosed as “Interest income”, “Differences in quoted prices of gold and foreign currency” and “Allowance for loan losses”, respectively.

 

When the Bank has more than one investment on the same security, it must be considered that they shall be disclosed using the first in first out costing method.

 - 19 -

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2020

(Translation of Financial statements originally issued in Spanish – See Note 45)

(Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2020, unless otherwise expressly stated)

 

On derecognition, gains and losses accumulated previously recognized in OCI are reclassified to profit or loss.

 

Financial assets at amortized cost – Effective interest method

 

They represent financial assets held in order to collect contractual cash flows and the contractual terms of which give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

 

After initial recognition, these financial assets are recognized in the statement of financial position at amortized cost using the effective interest method, less a loss allowance for expected credit losses (ECL), considering the exceptions established by BCRA Communiqué “A” 6847, detailed in note 3.2.4.

 

Interest income and impairment are disclosed in the statement of income as “Interest income” and “Allowance for loan losses”, respectively. Changes in the allowance for ECL are presented in note 7 and exhibit R “Value adjustment for credit losses – Allowance for uncollectibility risk”.

 

The effective interest method uses the rate that allows the discount of estimated future cash payments or receipts through the expected life of the financial instrument or lesser term, if applicable, to the net carrying amount of such financial instrument. When applying this method, the Bank identifies points paid or received, fees, premiums, discounts and transaction costs, incremental and direct costs as an integral part of the effective interest rate (hereinafter, EIR). For such purposes, interest is the consideration for the time value of money and for the credit risk associated with the amount of principal outstanding during a specific period of time.

 

3.2.1    Cash and deposits in banks

 

They were valued at their nominal value plus the relevant accrued interest, if applicable. Accrued interests were allocated in the statement of income as “Interest income”.

 

3.2.2    Repo transactions (purchase and sale of financial instruments)

 

These transactions were recognized in the statement of financial position as financing granted (received), as “Repo transactions”.

 

The difference between purchase and sale prices of such instruments were recognized as interest accrued during the effective term of the transactions using the effective interest method and were allocated in the statement of income as “Interest income” and “Interest expense”.

 

3.2.3Loans and other financing

 

They are non-derivative financial assets that the Bank holds within a business model whose objective is to hold financial assets in order to collect contractual cash flows and the contractual terms of which give rise, on specified dates, to cash flows that are solely payments of principal and interest on the principal amount outstanding.

 

After initial recognition, loans and other financing were measured at amortized cost using the effective interest method, less a loss allowance for ECL. The amortized cost was calculated taking into account any discount or premium incurred in the origination or acquisition, and origination fees or commissions, which are part of the EIR. Income from interest was allocated in the statement of income as “Interest income”.

 

3.2.4Impairment of financial assets

 

Through Communiqué “A” 6114, the BCRA introduced specific guidelines during the convergence process, which defined, among others, the transitory exception to apply section 5(5), IFRS 9 “Financial Instruments” (points B5.5.1 to B5.5.55) for the years beginning as from January 1, 2020. Moreover, the BCRA established December 31, 2018, as the date of transition for these parameters and temporarily excluded public debt instruments from IFRS 9.

 - 20 -

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2020

(Translation of Financial statements originally issued in Spanish – See Note 45)

(Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2020, unless otherwise expressly stated)

 

The new accounting policy adopted on the impairment of financial assets not measured at fair value through profit or loss is detailed below:

 

3.2.4.1   Overview of the ECL principles

 

Except for disclosures to the public sector, which were temporarily excluded by BCRA Communiqué “A” 6847, the Bank recognizes a loss allowance for ECL on loans, other financing and other debt instruments not measured at fair value through profit or loss along with loan commitments and financial guarantee contracts (not measured at fair value through profit or loss) and contract assets and accounts receivable on loans; hereinafter, the “financial instruments”. Investments in equity instruments are not subject to impairment under IFRS 9. According to Communiqué “A” 6847, for disclosures to the public sector, BCRA standards on minimum loan loss allowances still apply, which, particularly for this type of sector, indicate that they are not subject to allowances.

 

The loss allowance for ECL is based on credit losses expected to arise during the life of a financial asset (lifetime ECL), unless there was no significant increase in credit risk since initial recognition, in which case the loss allowance is based on 12-month ECL. The Bank’s policies to determine whether credit risk increased significantly are included in note 41.1.1.1. “Definitions of significant increase in risk, impairment and default.”

 

12-month ECL is the portion of lifetime ECL that results from default events on a financial instrument that are possible within the 12 months after the reporting date.

 

Lifetime ECL and 12-month ECL are calculated on an individual or collective bases according to the nature of the portfolio of financial instruments. The Bank’s policy to group the financial assets measured on a collective basis are explained in note 41.1.1.1.1 “Customers analyzed on a collective basis” and 41.1.1.1.2 “Customers analyzed on an individual basis.”

 

The Bank adopted a policy to assess, at the end of each reporting period, whether there was a significant increase in the credit risk of a financial instrument since initial recognition considering the change in risk that the default may occur during the remainder life of a financial instrument. This is further explained in note 41.1.1.1. “Definitions of significant increase in risk, impairment and default.”

 

According to the aforementioned process, the Bank groups its financial instruments into Stage 1, Stage 2 and Stage 3, also covering purchased or originated financial instruments that are credit impaired, as described below:

 

Stage 1: When financial instruments are recognized for the first time, the Bank recognizes a loss allowance according to 12-month ECL. Stage 1-financial instruments also include credit lines in which credit risk improved within the parameters established by the Bank and the financial instrument was reclassified to another stage.

 

Stage 2: When a financial instrument shows a significant increase in credit risk since initial recognition, the Bank books a loss allowance for lifetime ECL. Stage 2-financial instruments also include credit lines in which credit risk improved within the parameters established by the Bank and the financial instrument was reclassified to Stage 3.

 

Stage 3: Financial instruments which credit value is impaired (as described in note 41.1.1.1. “Definitions of significant increase in risk, impairment and default.”) The Bank books a loss allowance for lifetime ECL.

 - 21 -

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2020

(Translation of Financial statements originally issued in Spanish – See Note 45)

(Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2020, unless otherwise expressly stated)

 

Purchased or originated financial instruments that are credit impaired: financial instruments that are credit impaired upon initial recognition. Purchased or originated financial instruments that are credit impaired are booked at fair value upon initial recognition and interest income is recognized subsequently at a credit-adjusted effective interest rate. The loss allowance of ECL is only recognized or reversed provided that there is a subsequent change in ECL. The Bank did not purchase or generate credit-impaired financial instruments.

 

The Bank reduces the carrying amount of the financial instruments which amount owed it does not expect to recover in part or in full. This is considered a (partial) derecognition of the financial instrument.

 

3.2.4.2The calculation of ECL

 

The key parameters to calculating ECL are as follows:

 

Probability of default (PD): It is an estimate of the probability of default during a certain time horizon. A default may occur only at a certain time during the period assessed if the credit line was not derecognized before and is still part of the portfolio. The concept of probability of default is explained in note 41.1.1.2. “Bank internal rating and process for estimating the probability of default.”

 

Exposure at default (EAD): It is an estimate of the exposure to a future default date considering the expected changes in exposure after reporting date, including the settlement of principal and interest, whether they are scheduled by the agreement or otherwise, the expected disbursements on committed credit lines and interest accrued on late payments. The exposure at default is explained in note 41.1.1.3. “Exposure at default (EAD).”

 

Loss given default (LGD): It is an estimate of the loss arising in the event of default in a certain term. It is based on the difference between contractual cash flows and cash flows expected by the lender, including the performance of a guarantee or credit improvements related to the loan. In general, it is expressed as a percentage of the exposure at default. Further information of LGD is included in note 41.1.1.4. “Loss given default (LGD).”

 

When ECL are estimated, the Bank calculates these parameters for each one of the three scenarios (base case, intermediate and downside) weighed based on the estimated likelihood of occurrence and discounts the amount resulting from multiplying the aforementioned parameters by the effective interest rate determined upon initial recognition.

 

For credit cards and revolving lines of credit including both a loan and an unused loan commitment, ECL are calculated and disclosed with the loan. For loan commitments and financial guarantee contracts, ECL are recognized in “Provisions.”

 

The method for calculating ECL is summarized below:

 

Stage 1: 12-month ECL are calculated as a portion of lifetime ECL, accounting for the ECL of financial instruments from default within the 12 months subsequent to year-end. The Bank calculates the allocation of 12-month ECL based on the expectation of default within 12 months after year-end. These expected 12-month probabilities of default are applied to an EAD and multiplied by the expected LGD and discounted by an approximation to the original effective interest rate. This calculation is made for each of the three scenarios (base case, intermediate and downside), as explained above.

 

Stage 2: When a financial instrument shows a significant increase in credit risk since initial recognition, the Bank books a loss allowance for lifetime ECL. The method is similar to the one explained above, including the use of different scenarios, but PD is estimated over the remainder life of the instrument. Expected cash shortfalls are discounted by an approximation to the original effective interest rate.

 - 22 -

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2020

(Translation of Financial statements originally issued in Spanish – See Note 45)

(Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2020, unless otherwise expressly stated)

 

• Stage 3: For financial instruments considered credit-impaired, the Bank recognizes the ECL for the remainder life of these financial instruments. The method is similar to those used by Stage 2-financial instruments, with a PD set at 100%.

 

Loan commitments and credit cards: Upon estimating the lifetime ECL for loan commitments, the Bank estimates the expected portion of the loan commitment that will decline during 12 months or expected lifetime. The ECL is based on the present value of expected falls in cash flows if the loan is withdrawn based on weighing the three probability scenarios. Expected cash flows are discounted at a rate similar to the original rate of each transaction.

 

Guarantees and other commitments: The Bank’s liability under each guarantee is measured at the higher of the amount initially recognized less cumulative amortization recognized in the statement of income and the ECL provision. To such end, the Bank estimates the ECL based on the present value of the payments expected to be disbursed to the guarantee holder should the debtor fail to pay the debt. Cash flows are discounted by the risk-adjusted interest rate relevant to the disclosure. The calculation is made weighing the three scenarios. The ECL related to financial guarantee contracts are recognized in “Provisions.”

 

3.2.4.3Prospective information

 

To determine a loss allowance in the calculation of ECL, the impact of the main macroeconomic variables should be analyzed to adjust historical information to the current conditions and short-term prospects. To such end, different and probable macroeconomic scenarios (base case, intermediate and downside) should be weighed upon using relevant variables in assessing credit risk (such as GDP growth, interest rate and CPI).

 

The inputs and models used for calculating ECL may not always capture all market characteristics as of the date of these consolidated financial statements. Consequently, the Bank may consider certain qualitative temporary adjustments to ensure that they are taken into account if they are material. Further information is included in note 41.1.2 “Prospective information considered in ECL models.”

 

3.2.4.4Debt instruments measured at fair value through other comprehensive income

 

The ECL of the debt instruments measured at fair value through other comprehensive income does not reduce the carrying amount of these financial instruments in the statement of financial position, which remains at fair value. Instead, an amount equal to the correction of value from these assets measured at amortized cost is recognized in “Other comprehensive income” as a cumulative impairment amount with the related charge to income. Cumulative loss recognized in “Other comprehensive income” is reclassified to the statement of income when the assets are derecognized.

 

3.2.4.5Credit cards and other revolving credit lines

 

In the case of credit cards and other revolving lines of credit, the Bank does not limit its exposure to expected losses to the contractual notice period, but rather calculates ECL over a period that reflects the Bank’s expectations of customer behaviors, their unused credit commitments, the probability of default and the Bank’s future risk mitigation expectations, which may include reducing or settling the lines of credit. According to the Bank’s method, the period over which ECL are calculated for these products is three years.

 

The interest rate used to discount the ECL for credit cards is based on the average effective interest rate that is expected to be charged over the expected period of exposure to these lines of credit. This estimate considers that some of these lines of credit may be settled every month fully and consequently no interest would be charged.

 - 23 -

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2020

(Translation of Financial statements originally issued in Spanish – See Note 45)

(Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2020, unless otherwise expressly stated)

 

3.2.4.6Applications

 

Financial instruments are settled in part or in full after the first month in which the Bank has no reasonable expectations of recovering the financial instrument or part of the instrument. Should the amount to be settled be higher than the loss allowance for accumulated losses, the difference is considered an addition to the loss allowance that is then applied against the gross carrying amount. Any subsequent recovery is disclosed in the statement of income for the year of recovery in “Other operating income.”

 

3.2.4.7Forborne and modified loans

 

The Bank considers a loan forborne when such modification is a result of the borrower’s present or expected financial difficulties. The renegotiation may include the extension of the payment terms and the agreement of new loan conditions. Once the conditions are renegotiated, the impairment is measured using the original effective interest rate as calculated before the conditions were amended. The Bank monitors forborne loans to ensure the continuity of future payments. Derecognition decisions and the classification between Stages 2 and 3 are determined on a case-by-case basis for the commercial portfolio and collectively for consumer portfolio. Should these procedures identify a loss related to a loan, it is disclosed and managed as an impaired Stage 3 forborne asset until it is collected or derecognized.

 

When the loan is renegotiated or modified but it is not derecognized, the Bank also considers whether the assets should be classified in Stage 3. Once an asset is classified as renegotiated, it will continue in Stage 2 until it is collected in full or impaired (Stage 3).

 

If the modifications are substantial, the loan is derecognized and a new loan with different conditions is recognized.

 

3.2.4.8Valuation of collaterals

 

To mitigate the risks of its financial instruments, the Bank seeks to use, when possible, collaterals. Collateral comes in various forms, such as cash, securities, letters of credit/guarantees, real estate, receivables, other non-financial assets and credit enhancements, such as netting arrangements. Collateral, except for attached assets, is not recorded in the Bank’s statement of financial position. However, the fair value of collateral affects the calculation of ECL in certain products and customers assessed on an individual basis. The assessment is usually made at least at beginning date and it is reassessed on a regular basis.

 

Whenever possible, the Bank uses active market data to assess the financial instruments maintained as collateral. Other financial instruments that do not have readily determinable market values are valued using internal methods. Non-financial collateral, such as real estate, is valued based on data provided by third parties, such as mortgage brokers.

 

3.2.4.9Collateral repossessed

 

The Bank’s policy is to determine whether an attached asset can be best used internally or should be sold. Assets determined to be useful internally are transferred to their relevant asset category at the lower of their attached value or the carrying value of the original secured asset.

 

The assets for which selling is determined to be a better option are transferred to assets held for sale at their fair value (if financial assets) and fair value less cost of sales for non-financial assets at attachment date according to the Bank’s policy.

 - 24 -

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2020

(Translation of Financial statements originally issued in Spanish – See Note 45)

(Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2020, unless otherwise expressly stated)

 

During the normal course of business, the Bank does not include in its portfolio the properties and other attached assets but rather uses external agents to recover the funds, generally through auctions, to settle the outstanding payable. Any surplus fund is reimbursed to the customer/debtor. Hence, residential properties under attachment proceedings are not booked in the balance sheet.

 

3.2.5Financial liabilities

 

After initial recognition, certain financial liabilities were measured at amortized cost using the effective interest method, except for derivatives that were measured at fair value through profit or loss. Interests were allocated in the statement of income as “Interest expense”.

 

Within other financial liabilities the Bank included guarantees granted and eventual liabilities, which must be disclosed in the notes to the financial statements, when the documents supporting such credit facilities are issued and are initially recognized at fair value of the commission received, in the statement of financial position. After initial recognition, the liability for each guarantee was recognized at the higher of the amount of the loss allowance and the amount initially recognized less, when appropriate, the cumulative amount if income recognized in accordance with principles of IFRS 15 “Revenue from contracts with customers”. The commission received has been recognized as “Commissions income” in the statement of income, based on the amortization thereof following the straight-line method over the effective term of the financial guarantee granted.

 

3.2.6Derivative financial instruments

 

Receivables and payables from forward transactions without delivery of underlying assets

 

It includes forward purchase and sale transactions of foreign currency without delivery of traded underlying asset. Such transactions were measured at the fair value of the contracts and were performed by the Bank with intermediation purposes on its own account. The originated income was allocated in the consolidated statement of income as “Net gain from measurement of financial instruments at fair value through profit or loss”.

 

Derecognition of financial assets and liabilities

 

A financial asset (or, if applicable, a part of a financial asset or a part of a group of similar financial assets) shall be derecognized when: (i) the contractual rights to the cash flows from the financial asset expire, or (ii) the Bank transfers the contractual rights to receive the cash flows of the financial asset or retains the contractual rights to receive the cash flows of the financial asset, but assumes a contractual obligation to pay the cash flows received immediately to a third party pursuant to a transfer agreement.

 

A transfer shall qualify for derecognition of the financial asset only if (i) the Bank has transferred substantially all the risks and rewards of ownership of the financial asset, or (ii) it has neither transferred nor retained substantially all the risks and rewards of ownership of the financial asset, but has transferred the control of the financial asset, considering that the control is transferred if, and only if, the transferee has the practical ability to sell the asset in its entirety to an unrelated third party and is able to exercise that ability unilaterally and without needing to impose additional restrictions on the transfer.

 

If the Bank neither transfers nor retains substantially all the risks and rewards of ownership of a transferred asset, and has retained the control over it, the Bank shall continue to recognize such transferred asset to the extent to which it is exposed to changes in the value of the transferred asset.

 

The Bank derecognizes a loan when the terms and conditions have been renegotiated and if, substantially, it becomes in a new loan, recognizing the difference for derecognition in profit or loss. If the modification does not generate substantially different cash flows, the modification does not result in derecognition of the loan. The Bank recalculates the gross carrying amount of the assets as present value of modified contractual cash flows, using for the discount the original EIR and recognizes profit or loss from modification as explained in section 3.2.4.7 “Forborne and modified loans”.

 - 25 -

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2020

(Translation of Financial statements originally issued in Spanish – See Note 45)

(Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2020, unless otherwise expressly stated)

 

On the other hand, a financial liability is derecognized when the obligation specified in the relevant contract is discharged or cancelled or expires. When there is an exchange between an existing borrower and lender of debt instruments with substantially different terms, or the terms are substantially modified, such exchange or modification shall be accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability, recognizing the difference between the carrying amount of a financial liability extinguished or transferred to another party and the consideration paid, in the statement of income as “Other operating income”.

 

Reclassification of financial assets and liabilities – Changes in business model

 

During fiscal year 2020, the Bank’s management decided to update the objective related to certain investments, which are explained as follows:

 

Federal Government Treasury Bonds adjusted by Cer 1% - Maturity 08/05/2021

 

Taking into account the trend context in the local market in which a high volatility was observed due to the government debt renegotiation and the international crisis generated by the pandemic of COVID-19, and a significant increase of Federal Government Bonds issuance was also observed, the Bank’s management concluded that there were higher possibilities to perform business and generate benefits by arbitraging bonds that the Bank holds in its portfolio. As a consequence, during July and August 2020, the Bank’s management reclassified from the amortized cost business model to the fair value through profit or loss (FVPL) business model. At the reclassification dates abovementioned, the amortized cost amounted to 2,603,590 and 5,116,512, respectively, while the fair value as of that dates amounted to 3,604,389 and 5,511,940, respectively, generating reclassification gains for an amount of 1,000,799 and 395,428, respectively.

 

Federal Government Treasury Bonds adjusted by CER 2.5% – Maturity 07/22/2021

 

Taking into account the trend context of government debt renegotiation and the issuance of new domestic debts, the volatilities of debt securities prices that creates a scenario in which it is not clear that the cash flows of these holdings will be obtained through their negotiation, instead could be also generated by holding them to maturity. As a consequence during July and August 2020, the Bank’s management reclassified from FVPL business model to fair value through OCI (FVOCI) business model. At the reclassification dates, the reclassified investments amounted to 4,150,395 and 5,034,995, respectively. At the reclassification dates, the effective interest rates were 31.45% and 33.31%, respectively. As of December 31, 2020 the FV amounted to 4,214,500 and 5,057,400, respectively. The income recognized in the statement of income amounted to 718,356 and 676,818, respectively.

 

National Treasury bills at discount in pesos maturity 01/29/2021 and National treasury bills at discount in pesos maturity 02/06/2021

 

Due to high nominal return expected for assets denominated in pesos, during December 2020, the Bank’s management decided to adjust its investment policy in order to sell these holdings in a short term, before their maturity. As a consequence, these holdings were reclassified from FVOCI business model to FVPL business model. At the reclassification date, the investment amounted to 22,625,105 and 13,629,800, respectively.

 

Federal Government Treasury bonds in pesos adjusted by CER 2021.

 

Given a scenario with projections of increasing nominal returns and the short term duration of this investment measured at FVOCI, the Bank’s management considered with low probability and convenient to sell in the short term the entire holding, so it was considered opportune to reclassify at amortized cost business model 50% of this portfolio. At the reclassification date, the fair value amounted to 8,314,307, the amortized cost amounted to 8,287,135, recognizing an income of 27,172. As of December 31, 2020 the fair value of these investments amounted to 8,601,844, while the income that would have recognized in other comprehensive income during the fiscal year amounted to 27,577.

 - 26 -

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2020

(Translation of Financial statements originally issued in Spanish – See Note 45)

(Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2020, unless otherwise expressly stated)

 

3.3Leases

 

The Bank assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

 

3.3.1   The Bank as a lessee

 

The Bank applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets, which payments are recognized as rent expense on a straight-line basis. The Bank recognizes lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.

 

Right-of-use assets

 

The Bank recognizes right-of-use assets at the commencement date of the lease. Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. The right of use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term. Right-of-use assets are subject to impairment, as described in section 3.9 of this note.

 

Lease liabilities

 

At the commencement date of the lease, the Bank recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Bank and payments of penalties for terminating a lease, if the lease term reflects the Bank exercising the option to terminate. Variable lease payments that do not depend on an index or a rate are recognized as expense in the period on which the event or condition that triggers the payment occurs.

 

In calculating the present value of lease payments, the Bank uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset.

 

3.3.2The Bank as a lessor

 

The Bank grants loans through financial leases, recognizing the current value of lease payments as a financial asset, which is registered in the statement of financial position in the item “loans and other financing”. The difference between the total lease receivables and the current value of financing is recognized as interest to accrue. This income is recognized during the term of the lease using the EIR method, which reflects a constant rate of return and is recognized in the statement of income as “Interest income”. Losses originated for impairment are included in the statement of income as “Allowance for loan losses” and changes in this accounting item are disclosed in exhibit R “Loss allowance– Allowance for uncollectibility risk”.

 - 27 -

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2020

(Translation of Financial statements originally issued in Spanish – See Note 45)

(Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2020, unless otherwise expressly stated)

 

3.4Investment in associates and joint arrangements

 

An associate is an entity over which the Bank has significant influence, i.e. the power to participate in the financial and operating policy decisions of such controlled entity, but without having the control thereof. Investments in associates were recognized through the equity method and they were initially recognized at cost. The Bank’s share in the profits or losses after the acquisition of its associates was accounted in the statement of income, and its share in other comprehensive income after the acquisition were accounted for in the consolidated statement of other comprehensive income.

 

A joint arrangement is an arrangement of which the Bank and other party or parties have joint control. Under IFRS 11 “Joint Arrangements”, investments in these arrangements are classified as joint ventures or joint operations depending on the contractual rights and obligations of each investor, regardless of the legal structure of the arrangement. A joint venture is an arrangement pursuant to which the parties having joint control of the arrangement have rights to the net assets of such arrangement. A joint operation is an arrangement pursuant to which the parties having joint control of the arrangement have rights to the assets and obligations for the liabilities, relating to the arrangement. The Bank has assessed the nature of its joint arrangements and determined that the same are joint ventures. Investments in joint ventures were recognized using the equity method described in the paragraph above. See also note 11.

 

3.5Property, plant and equipment

 

The Bank chose the cost model for all kinds of assets accounted for in this accounting item. These assets were carried at their cost less any accumulated depreciation and any accumulated impairment losses, if applicable. The historical cost of acquisition includes all expenses directly attributable to the acquisition of the assets. Maintenance and repair costs were accounted for in the statement of income as incurred. Any replacement and significant improvement of an item of property, plant and equipment is recognized as an asset only when it is likely to produce any future economic benefits exceeding the return originally assessed for such asset.

 

Depreciation of the items of property, plant and equipment was assessed in proportion to the estimated months of useful life, depreciating completely on the acquisition month of the assets and not on the derecognition date. In addition, at least at each financial year-end, the Bank reviews if expectations regarding the useful life of each item of property, plant and equipment differ from previous estimates, in order to detect any material changes in useful life which, if confirmed, shall be adjusted applying the relevant correction to the depreciation of property, plant and equipment accounting item. Depreciation charges are recorded in the related statement of income as “Depreciation and amortization of fixed assets”.

 

The residual value of the assets, as a whole, does not exceed their recoverable amount.

 

3.6Intangible Assets

 

Intangible assets acquired separately were initially measured at cost. After initial recognition, they were accounted for at cost less any accumulated depreciation (for those to which finite useful lives have been allocated) and any accumulated impairment losses, if applicable.

 

For internally generated intangible assets, only disbursements related with development are capitalized while the other disbursements are not be capitalized and are recognized in the statement of income for the period in which such expenditure is incurred.

 

Useful lives of intangible assets may be finite or indefinite.

 

Intangible assets with finite useful lives are amortized over their economic useful lives, and are reviewed in order to determine whether they had any impairment loss to the extent there is any evidence that indicates that the intangible asset may be impaired. The period and method of amortization for an intangible asset with a finite useful life are reviewed at least at the financial year-end of each reporting period. Depreciation charges of intangible assets with finite useful lives are accounted for in the statement of income as “Depreciation and amortization of fixed assets”.

 - 28 -

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2020

(Translation of Financial statements originally issued in Spanish – See Note 45)

(Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2020, unless otherwise expressly stated)

 

Intangible assets with indefinite useful lives are not amortized and are subject to annual tests in order to determine whether they are impaired, either individually or as part of the cash-generating unit to which such intangible assets were allocated. The Bank has not intangible assets with indefinite useful lives.

 

The gain or loss arising from the derecognition of an intangible asset shall be determined as the difference between the net disposal proceeds, if any, and the carrying amount of the asset, and it shall be recognized in the Statement of income when the asset is derecognized.

 

Development expenditure incurred in a specific project shall be recognized as intangible asset when the Bank can demonstrate all of the following:

 

-the technical feasibility of completing the intangible asset so that it will be available for use or sale,

-its intention to complete the intangible asset and use or sell it,

-how the intangible asset will generate probable future economic benefits,

-the availability of adequate resources to complete the development, and

-its ability to measure reliably the expenditure attributable to the intangible asset during its development.

 

After initial recognition of the development expenditure as an asset, such asset shall be carried at its cost less any accumulated amortization and any applicable accumulated impairment losses. Amortization shall begin when the development phase has been completed and the asset is available for use. The asset amortizes over the period in which the asset is expected to generate future benefits. Amortization is accounted for in the statement of income as “Depreciation and amortization of fixed assets”. During the development phase, the asset is subject to annual tests to determine whether there is any impairment loss.

 

3.7Investment Property

 

The Bank included certain real properties that holds for undetermined future use, which were recognized pursuant to IAS 40 “Investment Property”.

 

For this kind of property, the Bank chose the cost model as described in note 3.5 Property, plant and equipment.

 

An investment property is derecognized on disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from its disposal. The difference between the net disposal proceeds and the carrying amount of the asset is recognized in the statement of income in the period of the retirement or disposal as “Other operating income”.

 

An entity shall transfer a property to, or from, investment property when, and only when, there is a change in use. For a transfer from investment property to an item of property, plant and equipment, the property’s deemed cost for subsequent accounting is its fair value at the date of change in use. If an item of property, plant and equipment becomes an investment property the Bank recognizes the asset up to the date of change in use in accordance with the policy established for property, plant and equipment.

 

3.8Non-current Assets Held for Sale

 

The Bank reclassifies in this category non-current assets of which the carrying amount will be recovered principally through a sale transaction rather than through continuing use. The asset (or disposal group) must be available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets (or disposal groups) and its sale must be highly probable.

 

Non-current assets classified as held for sale are measured, when they are reclassified to this category, at the lower of carrying amount and fair value less costs to sell and are disclosed in a separate item in the statement of financial position. Once these assets are classified as held for sale, depreciation and amortization ceased.

 - 29 -

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2020

(Translation of Financial statements originally issued in Spanish – See Note 45)

(Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2020, unless otherwise expressly stated)

 

Profit or loss generated in the sale of assets held for sale is recorded in the statement of income as “Other operating income”.

 

3.9Impairment of Non-financial Assets

 

The Bank evaluates, at least at each fiscal year-end, whether there are any events or changes in the circumstances that may indicate the impairment of non-financial assets or whether there is any evidence that a non-financial asset may be impaired.

 

When there is any evidence or when an annual impairment test is required for an asset, the Bank shall estimate the recoverable amount of such asset. If the carrying amount of an asset exceeds its recoverable amount, such asset is deemed impaired and its carrying amount shall be reduced to its recoverable amount. To the date of these consolidated financial statements, there is no evidence of impairment of non-financial assets.

 

3.10Provisions

 

The Bank recognizes a provision if and only if the following circumstances are met: (a) the Bank has a present obligation as a result of a past event; (b) it is probable (i.e., it is more likely than not) that an outflow of resources embodying economic benefits will be required to settle the obligation; and (c) a reliable estimate can be made of the amount of the obligation.

 

In order to determine the amount of provisions, the risks and uncertainties were considered taking into account the opinion of independent and internal legal advisors of the Bank. Where the effect of the time value of money is material, the provisions shall be discounted using a pre-tax rate that reflects if applicable, current risks specific to the liability. When the discount is recognized, the effect of the provision derived from the lapse of time is accounted for as “Interest expense” in the statement of income. Based on the analysis carried out, the Bank recognized as provision the amount of the best estimate of the expenditure required to settle the present obligation at the end of each fiscal year.

 

The provisions accounted for by the Bank are reviewed at the end of each reporting period or fiscal year, as applicable, and adjusted to reflect the current best available estimate.

 

In addition, provisions are recognized with specific allocation to be used only for the expenditures for which they were originally recognized.

 

In the event: a) the obligation is possible; or b) it is not probable that an outflow of resources will be required for the Bank to settle the obligation; or c) the amount of the obligation cannot be estimated reliably, the contingent liability shall not be recognized and shall be disclosed in notes. Nevertheless, when the possibility of an outflow of resources is remote, no disclosures shall be made.

 

3.11Recognition of income and expenses

 

3.11.1Revenue from interests income and interests expense

 

Revenue from interest received and expenses for interest paid were recognized according to their accrual period, applying the effective interest method, which is explained in section “Financial assets at amortized cost – Effective interest method”.

 

Revenue from interest received includes the return on fixed income investments and negotiable instruments, as well as the discount and premium on financial instruments.

 

Bond coupons were recognized at the time they were declared.

 

3.11.2Loan commissions

 

Commission charges and direct incremental costs related with the granting of financing facilities were deferred and recognized adjusting the EIR thereof.

 - 30 -

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2020

(Translation of Financial statements originally issued in Spanish – See Note 45)

(Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2020, unless otherwise expressly stated)

 

3.11.3Service commissions

 

These revenues are recognized when (or to the extent) the Bank satisfies each performance obligation by transferring promised services for an amount that reflects the consideration to which the Bank expects to be entitled in exchange for such services.

 

At each contract inception, the Bank assess the services promised in a contract and identifies as a performance obligation, each promise to transfer a distinct service or a series of distinct services that are substantially the same and that have the same pattern of transfer.

 

3.11.4Non-financial revenue and expenses

 

These items are recognized according to the recognition criteria established in the conceptual Framework, as for example revenues should be accrued.

 

3.12Customer Loyalty Program

 

The loyalty program offered by the Bank consists in accumulating points generated by purchases made with the credit cards, which can be exchanged by any reward (including, among other offers, products, benefits and awards) available in the program platform.

 

The Bank concluded that the rewards to be granted originate a separate performance obligation. Therefore, at the end of each fiscal year, the Bank recognized a provision for the rewards to be granted in “Other financial liabilities”.

 

Based on the variables that the Bank takes into account in order to estimate the fair value of the points granted to customers (and the relation thereof with the exchange of the Reward), it is worthwhile to mention that such estimates are subject to a significant level of uncertainty (and variation) that should be considered. These considerations are described in detail in the section “Accounting judgments, estimates and assumptions” of this note.

 

3.13Income Tax (see note 21)

 

Tax expense (tax income) comprises current tax expense (current tax income) and deferred tax expense (deferred tax income). This tax is accounted in the consolidated statement of income, except in the case of accounting items that are to be recognized directly in the statements of other comprehensive income. In this case, each accounting item is presented before assessing their impact on Income Tax, which is accounted for in the relevant accounting item.

 

-Current income tax: the consolidated current income tax expense is the sum of the income tax expenses of the different entities that compose the Group (see note 1), which were assessed, in each case, by applying the tax rate to the taxable income, in accordance with the Income Tax Law, or equivalent rule or provision, of the countries in which any subsidiary operates.

 

-Deferred income tax: it is assessed based on the separate financial statements of the Bank and of each of its subsidiaries and reflects the effects of temporary differences between the carrying amount of an asset or liability in the statement of financial position and its tax base. Assets and liabilities are measured using the tax rate that is expected to be applied to the taxable income in the years in which these differences are expected to be settled or recovered. The measurement of deferred tax liabilities and deferred tax assets reflects the tax consequences that will follow from the manner in which the Bank and its subsidiaries expect, at the end of the reporting period, to recover or settle the carrying amount of their assets and liabilities. Deferred tax assets and liabilities are measured by their nominal figures, without discount, the tax rates that are expected to be applied in the fiscal year in which the asset shall be realized or the liability shall be settled. Deferred tax assets are recognized when it is probable that taxable profit will be available against which the deductible temporary difference can be utilized.

 - 31 -

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2020

(Translation of Financial statements originally issued in Spanish – See Note 45)

(Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2020, unless otherwise expressly stated)

 

On December 29, 2017 the Argentine Executive Power passed and put into effect the Tax Reform Act which, among other things, established a reduction of the corporate rate of income tax applicable to corporate retained earnings and also impacts on the measurement of deferred tax assets and liabilities. This reduction in the corporate rate of income had to be implemented gradually over the next four years dropping from the 35% rate applicable for and including the fiscal year 2017, to a 25% rate in 2020. On December 23, 2019 was passed Law 27,541 (see notes 21.b and 42) which suspends, until fiscal years beginning on January 1, 2021 included, the reduction to 25% of the income tax rate and the withholding of 13% over income and dividends distribution.

 

3.14Earnings per share

 

Basic earnings per share shall be calculated by dividing Net profit attributable to parent´s shareholders of the Bank by the weighted average number of ordinary shares outstanding during the fiscal year. See also note 30.

 

3.15Fiduciary activities and investment management

 

The Bank renders custody, administration, investment management and advisory services to third parties that originate the holding or placement of assets in the name of such third parties. These assets and the income on them are not included in these consolidated financial statements, since they are not owned by the Bank. The commissions derived from these activities are accounted for as “Commissions income” in the statement of income. See also notes 33, 34.3 and 38.

 

Accounting judgments, estimates and assumptions

 

The preparation of these consolidated financial statements requires the Bank’s Management to consider significant accounting judgments, estimates and assumptions that impact on the reported assets and liabilities, income, revenues and expenses, as well as the assessment and disclosure of contingent assets and liabilities, as of the end of the fiscal year. The Bank’s reported amounts are based on the best estimate regarding the probability of occurrence of different future events and, therefore, the uncertainties associated with the estimates and assumptions made by the Bank’s Management may drive in the future to final amounts that may differ from those estimates and may require material adjustments to the reported amounts of the affected assets and liabilities.

 

In certain cases, the financial statements prepared in accordance with the accounting framework established by BCRA, require that the assets and liabilities to be recognized and/or presented at their fair value. The fair value is the amount at which an asset can be exchanged, or at which a liability can be settled, in mutual independent terms and conditions between participants of the principal market (or most advantageous market) duly informed and willing to transact in an orderly and current transaction. When prices in active markets are available, we have used them as basis for valuation. When prices in active markets are not available, the Bank estimated those values as values based on the best available information, including the use of models and other assessment techniques. See additionally note 9.

 

In estimating accrued taxes, the Bank assesses the relative risks of the appropriate tax treatment considering judicial and regulatory guidance in the context of the tax position. Because of the complexity of tax laws and regulations, interpretation can be difficult and subject to legal judgment. It is possible that others, given the same information, may reach different reasonable conclusions regarding the estimated amounts of accrued taxes (for additional information regarding income tax see note 21).

 

In the normal course of business, the Bank is a party to lawsuits of various types. In note 39, are disclosed contingent liabilities with respect to existing or potential claims, lawsuits and other legal proceedings and record an accrual for litigation when it is probable that future costs will be incurred and these costs can be reasonably estimated.

 - 32 -

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2020

(Translation of Financial statements originally issued in Spanish – See Note 45)

(Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2020, unless otherwise expressly stated)

 

The measurement of impairment losses under IFRS 9 across all categories of financial instruments, taking into account the temporary exceptions established by Central Bank Communique “A” 6847, requires judgement, in particular, the estimation of the amount and timing of future cash flows and collateral values when determining impairment losses and the assessment of a significant increase in credit risk. These estimates are driven by a number of factors, changes in which can result in different levels of allowances (for additional information regarding impairment losses under IFRS 9 see notes 3.2.4 and 41.1).

 

As to the customer loyalty program, the Bank estimates the fair value of the points awarded to customers under the “Macropremia” program by applying statistics techniques. The data that feed the models include assumptions regarding exchange percentages, the product combinations available for exchange in the future and customers’ preferences.

 

New standards adopted in the fiscal year

 

Beginning effects of application of section 5.5. “impairment” of the IFRS 9.

 

In section 3.2.4, is detailed the convergence process for the application of section 5.5 of IFRS 9 according to BCRA Communiqué “A” 6114.

 

The impact of transition of retained earnings into ECP methodology established in section 5.5 of IFRS 9 is as follows:

 

   Retained
earnings
 
Closing balance under previous standards (December 31, 2018)   17,750,090 
Recognition of IFRS 9 ECL   588,447 
Deferred tax in relation to the above   (176,537)
Opening balance under IFRS 9’s ECL (January 1, 2019)   18,162,000 
Total change in equity due to adopting IFRS 9’s ECL   411,910 

 

The following table reconciles the aggregate opening allowances according to the previous standard and the new aggregate allowances calculated under ECL:

 

   Credit loss
provision under
previous standards
   Re -
measurement
   ECL under IFRS 9
as of
January 1, 2019
 
Loans and other financing and other items   8,713,774    (610,918)   8,102,856 
Subtotal   8,713,774    (610,918)   8,102,856 
Loan commitments        22,471    22,471 
Subtotal        22,471    22,471 
Total   8,713,774    (588,447)   8,125,327 

 

The new accounting policies adopted related to allowances under section 5.5 of IFRS 9 are detailed in section 3.2.4 of this note.

 

Other new standards adopted in the fiscal year

 

For the fiscal year beginning on January 1, 2020, the following IFRS amendments are applicable and they did not have a material impact over these consolidated financial statements, as a whole.

 

1.Amendments to the Conceptual Framework for Financial Reporting:

 

The modification to the Conceptual Framework includes some new concepts, provides updated definitions and recognition criteria for assets and liabilities and clarifies some important concepts.

 

The changes to the Conceptual Framework may affect the application of IFRS in situations where no standard applies to a particular transaction or event.

 - 33 -

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2020

(Translation of Financial statements originally issued in Spanish – See Note 45)

(Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2020, unless otherwise expressly stated)

 

This standard did not have a material impact on these consolidated financial statements since, currently, there are not material uncertainties about the application to a particular transaction or event.

 

2.IFRS 3 “Business Combination” – amendments in definition of a business:

 

These amendments will help entities determine whether an acquisition made is a business or the purchase of a group of assets. The new amended definition emphasizes that the output of a business is to provide goods and services to customers, whereas the previous definition focused on returns in the form of dividends, lower costs or other economic benefits. This standard did not have a material impact on these consolidated financial statements since, currently, there are not business combination transactions.

 

3.IAS 1 “Presentation of Financial Statements” and IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors” – amendments to definition of material:

 

The new definition states that information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements. The amendments clarify that materiality will depend on the nature or magnitude of information or both. These amendments replaced the threshold “could influence” with “could reasonably be expected to influence”. This implies that the materiality assessment will need to take into account how primary users could reasonably be expected to be influenced in making economic decisions. This standard did not have a material impact on these consolidated financial statements.

 

4.IFRS 16 “leases” – Amendment that provides accounting relief to lessees on lease modification accounting for rent concessions arising as a direct consequence of the COVID-19:

 

This amendment excepts lessees to assess lease arrangement, on an individual basis, whether a rent concession arising as a direct consequence of COVID-19 pandemic, is a lease modification and allows lessees to account the rent concession as if it was not a lease modification and charged it in the statement of income. This applies to rent concession related to COVID-19 that reduces lease payments due on or before June 30, 2021. This standard did not have a material impact on these consolidated financial statements (see note 43).

 

New pronouncements

 

A.Modifications to IFRS

 

Pursuant to Communiqué “A” 6114 of the BCRA, as new IFRS are approved and existing IFRS are amended or revoked and, once these changes are approved through the notices of approval issued by FACPCA, the BCRA shall issue a statement on the approval thereof for financial entities. Generally, financial institutions shall not apply any IFRS in advance, except as specifically authorized at the time of the adoption thereof.

 

The new and amended standards and interpretation that are issued, but not yet effective, up to the date of issuance of these consolidated financial statements are disclosed below. The Bank intends to adopt these standards, if applicable, when they come effective.

 

a)Amendments to IFRS 3 - Reference to the Conceptual: the amendments are intended to replace a reference to a previous version of the IASB’s Conceptual Framework with a reference to the current version issued in March 2018 without significantly changing its requirements. The amendments add an exception to the recognition principle of IFRS 3 to avoid the issue of potential ‘day 2’ gains or losses arising for liabilities and contingent liabilities that would be within the scope of IAS 37 “Provisions, Contingent Liabilities and Contingent Assets” or IFRIC 21 “Levies”, if incurred separately. The exception requires entities to apply the criteria in IAS 37 or IFRIC 21, respectively, instead of the Conceptual Framework, to determine whether a present obligation exists at the acquisition date. At the same time, the amendments add a new paragraph to IFRS 3 to clarify that contingent assets do not qualify for recognition at the acquisition date. This amendment is applicable as of January 1, 2022. The Bank does not expect this standard to have a material impact on the financial statements.

 - 34 -

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2020

(Translation of Financial statements originally issued in Spanish – See Note 45)

(Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2020, unless otherwise expressly stated)

 

b)Amendments to IAS 16 - Property, Plant and Equipment (PP&E): proceeds before Intended Use. The amendment prohibits entities from deducting from the cost of an item of PP&E, any proceeds of the sale of items produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Instead, an entity recognizes the proceeds from selling such items, and the costs of producing those items, in profit or loss. This amendment is applicable as of January 1, 2022. The Bank does not expect this standard to have a material impact on the financial statements.

 

c)Amendments to IAS 37 - Onerous Contracts – Costs of Fulfilling a Contract: the IASB issued amendments to IAS 37 to specify which costs an entity needs to include when assessing whether a contract is onerous or loss-making. The amendments apply a ‘directly related cost approach’. The costs that relate directly to a contract to provide goods or services include both incremental costs and an allocation of costs directly related to contract. The impact of these amendments on Entities that previously applied the incremental cost approach, is that they will see provisions increase to reflect the inclusion of costs related directly to contract activities, whilst entities that previously recognized contract loss provisions using the guidance from the former standard, IAS 11 Construction Contracts, will be required to exclude the allocation of indirect overheads from their provisions. This amendment is applicable as of January 1, 2022. The Bank does not expect this standard to have a material impact on the financial statements.

 

d)Annual improvement cycle (2018-2020): the following is a summary of the amendments from the 2018-2020 annual improvements cycle:

 

IFRS 1 First-time Adoption of International Financial Reporting – Subsidiary as a first-time adopter: the amendment permits a subsidiary that elects to apply paragraph D16(a) of IFRS 1 to measure cumulative translation differences using the amounts reported by the parent, based on the parent’s date of transition to IFRS. This amendment is also applied to an associate or joint venture that elects to apply paragraph D16(a) of IFRS 1. This amendment is applicable as of 1 January 2022.

 

IFRS 9 Financial Instruments Fees in the ’10 per cent’ test for derecognition of financial liabilities: the amendment clarifies the fees that an entity includes when assessing whether the terms of a new or modified financial liability are substantially different from the terms of them original financial liability. These fees include only those paid or received between the borrower and the lender, including fees paid or received by either the borrower or lender on the other’s behalf.

 

IFRS 16 “Leases” Illustrative examples - Lease incentives: the amendment removes the Example 13 accompanying IFRS 16 of payments from the lessor relating to leasehold improvements. This removes potential confusion regarding the treatment of lease incentives when applying IFRS 16.

 

The Bank does not expect this standard to have a material impact on the consolidated financial statements.

 

B.Amendments to BCRA accounting information framework

 

Disclosures of the monetary effect generated by the application of restatement procedures for financial statements (Communiqué “A” 7211): from fiscal years beginning on January 1, 2021, the Bank has to record in the statement of income of the period the accrued monetary effect of the monetary assets measured at fair value through other comprehensive income (OCI). As a consequence, at the beginning of the fiscal year 2021, the related unappropriated retained earnings shall be adjusted as a prior period earning adjustment in order to include the monetary effect of the abovementioned assets that would have been recorded in OCI as of such date (see also Exhibit Q).

 

4.REPO TRANSACTIONS

 

As of December 31, 2020 and 2019, the Bank has agreed repurchase and reverse repurchase transactions of government and private securities, in absolute value, for 40,040,277 and 2,845,921, respectively. Maturity of the agreed transactions as of December 2020 occurred during the month of January 2021. Furthermore, to the those same dates, the securities delivered to guarantee the reverse repurchase transactions total 695,748 and 1,466,345, respectively, and are recorded under “Financial assets delivered as guarantee”, while securities received guarantee repurchase transactions as of December 31, 2020 and 2019 total 44,338,930 and 1,648,337, respectively and were recognized as an off balance sheet transaction.

 - 35 -

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2020

(Translation of Financial statements originally issued in Spanish – See Note 45)

(Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2020, unless otherwise expressly stated)

 

Profits generated by the Bank as a result of its repurchase transactions arranged during the fiscal years ended on December 31, 2020 and 2019 total 7,067,389 and 4,472,211, respectively, and were accounted for in “Interest income” in the consolidated statement of income. In addition, losses generated by the Bank as a result of its reverse repurchase transactions arranged during the fiscal years ended on December 31, 2020 and 2019 total 195,747 and 458,103, respectively, and were recognized in “Interest expense” in the consolidated statement of income.

 

5.FINANCIAL ASSETS DELIVERED AS GUARANTEE

 

As of December 31, 2020 and 2019, the Bank delivered as guarantee the following financial assets:

 

  Carrying Amount 
Description   12/31/2020    12/31/2019 
For transactions with the BCRA   12,040,746    10,127,017 
For guarantee deposits   1,555,864    2,937,377 
For securities forward contracts   695,748    1,466,345 
Total   14,292,358    14,530,739 

 

The Bank’s Management considers there shall be no losses due to the restrictions on the above listed financial assets.

 

6.CONTINGENT TRANSACTIONS

 

In order to meet specific financial needs of customers, the Bank’s credit policy also includes, among others, the granting of guarantees, securities, bonds, letters of credit and documentary credits. The Bank is also exposed to overdrafts and unused agreed credits on credit cards of the Bank. Since they imply a contingent obligation for the Bank, they expose the Bank to credit risks other than those recognized in statement of financial position and they are, therefore, an integral part of the total risk of the Bank.

 

As of December 31, 2020 and 2019, the Bank maintains the following maximum exposures to credit risk related to this type of transactions:

 

   12/31/2020   12/31/2019 
Undrawn commitments of credit cards and checking accounts   95,220,298    124,364,340 
Guarantees granted (1)   1,282,770    2,340,277 
Letters of credit   888,664    607,827 
Overdraft and unused agreed commitments (1)   518,606    1,432,695 
    97,910,338    128,745,139 
Less: Allowance for ECL   (17,207)   (23,514)
Total   97,893,131    128,721,625 

 

(1)Includes transactions not covered by BCRA debtor classification standard. For Guarantee granted, it includes an amount of 161,869 and 242,840 as of December 31, 2020 and 2019, respectively. For Overdraft and unused agreed commitments, it includes an amount of 81,622 and 258,023 as of December 31, 2020 and 2019, respectively.

 

Risks related to the contingent transactions described above have been evaluated and are controlled within the framework of the Bank’s credit risk policy, described in note 41.

 - 36 -

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2020

(Translation of Financial statements originally issued in Spanish – See Note 45)

(Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2020, unless otherwise expressly stated)

 

7.LOSS ALLOWANCE FOR EXPECTED CREDIT LOSSES ON CREDIT EXPOSURES NOT MEASURED AT FAIR VALUE THROUGH PROFIT OR LOSS

 

The Bank recognizes a loss allowance for expected credit losses on all credit exposures not measured at fair value through profit or loss, like debt instruments measured at amortized cost, debt instruments measured at fair value through other comprehensive income, loan commitments and financial guarantee contracts (not measured at fair value through profit or loss), contract assets and lease receivables.

 

Exhibit P “Categories of financial assets and liabilities” discloses financial instruments classified as “measures at amortized cost”, “measured at fair value through other comprehensive income” and “measured at fair value through profit or loss”. This classification is made pursuant to what was detailed in note 3.2.4. Additionally, in note 9 are also explained the information related to the valuation process.

 

Moreover, considering the temporary exception established by BCRA mentioned in note 3.2.4, the Bank applies the impairment requirements for the recognition and measurement of a loss allowance for financial assets measured at amortized cost or at fair value through other comprehensive income detailed in the Exhibit P, except for public sector exposures. In addition, the Bank applies the impairment requirements for guarantees granted, undrawn commitments of credit cards and checking accounts, letter of credits, which are not recognized in the consolidated statement of financial position.

 

For the purpose of assessing the Bank’s credit risk exposure and identifying material credit risk concentration, disclosures regarding to credit risk of financial assets and items not recognized in the statement of financial position, are as follows:

 

7.1Loans and other financing measured at amortized cost

 

According to the nature of the information to be disclosed and the loans characteristic, the Bank groups them as follows:

 

   12/31/2020   12/31/2019 
Loans and other financing   267,349,317    307,633,542 
Collective assessment   193,056,864    173,435,436 
Individual assessment   74,292,453    134,198,106 
Less: Allowance for ECL (*)   (10,022,610)   (6,901,953)
    257,326,707    300,731,589 

 

(*) As explain in note 3.2.4, ECL are not calculated to public sector exposures.

 

The following table shows the credit quality and the debt balance to credit risk, based on the Bank’s credit risk rating system and the year-end stage classification, taking into account the several guidelines related to flexible conditions for credit established by the BCRA to moderate the pandemic effects generated by COVID-19 (see also note 41.1.3). The amounts are presented gross of the impairment allowances.

 

        12/31/2020 (*) 
Internal rating grade  Range PD    Stage 1    Stage 2    Stage 3    Total    % 
Performing       248,152,798    8,667,313         256,820,111    96.06%
High grade  0.00%-3.50%    203,625,434    35,479         203,660,913    76.18%
Standard grade  3.51%-7.00%    31,910,933    1,853,985         33,764,918    12.63%
Sub-standard grade  7.01%-33.00%    12,616,431    6,777,849         19,394,280    7.25%
Past due but not impaired  33.01%-99.99%    794,019    6,705,317         7,499,336    2.81%
Impaired   100%               3,029,870    3,029,870    1.13%
Total       248,946,817    15,372,630    3,029,870    267,349,317    100%
        93.12%   5.75%   1.13%   100%     

 

(*) See also note 41.1.3.

 - 37 -

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2020

(Translation of Financial statements originally issued in Spanish – See Note 45)

(Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2020, unless otherwise expressly stated)

 

        12/31/2019 
Internal rating grade  Range PD    Stage 1    Stage 2    Stage 3    Total    % 
Performing       280,074,262    13,565,543         293,639,805    95.45%
High grade  0.00%-3.50%    234,860,526    153,443         235,013,969    76.40%
Standard grade  3.51%-7.00%    23,185,807    2,145,131         25,330,938    8.23%
Sub-standard grade  7.01%-33.00%    22,027,929    11,266,969         33,294,898    10.82%
Past due but not impaired  33.01%-99.99%    490,415    8,230,491         8,720,906    2.84%
Impaired  100%               5,272,831    5,272,831    1.71%
Total       280,564,677    21,796,034    5,272,831    307,633,542    100%
        91.20%   7.09%   1.71%   100%     

 

7.1.1Loans on an individual assessment

 

The table below shows the credit quality and the debt balance to credit risk of commercial loans based by grade on the Bank’s internal credit rating system, PD range and year-end stage classification. The Bank’s internal credit rating systems and the evaluation and measurement approaches are explained in note 41 section “Credit risk”.

 

        12/31/2020 (*)  
Internal rating grade  Range PD    Stage 1    Stage 2    Stage  3    Total    % 
Performing       67,960,595    2,781,608         70,742,203    95.22%
High grade  0.00%-3.50%    64,283,220    812         64,284,032    86.53%
Standard grade  3.51%-7.00%    2,742,148    1,454,671         4,196,819    5.65%
Sub-standard grade  7.01%-33.00%    935,227    1,326,125         2,261,352    3.04%
Past due but not impaired  33.01%-99.99%    372,660    1,614,916         1,987,576    2.68%
Impaired  100%               1,562,674    1,562,674    2.10%
Total       68,333,255    4,396,524    1,562,674    74,292,453    100%
        91.98%   5.92%   2.10%   100%     

 

(*) See also note 41.1.3.

 

        12/31/2019 
Internal rating grade  Range PD    Stage 1    Stage 2    Stage 3    Total    % 
Performing       128,020,746    2,895,846         130,916,592    97.55%
High grade  0.00%-3.50%    121,115,116    10,720         121,125,836    90.26%
Standard grade  3.51%-7.00%    25,878    1,184,255         1,210,133    0.90%
Sub-standard grade  7.01%-33.00%    6,879,752    1,700,871         8,580,623    6.39%
Past due but not impaired  33.01%-99.99%         1,389,063         1,389,063    1.04%
Impaired  100%               1,892,451    1,892,451    1.41%
Total       128,020,746    4,284,909    1,892,451    134,198,106    100%
        95.40%   3.19%   1.41%   100%     

 - 38 -

 

 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2020

(Translation of Financial statements originally issued in Spanish – See Note 45)

(Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2020, unless otherwise expressly stated)

 

An analysis of changes in the gross carrying amount and the corresponding ECL allowances in relation to commercial lending is, as follows:

 

   Stage    
   1   2   3   Total 
Gross Carrying amount as of January 1, 2020   128,020,746    4,284,909    1,892,451    134,198,106 
                     
Assets originated or purchased   62,435,429    2,414,823         64,850,252 
Assets derecognized or repaid   (102,930,411)   (926,908)   (1,029,675)   (104,886,994)
Transfers to Stage 1   213,137    (213,137)          
Transfers to Stage 2   (378,924)   378,924           
Transfers to Stage 3   (1,541,904)   (157,275)   1,699,179      
Amounts Written Off             (375,325)   (375,325)
Monetary effects   (17,484,818)   (1,384,812)   (623,956)   (19,493,586)
As of December 31, 2020   68,333,255    4,396,524    1,562,674    74,292,453 

 

   Stage    
   1   2   3   Total 
Gross Carrying amount as of January 1, 2019   140,670,991    2,125,782    2,353,984    145,150,757 
                     
Assets originated or purchased   150,197,527    4,510,146         154,707,673 
Assets derecognized or repaid   (110,364,709)   (1,623,329)   (1,733,006)   (113,721,044)
Transfers to Stage 1   536,346    (428,565)   (107,781)     
Transfers to Stage 2   (1,249,433)   1,249,433           
Transfers to Stage 3   (2,569,451)   (29,397)   2,598,848      
Amounts Written Off        (236)   (123,425)   (123,661)
Monetary effects   (49,200,525)   (1,518,925)   (1,096,169)   (51,815,619)
As of December 31, 2019   128,020,746    4,284,909    1,892,451    134,198,106 

 

   Stage    
   1   2   3   Total (*) 
ECL amount as of January 1, 2020   436,429    456,030    1,303,908    2,196,367 
                     
Assets originated or purchased   1,515,913    517,367         2,033,280 
Assets derecognized or repaid   (329,604)   (16,133)   (813,640)   (1,159,377)
Transfers to Stage 1   9,749    (9,749)          
Transfers to Stage 2   (1,181)   1,181           
Transfers to Stage 3   (929,211)   (5,996)   935,207      
Amounts Written Off             (329,807)   (329,807)
Monetary effects   (41,048)   (184,349)   (313,036)   (538,433)
As of December 31, 2020   661,047    758,351    782,632    2,202,030 

 

(*) See also note 41.1.3.

 

   Stage    
   1   2   3   Total 
ECL amount as of January 1, 2019   559,906    120,738    896,211    1,576,855 
                     
Assets originated or purchased   2,089,381    586,750         2,676,131 
Assets derecognized or repaid   (411,174)   (87,985)   (628,383)   (1,127,542)
Transfers to Stage 1   76,434    (13,892)   (62,542)     
Transfers to Stage 2   (17,184)   17,184           
Transfers to Stage 3   (1,843,210)   (1,035)   1,844,245      
Amounts Written Off        (5)   (53,717)   (53,722)
Monetary effects   (17,724)   (165,725)   (691,906)   (875,355)
As of December 31, 2019   436,429    456,030    1,303,908    2,196,367 

-  39 -

 

 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2020

(Translation of Financial statements originally issued in Spanish – See Note 45)

(Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2020, unless otherwise expressly stated)

 

7.1.2    Loans on a collective assessment

 

The table below shows the credit quality and the debt balance to credit risk of loans portfolio under collective assessment, by grade of credit risk classification based on the Bank’s internal credit rating system, PD range and year-end stage classification. The Bank’s internal credit rating systems and the evaluation and measurement approaches are explained in note 41 section “Credit risk”.

 

        12/31/2020 (*)  
Internal rating grade   Range PD   Stage 1   Stage 2   Stage 3   Total   % 
Performing        180,192,203    5,885,705         186,077,908    96.39%
High grade   0.00%-3.50%    139,342,214    34,667         139,376,881    72.19%
Standard grade   3.51%-7.00%    29,168,785    399,314         29,568,099    15.32%
Sub-standard grade   7.01%-33.00%    11,681,204    5,451,724         17,132,928    8.88%
Past due but not impaired   33.01%-99.99%    421,359    5,090,401         5,511,760    2.85%
Impaired   100%             1,467,196    1,467,196    0.76%
Total        180,613,562    10,976,106    1,467,196    193,056,864    100%
         93.55%   5.69%   0.76%   100%     

 

(*) See also note 41.1.3.

 

        12/31/2019 
Internal rating grade   Range PD   Stage 1   Stage 2   Stage 3   Total   % 
Performing        152,053,516    10,669,697         162,723,213    93.82%
High grade   0.00%-3.50%    113,745,410    142,723         113,888,133    65.66%
Standard grade   3.51%-7.00%    23,159,929    960,876         24,120,805    13.91%
Sub-standard grade   7.01%-33.00%    15,148,177    9,566,098         24,714,275    14.25%
Past due but not impaired   33.01%-99.99%    490,415    6,841,428         7,331,843    4.23%
Impaired   100%             3,380,380    3,380,380    1.95%
Total        152,543,931    17,511,125    3,380,380    173,435,436    100%
         87.95%   10.10%   1.95%   100%     

 

An analysis of changes in the gross carrying amount and the corresponding ECL allowances in relation to consumer lending is, as follows:

 

   Stage    
   1   2   3   Total 
Gross Carrying amount as of January 1, 2020   152,543,931    17,511,125    3,380,380    173,435,436 
                     
Assets originated or purchased   122,759,519    6,864,009         129,623,528 
Assets derecognized or repaid   (48,194,960)   (7,286,602)   (980,906)   (56,462,468)
Transfers to Stage 1   8,651,172    (8,354,152)   (297,020)     
Transfers to Stage 2   (4,493,269)   4,748,355    (255,086)     
Transfers to Stage 3   (1,104,828)   (309,271)   1,414,099      
Amounts Written Off   (35,643)   (284,523)   (1,378,194)   (1,698,360)
Monetary effects   (49,512,360)   (1,912,835)   (416,077)   (51,841,272)
As of December 31, 2020   180,613,562    10,976,106    1,467,196    193,056,864 

-  40 -

 

 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2020

(Translation of Financial statements originally issued in Spanish – See Note 45)

(Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2020, unless otherwise expressly stated)

 

   Stage    
   1   2   3   Total 
Gross Carrying amount as of January 1, 2019   190,999,547    42,324,135    4,847,798    238,171,480 
                     
Assets originated or purchased   103,467,653    10,167,092         113,634,745 
Assets derecognized or repaid   (71,378,819)   (19,642,849)   (1,649,885)   (92,671,553)
Transfers to Stage 1   14,992,526    (14,771,361)   (221,165)     
Transfers to Stage 2   (8,171,761)   8,759,526    (587,765)     
Transfers to Stage 3   (4,033,895)   (951,529)   4,985,424      
Amounts Written Off   (323,899)   (936,075)   (2,198,639)   (3,458,613)
Monetary effects   (73,007,421)   (7,437,814)   (1,795,388)   (82,240,623)
As of December 31, 2019   152,543,931    17,511,125    3,380,380    173,435,436 

 

   Stage    
   1   2   3   Total (*) 
ECL amount as of January 1, 2020   1,561,988    1,480,049    1,663,549    4,705,586 
                     
Assets originated or purchased   4,317,896    1,844,022         6,161,918 
Assets derecognized or repaid   320,647    (369,719)   (539,226)   (588,298)
Transfers to Stage 1   767,495    (622,632)   (144,863)     
Transfers to Stage 2   (75,073)   187,329    (112,256)     
Transfers to Stage 3   (708,400)   (48,396)   756,796      
Amounts Written Off   (1,676)   (56,306)   (702,095)   (760,077)
Monetary effects   (1,643,209)   (8,919)   (46,421)   (1,698,549)
As of December 31, 2020   4,539,668    2,405,428    875,484    7,820,580 

 

(*) See also note 41.1.3.

 

   Stage    
   1   2   3   Total 
ECL amount as of January 1, 2019   1,621,844    2,602,099    2,301,929    6,525,872 
                     
Assets originated or purchased   2,472,513    881,811         3,354,324 
Assets derecognized or repaid   19,972    (1,093,709)   (917,811)   (1,991,548)
Transfers to Stage 1   733,257    (636,265)   (96,992)     
Transfers to Stage 2   (115,770)   330,095    (214,325)     
Transfers to Stage 3   (1,912,100)   (100,707)   2,012,807      
Amounts Written Off   (9,224)   (144,692)   (1,106,555)   (1,260,471)
Monetary effects   (1,248,504)   (358,583)   (315,504)   (1,922,591)
As of December 31, 2019   1,561,988    1,480,049    1,663,549    4,705,586 

 

7.2   Other debt securities at amortized cost

 

For corporate bonds issued by the Bank’s customers, PD and LGD parameters calculated for loan exposures of those customers were used. The corporate bonds’ EAD is considered equal to the debt balance, because there is not available information of such instrument´s behavior when it defaulted.

 

For financial trusts at amortized cost, the criteria that was used in the calculation of ECL is based on credit risk ratings given by a credit rating agency for each types of debt securities that compose each financial trust. That is, the factor to be used will vary in relation to the holding debt securities (A or B). It is assumed that the EAD is equal to the debt balance.

-  41 -

 

 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2020

(Translation of Financial statements originally issued in Spanish – See Note 45)

(Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2020, unless otherwise expressly stated)

 

The table below shows the exposures gross of impairment allowances by stages:

 

   12/31/2020 
   Stage 1   Stage 2   Stage 3   Total   % 
Corporate bonds   365,341            365,341    68.67%
Financial trust   166,692              166,692    31.33%
                          
Total   532,033              532,033      
    100%             100%     

 

   12/31/2019 
   Stage 1   Stage 2   Stage 3   Total   % 
Corporate bonds   2,198,423            2,198,423    59.47%
Financial trust   1,498,448              1,498,448    40.53%
                          
Total   3,696,871              3,696,871      
    100%             100%     

 

The related ECL for corporate bonds as of December 31, 2020 and 2019 amounted to 1,234 and 2,088, respectively. The ECL related to financial trusts as of December 31, 2020 and 2019 amounted to 109 and 549, respectively.

 

7.3    Government securities at amortized cost or fair value through OCI

 

This group includes federal government securities, provincial or Central Bank instruments measured at amortized cost or fair value through OCI. For these assets, an individual assessment of the related parameters was performed. However, under domestic standards and according to Communiqué “A” 6847, no ECL was calculated for these instruments.

 

A detail of these investments and their characteristics are disclosed in Exhibit A.

 

7.4    Other financial assets

 

The ECL related to these types of instruments amounted to 18,929 and 14,032 as of December 31, 2020 and 2019, respectively, including the ECL related to the payments to be collected for transaction mentioned in note 15.

 

During the fiscal years ended on December 31, 2020 and 2019, losses for ECL related to loans and other financing, other debt securities measured at amortized cost and other financial assets amounted to 8,002,788 and 5,830,073, respectively, and were recognized in the consolidated statements of income under the item “allowance for loan losses”.

 

In addition, in exhibit R “Value adjustment for credit losses for credit losses – Allowance for uncollectibility risk” are also disclosed the ECL movements by portfolio and products.