Gustavo Manriquez - Chief Executive Officer Jorge Scarinci - Chief Financial Officer Nicolas Torres - Investor Relations

Good morning ladies and gentlemen and thank you for waiting. At this time we would like to welcome everyone to Banco Macro's Fourth Quarter 2022 Earnings Conference Call. We would like to inform you that the 4Q 2022 press release is available to download at the Investor Relations website of Banco Macro, www.macro.com.ar/relaciones-inversores. Also, this event is also being recorded and all participants will be in a listen-only mode during the company’s presentation. [Operator Instructions]. It is now my pleasure to introduce our speakers. Joining us from Argentina are Mr. Gustavo Manriquez, Chief Executive Officer; Mr. Jorge Scarinci, Chief Financial Officer, Mr. Nicolas Torres, IR. Now, I would like to turn the conference over to Mr. Nicolas Torres. You may begin your conference.

Thank you, Gary. Good morning, and welcome to Banco Macro's fourth quarter 2022 conference call. Any comments we may make today may include forward-looking statements, which are subject to various conditions, and these are outlined in our 20-F, which was filed to the SEC and is available at our website. Fourth quarter 2022 press release was distributed yesterday and it’s also available at our website. All figures are in Argentine pesos and have been restated in terms of the measuring unit current at the end of the reporting period. As of the first quarter of 2020, the bank began reporting results applying hyperinflation accounting in accordance with IFRS IAS 29 as established by the Central Bank of Argentina. For ease of comparison, figures of previous quarters have been restated applying IAS 29 to reflect the cumulated effect of the inflation adjustment for each period through December 31, 2022. I will now briefly comment on the bank's fourth quarter 2022 financial results. Banco Macro's net income for the quarter was Ps.16.6 billion, 59% higher than the third quarter of 2022 and 19% lower than the result posted a year ago. The bank's fourth quarter 2022 ROE and ROA of 16.9% and 3.3% respectively remained healthy and showed the bank's earnings potential. In fiscal year 2022, total comprehensive income totaled Ps.37.5 billion, which was 32% lower than the result posted in fiscal year 2021. Net operating income before general, administrative and personnel expenses for the fourth quarter of 2022 was Ps.131.3 billion, decreasing 8% or Ps.11.3 billion quarter-on-quarter due to lower income from financial instruments at fair value to profit and loss. On a yearly basis, net income before general and administrative and personal expenses increased 36% or Ps.34 billion. In fiscal year 2022 net operating income before general, administrative and personal…

[Operator Instructions] Our first question is from Ernesto Gabilondo with Bank of America. Please go ahead.

Hi! Good morning, Jorge and Nicolas. Thanks for the opportunity. My first question is on the political and macro outlook. Can you give us some color on who are the potential presidential candidates? How are the initial polls looking? And then on the macro outlook, interest rates and inflation are well above Macro’s administration. So just wondering if there is a positive presidential outcome, how fast the new government would be able to fix such high variables and of course to avoid a heavy depreciation of the currency. Then my second question is on loan growth. So how should we think about loan growth this year considering the high level of inflation? And then my last question is on your expected ROE for ‘23. How should we think about it if interest rates start to trend down at some point during the second half of the year? Thank you.

Hi Ernesto! Good morning. This is Jorge Scarinci. On the political outlook, I think it's a bit early. Honestly, there are many names that could be candidates, but the primary elections are in August. Until then or at least until May we can hear a bunch of names floating around as a candidate. But I think that after May, we are going to have a shorter lead of potential candidates. So honestly, I don't know if it is worth spending time right now talking about what could be the candidate, because again, the list is going to be much narrower than all the names that we are seeing appear in the press. In terms of the macro expectations, we believe that in 2023 and according to private consultants, inflation is going to remain at similar levels than the level of 2022. And in terms of interest rates, we are not forecasting in the short term any kind of movement on interest rates. Honestly, for the moment we are not seeing a decline in interest rates in the second half for the moment. And in terms of loan growth in 2023, also according to the consensus of the market, GDP is going to be nearly flat in real terms and therefore we are expecting almost no growth in real terms in loans. So it's going to be a similar inflation. In terms of expectation for ROE, we would like to maintain the 10% area as a kind of a forecast for this year. If we are not having any strange event, we think that we could achieve it without any problem.

Perfect! Thank you very much, Jorge.

You’re welcome Ernesto.

The next question is from Brian Flores with Citibank. Please go ahead.

Hi Jorge and Nicolas, thank you for the opportunity. I have two on my side. The first one is, I wanted to understand a bit better the mechanics of the mark-to-market in government securities. I was just curious about it because we saw – that during the quarter you saw the interest income from these securities going up, mainly in line with what we saw in the third quarter, but we saw a very different outcome regarding the mark-to-market. So just, can you remind us how this works? And then I'll ask a second question after this. Thank you.

Hi Brian! How are you? Yes, it's a bit complicated. There are two or three different places in the income statement where you have the income from securities, but in the interest income side, there you have like the accrued interests. In another line you have part of the bond portfolio that is exposed to our mark-to-market system. So we have like two different – see, for one that is that you accrued the income, and on the other line it’s below the net income. There you put the difference between the accrued income and mark-to-market, and also we have some mark-to-market bonds that the result of that is put on the – it’s on – hold on one sec. It’s below the net interest income line, that is net income from financial instruments at fair value. So it's a bit complicated, but income from activities are spread all over the income statement in different accounts.

Okay, perfect! But my question is, is this mark-to-market done mechanically or is this something you cannot decide to do at a certain point in time, just because for example during the third quarter we saw very different things with grades going up. So just wondering if this is something you do periodically or do you – this is a more deterministic thing.

I mean, if you're talking about the decline between the third quarter and fourth quarter in this line of net income from financial instruments at fair value, that is mark-to-market, only that, yeah. There were net increase in prices in those bonds that we have at mark-to-market, that's it, yeah. The mark-to-market is mechanical, yes.

That is perfect, okay. And then just for the second question, you – we see you have a very high capital ratio. Just wondering, have you heard any updates from the regulator regarding the permission to distribute you know higher dividends?

We expect to have news on that front in the coming two or three weeks in terms of the allowance to distribute dividends. Again, for the moment no news, but we think that we might have some news before of course the shareholders meeting. So in the next couple of months – a couple of weeks, we should have some news.

That is perfect! Thank you.

You're welcome, Brian.

The next question is from Yuri Fernandes with JP Morgan. Please go ahead.

Hi! Hello! Thank you. I have a follow-up regarding securities here. I guess you know it's the most relevant revenue line for you, right. Like we’re checking loans, like loan revenues. They are only 30%, 35% of the gross financial income, so securities are the big chunk and they also have tradables or the you know mark-to-mark like the OCI, it's pretty relevant, right. So my question is, there is a question that rates continue to move up in Argentina. I think the IMS, they had the hopes that we could see positive real rates in Argentina. I really don't know if that's possible or not. There is also a you know adaptive discussion, but my question is, if rates continue to move much higher, is that good for you? Like can you reprise quickly those portfolios or I don't know, mark-to-mark may hurt you, like – again, I'm trying to just understand like in a more long kind of question, what is the sensitivities through the lead, right. If the lead goes through a level 80, 90, how that impacts market? Thank you.

Hi Yuri! Let's say that making a summary on your question, yes, if there is an increase in interest rate, we have a positive impact on our P&L. Basically we have a chunk of – a much higher chunk of money or liquidity that we can reprise faster than our deposit base.

Thank you.

You’re welcome.

The next question is from Carlos Gomez with HSBC. Please go ahead.

Hello Jorge! Hello Nicolas! Thank you very much for having the call and taking the question. I mean, we are going to do another electoral cycle and usually we have expectations that things can change. There will be a new policy going forward. How would you compare you know the start of 2023 with the start of 2015, eight years ago, when we were in a similar situation? How – what do you think is more positive and what you think is more negative compared to that point? Thank you.

Thank you, Carlos. How are you? I think that is a good question. Of course, it's a different scenario in 2015. I think that the appearance of Mauricio Macri’s political figure was completely new and there was a bit of positive expectations on his Presidency, and of course the world I think that was much different then than the world that we have today. Today I would say that even though there are some positive expectations on a change of government, I think that everyone knows that the new government will have less time than what Mauricio Macri had, in order to try to set up all the reforms and measures. And I think that the inflation environment in Argentina today is much higher than the one that we had in 2015. The level of reserves in the central bank is much shorter or smaller now compared to 2015. So I think it is – there you have the difference and coincidences. I think that – today I think that the scenario is a bit much harder for the new administration than what Mauricio Macri had in 2015. I think that the timing and of course the world, the region are completely different. Expectations on the new administration is different than Mauricio Macri had in 2015. So I think it's a bit tougher for the coming government.

Okay, and let me put it this way. The last time in the last cycle, all the banks, you know [inaudible] I think they needed capital, they have capital relations. Are you right now more inclined to preserve capital for the future demand or to distribute it if you are allowed by the Central Bank?

I mean, we think that we have a big excess, so we would like maybe to distribute part of that. But we think at the same time that could be in the future a time of possibilities for more concentration in the banking sector in Argentina. So we want to also have some excess capital. It’s the recent opportunity for an M&A transaction. But we are conscious that the level of capital that we have right now is, it's about the level that we would desire in a more normalized economic scenario.

Thank you very much Jorge.

You're welcome Carlos.

[Operator Instructions] The next question is from Rodrigo Nistor with Latin Securities. Please go ahead.

Hi! Thank you for taking my question. Can you discuss Banco Macro’s current strategy with regards to exporting to the public sector and the Central Bank? I mean given the upcoming elections, do you expect to make any changes on this strategy? And then if – are you willing to extend or to buy treasury instruments that mature beyond the 2023 elections date or do you prefer to stick to like to [inaudible] that was in the table. Thank you.

Hi Rodrigo! We think that we accommodate our strategy depending on the economic cycle, and for the moment I think that this scenario of high level of inflation with a low demand from the private sector put us in a kind of a compulsory based on some public sector assets. But of course, going forward if the economic scenario improves, of course we are going to go back and focus more on the private sector loan demand, that is our core business and we want to continue growing. In terms of the security – on the maturities on our security portfolio, basically what we range is the yield that we can get in maybe shorter or longer. We think that we are assigned a very low probability of any kind of problem with the peso debt, with this government and with the next government. So we feel comfortable with the level of data and related to the treasury and then to the Central Bank that we have. But we believe that going forward, in a more – in a better economic scenario, the level of exposure that you probably said is going to be much smaller. But we feel comfortable with that level that we have right now.

Great! Thank you very much.

You’re welcome.

There are no more questions at this time. This concludes the question-and-answer session. I will now turn the call back over to Mr. Nicolas Torres for his final considerations.

Thank you all for your interest in Banco Macro. We appreciate your time and look forward to speaking with you again. Good day!

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.