Good morning and welcome to the Grupo Supervielle Second Quarter 2018 Earnings Call. A slide presentation will accompany today's webcast, which is available in the Investors Section of Grupo Supervielle's Investor Relations website at www.gruposupervielle.com. [Operator Instructions] As a reminder, this conference call is being recorded. At this time, I would like to turn the call over to Ana Bartesaghi, Treasurer and IRO. Please go ahead.

Thank you. Good morning, everyone, and thank you for joining us today. Speaking during today's call will be Patricio Supervielle, our Chief Executive Officer and Chairman of the Board of Directors; and Jorge Ramirez, Vice Chairman of the Board. Also joining us is Alejandra Naughton, Chief Financial Officer. All would be available for the Q&A session. Before we proceed, I would like to make the following Safe Harbor statement. Today's call will contain forward-looking statements, and I refer you to the forward-looking statements section of our earnings release and recent filings with the SEC. We assume no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances. I would now like to turn the call over to our Chairman and CEO, Patricio Supervielle.

Thank you, Ana. Good morning, everyone, and thank you for joining us today. If you're following the presentation, please turn to Slide 3. This was a very difficult year, quarter, and results were significantly impacted by the drastic and sudden changes in the macro environment resulting in a sharp decline in attributable net income in this quarter and our expectations for the year. In this context, we took decisive actions including; first, we further tightened credit standards for other company. Second, we began to implement cost cutting measures across the board. Third, we decided to streamline and change the management of our consumer finance operations; I've announced yesterday effective today, the consumer finance units of Grupo Supervielle which include Cordial Compañía Financiera, Espacio Cordial de Servicios, Tarjeta Automática, and the recently acquired car lending business, MILA, will be led by Mr. Juan Martin Monteverdi, current CEO of Espacio Cordial de Servicios. By combining the four companies under our unified leadership we seek to drive increased operational efficiency, accelerate the offering of a wide range of consumer products, enhance customer experience and increase cross-selling. Consequently, Mr. Carlos Depalo has stepped down from his role as CEO of Cordial Compañía Financiera and Tarjeta Automática and leave the company. We remain fully focused on executing our strategy and closely monitoring economic dynamics in order to best execute our strategy with a rapidly changing environment. Besides the near-term challenges we're facing, our core business remains healthy with active quality in SMEs and middle market, and is at historically low levels. Deposits performed well and continue to expand exceeding the growth of our loan book. We're convinced of the resilience [ph] and strength of our franchise as well as our policies and practices and believe the growth potential for the financial sector in Argentina remains…

Thank you, Patricio. Good day, everyone. Moving on to funding on Slide 10. Let me highlight the solid growth in our deposit base. The double-digit growth in both retail and corporate deposits. Peso denominated deposits increased 31% quarter-on-quarter. While those denominated in U.S. dollars around 5%. The share of this effects and projects remains at over 30% of total deposits. The loans to deposit ratio was closer to 100% this quarter. Moving on to the P&L on Slide 12. Net interest income plus net income from financial instruments and exchange differences were relatively flat sequentially and up 42% year-on-year. This was mainly due to the following factors. First, our banking business reported softer than expected margins from lag longing pricing [ph] in the sudden and sustained rise in interest rates. This is a temporary effect as we expect this business to deliver in good performance in the coming quarters, as well with some assets are repriced to the new environment. These showed highest interest rates, took an even higher toll on our consumer finance business. Lastly, our trading desk had a short position on effect at the onset of the Argentine currency devaluation in addition to lower than anticipated trading results which impacted our bottom-line this quarter. These factors brought about a 40 basis points sequential decline in our net interest margin sliding [ph] to 19.2% in the quarter. Net financial margin would include the exchange rate differences and results from slower transactions declining to 150 basis points in the period to 17.4%. Please turn to Slide 12. The tables on this page show the repricing dynamics of our assets and liabilities. This and the repricing dynamics of our portfolio of banking business anticipated to capture increased interest revenues from wage hikes as wage further stabilizes. With review to leverage…

[Operator Instructions] Our first question comes from the line of Erie Fernandez [ph] with JP Morgan.

I had a question on your commercial asset quality, it has been running at 0.5 unit [ph] but my question here is how worse this can get? And if your cost of guidance contemplates that notably when you look to the new information of the commercial loans, they are increasing about 7x versus last year. And like your cost of risk guidance from 4.6 to 5.1 is below what you had on the second quarter. So my question is, doesn't look to you that it's a bit optimistic the cost of risk guidance? And I had a second question on your margins at loss; I know that margins remained somewhat behaved but when you look to some product, we see personal loans and credit card loans having a long decline this quarter and that was a surprise for me because like given the higher rates, I was expecting the lines to have a higher loan yields. Can you explain what's happening here? How you're seeing the repricing of loans? How long it may take for that future the margins? Thank you.

Regarding the first part of the question; the commercial -- the increase in the cost of risk guidance as we provided includes a margin of private federation in our commercial portfolio. And the bad loan formation, I mean, were coming from such low levels of delinquency rate that any jump in -- I mean, even if it's a 2 basis points increase which overall is not that significant in terms of our loan formation, it's a doubling of the amount formation. So it's -- I think it's a matter of a level from which we're starting and where we're going. We don't believe that these figures are optimistic; I mean, based on these current macro assumptions that we have, if recession worsens then we might be having a different type of conversation but given our current market economic assumptions which are in line with our market consensus, we believe that the conservative guidance that we have provided should be enough to cover and we don't believe it's too optimistic. The other thing; you have to remember essentially two things. Number one is, work a lot in terms of operational cash flow financing, and our past experience in other crisis is that these are portfolios that tend to behave significantly better than our long time loans to companies. The second thing you have to bear in mind is that 49% of our SMEs in loan market portfolio is collateralized, so that also gives us sufficient protection in terms of worsening. Regarding the margins decline, you asked the -- I mean, the increasing in the non-portfolio of -- in essence plays a role here because that's a portfolio that's [indiscernible] the refinancing that also come at lower interest rate, that also has an impact of this. So I think that those are things that explain the lower margins that you saw.

Our next question comes from the line of Gabriel Nobrega [ph] with Citibank.

In the press release, you have stated that you will become more selective in your origination process and you have only revised during loan growth guidance to 40% and I just want to understand, since you are becoming maybe more selective in your origination could there maybe be a downside risk to your loan growth guidance? And I will make the second question afterwards. Thank you.

You have to remind that the guidance is in pesos and the evaluation plays a role here. So because we have purposefully 25% of our loan portfolio is in U.S. dollars, so that plays a role. Second, we are already -- we have already approved very high growth rates year-on-year, so that also plays a role. Finally, remember that we have a very high factor input -- very high share in the factoring business, and factoring tends to pick up substantially by the end of the year as a result of year-end sales from holidays. So I think the combination of those two things make us believe that the 40% to 50% range is outright. In any event, again, as I explained in my answer to the prior question, your colleague from JP Morgan; this is based on a current macroeconomic consumption. If the recession worsens then we might have to review this. I think we're in a situation in which we will have to continue looking at the evolution of things quarter-by-quarter because the situation remains very fluid than dynamic.

And then for my second question; I remember that in the previous calls you had said that you had AM plan of reaching AM coverage ratio around 100% by 2020. And I just want to understand if that is still the plan or maybe do you want some rich AM coverage ratio close to those levels sooner? Thank you.

That's the permanent discussion we have and it's really -- I mean, we still maintain our guidance in terms of that we want to reach coverage by the end of next year but if we can anticipate that, we'll definitely try to do that.

Our next question comes from the line of Fernando Suarez with AR Partners.

I was just thinking on the cost of risk that you posted this quarter. And I see that this should be declining deeply for the third quarter and the fourth quarter in order to meet the new guidance? And then I do my second question.

One thing you have to bear in mind is that -- I mean, we hit the brakes on the consumer finance business end of the first year. And part of that is already showing in terms of the growth of that portfolio and how that portfolio is diluting itself as a percentage of total loan book. We expect that trend to continue going forward; so the NPL ratio and the cost of rates that [indiscernible]; these portfolios tend to go sour pretty quickly, so as we tighten -- it creates standards, the new loans are behaving -- or the new loans being originated are behaving substantially better than the prior portfolio. So as we move towards the end of the year that should play a role. And when you look at the conservative of the bank, they are substantially lower than our overall NPL. So the combination of all these factors and as I explained in the presentation, in July for the first time since February 2016 we sold off -- the peso amount of NPLs in the consumer finance portfolio is flat compared to the prior month. So while we're still monitoring this space [ph] and still it's too early to say that the worst is over and we will be on the measures we're taking combined with the changes and the streamlining we're doing on this business are going to help us to bring asset quality even more under control going forward. And we expect that the combination of all these factors should be enough for us to reach the conserved risk guidance that we're providing.

Our next question comes from the line of Carlos Gomez with HSBC Global Asset Management.

My question is about the macro environment and what your expectations are for growth and for the exchange rate and for the next two or three years? And I realized it is difficult but I wanted to know what do you think are traditional scenarios are at this point? Thank you.

I mean, it's not an easy question to answer, we're having a couple of discussions with several economic advisors. I think that the other consensus and the -- what we're working is that it's going to look like a V-shape recovery but a V-shape that will remind you of a night logo rather a victory V, okay. So it's going to -- it's a sharp downturn, the one that we're having now, and we start to recover and going forward, I mean -- just by the impact of a better climate, the impact of the harvest should have a very important influence in the growth indicator next year. I mean, we've had estimations from certain economies that are seeing that; the globe [ph] costed us this year $8 million in illness exports from the RV [ph] sector, and there are some estimations that these things are being minus $8 million this year should be plus $11 million next year. So still there are things that we still don't know how they're going to turn out. All these questions regarding construction as a result of the recent judiciary scandals and we're still seeing how that evolves going forward. But again, as we said, we remain optimistic and believe in the long-term in terms of the growth prospect for Argentina and especially for our industry.

Our next question comes from the line of Erie Fernandez [ph] with JP Morgan.

I had just a question on export [ph] here and I understand that the level for this should be under pressure -- like I guess, the both of your guidance implying about 21% to refer to coming quarters, the higher end pricing 25% ROE. And this is well below the loan growth pace growing at 40% to 50%. So for the next years it's also hard to see ROE moving close to the pace of the loan growth; so you should continue to consuming capital. So my question is, how are you seeing like capital for the coming years? And when do you anticipate meeting capital or you see, maybe ROEs or maybe the pace of loss kind of converging -- was it shorter because today it's 13% to Q1 duration [ph]. Your explanation is good first of all, but I'm not totally sure if this will be the case in the coming two, three years. So if you can add some points on that, it would be helpful. Thank you.

I mean, we always said that our 11.5% will be the point at which we go back to the market to try to raise capital. We still have other options prior to going to the market which is issuance subordinating debt as a way of raising Q2. And on the other hand, more than ROE I think that what you should look at is how much the net profit that we make adds to a capital base going forward compared to the year-end net worth and is ROE an average calculation and while profit addition to net worth is probably a better way of looking at this. And if you look at original guidance probably for this year, we were thinking in terms of bubbling [ph] our growth -- we now went to talking off a growth of around between 45% to 60% compared to last year. So that is more in line with the growth we're having in terms of grade [ph] growth. So going forward, it will depend on -- if we are able to continue delivering the operational leverage that we had been delivering in the past quarters and we believe if as position [ph] normalizes that should be the case. And we're going to gain -- by means of gaining efficiency, we should gain profitability, and that also is going to impact our ROE and our returns levels higher.

[Operator Instructions] There are no further questions at this time. I would like to turn the call back to Ms. Bartesaghi for any closing remarks.

Thank you for joining us today, and we appreciate your interest in our company. We look forward to meeting more of you by the coming months and providing financial and business updates next quarter. In the interim, we remain available to answer any questions that you may have. Thank you and enjoy the rest of your day.

Thank you. This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation, and have a wonderful day.