Good morning. And welcome to Grupo Supervielle Fourth 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 Web site, 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 Chairman of the Board of Directors who will discuss the overall market environment; and Jorge Ramirez, Our Chief Executive and Vice Chairman of the Board who will review our results for the quarter. Also joining us is Alejandra Naughton, Chief Financial Officer. All will be available for the Q&A session. Before we proceed, I would like to make the following Safe Harbor statements. Today's call will contain forward-looking statements, and we 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, 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. It was a challenging year, yet we were able to make progress. We almost doubled attributable comprehensive income year-over-year in the fourth quarter and posted 7% sequential increase. Importantly, we met our annual profitability target operating in an challenging microenvironment that was worse than originally anticipated. Moreover, we achieved these even as we decided to increase our loan loss provision meeting 100% NPO coverage goal one year ahead of plan. Our franchise continues to demonstrate its resiliency and flexibility to navigate a macro scenario of low credit demand and macroeconomic challenges. In a high interest rate environment coupled with soft loan demand, increased liquidity has been invested in low risk short-term central-bank securities. This resulted in net financial margins slightly above 20%, up both year-on-year and sequentially. For the next few minutes, I'm going to provide an overview of the key macro indicators put into context, how is it impacting the overall Argentine economy, the financial industry and more specifically our company. Jorge will then discuss our results for the quarter in greater detail and our outlook for 2019. Turn please to Slide Number 4, fourth quarter microeconomics was characterized by high inflation following the sharpest peso devaluation in the prior quarter. Following the agreement with the IMS new monitory policy rules and FX bans, the FX stabilized, while interest rates started to decline although still remaining at high levels. The monetary policy rates reached 59% at year end from a high of 74% in early October, and the average Badlar rate, the benchmark rate for the Argentine financial system becomes slightly just below 50% at year end. Economic activity seems to have reached an inflection point…

Thank you, Patricio. Good day everyone. Starting with the evolution of our asset base, our assets were up 12% sequentially. As the Central Bank finished rewinding LEBAC stocks in the quarter, we capture a higher share of non-financial institutional deposits, mainly 5 wholesale deposits to fund investments in high margin seven day big securities issued by the Central Bank. Towards the close of the year, we reduced our holdings in these Leliqs to manage excess liquidity in the current environment. Our loan book in turn contracted nearly 4% quarter-on-quarter. All this together resulted in a sequential decline in assets of slightly over 3%. Turning to Slide 7, in a weaker environment pressurized by soft loan demand together with the tightening of credit scoring of our segment earlier in the year, peso denominated loans were relatively stable, increasing about 1%. Foreign currency loans measured in U.S. dollars in turn were down 8%. This softer environment is the main reason for a year-on-year loan book growth of 32%, below our guidance range of 40% to 50% for 2018. In line with current market conditions, our exposure to the consumer finance segment remains below 10% of our total portfolio, a similar level to the prior quarter and up from 13% in the same quarter last year. The share of the corporate loans fell to 50% from 54% in the third quarter. This mainly reflects the impacts from Argentine peso recession on U.S. dollar denominated corporate loans combined with the reduction of this portfolio measured in its original currency as we continue to adjust our risk appetite. Moving on to Slide 8, as a result of the foreign exchange dynamics and overall soft loan demand in a recessionary environment, as I just explained, the corporate book contracted nearly 11% sequentially. In original currency peso…

Thank you [Operator Instructions]. Our first question is from Jason Mollin with Scotiabank. Please proceed with your question.

My question is on your 2020 outlook guidance, and potentially 2020 and beyond. You have given very clear metrics that this guidance is based on GDP growth of 1.3%, inflation of 32%, your outlook for backlog et cetera. Where do you see the various scenarios, let's say a weaker than expected scenario and a better than expected scenario. How that could play out, how that may be tied into the upcoming election, the outlook for the FX that that could really drive these different scenarios. How should we think about this? And what could drive your expectations to be at the low or high end or even be higher or lower than you're expecting? Thank you.

Just one certification, our expectations for the GDP for the year is decline 1.3%. Not a growth, but this aside, this could be a very vital year in terms of how things play out. I mean, we are expecting in any of the scenarios the first half of the year to be tougher than the second half of the year and with the biggest caveat being the volatility or uncertainty that the upcoming elections might bring to the table. And really the economy should start improving the second quarter on and essentially because we're expecting a record harvest for this year compared to one of the most severe droughts in the past six years that we have last year, so just by comparables that just starts showing improvements and for the economics to start performing better. On the other hand, I mean -- on the other hand, very major impact, especially in the second quarter because those dollar cash for each quarter in Argentina is slowing the quarter over year in which the bank of the average, there is exports and currently, -- our currency are liquidated in the country. On top of that, the government still has around $10 million from the IMF that they can -- they use in order to keep the currency under control. So if inflation starts coming down and as we move towards the second Q and clearly, the Central Bank might have the tools in order to start bringing inflation down and correct some of the cash reserve requirements. So cash reserve requirements currently are having a dual effect, no wonder is they're increasing interest rates and then as a result of that they're clearly making these substantially as attractive for people and for companies to borrow money. So actually in the cash reserve requirements even though interest rates might still remain high to have the impact of posting deposit rating essentially because the gap between the rates for deposits and the rates for interest rates, which is currently very wide couldn’t start narrowing. So we're expecting FX at the end of the year to 10.8. Clearly, I think we're going to have very different scenarios depending on the outcome of the elections. It could be below that if we have a post election running, it could be above that if we have a not so good news in the elections. And by not so amused what I mean is it turn back or if there're about policies that have already paid in advance, that's what I mean by that. So, if anybody's guess what we currency might have not been different scenario. So we believe that the radius we have provided taking to account as much as possible of these binary scenario we're expecting, but again, this is Argentina, so the frequency with which highly unlikely scenarios tend to happen is very frequent.

That's very helpful. Just as a follow-up, I mean, if you try to quantify, if the median outlook or the base case outlook is -- as you said, negative 1.3% real GDP growth. What's the worst case and what's the best case in that scenario?

My take will be probably worse case could be around minus 2, best case could be still main areas, but we think 0.5 percentage points areas to look like.

Our next question is from Mario Pierry with Bank of America Merrill Lynch. Please proceed with your question.

Let me ask you two questions as well. The first one is related to your loan portfolio NIM. If we look at Slide 11, you showed that your NIM for local currency loans went from 22.5% to 25.3% in one year. So I was wondering how far into the re-pricing of your loan book are you? Meaning how much more upside is there for NIMs to continue going up, given the maturity or the duration of your loans. That’s question number one.

I think we’re pretty well ahead in terms of the re-pricing of our loan book. I mean the corporate portfolio has been fully re-priced and the retail portfolio I would say, both in consumer and with bank is fairly fully reprised. However, we believe there still might be some room. Essentially if interest rates come -- funding interest rates come down, because that will have a very positive impact in our consumer finance portfolio. We just -- probably we go, does not waste retail deposits, it has to fund itself in the market. So any drop in interest rate helps company and it helps the business and also it has not in the retail bank we do have a larger share of personal loans. So, any expectation of improvements which we believe might still be some room for that and we don’t expect it to come from the re-pricing on the asset side but mostly on the re-pricing on the liability side.

Second question is related to your cost of risk guidance. You're expecting pretty much cost of risk of come down in 2019. So if you can help us understand when you expect NPLs to peak? And does your guidance consider you maintaining a coverage ratio of 100% or is that declining?

We’re expecting NPLs in third quarter to peak in this on around the second quarter of the year. Meaning it does include the cost of risk starting that includes the expectation of us maintaining 100% coverage for the year…

I was adding some color regarding NPLs that we expect to be reaching by eight year end a number of close to 5. But anyway, I will highlight again that the guidance of cost of risk this comment that they are making regarding NPL is the full year. So you could be saving higher level around the year, because the cycle of economy could be working by the middle of the year. But it is very important for us to highlight, of course we will be following the numbers quarter-over-quarter. However, the guidance is full year. So you observe some deterioration in the year, it doesn’t mean for us according with information we have up to now that it could be a trend, we consider the guidance for 2019.

Just to add on that answer. We are expecting to have 100% coverage to maintain the 100% cover by year-end and it's possible above the 100% ratio. However, throughout the year, we might see some movements, because it will depend on when some of the further quality issues might hit us in terms of quarter end. So some of them might get anticipated, some of them might get delayed. But the idea is to end up the year and the figures account to us that we're going to end up the year with 100% coverage.

Our next question is from Gabriel da Nobrega with Citi. Please proceed with your question.

I actually wanted to pick your brains and maybe understand what is going to be the strategy for the bank this year to maybe manage your impacts of liquidity. And here I just want to understand mainly as loan demand it has been decreasing a lot. And at the same time, we have begun to see that the Central Bank is actually reducing interest rates and could even reduce them further through the year. So I just wanted to maybe get a bit more sense from you on what are the strategies here.

I mean, clearly the strategy this year, the name is the strategy that we've been following is the second Q of last year is flexibility, because you need to have a lot of flexibility in terms of how you move the different pillars of a business. When you go through an environment like the one we've been traversing since early second quarter of last year. What I mean by that is that we’re using the investment in Central Bank those as a way of compensating for weaker loan demand and more stricter credit policies and we're certified. But at the same time, we’re trying to keep the flexibility in the franchise to be able to go back to growth in our basic business, which is our commercial lenders, I mean, that’s essentially our DNA and our spirit. So we want to go back to that. But in order for us to happen really you have to stabilize the macro environment to stabilize. But in the mean time, yes, we’re using this excess liquidity as a flexibility tool in order to invest in this Leliqs or the excess liquidity that we're generating. So regarding the second part of your question is in terms of how interest rate compression hits us. Remember that the cost of fund for consumer finance company is determined by the interest rate levels of Leliqs. So the higher the Leliqs, the higher cost of funds for the consumer finance company the lower they are the lower the cost of funds they have and they poise an average loans at between 75% to 90% APR. So any reduction in the rate of Leliqs has an impact on the bank, which is compensated by the increasing levels in our loan portfolio, mostly on the consumer finance company but also on the retail bank. So in that sense, we have a pretty well hedged balance sheet on a consolidated basis, so this is the way that we are look at it. Clearly, for us in the long-term is a much better scenario, a scenario of lower interest rates and the current scenario high interest rates.

And if you allow me to actually make second question. Could you just share more details on how the turnaround of your consumer finance business has been going so far? Also could you maybe share with us what are the key metrics that you're tracking in order to become more comfortable with the situation of this business going forward?

So in consumer finance business has been as I explained in the presentation, clearly this has been most affected by these high interest rate environment and high inflation. Essentially, it's cost of fund and second because inflation adds public utility prices affect the disposable income for the segment of population is our customer, the decision in our customer facing in this segment. So clearly when we announced our organization of the business in August that was prior to some change in Central Bank's monetary policy of the big increase in interest rates that we have by the end of August, early September of last year. So the situation was even harder than we had originally anticipated when we started organizing the business. We've been able to streamline the operation. We did some hapten reaction, very important one. So we're bringing them across and the expectation for cost increases for that business for this year are very, very low in the range of between 5% to 7% year-on-year. So that's revenues in that sense. We've been taking a lot of measures in terms of improving our collections, and we're showing and that is already being off, that was what I was meaning when I mentioned in the presentation that the preliminary data for that business in 2019 gives us room to be optimistic. Because essentially we're seeing improvements in collections in all the different markets that we have in the business. Again, it's still early in the game. As I explained earlier, this is a very vital year, so things can still go south. But we're seeing that accompanying very well. In terms of the metrics that we're following and I measured along the size of the portfolio, the backlog formation, the early stages of delinquency in the early bucket like 30 plus, because that is very good lead indicator of telling us how delinquency is going to be in the next 60 or 90 days. And clearly, cost of funds and returns on the assets side of the business is around the metrics that we follow on pretty closely. Finally, just one point, we have as part of the organization within is we started to increase cross-selling or sales of non-financial services and products in that segment, and that is also progressing well, it's still at modest levels, but we have good expectation that that as a way of originating non-financial income from this segment.

Our next question is from Ernesto Gabilondo. Pleased proceed with your question.

My question is related to the implementation of inflation accounting that I think you’re going to give more details in the full year report next month. Can you provide some color on what could be the impact from net income and ROEs in 2018?

As you mentioned Central Bank in Argentina has opted inflationary accounting standards that is from January 1, 2020. However, we will be disclosing that numbers in the coming filing of our '20, because Argentina was included in the list of hyper inflationary countries, preliminary numbers for us that shows that our return on equity. would have resulted in a negative 10%. And the result into one, let’s say, closely 1.5 billion losses from our nominal profit of 3 billion.

And then just a second question regarding your OpEx line. So it grew around 35% in 2018. But given that we continue to see high inflation levels and you are seeing negotiations with unions demanding to rise wages. Will you see this line could be growing at the same pace in '18 or even it could be growing at a higher pace this year?

The thing is that clearly any administrative expenses in this inflationary environment is a huge challenge. So just to give you some color regarding our model, we have administrative expenses for personal growing close to high 30% to 40% increase and interest expenses a little bit lower, low 30s and it has to do with the situation that personal expenses has a carry from increases experienced during 2018. So you have in 2019 two effects, one, the carry from the gradual increases around the year during 2018. This carry could be representing another growth of 5% increase plus the expectations regarding inflation for this current year. So all-in-all, our administrative expenses will be growing during the year in a number close to high 30s combining administrative expenses and personal expenses.

Our next question is from Yuri Fernandes with J.P. Morgan. Please proceed with your question.

I have a follow up on Ernesto on this expenses growth. I recall last year you had some impact from pension like early retirement program that was about ARS200 million. And last quarter you also had some effect from the headcount reduction, because of the finance. So just pointing these to ask about the pace of the growth on personal expenses, if we adjust by that we’re seeing personal expenses growing about 60% year-over-year. And my question here is if there is anything else here in the end of the 4Q, any readjustment that you had to do regarding the previous salaries increase. Because 60% pace for salaries seems a bit high for me, so that’s my first question. And my second question is regarding your Q1 ratio and in your guidance. I just want to -- like to check if that number, the 10.6 in the lower end you have in the guidance for '19. Is that includes the excess cash in the holding company and the capitalization that was approved by the Central Bank in general?

In terms of community expenses, you have -- first and very important we do not have ahead any further initiatives regarding early retirements and that situations that you mentioned corresponding to 2017. So the numbers that I share assuming it to grow of an increase of 37% is clearly the dynamic of the company that is facing this high inflationary environment and the changes in bank subsidiary that is competitively different within segments. I would say while we are using the headcounts on consumer finance, you could be observing some increase marginally on the bank, because the nature of the business and the dynamic of the business is different. So this is my answer for you on that regard. The second was regarding, Yuri?

The tier one ratio on your guidance, 6 to 11.1, if that includes the excess cash, it's like the adjusted number…

Yes, exactly. We always offer the guidance, the tier one what we call the pro forma tier 1 that includes that money. And along the year, we would plan to have some capital inceptions, particularly on the bank subsidiary and that scale on the consumer finance segment that is well included.

If I may a final one here, Alejandra, on Gabriel's question regarding our strategy of excess liquidity. It really caught my attention here the decline on deposits, the decline on assets quarter-over-quarter, given inflation was running above 10% on a quarterly basis. So my question here is just to understand, and I totally agree your loan to deposit ratio decline is close to 80%. But it's still given the high inflation environment it's really caught my attention that as total assets are declining. So my question is if we should expect this to go on? And also if this is somewhat related to the decline on the number of active clients, I think there was a small decline, 1.8 million to 1.9 million clients, active clients. So if you are being, I don't know, like your strategy is basically to not provide firming new relationships with clients. Just to understand how you're managing these excess liquidity, how you are managing these with clients?

No, I mean it does not have to do with the franchise or with the number of customers. This was here and you have to do with -- I mean if you look at the average deposits for the quarter, you compare the growth. We had 15% growth in deposits in our average deposit for the quarter, so really money on the averages, really money on year end balances. So this was only a matter of when we took the picture and the risk return of investments compared to one day or side deposits that are remunerated. If you look at the bulk of the reduction, it comes from special check accounts that are 100% institutional, it's 100% and zero funding. You cannot see yet the figures for us in 2019, but if you would see them, if you will be able to see them you will see that that has come back up. So, it was only the leverage at the end of the year that it has to do with internal metrics and as managing access liquidity when we do see the right -off between risk and returns.

[Operator Instructions] Our next question is from Carlos Gomez with HSBC. Please proceed with your question.

I would like to a complement the question on inflation accountant. How would your shareholders equity has been -- it was mentioned it has been higher than what you reported under inflation accountants? And second also on the tier one ratio and again 10.6 million is not very high level at work level. Would you think you might want to consider another capital increase? Thank you.

Carlos, regarding net worth, we posted net worth as of December of 17 billion and adjusted by inflation, that number would have been a number close to 18 billion.

Regarding the second part of your question, we are closer to the 10% mark, we would consider raising it up. We still have options in terms for us to raise Q2, we have that bucket it's currently empty. So we have some things that we can do, but I think that that 10.6 is or around, which is around between 10.6 and 10 is our minimum comfort level.

And just to clarity this 10.6 billion, this is the capital ratio of the bank, Bank of Supervielle?

No, that's a consolidated pro form.

So that it is consolidated pro form, okay all right. So if it falls below 10%, you might consider another one. Okay, thank you so much.

Ladies and gentlemen, this concludes the question-and-answer session. I would like to turn the conference back over to Ana for closing remarks.

Thank you for joining us today. We appreciate your interest in our company. We look forward to meeting more of you over the coming months and providing financial and business update next quarter. In the interest we’ll 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 conference. You may disconnect your lines at this time and thank you for your participation.