Good morning and welcome to the Grupo Supervielle First Quarter 2018 Earnings Call. A slide presentation will accompany today's webcast, which is available in the Investors section of Grupo Supervielle Investor Relations website at www.gruposupervielle.com. [Operator Instructions] As a reminder, today's 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 CEO and Chairman of the Board of Directors; and Jorge Ramirez, Vice Chairman of the Board. Also joining us is Alejandra Naughton, CFO. 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 filing with the SEC. We assume no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances. In accordance with Central Bank regulations, this quarter, we have adopted IFRS. Note that for comparative purposes, changes in accounting policies were applied retrospectively to 2017 quarters and full year. In our earnings report filings yesterday, we have included an appendix with a description of principal differences between previous Central Bank GAAP and IFRS, along with the impact on different line items of financial statements and ratios. I would now like to turn the call over to our 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. Momentum continued in the first quarter of the year as we again posted strong results that underscore our profitable growth strategy. This was evident that in sustained loan expansion, exceeding system growth and solid deposit base. Operating leverage continues to drive further efficiency improvements and profitability gains. Our good business performance reflect the strength of our franchise and branch networks, which we have been expanding over the years. Turning to the macro on Slide 4. We continue to see an overall healthy economic environment in Argentina during the quarter. Auto manufacturing was up 22%; construction, 14%; cement, 12%; car sales up 16%; and motor sales, 32%. By contrast, consumer demand lagged behind, affected by persistent inflation driven by increased -- increases in utility prices. With the rise in the yield of the U.S. 10-year dollar treasury bond and a stronger dollar, the Argentine currency, like other emerging market currencies, was challenged during the period. Specifically for us, we saw the exchange rate hike to ARS 25 per $1 and the monetary policy interest rate increased to 40%. The Badlar deposit rate, which is the benchmark rate for the Argentine financial system, rose from 22% at the end of the first quarter to 30% currently. In light of tighter external market conditions early in the year, the Argentine government successfully placed a $9 billion bond issuance anticipated 1/3 of the financing needs for the year. In an increasingly challenging international environment, the government has sought additional financial support by seeking a standby credit agreement with the IMF to reinforce the macro normalization and macroeconomic transformation program designed for Argentina. Please turn to Slide 5. Despite current economic and…

Thank you, Patricio. Good day, everyone. Moving on to funding on Slide 9. Our deposit base increased 43% year-on-year, again, exceeding industry growth and well above inflation. Sequentially, deposits remained relatively stable, following a robust growth in the 4Q '17 and the extension of tenders through the issuance of medium-term notes this quarter. As a result, the loan-to-deposit ratio increased to almost 120% from 108% in the previous quarter. Please turn to Slide 10. Relying on our strong region franchise and our strategy to grow cash management services, 56% of our total deposits pay are either 0 or low-interest rates. During the quarter, savings accounts stand out, growing 62% year-on-year, more than double the inflation rate while checking accounts were up 30% in the period. By contrast, wholesale and special checking accounts deposits fell 23% sequentially as we're replacing this funding with longer-tenor MTNs. Moving on to the P&L on Slide 11. Net interest income plus net income from financial instruments increased 54% year-on-year and 7% sequentially. NIM has proven to be resilient at 19.6%, supported by higher yield on the Argentine peso and U.S. dollar investment portfolio. This offset higher cost of funds resulting to the increase in the average Badlar combined with the lower interest earned on loans as loans are typically repriced on a lagged basis. Moving on to Slide 12. We reported solid net service fee income growth of up 20% year-on-year and up 5% sequentially. This was mainly driven by fee repricing and high volumes in saving and checking accounts. In credit cards, high loan volume slightly offset the regulatory reduction in merchant fees on debit and credit cards. Fee growth was also driven by higher sales of nonfinancial services, particularly in asset management and sales in Espacio Cordial. Income from insurance activity was relatively…

Thank you, Jorge. Looking ahead, we believe that despite current currency headwinds, the long-term growth story for the financial -- in our sector in Argentina remains on track. All -- and all the recent steps taken by the government are in line with orthodox policies. In the current environment which is one that we have successfully navigated in the past, we remain focused on driving healthy loan growth, mitigating risk and enhancing efficiency and profitability. Based on the current macro visibility, we believe we can achieve results within the range of the guidance we previously set out. Mindful of the rapidly changing macroeconomic scenario, we are closely monitoring the macro variables and hope that impact our guidance. We are now ready to take questions. Operator, please open the line for questions.

[Operator Instructions] The first question will be coming from the line of Alejandra Aranda with Banco Itaú.

Congratulations on your results. It was an impressive portfolio growth. I have three questions, if I may. First of all, I like to have more clarity on that ARS 233 million personnel expenses related to retirement settlements. If you could please tell us whether we should expect more of this to come in the future, how many people took these. Then my second question is basically I would like a little bit of color on your corporate portfolio, if you could give us a breakdown in terms of sector exposure that you have. And my last question is regarding funding cost and the pressure that we saw this quarter, what should we expect going forward?

Okay. Alejandra will take the first part of the question.

Yes. Alejandra, thank you for your question. Let me firstly start by telling you that the IFRS adoption is a material change in the accounting policies. And so for comparative purposes, we have applied that methodology retrospectively as is stated in the rules. So as a consequence, the figures that we disclosed at 2017 were adjusted. So the adjustments that implied within IFRS adoptions impact on valuation and also on reclassification. And valuation are the -- on the balance sheet and P&L. And therefore, you remember that we reported as of each quarter of last year the impact of those adjustments. As we reported as of fourth quarter 2017, these adjustments had increased during the last quarter, reflecting a lower net profit for the quarter measured by IFRS methodology. And as you mentioned in the question -- in your question, the main valuation adjustment was connected with the higher-than-average special termination arrangements in connection with early retirement for a group of eligible employees, which amounted to approximately ARS 220 million and corresponds or -- in an amount of employee for 48 people. These kinds of retirements are connected with the changes that the bank and the group, which carry on as soon as our business is growing, so we are changing the profile of some people within our team. And it was supposedly -- it was carried out last year, so we do not expect to have a further impact on these kinds of special termination programs onwards.

Okay. Jorge is taking the second part of the question.

Alejandra, when you look at the breakdown, it pretty much remains the same one we had in the 4Q. For us, agriculture, crops and food represents approximately 4.7% of the total corporate portfolio. Remember that we're not that much exposed to the soybean production, and we're only indirectly exposed through sales of our chemicals, but we have recourse to, most of the cases, to the large suppliers, large corporate suppliers there. So a part of our exposure is on zones, which have not been affected by the drops and the certain type of commodities mostly. Then we have road works and specialized construction that represent approximately 4.3% of the portfolio; hypermarkets and supermarkets, 3.6%; automobiles is around 2%; wine industry, also 2%. So it's pretty much itemized. As we said, 45% of our portfolio is collateralized, so it is a pretty strong portfolio in terms of credit quality and resilience, okay? So moving to your last question, I think you were asking about deposits mostly. One of the things that you have to bear in mind is that almost -- we grew our MTN notes by approximately ARS 4.2 billion in the last year. 50% of that happened in the first quarter of 2018 essentially because for us, the cost of funds, when you compound legal reserve requirements and our MTN deposits and all that, we always believe that it's much better for us to borrow with the same customer or the same investor's base, which is local institutional investors. Instead of raising deposits from them, 30-day deposits, it's much better for us to raise medium-term notes, okay? And that's what we did in the first Q. Following a substantial portion -- or an important portion of our [ NIM ] full year, we issued ARS 2.2 billion of medium-term notes in the quarter. And that's what explains for our relatively flat growth in deposits.

Our next question is coming from the line of Ernesto Gabilondo with Bank of America Merrill Lynch. Ernesto María Gabilondo Márquez: Three questions from my side. The first one is about the business seasonality. Every quarter, you experienced higher provision charges. If we look to the cost of risk, it was 4.6 of ForEx loans, which is above the guidance of 4.1%, 4.5% for the year. So how do you see this ratio behaving in the next quarter? If it's really possible to think that if consumer salaries catch up with inflation, we could see delinquency rates improving. My second question is if you can remind us how much of your loan portfolio and funding are floating rates. And finally, how much could high rates remain and then have an impact on the growth of the portfolio or asset quality?

Okay. Jorge is taking the...

Yes. Regarding the asset quality, normally, we tend to have a higher delinquency rate and higher cost of risk in the first half of the year, and then that -- and normally above our guidance for the full year. So -- and the measures we're taking, as we explained during the call, is that we decided to start slowing down the growth in our consumer finance segment because we saw even before the current market turmoil, so the past weeks' market turmoils that the inflation would remain resilient for -- pretty much of this year. So we decided to be a little bit or more on the cautious side in terms of growth in this portfolio since this line of business is -- has been the largest contributor to the NPL and the cost of risk of our company. Going forward, probably we don't expect to see a decline in the second Q of this year. We more expect the declines in this, in cost of risk figures to come in the second half of the year, again, following the traditional seasonality that the delinquency has proven to have. Remind me what the second question was.

Fixed in their price on...

Okay. Do you want to...

Alejandra is going to take the second question.

Ernesto, let me tell you about your question regarding the variable rate. Let's say that on our assets by 50% of our assets correspond to corporate customers that mostly are priced at variable interest rates and very short tenor because in the -- our core product is factoring, and factoring typically has shorter tenor. And on liabilities, let's say, that 1/3 of our liabilities are priced at the variable interest rates. And on liabilities side, let me highlight that by 50% of our deposit rates, you note their interest rates.

And going to your last question, Ernesto, which is our outlook in terms of impact of the current level of interest rates. We believe that an -- implicitly, our assumption is that as of July, as we enter the second half of the year, we might start seeing potential [ INOs ] some softening in the interest rates. And we expect if that remains so, growth for the year might continue to be more or less within our guidance in terms of loan growth. And in terms of the impact on credit quality and high interest rates might have, that will depend on the sector and on each specific company, mostly, because it's not only an impact or a matter of level of interest rates. It's also an impact of how much or how our company's net dollar position will impact them in terms of the business, whether it will impact more on the cost side or if it will impact them on the revenue side. And second is -- I think the second item of the variable is how much salaries are pressured as a result of this hike in the FX rate going forward and how much that FX rate gets transmitted into the consumer price index. So I think we still need a couple of more weeks or months in -- to have a clearer visibility in terms of what we expect. From where we're standing, we are affirming our guidance. We believe we're going to be within the guidance.

Yes. I will add on also to Jorge -- what Jorge said. In terms of subsegments in the -- on the corporate side, there are -- I mean, the impact of what is happening on the macro. Well, for instance, we -- one of the sectors is the oil and gas. It is -- it should be positively affected. We are financing SMEs, suppliers of captures of industries on the oil and gas. It should be positively affected because of good commodity prices and also because the evaluation translate into better cash flows in Argentina. The same happened to regional economies, which we are supporting in the 2 command area where we are supporting clients or -- that work with the -- for instance, lemon or with sugar, sugarcane. The same happens in the regional economies of Mendoza where we are the bank #1, particularly in the wine industry. It also affects -- I mean, the devaluation has a positive effect. And generally speaking, with all suppliers of the agribusiness. On the -- then we -- another sector which we are working on is the construction companies working for infrastructure -- for public infrastructure. There -- there is -- there should be a relative slowdown with new bits. This is what the government announced. That is -- will be negative but in which we expect that will be compensated by the new public and private projects. So therefore, it's a mix. But positively, I -- we think that the sectors we are supporting are -- well, they should be sort of positively affected.

[Operator Instructions] The next question will be coming from the line of Frederic De Mariz with UBS.

Two questions -- two follow-ups, actually. The first one on the consumer lending side. So you mentioned a few times that you were becoming a bit more cautious, that you were monitoring the situation very closely, what I wanted to hear from you is a bit of color. Are you seeing a change in the demand for consumer loans? Or is it more of a supply -- on your side, more of your supply chains? You are deciding on your own to reduce the offering of consumer lending -- on consumer loans? And with this question, I'd like to understand if we should be expecting a higher cost of fees for that specific line. And you showed in the slides that the 30-day, the early days past due loans are a bit higher in 2018. So should we be concerned about asset quality for consumer loans? Or is it more just a reduction in the loan growth for consumer lending? And then the second question on the guidance. So I understand that maybe it's a bit too early to revise the guidance, but I'd like to hear your thoughts about the specific guidance for margins. We're seeing that the LEBAC rate is obviously much higher, and we're also forecasting that the Badlar will come up at some point, you were talking about funding costs rising. So I'd like to understand how you think about maintaining the same guidance for margins, and what are the moving parts for that specific line.

Okay. Regarding asset quality and the consumer finance business, essentially, what we see is that -- and one of the things that we've known for writing of this business over the past few years is that this has been a business that has been highly sensitive to the levels of inflation rate, okay? Because inflation rate makes disposable income less certain. It adds certain -- uncertainty on the person's disposable income. So when the changes in economic policy by the end of December of last year, we thought that we might enter into a scenario that inflation rate for the year would be higher. Therefore, what we thought is that in the consumer finance companies, specific -- remember, this is a consumer finance segment specific issue. It does not affect our overall retail banking business in which we lend to people that most of them collect their monthly paycheck with us. So it's a very different kind of business with different asset quality type. So specifically, in the consumer finance business, we are seeing supermarket sales being very heavily affected and people changing consumer habits, going more to wholesale supermarket chains rather than buying in large supermarket chains, okay? Remember that 80% of our volume is still derived or comes from our partnership with Walmart. So as you have less traffic, you have a combination of lower demand. But on the other hand, is we decided to -- voluntarily to be more stricter and more tightened -- or tightened our underwriting scores, lending to better quality customers in order to protect the asset quality. And going to the last part of this question, the 30-lag delinquency. You have a combination of things here is -- in general, in terms of the cost of risk of this segment is it's being affected by the higher inflation in the quarter. It impacts the specific target of the population. The public utility price increases hits them harder than any other business segments that we have. Second, we have been increasing coverage. Also, that also has an impact on the credit cost. And finally, our lower growth rate also has an impact in terms of showing a higher percentage, okay? Going forward, we believe that -- again, as we always say, the prices -- or the risk is fully priced in, and it's reflected in the rates we charge. So profitability in this business is in line with where we've been expecting them to be. Clearly, going forward, this is a company that is also highly sensitive to higher interest rates because it doesn't have deposits. It has to resort to wholesale financing. So it gets charged higher interest rates. So it's a business that we expect to have a slower performance this year compared to the past year, especially while we still remain on the high interest rates scenario, okay?

[ More compound there ].

Yes.

Good. Frederic, Alejandra speaking. I will address now the topic regarding our view on guidance and net interest margin. As you mentioned, the current situation regarding the interest rates has made -- I don't have figures or revision regarding the pricing of our products. So let me firstly highlight that the increase in the monetary policy rate that are now settled by 40% was not fully translated on the Badlar rate, that is a rate that we use at the bank for pricing our products. So this is first rating that's very important to bear in mind because it's a completely different pattern. So having said that and having observed the increase in the Badlar rate, of course, under our [indiscernible] and liability manage, we reprice our products on liabilities side -- on the liabilities side on the balance sheet and, of course, on the asset side on the balance sheet. And on the asset side of the balance sheet, we consider not only the loan book, but also the investment account. As a result of this repricing, we expect to have a -- higher spreads. That the higher spreads make us think that our net interest margin will be achieved within the range, thinking more on reaching on the higher end of the range. We still are running some perceptions and we -- and of course, will depend on how long it will take to observe a slow decline of the interest rate. But the first sense on the figures allowed us to come up with a conclusion that we will be achieving our guidance close to the upper end of the range. I would like also to mention that this answer consider the impact for the rest of the year, not necessarily the current quarter or even the next quarter. And I think that this is very important because the repricing is different on the liabilities side and on the asset side of our balance sheet. So you could be seeing in the coming quarter an impact, a kind of negative impact on margins because our liabilities will be repricing faster than our assets than -- even though they have short tenors, they will take a little bit longer than liabilities. So all in all, full year, the impact expected on NIMs are positive despite a higher -- imagining some kind of different pattern in this quarter, second quarter.

At this time, I will turn the floor back to Ana Bartesaghi for closing comments.

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.

This concludes today's conference. You may now disconnect your lines at this time. Thank you for your participation.