Good morning, and welcome to the Grupo Supervielle Third 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, 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 Chairman of the Board of Directors, who will discuss the overall macro environment; and Jorge Ramirez, our Chief Executive Officer and Vice Chairman of the Board, who will review our strategy and 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 statement. Today's call will contain forward-looking statements, and I refer you to the forward-looking statement section of our earnings release and recent filings with the SEC. We assume no obligation to update or revise any forward-looking statement 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. Thank you for joining us today. If you're following the presentation, please turn to Slide 3. We reported solid results in the quarter. Net income more than tripled sequentially and increased over 50% year-on-year. We also achieved higher operating efficiency on protected asset quality as we took corrective actions to adjust to the sudden changes in the -- on the macroeconomic environment. For the next few minutes, I'm going to provide an overview of the key macro indicators, which changed significantly over the past few months. This will put into context, how this has impacted the Argentine financial industry as a whole, and more specifically, our company. Jorge will then discuss our strategic initiatives and the positive results we are achieving in greater detail. Please turn to Slide 4. Third quarter macroeconomics was dominated by a 40% devaluation and a new agreement with the IMF, which resulted in a commitment by the government to reach [ a primary fiscal deficit ] in 2019. The agreement also introduced a tight monetary policy based on monetary aggregate and a pre-determined non-intervention exchange rate zone with a goal of lowering inflation and reducing FX uncertainty. As shown on Slide 5, we also experienced significant increases in minimum reserve requirements, which impacted our business. And demand deposits, which accounts for over 1/2 of our deposits, minimum reserve requirements doubled between June and September, reaching 41% at the end of the third quarter, and standing at 44% to date. For time deposits, minimum reserve requirements increased at a similar pace to 35% by the end of the third quarter and stands at 38% to date. Importantly, only 13% and 18% of the minimum reserve requirements for demand and time deposits, respectively, have remunerated. The new program included the unwinding…

Thank you, Patricio. Good day, everyone. Turning to Slide 7. Our growth in our loan book decelerated to 10% sequentially and was stable on an FX neutral basis. Our ability to adopt a business model to a rapidly changing environment allowed us to expand our asset base 21% sequentially. As the Central Bank continue to unwind the LEBAC stocks, we captured the higher share of non-financial institution deposits, mainly Sight Wholesale Deposits to fund investments in the high-margin 7-day Leliq securities issued by Central Bank. Also, as Patricio mentioned earlier, minimum reserve requirements more than tripled [ on the portion of the above-mentioned Leliqs that were ] applied to meet minimum reserve requirements. Moving on to Slide 8. In the retail environment, together with a heightened focus on asset quality, peso-denominated loans rose 4%, while FX currency loans measured in U.S. dollars were down 11%. In line with current market conditions, we continue to reduce our exposure to the Consumer Finance segment, which now represents less than 10% of our total portfolio compared to 11% in the second quarter and 12% in the first quarter. [ While we also have tightened credit scoring across segments, the higher share of corporate loans, which now represents 54% of the portfolio was mainly due to the combination of lower growth in Consumer Finance loans and the FX impact on U.S. dollar-denominated corporate loans. ] Turning to Slide 9. Reflecting the FX dynamics, I just explained, the total corporate book was up 16% sequentially as reported, while our peso-denominated loans posted high single-digit growth. As we further tightened credit scoring standards, we're also experiencing deceleration in retail loans to 8% sequentially. We also saw lower demand for mortgage loans in the current environment. Our Consumer Finance loan portfolio contracted by 3% sequentially, as we…

[Operator Instructions] Our first question comes from the line of Gabriel Nóbrega from Citi. Gabriel da Nóbrega: During this quarter, we saw that you increased a lot your special checking account deposits, and in my understanding, it was in order to be able to invest in government securities. What I really want to understand is, if loan demand continues to decrease, do you expect to invest all that we're expecting in [ loan grant outs as in loans ] into these government securities? And also, how easy would it be to rotate out of this when interest rates begin to come down in 2019? And I'll ask a second question afterwards.

Yes, clearly, as you very well described it is, with these current interest rate environment, loan demand has come down. And to be honest, it's healthier, it's really healthy that, that companies aren't borrowing that much in -- at this interest rate, the regular ones, because there's only so much time that you can be able to stand the impact of these high-interest rate levels. So what are the dynamics that we're seeing throughout is 4Q already is I think interest rates are coming down and they're coming down pretty rapidly. I mean, we're 10 percentage points down from the peak in the Leliq rates and our estimation or our view is that we might see interest rates in the month of December coming [ below the 60% floor that is included in the ] IMF agreement, especially since we're expecting that at the beginning of December, we might be seeing -- to consider if market consensus and REMS and surveys, stating declines in -- expected declines in inflation rates. And that was the precondition for interest rates to come down below the 60% mark. So everything is poised, and heading towards a -- the smaller overall interest rate levels in December. And if in case it continues to come down on -- interest rates continue to come down, we expect that once the situation normalizes, companies and individuals will go back to borrowing. And as a result of that, we will start deflating our exposure to Central Bank securities and go back to lending to companies and individuals, probably in -- at very beginning, it's going to be working capital financing. And then further along the road, we might see other longer-term lines like mortgage is coming back into the picture. But we need that -- those dynamics to…

We're seeing the impact of the -- the impact of monetary policy just starting to know so. And it will be only logical to expect some further deterioration in the mature line in the NPL ratios. And clearly, we'll be -- we're part of that. And we will see -- we expect to see some further deterioration. The thing though is that if you look at the composition of our NPL, the good news in this quarter was that all the measures that we're taking to put under control, kind of, the NPLs on the Consumer Finance business, which had been increasing substantially in the first 2 quarters of the year, have come under control and have seem to peak. And if you look at the slide in which we show the NPL creation, the NPL creation is dropping sharply and even if you expand the quarter for the October figure, it's below the '13 figure. So we're having positive news on that front. And we're having slight deterioration on the company front and on the corporate front. And the other thing that we'd like to point your attention to is our NPL ratio on our retail banking portfolio because the NPL ratio we have to report because of Central Bank moves is higher than the actual NPL ratio delinquency and this has to do with the fact that almost 67% of our customer base collect the monthly paycheck either in pension or payroll with us. So a substantial portion of these customers may be delinquent or a portion of these customers that account for 1% of the portfolio may be delinquent with other banks, but they are still current with us, okay. So the risk is that 100 basis points between the actual delinquency rate and the one we have to report. So all in all, I mean, we remain cautious on the NPL front. We believe that the worst is still not over and -- but it's reaching -- it's closing -- it's getting closer to peaking at some point in time between the 4Q and the 1Q of next year.

Our next question comes from the line of Mario Pierry from Bank of America.

Let me ask you two questions as well. The first one is about your loan repricing. When I look at your rate on your loan book, it went up to 33.8% from 30.4% 1-year ago. I understand right that it takes longer for the loan book to reprice. But I was just wondering if you are being conservative in not trying to pass too much of increases on the rates of your loans in order not to have asset quality problems because when I look here the breakdown, when I look at retail banking personal loans, the average interest rate that you're charging or that you're getting today is 43% and it was 41% 1-year ago. So my question is how much of this is related to your strategy and how much of this is related to the fact that it just takes longer for the loan book to reprice? And then the second question that I have is related, as you mentioned, right up the Consumer Finance NPLs. It seems to have stabilized, but on the other hand, the corporates NPLs went up to 0.8%. This is a significant increase from 0.2% 1-year ago. If you can give us a little bit more details what kind of factors you're having problems with? Is this related to the construction sector? So I'm just trying to get a little bit of a more color on the corporates NPL deterioration.

Okay. Mario, regarding the loan repricing, yes, it is a combination of factors. I mean, the loan is with a rise of interest rates on retail, the first thing that happens is that you can automatically lend principal to the same person because of the hike of interest rate. So what we're currently doing is, we're rolling over what is maturing. So it's taking time to reprice essentially because the weight of the stock is still much more important than the new loans that we're granting, so that is why we have that. We are also correcting our credit on the rating standards and that also is playing a role in terms of new loan origination. Here the book that reprices faster is the profit book. And on that one, we've been able to pass that through. The other thing you have to consider is that with the current environment of high-interest rates, you have a negative yield curve in Argentina and not a positive one. So long-term interest rates for some loans are lower than the short-term interest rates. And so that is also playing in as a factor also. And are we being cautious in terms of -- as part of our strategy not to drive further [ deterioration ] on the credit quality of the portfolio. And not that much, I mean, we're working more on the tightening of the credit underwriting standards. [ And in the recourses in terms of not offering that thing in also individuals, ] which is one of the concerns we have. Moving to your next question, yes, you're right, the NPL moved from 0.2% to 0.8%, you are near -- I mean, the 0.2% was an extraordinarily low figure and it also had to do with the rate at which we're growing. So at that time, so it may be a little bit deceiving on a more stable basis. In terms of the sectors that -- in terms of the sectors -- it's not a specific sector. We're not seeing problems [ on the construction ] and especially between nothing to do with the notebook, if that's where you were aiming at. And I would say that in the industries that are suffering are the ones that are related to -- that are either highly netted are the ones that are highly dependent on financing for their sales. But the good news on this front is that this turmoil are all the events that transpired throughout 2018 hit Argentina at the very beginning of the trade cycle. So it's not that we're having this crisis at the end of our 5- or 9-year or 10-year expansion, credit expansion cycle. So companies and individuals are still -- have still low leverage. And that is good news in the sense that we -- while we expect some further deterioration in the ratios and we do not expect these to come -- to be a dramatic thing going forward.

Okay. That's very clear. Just like a follow-up then on the interest rates that you're charging of the loans. I do get it right the fact that you have a bigger balance in stock of loans and that impacts your ability to reprice. But if I were to compare to the interest rates that you're charging on your credit card, how does it compare to 1-year ago and the interest rates on -- let's say, on auto loan [ of some ] ? Just to get an idea.

This year, it's closer to 90%. Last year, I think, it was closer to -- 90% per annum ATR. And I think last year was something around the 40-something level.

[ What notice we did? ]

[ Credit cards. ]

[ On numbers. ]

Yes, but that's okay, but I think what's the [ cushion ] value, he's asking. What he is asking, what's the way that we're charging customers [ were 2 revolving on the other's rate of return, okay. And yes, it's related to that like I mentioned. ] It's 90% nowadays. It used to be close to 50% last year, between 50% to 40% last year.

Okay. So it means then we should continue to see then this loan book continue to reprice upwards. Do you think we're going to get to a level -- when do you think your net interest margin on your loan book starts to expand?

It's moving to stability in early this week. That's when I think -- I don't see -- I mean, we're starting to see rates of the Central Bank notes coming down, but still needs to get into [ liabilities rates. ] And so probably, if the trend that we're seeing since the beginning of October sustained itself in the next couple of months, I think that that is when we'll start seeing some capturing of higher margins.

Our next question comes from the line of Yuri Fernandes from JP Morgan.

Actually, it's a follow-up on Mario's questions on the net interest income from loans. Can you also give me more color, what you're expecting for the next quarter on this margin? Because as you said, the Leliq has coming -- has been coming down, and I understand, there is a delay for the Badlar, the cost of first-time deposits. But the spread between the Leliq and the Badlar has been narrowing. So what I mean like, the Badlar has been stable, at [lows ] 53%, 54%, while the Leliq moved from those 70% to 60 lows. So how that may impact your total NII [ by the next quarter ] ? Because most of your growth on NII, they came [ from secured ] and my concern is this can be a pressure. So that's the first question. And the second question is on your coverage. It moved higher and you had been guiding that in the previous call. My question is just where you allocate that that higher provisions? It seems that it was on the credit cards, I saw a big increase on the provision of your credit card and then [ if you all did increase that much. ] But just to be sure, if that was the case and also if you plan to continue increasing your coverage ratio going on?

Yes. Okay. Let me start with the last question. We have provided guidance to reach a 100% coverage by the end of next year. And if possible, we will try to accelerate that. So that is something that we'll be doing fine tuning in the next quarters to see if we can get faster to a 100% coverage [ thereon. ] We will try to get faster to that, okay. In terms of where this was allocated, that portion of it was allocated in the Consumer Finance business. And the remainder is [ voluntary provisions at the bank level. And then we're seeing -- I mean, we're seeing deterioration into the lines, it's not concentrated on the credit card portfolio in itself. So we don't see a special concentration coming from credit card portfolio. Regarding your second question in terms of margins, the recent dynamic that you have to bear in mind which is explaining the narrowing between the Badlar rate and the Leliq rate, which is -- For this fourth quarter, any increase on time deposits compared to the baseline of the end of the third quarter in time deposits again if all the minimum current reserve requirement can we set up with using Leliqs. So that means that practically if you bid of wanting that additional peso in time deposit, that pesos doesn't have any minimum reserve requirement -- of minimum reserve requirement. So that is explained knowing of the gap in these, which doesn't necessarily mean that we will lose margin because the counterpart to that is that we continue having a -- from what it was the bulk of it price to September was a non-remunerated, now it's a 100% remunerated. So the margins will benefit from that part. And on the other hand, the weight reduces just in much more quickly is weight for the special checking accounts. So we're keeping a spread, I mean, it moves -- the spread remains pretty much fixed but it moves as the absolute levels of the Leliq rate on the way to pay for those deposits. So in terms of margins, the outlook from where we're standing today is that it should be good and probably increasing in the 4Q rather than compressing.

Okay. So margins should increase quarter-over-quarter from these even though like you weighted this pressure because you are being able to managing your special checking account? That that's message.

That's right. So can I just add on top of that, that the time deposit is in the right space.

Our next question comes from the line of Carlos Gomez from HSBC. ]

Actually, two brief ones. The first one is, if you can give us an update as to how you will deal with inflation adjustments? We understand that you will have to do inflation-adjusted accounting for your 20 years, contiguous time line and whether you have set out on a particular way to do it? And I know it's very early and it is still November and things change in Argentina, but what do you expect for next year in terms of loan growth and perhaps reduction?

Carlos, Alejandra speaking regarding inflation accounting. You know that even though according IFRS, Argentina fulfills the characteristics of a hyperinflationary environment. Actually, the panorama remains unclear in Argentina because it's important to know that [ trajectory ] from 2003 is still in effect. Argentine companies are not allowed to file financial statement [ affected ] by inflation. So this is the situation that we are facing. I would say that according with information that we have up to now under local regulation, we'll keep on presenting our numbers, results, the adjustment of inflation accounting. However, as you mentioned because this reality of Argentina evaluation with our presentation for 20 years in front of you to see, we will -- we have to adjust our numbers. So facing that situation, we have to 2 options. One option is to use -- keep on presenting our financials under U.S. GAAP reconciliation and our planning, the methodology of U.S. GAAP that is different because it implies to apply dollar as a dominating currency. Or to apply IFRS full compliance as SEC requires. We know that in Argentina, we will not apply IFRS compliance in full because we are not applying the IFRS 9. So this is a challenge we post. As we do not present in Argentina IFRS compliance in full, these financials are not compliant with the requirements of SEC. So summing up, we are considering 2 options. We did not make the decisions yet, but the 2 options are either present under -- [ to our 20S 2 options; ] one, U.S. GAAP reconciliation, including the assessment for inflation accordingly with U.S. GAAP reconciliation or IFRS full compliance. We are now working on that decision. We didn't make it yet.

Can I ask you there, if it's a decision that each company will make individually or is there a discussion to do it collectively for the -- all the listed banks in Argentina?

No, no. Of course, each company has a -- the decision. Of course, we'll have the conversations in the banking association, but anyway, at the end of the day, of course, it's a decision of the company. You need to bear in mind that these decisions have different implications in order to adapt your IT processes, your regulation. So I think and I know that each company have completely different situation in terms of the execution of the adjustment. So the thing is that the legal framework in SEC allows 2 options. So probably one company might prefer one and another prefer other. But anyways, each company has its right to decide and how to present their financial. And on local, up to now, locally, we'll present in local GAAP without inflationary statements.

Carlos, on your second question, as we're still working on the numbers, we are not providing guidance of 2019 yet.

Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like turn the call back to Ana for closing remarks.

Thank you for joining us today. And 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 interim, we remain available for answer any questions that you may have. Thank you and enjoy the rest of your day.

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