Grupo Supervielle S.A. (SUPV) Q4 2018 Earnings Report, Transcript and Summary

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 at the close of the year. For example, December monthly GDP proxy, the MA posted at 0.7% month-over-month increase. Import have also shown a multi-seasonality improvement over the past couple of months. Nevertheless, the recovery is expected to be slow, impacted by the contractionary monetary and fiscal policy mix. Additionally, the political environment also makes for more cautious scenario. Economies consensus [in U.S.] caused for the GDP contraction of 1.3% in 2019 with a weaker performance in the first half of the year and recovery in the second half. For 2020, GDP growth is anticipated at 2.5%. Looking ahead market consensus also anticipates a scenario of further declines in inflation reaching 39.9% for 2019 and 20.3% for 2020. Monitory policy rates also expected to decline to 37% by year end. We also continue to experience an usually high minimum reserve requirement of approximately 45% of the managed target and 35% of time deposits. We expect these requirements to gradually decline as the credit dynamics normalize over time. In any event, as wholesale will extend later, we do not assume any reduction is this minimums reserve requirement in our 2019 outlook figures. Please turn to Slide 5, moving to the Argentine financial sector. Argentine dominated deposit expanded 19% sequentially in the quarter, while denominated deposits continue to increase, up 7% in dollar terms. Deposit growth measured in original currencies decelerated in January and remained relatively flat in February, reflected seasonality with system remaining at highly liquid level in this high interest rate environment. By contrast, system loan growth decelerated during the quarter against the difficult macro backdrop. Peso denominated loans contracted nearly 2% sequentially in fourth quarter 2018, and around 1% in each of the first two months of 2019. System dollar denominated loans measured in U.S. dollars in turn contracted nearly 4% quarter-on-quarter but increased each year, up 1% in January and just under 2% in February. We experienced a relatively similar trend in loans, while we reduced risk deposits towards the close of the quarter, reflecting excess liquidity management by our treasury average deposit balances, however, increased 15% sequentially. I will now turn the call to Jorge who will review our financial performance and outlook. Please Jorge, go ahead.

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 loans were down 6%, while our U.S denominated loans fell 8%. Written loan growth continue to decelerate, up 5% quarter-on-quarter on the back of softer mortgage demand in the current market. Our consumer finance loan portfolio in turn contracted again in the quarter, down 5% sequentially in line with our risk appetite in this dynamic scenario. Finally, our portfolio remains highly optimized and well diversified among a wide range of economic sectors, while maintaining growth collaboration levels. Turning to Slide 9, average deposits in the quarter were up 16% sequentially. Deposit balances, however, declined 2% in the period as we manage excess liquidity towards year end. Particularly, we decided to reduce the balance of special checking accounts by 26%. Both the loans to deposits and loans to asset ratios continued to decline reflecting overall high liquidity and weaker loan demand. The share of foreign exchange deposits remains stable at 33% of total deposits as the Argentine peso recession in the quarter offset the 5% increase in U.S. dollar denominated deposits measured in original currency. Moving onto funding on Slide 10. Retailer senior deposits increased its share of total deposits up to 44% from 40% in the third quarter, while corporate deposits accounted for nearly 20%. The share of non-interest bearing deposits accounted for a larger portion of total deposits increasing to 39% from 37% in the prior quarter. Moving on to the P&L on Slide 11. Net financial income rose 20% sequentially. Larger average values of assets and deposits together with higher interest rates were the main drivers behind this performance, which was partially offset by higher cost of funds. The net interest margin of our loan portfolio increased by 120 basis points sequentially, both our Argentine peso and U.S dollar portfolio contributing to this increase. Net financial margin expanded 210 basis points, reaching 20.3% in the quarter, up from 18.2% in the prior quarter. This combined price yield from the loan portfolio as we continue to reprise and lending rates the peso denominated portfolio. For the full year, net interest margin reached 19.4% in the higher end of our 18% to 20% guidance range. Remember through accounting considerations. First, net income from financial instruments benefits from the peso yield on holdings of both short-term Central Bank securities Leliq and dollar denominated government securities Leliq. However, net interest income is penalized by the cost of deposits that fund these investment. Second as mentioned, net income from financial instruments includes the peso yield of dollar denominated government securities, but does not include the foreign exchange gain or loss on dollar deposits taking to fund these securities. In 4Q '18, as a result of the appreciation of the peso, the peso yield of dollar denominated securities declined, as well as the peso cost of each U.S. dollar deposits. Turning to Slide 12, net service income growth remain soft in the quarter, up 4% sequentially. We experienced a drop in fees charge -- increased charge driven by weak corporate loan originations, together with higher missions paid mainly to debit and credit card processes. At the same time, income from insurance activities declined close to 2% quarter-on-quarter. We experienced seasonally higher operating rations in the quarter together with a run over of our credit related policies. Moving on to asset quality on Slide 13, we proactively stepped up total NPL coverage to 100% a year ahead of plan. This compares with 94% coverage in the third quarter and 88% in the 4Q '17, reaching 100% coverage for the cost of risk up to 7% from almost 6% in the prior quarter. Excluding the ARS231 million this quarter in additional loan loss provisions, cost of risk would have remained flat sequentially. Excluding ARS120 million loss provisions in the third quarter to increase coverage to 94%, cost of risk for the full year would have been 5.2%. This is slightly above the top end of our 4.6% to 5.1% annual cost of risk range as increased inflation impacted consumer's disposable income and the high interest rate environment hit the companies. The NPL ratio increased 40 basis points quarter-on-quarter to 4.1%. The corporate segment reported 30 basis points increase in the NPL ratio, reaching 1.1% remaining at historical lows. Retail banking posted that 90 days towards the delinquency ratio of 2%, below 3.3% NPL ratio reported in the fourth quarter, reflecting the large share of payroll federal customers, which have better performance. By contrast due to lower level origination and the impact of the inflation and customers' disposable income, the consumer finance segment reported 90 basis points sequential increase in its NPL ratio. Taking a deeper look at asset quality for consumer finance business on Slide 14, this business is most affected by inflation. As you can see, three months vintage data and NPL operation remain well below peak levels experienced in the first half of the year. Vintages picked in February of last year financial accretion in the second Q '18 declined as we introduced more stringent credit scoring standard in the first quarter of the year due to challenging market environment. However, the sharp increase in inflation experienced between September and November resulted in timely duration in these measures towards year-end. Preliminary data for 2019 gives us room to be optimistic. Moving on to expenses on Slide 15, we saw a sequential deterioration of 260 basis points in the efficiency ratio, reaching 61.9% in the first Q '18, mainly due to regulatory salary increases. On an annual basis, efficiency improved to 61.5% from 57% in 2017 in the middle of our 59% to 63% guidance range. Next Slide 16. We almost doubled our cumulative comprehensive income year-on-year in the quarter, and posted 7% sequential increase. Our favorable net income was up over 50% year-on-year and remain flat quarter-over-quarter when excluding the increase in LLPs to reach 100% NPL coverage ratio ahead of plan. Return on average equity for the quarter reached 32.6%, up 20 basis points from the prior quarter, while return on average assets remained relatively stable at 2.6% sequentially. For the full year, we delivered attributable comprehensive income of ARS3 million, up 61% and in line with our 2.9 to 3.3 million guidance. We achieved this despite the more difficult than originally anticipated macro backdrop and the decision to step up coverage of reach 100% NPL coverage. Moving on to capitalization on Slide 17. Consolidated pro forma Q1 capital ratio rose to 40 basis points to 12.9% at year end, this in line with the top end of 12% to 15% guidance range. In the chart on the slides compares to a Q1 ratio for the fourth quarter against March 2018 before the sharp peso devalustion that took place later in this year. As you can see, the impact of the peso devaluation on our credit risk weighted assets resulted in 130 basis points capital consumption in this period. But more importantly, capital creation contributed 150 basis points increase in Q1 exceeded 130 basis points consumed risk weighted assets increases in the period. During the quarter, we made capital injections of ARS1.3 million Banco Supervielle and Mila, a total of ARS127 million remain as the holdco future company injections. Please turn to Slide 18. In summary, as we said before when the macro environment turned out to be worse than originally anticipated at the time we presented the guidance, we met our annual profitability targets. The strength and flexibility of our business model was evident in 2018 as we have to navigate through rapidly macro and currency volatility. Importantly, we have the franchise well positioned to return to growth in an improving macro environment. Let me now share with you our guidance for 2019 and some of the underlying assumptions, which you can see on Slide 19. Despite limited flexibility in the current volatile economic environment, we're keeping the policy of providing annual guidance. But note we're presenting wider guidance ranges for 2019 than in previous years. Based on our macro assumptions, as Patricia discussed at the start of the call, we expect loan growth in the range of 21% to 31% with assets and deposits growing in line with inflation. At the same time, we expect cost of risk of between 5% to 5.8% in 2019, assuming NPL coverage remains at 100%. We also anticipate NIM to remaining18.5% to 20.5% range for the year. Note that for the first quarter of 2019, we will adjust the NIM calculations to also take into account exchange rate differences and net gains or losses from currency derivatives. Until now, our NIM will be included into single interest expense, as well as we launched on the investment portfolio. With these additions, our NIM ratio remain more accurate and we representative for financial marginal spreads. Subsequently, we will stop reporting net financial margin as NIM will capture all the components of our net financial margin. Our guidance also calls for the efficiency ratio reaching levels of between 61% to 63% for the full year. While improving efficiency remains one of our strategic goals, the full impact of the salary increases given resilient inflation imposes challenge. Note that starting 2019, we're providing net income guidance instead of comprehensive income. Net income in 2019 is anticipated to increase between 28% to 52% reaching between ARS3.3 billion to ARS3.9 billion in the year from net income from ARS2.6 billion in 2018. Comprehensive income in 2019 is expected to be above 2018. Given our expectations with the above metrics, the tier one ratio is anticipated to range between 10.6% and 11.1% at year end. Operator, please open the floor for questions.

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.