Good morning, and welcome to the Grupo Supervielle Third Quarter 2019 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 Chairman of the Board of Directors, who will discuss the overall macro environment; and Jose Ramirez, our Chief Executive Officer and Vice Chairman of the Board, who will review our results for the quarter. Also joining us is Alejandra Naughton, Chief Financial Officer; and Alejandro Stengel, Chief Operating Officer of the Bank. 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 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, Anna. Good morning, everyone, and thank you for joining us today. If you're following the presentation, please turn to Slide 3. We continue to operate in a complex macro environment, which worsened in the quarter with the unexpected reprofiling of the short-term Argentine debt in late August. While our holdings in Argentine government based on U.S. dollar short-term notes accounted for just 3% of our total assets, the sharp swings in market -- in mark-to-market valuation significantly impacted our bottom line. To a lesser extent, results were also impacted by certain commercial loans that became delinquent in the quarter. By contrast, consumer loans reported lower NPL creation in the quarter. The collateralization level of nonperforming commercial more than doubled sequentially. Jorge will discuss this in more detail. Excluding the impact from the debt reprofiling, pretax income would have increased 23% sequentially to ARS 1.9 billion, even when taking into account the higher provisions in the quarter. With liquidity management an important priority for us, particularly in this challenging market, we have been able to maintain liquidity in pesos and U.S. dollars above 50%, even despite some U.S. dollar deposit outflow industry-wide. Moreover, we maintained a solid capital base with Tier 1 capital at 11.8%. Against the macro backdrop, we are strongly focused on maintaining a tight control on expenses, which provides some cushion as we see loan growth slow. And although we are achieving efficiencies, it has been marked by the impact in the debt reprofiling had on our financial results this quarter and, to a lesser extent, by salary increases adjusting for inflation. Our franchise is strong. Although the near and medium-term visibility is not clear as we speak today, we're encouraged that with our long and successful operating history across different economic cycles, we are well…

[Operator Instructions]. Our first question comes from the line of Juan Recalde of Scotiabank.

Good morning, everyone. So my question is related to the political front. So I would like to know what are your expectations regarding the next administration policies? And also, how are you preparing for this? Jorge Ramírez: Juan, thank you for your question. We have not really had any clear indications in terms of what the next government policies will be. My first impression will be that we have to separate probably the speech in the campaign to what the current government stands -- the elected candidate is having in terms of his comments regarding future economic policies. He has been mentioning that Argentina has a -- will take a market-friendly stance in terms of refinancing its foreign debt. And the other thing we are expecting is that they will try to do internal consumption as a way of taking the country out of recession. If that is the case, given our franchise and given our positioning, we believe we are very well positioned to capture part of that growth since we have very large presence in those businesses. And those are particularly the businesses that have suffered in the last couple of years, especially since April of last year since the recession started. So we believe there is pent-up demand for credit and loans and financing to finance consumption in that sector of the economy. So if those are the steps that the new administration takes, we believe we're going to be well positioned to capture growth from that area.

Our next question comes from the line of Ernesto Gabilondo of Bank of America.

My question is related on your gains on securities. When we look to the third quarter results, they benefit a lot from the security portfolio even if excluding the negative impact of the reprofiling debt. So what are you seeing for the next quarters? Do you think this was a peak for securities gains? And you think that the Alberto Fernandez government will try to have lower interest rates, and that could imply lower yields for your securities portfolio?

Ernesto, Alejandra here. Yes, you are right. Our gains on the quarter are connected with the holdings of Central Bank securities. Because as you know, the other securities, unfortunately, reported losses. So considering volumes and interest rates, it makes sense to think that we are now in a peak, particularly because we are observing from the Central Bank monetary policies that interest rate is started to lower levels. So I think that is a reasonably understanding yield. It could be the peak.

Okay. And then so when do you think we can start to see that this lower interest rate environment will translate into loan growth? Have you approached to Alberto Fernandez' government in trying to have an idea on how this could happen?

We have had some meetings with some of the names that have -- are being rumored that they're going to have a place in his future administration. As you know, he has not been yet as forthcoming in terms of detailing all the names that will participate, but several of the people we met with have been mentioned by himself as a -- playing a role in the future administration. I think that you're really concerned in terms of how to manage the reduction in interest rates and not generating, at the same time, a big push in terms of inflation because of pesos being pumped into the economy. So I think that we want to manage that very carefully. Our sense, again, it's very difficult yet to predict this because we have very minimum visibility. But my sense is that probably it's going to take the first half of next year until we start seeing a sustained pickup demand in credit -- for credits.

Our next question comes from the line of Gabriel Nóbrega of Citi. Gabriel Nóbrega: My first question is actually a follow-up to the first question asked. Regarding the incoming administration, I understand it is still too early to understand what they're going to do. They are only going to come into effect into December. However, we have been hearing some specific regulations, which could come into the banking sector, the main one being the SME directed loans. So my question is do you believe that the SME directed loan will actually happen? What could maybe be the impact to your NII here? And also, have you heard any other -- some specific measures, which the Central Bank and the government could also take, particularly to the banking sector? And I'll make a second question afterwards.

I mean if we base ourself in what they did in the past administration back from 2011 to 2013, I'd say that it is a highly -- there is a high chance they will try to give some -- I mean put in place some kind of soft grade lines for SME in Argentina. It is very difficult to calculate the impact. I think that as the bulk of the peak back in 2013 or 2014, I think they reached like, something like 17% of the loan portfolio or something like that. But in terms of measuring the impact in terms of net interest margin, it's very difficult to say because it will heavily depend on what happens with the interest rate for deposits, I mean -- what happens in euro with interest rates in the market. One thing they did in the past, though, and I think this is important to bring to mind, is that they took -- they calculated the average cost of funds for the banking industry. So the blended cost of funds, bringing into consideration time deposits and site deposits. And the lines were always profitable compared to that blended rate. So they didn't use the marginal rate. What they did was they made it that -- I mean banks lost some money, but they weren't completely negative in terms of the blended cost of funds for the banking sector. It came more as an opportunity cost for banks rather than a -- the strength posting a state loss compared to the average cost of funds.

Jorge, if you allow me to relay to that on that -- these kinds of regulation also brings opportunities, business opportunities. So when we have a good relationship with SMEs, as we have, we also have the opportunity to develop all the liabilities, opportunities in terms of cost management. So I would think on the impact on margins, not only on maintenance rate on loans but also cash management and current account balances that brings lower cost of funds. So it's -- in our experience, when that happen, we'll have the opportunity to deepen our relationship with our customer base. Jorge Ramírez: Yes. And remember that we still have very high cash reserve requirements. So they can handle that. So I think that we will have to wait and see. And I think we have a clear picture in terms of what's coming on to be able to anticipate the actual impact that this will have on the banking industry. . Gabriel Nóbrega: All right. That's very clear. And as for my second question, it's actually on asset quality. In your press release, you actually say that companies in the public works and in the retail side went delinquent. My question here is, is it specific to only 2 companies? Are there maybe more companies? And also, what is your current coverage level for these companies, which have gone delinquent in the same quarters? Jorge Ramírez: Can you repeat the last part of the question because I missed it. Gabriel Nóbrega: Sorry. It's just to understand what's your current coverage on these companies, which went delinquent during this quarter? Jorge Ramírez: Okay. I mean it was mostly two companies. We have, as we mentioned, the commercial portfolio levels of collateralization went up from 20% in end of June to 55%.…

They are in stage 3 and 4. Central Bank, you mean? Gabriel Nóbrega: Yes.

Our next question comes from the line of Jason Mollin of Scotiabank.

Mine is a little bit of a follow-up on the questions asked. I mean in this current context, without really having a clear view of what the new policies could be or if you're going to be facing some different changes in regulation, but what can you do now going into the end of the year? How is Supervielle positioning the balance sheet? We saw the Leliqs decline from -- I think it was down 24% of assets to 19% in the third quarter from the second. I mean what -- is there much that can be done? Or you really are just biding time trying to put your liquidity to work? And I mean it seems like, of course, loan demand is nonexistent. So what can you do? And how are you positioning yourself for the transition? And it seems like some are expecting the -- or we've heard some statements that the currency controls will remain in place for now. Just any comments you can say on what you think could happen and how the bank is positioned now. Jorge Ramírez: Okay. Yes. Thanks for your question, Jason. I think it's a very interesting question, the one's you're asking. I mean,we've been working under one major guideline in the past 1.5 years or so, which is flexibility. This is something that you need to have in a country as volatile and as changing as Argentina has proven to be in these past 2 years. . When we entered this term, this type of turmoils, one thing that we've learned from our past history is that liquidity is king. So the whole system is very liquid and we are very liquid as well. Second thing we're focusing on is, and we're starting to debate, is we're coming from 4…

Our next question comes from the line of Yuri Fernandez of JPMorgan.

I have a follow-up on liquidity. If you can provide any color on how deposits in dollars withdrawal has been behaving in October and in November post-election if we have started to see more stabilization on the withdrawals? And a second follow-up regarding asset quality. I understood you have the collaterals to those two exposures, and that's the reason why coverage decreased. But going on, do you plan to continue having the coverage around 100%? That's one. And what should we expect for cost of risk? I understood Jorge mentioned that maybe the peak was this quarter for asset quality. But still, the GDP forecast for Argentina is pretty tough, right? I think the consensus is around 1.5% decrease by 2020. So even though we should not expect cost of risk running close to 10%, what should we see for cost of risk going on? Consumer finance and retail seems to be doing well, but should we see more worsening on corporate book? Jorge Ramírez: Regarding liquidity, your first question is we saw a 10% drop in October. And since the elections, I would say that, that has slowed down significantly, and it's only quickly. I think that one of the things that despite this major run against mostly U.S. dollar deposits, I mean, peso deposits, they remain fairly stable even though they showed some comps. But that has more to do with the shift of deposits from mutual funds from the banking sector towards the Central Bank, to the repos. One of the things that quited down below the depositors was that the liquidity in green box than the banking sector had, I mean, the level of imports that the banking industry have to do of -- [indiscernible] green bills in order to be able to satisfy demand was…

But with lower rates, it's going to be tough also for your top line, right? It's a bit -- it's a challenging environment, right? Because if rates come down, how do you monetize the secure rates, right? Jorge Ramírez: I mean it's going to take a while until we transition agreements. But as for our bank, which we always have more focus on personal loans rather than on credit cards, if interest rates come down, creating money for loans, we activate quite rapidly. Clearly it's not going to be overnight. It's going to take a while to transition towards that. But we do have a line of business that, in our view, can enable us to defend our margins.

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

First, congratulations on the presentation. It's very clear, very detailed, and it really gives us a lot of information. The questions. Well, first, frankly, we are a bit surprised by how much we're hit by the reprofiling. And if you could give us an idea about the logic about how you were positioning going into this partial debt restructuring and how you are going into the next one. You have already referred to that. Second, where would you expect corporate nonperforming loans to peak? You're already at 7%. You mentioned that some of the companies are weaker because of government expenditure, real rates. But those are still high. And finally, can you tell us again how much capital you have at the holding company and how much that would represent in terms of increasing the Tier 1 capital ratio of the bank? Jorge Ramírez: Regarding your first question, Euro side of the securities we had was approximately 3% of our total assets of the book. All of them were at the bank. Part of them were the subsidiaries. In the case of the subsidiaries, mostly, we're invested in a peso-denominated bonds, okay? They didn't have any other alternatives. In some cases, they have to mandatory invest in public bonds, and that's the case, for example, of the insurance company. So that has mostly to do with that. In the case of the bank, essentially, we had a position of letters that we've been carrying down from a peak of around over $100 million at the end of last year, down to around 60 million at the rate of the reprofiling. So we have been managing our exposure down. Part of our U.S. dollar-related position, we use them to hedge our rental agreements that are U.S. dollar-denominated and some other agreements…

Within the market [indiscernible].

It is not available for sale, you mean? Jorge Ramírez: That's right. They were not held for sale. So you see, above the line rather than below the line, as other banks have been reporting that. So I think that when you analyze everything, you have to compute both things to see the actual impact that we have. And we've been comparing ourselves with other banks in terms of proportion in size, and it was a reasonable size of our position. It was not something that we were completely exceeding in the position we have. In the -- regarding the capital question, in the holding company, we have ARS 650 million. But we're completing it already in the portfolio evaluation of 11.8% of Q1.

Sorry. Could you repeat that? So you said that the capital available... Jorge Ramírez: The capital available at the holding company to make further investments is ARS 650 million. But the capital ratio we published is a pro forma that already takes into consideration those ASR 650 million.

Got it. Okay. Yes, so the 11 -- yes. I see. I see. So the 11.9% is pro forma?

Exactly. If you compare that with the capital level of the bond, that is 11.2%. So if you consider strictly the bank, you'll find our level of capitalization, 11.2%. But however, as we have France as the holding company, available for capital injections, we published with pro forma, that includes that funds of the holding company level, that sum up to 11.8%. So the 11.8% shows our ability to -- our actual capital base.

Can you remind us what you think is the minimum that you want to have? Jorge Ramírez: Around 10%.

10%.

[Operator Instructions]. Our next question comes from the line of Rodrigo Nistor of Itaú.

Well, actually, most of my questions have already been answered. But just a quick one regarding the new reserve requirements for demand deposits. What kind of measures are you taking there to defend your margin? And also, if you're expecting any additional changes in the reserve requirement front?

Yes. Jorge Ramírez: Yes. Clearly, that has an impact. But for us, it's more or less like -- this comes around to ARS 2 million less of Leliqs in the portfolio of both Central Bank securities and our investment. The way we're trying to handle that is by means of streamlining liquidity in physical money, in bills, in the branches, which enables us to -- because that one does not compute as legal reserve requirements. So that liberates some funds. And -- but remember, we have been keeping extraordinary levels of liquidity at the branches levels in order to serve through a very volatile environment. And we're doing other measures in terms of managing the exposure of the NPL portfolio as a way of recovering liquidity as to that, that will enable us to start investing in securities or in loans that are better performing. So it's a combination of different measures that we're taking to compensate for that. But in the short term, we expected it will have an impact, clearly.

We have reached the end of the question-and-answer session. I will now turn the call back over to management for any 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 interim, we'll 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 disconnect your lines at this time. Thank you for your participation, and have a wonderful day.