Good morning, and welcome to the Grupo Supervielle First Quarter 2021 Earnings Call. A slide presentation will accompany today's webcast which is available in the Investors Section of Grupo Supervielle's Investor Relations website at www.gruposupervielle.com. As a reminder, all participants will be in a listen-only mode. There will be an opportunity for you to ask questions at the end of today's presentation. As a reminder, today's conference call is being recorded. At this time, I'd like to turn the call over to Ana Bartesaghi, Treasurer and IRO. Please go ahead.

Good morning, everyone and welcome to the Grupo Supervielle first quarter 2021 earnings call. This is Ana Bartesaghi, Treasurer and IRO. Speaking during today's call will be Patricio Supervielle, our Chairman and CEO, and Mariano Biglia, our Chief Financial Officer. Also joining us are Alejandro Stengel, Second Vice Chairman of the Board and Bank CEO; and Jorge Ramirez, First Vice Chairman of the Board. Alejandra Naughton, Board Member of several of Grupo Supervielle's subsidiaries will also be joining us for today's call. All will be available for the Q&A session. Note that starting 1Q '20, as per Central Bank regulations, we began reporting results applying Hyperinflation Accounting in accordance with IFRS rule IAS 29. Therefore, all results in this presentation are adjusted for inflation as of March 31, 2021, unless otherwise noted. In addition, following the retrospective application of the Central Bank Communication A 7211 effective January 1st, 2021, figures for all quarters of 2020 have been restated. For your convenience, our earnings report filed yesterday after market close also includes managerial results in nominal terms. Before we proceed, I would like to make the following Safe Harbor statement. Today's call will contain forward-looking statements, which are based on management's current expectations and beliefs and are subject to a number of risks and uncertainties, including, as a result of the COVID-19 pandemic 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 statements to reflect new or changed events or circumstances. Given this new strict lockdown in Argentina and to avoid connectivity issues, we have decided to revert to our conference call format only for this quarter. 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. Please turn to Slide 3, our earnings presentation. During the quarter we moved into a second wave of COVID-19. While today we are better prepared to confront this with many initiatives we have accelerated or put in place to serve our clients, while securing the health and safety of our employees, the scenario in our market remain complex. During this period, we continued to exercise liquidity management to protect our financial margin and reinforce our strategy to protect our capital. In terms of our financial results. We reported net income of nearly ARS200 million in the quarter despite higher turnover taxes. The impact of the regulatory framework and continued weak demand in a recessionary economic environment, return on average equity in real terms was 1.8% in the quarter and 4.5% when excluding the consumer lending business as NIM remained pressured from higher cost of funds resulting from the floor on time deposits, on interest rates and subsidized rates on loans, while fees remain weak. Maintaining a prudent approach to risk management will continue to increase our coverage ratio this quarter, which reached 205% from 192% last December. And we are closely monitoring our loan portfolio and risk models after the end with the Central Bank automatic loan deferrals last March. Efficiency, excluding non-recurring severance and early retirement charges, increased 120 basis points with 66.3% impacted by lower revenues. By contrast, comparable, personnel and administrative expenses, excluding non-recurring charges in both periods, declined 6%, as we maintained strict cost controls, while advancing on our transformation strategy. In this environment, we are focused on capital preservation and retaining strong liquidity. We have a solid capital base with a Tier 1 ratio of 13.8%, and are deploying hedging strategies against inflation,…

Thank you, Patricio. Good day, everyone. Please turn to Page 5. Reflecting both overall weak credit demand and our focus on prudent lending in this challenging environment, our loan book contracted nearly 6% sequentially better than the industry's performance. In turn, personal loans were down 7% sequentially. Note that credit card loans and factoring are both seasonally lower in the first quarter of the year versus the fourth quarter. In addition, government-sponsored loans at preferential rates declined to 9% of our loan portfolio from 10% at the close of the prior quarter. This primarily included close to ARS10 billion in SME loans at preferential rates, of which slightly over ARS4 billion were in short-term factoring transactions. By contrast, we saw a sequential increase of nearly 12% in transactions, which contributed to 2 percentage points in market share of close to 11%. In addition, U.S. dollar loans in original currency were up 5% sequentially, reflecting short-term financing to corporates. Now, moving on to funding on Slide 6. Liquidity levels remained strong, both in pesos and dollars, with the loans-to-deposit ratio at a record low of 55%. In line, peso deposits were up 8% sequentially, driven by higher institutional funding, turnover of strong reduction in these type of deposits in prior quarter, as we deleveraged the balance sheet. Additionally, non-remunerative retail deposits posted a quarter on prior contraction, in line with the industry and largely reflecting seasonal trends. Average balance of peso deposits increased nearly 29% year-over-year and were down 2% sequentially, as we continued to exercise liquidity management to protect our financial margin. Dollar deposits in original currency rose up 2% during the quarter, accounting for 13% of total deposits following the industry outflow of foreign exchange deposits. Turning to the P&L on Slide 7. Net financial income and margins remained…

Thank you, Mariano. As you can see on Slide 10, we continued making consistent progress on the execution of our Digital Transformation strategy. For example, monetary transactions at non-automated banking tellers stood at 4%, down from 17% prior to the pandemic. The share of mobile transactions adjusted down to 8% after reaching a high of 10% in the fourth quarter, but remain above the 6% pre-pandemic level. ECHEQs continued to post exponential growth, up 36% sequentially, reaching ARS30 billion. We're also very pleased with the sustained growth in digital customers of the bank, which increased 54% over the past 12 months. AT IUDU, our consumer finance subsidiary, new app functionalities added early last year are being well received with new digital customers expanding consistency. We expect to launch new features to the app which will continue to drive new users. Finally, our InvertirOnline, our online broker, active customers have increased consistently expanding 88% during the past 12 months. At the same time, DART, daily average revenue trading -- I'm sorry -- daily average revenue trades reached -- showed a sequential decline -- a seasonal sequential decline, but nearly double last year levels. Before moving on to our views for the year, let me note that this quarter, we have launched a more comprehensive set of KPIs to monitor progress on our Digital Transformation strategy, which can be found in the exhibits of our 1Q '21 earnings call presentation. While guidance, please turn to Slide 5 -- Slide 11 -- while guidance remains suspended due to the continued limited visibility ahead, we were -- we share our views on the main drivers of our business throughout the rest of the year. As we navigate a more challenging environment, including the second COVID-19 wave, we now expect a delay in the rebound…

Thank you. [Operator Instructions] Our first question is from Ernesto Gabilondo with Bank of America. Please proceed with your question.

Good morning, Patricio, Mariano. And good morning to all your team. Thanks for taking my call. My first question is on inflation. We can see April's inflation is already at 46%, so a little bit higher when compared to March. And I think that you are expecting 47% for the year. So do you expect it to be higher in the second quarter and then normalizing for the rest of the year? I just want to know, how would it be impacting the results of the net monetary position. And also, if you can share with us, how are you seeing interest rates and the effective tax rate in the coming quarters. I think, it will be very helpful. Thank you.

All right. Let me first give you a little bit of what we see in terms of interest rates. Basically, inflation is high, yes. And we expect that inflation will continue to be high. And we expect that the scenario of interest rates will remain low. I mean, the government is trying to model through the election and so, therefore basically they have decelerated also the de-evaluation of the peso. And on the monetary front, basically they want to feel more confident. And so, FX is moving below inflation and so -- and we can expect this until at least the elections. And in terms of inflation, we are 100% hedged against inflation, mostly UVA and CER assets and the real estate and other non-monetary assets, basically. Maybe, Mariano, do you want to add on this?

Sure, Patricio. Hello, Ernesto, thank you for your question. Let me answer how this impacts our income statement. As Patricio said, we are hedged against inflation through our entity of asset classes. First, we have real estate and other non-monetary assets, so that reduces the impact of inflation in our net monetary position, line item in the P&L. And then, as long as we keep having high inflation levels, the net monetary loss of the monetary position is offset by the repricing of UVA loans and bonds that are just by inflation. There may be a lag between one to two months until inflation impact in full in the UVA, but at the end of the day, we will see a repricing that is an income in the financial margin line item.

Perfect. And how you see the effective tax rate in the coming quarters?

For the -- I can comment on that. For the upcoming quarters or for the full year, we see the effective tax rate closer to the statutory rate of 30% and maybe a little bit lower, because we have some special deductions on certain SMEs financing, which lower our tax rate in -- particularly in the first quarter. So as long as we see our profit before taxes increasing, that effect will be partly diluted. So we'll have a positive effective tax rate, maybe below 30%, but closer to statutory tax rate.

Perfect. And then, just for my last question. How has been your alliance with Rappi? How many clients you have, and I don't know, if you can share, you have some specific targets for the following years?

I can help you with that, Ernesto. This is Alejandro Stengel, I am CEO of Banco Supervielle. We are discussing the opportunities with Rappi, and at this point, I am unable to comment further, but this together with other alliances is part of our acquisition strategy and we have very positive -- we have a very positive outlook regarding these alliances and there are opportunities.

Okay, perfect. Thank you so much.

Thank you.

Thank you. [Operator Instructions] Our next question comes from Gabriel Nobrega with Citi. Please proceed with your question.

Hi, everyone. Good morning and thank you for the opportunity. So just, firstly, looking at asset quality, we actually saw some opposing trends as to your peers which already reported results. We saw NPL decreasing, while provision's increasing. And so I just wanted to maybe get a feel from you, if there are any segments at the moment that are starting to worry you. And also as there is still a lot of uncertainty surrounding Argentina, maybe you can have more necessity of provision down the road. So maybe just picking your brain, how you're looking at asset quality. And I'll make a second question after it. Thank you.

So, first of all, let me tell you that we are following very carefully, credit quality in -- and we do a top-down analysis and we follow -- we have basically a discipline of a portfolio limits that we follow where we have, let's say, high risk -- I mean, where we stipulate, which industries are high-risk, very high-risk or medium-risk or low-risk. And so this is being followed very carefully. But, maybe, I would like to have Alejandro, and if you can -- Alejandro and then Mariano, can you give some more color on the question that Gabriel made?

Yes. Let me comment, Patricio, on the loan loss provisions that Gabriel asked. Although, we reduced our NPLs in the first quarter, automatic deferral has continued until March. We still have loan loss provisions. They were higher than previous quarter but mainly because in the fourth quarter, the cost of risk was very low, we didn't have almost new NPLs as automatic deferrals continued, and we revised our model in certain industries or also in the forward-looking macro variables projection. We were less pessimistic than we were in previous quarters. So the fourth quarter had really a very low level of loan loss provisions. So when compared to that, you see an increase of 20% but it's still a low level of cost of risk. And we also need to make provisions to continue having our coverage because although the loan portfolio decreased in real term, you have some increase in nominal terms. And when you increase 5% to 6%, you need to still make loan loss provisions because the stock of loan loss reserve is not adjusted to inflation, you need to book new charges to -- in order to keep having the same coverage.

All right, that's very clear. Thanks so much. And then asking my second question, looking on your digital strategy, we do see that you're adding more and more clients, more and more downloads. But I wanted to understand here, do you believe that these new clients, they are already starting to generate more revenues for you or do you still believe that you are maybe spending more on these client acquisition costs before digital clients are already becoming profitable for the bank?

You're talking of digital clients in the -- at the bank level? Can you be more specific or I didn't hear the question?

Sure. So, it's more on your digital clients. We see here that you already reached 4,400 clients, if I'm not mistaken here. And so I just wanted to understand if there are some growth in the clients, they are already starting to be profitable for you? Or are you still spending more to acquire these new clients?

Okay, all right. Alejandro, I think it is a question for you. Thank you.

Sure. Good morning, Gabriel. We have being very successful in the digital onboarding of digital native customers so far, and we will continue in that trend. These digital customers, as you know, have a cycle in which they turn profitable. You have a proportion of those that basically leave you some balance in the accounts. And this helps in building up core deposits and a portion of them goes on to become -- so with scoring, we have developed it into credit clients and they contribute to our net interest income. So far, we see this to be evolving as we had planned. We will continue to increase and accelerate on our digital acquisition which is turning out to be very much in line with our objectives.

All right, that's very clear. Thank you everyone for the responses.

Thank you. Our next question is from Carlos Gomez with HSBC. Please proceed with your question.

Hello, and good morning. I would like to know, if you could comment on the latest regulations from the Central Bank allowing the banks to use treasury bonds to meet the liquidity requirements and not just Leliq, those issued by the Central Bank. Do you expect to start using government bonds for these purposes or would you stick to the Central Bank statements? And do you think you will continue to have the option of usage? Thank you.

Well, this is very new. thank you Carlos for the question. This is very new and we typically discuss this. We have a specific asset and liability committee where we discuss these issues. But let me give you my first stomach response. I -- we don't -- we will not use -- I don't think we should use these government bonds as reserve requirements, but this is my stomach response. I personally don't like this regulation. I don't know, if someone else wants to add on that. Maybe Alejandro or Mariano, what do you think?

Yes. Hello, Carlos. I think this is an option given by the Central Bank. Right now, we have our minimum cash reserve fully integrated with the Leliqs which are Central Bank instruments. So immediately, we won't take that option. We have the Central Bank instruments but it's important to know that we can subscribe to new treasury bonds also to use in that remunerated cash reserve. So we'll consider. It's not something that we would do at least in the immediate term.

And again, to clarify at this point, this is an option, you could use them? But you don't have to, both, in the future.

Yes, it's important to highlight that because it's an option given by the Central Bank. Of course, the Central Bank aims to foster the issue of bonds by the treasury but it's an option for banks. So we could subscribe new treasury bonds in order to use the most part of our remunerative cash reserves or we can keep having Leliqs as we do now.

And could, this -- my next question is, could this become an obligation? Could you be obliged to subscribe to the bonds? And with that, would you have any legal avenues to try to avoid?

No, I don't think it will be -- I mean, this is, of course, we cannot know, but I don't think it will be an obligation to do that. I mean, it would be a very bad signal frankly. And I don't think it makes real sense. And I don't think they will do that. This is my opinion.

Absolutely. Thank you so much.

Thank you. Our next question comes from Alejandra Aranda with Itau. Please proceed with your question.

Hi, good morning. Thank you for the question. Basically, I wanted to get a sense of what you're thinking about on the funding side, the liability management. If you could comment a little bit on that, especially because we saw a big jump on deposits for this quarter, but that must have been towards the end, because the average amount remained pretty stable, sequentially. If you could comment a little bit?

Okay. I mean, liquidity management, since the beginning of last year, has been a feature that we constantly use in order to preserve high margins -- high financial margins. And particularly in a scenario where there is -- we have lived through a credit crunch -- three continuous years of credit crunch, we used liquidity management to preserve these margins. And we have a highly seasoned management team to do that. This will continue until credit demand resumes. Maybe, Mariano, do you want to add on that?

Yes. Hello, Alejandra. It's quite right, what you observed. We had higher deposits at the quarter end although, the average balance during the quarter was in line, either slightly lower than previous quarter. So this has to do mainly with institutional funding where we can increase or decrease deposits and use them mainly in short-term security of Central Bank, which is part of our liquidity management. So looking forward, maybe the increase, as of quarter end, will be the starting point of second quarter, so we can see a higher average in the second quarter. But again, it's part of our management. And so we'll manage that the way we think it's more profitable and more prudent.

Okay. But would it be correct to assume that, with that strategy, we could see further margin compression?

As you see -- I am sorry, go ahead Mariano, go ahead, sorry.

Yes. We saw a margin compression in the first quarter, mainly due to the floor on the rates of time deposits. And also, because in the mix of deposits, we saw a higher increase in remunerative deposits, and a lower increase in size deposit. So that put further pressure on margins. And we see that the same will continue then in the second quarter. So, we expect maybe slightly higher margin in pesos and in the line item of the P&L, but as a percentage of NIM and it would be similar to the first quarter and increasing in the second half of the year.

Okay. Thank you very much.

And full year -- just to complement, full year, we believe that the NIM could be similar to the 4Q '20, which is around 20%.

Okay, that's very helpful. Thank you.

Thank you. [Operator Instructions] Ladies and gentlemen, we have reached the end of the question-and-answer session. I will now turn the call over to Ana Bartesaghi 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 updates next quarter, returning to our video conference format. In the interim, we remain available to answer any questions that you may have. Thank you. And stay safe and healthy. Have a great day.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation. Have a great day.