Good morning, everyone, and welcome to the Grupo Supervielle Second Quarter 2022 Earnings Call. This is Ana Bartesaghi, Treasurer and IRO. A slide presentation will accompany today's webinar, which is available in the Investors section of Grupo Supervielle's Investor Relations website. Today's conference call is being recorded. [Operator Instructions] 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, First Vice-Chairman of the Board and CEO of Banco Supervielle. All will be available for the Q&A session. As a reminder, 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 statements section of our earnings release and recent filings with the SEC. We have still no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances. Patricio Supervielle, our Chairman and CEO, will start the call discussing our key highlights for the quarter and updates on our confirmation of [indiscernible]. Afterwards, Mariano Biglia, will take a deeper look at our performance and near-term perspectives and after that, we will open the floor for questions. Patricio, go ahead.

Thank you, Ana. Good morning, everyone. Thank you for joining us today. Please turn to Slide 4 of our earnings presentation. We are navigating an increasingly challenging macroeconomic environment in Argentina and worldwide. Accelerated inflation reaching three digits together with rising interest rates have driven long demand to historical lows, while the governments crowding out is in full force. We have taken immediate actions to adjust to this context, implementing a major restructuring of IUDÚ, our consumer finance business with a goal of running a more efficient operation. And I will discuss this in more detail shortly. Simultaneously, we continue to make significant advances in our key strategic pillars, increasing customer acquisition and digital adoption, improving asset quality and we are transforming our network and significantly rightsizing our bank and brokerage operations to drive efficiency while improving funding. Our bottom line in this quarter was negatively impacted by headcount reductions to capture efficiencies at both IUDÚ and the bank as we prioritize long-term value creation of a short-term profitability. The sharp drop in the price of our government security holdings in June together with significantly high inflation, low credit demand and increased regulatory flows on interest rates on time deposits also impacted results. As a result, we reported a loss of AR$2 billion in the quarter. Excluding nonrecurring severance and early retirement charges, we would have reported a consolidated net loss of AR$1.2 billion, while the banking business would -- have posted a net loss of AR$160 million. Mariano will provide more color on our financial performance on this shortly. While Argentina faces important fiscal, financial and monetary challenges that have not yet been addressed, we remain fully committed on building a more efficient, profitable and scalable operation, while monitoring market dynamics. Reflecting our conviction in the value of securities…

Thank you, Patricio. Please turn to Slide 8. Our loan book stabilized this quarter, that was relatively unchanged sequentially, following the low double-digit sequential threshold in the first quarter. Personal loans increased 1.5% sequentially to just over AR$180 billion. This was mainly driven by loans to SMEs and short-term financing to cooperate together with an increase in our retail customers credit card portfolio, reflecting our customer acquisition strategy, partially offset by 12% sequential contraction of total loans at IUDÚ. This led to a 2 percentage points decline in the weighting of consumer finance loans over our total loan book reaching a historical low. Note that U.S dollar denominated loans continued to decline accounting for just slightly over 8% of total loans. Turning to funding on Slide 9. Total Argentine peso deposits were up 7% sequentially, with core peso deposits increasing 6% in the period. Institutional deposits in turn, were up 7% contributing to support financial income. Liquidity levels remain healthy in local currency as well as in U.S dollars, with a total loan to deposit ratio at 46%, reflecting historical low credit penetration. Please turn to Slide 10. Total net interest margin stood at 18.8% in the quarter. Peso [indiscernible] in turn, declined 30 basis points sequentially to 19% and was up by similar amount year-over-year. A couple of factors contributed to the sequential performance. First, peso cost of funds increased 540 basis point driven by regulatory increases in minimum interest rates on time deposits as described in more detail in our earnings report. Second, the yield on peso investment declined following the sharp drop in the price of our government bond holdings. This [indiscernible] was partially mitigated by [indiscernible] loan to repricing, a 680 basis points increase in the average yield of Central Bank securities and repo transactions coupled…

Thank you, Mariano. This time we will be conducting the question-and-answer session. [Operator Instructions] Our first question comes from Ernesto Gabilondo with Bank of America. Please go ahead, Ernesto.

Thank you, Ana. Hi, good morning, Patricio, Mariano and Alejandro, and thank you for your presentation. My first question is on the political outlook. I understand we're still far from the elections. There's a lot of divisions among political forces. And it seems there's still no preference for a candidate, right. So how are you seeing the political outlook ahead of the elections?

Alejandro, you want to answer that?

So good morning, Ernesto, and thank you for your question. You're quite right. At this point, it's very difficult to tell what the exact shape of the different political alternatives will be. We see that at least on the incumbent on the current administration coalition, there's a lot of strain and it is unclear which candidate would emerge from there. Clearly, we see that the current -- the recent appointment of the current Minister of Finance, is trying to bolster politically the possibilities of Mr. Massa. But that, of course, will depend strongly on how the economy performs after the measures he intends to take. On the opposition side, we've recently seen a lot of factionalism going on and a lot of divisions. But there seems to be some consensus around at least three possibilities. One around what would be the sort of harder hardliners of the opposition around Ms Patricia Wooldridge, then you have somewhere sort of on a broader mainstream perspective of [indiscernible] to the current major of the city of Buenos Aires which is or [indiscernible]. And then we expect a radical candidate to also become available unless some other coalitions formed within that opposition. At this point it's very easy -- very difficult to tell which of these will emerge as stronger candidates. What we do know is the current polls show that there's a lot of voter in satisfaction regarding the current administration.

Oh, perfect. Thank you very much. And just a second question on your buyback program. We have been getting questions from investors, asking if this is the best use of capital, considering the challenging macro outlook for Argentina. As you have mentioned in your presentation, inflation could be up to 90% and rates are still moving up to maximum levels. So it seems it will be difficult to normalize those levels in the short-term. And this within the context of risks of an important depreciation of the Argentine peso. On the other hand, if we look into Supervielle's balance sheet, it seems has lower strengths when compared to the large cap banks. The reserve coverage ratio, it's at 108%. Tier 1 ratio, as you mentioned could be around 13%. But when looking to the large cap banks they have coverage ratios of 170% and common equity Tier 1s above the 25%. I understand all the internal initiatives and what you mentioned about these six pillars initiatives to improve profitability. But considering the external risks and challenging outlook in Argentina, I would like to hear your thoughts about these buyback program. Thank you.

Mariano, you want to answer that question.

Yes. Good morning, Ernesto. Yes, currently, we feel comfortable with our capital levels, with our tier rating over 13%. Although it's lower than our peers, we know there's -- there are -- where our limitations in place in the past years on the payment of dividends, now they are being partially released. So if we focus on the current capital ratio and the outlook for the future, we feel it's an adequate level. The impact of this buyback in the capital ratio will be also limited because it's AR$2 billion, maximum level program. So, as of June 30, all the product has been executed, it will have an impact of .6% in the Tier 1 capital ratio, it should be lower in the future as this amount is fixed in pesos, so it's been diluted over time. And also, it has a cost for us and for our shareholders to have this excess capital because it loses value with inflation impacting our P&L. And the way to protect inflation with liquidity, the way to protect the liquidity at the [indiscernible] level, remember that this is liquidity that we have at the holding company received from dividends from subsidiaries that have positive results as Supervielle [indiscernible] and Supervielle's management. So, in order to keep the value of these liquidity in real terms, we have few options. The main option is treasury bonds, which has also its risk as we saw in this quarter. So this decision allows us to remain in an adequate capital level, reduce our treasury bonds portfolio, and reduce the impact of inflation. At the same time, we're buying shares that [indiscernible] do not reflect the actual value or the value based on the fundamentals of the stock. So, this is for us also an appropriate decision.

Ernesto, I would like to compliment on what Mariano just said. The buyback program is basically for us is a signal that we believe in what we're doing in, in terms of transformation. The Grupo Supervielle, we believe has the most of this transformation program compared to -- in the financial system looking at what you see in terms of, for instance, consolidation of branches that we are pursuing since last year, and which is also in the hands of the Central Bank already, but already -- even though we are expecting the, let's say, authorization to close branches, we have already operated a drastic diminution of operating costs at all the branches that we want to close. Also if you see for instance, a transformation that the -- sorry, the transfer of 18 branches and -- to in province of San Luis, which were inefficient branches, and what we continue to do in the future in terms of, for instance, closing more inefficient branches, but also particularly putting in place the new, let's say, digital technologies, the virtual hubs that allow us to do anywhere banking and anytime banking in the country. This bill -- this is a strong belief that the company Banco Supervielle will be a very competitive company. So we are -- we want to sacrifice -- we are willing to sacrifice short-term profits in order to reap the rewards in near future. We have been executing efficiencies in 2019, 2020 -- sorry, 2021 and 2022 at the bank level. Now you see a major transformation that we are doing to do with, which is a consumer finance operation by basically executing a very, very drastic employee reduction. And also, we are -- we will be transferring all clients from IUDÚ into the bank in order to operate it in a single platform in the bank. We believe that all these will turn into return on equity and creation of capital. When the macro changes in Argentina, when it becomes more rational, this -- all these measures we're taking today will allow us to grow again in a healthy way and much more efficient way. So this is why we're implementing this, in addition to what Mariano said, which is basically holding government securities basically that harvest other risk.

Thank you very much, Patricio and Mariano.

Thank you, Ernesto. The following question comes from Yuri Fernandes at JPMorgan. Yuri, please go ahead.

Thank you, Ana. Hi, guys. I have a question regarding the profitability outlook. I understand that the change in the macro political environment is key here. But you have been doing a lot on the cost side. And we are still not seeing like better bottom line, right. So my question is, when should we start to see a better trend here? I guess you have -- you had some trading losses this quarter. So I guess a question I have is, how are you seeing those losses in July, August, like are things improving? And regarding IUDÚ, I guess the business is getting much smaller, you're reducing headcount. So given like the size of the severance payments over last quarters, like should we see earnings improvement from here? Like what is the outlook in a more short midterm for you? Thank you.

Alejandro, you want to answer this question?

Yes, of course. Good morning, Yuri. Thank you for your question. What we have been doing is basically very much trying to take advantage of a series of restructuring that needed to be done in a context which isn't really favoring a growth of the financial system. The macroeconomic and the regulatory conditions right now, drive the financial sector to lend to the Central Bank or to the government treasury. Also, the increase in inflation deteriorates financial intermediation. So commercial banks that are positioned to serve the private sector in these contexts suffer more than others. As mentioned before, we worked hard on improving efficiencies in '21 and '22. And we also invested in client acquisition, in part -- as part of our digital transformation strategy. And this has had an impact as you pointed out in our ROE. The drop in the bonds we saw in the month of June, we think was a reflection of a one-time effect and that the Central Bank tried to correct quickly that situation after. Basically we have very clear policies on stop loss and that was executed promptly and therefore, that was the loss that was taken. But at the same time, part of these losses were recovered with a subsequent evolution. Customer acquisition, also as mentioned before, has an impact on ROE in the short-term because you have a combination of caps on credit card lending. And also you have these [indiscernible] on rates for time deposits, which affect the short-term ROE of this acquisition process. But again, here we are taking a long-term view in which the customer acquisition process and product development process enhancement of the customer experience and increased digital adoption will help us. In the short-term, this 18% reduction of headcount and restructuring of IUDÚ and bringing them into the bank platform will take a toll. But we see that probably in the second half of next year, depending on macroeconomic conditions, and much of this hard work that has been going on will render its fruits.

No, that's pretty clear. So second half of the next year is kind of your best -- assuming again, really depending on the economy on inflation. But given what you're seeing, second half is the best guess? Okay. And I have …

As you can imagine, Yuri, you cannot do this without the demand side, the credit demand, macroeconomic conditions don't enhance, this will continue to be challenging.

No, that's clear. And I have a second question regarding exactly that point, like you have been more [indiscernible] on retail. I remember in the [indiscernible] and we are seeing auto loans growing nicely. But when you consider the total retail like the total loss [indiscernible] they have been flattish or slightly down. So my question is, is this you becoming a little bit more restrictive, given like higher inflation in Argentina? Or it's a demand issue for like -- is there a strategy changing because of the inflation? I guess that's the kind of question I want to ask. Thank you.

Yes, during these periods, we typically become more sensitive to asset quality. And we have been very careful and you see this in the strength of our portfolio. When you go into this kind of macroeconomic context, which are difficult and changing and volatile, you want to be sure that the asset quality is protected. And this, for example, in the case of consumer lending, has had a very clear impact. And we have become more restrictive in our lending policy in that segment, in particular. We have also bolstered and drove growth in segments that we think have a good potential and good asset quality, like the one you mentioned, which is the current segment and the cases of loans backed by assets that customers will defend. So all in all, what we're doing is basically balance are more uncertain macroeconomic outlook, where we see that some of the segments that we cater to that serve have been losing purchasing power and disposable income. Case endpoint is not only consumer segments, but also pensioners as you probably know, and at the same time trying to increase the portion of middle to high income customers and asset backed loans, which are helping us to balance this equation a bit better.

Perfect. Thank you, guys.

Thank you, Yuri. So I think there are no more questions today. So ladies and gentlemen, we have reached the end of today's Q&A session. 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. In the interim, we will remain available to answer any questions that you may have.