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Operator: Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to Banco Macro’s Third Quarter 2023 Earnings Conference Call. We would like to inform you that the 3Q ‘23 press release is available to download at the Investor Relations website of Banco Macro www.macro.com.ar/relaciones-inversores. Also, this event is being recorded. And all participants will be in listen-only mode during the company’s presentation. After the company’s remarks are completed, there will be a question-and-answer session. At that time, further instructions will be given. [Operator Instructions] It is now my pleasure to introduce our speakers. Joining us from Argentina are Mr. Gustavo Manriquez, Chief Executive Officer; Mr. Jorge Scarinci, Chief Financial Officer; and Mr. Nicolas Torres, Investor Relations. Now, I will turn the conference over to Mr. Nicolas Torres. You may begin your conference.

Nicolas Torres: Thank you, Garry. Good morning, and welcome to Banco Macro’s third quarter 2023 conference call. Any comments we may make today may include forward-looking statements, which are subject to various conditions and these are applied in our 20-F, which was filed to the SEC, and it’s available at our website. Third quarter 2023 press release was distributed last Wednesday and it’s available at our website. All figures are in Argentinian pesos and have been restated in terms of the measuring unit current at the end of the reporting period. As of 2020, the bank began reporting results applying hyperinflation accounting in accordance with IFRS IAS 29 as established by the Central Bank of Argentina. For recent comparison, figures of previous quarters have been restated applying IAS 29 to reflect the accumulated effect of the inflation adjustment for each period through September 30, 2023.

I will now briefly comment on the bank’s third quarter 2023 financial results. Banco Macro’s net income for the quarter was ARS7.5 billion, 87% lower than in the second quarter of 2023, and 65% lower than the result posted a year ago. The bank’s accumulated ROE and ROA of 11.3% and 2.8%, respectively, remained healthy and showed the bank’s earnings potential. Net operating income before general administrative and personal expenses for the third quarter of 2023 was ARS356.5 billion, increasing ARS364 million quarter-on-quarter. On a yearly basis, net operating income before general and personal expenses increased 23% or ARS66.7 billion. In the third quarter of 2023, provision for loan losses totaled ARS4.9 billion, 35% or ARS2.6 billion lower than in the previous quarter.

On a yearly basis, provision for loan losses increased 43%, or ARS1.5 billion. Operating income after general, administrative and personnel expenses was ARS235 billion, or 1% or ARS1.7 billion higher than in the second quarter of 2023, and 31% or ARS56.1 billion higher than in the third quarter of 2022. In the quarter, net interest income totaled ARS112.7 billion, 23% or ARS32.8 billion lower than the result posted in the second quarter of 2023, and 26% or ARS38.6 billion lower than the result posted one year ago. In the third quarter of 2023, interest income totaled ARS429.1 billion, 4% or ARS15.1 billion higher than in the second quarter of 2023, and 31% or ARS102.3 billion higher than the previous year. Within interest income, interest on loans increased 11% or ARS18.1 billion quarter-on-quarter due to a 574 basis points increase in the average lending rate, while the average volume of private sector loans was practically unchanged.

On a yearly basis, income from interest on loans was 36% or ARS47.5 billion higher. In the third quarter of 2023, interest on loans represented 42% of total interest income. Net income from government and private securities decreased 7% or ARS16 billion quarter-on-quarter, due to lower income from government securities. Compared to the third quarter of 2022, net income from government and private securities increased 12%, or ARS21.8 billion. In the third quarter of 2023, income from Repos totaled ARS37.6 billion, 52% or ARS12.8 billion higher than the previous quarter, and 304% or ARS28.3 billion higher than the same period of last year. In the third quarter of 2023, FX gains, including investment in derivative financing totaled ARS238.1 billion gain, ARS135.8 billion higher than the previous quarter, and ARS200 billion higher than a year ago.

This result is mainly due to the 36.4% Argentine peso depreciation against the U.S. dollar, and the bank’s long dollar position, including dollar-linked and dual bonds. In the third quarter of 2023, interest expense totaled ARS316.4 billion, an 18% or ARS47.9 billion increase compared to the second quarter of 2023, and 80% or ARS140.9 billion higher on a yearly basis. Within interest expenses, interest on deposits increased 19%, ARS48.7 million quarter-on-quarter, mainly driven by 1,072 basis points increase in the average interest rate paid on deposits, while the average volume of private sector deposits decreased 3%. On a yearly basis, interest on deposits increased 80% or ARS138.2 billion. In the third quarter of 2023, interest on deposits represented 98% of the Bank’s financial expenses.

In the third quarter of 2023, the Bank’s net interest margin, including FX, was 58.7%, higher than the 38.3% posted in the second quarter of 2023, and higher than the 28.1% posted in the third quarter of 2022. In the third quarter of 2023, net income — net fee income totaled ARS35.5 billion, ARS20 million lower than in the second quarter of 2023, and on a yearly basis, net fee income was 5% or ARS1.6 billion higher. In the third quarter of 2023, net income from financial assets and liabilities at fair value through profit or loss totaled ARS36.4 billion loss, mainly due to the mark-to-market of government securities. On a yearly basis, net income from financial assets and liabilities at fair value through profit or loss decreased ARS97.2 billion.

In the quarter, other operating income totaled ARS11.3 billion, increasing 9% or ARS1 billion compared to the second quarter of 2023. On a yearly basis, other operating income increased 26% or ARS2.4 billion. In the third quarter of 2023, Banco Marco’s personnel and administrative expenses totaled ARS66.2 billion, 3% or ARS1.6 billion higher than the previous quarter due to higher employee benefits, which were partially offset by ARS102 million decrease in administrative expenses. On a yearly basis, personnel and administrative expenses increased 7% or ARS4.4 billion. In the third quarter of 2023, the efficiency ratio reached 22.4%, deteriorating from the 21.7% posted in the second quarter of 2023. In the third quarter of 2023, expenses increased 3%, while net interest income plus net fee income plus other operating income decreased 1%.

In the third quarter of 2023, the result from the net monetary position totaled ARS215.9 billion loss, considerably higher than the loss posted in the second quarter of 2023 as a consequence of higher inflation observed in the quarter, which was 1,104 basis points higher than the second quarter of 2023. Inflation in the third quarter of 2023 was 34.8% compared to 23.8% in the second quarter of 2023. In the third quarter of 2023, Banco Macro’s effective tax rate was 60.5% and further information is provided in Note 22 to our financial statements. In terms of loan growth, the Bank’s total financing totaled ARS1.2 trillion, decreasing 4% or ARS50.8 billion quarter-on-quarter and 5% ARS57.8 billion lower year-on-year. Within commercial loans, overdrafts stand out with a 5% or ARS5.9 billion decrease while documents increased 16% or ARS30.2 billion.

It is important to mention that Banco Macro’s market share over private sector loans as of September 2023 reached 7.7%. On the funding side, total deposits decreased 22% or ARS556 billion quarter-on-quarter totaling ARS2 trillion, and decreased 25% or ARS670 billion year-on-year. Private sector deposits decreased 23% or ARS554.8 billion quarter-on-quarter, while public sector deposits decreased ARS875 million quarter-on-quarter. The decrease in private sector deposits was led by time deposits, which decreased 30% or ARS374.2 billion quarter-on-quarter, while demand deposits decreased 16% or ARS174.3 billion. Within private sector deposits, peso deposits increased 24% or ARS549.7 billion, while US dollar deposits decreased 28% or $351 million.

As of September 2023, Banco Macro’s transactional accounts represented approximately 46% of total deposits. Banco Macro’s market share over private sector deposits as of September 2023 totaled 5.3%. In terms of asset quality, Banco Macro’s non-performing total financial ratio reached 1.39%. The coverage ratio measured as total allowances under Expected Credit Losses over Non-Performing loans under Central Bank rules remained stable at 133.93%. Consumer portfolio non-performing loans deteriorated five basis points, up to 148 from 143% in the previous quarter, while commercial portfolio non-performing loans improved four basis points in the second quarter of 2023, down to 1.14% from 1.18% in the previous quarter. In terms of capitalization, Banco Macro’s accounted an excess capital of ARS788.3 billion, which represented a total regulatory capital ratio of 37.9% and a Tier 1 ratio of 34.8%.

The Bank’s aim is to make the best use of this excess capital. The Bank’s liquidity remained more than appropriate. Liquid assets to total deposit ratio reached 99%. Overall, we have accounted for another positive quarter. We continue showing a solid financial position. Asset quality remained under control and closely monitored. We keep on working to improve more our efficiency standards, and we keep a well-optimized deposit base. Finally, on November 2, 2023, the Central Bank of Argentina approved the sale of Itau Argentina, now Banco BMA, to Banco Macro. Banco Macro has now acquired 100% of the share and votes of Banco Itau Argentina and its subsidiaries. Itau Asset Management and Itau Valores. The price of the agreement was set at $50 million, which was paid on November 3.

An additional amount resulting from a potential adjustment that will be eventually set based on the results obtained by Banco Itau Argentina and its subsidies between April 1, 2023, and the closing date will be determined at a future date. At this time, we would like to take questions that you may have.

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Operator: At this time we’re going to open it up for questions and answers. [Operator Instructions] Our first question today is from Ernesto Gabilondo with Bank of America. Please go ahead.

Ernesto Gabilondo: Hi. Good morning, Gustavo, Jorge and Nicolas. Thanks for the opportunity. My first question will be on the potential economic outlook for Argentina, which do you think could be the key execution risks for the new administration? How do you see the possibility to implement structural reforms considering that Congress could be kind of divided as neither the officialism or the right parties will have the majority? Also related to this macro-political context, we have seen Caputo will be appointed as the new Economic Minister. He has been hinting that the capital controls will not be lifted right away and the dollarization process will be a medium-term target. So, having said that, how are you seeing the dual currency in the medium term?

How should we think about the Argentine peso against the blue sheep? And considering the high inflation levels, when should we start to think of lower rates for Argentina? And I will also kind of related to this, we have been seeing that Milei will want to remove the Central Bank, reduce the leaks and exposure. So if that happens, how are you positioning this excess liquidity? Do you wanted to allocate it into loans? But again, considering this context of high levels of interest rates and inflation, how fast do you think will be the credit demand next year? Thank you.

Jorge Francisco Scarinci: Hi, Ernesto. Good morning. This is Jorge Scarinci. Thanks for your questions. I will try to summarize my answers. On the outlook for 2024 for Argentina, I think that even though it is a bit early, but most of the economic consultants in Argentina are like dividing next year into two. The first-half with a higher inflation compared to the second half basically because of because of as the market is expecting some devaluation on the official effects and some adjustments on tariff prices and also on oil and gas prices. And that could affect short-term inflation. And therefore, the first-half of 2024, we should be seeing a high inflation number compared to the second half, again, according to local economists here.

And in terms of the new administration, honestly, it seems to be like a year ago, they were elected. However, it’s only one week since Milei was elected President. For sure, things in Argentina run in a very high speed. However, we are still two weeks before December 10th when he is going to be appointed in. Therefore, in the last week, we have seen or heard many names to be appointed as ministers and they were laid down, new names appeared. So I would say that we have to be a little bit careful and patient on the names, on the ministries that would help Milei to tackle the next four years for Argentina. I think that the biggest challenge for Milei basically is inflation, of course, and how he will try to reduce the fiscal deficit, also with the reform that he’s planning to send to the Congress.

And again here at the Congress, he would need the help of Juntos por el Cambio because the amount of deputies and senators belonging to Milei are very few. Honestly, it is not an easy task as of today to make what is going to happen in the next 30 or 90 or 120 days of Milei’s period. So we have to be a little bit patient on that and to see how things evolve. According to Milei’s statement, he has a clear picture on the economic, monetary and fiscal situation, and he will try to do his best on the measures. But again, we have to wait because measures will be taken from December 10th onwards and law projects are going to be sent to the Congress after December 10 So we have to wait a little bit more to see official announcements are not only newspaper statements on Milei’s proposals.

And this is including everything, also the dollarization that two months ago was an issue. And now apparently it’s not a big issue. That could take place in two or three years after the normalization of the economy. Same happened with the situation of the Central Bank that — now the last statements are saying that Milei is saying that the Central Bank is not going to be closed, day number one, but he wants to improve the balance of the Central Bank first. So again a bit — a bit of patience on the evolution of the announcements on the official law projects and measures that will take place after December 10th. In terms of Banco Macro, we decided to reduce at some point the exposure to the Central Bank. So at late September, but more in the fourth quarter, we decided to start the reduction of the leaks exposure to — with the Central Bank, at some point, reducing some institutional deposits, also extending additional loans, short-term loans to AAA companies, and also increasing the amount of sovereign bonds in local currency in pesos, basically the dual bonds and dollar-linked bonds.

And so Ernesto, that was a kind of a summary on the bunch of questions that you asked.

Ernesto Gabilondo: No, no, very interesting, very interesting, Jorge. Just a follow-up on this related to your exposure to dual bonds and dollar-linked bonds. And so, how are you thinking for next year? Because we have seen that most of the banks have benefited because they have not been lending and they have been using this excess liquidity into these securities. So thinking that next year could be more challenging. And actually, in this quarter, we saw a lot of volatility. You did very well in terms of FX gains, but we have some losses in the security. So how should we think about this? Or how should we think about the sensitivity, which are the variables that we will have to be looking in the next quarters?

Jorge Francisco Scarinci: Yes, I mean you’re right. In the third quarter, there were some declining prices basically on the dual bonds and dollar-linked bonds as a consequence of some statements made by Milei at that time. However, what we are seeing in the fourth quarter is a big recovery in the prices of these bonds. And nowadays the markets continue showing some hedge against the potential devaluation of the official effects. So the fourth quarter performance on these bonds is looking very good. Honestly, this is a way that we have been mentioning these many times that this is a way of hedging the equity of the bank since banks cannot be long in dollars. So we found this as another way of protecting the equity of the bank.

For next year, I think that conditions might change depending on how the market evolves, how inflation expectations are for the second half. If expectations for inflations decline, this could bring — and of course, in — hand-in-hand with the decline of nominal rates, this would bring additional loan demand. But again, this, if happens, is going to happen by the end of 2024. So I think that next year should be challenging, and at some point banks would have to see where to allocate the excess liquidity. And in the case of Banco Macro, as we have been proving in last years, we always try to allocate excess liquidity in profitable assets with a risk-reward equation to be positive for the bank, always looking at profitability, solvency and liquidity.

So that’s the idea, Ernesto.

Ernesto Gabilondo: Excellent, excellent, Jorge. And just last question on how do you see the ROE for this and for next year?

Jorge Francisco Scarinci: I mean for this year, well, the fourth quarter is not closed yet. We might see something in the area of high-teens or maybe close to 12% depending on the evolution of bond prices, so in that area. For next year, tougher to forecast. Let’s assume that we are working with a scenario of between 10% to 15% in real terms.

Ernesto Gabilondo: Perfect, perfect. Thank you very much.

Jorge Francisco Scarinci: Welcome, Ernesto.

Operator: The next question is from Brian Flores with Citibank. Please go ahead.

Brian Flores: Hi, team. Thank you for the opportunity to ask questions. I have two questions. The first one is on the strategic rationale of deposits. We saw, contrary maybe to some of your peers, a shrinkage in deposits on a quarter-on-quarter basis. So just wanted to understand what is your rationale behind this? That is my first question. And then on the second question, we saw some effects on the effective tax rate. I think your notes were very clear. But just, I was wondering if these effects are recurring in nature, we should see something more for the remainder of the year. Any other insight here is very helpful. Thank you.

Jorge Francisco Scarinci: Hi, Brian. How are you? Let’s start with the second question. In terms of the taxes, I mean, if you look at the ninth-month income tax rate, it is 35%. Basically, it was slightly below in the first two quarters. And basically the third quarter we are catching up in order to reach the 35% income tax statutory rate that we have here in Argentina. In terms of your first quarter, the behavior of deposit is relate to — sorry, related to what I mentioned in to Ernesto’s questioning, I mean, we decided at some point to reduce some institutional deposits in the strategy of reducing the allocation of assets and exposure to the Central Bank, basically because we decided to pay lower interest rate to those depositors that they moved to other banks. That is the main reason for that.

Brian Flores: Okay, perfect. And then just to confirm, I didn’t hear very clearly. You were speaking about ROE for next year between 12% and 15%. Is this correct?

Jorge Francisco Scarinci: Yes, that is correct. Again, very preliminary estimates because, of course, next year is going to be important year in sense of we are going to have new President, new economic cabinet, new measures. So as of today, we are working with that scenario. That could change at the beginning of 2024 depending on the measures and, of course the outcome that economists might be looking for in terms of inflation, GDP, et cetera.

Brian Flores: Perfect. Super clear. Thank you.

Jorge Francisco Scarinci: Welcome.

Operator: The next question is from Nicolas Riva with Bank of America. Please go ahead.

Nicolas Riva: Thanks very much, Nicolas and Jorge, for the chance to ask questions. So Jorge, I want to circle back on kind of the prior question — the initial question that, well, Ernesto made multiple questions. But one of the topics that he wanted to discuss was Leliqs exposure. So and in this case, really talking about Banco Macro, but, you know, as a CFO of one of the largest banks, if you can provide some insights into, at this point, what do you think is the new administration’s plan for the Leliqs? Because it seems to mean, right, but, you know, you’re talking based on what I see here from New York, would be that the market solution that the new administration is talking about could be exchanging the stock of Leliqs for longer-term government bonds.

Is that the way you see it as well? And as you said, the new administration hasn’t even taken off. They’re going to do that December 10. It seems like a year since Milei won the election, but it has only been a week. And also, if at this point, you think that the restructuring of the Leliqs could include any haircut to the principle, I would assume going forward that there’s going to be very little, if any new issuance from Leliqs. But I wanted to also get your thoughts in terms of how you think this administration is going to treat that stock of outstanding Leliqs. Thanks very much, Jorge.

Jorge Francisco Scarinci: Nicolas, how are you? Thanks for your question. Honestly, what we’ve heard for the moment in terms of what the new administration might be doing are only unofficial comments. All of them are unofficial, and we have heard a bunch of different measures. In terms of Banco Macro, I can tell you that, as I mentioned before, we decided to reduce this exposure to the Central Bank. So we are going to reach December with no exposure to Leliqs. I mean, 0% of Leliq’s exposure to the Central Bank started in December. So this is a process that we started almost two months ago. And according to what we’ve seen in the last auctions, there are other private banks that are following the same path that we initiated two months ago.

So at some point, I would say that the new administration is going to have a much smaller amount of Leliqs to work on. In my personal view, most of that is going to be in hands of public-owned banks. But honestly, I don’t know what they are going to offer or what they are going to do with the Leliqs stock that is going to be much, much smaller after December 10th, considering what we have seen in the latest auctions. But honestly, Nicolas, it is not easy for me to tell you what they are going to do, honestly, because all the assignments have been very unofficial and according to the press, still don’t know if it is coupled is going to be the economy meter or if it’s going to go to the Central Bank. So, again, lot of speculations there. So it could not be fair for me to comment on those kind of measures.

Nicolas Riva: Understood, Jorge. If I can one follow up. So you said by the end of this year, by the end of December, we plan to have zero Leliqs in our own balance sheet. Would you feel comfortable moving all of that exposure just from a Central Bank liability to just owning a federal government bond? Or would you prefer to reallocate those Leliqs into a mix of national government bonds, but also some loans to the private sector?

Jorge Francisco Scarinci: No. Yes, I commented that Nicolas. I mean, we started — this was a process that lasted for two months. It was a gradual process of decreasing the amount of Leliqs. And on the other hand, reducing the amount of some institutional depositors plus extending new loans to private companies AAA in the short-term, plus at some point, increasing exposure to sovereign bonds in pesos. So it’s a combination of all that.

Nicolas Riva: Okay. Thanks very much, Jorge.

Jorge Francisco Scarinci: You’re welcome.

Operator: [Operator Instructions] The next question is from Carlos Gomez with HSBC. Please go ahead.

Carlos Gomez: Thank you so much. So, two questions. One is, when one looks at your equity, it has barely changed year-on-year. Is that [Technical Difficulty] and should we expect an investment in the fourth quarter or just [Technical Difficulty]? The second question is regarding the acquisition of Itau Argentina. Could you give us some indication about how this going to affect your [Technical Difficulty]

Operator: Mr. Gomez, this is the conference operator. Unfortunately, your line seems to be breaking up. Could you try repeating your first question?

Carlos Gomez: Hello?

Operator: Go ahead, Mr. Gomez.

Carlos Gomez: Yes. And apologies for the quality of the line. My question was regarding the changes in shareholders’ equity, which have been almost zero year-on-year, and I wanted to know exactly why that is, if it is the valuation of the bond? Second, if you could give us an indication about the impact of the acquisition of Banco Itau Argentina on your capital ratio? Thank you.

Jorge Francisco Scarinci: Hi, Carlos, how are you? In terms of the equity evolution, I mean this is a consequence of the cash dividend that we’ve been paying reducing the amount of course, of the equity plus the increase on the results in real terms. That basically in the first nine months of the year are kind of compensating for the cash dividend payment basically. So this is why the equity is not changing that much, compared to last year. In terms of Itau, we are — I mean, it’s not going to have a major impact in our capital base. The excess capital is going to continue to be similar than the one that we published in the third quarter. Basically, remember that for the payment, we issued local debt, one year duration for the payment of Itau. So basically, the capital ratio is not going to be altered at all.

Carlos Gomez: Thank you so much.

Jorge Francisco Scarinci: Welcome, Carlos.

Operator: The next question is a follow-up from Nicolas Riva with Bank of America. Please go ahead.

Nicolas Riva: Thanks very, Jorge for taking my follow-up question. One question about your dollar position outside of the country. One of the things that the CEO of Itau mentioned in your earnings call was that an advantage for the acquiring bank and for them to sell really was the acquiring bank, Banco Macro could pay with dollars outside of the country. From what I remember, when you issued the 2026 bonds for $400 million in 2016 most of those $400 million were kept offshore. If you can remind us what’s your dollar position outside of the country? I know that you just mentioned that you did issue a local bond to pay for the $50 million. But if you can remind us your dollar position outside of the country, that would be very helpful.

Jorge Francisco Scarinci: Give me one second because please, I have to check at the end of September was abruptly. Sorry, Nicolas, for the delay, $350 million as of September 2023 are casting correspondent banks [abrupt] (ph).

Nicolas Riva: Okay. So that’s essentially the $400 million you had issued back in 2016 minus the $50 million for — to acquire Itau essentially?

Jorge Francisco Scarinci: Yes, approximately.

Nicolas Riva: Okay, okay. Thanks very much, Jorge.

Jorge Francisco Scarinci: You’re welcome.

Operator: There are no more questions at this time. This concludes the question-and-answer session. I will now turn over to Mr. Nicolas Torres for final considerations.

Nicolas Torres: Thank you all for your interest in Banco Macro. We appreciate your time and look forward to speaking with you again. Good day.

Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.