UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM20-F
(Mark One)
☐ | Registration statement pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934 |
or
☒ | Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, |
or
☐ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
for the transition period from to
or
☐ | Shell Company Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Date of the event requiring this shell company report.
Commission file number:001-32827
BANCO MACRO S.A.
(Exact Name of Registrant as Specified in its Charter)
Macro Bank, Inc.
(Translation of registrant’s name into English)
Argentina
(Jurisdiction of incorporation or organization)
Avenida Eduardo Madero 1182, City of Buenos Aires, Argentina
(Address of registrant’s principal executive offices)
Jorge Francisco Scarinci
Chief Financial Officer
Banco Macro S.A.
Avenida Eduardo Madero 1172, 24th Floor
City of Buenos Aires, Argentina, C1106ACY Telephone:(+54-11-5222-6730)
Email: (jorgescarinci@macro.com.ar)
(Name, telephone,e-mail and/or facsimile member and address of company contact person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbol(s) |
| ||
American Depositary Shares | BMA | New York Stock Exchange | ||
Class B ordinary shares, par value Ps.1.00 per share | BMA | New York Stock Exchange(*) |
(*) | Ordinary shares of Banco Macro S.A. are not listed for trading but only in connection with the registration of American Depositary Shares which are evidenced by American Depositary Receipts. |
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
11,235,670 Class A ordinary shares, par value Ps.1.00 per share
658,427,351628,177,738 Class B ordinary shares, par value Ps.1.00 per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☐ No ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer or an emerging growth company. See definition of “large accelerated filer, accelerated filer and emerging growth company” in Rule12b-2 of the Exchange Act.:
Large accelerated filer | ☒ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | Emerging growth company | ☐ |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☐ | International Financial Reporting Standards as issued by the International Accounting Standards Board ☒ | Other ☐ |
If “Other has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:
Indicate by check mark which financial statement item the registrant has elected to follow:
Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes ☐ No ☒
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 23 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by the court.
Yes ☐ No ☐
Please send copies of notices and communications from the Securities and Exchange Commission to:
Hugo N. L. Bruzone Bruchou, Fernández Madero & Lombardi Ing. Butty 275, 12th Floor
| Jeffrey Cohen Linklaters LLP 1345 Avenue of the Americas New York, NY 10105 |
3 | ||||||
Item 1. | 3 | |||||
Item 2. | 3 | |||||
Item 3. | 3 | |||||
Item 4. | ||||||
Item 4A. | ||||||
Item 5. | ||||||
Item 6. | ||||||
Item 7. | ||||||
Item 8. | ||||||
Item 9. | ||||||
Item 10. | ||||||
Item 11. | ||||||
Item 12. | ||||||
Item 13. | ||||||
Item 14. | Material Modifications to the Rights of Security Holders and Use of Proceeds | |||||
Item 15. | ||||||
Item 16A. | ||||||
Item 16B. | ||||||
Item 16C. | ||||||
Item 16D. | ||||||
Item 16E. | Purchases of Equity Securities by the Issuer and Affiliated Purchasers | |||||
Item 16F. | ||||||
Item 16G. | ||||||
Item 17. | ||||||
Item 18. | ||||||
Item 19. |
Explanatory note
We have relied on the Securities and Exchange Commission’s Order, dated March 25, 2020 (ReleaseNo. 34-88465), under Section 36 of the Securities Exchange Act of 1934, to delay the filing of this annual report due to circumstances related to theCOVID-19 pandemic. Particularly, on March 12, 2020, the Argentine government declared a health emergency to manage the crisis caused byCOVID-19. On March 19, the Argentine government issued astay-at-home order, which has applied from March 20, 2020 and most recently extended through May 24, 2020. Consequently, access to the Bank’s facilities has been restricted resulting in limited support from its staff and professional advisors. Additionally, management has been focused on dealing with the situation resulting from theCOVID-19 pandemic and related operational issues. This has, in turn, delayed the Bank’s ability to prepare this annual report.
Certain defined terms
In this annual report, we use the terms “the registrant,” “we,” “us,” “our” the “Bank” and “Banco Macro” to refer to Banco Macro S.A. and its subsidiaries, on a consolidated basis. References to “Banco Macro” refer to Banco Macro S.A. on an individual basis. References to “Class B shares” refer to shares of our Class B common stock and references to “ADSs” refer to American depositary shares representing our Class B shares, except where otherwise indicated by the context.
The term “Argentina” refers to the Republic of Argentina. The terms “Argentine government” or the “government” or the “Federal government” refer to the federal government of Argentina, the term “Argentine Congress” refers to the Argentine National Congress, the legislative branch of the government of Argentina, the term “Central Bank” refers to theBanco Central de la República Argentina, or the Argentine Central Bank, the term “Superintendency” refers to theSuperintendencia de Entidades Financieras y Cambiarias or the Superintendency of Financial and Exchange Entities, the term “CNV” refers to theComisión Nacional de Valores, or the Argentine Securities Commission, the term “BYMA” refers toBolsas y Mercados Argentinos S.A.,or the Buenos Aires Stock Exchange, the term “MAE” refers toMercado Abierto Electrónico, the term “NYSE” refers to the New York Stock Exchange, the term “IGJ” refers to theInspección General de Justicia, or Public Registry of Commerce of Buenos Aires, and the term “ANSES” refers to theAdministración Nacional de la Seguridad Social or National Social Security Agency.
TheAgency, and the term “Brazil”“UIF” refers to the Federative Republic of Brazil.Unidad de Información Financiera or Financial Information Unit. The term “EU” refers to the European Union. The term “PyME” refers toPequeñas y Medianas Empresas or small- andmedium-sized companies.
The terms “U.S. dollar” and “U.S. dollars” and the symbol “U.S.$” refer to the legal currency of the United States. The terms “Peso” and “Pesos” and the symbol “Ps.” refer to the legal currency of Argentina. “Billion” refers to the number 1,000,000,000. “Central Bank Rules” refers to the accounting and other regulations of the Central Bank. “IFRS” refers to the International Financial Reporting Standards as issued by the International Accounting Standards Board (“IASB”).
The term “GDP” refers to gross domestic product and all references in this annual report to GDP growth are to real GDP growth. The term “INDEC” refers to the National Statistics Institute (Instituto Nacional de Estadísticas y Censos). The term “CER,” or benchmark stabilization coefficient, is an index issued by the Argentine government which is used to adjust value of credits and deposits. Pursuant to Resolution No. 203/2016 from the former Ministry of Economy and Finance, as of June 2016, the Consumer Price Index (Índice de Precios al Consumidor) currently in force and used to adjust the CER. The term “UVI” means Unidad de Vivienda, it represents the cost of construction of one thousandth square meter of housing. The term “UVA”, means Unidad de Valor Adquisitivo, it is an index determined by the Central Bank, reflecting the variation ofone-thousandth of the average value of a square meter built for housing in Argentina (such that 1,000 UVAs are equivalent to one square meter). This value was initially set at Ps.14.05 and is updated daily based on the term “UVI” means Unidad de Vivienda.variation in the CER since March 31, 2016.
Presentation of certain financial and other information
Our consolidated financial statements included in this annual report have been prepared in accordance with IFRS as issued by the IASB. These are our first annual consolidated financial statements prepared in accordance with IFRS.
As mentioned in Note 3 of the accompanying consolidated financial statements, up to the fiscal year ended December 31, 2017, the Bank prepared its financial statements in accordance with Central Bank Rules. The effects of the changes between the standards applied at the end of the fiscal year ended December 31, 2017 and IFRS, are explained in the reconciliations included under the title “First-time Adoption of IFRS” of that note.
The consolidated financial statements as of and for the year ended December 31, 20182019 and the corresponding figures for the previous fiscal yearyears have been restated for the changes in the general purchasing power of the functional currency (Argentine pesos) of the Bank as established by IAS 29. As a result, those consolidated financial statements are stated in terms of pesos adjusted for inflationthe measuring unit current at the end of the reporting period (December 31, 2018). 2019), except otherwise indicated. The inflation rate was 53.83%, 47.64% and 24.8% for the fiscal years ended on December 31, 2019, 2018 and 2017, respectively.
Solely for the convenience of the reader, the reference exchange rate for U.S. dollars as of December 31, 2018,2019, as reported by the Central Bank was Ps.37.8083Ps.59.8950 to U.S.$1.00.
The accompanying consolidated financial statements include the financial statements, as of December 31, 2018,2019, of the Bank and the following subsidiaries.
Banco del Tucumán S.A. (“Banco del Tucumán”);
Macro Bank Limited (an entity organized under the laws of Bahamas);Limited;
Macro Securities S.A. (“Macro Securities”);
Macro Fiducia S.A. (“Macro Fiducia”); and
Macro Fondos S.G.F.C.I. S.A. (“Macro Fondos”); and
Argenpay S.A.U. (“Argenpay”).
IFRS differs in certain significant respects from Central Bank Rules. As a result, our financial information presented under IFRS is not directly comparable to our financial information presented under Central Bank Rules. Accordingly, readers should exercise caution when making any comparison.
Following our adoption of IFRS, we are no longer required to reconcile our financial statements to U.S. GAAP.
Rounding
Certain figures included in this annual report have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures that precede them.
Market and Central Bank Data
We make statements in this annual report about our competitive position and market share in, and the market size of, the Argentine banking industry. We have made these statements on the basis of statistics and other information from third-party sources that we believe are reliable. Although we have no reason to believe any of this information or these reports are inaccurate in any material respect, we have not independently verified the competitive position, market share and market size or market growth data provided by third parties or by industry or general publications.
Information provided by the Central Bank of Argentina has been prepared with a methodology that may not necessarily follow that used by us in the preparation of our consolidated financial statements included in this annual report (e.g. it has not been adjusted for inflation), and as a result may not be directly comparable.
Our internet site is not part of this Annual Report
We maintain our website atwww.macro.com.ar. Information contained in or otherwise accessible through this website is not a part of this annual report. All references in this annual report to this internet site are inactive textual references to this URL, or “uniform resource locator” and are for informational reference only.
Cautionary statement concerning forward-looking statements
This annual report contains certain statements that we consider to be “forward-looking statements.” We have based these forward-looking statements largely on our current beliefs, expectations and projections about future events and financial trends affecting our business. Many important factors, in addition to those discussed elsewhere in this annual report, could cause our actual results to differ substantially from those anticipated in our forward-looking statements, including, among other things:
changes in economic, business, political, legal, social or other conditions in Argentina and worldwide;
governmental intervention and regulation (including banking and tax regulations);
developments in the global financial markets;
deterioration in the Argentine financial system or regional business and economic conditions;
inflation;
fluctuations and declines in the exchange rate of the Peso;
changes in interest rates which may adversely affect financial margins;
adverse legal or regulatory disputes or proceedings;
credit and other risks of lending, such as increases in defaults by borrowers and other delinquencies;
increase in the provisions for loan losses;
fluctuations and declines in the value of Argentine public debt;debt, as well as the Argentine government’s inability to successfully restructure dollar-denominated foreign public indebtedness;
decrease in deposits, customer loss and revenue loss;
competition in banking, financial services and related industries and the loss of market share;
cost and availability of funding;
the integration of any acquisitions and the failure to realize expected synergies;
the impact of the 2019 coronavirus disease(“COVID-19”) on the economy, and on our customers, employees, vendors and us; and
the risk factors discussed under Item 3.D “Risk Factors.”
The words “believe”, “may”, “will”, “aim”, “estimate”, “continue”, “anticipate”, “intend”, “expect”, “forecast” and similar words are intended to identify forward-looking statements. Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, industry environment, potential growth opportunities, the effects of future regulations and the effects of competition. Forward-looking statements speak only as of the date they were made, and we will not, and disclaim any obligation to update publicly or to revise any forward-looking statements after we distribute this annual report because ofdue to new information, future events or other factors. In light of the risks and uncertainties described above, the forward-looking events and circumstances discussed in this annual report might not occur and are not guarantees of future performance.
Sections of this annual report that by their nature contain forward-looking statements include, but are not limited to, Item 3. “Key Information,” Item 4. “Information on the Bank,” Item 5. “Operating and Financial Review and Prospects” and Item 11. “Quantitative and Qualitative Disclosure About Market Risk.”
Item 1. Identity of Directors, Senior Management and Advisers
Not applicable.
Item 2. Offer Statistics and Expected Timetable
Not applicable.
A. Selected Financial Data
The following financial information for the years ended December 31, 2018 and 2017 and the selectedOur consolidated financial informationstatements as of December 31, 2019 and 2018 and 2017 hashave been prepared in accordance with IFRS, as issued by IASB. In 2018 the IASB and derived from our auditedBank adopted IFRS with a transition date at January 1, 2017. Prior to January 1, 2018 the Bank prepared its consolidated financial statements included elsewhere in this annual report.accordance with Central Bank Rules and reconciled to U.S. generally accepted accounting principles (“U.S. GAAP”).
The consolidated financial statements and the financial information included in this annual report for all periods reported are in Argentine pesosPesos stated in terms of the measuring unit current at the end of the reporting period (December 31, 2018)2019). Due to the high inflationary level that has prevailed in Argentina in the recent past, our management has analyzed the conditions established by IAS 29 paragraph 3 for an economy to be considered as hyperinflationary. Based on such analysis, our management considers that there is evidence to determinate Argentina’s economy as “hyperinflationary” under IAS 29 for accounting periods ending after July 1, 2018. See “—Risk factors—Risk Related to Argentina— An increase inContinuing high inflation could have a material adverse effect on Argentina’s economic prospects”, “Item 5—Operating and Financial Review and Prospects—Macroeconomic Environment” and note 3 “Basis for the preparation of these financial statements and applicable accounting standards” to our audited consolidated financial statements as of December 31, 20182019 and 2017.2018.
OurThe consolidated financial statements have been prepared in accordance with IFRS asstatement of andincome for the years ended December 31, 2019, 2018 and 2017. Prior to January 1,2017 and the consolidated statements of financial position as of December 31, 2019 and 2018, the Bank prepared itsare derived from our audited consolidated financial statements and related notes included elsewhere in accordance with Central Bank Rules. Reconciliationsthis annual report. The consolidated financial data for the year ended December 31, 2017, has been derived from our audited consolidated financial statements not included in this annual report and descriptionthose figures were adjusted as of December 31, 2019. The following tables present summary historical consolidated financial data for each of the transition to IFRS, and the effects on equity and net income are presented under the title “First-time Adoption of IFRS” of note 3 toperiods indicated. You should read this information in conjunction with our consolidated financial statements.statements and related notes, and the information under Item 5. “Operating and Financial Review and Prospects” included elsewhere in this annual report.
Selected Consolidated Statement of Income Data | Year Ended December 31, | |||||||
2017 (1) | 2018 | |||||||
(in thousands of Pesos, except for number of shares, net income per share and dividends per share) | ||||||||
Interest income | 55,826,695 | 74,733,441 | ||||||
Interest expense | (16,971,578 | ) | (29,563,908 | ) | ||||
Net Interest Income | 38,855,117 | 45,169,533 | ||||||
Commissions income | 14,987,879 | 14,474,765 | ||||||
Commissions expense | (1,113,684 | ) | (930,045 | ) | ||||
Net Commissions income | 13,874,195 | 13,544,720 | ||||||
Subtotal (Net Interests income + Net Commissions income) | 52,729,312 | 58,714,253 | ||||||
Net Income from measurement of financial instruments at fair value through profit or loss | 944,908 | 1,261,206 | ||||||
Profit/ (Loss) from sold assets at amortized cost | 18,885 | (6,129 | ) | |||||
Difference in quoted prices of gold and foreign currency | 2,252,700 | (1,750,282 | ) | |||||
Other operating income | 2,605,384 | 3,347,241 | ||||||
Credit loss expense on financial assets | (2,613,724 | ) | (2,900,048 | ) | ||||
Net Operating Income | 55,937,465 | 58,666,241 | ||||||
Total Operating Expenses | (32,580,603 | ) | (34,617,063 | ) | ||||
Net Operating Income after expenses, depreciation and amortization | 23,356,862 | 24,049,178 | ||||||
Income from associates and joint arrangements | 290,303 | 266,302 | ||||||
Loss on net monetary position | (9,218,751 | ) | (15,722,476 | ) | ||||
Income before tax on continuing operations | 14,428,414 | 8,593,004 | ||||||
Income tax on continuing operations | (8,408,808 | ) | (9,327,117 | ) |
Selected Consolidated Statement of Income Data | Year Ended December 31, | |||||||
2017 (1) | 2018 | |||||||
(in thousands of Pesos, except for number of shares, net income per share and dividends per share) | ||||||||
Net Income/(loss) from continuing operations | 6,019,606 | (734,113 | ) | |||||
Net Income/(loss) for the fiscal year | 6,019,606 | (734,113 | ) | |||||
Net Income/(loss) for the fiscal year attributable to the owners of the Parent Company | 5,938,807 | (701,220 | ) | |||||
Net Income/ (loss) for the fiscal year attributable tonon-controlling interests | 80,799 | (32,893 | ) | |||||
Other Comprehensive Loss | (80,960 | ) | (71,025 | ) | ||||
Foreign currency translation differences in financial statements conversion | (63,151 | ) | 382,728 | |||||
Losses for financial instruments measured at fair value through other comprehensive income | (17,809 | ) | (453,753 | ) | ||||
Total Comprehensive Income/(loss) for the fiscal year | 5,938,646 | (805,138 | ) | |||||
Total Comprehensive Income/(loss) attributable to the owners of the parent Company | 5,858,588 | (772,243 | ) | |||||
Total Comprehensive Income/(loss) attributable tonon-controlling interests | 80,058 | (32,895 | ) | |||||
Net income/(loss) per share (2) | 9.43 | (1.06 | ) | |||||
Dividends per share approved by the shareholders’ meeting (3) | 5.00 | 10.00 | ||||||
Dividends per share in U.S.$ approved by the shareholders’ meeting | 0.27 | 0.26 | ||||||
Weighted average number of outstanding shares (in thousands) | 629,531 | 661,141 |
Year Ended December 31, | ||||||||||||
Selected Consolidated Statement Of Income Data | 2017 (1) | 2018 (1) | 2019 | |||||||||
(in thousands of Pesos, except for number of shares, net income per share and dividends per share) | ||||||||||||
Net Interest Income | 60,321,710 | 73,787,943 | 87,409,681 | |||||||||
Net Commissions income | 21,072,902 | 20,570,002 | 17,831,486 | |||||||||
Subtotal (Net Interests income + Net Commissions income) | 81,394,612 | 94,357,945 | 105,241,167 | |||||||||
Net gain from measurement of financial instruments at fair value | 1,453,442 | 1,940,516 | 7,932,797 | |||||||||
Profit / (Loss) from sold or derecognized assets at amortized cost | 29,052 | (9,429 | ) | 27,417 | ||||||||
Differences in quoted prices of gold and foreign currency | 3,465,434 | (2,692,459 | ) | 3,497,301 | ||||||||
Other operating income | 4,279,228 | 5,411,025 | 7,680,839 | |||||||||
Credit loss expense on financial assets | (4,020,812 | ) | (4,461,143 | ) | (4,346,885 | ) | ||||||
Net Operating Income before expenses, depreciation and amortization | 86,600,956 | 94,546,455 | 120,032,636 | |||||||||
Total Operating Expenses (4) | (50,247,840 | ) | (53,200,092 | ) | (59,110,624 | ) | ||||||
Net operating income after expenses, depreciation and amortization | 36,353,116 | 41,346,363 | 60,922,012 | |||||||||
Income from associates and joint arrangements | 446,584 | 409,655 | 898,428 | |||||||||
Loss on net monetary position | (14,730,578 | ) | (28,489,943 | ) | (28,194,756 | ) | ||||||
Income before tax on continuing operations | 22,069,122 | 13,266,075 | 33,625,684 | |||||||||
Income tax on continuing operations | (12,935,657 | ) | (14,347,904 | ) | (12,975,037 | ) | ||||||
Net Income/(Loss) from continuing operations | 9,133,465 | (1,081,829 | ) | 20,650,647 | ||||||||
Net Income/(Loss) for the fiscal year | 9,133,465 | (1,081,829 | ) | 20,650,647 | ||||||||
Net Income/(Loss) for the fiscal year attributable to controlling interest | 9,132,907 | (1,082,089 | ) | 20,650,410 | ||||||||
Net Income/(Loss)e for the fiscal year attributable tonon-controlling interests | 558 | 260 | 237 | |||||||||
Other Comprehensive Income/(Loss) | (123,409 | ) | (109,684 | ) | 217,599 | |||||||
Foreign currency translation differences in financial statements conversion | (97,145 | ) | 588,750 | 85,322 | ||||||||
Profit or losses for financial instruments measured at fair value through other comprehensive income | (27,400 | ) | (698,009 | ) | 132,277 | |||||||
Other Comprehensive (Loss)/Gain | 1,136 | (425 | ) | — | ||||||||
Total Comprehensive Income/(Loss) for the fiscal year | 9,010,056 | (1,191,513 | ) | 20,868,246 | ||||||||
Total Comprehensive Income/(Loss) attributable to controlling interest | 9,009,500 | (1,191,770 | ) | 20,868,017 | ||||||||
Total Comprehensive Income/(Loss) attributable tonon-controlling interests | 556 | 257 | 229 | |||||||||
Basic earnings / (loss) per share (2) | 14.51 | (1.64 | ) | 32.30 | ||||||||
Dividends per share approved by the shareholders’ meeting (3) | 5.00 | 10 | 20.00 | |||||||||
Dividends per share in US$ approved by the shareholders’ meeting | 0.27 | 0.26 | 0.33 | |||||||||
Weighted average number of outstanding common shares (in thousands) | 629,531 | 661,141 | 639,402 |
(1) | Figures stated in thousands of |
(2) | Net income/(loss) for the fiscal year attributable to |
(3) | Not adjusted for inflation. |
Selected Consolidated Statement of Financial Position Data | As of January 1, | As of December 31, | ||||||||||
2017 (1) | 2017 (1) | 2018 | ||||||||||
(in thousands of Pesos) | ||||||||||||
ASSETS | ||||||||||||
Cash and Deposits in Banks | 66,306,368 | 52,505,097 | 74,766,039 | |||||||||
Investments in Debt Securities and Equity Instruments | 38,942,057 | 53,259,386 | 67,271,524 | |||||||||
Derivative Financial Instruments | 17,911 | 12,149 | 17,293 | |||||||||
Repo Transactions | 35,237 | 2,096,284 | — | |||||||||
Loans and other financing | 162,864,366 | 195,864,678 | 179,166,463 | |||||||||
Other Financial Assets | 8,837,262 | 14,633,198 | 9,755,804 | |||||||||
Investment in associates and joint arrangements | 228,970 | 323,265 | 108,823 | |||||||||
Property, Plant and Equipment | 13,953,683 | 15,205,782 | 15,544,258 | |||||||||
Intangible Assets | 1,506,292 | 1,626,253 | 2,120,595 | |||||||||
Deferred Income Tax Assets | — | 1,249 | — | |||||||||
OtherNon-financial Assets | 2,161,137 | 2,174,196 | 985,435 | |||||||||
Non-current assets held for sale | 174,283 | 368,329 | 1,496,757 |
(4) | Includes employee benefits, administrative expenses, depreciation and amortization of fixed assets and other operating expenses. |
As of December 31, | ||||||||||||||||||||||||
Selected Consolidated Statement of Financial Position Data | As of January 1, | As of December 31, | 2017 (1) | 2018 (1) | 2019 | |||||||||||||||||||
2017 (1) | 2017 (1) | 2018 | (in thousands of Pesos) | |||||||||||||||||||||
(in thousands of Pesos) | ||||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||
Cash and Deposits in Banks | 80,770,997 | 115,012,597 | 100,680,063 | |||||||||||||||||||||
Investments in Debt Securities and Equity Instruments | 81,931,361 | 103,483,785 | 72,805,151 | |||||||||||||||||||||
Derivative Financial Instruments | 18,688 | 26,602 | 615,902 | |||||||||||||||||||||
Repo Transactions | 3,224,809 | — | 1,087,916 | |||||||||||||||||||||
Loans and other financing | 301,307,646 | 275,611,789 | 220,897,814 | |||||||||||||||||||||
Other Financial Assets | 22,510,923 | 15,007,333 | 16,837,224 | |||||||||||||||||||||
Investment in associates and joint arrangements | 497,294 | 167,402 | 146,331 | |||||||||||||||||||||
Property, Plant and Equipment | 23,391,755 | 23,911,732 | 25,747,557 | |||||||||||||||||||||
Intangible Assets | 2,501,740 | 3,262,112 | 3,542,060 | |||||||||||||||||||||
Deferred Income Tax Assets | — | — | 43,423 | |||||||||||||||||||||
OtherNon-financial Assets | 3,344,667 | 1,515,894 | 1,085,336 | |||||||||||||||||||||
Non-current assets held for sale | 566,617 | 2,302,462 | 1,751,093 | |||||||||||||||||||||
TOTAL ASSETS | 295,027,566 | 338,069,866 | 351,232,991 | 520,066,497 | 540,301,708 | 445,239,870 | ||||||||||||||||||
Average Assets | — | 322,289,580 | 344,724,767 | 495,778,060 | 530,290,109 | 506,275,010 | ||||||||||||||||||
LIABILITIES | ||||||||||||||||||||||||
Deposits | 206,113,028 | 212,800,371 | 237,954,419 | 327,360,592 | 366,049,491 | 262,865,354 | ||||||||||||||||||
Liabilities at fair value through profit or loss | — | 9,523 | — | 14,650 | — | — | ||||||||||||||||||
Derivative Financial Instruments | — | 34,116 | 1,369 | 52,483 | 2,106 | 768,732 | ||||||||||||||||||
Repo Transactions | 2,018,763 | 3,968,851 | 164,469 | 6,105,466 | 253,003 | 1,002,511 | ||||||||||||||||||
Other Financial Liabilities | 11,684,864 | 15,593,151 | 15,318,513 | 23,987,660 | 23,559,130 | 22,169,608 | ||||||||||||||||||
Financing received from the Central Bank of Argentina and other financial entities | 479,907 | 1,733,524 | 2,998,010 | 2,666,759 | 4,611,839 | 2,245,804 | ||||||||||||||||||
Issued Debt instruments | 14,853,131 | 18,127,888 | 21,665,701 | 27,886,966 | 33,328,347 | 29,836,702 | ||||||||||||||||||
Current Income Tax Liabilities | 3,224,097 | 5,869,385 | 2,946,479 | 9,029,144 | 4,532,568 | 8,136,185 | ||||||||||||||||||
Provisions | 617,268 | 1,026,017 | 1,056,624 | 1,578,370 | 1,625,404 | 1,473,517 | ||||||||||||||||||
Deferred Income Tax Liabilities | 2,917,369 | 1,875,636 | 2,341,456 | 2,883,455 | 3,601,862 | 560,582 | ||||||||||||||||||
OtherNon-financial Liabilities | 5,830,128 | 5,279,810 | 5,875,117 | 8,600,315 | 9,045,017 | 10,124,489 | ||||||||||||||||||
TOTAL LIABILITIES | 247,738,555 | 266,318,272 | 290,322,157 | 410,165,860 | 446,608,767 | 339,183,484 | ||||||||||||||||||
SHAREHOLDERS’ EQUITY | ||||||||||||||||||||||||
Net Shareholders’ Equity attributable to the owners of parent company | 46,901,837 | 71,441,599 | 60,908,329 | |||||||||||||||||||||
Net Shareholder’s Equity attributable to the controlling interest | 109,898,861 | 93,691,455 | 106,054,978 | |||||||||||||||||||||
Net Shareholders’ Equity attributable tonon-controlling interests | 387,174 | 309,995 | 2,505 | 1,776 | 1,486 | 1,408 | ||||||||||||||||||
TOTAL SHAREHOLDERS’ EQUITY | 47,289,011 | 71,751,594 | 60,910,834 | 109,900,637 | 93,692,941 | 106,056,386 | ||||||||||||||||||
Average Shareholders ‘Equity | — | 64,798,700 | 69,654,177 | |||||||||||||||||||||
Average Shareholders’ Equity | 99,679,840 | 107,149,021 | 96,870,104 |
(1) | Figures stated in thousands of |
Selected consolidated ratios | As of and for the year ended December 31. | |||||||
2017 | 2018 | |||||||
Profitability and performance | ||||||||
Net interest margin (%) (1) | 16.55 | % | 17.94 | % | ||||
Fee income ratio (%) (2) | 27.84 | % | 24.27 | % |
Selected consolidated ratios | As of and for the year ended December 31, | |||||||||||||||||||
2017 | 2018 | As of and for the year ended December 31, | ||||||||||||||||||
2017 | 2018 | 2019 | ||||||||||||||||||
(in thousands of pesos) | ||||||||||||||||||||
Selected consolidated ratios: | ||||||||||||||||||||
Profitability and performance | ||||||||||||||||||||
Net interest margin (%) (1) | 16.55 | % | 17.94 | % | 25.36 | % | ||||||||||||||
Fee income ratio (%) (2) | 27.42 | % | 22.97 | % | 18.19 | % | ||||||||||||||
Efficiency ratio (%) (3) | 40.68 | % | 40.08 | % | 40.41 | % | 38.15 | % | 32.05 | % | ||||||||||
Fee income as a percentage of administrative expense (%) | 56.05 | % | 52.66 | % | 56.05 | % | 52.65 | % | 49.28 | % | ||||||||||
Return on average equity (%) | 9.29 | % | (1.05 | )% | 9.16 | % | (1.01 | )% | 21.32 | % | ||||||||||
Return on average assets (%) | 1.87 | % | (0.21 | )% | 1.84 | % | (0.20 | )% | 4.08 | % | ||||||||||
Liquidity | ||||||||||||||||||||
Loans as a percentage of total deposits (%) | 93.22 | % | 76.53 | % | ||||||||||||||||
Loans and other financings as a percentage of total deposits (%) | 93.89 | % | 76.92 | % | 85.96 | % | ||||||||||||||
Liquid assets as a percentage of total deposits (%) (4) | 50.20 | % | 57.10 | % | 50.20 | % | 57.10 | % | 59.00 | % | ||||||||||
Capital | ||||||||||||||||||||
Total equity as a percentage of total assets (%) | 21.22 | % | 17.34 | % | 21.13 | % | 17.34 | % | 23.82 | % | ||||||||||
Regulatory capital as a percentage of risk-weighted assets (%) | 28.10 | % | 26.47 | % | 28.10 | % | 26.47 | % | 27.25 | % | ||||||||||
Asset Quality | ||||||||||||||||||||
Non-performing loans as a percentage of total loans (%) (5) | 1.08 | % | 1.88 | % | ||||||||||||||||
Allowances for loan losses as a percentage of total loans | 1.98 | % | 2.12 | % | ||||||||||||||||
Allowances for loan losses as a percentage ofnon-performing loans (%) (5) | 183.28 | % | 112.40 | % | ||||||||||||||||
Non-performing loans and other financings as a percentage of total loans and other financings (%) (5) | 1.08 | % | 1.88 | % | 1.71 | % | ||||||||||||||
Allowances for credit losses as a percentage of total loans and other financings | (1.97 | )% | (2.11 | )% | (2.24 | )% | ||||||||||||||
Allowances for credit losses as a percentage ofnon-performing loans and other financings (%) (5) | (182.26 | )% | (112.51 | )% | (130.90 | )% | ||||||||||||||
Operations | ||||||||||||||||||||
Number of branches | 445 | 471 | 445 | 471 | 463 | |||||||||||||||
Number of employees (6) | 8,774 | 9,028 | 8,774 | 9,028 | 8,768 |
(1) | Net interest income divided by average interest earning assets. |
(2) | Commissions income divided by the sum of net interest income. |
(3) | The efficiency ratio is equal to operating expenses over operating income. Operating |
(4) | Liquid assets include cash, cash collateral, reverse repos, instruments issued by Central Bank and interfinancing loans. |
(5) | As of December 31, 2017,non-performing loans are calculated using the classification system of the Central Bank and include all loans to borrowers classified as“3-troubled/medium risk”.“4-with high risk of insolvency/high risk”.“5-irrecoverable” and“6-irrecoverable according to Central Bank’s Rules”. As of December 31, 2018 and 2019,non-performing loans are calculated according to our internal credit rating grades disclosed in note |
(6) | Were workers performing their duties pursuant to the“Acciones de entrenamiento para el trabajo” program of the Ministry of Labor, Employment and Social Security and other casual workers included, the number of employees of the Bank would have been 8,826, 9,113, and |
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
You should carefully consider the risks described below with all of the other information included in this annual report before deciding to invest in our Class B shares or our ADSs. If any of the following risks actually occurs, it may materially harm our business and our financial condition and results of operations. As a result, the market price of our Class B shares, our ADSs could decline and you could lose part or all of your investment.
Investors should carefully read this annual report in its entirety. They should also take into account and evaluate, among other things, their own financial circumstances, their investment goals, and the following risk factors.
Information provided by the Central Bank of Argentina and/or the INDEC and the information included in this section has been prepared in accordance with a methodology that may not necessarily follow the methodology used for the preparation of our consolidated financial statements included in this annual report (e.g. it has not been adjusted for inflation), as a result of the aforementioned may not be comparable.
Risks relating to Argentina
The Argentine economy remains vulnerable and a significant decline could adversely affect our financial condition.
PresidentialThe Argentine economy has experienced significant volatility in recent decades, characterized by periods of low or negative growth, high levels of inflation and congressionalcurrency devaluation. Sustainable economic growth in Argentina is dependent on a variety of factors, including the international demand for Argentine exports, the stability and competitiveness of the Peso against foreign currencies, confidence among consumers and foreign and domestic investors, a stable rate of inflation, national employment levels and the circumstances of Argentina’s regional trade partners.
Argentina’s economy contracted during 2019 and the country’s economy remains vulnerable and unstable, as reflected by the following economic conditions:
inflation remains high and may continue at similar levels in the future; according to a report published by INDEC, cumulative consumer price inflation from December 2018 to December 2019 was 53.8%, and consumer price and inflation during January 2020, February 2020, and March 2020 was 2.3%, 2.0% and 3.3%, respectively;
according to preliminary data published by the INDEC in March 2020, GDP for 2019 is estimated to have decreased 2.2%. Argentina’s GDP performance has depended to a significant extent on high commodity prices which are volatile and beyond the control of the Argentine government and private sector;
Argentina’s public debt as a percentage of GDP remains high;
high foreign currency exchange volatility;
Argentina’s foreign currency reserves remains low and falling;
the discretionary increase in public expenditures has resulted, and could continue to result, in a fiscal deficit;
investment as a percentage of GDP remains low;
a significant number of protests or strikes could take place, which could adversely affect, as has occurred in the past, various sectors of the Argentine economy;
energy or natural gas supply may not be sufficient to supply industrial activity (thereby limiting industrial development) and consumption;
unemployment and informal employment remain high; according to INDEC, unemployment rate during the fourth quarter of 2019 was 8.9%; and
in the climate created by the above mentioned conditions, demand for foreign currency could grow, generating a capital flight effect, as in recent years.
Argentina’s fiscal imbalances, its dependence on foreign revenues to cover its fiscal deficit, and material rigidities that have historically limited the ability of the economy to absorb and adapt to external factors, have added to the severity of the current crisis.
In addition, the primary elections (Elecciones Primarias, Abiertas y Simultáneas y Obligatorias—“PASO”, per its acronym in ArgentinaSpanish), which define which political parties and which candidates may run in the general elections, took place in August 11, 2019. In these elections,Frente de Todos (a political coalition composed of, among others, the Justicialist Party and the Renovating Front), obtained 47.78% of the votes, whileJuntos por el Cambio, the political coalition of the former administration, obtained 31.79% of the votes.
After the results in the primary elections, the Peso devalued almost 30% and the share price of Argentine listed companies fell approximately by 38% on average. In turn, the emerging market bond index (EMBI) reached to one of the highest levels in Argentine history, placing itself above 2000 points on August 28, 2019. As of May 12, 2020 the EMBI reached 3009 basis points. As a consequence of the aforementioned effects, in order to control the currency outflow and restrict exchange rate fluctuations, the Central Bankre-implemented exchange controls in September 2019, in hopes of strengthening the normal functioning of the economy, fostering a prudent administration of the exchange market, reducing the volatility of financial variables and containing the impact of the variations of financial flows on the real economy.
The presidential and legislative general elections took place on October 25, 2015,27, 2019. Having obtained 48.1% of the votes, the formula of Alberto Fernández and a runoff election (ballotage) between the two leading presidential candidatesCristina Fernandez de Kirchner was held on November 22, 2015, which resulted in Mr. Mauricio Macri being elected President of Argentina. The Macri administration assumedand took office on December 10, 2015, and announced several significant economic and policy reforms, including:
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Furthermore, congressional elections were held on October 22, 2017 and Mauricio Macri’s governing coalition obtained the largest share of votes at the national level. However, even when the number of coalition members in Congress increased (holding in the aggregate 107 of a total of 257Senate with 41 seats, with the first minority beingJuntos por el Cambio with 25 seats; and in the House of Representatives, and 24Frente de Todos commands the majority with 118 seats while the first minority is theJuntos por el Cambio with 115 seats.
In the context of a total of 72 seatshighly volatile economy, the measures already taken or to be taken in the Senate), the coalition still lacks a majority in either chamber of the Argentine Congress and, as a result, some or all of the required changes and improvement to the economy and investment environment (including the reduction of the fiscal deficit, reduction of the inflation rate and fiscal and labor reforms, among others) may not be implemented, which would adversely affect the continued improvement of the economy and investment environment.
In addition, Argentine presidential elections are scheduled to take place in October 2019. The impact that the presidential elections could have on Argentine politics and the economy is uncertain, and include uncertainty as to whether the newly elected Argentine government will implement changes in the policy or regulation or that will maintain the current policies or regulation. Argentina’s president and its Congress, each have considerable power to determine governmental policies and actions that relate to the Argentine economy. As a result, we can offer no issuances that the policies that may be implementedfuture by the government after the elections will not adversely affect our business, resultsFernández Administration, generate high levels of operations or financial condition.
uncertainty. A less favorable international economic environment, lack of stability, competitiveness of the Peso against other foreign currencies, lowered levels of confidence among consumers and foreign and domestic investors, a higher inflation rate and future political uncertainties, among other factors, should they occur, may affect the development of the Argentine economy and cause volatility in the local capital markets.
A substantial part of our operations, properties and customers are located in Argentina. As a result, our business is, to a very large extent, dependent upon the economic, social and political conditions prevailing in Argentina. No assurance can be given that future economic, social and political developments in Argentina, over which we have no control, will not have a material adverse effect on our business, financial condition and results of operations.
The Argentine economy could be adversely affected by economic developments in the global markets.
Financial and securities markets in Argentina are influenced by economic and market conditions in other markets worldwide. Theworldwide, hence its economy remains highly vulnerable to external shocks that could be caused by adverse regional or global development. A significant decline in the economic growth of any of Argentina’s major trading partners (including Brazil, the EU, China and the United States) could have a material adverse impact on Argentina’s balance of trade and adversely affect Argentina’s economy. In addition, the international scenario shows contradictory signals of global growth, as well as high financial uncertainty. Argentina may be affected by economic and exchange uncertainty. Themarket conditions in other markets worldwide, as was the case in 2008, when the global financialeconomic crisis that commencedled to a sudden economic decline in the last quarter of 2008, negatively affected theArgentina in 2009.
In 2018 emerging market economies of numerous countries around the world, including Argentina and certain of its trading partners.
Moreover, emerging markets have beenwere affected by the change in the U.S. monetary policy, resulting in the sharp unwinding of speculative asset positions, depreciationsinvestments and increased volatility in the value of their currencies and higher interest rates. Whencurrencies. If interest rates rise significantly in developed economies, including the United States, it may be more difficult and burdensome for emerging market economies, including Argentina, could find it more difficult and expensive to borrow capital and refinance their currentexisting debt, which couldwould negatively affect in a negative way itstheir economic growth. The general appreciationNotwithstanding this, the United States Federal Reserve decreased the federal funds rate. On March 20, 2020, the United States Federal Reserve further decreased the federal funds rate to a range of 0% to 0.25% in response to the negative impact fromCOVID-19.
In July 2019, the Common Market of the U.S. dollar resulting fromSouth (“MERCOSUR”) signed a more restrictive U.S. monetary policy contributedstrategic partnership agreement with the EU, which is expected to enter into force in 2021, once approved by the fallrelevant legislatures of each member country. The objective of this agreement is to promote investments, regional integration, increase the competitiveness of the international price of raw materials, further increasingeconomy and achieve an increase in GDP. However, the difficulties of emerging countries which are exporters of these products.effect that this agreement could have on the Argentine economy and the policies implemented by the Argentine government is uncertain.
In addition, on June 23, 2016, the United Kingdom (the “UK”) voted in favor of the exit from the EU, and formally left the EU on 31 January 2020 (the “Brexit”). Even if the United Kingdom agreed the terms of its departure from the European Union (the “EU”EU, negotiations on the terms and conditions are expected to continue during the transition period, which ends on December 31, 2020. Nevertheless, the uncertainty on the terms and conditions of, among others, a new trade agreement, law enforcement and access to fishing waters; the perception of the economic impact and the “Brexit”, respectively). The British Government has announced preliminary measures to be implemented to facilitatepossibility of a departure without a deal could adversely affect the UK’s exit fromcommercial activity and the economic conditions of the United Kingdom and the EU, challenging finance and on March 29, 2017 initiated the formal process, which is expected to be completed bymid-2019. The results of the UK referendum have caused and are anticipated to continue to cause, volatility in financial markets, which in turn could have a material adverse effect on our business, financial condition and results of operations. The UK was due to leave the EU on March 29, 2019 but on March 20, 2019, the UK requested to the EU a three-month extension.foreign exchange global markets. In addition, Brexit could lead to additional political, legalproduce higher levels of politic and economicjudicial instability in the EU, and produce a negative impact onwhich could affect the commercial exchangeexchanges between Argentina and that region.
Moreover, the challenges faced by the EU to stabilize certain of Argentina with such region.
On November 8, 2016, Donald Trump was elected as the President of the United States. During the election campaign, Mr. Trump showed a vested interest in implementing greater controls on free trade and limiting immigration. Changes in social, political, regulatory and economic conditions in the United States and in the legislation and policies governing international tradeits member economies have generate uncertainty in international marketshad and may continue to have a negative effect on emerging markets, such as Argentina, which could adversely affect our operations. Even though President Trump’s protectionist measures are not, for the time being, aimed at Argentina, we cannot predict how they will evolve, nor will the effect that the same or any other measure taken by the Trump administration could cause on global economic conditions andinternational implications affecting the stability of global financial markets. Furthermore, the United States and China are currently engaged in a trade war, as each country continues to dispute tariffs placed on goods traded between them,markets, which may have a potential impact in trade-dependent countries such as Argentina.
During August 2018, an increase in inflation and a sustained deficit in current accounts, as well as the protectionist measures taken by the United States, doubling the tariffs on steel and aluminum from Turkey, caused a collapse of the Turkish lira against the Dollar, which triggered a wave of sales of assets from emerging markets and a significant fall in the prices of shares from these markets, generating a contagion effect in international markets and several stock exchanges in the world, including Argentina.
has hindered economies worldwide. Although economic conditions vary from country to country, investors’ perceptions of events occurring in other countries have, and may continue to, substantially affect capital flows into and investments in securities from issuers in other countries, including Argentina. A prolonged slowdown in economic activity in Argentina or negative effects on the Argentine financial system or the securities markets would adversely affect our business, financial condition and results of operations.
Argentina’s economy contracted in 2018 and 2019 and may contract in the future due to international and domestic conditions which may adversely affect our operations.
The Argentine economy has experienced significant volatility during recent decades, characterized by periods of low or negative GDP growth, high and variable levels of inflation and currency depreciation and devaluation. Argentina’s economy contracted during 2018 and the country’s economy remains unstable notwithstanding efforts by the Argentine government to address inflation and foreign exchange instability. All of our operations, properties and customers are located in Argentina, and, as a result, our business is, to a large extent, dependent upon economic and legal conditions prevailing in Argentina. If economic conditions in Argentina were to deteriorate, they could have an adverse effect on our results of operations, financial condition and cash flows.
Global economic and financial crisis,crises, and the general weakness of the global economy, typically, negatively affect emerging economies like Argentina’s economy.Argentina’s. Global financial instability or increasingdecreasing interest rates in the United States and other developed countries may impact the Argentine economy and cause a slowdown in Argentina’s growth rate or could lead to a recession with consequences in the trade and fiscal balances and in the unemployment level.
Moreover, Argentine economic growth might be negatively affected by several domestic factors such as an appreciation of the real exchange rate, which could affect its competitiveness,competitiveness; reductions and even reversion of a positive trade balance, which, combined with capital outflows could reduce the levels of consumption and investment, resulting in a greater exchange rate pressure.
Additionally, abrupt changes in monetary and fiscal policies or in the foreign exchange regime could rapidly affect local economic output, while lack of appropriate levels of investment in certain economy sectors could reduce long-term growth. Access to the international financial markets could be limited. Consequently, an increase in public spending not correlated with an increase in public revenues could affect the Argentina’s fiscal results and generate uncertainties that might affect the economy’s growth level.
In recent years, several trading partners of Argentina (such as Brazil, EuropeEU and China) have experienced significant slowdowns or recession periods in their economies in recent years.economies. If such slowdowns or recessions were to recur, as it would seem likely as a result of the impact fromCOVID-19,this maywill impact the demand for products coming from Argentina and hence affect its economy.
During 2018,2019, the Argentine economy was adversely affected by some of the aforementioned factors. If international and domestic conditions for Argentina were to worsen, the Argentine economy could be negatively affected as a result of lower international demand and lower prices for its products and services, higher international interest rates, lower capital inflows and higher risk aversion, which may also adversely affect our business, results of operations, financial condition and cash flows.
Argentina’s ability to obtain financing from international markets ismay be limited or costly, which may impair its ability to implement reforms and public policies and foster economic growth.
In 2005 and 2010, Argentina conducted exchange offers to restructure part of its sovereign debt that had been in default since the end of 2001. As a result of these exchange offers, Argentina restructured over 92% of its eligible defaulted debt. In April 2016, after a series of legal actions by Argentina’s bondholders, the Argentine government settled U.S.$9.3 billion of outstanding principal debt held by holdout creditors whowhich had not participated in the 2005 and 2010 restructurings.
In October 2012, plaintiffs in different actions in New York obtained a U.S. district court order enjoining Argentina from making interest payments in full on the bonds issued pursuant to the 2005 and 2010 exchange offers unless Argentina paid the plaintiffs in full, under the theory that the former payments violated thepari passu clause in the 1994 Fiscal Agency Agreement governing thosenon-performing bonds. The Second Circuit Court of Appeals affirmed theso-calledpari passu injunctions, and on June 16, 2014, the U.S. Supreme Court denied Argentina’s petition for a writ of certiorari and the stay of thepari passu injunctions was vacated on June 18, 2014. In February 2016, the Argentine government entered into an agreement in principle to settle claims with certain holders of defaulted debt and put forward a proposal to other holders of defaulted debt, including those with pending claims in U.S. courts. On March 2, 2016, the U.S. district court agreed to vacate thepari passu injunctions, subject to certain conditions. In April 2016, the Argentine government settled claims with holders of U.S.$9.2 billion outstanding principal amount of untendered debt, and upon satisfaction of its conditions, the U.S. district court ordered thevacatur of allpari passu injunctions.
The Argentine government has reached settlement agreements with holders of a significant portion of the defaulted bonds and has repaid the majority of the holdout creditors with the proceeds of a U.S.$16.5 billion international offering of3-year,5-year,10-year and30-year bonds on April 22, 2016.
As of the date of this annual report, litigation initiated by bondholders that have not accepted Argentina’s settlement offer continues in several jurisdictions, although the size of the claims involved has decreased significantly.
Not all creditors have agreed to the terms of Argentina’s settlement offer. The continuation and outcome of the litigation may prevent Argentina from obtaining favorable terms or interest rates upon access to the international capital market. Litigation initiated by holders of defaulted bonds or other parties may result in rulings against the Argentine government and may result in restrictions or injunctions on Argentinean assets that may adversely affect the ability to obtain financing for the country and private companies, which could have a material adverse effect on Argentina’s economy, and consequently, our business, financial condition and results of operations.
In 2018, due to Argentina’s limitation on access to international capital markets, the Argentine government and the International Monetary Fund (“IMF”) entered into a“stand-by” credit facility agreement; by virtue of the last of them the agreement amount increased by approximately US$7,100 million reaching a total of US$57,000 million, and disbursements were rescheduled, with an advance of approximately US$13,400 million until December 2018, thus totaling US$28.400 million for year 2018, and approximately US$22,650 million in 2019. However, the IMF suspended disbursements after September of 2019, overriding the program; therefore the total amount disbursed as of the closing of 2019 was of approximately US$44,500 million. Due to the overriding of the arrangement with the IMF and the closure of the international financial markets following the PASO elections, the government had to reschedule the due date of Treasury Bills with holders, except for individuals, which consisted in paying 15% of services on the due date, 25% within three months and the remaining 60% six months following the original due date. With the change of government on December 10, 2019, consideration of the public sector debt became a pressing matter and on January 21, 2020, the “Foreign Public Debt Sustainability Management” bill was introduced in the Argentine Congress. On February 5, 2020, the Argentine Congress passed Law N° 27,544, by virtue of which the sustainability of the country’s sovereign debt was declared a national priority, authorizing the Ministry of Economy to renegotiate its terms and conditions with Argentina’s creditors. The executive branch was authorized to perform all necessary acts to recover and ensure the sustainability of the Argentine public debt. In addition, the national government was authorized to issue debt securities to the Central Bank for an amount of up to US$ 4,517 million in exchange for reserves to be applied solely to meet Argentina’s foreign currency-denominated debt obligations.
In March 2020, the Argentine government engaged Lazard as financial advisor, as well as HSBC and Bank of America as dealer managers to conduct a renegotiation of most of the outstanding bonds issued by Argentina. Notwithstanding the foregoing, in the midst of debt restructuring negotiations, on April 6, 2020 the Argentine government issued Decree No. 346/2020, through which the repayment of Argentinelaw-governed dollar-denominated notes was postponed.
In this sense, on April 21, 2020, the Argentine government launched an exchange offer (the “Exchange”) with the aim of refinancing its external indebtedness and rearranging interest and principal payments. To that end, the Argentine government proposed to effect an exchange of different series of foreign currency-denominated bonds (in US$, Euros and Swiss Francs) and governed by English or New York law (the “Eligible Bonds”) for new series of Dollar- or Euro-denominated amortizing bonds maturing between 2030 and 2047 (the “New Bonds”) to be issued by the Argentine government. As informed by the Minister of Economy and pursuant to the exchange documents, in general terms, the Argentine government’s exchange offer involves a reduction in interest payment burden of 62% (US$37.9 billion), a decrease in principal payments of 5.4% (US$3.6 billion) and a grace period of approximately three years before principal payments become due.
As of the date of this annual report, there is uncertainty as to whether the Argentine government will be able to successfully carry out the Exchange and restructure its foreign public indebtedness, or negotiate a new program with the IMF. As a result, we cannot guarantee that Argentina will be able to obtain financing in the markets, nor the impact that the current administration’s inability to renegotiate the country’s external financial commitments could have, or in case renegotiation takes places, what the terms and conditions would finally be. As in the past, this may result in new legal actions against Argentina and in the enforcement of those actions. This may adversely affect the ability of the Argentine government to implement the necessary reforms to boost the country’s economic growth and restore its productive capacity. Furthermore, Argentina’s inability to obtain financing in the international financial markets may have a direct impact in our ability to access the financial markets to fund our operations and growth strategies, including the financing of capital expenditures, which in turn may have negatively affect our financial position, results of operations and cash flow.
Argentina is subject to litigation by foreign shareholders of Argentine companies and holders of Argentina’s defaulted bonds, which have resulted and may result in adverse judgments or injunctions against Argentina’s assets and limit its financial resources.
In response to the emergency measures implemented by the Argentine government during the 2001-2002 economic crisis, a number of claims were filed before the International Centre for Settlement of Investment Disputes (“ICSID”) against Argentina. Claimants allege that the emergency measures were inconsistent with the fair and equitable treatment standards set forth in various bilateral investment treaties by which Argentina was bound at the time. Claimants have also filed claims before arbitral tribunals under the rules of the United Nations Commission on International Trade Law (“UNCITRAL”) and under the rules of the International Chamber of Commerce (“ICC”). Several awards have been issued against Argentina and several cases are still ongoing.
Litigation, as well as ICSID and UNCITRAL claims against the Argentine government, have resulted in material judgments and may result in further material judgments, and could result in attachment of or injunctions relating to assets of Argentina that the government intended for other uses. As a result, the Argentine government may not have all the necessary financial resources to honor its obligations, implement reforms and foster growth, which could have a material adverse effect on Argentina’s economy, and consequently, our business, financial condition and results of operations.
In July 2017, in a split decision, an ICSID tribunal ruled that Argentina had breached the terms of a bilateral investment treaty with Spain, alleging the unlawful expropriation by the Argentine Government of Aerolíneas Argentinas and affiliates (including Optar, Jet Paq and Austral, among others). by the Argentine government. The ICSID tribunal fined Argentina approximately U.S.$328.8320.8 million, awarding plaintiffs about 20% of the U.S.$1.59 billion they had initially claimed. Argentina requested the annulment of the award. On May 29, 2019, ICSID rejected Argentina’s request and ratified the previous decision. Consequently, the illegality of the expropriation was confirmed, and the Argentine government was ordered to pay U.S.$320.8 million for damages and representation costs. Although there is an additional instance for Argentina to present the last appeal for review, the result of that instance is uncertain as of the date of this annual report.
Furthermore,Additionally, in June 2019, a claim was made before the ICSID on behalf of the Dutch group ING, NN Holdinvest, NN Intertrust and NN Insurance International for the statization during the 2005 and 2010 debt restructurings, Argentina issued debt securities providing for contingent additional payments based on the performancegovernment of Cristina Fernández de Kirchner of the Argentine economy through 2035 (the “GDP Warrants”). On January 15, 2019, Aurelius Capital Master, Ltd. (“Aurelius”) filed a lawsuit against Argentina, arguing thatprivate retirement system, made in 2008. As reported by the GDP was purposefully miscalculated with a view to avoid makingICSID on its website the promised contingent payments to investors. If Aurelius’ claim were to be successful and other investors followeddemand is for US $ 500 million. As of the date of this annual report, the outcome of these proceedings, the estimated cost for Argentina could amount to approximately U.S.$1.8 billion.cases is uncertain.
Future transactions may be affected as litigation with holdout bondholders as well as ICSID and other claims against the Argentine government continues, which in turn could affect the Argentine government’s ability to access international credit markets and limit economic growth, adversely affecting our business, financial condition and results of operations.
GovernmentGovernmental measures could adversely affect the Argentine economy.
Substantially all our operations, properties and customers are located in Argentina. As a result, our business is, to a very large extent, dependent upon the political, social and economic conditions prevailing in Argentina.
In recent years,the past, the Argentine government has increased itshad direct intervention in the economy and in private sector operations and companies, limiting certain aspects of private sector businesses. Below is a summary of the main government interventions:
In December 2012 and August 2013, the National Congress established new regulations
• | Replacement of the pension and retirement fund system: in 2008 all resources formerly managed by the private pension and retirement system, including meaningful holdings in public companies were transferred to the Sustainability Guarantee Fund (Fondo de Garantía de Sustentabilidad) and managed by ANSES. As a result, ANSES has a right to appoint representatives in the board of directors of such companies. |
Regulations related to domestic capital markets that, in general, establish greater intervention in the capital markets by the national government, authorizing, for example, the CNV, to designate inspectors with the ability to veto, under certain circumstances, the decisions of the board of companies that are listed in authorized markets and suspend the board for a period of up to 180 days. On November 17, 2016, the Macri government presented a bill to the National Congress to amend the Capital Markets Law, which could, among other significant changes, eliminate these powers to designate inspectors.markets: On May 9, 2018, the Argentine Congress approved the Argentine Productive Financing Law No. 27,440, which amended the Capital Markets Law, the Mutual Funds Law No. 24,083 and the Negotiable Obligations Law, among other regulations and introduced substantial changes to regulations governing markets, stock exchanges and the various agents operating in capital markets, as well as certain amendments to the CNV’s charter, expanding its powers.
In May 2013, the Argentine Congress passed a law providing for the expropriation of 51% of the share capital of YPF (Yacimientos Petroliferos Fiscales S.A.), the principal Argentine oil company, which shares were owned by Repsol, S.A. and its affiliates. In February 2015, the Argentine government sent a bill to the Argentine Congress in order to revoke certain train concessions, return the national rail network to state control and provide authority to review all concessions currently in effect. The bill was enacted on May 20, 2015 as Law No. 27,132.
In addition, on September 23, 2015 the Argentine Congress passed Law No. 27,181, which limits the sale of the Argentine government’s shares held in Argentine companies without prior approval oftwo-thirds of the members of the Argentine Congress, with the exception of the Argentine government’s shareholding in YPF. That law has been abrogated by the new Administration through Law No. 27,260, the“Ley de Sinceramiento Fiscal y Reparación Histórica a los Jubilados”,dated May 26, 2016.
• | Expropriation of YPF: in May 2013, the Argentine Congress passed a law providing for the expropriation of 51% of the share capital of YPF (Yacimientos Petroliferos Fiscales S.A.), the principal Argentine oil company, which shares were owned by Repsol, S.A. and its affiliates. In February 2015, the Argentine government sent a bill to the Argentine Congress in order to revoke certain train concessions, return the national rail network to state control and provide authority to review all concessions currently in effect. The bill was enacted on May 20, 2015 as Law No. 27,132. |
Moreover, the Argentine government has in the past enacted laws and regulations requiring private sector companies to maintain certain salary levels and provide their employees with additional benefits. Employers, both in the public and private sector, have also been experiencing intense pressures from their personnel, or from the labor unions representing them, demanding salary increases and certain benefits for the workers, given the high inflation rates. On December 13, 2019, the Fernandez administration published Decree N° 34/2019, by virtue of which labor emergency was declared for a180-day term. In this context, during the labor emergency period, payments for unjustified severances shall be double the amount foreseen by the current applicable regulations.
Actions taken by the Argentine government concerning the economy, including decisions with respect to interest rates, taxes, price controls, salary increases, provision of additional employee benefits, foreign exchange controls and potential changes in the foreign exchange market, have had and could continue to have a material adverse effect on Argentina’s economic growth and in turn affect our business, financial condition and results of operations. In addition, any additional Argentine government policies to preempt, or in response to, social unrest could adversely and materially affect the economy, and thereby our business.
In the future, the level of intervention in the economy by the government may continue or increase, which may adversely affect Argentina’s economy and, in turn, our business, results of operations and financial condition.
We cannot assure what the effect of the measures implemented by Law N° 27,541 of Solidarity and Productive Reactivation will be on the Argentine’s economy.
On December 20, 2019, the Argentine congress enacted Law N° 27,541 of Solidarity and Productive Reactivation (“Law N° 27,541”), declaring a state of public emergency on the economic, financial, fiscal, administrative, social and energetic fronts, among others, thus delegating in the Executive Branch the ability to ensure the sustainability of public indebtedness, authorizing it to conduct an integral review of the current electricity tariff regime and to intervene supervisory entities, among others.
Thetax-related measures include:
Tax amnesty for Micro, Small- andMedium-Sized Companies.
Increase in the personal assets tax rate and delegation of power in the Executive Branch to increase tax rates on foreign financial assets.
Changes to the formula of inflation adjustment in income tax.
• | Creation of the tax for a solidary and inclusive Argentina (Impuesto para una Argentina Inclusiva y Solidariaor PAIS, per its acronym in Spanish) for a5-fiscal-period term on the purchase of foreign currency for saving purposes and on the payment of goods and services purchased abroad through credit cards. The tax rate ranges between 8% and 30% depending on the transaction. |
Suspension of the pension and retirement adjustment mechanism for a180-day period.
Furthermore,We cannot anticipate the impact that Law N° 27,541 may have, nor the measures that could be adopted by the current administration in order to meet its financial institutions operateobligations, which might negatively affect Argentine’s economy and, in a highly regulated environment. Asturn, our business, financial condition and results of the date of this annual report, several different bills to amend various aspects of the Financial Institutions Law No. 21,526 (the “Financial Institution Law”) have been put forth for review in the Argentine Congress. A thorough amendment of the Financial Institutions Law could have a substantial effect on the banking system as a whole. See “—The amendment of the Central Bank’s Charter and the Convertibility Law may adversely affect the Argentine economy” and “—Governmental measures and regulatory framework affecting financial entities could have a material adverse effect on the operations of financial entities.”operations.
Exchange controls and capital inflow and outflow restrictions have limited, and could continue to limit, the availability of international credit and may impair our ability to make payments on our obligations.
Since 2011 until President Macri took office in December 2015, the Argentine government increased controls on the sale of foreign currency and the acquisition of foreign assets by local residents, limiting the possibility to transfer funds abroad. Together with the regulations established in 2012 that subjected certain operations exchange rates to the prior approval by the Argentine tax authorities or the Central Bank, the measures adopted by the previousFernández de Kirchner government significantly reduced natural persons and entities of the private sector, the access to the foreign exchange market.
The numerous exchange controls introduced under the formerFernández de Kirchner administration gave rise to an unofficial U.S. dollar trading market, and the Peso/U.S. dollar exchange rate in such market differed substantially from the official Peso/U.S. dollar exchange rate. Certain relevant foreign exchange restrictions were lifted in December 2015 and, as a result, the spread between the official and unofficial Peso/U.S. dollar exchange rates had substantially decreased. For more information, see Item 10.D “Exchange Controls.”
Since taking office,In this sense, the Macriformer administration has implemented significant reforms related to exchange rate restrictions, notably the elimination of certain exchange controls that had been imposed during the previous administration, in order to provide more flexibility and access to the MULC.exchange market (“MULC”, as per its acronym in Spanish). On August 8, 2016, the Central Bank introduced substantial reforms to the exchange regime through Communication “A” 6037 and Communication “A” 6244, which significantly eases the access to the exchange market. With the aim of providing more flexibility to the foreign exchange system and promoting competition, allowing the entrance of new playerplayers to the system, the Exchange Marketexchange market (mercado libre de cambios) was createdreformed by virtue of Decree No. 27/2018 published on January 11, 2018. Moreover, by virtue2018 (the “FX Market”).
However, on September 1, 2019, with the purpose of Communication “A” 6443, which came into effect asstrengthening the normal functioning of March 1, 2018, any company from any sector that usually operates through the Exchange Market can act as an exchange agency merely by registering ineconomy, fostering a prudent administration of the exchange operators’ registry.market, reducing the volatility of financial variables and containing the impact of the variations of financial flows on the real economy, the former government reinstated exchange restrictions. The new controls apply with respect to access to the foreign exchange market by residents for savings and investment purposes abroad, the payment of external financial debts abroad, the payment of dividends in foreign currency abroad, payments of imports of goods and services, and the obligation to repatriate and settle the proceeds from exports of goods and services for Pesos, among others. For more information, see Item 10.D “Exchange Controls.” As a consequence of the reimposition of exchange controls, the spread between the official exchange rate and other exchange rates resulting implicitly from certain common capital market operations (dollar “MEP” or “contado con liquidación”) has broadened significantly, reaching a value of approximately 70% above the official exchange rate.
Despite theIt is not possible to anticipate for how long these measures adopted by the Macri administration,will be in the future, theforce or even if additional restrictions will be imposed. The Argentine government could maintain or impose furthernew exchange controls, transfercontrol regulations, restrictions required repatriation through the free floating foreign exchange market (the “MELI”) of proceeds raised through capital markets transactions conducted abroad or restrictions on the movement of capital and/orand take other measures in response to capital flight or a significant depreciation of the Peso,peso, which could limit our abilityaccess to access the international capital markets. Such measures could lead to political and social tensions and undermine the Argentine government’s public finances, as has occurred in the past, which could adversely affect Argentina’s economy, and prospects for economic growth, which, in turn, could adversely affect our business, financial condition and results of operations.
Additional controls may adversely affect Argentine entities’ ability to access the international capital markets for credit. Furthermore, the imposition of any future restrictions on the transfer of funds abroad may impede our ability to transfer dividends to ADS holders or interest or principal payments to the holders of our notes.operations and financial condition.
Additionally, the level of international reserves deposited withheld by the Central Bank significantly decreased from U.S.$47.4 billion as of November 1, 2011 to U.S.$25.6 billion, as of December 31, 2015, resulting in a reduced capacity of the Argentine government to intervene in the foreign exchange market and to provide access to such markets to private sector entities. International reserves deposited withheld by the Central Bank have grownincreased to U.S.$65.8 billion as of December 31, 2018.2018, and plummeted in recent months, amounting to U.S.$44.7 billion as of December 31, 2019. Notwithstanding the measures that may be adopted by the MacriFernández administration in the future, the Argentine government could otherwise reduce the level of international reserves deposited withheld by the Central Bank could further decrease, which could lead to political and social tensions and undermine the Argentine government’s public finances, as has occurred in the past, which could adversely affect Argentina’s economy and prospects for economic growth.
Severe or sustained declines in the international prices for Argentina’s main commodity exports or the occurrence of a climate disaster could have an adverse effect on Argentina’s economic growth.
High commodity prices have in the past contributed significantly to increases in Argentine exports as well as in governmental revenues from export taxes (withholdings). Argentina’s reliance on the export of certain commodities, such as soy, has made the Argentine economy more vulnerable to fluctuations in their prices.
Recently, commodity prices have suffered declines.declined. If international commodity prices were to further decline or experience sustained declines, the Argentine government’s revenues could continue to decrease significantly, affecting Argentina’s economic activity, which in turn could produce a negative effect on our business, financial condition and results of operations.
From the end of 2017 until April 2018, rain below average for several months plunged Argentina into a severe drought that is presumed to be the worst in the country in the last 50 years. The effects of the drought in agriculture caused significant economic problems in the country, with a fall in the soybean harvest of 31% over the previous year, and maize by 20%, which implied losses of U.S.$6 million.
In addition, adverse weather conditions can affect the production of commodities in the agricultural sector, which accountaccounts for a significant portion of Argentina’s export revenues. These circumstances could have a negative effect on government revenues, availability of foreign exchange and the government’s ability to service its sovereign debt, and could either generate recessionary or inflationary pressures, depending on the government’s reaction. The occurrence of any of the above could adversely affect Argentina’s economic growth and, therefore, our business, financial condition and results of operations.
An increase inContinuing high inflation could have a material adverse effect on Argentina’s economic prospects.
In January 2016, the new INDEC authorities appointed by the Macri administration announced the discontinuancediscontinuation of the methodology used by the previous administration to calculate national statistics and declared a state of administrative emergency, suspending the publication of all indices by the INDEC until the INDEC was able to calculate such indices based on accurate official data. During this period the INDEC continued to publish the inflation rate based on data provided by the province of San Luis and the City of Buenos Aires.
After implementing the announced reforms, on June 16, 2016 the INDEC began to publish official measurements of its main inflation indicator, the Consumers Price Index “the CPI” (Índice de Precios al Consumidor, or IPC, per its initials in Spanish), reporting an inflation rate of 4.2% for May 2016.The INDEC also reported monthly inflation rates of 3.1% and 2.0% for the months of June and July of 2016, respectively.. The CPI was 24.8% during 2017, 47.6% for 2018 and 53.8% for 2019, the highest rate since 1991, and 2.9% for the month of January 2019.
During 2013, 2014 and 2015, the former administration promoted price agreements over certain products goods and services of the consumer basket to control inflation. The new administration has stated its intention to keep these price controls in effect, and as a consequence, has announced modifications to the previous price agreements including the recent introduction of the “Precios Esenciales” program.
1991. In the past, inflation has materially undermined the Argentine economy and Argentina’s ability to create conditions that would permit growth. High inflation may also undermine Argentina’s competitiveness abroad and lead to a decline in private consumption which, in turn, could also affect employment levels, salaries and interest rates. Moreover, a high inflation rate could undermine confidence in the Argentine financial system, reducing the Peso deposit base and negatively affecting long-term credit markets.
There can be no assurance that inflation rates will not continue to escalate in the future or that the measures adopted or that may be adopted by the Argentine government to control inflation will be effective or successful. Inflation remains a challenge for Argentina. SignificantContinuing significant inflation could have a material adverse effect on Argentina’s economy and in turn could increase our costs of operation, in particular labor costs, and may negatively affect our business, financial condition and results of operations.
Significant devaluation of the Peso against the U.S. dollar may adversely affect the Argentine economy.
Despite the positive effects of the real depreciation of the Peso on the competitiveness of certain sectors of the Argentine economy, it also had afar-reaching negative effect on the Argentine economy and on the financial condition of businesses and individuals. The devaluation of the Peso, during 2002, had a negative effect on the ability of Argentine businesses to honor their foreign currency-denominated debt, led to very high inflation initially, significantly reduced real wages, had a negative effect on businesses that depend on domestic market demand for their success, such as utilities, and the financial industry and significantly affected the government’s ability to cancel its external debt obligations.
After several years of moderate variations in the nominal exchange rate, the stock of the international reserves of the Central Bank started to decrease and, in order to contain the fall in reserves, the Central Bank accelerated the rate of nominal devaluation of the Peso. During 2013 the Peso lost more than 30% of its value with respect to the U.S. dollar and the same occurred during 2014. During 2015,In 2016, 2017, 2018 and 20182019, the Peso lost approximately 34%, 17.5%depreciated 18%, 16%, 58% and 50% of its value52%, respectively, with respect to the U.S. dollar, respectively.dollar. Additionally, the stock of international reserves deposited inheld by the Central Bank was reduceddecreased significantly from U.S.$ 47.7 billion as of November 1, 2011 to U.S.$ 25.6 billion as of December 31, 2015, increasing to U.S.$39.3 billion as of December 31, 2016, to U.S.$55.1 billion as of December 31, 2017 and to U.S.$65.8 billion as of December 31, 2018.
As a result of the greater volatility of the Argentine peso, the Argentine government announced several measures to restore market’s confidence and stabilize the value of the Argentine peso. Among them, two agreements with the IMF were negotiated, interest rates were increased, Central Bank reserves were sold, among others. More recently, and by virtue of the last agreement with the IMF, a new regime was established. This regime sets forth a strict control of the local monetary base, which cannot be raised until June 2019, in an attempt to reduce the amount of Pesos available in the market, what is understood presses the demand for foreign currency. At the same time, it was established that the BCRA could intervene selling dollars when the exchange rate exceeds Ps.44 per dollar and buying when the exchange rate falls below Ps.34 per dollar (range that was adjusted daily at a rate of 3% per year until December of 2018, and for the first quarter of 2019, is adjusted daily at a rate of 2% per year), considering the intermediate zone, as a“non-intervention zone”. On April 16, 2019, among a set of measures designed to soften the impact of Argentina’s economic situation, the Central Bank fixed the“non-intervention zone” between Ps.39.75 and Ps. 51.45 until December 2019 and eliminated the monthly adjustment. On April 29, During 2019 the Monetary Policy Counselinternational reserves reached a maximum of the Central Bank decidedU.S. $77.5 billion but decreased to introduce new changes to the monetary policy, in order to reduce volatility in the foreign exchange market. According to this new scheme: (i) the Central Bank may intervene, subject to market conditions, in the foreign exchange market and sell Dollars in the market, even in case that the exchange rate is below Ps. 51.488 and (ii) if the exchange rate climbs above Ps. 51.488, the Central Bank will sell foreign currency for up to 250 million dollars daily. Also, the Central Bank could decide to perform additional interventions. The Pesos resultingU.S. $44.7 billion as of such sales will be discounted from the monetary base. The COPOM also confirmed that the Central Bank will not intervene in the foreign exchange market if the exchange rate decrease below Ps. 39.755.December 30, 2019.
The Argentine macroeconomic environment, in which we operate, was affected by such devaluation which had an effect on our financial and economic position. If the Peso devalues significantly, all of the negative effects on the Argentine economy related to such devaluation could recur, with adverse consequences to our business, financial condition and results of operations.
High public expenditure could result in long lasting adverse consequences for the Argentine economy.
During the last few years, the Argentine government has substantially increased public expenditure and has resorted regularly to the Central BankBank’s monetary issuance and transfers and to ANSES to source part of its funding requirements.
TheIn 2017 and 2018, public sector expenditure increased approximately 21.8%, and 22.4% respectively (measured in nominal Pesos) and the government informed a primary fiscal deficit of approximately 3.8% and 2.4% of GDP, respectively, according to the Ministry of Treasury. In 2019, Argentine government has commenced revisionpublic expenditure increased by 37.2% and the government informed a primary fiscal deficit of its subsidy policies, particularly those relatedPs. 819.4 billion, compared to energy, electricitya deficit of Ps.727.9 billion in 2018. By means of Decree 315/2020 and gas, water and public transportation. Accordingly, in September 2016,Resolution 443/2020, the Supreme Court of Argentina issued a ruling in favor of increasing electricity rates. The Macri administration has also orderedArgentine government authorized an increase of the public sector expenditures by Ps.55.8 billion in gas tariffs for PyMEs and businesses. These measures reduce public expenditure but impact on prices, substantially affecting the consumption and economy.2020.
We cannot assure you that the government will not seek to finance its deficit by gaining access to the liquidity available in the local financial institutions. In that case, government initiatives that increase the exposure of local financial institutions to the public sector could affect our liquidity and assets quality and have a negative effect on clients’ confidence.confidence in the financial system.
In addition, further deterioration in fiscal accounts could negatively affect the Argentine government’s ability to access the international financing markets and could result in increased pressure on the Argentine private sector to cover the Argentine government’s financial needs. This could adversely affect the Argentine economy and our business, financial condition and results of operations.
The amendment of the Central Bank’s Charter and the Convertibility Law may adversely affect the Argentine economy.
On March 22, 2012, the Argentine Congress passed Law No. 26,739, which amended the charter of the Central Bank (the “Central Bank Charter”) and Law No. 23,298, as amended and supplemented (the “Convertibility Law”). This law amended the principal objectives of the Central Bank and removed certain provisions previously in force. Pursuant to the amendment, the Central Bank focuses on promoting monetary and financial stability as well as development with social equity.
The key components of the amendment to the Central Bank Charter related to the use of international reserves and the implementation of policies by the Central Bank in order to interfere in the fixing of interest rates and terms of loans to financial institutions. Pursuant to the amendment, Central Bank reserves may be made available to the Argentine government for the repayment of debt or to finance public expenses.
The use of Central Bank reserves for such expanded purposes may result in Argentina being more vulnerable to inflation or external shocks, affecting Argentina’s capacity to overcome the effects of an external crisis, which in turn could negatively affect our business, financial condition and results of operations.
Failure to adequately address actual and perceived risks of institutional deterioration and corruption may adversely affect Argentina’s economy and financial condition, which in turn could adversely affect our business, financial condition and results of operations.condition.
A lack of a solid institutional framework and corruption have been identified as, and continue to be a significant problem for, Argentina. In Transparency International’s 2017 Corruption Perceptions Index survey of 180 countries, Argentina was ranked 85, improving from the previous survey in 2016. In the World Bank’s Doing Business 20182019 report, Argentina ranked 117126 out of 190 countries, down from 116117 in 2017.2018.
Recognizing that the failure to address these issues could increase the risk of political instability, distort decision-making processes and adversely affect Argentina’s international reputation and ability to attract foreign investment, the Macriformer administration has announced several measures aimed at strengthening Argentina’s institutions and reducing corruption. These measures include the reduction of criminal sentences in exchange for cooperation with the government in corruption investigations (a ���whistleblower” mechanism), increased access to public information, the seizing of assets from corrupt officials, increasing the powers of the Anticorruption Office (Oficina Anticorrupción) and the passingproject of a new public ethics law, among others. The Argentine government’s abilityextent to implementwhich these initiatives may be implemented is uncertain as it would require the involvement of the judicial branch, which is independent, as well as legislative support from opposing parties.
The ongoing economic uncertainty and political instabilityenvironment in Argentina may adversely affect the Argentine economy.
Argentina’s political environment has historically influenced, and continues to influence, the performance of the country’s economy. Political crisis have affected and continue to affect the confidence of investors and the general public, which have historically resulted in economic deceleration and heightened volatility in the securities with underlying Argentine risk. The recent economic instability in Argentina has contributed to a decline in market confidence in the Argentine economy, as well as to a deteriorating political environment. Weak macroeconomic conditions in Argentina have continued in 20182019 and may be accentuated in 2020. For more information, see “Item 3.D -Risk Factors – Risks related to Argentina – Argentina’s economy contracted in 2018 and 2019 as a result ofand may contract in the upcoming presidential elections.future due to international and domestic conditions which may adversely affect our operations.”
In addition, various ongoing investigations into allegations of money laundering and corruption being conducted by the Office of the Argentine Federal Prosecutor including the largest such investigation, known as “Los Cuadernos de las Coimas,” or “the Chauffeur’s Books” have negatively impacted the Argentine economy and political environment. Numerous members of different agencies of the Argentine government as well as senior officers of companies holding government contracts or concessions have faced or are currently facing allegations of corruption and money laundering as a result of these investigations. These individuals are alleged to have accepted bribes by means of kickbacks on contracts granted by the government to several infrastructure, energy and construction companies. The proceeds from these kickbacks allegedly financed the political campaigns of political parties forming the previous government that was led by former President Cristina Fernandez de Kirchner. These funds were unaccounted for or not publicly disclosed and were allegedly used to personally enrich of certain individuals. Several senior politicians, including members of Congress, and high-ranking executives and officers of major companies in Argentina (i) have been arrested on account of various charges relating to corruption, (ii) entered into plea agreements with prosecutors and (iii) have resigned or been removed from their positions. The potential outcome of the Chauffeur’s Books as well as other ongoing corruption-related investigations is uncertain, but they have already had an adverse impact on the image and reputation of those companies that have been implicated, as well as on the general market perception of the economy, political environment and the capital markets in Argentina. We have no control over and cannot predict whether such investigations or allegations will lead to further political and economic instability. In addition, we cannot predict the outcome of any such allegations nor their effect on the Argentine economy.
COVID-19 is affecting the Argentine economy and could have an adverse effect on the Bank’s business, financial condition and results of operations.
In December 2019,COVID-19 was reported in Wuhan, China, and the World Health Organization declaredCOVID-19 a pandemic on March 11, 2020.COVID-19 has disrupted business activities in Argentina and worldwide. The Argentine government has issued astay-at-home order from March 20, 2020, restricting the free circulation in public areas and ordering most businesses to close, with certain exemptions. In Argentina, around 6,000 confirmed cases had been reported by late April and thestay-at-home order has been extended several times, most recently through May 24, 2020.
TheCOVID-19 pandemic is adversely impacting the Argentine economy and our business. For example, the pandemic has already had several adverse consequences, including a negative impact on the population’s health and safety, disruption of supply chains, falls in production and demand, deterioration in the valuation of financial assets and investments, exchange rate volatility, increased volatility in the financial markets, closure of facilities, interruption of operations and a likely increase of impaired loans in the future.
In order to assuage the adverse effect of theCOVID-19 pandemic on the Argentine economy, the Argentine government has taken certain monetary and fiscal measures, in addition to other measures adopted by the Central Bank. Such measures include: layoff limitations, price controls, lower reserve requirements on bank lending to households and micro-, small- andmedium-sized enterprises, temporary easing of bank loan classification rules, a temporary prohibition on charging fees related to ATM services, the suspension of account closures, the reduction of maximum credit card interest rates, freezing and/or postponement of certain loan payments, healthcare benefit extensions, tax reductions and certain other financial assistance programs in connection withCOVID-19. Moreover, banks may not distribute dividends until at least June 30, 2020 or carry out wrongful dismissals until at least May 30, 2020. Although such measures could help attenuate the impact of the pandemic on the Argentine economy overall, they may have a negative impact on our business, financial condition and results of operations.
The long-term effects of epidemics and other public health crises, such asCOVID-19, on the economy and our business, financial condition and results of operations are difficult to assess or predict. For example, risks that we face arising from the pandemic include: a possible significant increase in loan defaults and credit losses, higher risk of impairment of our assets, a decrease in our business activity, such as new retail lending, an increase in cybersecurity risks given greater use of computer networks outside the corporate environment, and negative impacts on the business and operations of third-party service providers who perform critical services for us. Furthermore, certain industries that have been particularly affected by the pandemic, such as hospitality, tourism and travel, could remain distressed for an extended period, which would in turn increase their defaults and reduce the related banking activity.
As a result of the above, theCOVID-19 pandemic could adversely affect us. The extent of the impact of the pandemic on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, the measures taken or to be taken by the Argentine government and Central Bank, and the related impact on our customers, employees, vendors and us, all of which remain uncertain.
Sustained declines in the international prices for oil could have an adverse material effect on the Argentine and the global economy.
Between March 5 and March 30, 2020, the price of Brent crude oil dropped by half, falling to the lowest price since the beginning of the century. Similarly, the price of U.S. West Texas Intermediate crude fell below 20 U.S. dollars a barrel, almost a two decade low. Mainly, it was explained by the failure to agree to cut production between the members of the Organization of the Petroleum Exporting Countries and Russia, and the drop in oil demand caused by the spread ofCOVID-19.
These circumstances could harm government revenues, availability of foreign currency and the government’s ability to service its sovereign debt. Thus, affecting Argentina’s growth prospects and, therefore, our business, financial condition and results of operations.
The extent of the impact of the significant drop in the oil price to the Argentine and the global economy would depend on certain developments, including changes in oil prices and the duration and consequences of theCOVID-19 outbreak, such as the governmental restrictions imposed to mitigate it. Nevertheless, the recent crude crash could affect particularly the economic and financial sustainability of companies exploring and drilling oil and gas at the Vaca Muerta Formation, the fourth biggest resource ofnon-conventional oil in the world.
As a result of price volatility, we cannot assure or anticipate how long the price drop could continue to negatively affect the market, nor all consequences it might cause to the Argentine and the global economy.
Risks relating to the Argentine financial system
The health of Argentina’s financial system depends on the growth of the long-term credit market.
InUntil recent years, the loan portfolio of the Argentine financial system has grownhad been growing significantly. Loans to the private sector (in nominal value without adjusting for inflation) grew by approximately 33% in 2016, 52% in 2017, and 36% in 2018 and 21% in 2019, for the financial system as a whole. In the past, the pace of growth of long-term loans was slower than that of the rest of the loan portfolio, however in the last two yearsduring 2017 and 2018 there has been a significant increase in mortgage loans. In 2019, the increase in mortgage loans which grewabruptly stopped due to higher inflation expectations and its impact on the cost of credits adjusted by 244% as compared to 2016.UVAs.
Since most deposits are short-term deposits, a substantial portion of the loans have the same or similar maturities, and there is a small portion of long-term credit lines.
The uncertainty of the level of inflation in future years is a principal obstacle to a faster recovery of Argentina’s private sector long-term lending. This uncertainty has had and may continue to have a significant effect on both the supply of and demand for long-term loans, as borrowers try to hedge against inflation risk by borrowing at fixed rates while lenders hedge against inflation risk by offering loans at floating rates.
If longer-term financial intermediation activity does not grow, the ability of financial institutions, including us, to generate profits will be negatively affected.
The health of the financial system depends upon the ability of financial institutions, including us, to retain the confidence of depositors.
The measures implemented by the Argentine government by the end of 2001 and early 2002, particularly the restrictions imposed on depositors in relation to the possibility of freely withdrawing funds from banks and pesification and restructuring of their deposits, caused losses to many depositors and weakened the confidence in the Argentine financial system.
As a consequence of the 2008 global economic crisis, the banking industry in Argentina suffered a significant slowdown. This trend was reversed by the end of 2009. Total deposits with the financial system increased by 45% in 2016, 24% in 2017, and 67% in 2018 and 18% in 2019 but the ratio of total financial system deposits to GDP is still low when compared to international levels and lower than the periods prior to the crisis.levels.
The Argentine financial system growth, depends heavily on deposit levels, due to the small size of its capital market and the absence of foreign investments in previous years. Recently,During the last years, numerous local financial institutions, including the Bank, have had access to global financial markets to obtain financing through the placement of debt securities, in satisfactory conditions, but this trend may not last and there is uncertainty about whether the current availability of funds in international markets will continue in the coming years.
Although liquidity levels are currently reasonable, it is not possible to offer any guarantee that these levels will not decrease in the future due to adverse economic conditions that could negatively affect the Bank’s business. Furthermore, while banks’ liquidity in foreign currency is high, a significant share of it is deposited at the Central Bank, and as a result banks have to rely on the Central Bank in order to access those funds. If we continue to experience significant withdrawals by depositors, it could have a material adverse effect on our business, results of operations and financial condition.
Notwithstanding the above, because most deposits are short-term deposits, a substantial part of loans must also have short-term maturities to match the terms of the deposits. The proportion of long-term credit lines, such as mortgages, is small, and long term loan origination fell sharply during 2019 as a consequence of high interest rates and the difficult financial environment.
In spite of the positive trend in previous years, the deposit base of the Argentine financial system, including ours, may be further affected in the future by adverse economic, social and political events. If there were a loss of confidence due to such economic, social and political events causing depositors to withdraw significant holdings from banks, there could be a substantial negative effect on the manner in which financial institutions, including us, conduct their business and on their ability to operate as financial intermediaries. International loss of confidence in the financial institutions may also affect the behavior of Argentine depositors which could have a negative impact on our business, financial condition and results of operations.
Our asset quality and that of other financial institutions may deteriorate if the Argentine private sector is affected by economic events in Argentina or international macroeconomic conditions.
The capacity of many Argentine private sector debtors to repay their loans has in the past deteriorated as a result of certain economic events in Argentina or macroeconomic conditions, materially affecting the asset quality of financial institutions, including us.
From 2009 to 2011, the ratio ofnon-performing private sector lending declined overall, with a record minimum ratio of 1.4% as of December 31, 2011 for the financial system as a whole. The improvement was reflected in both the consumer loan portfolio and the commercial portfolio. From 2012, the ratio ofnon-performing private sector lending increased, reaching 2.0% as of December 31, 2014.
During 2015, the ratio ofnon-performing private sector lending decreased to 1.7% and during 2016 reached 1.8%, which remained in 2017, for the financial system as a whole. As of December 31, 2018, the ratio ofnon-performing private sector lending reached 3%1.8%. As of December 31, 2018 and 2019, the ratio ofnon-performing private sector lending reached 3.1% and 5.7%, calculated pursuant to Central Bank Rules, explained by the economy’s deterioration and its impact on individual’s payment capability.
We experienced a similar trend than the financial system, ournon-performing lending rate reached 1.1%, 1.9% and 2,1%, as of December 31, 2017, 2018 and 2019, respectively, calculated pursuant to Central Bank Rules.
We experienced similarAs a result of the macroeconomic environment since 2018, the capacity of many Argentine private sector debtors to repay their loans has deteriorated significantly, materially affecting the asset quality of financial institutions, including us. In addition, due to the spreading ofnon-performingCOVID-19 loan rates,and its economic impact in early 2020, with the aim of easing the economic situation in the midst of the pandemic, the Argentine government established measures such as the refinancing of unpaid balances, access to soft credits, subsidies to vulnerable sectors, the freezing of monthly mortgage payments and certain UVA loans, etc. However, these measures may not fully offset the deterioration caused by the crisis in the quality of our assets.
The pandemic and the nation-wide lockdown established by the Argentine government since March 20, 2020 have had a significant negative impact on the Argentine economy and resulted in increased morosity levels in the financial system. Despite the measures taken by the Argentine government in order to mitigate the negative impact, production and consumption have decreased significantly, impacting employment levels and financial flows, among others and the extent of such impact and its effects are still uncertain, and therefore difficult to measure. Additionally, it is worth noting that, despite the measures adopted by the Central Bank in order to temporarily reduce non-performing levels, the Bank’s financial statements for the period which will end on December 31, 2020 will recognize the expected losses with a maximumforward-looking perspective, incorporating the impact of 1.9%new macroeconomic scenarios in 2014the variables which affect credit risk, in accordance with IFRS 9 provisions.
We cannot assure the economic crisis will subside and an improvement from 2015 until they reached 1.1% in 2016. Thenon-performing loan rate reached 1.9%, with a coverage ratio of 118% as of December 31, 2018, calculated pursuant to Central Bank Rules.
Despite the private sector debtors will improve its payment capacity. Additionally, despite the current quality of our portfolio, we may not succeed in recovering substantial portions of outstanding loans. If Argentina’s economic growth slowscontinues to slow down or the financial condition of the private sector further deteriorates, the financial system, including us, could experience an increase in the incidence ofnon-performing loans.
Limitations on enforcement of creditors’ rights in Argentina may adversely affect financial institutions.
To protect debtors affected by the economic crisis, beginning in 2002, the Argentine government adopted measures that temporarily suspended proceedings to enforce creditors’ rights, including mortgage foreclosures and bankruptcy petitions. Such limitations have restricted creditors’ ability to collect defaulted loans.
Nowadays, to protect debtors affected by theCOVID-19 crisis, the Argentine government adopted a series of rules regarding the enforcement of creditors’ rights. By means of Decrees 319/2020 and 320/2020, the Argentine government, among other measures, (i) suspended foreclosures and evictions nationwide, including those that have already been ordered; (ii) froze mortgage and UVA credits installments as of March’s value for six months; (iii) froze the price of rentals as of March’s value for a period of six months; and (iv) prohibited the application of punitive interests or other penalties provided for in the contract.
Despite the fact that most of these measures have been rescinded, weWe cannot assure you that in ana further adverse economic environment the government will not adopt new measures in the future, restricting the ability of creditors to enforce their rights, which could have a material adverse effect on the financial system and our business.
Reduced spreads between interest rates received on loans and those paid on deposits, without corresponding increases in lending volumes, could adversely affect the financial system.
The spread for Argentina’s financial system between the interest rates on loans and deposits could be affected as a result of increased competition in the banking sector and the Argentine government’s tightening of monetary policy in response to inflation concerns.
Since the 2018 devaluation of the peso and the acceleration of the inflation rate, the Central Bank raised interest rates, ending the margin contraction trend that had been taking place in the past years. Since late December 2019, the Central Bank has resumed a process of rate reduction, and inflation expectations have been reduced slightly, although they remain high. If the Central Bank is successful in keeping the pace of inflation reduction, it could result in a renewed pressure on banking spreads. Moreover, a change in the composition of the source of funding, which is currently heavily weighted bynon-interest-bearing deposits, could also put downward pressure on margins. A change in the composition of the source of funding could result from lower interest rates, higher demand of credit and therefore a need to increase the amount of time deposits or other types of bearing interest liabilities. Further reduction in spreads could have a material adverse effect on our business, results of operation and financial condition.
We cannot guarantee that interest rate spreads will remain attractive unless increases in our volume of lending or additional cost-cutting takes place. A reversal of this trend could adversely affect the financial system.
The application of the Consumer Protection Law may prevent or limit the collection of payments with respect to services rendered by us.
Law No. 24,240 as amended and supplemented from time to time (the “Consumer Protection Law”) sets forth certain rules and principles designed to protect consumers, which include our customers. The Consumer Protection Law, contains specific rules regarding financial activities and also general rules that may be used to support its application, pursuant to legal precedents. Additionally, the National Civil and Commercial Code has incorporated the principles of Consumers Protection Law and has established its application to banking sector contracts.
Moreover, Law No. 25,065 (as amended and supplemented from time to time by Law No. 26,010 and Law No. 26,361, the “Credit Card Law”) also sets forth several mandatory regulations designed to protect credit card holders.
Both the involvement of the applicable administrative authorities at the federal, provincial and local levels, and the enforcement of the Consumer Protection Law and the Credit Card Law by the courts are increasing. This trend has increased general consumer protection levels. In such context, Central Bank Communication “A” 5460, provides a wide protection to clients of financial services institutions, limiting the fees and charges that such institutions can charge to their clients. Likewise, the Supreme Court of Justice issued the case law No. 32/2014, by which created the Public Registry of Collective Trials to orderly inscribe all collective processes (class actions) filed in courts. In the event of we are found responsible for violating the provisions of the Consumer Protection Law or the Credit Card Law, potential penalties may limit our ability to collect payments owed for services and credits which may, in turn. And therefore, may adversely affect the financial results of our operations.
Furthermore, the rules that govern the credit card business provide for variable caps on the interest rates that financial entities may charge clients and the fees that they may charge merchants. Moreover, general legal provisions exist pursuant to which courts could decrease the interest rates and fees agreed upon by the parties on the grounds that they are excessively high. On the other hand, the Central Bank has also established certain rules that grant broad protections for consumers of financial services that offer greater control over the relationship between them and their clients. The Central Bank regulations provide: (i) that prior authorization is required to implement new fees for new products and/or services offered and to increase existing commissions or fees for products that are considered commodities and (ii) the ability of financial institutions to receive remuneration for any insurance product that the client is forced to purchase as a condition of access to financial services. A change in applicable law or the handing down of court decisions that lower the cap on interest rates and fees that clients and merchants may be charged could reduce our revenues and therefore negatively affect our results of operations.
In December 2018, a preliminary draft for a new Consumer Protection Law (the “CPL Draft”) was submitted by the Ministry of Justice and Human Rights and the Ministry of Production and Labor of Argentina which sets forth certain rules and principles designed to protect consumers, which include our consumers. The CPL Draft, proposes a broad perspective that contemplates the business practices of the sector with the aim of formalizing links between credit providers and consumers, establishing, for example, that the costs of financing or loans that are in breach to the law, will be bearedborn in whole or in part by credit providers or intermediaries. It also enshrines a catalogue ofiuris tantum legal presumptions, of the existence of consumer credit contracts that may affect the enforceability of those credits. The concept of “hyper-vulnerable consumers” is also introduced, thus placing them at a presumed disadvantage in the contractual negotiation and the potential factors that could affect their consumer relationship.
Moreover, the CPL Draft creates the “principle of responsible lending” (Principio de préstamo responsable) which imposes certain duties over credit or financing providers like us. This principle could reduce the number of consumers who would be able to access and negotiate credits. It also establishes that the prevention of consumers’ overindebtednessover-indebtedness must become central policies guaranteed by public authorities. This could impose limits to the granting and advertising of consumer loans. Finally, it grants the consumer the right to make payments in advance, among others. This CPL Draft has not been passed by the Argentine Congress, however, any of these reforms may adversely affect the result of our operations.
Class actions against financial entities for an indeterminate amount may adversely affect the profitability of the financial system.
Certain public and private organizations have initiated class actions against financial institutions in Argentina, including us, some of which have been favorable contested while others were duly appealed by the Bank. The Argentine National Constitution and the Consumer Protection Law contain certain provisions regarding class actions. However, their guidance with respect to procedural rules for instituting and trying class action cases are limited. Nevertheless, by means of anad hoc doctrine construction, Argentine courts have admitted class actions in some cases, including various lawsuits against financial entities related to “collective interests” such as alleged overcharging on products, applied interest rates and advice in the sale of public securities, among others. If class action plaintiffs were to prevail against financial institutions, their success could have an adverse effect on the financial industry and on our business.
Governmental measures and regulatory framework affecting financial entities could have a material adverse effect on the operations of financial entities.
The Argentine government has historically exercised significant influence over the economy. Financial institutions, in particular, have operated in a highly regulated environment.The Central Bank could penalize us in case ofnon-compliance with the applicable regulations. Similarly, the CNV may impose penalties on us, our Board of Directors, our Management and our supervisory committee for violation of corporate governance regulations. The Financial Information Unit (“UIF”, per its initials in Spanish) regulates matters related to money laundering and has the power to supervise regulatory compliance by financial entities and, eventually, impose sanctions. Such regulatory agencies could initiate actions against us, our shareholders or directors and, consequently, impose sanctions on us or our subsidiaries.
Between 2001 and 2015,In recent years, a series of new regulations were issued, mainly regulating the foreign exchange market, capital and minimum cash requirements, lending activity, interest rate limits and dividend distribution for financial institutions. In addition, various international developments such as the adoption in Argentina of risk-based capital, leverage and liquidity standards by the Basel Committee on Banking Supervision in December 2010 known as “Basel III” will likely continue to impact us in the coming years.
Moreover, in accordance with article 3.4 of Communication “A” 6844, access to the local exchange market is subject to Central Bank imposed new restrictions onBank’s prior approval. However, access is only granted to the distributionFX Market to pay dividends tonon-resident shareholders, subject to the following conditions:
Maximum amounts: The total amount of transfers executed through the FX Market as of January 17, 2020, for payment of dividends including a limitation on the maximum distributable amount of dividends. In addition, since January 2016, pursuant to Central Bank Communication “A” 5827, additional capital margin requirements have to be complied with, including a capital conservation margin and a counter-cycle margin. The capital conservation margin shall be 2.5%non-resident shareholders may not exceed 30% of the amounttotal value of the new capital risk weighted assets (“RWA”),contributions made in the case of entities considered systemically important(“D-SIB”), like us,local company that had been entered and settled through the margin will be increased to 3.5%FX Market as of the abovementioned date. The total amount of capital RWA. The counter-cycle marginpaid tonon-resident shareholders shall be within a range of 0% to 2.5% of RWA, but Communication “A” 5938 as amended by Communication “A” 6013, among others, ofnot exceed the Central Bank, established countercyclical margincorresponding amount denominated in 0% since April 1, 2016. This margin can be reduced or cancelled by the Central Bank when it considersArgentine Pesos that the systematic risk has been diminished. By Communication “A” 6013, the Central Bank also eliminated the requirement to maintain a certain threshold of regulatory capital after the distribution of dividends by financial institutions and according to Communication “A” 6244 effective as of July 1, 2017, financial institutions can freely determine the level and use of their general exchange position, allowing them to manage their currency positions, both in terms of the composition of their assets and the possibility of managing the incoming and outgoing cash flow in foreign currency.
Since June 2012, the Central Bank had in place a regime to finance productive investment, by which certain financial entities, including us, had to allocate a certain amount of the deposits held by thenon-financial private sector, at a fixed interest rate in Pesoswas determined by the Central Bank,shareholders’ meeting.
Minimum Period: Access to fund investment projectsthe FX Market will only be granted after a period of not less than thirty (30) calendar days has elapsed as from the date of the settlement of the last capital contribution that is taken into account for determining the acquisition of capital goods, the construction of plants, the marketing of goods or the acquisition of property (subject in this case to certain additional requirements). However, since 2017 this regime was being phased out until December 2018, at which time the allocation was 0%.30% maximum aforementioned.
• | Documentation requirements: Dividends must be the result of closed and audited balance sheets. When requesting access to the FX Market for this purpose, evidence of the definitive capitalization of the capital contribution must be provided or, in lack thereof, evidence of the initiation of the process of registration of the capital contribution before the Public Registry of Commerce (Registro Público de Comercio) shall be provided. In this case, evidence of the definitive capitalization shall be provided within 365 calendar days from the date of the initial filing with the Public Registry of Commerce. If applicable, the external assets and liabilities reporting regime set forth by Communication “A” 6401 of the Central Bank (the “External Assets and Liabilities Reporting Regime”) shall have been complied with. |
The Central Bank has also established limitations to the net positive global position in foreign currency to prevent the reduction of the Central Bank’s foreign exchange reserves. Due to the reduction of the limits carried out by the previous government, financial entities, including the Bank, were forced to sell part of their position in dollars to comply with aforementioned regulation. As of the date of this annual report, the positive net global position in foreign currency cannot exceed 5% of the RPC or the liquid funds of the Bank prior to the relevant month while the negative net global position in foreign currency cannot exceed 30% of the RCP for the month prior to the relevant month.
Moreover, any insolvency proceeding against financial institutions would be subject to the powers of and intervention by the Central Bank, which may limit remedies otherwise available and extend the duration of the proceedings. Finally, special rules that govern the subordination of debt of financial institutions in Argentina, granting priority to depositors with respect to most other creditors, may negatively affect other shareholders in the event of our judicial liquidation or bankruptcy.
In addition, the Civil and Commercial Code also modifies the applicable regime for contractual provisions regarding payment obligations in foreign currency, stating that such obligations can be settled in Pesos. This modifies the legal regime, under which debtors could only cancel such obligations by making the payment in the specific currency agreed in their contracts. Even though in general, courts have admitted the possibility of waiving such provision, it is important to take into account that the previous Argentine Civil Code and the previous Argentine Commercial Code, were in effect in Argentina for approximately 150 years and as of the date hereof, the existing case law on the provisions of the Civil and Commercial Code is scarce. Thus, it is not clear as to how the provisions of this Civil and Commercial Code will be construed and applied by Argentine courts.
Even though the Macri administration has adopted measures to increase the flexibility for the regulatory framework of financial institutions, eliminating several restrictions imposed by the previous government, itIt is not possible to offer any guarantee that new stricter regulations will not be implemented in the future that may generate uncertainty and adversely affect future financial activities and the results of the Bank’sour operations. Such changes in the regulatory framework and further changes in the future could limit the ability of financial institutions, including us, to make long-term decisions, such as asset allocation decisions, which could cause uncertainty with respect to our future financial condition and results of operations. We cannot assure that laws and regulations currently governing the economy, or the financial sector will not continue to change in the future or that any changes will not adversely affect our business, financial condition and results of operations. For more information, see Item 4.B ““Item 4.B.—Business Overview—Argentine Banking RegulationRegulation— Central Bank’s preventive measures in response to the pandemic ofCOVID-19.”.
Argentina’s insufficient or incorrect implementation of certain anti-money laundering and combating the financing of terrorism (“AML/CFT”) recommendations may result in difficulties to obtain international financing and attract direct foreign investments.
In October 2010, the Financial Action Task Force (“FATF”) issued a Mutual Evaluation Report (the “Mutual Report”) on AML andAML/ CFT in Argentina. The Mutual Report stated that, since the prior evaluation in 2004, Argentina had not made adequate progress in addressing a number of deficiencies identified at that time, and the FATF subsequently placed Argentina under enhanced monitoring.
In June 2011, Argentina made a high-level political commitment to work with the FATF to address its strategic AML/CFT deficiencies. In complianceTo comply with recommendations made by the FATF on AML/ CFT, Law No. 25,246 (the “Anti-Money Laundering Law”) was amended, inter alia, by Laws No. 26,683 and 26,734. These new regulations defined money laundering, prevention, on June 1, 2011 the Argentine Congress enacted Law No. 26,683. Under this law,as well as self-laundering, as autonomous crimes.
The amendments also established criminal sanctions to legal persons involved in money laundering is now a crime per se,or terrorism financing offenses, and self-laundering money is also considered a crime.the authorities´ ability to freeze and seize assets in the event of commission of these crimes.
In June 2012, the plenary meeting of the FATF held in Rome highlighted the progress made by Argentina but also urged the Argentine government to make further progress regarding its AML/CFT deficiencies. Notwithstanding the improvements that Argentina made, in October 2012 the FATF determined that certain strategic AML/CFT deficiencies continued, and that Argentina would be subject to continued monitoring.
Since October 2013, Argentina has taken steps towards improving its AML/CFT regime, including the issuance of new regulations strengthening KYC and suspicious transaction reporting requirementsduties and the financial sector regulator’sUIF´s existing powers to apply sanctions for AML/CFT deficiencies.
Such progress has been recognized by the FATF. In this regard, in June 2014 the FATF stated that Argentina had made significant progress in addressing the deficiencies in its AML/CFT measures as identified in the Mutual Report, and that subsequent to the adoption of such measures, Argentina had strengthened its legal and regulatory framework, citing certain specific examples.
As a result of such progress, the FATF plenary decided that Argentina had taken sufficient steps in addressing technical compliance with the core and key recommendations, such that Argentina could be removed from the compliance monitoring process. In addition,Moreover, on October 24, 2014 the FATF welcomed Argentina’s significant progress in improvingremoved Argentina from its AML/CFT regime and stated that Argentina would work with the FATF and the Financial Action Task Force of Latin America (Grupo de Acción Financiera de América del Sur) as it continued to address the full range of AML/CFT issues identified in its Mutual Report. On“Grey List”.
In June 2017, Argentina was unanimous elected to preside the FATF. Since that year, the UIF issued several resolutions adopting a Risk Based Approach (RBA) to AML/ CFT, following international standards promoted by the FATF. The Obligated Subjects that fell under the new standard were financial institutions (Res. UIF No.30-E/2017), companies acting in the securities market (Res. UIF No. 21/2018), insurance companies (Res. UIF No. 28/2018) and traveler’s check issuers, credit andpre-paid card operators (Res. UIF No. 76/2019).
Moreover, in July 2019, the Federal Executive Branch issued Decree No. 489/2019 by means of which it created the Public Registry of Persons or Entities Linked to Acts of Terrorism and its Financing (“RePET”). The creation of such registry attempted to centralize in a single public registry, all information related to administrative freezing of assets related to terrorism and its financing. The Decree entitles the mentioned Registry to provide public access and facilitate the exchange of information with relevant agencies and with third countries, which shall strengthen domestic and international cooperation mechanisms. The RePET aims to facilitate the work of Obligated Subjects, who must report to the UIF the operations carried out or attempted by natural or legal persons or other entities incorporated in it.
In January 2020, new authorities have been appointed to conduct the UIF, but no policies or guidelines have been issued yet.
Although Argentina has made significant improvements in its AML/CFT regulations, and is no longer subject to the FATF’s ongoing global AML/CFT compliance process, no assurance can be given that Argentina will continue to comply with AML/CFT international standards, or that Argentina will not be subject to the FATF’s ongoing global AML/CFT compliance process in the future, circumstances which could adversely affect Argentina’s ability to obtain financing from international markets and attract foreign investments and which could in turn, negatively affect our business.
Certain changes to services and commissions charged by financial entities on debit and credit card sales may affect our result of operations.
We receive income from the commissions we charge merchants on debit and credit card transactions. A change in applicable law that place limits on the fees that merchants may be charged may adversely reduce our revenues. On September 8, 2016, one of the chambers of the Argentine Congress approved a draft bill that aims to reduce credit card sales commissions from 3% to 1.5%, and debit card sales commissions from 1.5% to 0%. The draft bill was not approved by the Argentine Congress in 2016. Nevertheless, on March 31, 2017, the Central Bank issued Communication “A” 6212, effective as of April 1, 2017, which reduces credit card and debit card sales commissions on a gradual annual plan. Pursuant to Communication “A” 6212, the maximum credit card sales commission rate for 2017, is2018 and 2019 was of 2.0%, 1.85% and 1.65%, respectively, and for 2018, 2019, 2020 and 2021 and after, will be 1.85%, 1.65%, 1.50% and 1.30%, respectively. The maximum debit card sales commissions for 2017, is2018 and 2019 was of 1.0%, 0.90% and 0.80%, respectively, and for 2018, 2019, 2020 and 2021 and after, will be 0.90%, 0.80%, 0.70% and 0.60%, respectively.
Moreover, pursuant to Communication “A” 6964, as of April 13, 2020, nominal interest rates in credit operations shall not exceed 43%. The application of the limits set by the Central Bank and any further reductions on credit and debit cards sales commissions could adversely affect our profitability, financial condition and results of operations. Furthermore, by means of said Communication, the Central Bank determined that the unpaid balances of credit cards financings that take place between April 13, 2020 and April 30, 2020, will be automatically refinanced in nine equal consecutive monthly installments beginning after a three-month grace period.
Changes in the laws and regulations may negatively affect us.Argentine financial institutions.
Argentine financial institutions are subject to extensive regulation and supervision by the Argentine Government,government, particularly by the Central Bank, the UIF and the CNV. We have no control over governmental regulations or the rules governing all aspects of our operations, including:
minimum capital requirements;
mandatory reserve requirements;
requirements for investments in fixed rate assets;
lending limits and other credit restrictions, including mandatory allocations;
limits and other restrictions on fees;
reduction of the period for the financial institutions to deposit the amount of sales made with credit cards in the corresponding accounts of the sellers;
limits on the amount of interest banks can charge or pay, or on the period for capitalizing interest;
accounting and statistical requirements;
restrictions on dividends;
limits on market share;
reporting or controlling regimes as agents or legally bound reporting parties; and
changes in the deposit insurance regime.
Increased operating costs may affect ourthe Argentine financial institutions results of operations.
WeArgentine financial institutions face the risk of potential claims initiated by individual workers or unions, and possible strikes or general strikes, in the context of negotiations relating to salary increases, benefits and/or compensation. The occurrence of any of the above could increase our operating costs, which could in turn have a negative impact on the Argentine financial institutions and, in turn, on our business, financial position and results of operations.
Risks relating to us
Our target market may be the most adversely affected by economic recessions.
Our business strategy is to increase fee income and loan origination in one of our principal target markets;low- and middle-income individuals and PyMEs.
This target market is particularly vulnerable to economic recessions and, in the event of a recession, growth in our target market may slow and consequently adversely affect our business. The Argentine economy as a whole, and our target market in particular, have not stabilized enough for us to be certain that demand will continue to grow. Therefore, we cannot assure you that our business strategy will ultimately be successful without undue delay or at all.
Significant shareholders have the ability to direct our business and their interests could conflict with yours.
As of December 31, 2018,2019, our significant shareholders, Jorge Horacio Brito and Delfín Jorge Ezequiel Carballo, directly or beneficially own 5,366,6215,367,840 Class A shares and 105,727,603 Class B shares and 4,895,5744,897,897 Class A shares and 106,805,523106,824,523 Class B shares respectively.
Although there is no agreement among them, if voting together, they could control all decisions made by shareholders with respect to us. They may, without the concurrence of the remaining shareholders, elect a majority of our directors, effect or prevent a merger, sale of assets or other business acquisition or disposition, cause us to issue additional equity securities, effect a related party transaction and determine the timing and amounts of dividends, if any.
We will continue to consider acquisition opportunities, which may not be successful.
We have historically expanded our business primarily through acquisitions. We will continue to consider attractive acquisition opportunities that we believe may offer additional value and are consistent with our business strategy. We cannot assure you, however, that we will be able to identify suitable acquisition candidates or that we will be able to acquire promising target financial institutions on favorable terms or that the Central Bank will approve any such transaction without undue delay or at all. Additionally, our ability to obtain the desired effects of any such acquisitions will depend in part on our ability to successfully complete the integration of those businesses and capture expected synergies, of which there can be no assurance. The integration of acquired businesses entails significant risks, including customer retention, integration, valuation adjustments and liability assumption risks. Any integration process gives rise to costs and uncertainties and may strain management resources and business functions. The occurrence of any of the above may have a material adverse effect on our business, results of operations, cash flow or financial condition.
Reduced spreads between interest rates received on loans and those paid on deposits, without corresponding increases in lending volumes, could adversely affect our profitability.
The spread for Argentina’s financial system between the interest rates on loans and deposits could be affected as a result of increased competition in the banking sector and the Argentine government’s tightening of monetary policy in response to inflation concerns.
Since 2009, the interest rate spreads throughout the financial system have increased. This increase was sustained by a steady demand for consumer loans in recent years. During 2014, the Central Bank established new limits on borrowing and lending rates. However, the net interest margin of the financial system remained stable due to a substantial growth both in loan and deposit portfolios. As of December 17, 2015, these limits were removed by the Macri administration.
We cannot guarantee that interest rate spreads will remain attractive unless increases in our volume of lending or additional cost-cutting takes place. A reversal of this trend could adversely affect our profitability.
Our estimates and established reserves for credit risk and potential credit losses may prove to be inaccurate and/or insufficient, which may materially and adversely affect our financial condition and results of operations.
A number of our products expose us to credit risk, including consumer loans, commercial loans and other receivables. Changes in the income levels of our borrowers, increases in the inflation rate or an increase in interest rates could have a negative effect on the quality of our loan portfolio, causing us to increase provisions for loan losses and resulting in reduced profits or in losses.
We estimate and establish reserves for credit risk and potential credit losses. This process involves subjective and complex judgments, including projections of economic conditions and assumptions on the ability of our borrowers to repay their loans. We may not be able to timely detect these risks before they occur, or due to limited resources or availability of tools, our employees may not be able to effectively implement our credit risk management system, which may increase our exposure to credit risk.
The pandemic and the nation-wide lockdown established by the Argentine government since March 20, 2020 have had a significant negative impact on the Argentine economy and resulted in increased morosity levels in the financial system. Despite the measures taken by the Argentine government in order to mitigate the negative impact, production and consumption have decreased significantly, impacting employment levels and financial flows, among others and the extent of such impact and its effects are still uncertain, and therefore difficult to measure. Additionally, it is worth noting that, despite the measures adopted by the Central Bank in order to temporarily reduce non-performing levels, the Bank’s financial statements for the period which will end on December 31, 2020 will recognize the expected losses with a forward-looking perspective, incorporating the impact of new macroeconomic scenarios in the variables which affect credit risk, in accordance with IFRS 9 provisions.
Overall, if we are unable to effectively control the level ofnon-performing or poor credit quality loans in the future, or if our loan loss reserves are insufficient to cover future loan losses, our financial condition and results of operations may be materially and adversely affected.
Changes in market conditions, and any risks associated therewith, could materially and adversely affect our financial condition and results of operations.
We are directly and indirectly affected by changes in market conditions. Market risk, or the risk that values of assets and liabilities or revenues will be adversely affected by variation in market conditions, is inherent in the products and instruments associated with our operations, including loans, deposits, securities, bonds, long-term debt and short-term borrowings. Changes in market conditions that may affect our financial condition and results of operations include fluctuations in interest and currency exchange rates, securities prices, changes in the implied volatility of interest rates and foreign exchange rates, among others.
Cybersecurity events could negatively affect our reputation, our financial condition and our results of operations.
We depend on the efficient and uninterrupted operation of internet-based data processing, communication and information exchange platforms and networks, including those systems related to the operation of our automatic teller machine (“ATM”) network. We have access to large amounts of confidential financial information and control substantial financial assets belonging to our customers as well as to us. In addition, we provide our customers with continuous remote access to their accounts and the possibility of transferring substantial financial assets by electronic means. Accordingly, cybersecurity is a material risk for us. Cybersecurity incidents, such as computerbreak-ins, phishing, identity theft and other disruptions could negatively affect the security of information stored in and transmitted through our computer systems and network infrastructure and may cause existing and potential customers to refrain from doing business with us.
In addition, contingency plans in place may not be sufficient to cover liabilities associated with any such events and, therefore, applicable insurance coverage may be deemed inadequate, preventing us from receiving full compensation for the losses sustained as a result of such a disruption. Additionally, theCOVID-19 pandemic can worsen this situation. For more information, see “Item 3.D – Risk Factors – Risks Related to Argentina –COVID-19 is affecting the Argentine economy and could have an adverse effect on the Bank’s business, financial condition and results of operations”.
Although we intend to continue to implement security technology devices and establish operational procedures to prevent such damage, we cannot assure you that all of our systems are entirely free from vulnerability and these security measures will be successful. If any of these events occur, it could damage our reputation, entail serious costs and affect our transactions, as well as our results of operations and financial condition.
Our business is highly dependent on properly functioning information technology systems and improvements to such systems.
Our business is highly dependent on the ability of our information technology systems and the third party managers of such systems to effectively manage and process a large number of transactions across numerous and diverse markets and products in a timely manner. In addition, we provide our customers with continuous remote access to their accounts and the possibility of transferring substantial financial assets by electronic means. The proper functioning of our financial control, risk management, accounting, customer service and other data processing systems is critical to our business and our ability to compete effectively. Our business activities may be materially disrupted if there were a partial or complete failure of any of our information technology systems communication networks. Such failures could be caused by, among other things, software bugs, computer virus attacks or intrusions, phishing, identity theft or conversion errors due to system upgrading. In addition, any security breach caused by unauthorized access to information or systems, or intentional malfunctions or loss or corruption of data, software, hardware or other computer equipment, could have a material adverse effect on our business, results of operations and financial condition.
Our ability to remain competitive and achieve further growth will depend in part on our ability to upgrade our information technology systems and increase our capacity on a timely and cost effective basis. Any substantial failure to improve or upgrade information technology systems effectively or on a timely basis could materially affect us.
An increase in fraud or transactions errors may adversely affect us.
Given the number of transactions that take place in a financial institution, although we have implemented numerous controls to avoid the occurrence of inefficient or fraudulent operations, errors can occur and aggravate even before being detected and corrected. In addition, some of our transactions are not fully automatic, which may increase the risk of human error or manipulation, and it may be difficult to detect losses quickly. Likewise, cybersecurity is a significant risk to us. Cybersecurity incidents or personal and confidential information may adversely affect the security of information stored and transmitted through the Issuer’s computer systems and may cause existing and potential customers to refrain from doing business with us.
As with other financial institutions, we are susceptible to, among other things, fraud by employees or outsiders, unauthorized transactions by employees and other operational errors (including clerical or record keeping errors and errors resulting from faulty computer or telecommunications systems). Given the high volume of transactions that may occur at a financial institution, errors could be repeated or compounded before they are discovered and remedied. In addition, some of our transactions are not fully automated, which may further increase the risk that human error or employee tampering will result in losses that may be difficult to detect quickly or at all. Losses from fraud by employees or outsiders, unauthorized transactions by employees and other operational errors could have a material adverse effect on us.
Liquidity issues could arise.
We are mostly a wholesale bank, and a large portion of our funding derives from corporate, rather than individual, accounts. Any significant changes in the liquidity conditions prevailing in the market arising from material adverse effects on the Argentine economy, on the financial system, and on us, could affect our regular performance of business and, in particular, our funding sources.
We have, and we expect that we will continue to have, significant liquidity and capital resource requirements to finance our business.
However, our current and future potential indebtedness could have significant consequences, including the limitation on our ability to refinance existing debt or to borrow money to finance working capital, acquisitions and capital expenditures and the need to allocate a significant part of our cash flow to repay principal and interest, adversely affecting our ability to make dividend payments on our shares and the ADSs.
We cannot assure that changes in the liquidity conditions of the Argentine financial system, either at present or in the future, will not have an adverse effect on our business. If so, our financial, economic or other condition, our results, operations, business, and/or our general repayment ability could be significantly and adversely affected.
AdoptionApplication of IFRS (which includes adjustment for inflation)IAS 29 affects the presentation of our financial information, which had been historically prepared under Argentine Central Banking GAAP.information.
On January 1, 2018, we began preparing our financial statements in accordance with IFRS as issued by the IASB. Prior to and including the year ended December 31, 2017, we prepared our financial statements in accordance with Central Bank Rules. Because IFRS differ in certain significant respects from Central Bank Rules, our financial information prepared and presented in previous annual reports under Central Bank Rules is not directly comparable to IFRS financial data. The lack of comparability of the Bank’s recent and historical financial data may make it difficult to gain a full and accurate understanding of its operations and financial condition. Our transition to IFRS as of January 1, 2018 affects the comparability of our financial information for periods prior to January 1, 2017.
In addition, asAs of July 1, 2018, the pesoPeso qualifies as a currency of a hyperinflationary economy, and in connection with IFRS, we are required to apply inflationary adjustments to our financial statements pursuant to International Accounting Standard (“IAS”) 29 (Financial Reporting in Hyperinflationary Economies).
IAS 29 does not prescribe when hyperinflation arises, but includes several characteristics of hyperinflation. The IASB does not identify specific hyperinflationary jurisdictions. However, in June 2018, the International Practices Task Force of the Centre for Quality (“IPTF”), which monitors “highly inflationary countries” categorized Argentina as a country with a projected three-year cumulative inflation rate greater than 100%. Additionally, some of the other qualitative factors of IAS 29 were present, providingprimafacie evidence that the Argentine economy is hyperinflationary for purposes of IAS 29. Therefore, Argentine companies using IFRS as issued by the IASB are required to apply IAS 29 to their financial statements for periods ending on and after July 1, 2018. SeeItem 5B.“Critical accounting policies”and note 3 to our audited consolidated financial statements as of December 31, 20182019 and 2017.2018.
Adjustments to reflect inflation, such as those required by IAS 29, were prohibited by law No.23,928 (the “Law 23,928”). Additionally, Decree No.664/03, issued by the Argentine government (“Decree 664”), instructed regulatory authorities, such as Public Registries of Commerce, the Superintendence of Corporations of the City of Buenos Aires and the CNV, to accept only financial statements that comply with the prohibition set forth in Law 23,928. However, on December 4, 2018, Law No.27,468 abrogated Decree 664/03 and amended Law 23,928 indicating that the prohibition of indexation no longer applies for financial statements. Notwithstanding the foregoing, pursuant to the Central Bank Rules, the Bank cannot perform inflation adjustment in its financial statements for fiscal year 20182019 nor any other previous periods. Pursuant to Communication “A” 6651, entities under the supervision of the Central Bank are required to apply the provisions of IAS 29 in full for fiscal years that starting on January 1, 2020.
Consequently, due to the adoption of IFRS and adjustment for inflation our results differ significantly from the results determined on a nominal basis (historical results) by the application of such methodology, applicable mainly, as a result of the composition of the accounting monetary positions and the evolution of the rates, the inflation and other components of the results, which could adversely affect our financial statements, results of operations and financial condition.
In addition to the differences generated by the adoption of the inflation adjustment, there are other differences between Argentine Central Banking GAAP and IFRS such as the calculation of allowances for loan losses and certain disclosures in the financial statements.
Argentina’s implementation of the Corporate Criminal Liability Law and other anti-corruption laws and regulations may expose us to related risks.
We are required to comply with various anti-corruption laws and regulations, including those of Argentina and the U.S. Foreign Corrupt Practices Act of 1977 (the “FCPA”). If we do not successfully comply with applicable anti-corruption laws and regulations designed to combat governmental corruption, we could become subject to fines, penalties or other regulatory sanctions, civil litigation as well as to adverse press coverage, which could cause our reputation and business to suffer. Although we are committed to conducting business in a legal and ethical manner and in compliance with local and international statutory requirements and standards applicable to our business, there is a risk that our management, employees or representatives may take actions that could violate applicable laws and regulations, prohibiting the making of improper payments to government officials for the purpose of obtaining or keeping business. Guilty pleas by or convictions of us or of any our affiliates (including any of our significant shareholders, employees or other agents) in criminal proceedings may have adverse effects on our business.
Risks relating to our Class B shares and the ADSs
Holders of our Class B shares and the ADSs may not receive any dividends.
In 2003, the Central Bank prohibited financial institutions from distributing dividends. In 2004, the Central Bank amended the restriction to require the Central Bank’s prior authorization for the distribution of dividends. Under new Central Bank Rules on distribution of dividends, the capital remaining after the distribution of dividends must be sufficient to meet the regulatory capital increased by 75%. See “—Risks relating to the Argentine financial system – Governmental measures and regulatory framework affecting financial entities could have a material adverse effect on the operations of financial entities”.
Since January 2016, pursuant to Central Bank Communication “A” 5827, additional capital margin requirements have to be complied with, including a capital conservation margin and a countercyclical margin. The capital conservation margin shall be 2.5% of the amount of capital RWA, in the case of entities consideredD-SIB, like us, and the margin will be increased to 3.5% of the amount of capital RWA. The countercyclical margin shall be within a range of 0% to 2.5% of RWA, but Central Bank Communication “A” 5938, established countercyclical margin of 0% as of April 1, 2016. This margin can be reduced or cancelled by the Central Bank upon its determination that the systematic risk has been diminished.
Since January 2015, Central Bank Communication “A” 5827, as amended, has required that financial entities must make an accounting entry of any administrative and/or disciplinary penalties and adverse criminal judgments pending before the courts, provisioning 100% of the respective penalty provided under each such action until payment is made or a final judgment is entered.
Pursuant to Central Bank Communication “A” 5827 this provisioned amount must also be deducted from the distributable amount. In April 2016, the Central Bank issued Communication “A” 5940, pursuant to which the financial entities that, as of the date thereof, had an amount for such penalties and judgments registered in the account “Provisions – For administrative, disciplinary and criminal penalties,” must analyze, according to the enforcing legal reports, if each such penalty meets the conditions for its total or partial accountable registration, according to the provisions in the “Accounts Plan and Manual” issued by the Central Bank (which provides that penalties must be probable and that their amount can be reasonably estimated).
We obtained authorization from the Central Bank to distribute dividends corresponding to fiscal years 2003 through 2010. For the fiscal years ended December 31, 2011 and 2012, we were not able to distribute dividends because we did not reach the regulatory threshold for dividend distribution under Central Bank regulations. We did reach such regulatory threshold and obtained the authorization from the Central Bank to distribute dividends for the fiscal years ended December 31, 2013, 2014, 2015 and 2016, respectively. Pursuant to Central Bank Communication “A” 6464 and because we meet the requirements, as we exceed the capital needed to cover the legal requirements and, as we comply with the additional capital margins required by the aforementioned regulation, the payment of dividends did not require prior Central Bank authorization for the years 2017 and 2018.
On March 12, 2018,January 31, 2020, the Central Bank issued Communication “6464”“A” 6886, pursuant to which thefinancial entities must obtain prior approval of the SEFyCCentral Bank in order to distribute dividends is no longer required. However,dividends. The Superintendency shall take into account the authorization will still be needed for thoseeffects of the enforcement of section 5.5 of the International Financial Reporting Standards 9 by Communication “A” 6430 and the restatement of the financial entities that, in order to determine the distributable dividends, have not increased the ranges of COn1 net of deductions (CDCOn1) foreseenstatements as provided by Communication “A” 6651, among others.
On March 19, 2020, in the tablesmidst of points 4.2.3. (“integration”) and 4.2.4. (“Limitation onthe Coronavirus crisis, the Central Bank issued Communication “A” 6939, by virtue of which the distribution of results”) ofdividends by financial entities was temporarily suspended until June 30, 2020. We cannot assure this measure will not be extended after this period nor the rules on “Distribution of results” by 1 percentage point. No assurance can be given that in the future, a new modification may be introduced, byextent to which the SEFyC authorization will be needed again to distribute dividends.measure may affect holders of our Class B shares or ADSs.
Holders of our Class B shares and the ADSs located in the United States may not be able to exercise preemptive rights.
Under Argentine Corporate Law No. 19,550 (the “Argentine Corporate Law”), if we issue new shares as part of a capital increase, our shareholders may have the right to subscribe to the proportional amount of shares to maintain their existing shareholding. Rights to subscribe for shares in these circumstances are known as preemptive rights. In addition, shareholders are entitled to the right to subscribe for the unsubscribed shares remaining at the end of a rights offering on apro rata basis, known as accretion rights. Upon the occurrence of any future increase in our capital stock, U.S. holders of Class B shares or ADSs will not be able to exercise the preemptive and related accretion rights for such Class B shares or ADSs unless a registration statement under the U.S. Securities Act of 1933, as amended (the “Securities Act”), is effective with respect to such Class B shares or ADSs or an exemption from the registration requirements of the Securities Act is available. We are not obligated to file a registration statement with respect to those Class B shares or ADSs. We cannot assure you that we will file such a registration statement or that an exemption from registration will be available. Unless those Class B shares or ADSs are registered or an exemption from registration applies, a U.S. holder of our Class B shares or ADSs may receive only the net proceeds from those preemptive rights and accretion rights if those rights can be sold by the depositary. If they cannot be sold, they will be allowed to lapse. Furthermore, the equity interest of holders of Class B shares or ADSs located in the United States may be diluted proportionately upon future capital increases.
You may not be able to sell your ADSs at the time or the price you desire because an active or liquid market may not develop.
Prior to March 24, 2006, there has not been a public market for the ADSs or, in the case of our Class B shares, a market outside of Argentina. We cannot assure you that any market for our Class B shares or for the ADSs will be available or liquid nor can we assure of the price at which the Class B shares or the ADSs may be sold in any such market. The relative volatility and illiquidity of the Argentine securities markets may substantially limit your ability to sell Class B shares underlying the ADSs at the price and time you desire.
Investing in securities that trade in emerging markets, such as Argentina, often involves greater risk than investing in securities of issuers in the United States, and such investments are generally considered to be more speculative in nature. The Argentine securities market is substantially smaller, less liquid and can be more volatile than major securities markets in the United States, and is not as highly regulated or supervised as such other markets. There is also significantly greater concentration in the Argentine securities market than in major securities markets in the United States. As of the date of this annual report, the ten largest companies in terms of market capitalization represented more than 90% of the aggregate market capitalization of the BYMA).BYMA. Accordingly, although you are entitled to withdraw the Class B shares underlying the ADSs from the depositary at any time, your ability to sell such shares at a price and time at which you wish to do so may be substantially limited. Furthermore, new capital controls imposed by the Central Bank could have the effect of further impairing the liquidity of the BYMA by making it unattractive fornon-Argentines to buy shares in the secondary market in Argentina.
We are traded on more than one market, which may result in price variations and investors may not be able to easily move shares for trading between such markets.
The trading prices of our ADSs and our Class B shares may differ on different markets due to various factors. Any decrease in the price of our Class B shares on the BYMA or the MAE could cause a decrease in the trading price of the ADSs on the NYSE. Investors
could seek to sell or buy our shares to take advantage of any price differences between the markets through a practice referred to as arbitrage. Any arbitrage activity could create unexpected volatility in both our share prices on one exchange, and the ADSs available for trading on the other exchange. In addition, holders of ADSs will not be immediately able to surrender their ADSs and withdraw the underlying Class B shares for trading on the other market without effecting necessary procedures with the depositary. This could result in time delays and additional cost for holders of ADSs.
Our shareholders may be subject to liability for certain votes of their securities.
Our shareholders are not liable for our obligations. Instead, shareholders are generally liable only for the payment of the shares they subscribe. However, shareholders who have a conflict of interest with us and who do not abstain from voting may be held liable for damages to us, but only if the transaction would not have been approved without such shareholders’ votes. Furthermore, shareholders who willfully or negligently vote in favor of a resolution that is subsequently declared void by a court as contrary to the Argentine Corporate Law or our bylaws may be held jointly and severally liable for damages to us or to other third parties, including other shareholders.
Payments on Class B shares or ADSs may be subject to FATCA withholding.
Pursuant to certain provisions of the U.S. Internal Revenue Code of 1986, as amended, commonly known as FATCA, a “foreign financial institution” may be required to withhold on certain payments it makes (“foreign pass thru payments”) to persons that fail to meet certain certification, reporting, or related requirements. We are a foreign financial institution for these purposes. A number of jurisdictions have entered into, or have agreed in substance to, intergovernmental agreements with the United States to implement FATCA (“IGAs”), which modify the way in which FATCA applies in their jurisdictions. Certain aspects of the application of the FATCA provisions and IGAs to instruments such as the Class B Shares and the ADSs, including whether withholding would ever be required pursuant to FATCA or an IGA with respect to payments on instruments such as the Class B shares or the ADSs, are uncertain and may be subject to change. Even if withholding would be required pursuant to FATCA or an IGA with respect to payments on instruments such as the Class B Shares and the ADSs, proposed regulations have been issued that provide that such withholding would not apply prior to January 1, 2019.the date that is two years after the date on which final regulations defining “foreign passthru payments” are published in the U.S. Federal Register. In the preamble to the proposed regulations, the U.S. Treasury Department indicated that taxpayers may rely on these proposed regulations until the issuance of final regulations. Holders should consult their own tax advisors regarding how these rules may apply to their investment in the Class B Shares and the ADSsADSs.
We are organized under the laws of Argentina and holders of the ADSs may find it difficult to enforce civil liabilities against us, our directors, officers and certain experts.
We are organized under the laws of Argentina. A significant portion of our and our subsidiaries’ assets are located outside the United States. Furthermore, all of our directors and officers and some advisors named in this annual report reside in Argentina. Investors may not be able to effect service of process within the United States upon such persons or to enforce against them or us in United States courts judgments predicated upon the civil liability provisions of the federal securities laws of the United StatesStates. Likewise, it may also be difficult for an investor to enforce in United States courts judgments obtained against us or these persons in courts located in jurisdictions outside the United States, including judgments predicated upon the civil liability provisions of the United States federal securities laws. It may also be difficult for an investor to bring an original action in an Argentine court predicated upon the civil liability provisions of the U.S. federal securities laws against us or such persons.
Prior to any enforcement in Argentina, a judgment issued by a U.S. court will be subject to the requirements of 517 through 519 of the Argentine Federal Civil and Commercial Procedure Code if enforcement is sought before federal courts or courts with jurisdiction in commercial matters of the Autonomous City of Buenos Aires. Those requirements are: (1) the judgment, which must be valid and final in the jurisdiction where rendered, was issued by a competent court in accordance with the Argentine principles regarding international jurisdiction and resulted from a personal action, or an in rem action with respect to personal property which was transferred to Argentine territory during or after the prosecution of the foreign action; (2) the defendant against whom enforcement of the judgment is sought was personally served with the summons and, in accordance with due process of law, was given an opportunity to defend against foreign action; (3) the judgment must be valid in the jurisdiction where rendered, and its authenticity must be established in accordance with the requirements of Argentine law; (4) the judgment does not violate the principles of public policy of Argentine law; and (5) the judgment is not contrary to a prior or simultaneous judgment of an Argentine court. Any document in a language other than Spanish, including, without limitation, the foreign judgment and other documents related thereto, requires filing with the relevant court of a duly legalized translation by a sworn public translator into the Spanish language.
Item 4. Information on the Bank
A. History and development of the Bank
Our legal and commercial name is Banco Macro S.A. We are a financial institution incorporated on November 21, 1966 as asociedad anónima, a stock corporation, duly incorporated under the laws of Argentina for a99-year period and registered on March 8, 1967 with the Public Registry of Commerce of the City of Bahía Blanca, in the Province of Buenos Aires, Argentina under No. 1154 of Book 2, Volume 75 ofEstatutos. We subsequently changed our legal address to the City of Buenos Aires and registered it with the IGJ on October 8, 1996 under No. 9777 of Book 119, Volume A ofSociedades Anónimas.
We file reports, including our annual reports on Form20-F, and other information with the SEC pursuant to the rules and regulations of the SEC that apply to foreign private issuers. The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. Any filings we make electronically with the SEC are available to the public over the Internet at the SEC’s web site athttp://www.sec.gov.
Our principal executive offices are located at Avenida Eduardo Madero 1172, City of Buenos Aires, Argentina, and our telephone number is (+54-11-5222-6500). We have appointed CT Corporation System as our agent for service of process in the United States, located at 28 Liberty St., New York, New York, 10005.
Our history – Banco Macro S.A.
Banco Macro commenced its operations as anon-banking financial institution in 1985, through the acquisition of Macro Compañía Financiera S.A. (created in 1977). In May 1988, it received the authorization to operate as a commercial bank and it was incorporated as Banco Macro S.A. Subsequently, as a result of the merger process with other entities, it adopted other names (among them, Banco Macro Bansud S.A.) and since August 2006, the name of “Banco Macro S.A.”
From then onwards and up to 1995,1994, Banco Macro operated as a wholesale bank, being a pioneer in corporate bonds issuances. It mainly acted in the areas of money markets, trading of government and corporate bonds and financial services for medium and big companies.
Since 1994, Banco Macro has substantially changed its business strategy, focusing on retail banking in market areas with a low level of banking transactions and high growth potential, particularly in the regional areas outside the City of Buenos Aires. Following this strategy, in 1996, we started to acquire entities as well as assets and liabilities resulting from the privatization of provincial and other banks, including Banco Misiones, Banco Salta and Banco Jujuy.
In 2001, 2004, 2006 and 2010, Banco Macro acquired control of Banco Bansud S.A., Nuevo Banco Suquía S.A., Nuevo Banco Bisel S.A. and Banco Privado de Inversiones S.A., respectively, expanding through these acquisitions its presence in the south and center of the country. Such entities merged with us on December 2003, October 2007, August 2009 and December 2013, respectively. In addition, during 2006, Banco Macro acquired control of Banco del Tucumán.n S.A., which was merged with the Bank in October 2019. Additionally, on May 21, 2019, the Banco Macro acquired 100% of Argenpay SAU.
We currently offer traditional bank products and services to companies, including those operating in regional economies, as well as to individuals, thus reinforcing our objective to be a multi-service bank. In addition, Banco Macro performs certain transactions through its subsidiaries, including mainly Banco del Tucumán, Macro Bank Limited, Macro Securities S.A., Macro Fiducia S.A. and, Macro Fondos S.G.F.C.I. S.A. and Argenpay S.A.U.
Recently, the Bank and Banco del Tucumán, have subscribed a preliminary merger agreement, whereby the Bank will incorporate with retroactive effect as of January 1, 2019 Banco del Tucumán, at an exchange ratio of 0.65258 Class B Ordinary Shares of the Bank for each Ps.1 of nominal value ordinary shares of Banco del Tucumán. Therefore, the minority shareholders of Banco del Tucumán will be entitled to receive at 0.65258 Class B Ordinary Shares of the Bank, for each Ps.1 of nominal value of ordinary shares held in the capital stock of Banco del Tucumán. Consequently, the Bank, will increase its capital through the issuance of 15,662 Class B Ordinary Shares of the Bank, from Ps.669,663,021 to Ps.669,678,683, and the minority shareholders of Banco del Tucumán will receive Ordinary Shares Class B of the Bank in exchange of their 240 shares in Banco del Tucuman; all of which is subject to the approvals of the corresponding agencies.
Our shares have been publicly listed on the BYMA since November 1994 and on the NYSE since March 2006, and have been authorized to list on the MAE since October 2015.
Investment in property
In 2011 we acquired from the Government of the City of Buenos Aires a site located at Avenida Eduardo Madero No. 1180, in the City of Buenos Aires, for an aggregate original amount of Ps.110 million. We have developed a project to buildbuilt our new corporate officesheadquarters on this site. Work was initiated in 2012 andsite, which was completed as of the date of this annual report.in 2019.
The building has an area of 52,700 square meters and, as of December 31, 2018, required an investment ofthe total aggregate amount invested in the project was approximately U.S.$172186 million at the applicable exchange rates at the end of the month as of the respective dates of such investments.
The new corporate tower was designed to take full advantage of natural light and maximize energy efficiency, while also using materials that do not adversely affect the environment. It is being built in compliance with the Leed International Sustainability Standards of the “U.S.“U.S. Green Building Council.” For more information, see Item 4.D “Property, plants and equipment.”
Recent Developments
Measures implemented to address theCOVID-19 outbreak
The Argentine government has adopted several measures in response to theCOVID-19 outbreak in the country aimed at preventing mass contagion and the overcrowding of the Argentine health service, which include (in chronological order):
February 26—March 12, 2020: screening of passengers at airports; mandatory isolation for 14 days of persons with suspected or confirmed cases ofCOVID-19, persons in close contact with suspected or confirmed cases ofCOVID-19 and persons arriving or recently arrived from affected zones; closure of activities with high concentration of persons; prohibition of attendance of audience to sporting events;
March 13—March 15, 2020: stronger surveillance of Argentine borders; suspension of flights by various airlines and adoption of regulations for the coordination of repatriation flights for Argentine residents; closure of national parks and protected areas; school closures (except for food assistance and administrative purposes);
March 16—March 18, 2020: closure of Argentine borders; suspension of domestic flights and long-distance trains and buses operations; suspension of the national soccer league; temporary work leaves for pregnant women, people older than 60 years and other persons considered at special risk upon infection; authorization for federal public employees to work remotely (except for employees providing essential services); promotion of home office policies in the private sector and beginning of construction of eight modular hospitals;
March 19, 2020: imposition of a nation-wide mandatory lockdown, whereby only exceptional and essential activities and internal travel are allowed; deployment of security forces for the enforcement of lockdown;
March 20 April 2, 2020: assistance to Argentine residents abroad; tightening of rules relating to closure of Argentine borders, extension of nation-wide lockdown until April 12, 2020;
April 11, 2020: extension of nation-wide lockdown until April 26, 2020; and
April 25, 2020: extension of lock-down until May 10, 2020, setting parameters for each province to monitor the progress of the contagion and the implementation of measures towards the relaxation of the lockdown.
May 11, 2020: extension of lock-down until May 24, 2020, marking a continuance of the easing of lock-measures.
At the same time, in order to mitigate the economic impact of theCOVID-19 pandemic and mandatory lockdown and shutdown ofnon-essential businesses, the Argentine government has adopted social aid, monetary and fiscal measures, including the following:
• | Closure of bank branches. On March 20, 2020, the Central Bank determined that bank branches in Argentina should remain closed. From April 3 until April 10, 2020, branches were allowed to open with limited hours, only for the attention of beneficiaries of pension schemes and certain retirement benefits and beneficiaries of aid programs funded by the ANSES. During this period, the rest of the banking activities were performed only through digital means. Beginning on April 13, 2020, financial entities have been allowed to reopen only for a limited number of services, and only by prior appointment, with teller services initially restricted to pensioners and social plan beneficiaries, provided that certain health and security requirements are complied with. Additionally, beginning on April 20, 2020, the Central Bank has allowed the provision of teller services exclusively for deposits in, and withdrawals from, foreign currency accounts. |
• | Postponement of loan payments. The Central Bank postponed payments on loans maturing during the national lockdown period, and suspended the accrual of punitive interests on loans with maturity between April 1 and June 30, 2020. |
• | ATM fees. The Central Bank determined that, until June 30, 2020, any operation effected through ATMs will not be subject to any charges or fees. |
• | Mortgage loan installments and mortgage foreclosures. The government froze the monthly installments of mortgage loans over properties designated as the borrower’s only and permanent residence and prohibited mortgage foreclosures, until September 30, 2020. The debit balance resulting from the freezing of the installment increases may be refinanced in up to nine consecutive monthly installments, upon request by the borrower. |
• | Credit card payments. The Central Bank determined that the unpaid balances of credit card financings due between April 13 and April 30, 2020 will be automatically refinanced in nine equal consecutive monthly installments beginning after a three-month grace period. Interest rates on such unpaid balances may not exceed an annual nominal rate of 43%. |
• | Prohibition of bank account closures. The government prohibited the closure and disabling of bank accounts and the imposition of penalties until April 30, 2020. |
• | Time deposits minimum rate. The Central Bank ruled that allnon-adjustable time deposits under Ps.1 million made by individuals as of April 20, 2020 will have a minimum interest rate equivalent to the 70% of the average LELIQ’s tendering during the week prior to the date in which the deposit was made. |
• | Family emergency income and extraordinary subsidies. The government established (i) a stipend of Ps.10,000, for the month of April 2020, for people who are unemployed or working informally, and self-employed workers who are not currently generating or receiving other income; and (ii) an extraordinary subsidy of Ps.3,000, for the month of April 2020, for beneficiaries of pension schemes and certain retirement benefits. |
• | Prohibition of dismissals and suspensions. The government prohibited dismissals of employees until May 30, 2020. |
• | Labor market emergency assistance program. The government created a fund of specific application within the FOGAR (acronym in Spanish forFondo de Garantías Argentino), with the aim of backing financings provided to PyMEs by financial entities in order to pay salaries. |
Additionally, some of the government measures are aimed at encouraging bank lending, such as:
• | Easing of limitations on holding Central Bank notes. Simultaneously with the creation of the fund within the FOGAR, the Central Bank eased the limitations on banks’ holdings of notes from the Central Bank (LELIQ), in order to make liquidity available and encourage the provision of credit lines to PyMEs. |
• | Reserve requirements.The Central Bank established that the facilities granted at a preferential rate (not more than 24% per year) within the framework of Communication “A” 6937 to PyMEs and households may be deducted from reserve requirements, considering 130% of the amount when the proceeds are for the payment of salaries and the granting entity is the agent of payment of those salaries. |
• | Classification of Debtors: The Central Bank established for regulatory purposes new rules regarding the criteria for debtor classification and provisioning until September 30, 2020. These rules provide an additional 60 days period ofnon-payment before a debtor is required to be reclassified, and include all financings to commercial portfolio clients and loans granted for consumption or housing purposes. |
In addition, by means of Communication “A” 6939, the Central Bank suspended, until June 30, 2020, the distribution of dividends by financial entities, including the Bank.
For more information, see “Item 4.B.—Business Overview—Argentine Banking Regulation— Central Bank’s preventive measures in response to the pandemic ofCOVID-19”.
Annual income tax return for fiscal year 2019
As decided by the Board of Directors in the meeting dated May 11, 2020, considering certain case-law on the subject assessed by its legal and tax advisors, the bank will file with the AFIP during May (May 26, 2020 is the regulatory due date) its annual income tax return considering the total effect of the inflation adjustment on income tax (see Note 28 “Income tax” section a) iv) to our audited consolidated financial statements as of December 31, 2019 and 2018). As a result, the current income tax determined by the Bank for fiscal year 2019 amounted to Ps.7,002.1 million.
Launch of Argentina’s exchange offer
On April 21, 2020, the Argentine government launched the Exchange with the aim of refinancing its external indebtedness and rearranging the interest and principal. To that end, the Argentine government proposed to effect an exchange of different series of foreign currency-denominated bonds (in US$, Euros and Swiss Francs) and governed by English or New York law (the “Eligible Bonds”) for new series of Dollar- or Euro-denominated amortizing bonds maturing between 2030 and 2047 (the “New Bonds”) to be issued by the Argentine government. As informed by the Minister of Economy and pursuant to the exchange documents, in general terms, the Argentine government’s exchange offer involves a reduction in interest payment burden of 62% (US$37.9 billion), a decrease in principal payments of 5.4% (US$3.6 billion) and a grace period of approximately three years before principal payments become due.
General Ordinary and Extraordinary Shareholders´ Meeting
Our General Ordinary and Extraordinary Shareholders’ Meeting mettook place on April 30, 20192020 (the “2019 Shareholders“Shareholders Meeting”) which approved among others,but will resume on May 27, 2020 in order to discuss the following pointsissues stated in paragraphs (ii) and (iv) of item #9 of the agenda: (i)Agenda, according to which the Shareholders’ Meeting shall evaluate the appointment of: “(ii) one regular director to hold office for one fiscal year, in order to fill the vacancy resulting from the resignation of the following members of the Board of Directors of the Bank, Jorge Pablo Brito, Carlos Alberto Giovanelli, Nelson Damián Pozzoli, Fabián Alejandro de Paul andMr. Juan Martín Estanislao Gorosito, as regular DirectorsMonge Varela and complete his term of office”; and “(iv) one alternate director to hold office for a three-year term, and Santiago Horacio Seeber, Alan Whamond andtwo fiscal years in order to fill the vacancy resulting from the resignation of Mr. Alejandro Guillermo Chiti as alternate Directors, for a three-yearand complete his term (ii) appointment of Alejandro Almarza, Carlos Javier Piazza and Vivian Haydee Stenghele, as regular membersoffice”. The motion was approved by majority vote of the Supervisory Committee,shareholders present and Alejandro Carlos Piazza, Leonardo Pablo Cortigiani and Enrique Alfredo Fila, as alternate members of the Supervisory Committee, (iii) designation auditors, being Carlos Marcelo Szpunar and Pablo Mario Moreno (alternate), both from the firm Pistrelli, Henry Martin y Asociados S.R.L., (iv) the preliminary merger agreement with Banco del Tucumán (for further information, please see below “—Banco del Tucumán”), (v) Bank´s capital increase from Ps.669,663,021 to Ps.669,678,683, as a result of the merger with Banco del Tucumán, through the issuance of 15,662 Class B shares, to be delivered to the minority shareholders of the absorbed company in exchange for their shareholdings, (vi) capital reduction due to the cancellation of Ps.30,265,275 representative of 30,265,275 Class B shares of the Bank and (vii) the amendment of Sections 4, 9, 10, 19, 20, 21 and 33 of the Bylaws of the Bank (which has not been approved yet by the CNV), and its adoption.
Banco del TucumanShareholders Meeting shall resume at 11 AM on May 27, 2020.
The 2019 Shareholders Meeting approved among others:
Payment of dividends:the Shareholders resolved to approve (i) preliminary merger agreement duly executed on March 8, 2019 with Banco del Tucumán, and (ii) consolidated special merger financial statementsthe separation of Banco Macro and Banco del Tucumán, as of December 31, 2018, the aforementioned approvals aread-hoc to the applicable authorizationsPs.12,788,268,160 from the authorities andoptional reserve fund, representing Ps.20 per share, for the shareholders of Banco del Tucumán.
Payment of Dividend
The 2019 Shareholders Meeting approved to the distributionpayment of a cash dividend subject to prior authorization of the shareholders in the amount of Ps.6,393,977,460, which represents Ps.10 per share, and approved the delegation into the Board of Directors the powers to determine the date for its payment, which was set for May 14, 2019.
Pursuant to the aforementioned, the Bank informedCentral. The shareholders’ were advised that complies with the requirements established in the Central Bank regulationshas not yet informed its decision regarding the requested authorization for the distribution of dividends consequentlyand that, pursuant to the paymentprovisions of the aforementionedCentral Bank’s Communication “A” 6939, the distribution of profits by financial entities is suspended until June 30, 2020; and (ii) delegate to the Board the powers to determine de date of the effective availability to the shareholders of the approved cash dividend does not require priorin proportion to their respective shareholdings, once the above mentioned authorization is obtained from the Superintendence of Financial and Exchange Entities.Central Bank.
B. Business Overview
We are one of the leading banks in Argentina. With the most extensive private-sector branch network in the country, we provide standard banking products and services to a nationwide customer base. We distinguish ourselves from our competitors given our strong financial position and our focus onlow- and middle-income individuals and PyMEs, generally located outside of the City of Buenos Aires. We believe this strategy offers significant opportunity for continued growth in our banking business. According to the Central Bank, as of September 30, 2018,2019, we were ranked first in terms of branches and equity and fourth in terms of both total loans and total deposits among private banks in Argentina.
As of December 31, 2018,2019, on a consolidated basis, we had:
Ps. 351,233.0445,239.9 million (U.S.$ 9,289.87,433.7 million) in total assets;
Ps. 182,113.4220,897.8 million (U.S.$ 4,816.83,688.1 million) total loans;loans and other financings;
Ps. 237,954.4262,865.4 million (U.S.$ 6,293.74,388.8 million) in total deposits;
approximately, 3.63.7 million retail customers and 0.1 million corporate customers; and
approximately, 0.91.3 million employee payroll accounts for private sector customers and provincial governments and 0.80.9 million retiree accounts.
In general, given the relatively low level of banking intermediation in Argentina, there are limited products and services being offered. We are focusing on the overall growth of our loan portfolio by expanding our customer base and encouraging them to make use of our lending products. We have a holistic approach to our banking business and do not manage the Bank by segments or divisions or by customer categories, by products and services, by regions, or by any other segmentation for the purpose of allocating resources and
assessing profitability. We offer savings and checking accounts, credit and debit cards, consumer finance loans and other credit-related products and transactional services available to our retail customers and PyMEs through our branch network. We also offerPlan Sueldo payroll services, lending, corporate credit cards, mortgage finance, transaction processing and foreign exchange. In addition, ourPlan Sueldo payroll processing services for private companies and the public sector give us a large and stable customer deposit base.
Our competitive strengths
We believe we are well positioned to benefit from opportunities created by the economic and business environment in Argentina. Our competitive strengths include the following:
• | Strong financial position. As of December 31, |
• | Strong shareholders’ equity. Our shareholders’ equity as of December 31, 2017, 2018 and |
• | Strong presence in fast-growing target customer market. We have achieved a leading position withlow- and middle-income individuals and among PyMEs, generally located outside the City of Buenos Aires, which have been relatively underserved by the banking system. Based on our experience, this target market offers significant growth opportunities and a stable base of depositors. |
• | High exposure toexport-led growth. Given the geographical location of the customers we target, we have acquired banks with a large number of branches outside of the City of Buenos Aires with the aim of completing our national coverage. Our focus is particularly on some export oriented provinces. Most of these provinces engage in economic activities primarily concentrated in areas such as agriculture, mining, cargo transportation, edible oils, ranching and tourism, which have benefited from the export-driven growth in the Argentine economy. |
• | Largest private-sector branch network in Argentina. With |
• | Loyal customer base. We believe that our customers are loyal to us due to our presence in traditionally underserved markets and ourPlan Sueldo payroll services. We have benefited from Argentine regulations that require all employees to maintainPlan Sueldo accounts for the direct deposit of their wages. In addition, we emphasizeface-to-face relationships with our customers and offer them personalized advice. |
• | Exclusive financial agent for four Argentine provinces. We perform financial agency services for the governments of the provinces of Salta, Jujuy, Misiones and Tucumán in northern Argentina. As a result, each provincial government’s bank accounts are held in our bank and we provide their employees withPlan Sueldo accounts, giving us access to substantiallow-cost funding and a large number of loyal customers. |
• | Strong and experienced management team and committed shareholders. We are led by committed shareholders and a senior management team with large experience in the banking industry, who have transformed us in one of the strongest and largest banks in Argentina. |
Our strategy
Our competitive strengths position us to better participate in the future development of the Argentine financial system.
We operate in accordance with our sustainability policy based on five business-related strategic pillars that affect all our clients, establishing a short-, medium- and long-term sustainability strategy. Our strategic sustainability pillars are:
• | Financial inclusion and education: encouraging the use of banking products and accessibility, focused on lower income sectors and the financial education of all communities. |
• | Direct and indirect environmental effect: encouraging the protection of the environment and society, both internally and in our value chain. |
• | Responsibility for the wellbeing and inclusion of people: aiming to improve the quality of life of individuals, we support the professional development of our staff and encourage diversity and inclusion. |
• | Development of PyMEs and enterprises: accompanying our clients in the development of their businesses, offering customized products services and providing knowledge, advice and the best customer service. |
• | Transparency in all our actions: in order to create a framework of trust and credibility for all our interest groups, in compliance with the main national and international transparency and management responsibility standards and best practices. |
Our goal is to promote our overall growth by increasing our customer base, expanding our loan portfolio and generating more fee income from transactional services. We achieve this goal by managing the Bank on a holistic basis, focusing our growth strategy on the marketing and promotion of our standard banking products and services. We have pursued our growth strategy by acquiring financial entities throughout Argentina, which has enabled us to significantly expand our branch network and customer base. We have taken advantage of the opportunities presented by the Argentine financial system to move into new locations by acquiring banks or absorbing branches from banks liquidated by the Central Bank.
We intend to continue enhancing our position as a leading Argentine bank. The key elements of our strategy include:
• | Focus on underserved markets with strong growth potential. We intend to continue focusing on bothlow- and middle-income individuals and PyMEs, most of which have traditionally been underserved by the Argentine banking system and are generally located outside the City of Buenos Aires, where competition is relatively weaker and where we have achieved a leading presence. We believe that these markets offer attractive opportunities given the low penetration of banking services and limited competition. |
• | Further develop branch network. We seek to further expand our branch network management model and the development of the network by opening new branches, reinforcing local business opportunities and targeting support and sale points in accordance with the specific needs of our clients. |
• | Further expand our customer base. We intend to continue growing our customer base, which is essential to increasing interest andfee-based revenues. To attract new customers, we intend to: |
Offer medium- and long-term credit. We intend to capitalize on the increased demand for long-term credit that we believe will accompany the expected economic trends of Argentina. We intend to use our strong liquidity and our capital base to offer a more readily available range of medium- and long-term credit products than our competitors.
Focus on corporate banking customers. Increase corporate financing by means of a wide offer of credit and transaction products that suit each client’s profile and needs.
• | ExpandPlan Sueldo payroll services. We will continue to actively market ourPlan Sueldo payroll services, emphasizing the benefits of our extensive network for companies with nationwide or regional needs. |
Strengthen our market share in credit cards by increasing promotional activity and benefits for clients.
Further expand the use of automatic channels both in customer acquisition and retail products, increasing operational efficiency.
Further expand the development of the customer service support, granting them different means to carry out financial transactions without time limits, in a total secure, simple and comfortable manner.
• | Grow ourhigh-end customer base through ourSelecta product suite. |
• | Focus on our sustainability objectives. We intend to focus on our sustainability objectives in line with our business, in the fundamental areas of the Bank and further expand such initiatives. |
• | Look for growth opportunities.A key component of our strategy is the continuous search for growth opportunities, including potential acquisitions. We, at any time, may consider one or more potential acquisitions or similar transactions within the Argentine banking and financial sector, in different stages of evaluation, negotiation and/or revision processes. Any of them may be material considering it individually or collectively. |
Our products and services
We provide our customers with a combination of standard products and services that are designed to suit individual needs. We have two broad categories of customers: (i) retail customers, who include individuals and (ii) corporate customers, which include small, medium and large companies. In addition, we provide services to four provincial governments. We offer a relatively narrow range of standard products, which are generally available to both our retail and corporate customers. We have a holistic approach to our banking business and do not manage the Bank by segments or divisions or by customer categories, by products and services, by regions, or by any other segmentation for the purpose of allocating resources and assessing profitability. Our strategy is to grow our business, as demand for credit in Argentina increases, by focusing on cross-selling opportunities among our broad customer base. The following discussion of our business follows the broad customer categories of retail and corporate as a way to understand who our customers are and the products and services that we provide.
Retail customers
Overview
We serve our retail customers with the objective of satisfying their financial needs, whether savings, transactional or funding. Retail customers are classified according to their labor condition or their main income source, in the following categories:Plan Sueldo(Salary (Salary Plan), Retirees, Open Market and Professionals and Business. We provide services to them throughout Argentina, in particular in areas outside the City of Buenos Aires, which have higher concentrations oflow- and middle-income individuals who are traditionally underserved by large private banks. We serve our retail customers through our extensive, nationwide branch network. Approximately 94% of our branches are located outside the City of Buenos Aires.
The table below reflects the number of retail customers sortedbroken down by category as of December 31, 2017, 2018 and 2018:2019:
Retail Customers by category | 2017 | 2018 | 2017 | 2018 | 2019 | |||||||||||||||
Open Market | 1,398,709 | 1,506,733 | 1,398,709 | 1,506,733 | 1,844,412 | |||||||||||||||
Plan Sueldo (private and public sector) | 859,330 | 870,678 | 859,330 | 870,678 | 867,322 | |||||||||||||||
Retirees | 684,642 | 716,081 | 684,642 | 716,081 | 698,133 | |||||||||||||||
Professionals and business and others | 530,416 | 552,274 | 530,416 | 552,274 | 292,937 | |||||||||||||||
Total Retail Customers | 3,473,097 | 3,645,766 | 3,473,097 | 3,645,766 | 3,702,804 |
We offer our retail customers traditional banking products and services, such as savings and checking accounts, time deposits, credit and debit cards, consumer finance loans (including personal loans), mortgage loans, automobile loans, overdrafts, credit-related services, home and car insurance coverage, tax collection, utility payments, ATMs and money transfers.
Our retail customers provide us with a key source of funding as well as a significant interest and fee income. We believe that our large retail customer client base provides us with an excellent opportunity to expand the volume of our lending business. For example, as of December 31, 2018,2019, only 20%19% of our retail customers currently have a personal loan from us and only 35%33% currently have a credit card. We believe there is strong potential to increase these percentages.
Our efforts have been aimed at strengthening relationships with our customers by offering them the products that are best suited to their needs and circumstances, through our individualized, professional advice, which we believe is an important feature that distinguishes us in our target markets. Likewise, we have focused on increasing the volume of new customer acquisition with focus on those segments that allow greater efficiency and better result of the cost/benefit equation.
Our main goals for the retail bank are to keep our leading position in personal loans, and steady growth in the credit cards portfolio. In this regard, and aiming to continue growing in the credit card market, we intensified efforts to increase consumption and total assets. We also improved the use of our clients’ information as a tool to implement better cross selling, client retention and default prevention commercial actions.
Savings and checking accounts and time deposits
We generate fees from providing account maintenance, account statements, check processing and other direct banking transactions, direct debits, fund transfers, payment orders and bank debit cards. In addition, our time deposits provide us with a strong and stable funding base.
Our commercial and customer bonding actions enable us to achieve growth in the deposit portfolio above market levels, mainly due to an increase in time deposits of retail customers which intensified funding diversification.
Accounts and account packages are the primary channels for cash deposits and are two of the main drivers of fee income. For this reason, we focus on the life cycle of the account packages, promoting loyalty measures and retention of our products.
The number of retail accounts increased by 14% in 2017, and by 11% in 2018.2018, and by 9% in 2019.
In 2016, we implemented the opening of special savings account, which required customers only to provide their natural identity card, with the aim of introducing into the banking system those individuals who still do not have any accounts in the financial system. Furthermore, we launched new functionalities in “Home Banking” and established a customer call center so that our clients can open accounts and request the cancellation of products through this channel.
Within the framework provided by the Tax Amnesty Law No. 27,260, in 2016 we also worked on opening special accounts and accepting deposits in accordance with the options available to clients under the applicable regulations.
Our “debit card” service is critical within the framework of our strategy to increase customer transactions by encouraging the use of accounts. Debit card services also help to develop account balances into transactional accounts, as deposits increase, thereby expanding our demand deposit base. The amount of debit cards we issued, grew 8%15%, 6%, and 9%8% in 2017, 2018, and 2018,2019, respectively. In 2018 we highlight the migration of our debit cards to EMV technology (Europay, MasterCard, Visa), cards with integrated chip.chip and in 2019 we incorporate contactless technology in the generation of 100% of the issuances, renewals and reprints of debit cards. We also increased the extraction limits of our clientsextraction, purchase and transference in order to favor the use of automated channels to obtain cash.
The following table reflects the number of retail accounts as of December 31, 2017, 2018 and 2018:2019:
Product | 2017 | 2018 | 2017 | 2018 | 2019 | |||||||||||||||
Savings | ||||||||||||||||||||
Total savings accounts* | 3,588,555 | 4,083,512 | 3,588,555 | 4,083,512 | 4,469,531 | |||||||||||||||
Retirees | 769,660 | 849,265 | 769,660 | 849,265 | 902,580 | |||||||||||||||
Open Market | 1,207,848 | 1,441,155 | 1,207,848 | 1,441,155 | 1,950,655 | |||||||||||||||
Other Special Segments | 298,376 | 321,344 | 298,376 | 321,344 | 34,838 | |||||||||||||||
Plan Sueldo (private sector) | 612,906 | 685,678 | 612,906 | 685,678 | 744,850 | |||||||||||||||
Plan Sueldo (public sector) | 484,312 | 512,496 | ||||||||||||||||||
Plan Sueldo (public sector) | 484,312 | 512,496 | 542,731 | |||||||||||||||||
Professionals and business and others | 215,453 | 273,574 | 215,453 | 273,574 | 293,877 | |||||||||||||||
Checking | ||||||||||||||||||||
Checking accounts | 888,700 | 881,736 | 888,700 | 881,736 | 822,227 | |||||||||||||||
Electronic Account Access | ||||||||||||||||||||
Debit Cards | 3,175,913 | 3,473,479 | 3,169,422 | 3,348,204 | 3,601,847 |
(*) | From this report we detailed the total of savings accounts by type of client, considering the situation of the client at the closing date instead of taking its categorization at the date of registration as a client. |
Lending products and services
We offer personal loans, document discounts, residential mortgages, overdrafts, pledged loans and credit card loans to our retail customers.
We intend to continue to increase our retail lending by focusing our marketing efforts on underserved target markets such aslow- and middle-income individuals. We also plan to continue to cross-sell our retail lending products to our existing customers, particularly targeting those who may choose to open savings and checking accounts with us because we already provide their payroll and pension services.
In 2016, we launched a new line of mortgage loans in adjustable purchase value units, or UVAs (an inflation adjustment unit), which allowed us to be part of the PROCREAR Program Own House Solution, for beneficiaries selected by ANSES. The PROCREAR Program is an Argentine government initiative aimed at boosting economic activity, creating jobs and providing solutions to the housing problems oflow-income families.
During 2017 we continued working on the promotion of an inclusive financial system, with a special focus on improving the accessibility of people with a low level of participation in the banking sector. We also worked to increase the personal loan portfolio and the volume of sales through alternative channels. We maintained our position in credit cards in terms of consumption and total assets, positioning it as a strategic product in the capture of customers.
In 2017, we encouraged the development of mortgage loans, through the incorporation of new destinations, supporting the development of lines that promote social welfare, such as: improvement, renovation, second home, acquisition of offices and businesses, and acquisition of wooden houses.
The UVA mortgage loans increased in 2017, a year in which Banco Macro stood out for offering one of the most competitive rates in the market, with 2,873 transactions being settled. Within the line of mortgage loans, we continue being part of the Procrear“Solución Casa Propia,” aimed to ANSES selected beneficiaries. We also joined the“Procrear Ahorro Joven” program, whose beneficiaries will be able to access a subsidized mortgage loan after having evidenced savings capacity during 12 months, through fixed-term UVA denominated deposits.
In 2018, we were leaders among private banks in consumer loans. Regarding longer-term loans, we share with the market a greater offer of mortgage loans, although, in the last semester of 2018, demand was significantly reduced due to the monetary policy carried out by the Argentine government.
We continued to work in the promotion of an inclusive financial system, with special emphasis and interest in allowing that people with low level of banking can access to personal loans, based on agreements with municipalities or small loans.
We also continued to be part of the PROCREAR UVA Mortgage Loans line, supporting the“Procrear Ahorro Joven”program.
In order to grow thePlan Sueldo portfolio, we focused on the incorporation of new clients from the private sector and provinces in which we are not a financial agent, while we work on consolidating relationships with the existing customers.
We are one of the major credit card issuers in Argentina, with approximately 2.7 million credit cards in circulation for retail customers as of December 31, 2018. Oneone of our initiatives to expand lending is to encouragelow- and middle-income customers to use credit cards for larger amount purchases.
In 2019, owing to the complex economic situation in Argentina, the financial market was adversely affected. Faced with this situation, we focused our efforts on increasing deposits and developing commercial actions aimed at retaining customers, increasing the quantity of products per client and attracting salary plans. Additionally, we strengthened our business model by maintaining a well-diversified loan portfolio. In 2019, we retained our market share in consumer products and maintained leadership in personal loans with respect to the competition (other private banks). Furthermore, credit card’s product offering continued operating in a very competitive scenario, continually demanding an acceleration in the processes of digital transformation. In relation to the mortgage loan portfolio, the granting of these loans decreased significantly in relation to the previous year.
During 2019, under the context of rising inflation, the Argentine government froze the value of installments of certain loans and partially subsidized UVA mortgage loan clients until December 31, 2019. The difference between the value of the frozen installment paid by clients and the one that would have corresponded due to the application of the UVA was compensated by the Argentine government. Therefore, we avoided any related losses in 2019.
In January 2020, the Fernández administration reversed the freezing of installments and withdrew the subsidy, while inviting financial institutions to set progressive increases in the monthly value of the frozen installments so that they converge to the adjusted value provided by UVA in December 2020. We adhered to such a program.
As of December 31, 2017, 2018 and 2018,2019, our consumer loan portfolio (without considering other financings) was as follows:
Consumer loan portfolio | Consumer loan portfolio | |||||||||||||||||||||||||||||||||||||||
(as of December 31, of each year) | (as of December 31, of each year) | |||||||||||||||||||||||||||||||||||||||
(in millions of Pesos and as percentage of consumer loan portfolio) | (in millions of Pesos and as percentage of consumer loan portfolio) | |||||||||||||||||||||||||||||||||||||||
2017 (1) | 2018 | 2017 (1) | 2018 (1) | 2019 | ||||||||||||||||||||||||||||||||||||
Overdraft | 712.1 | 0.6 | % | 668.9 | 0.7 | % | 1,093.7 | 0.6 | % | 1,027.3 | 0.7 | % | 622.3 | 0.5 | % | |||||||||||||||||||||||||
Documents | 1,731.8 | 1.5 | % | 1,694.4 | 1.7 | % | 2,659.7 | 1.5 | % | 2,602.2 | 1.7 | % | 1,538.5 | 1.3 | % | |||||||||||||||||||||||||
Mortgage and pledge | 7,558.9 | 6.4 | % | 12,014.5 | 11.9 | % | 11,609.0 | 6.4 | % | 18,451.9 | 11.9 | % | 16,254.0 | 13.9 | % | |||||||||||||||||||||||||
Credit Card | 35,013.7 | 29.8 | % | 28,153.4 | 27.9 | % | 53,774.0 | 29.8 | % | 43,238.0 | 27.9 | % | 40,666.7 | 34.8 | % | |||||||||||||||||||||||||
Personal loans | 71,300.4 | 60.6 | % | 57,326.3 | 56.8 | % | 109,503.2 | 60.6 | % | 88,041.7 | 56.8 | % | 56,838.0 | 48.6 | % | |||||||||||||||||||||||||
Others | 1,326.3 | 1.1 | % | 1,039.1 | 1.0 | % | 2,037.0 | 1.1 | % | 1,595.9 | 1.0 | % | 1,000.9 | 0.9 | % | |||||||||||||||||||||||||
117,643.3 | 100.0 | % | 100,896.7 | 100.0 | % | |||||||||||||||||||||||||||||||||||
Total | 180,676.6 | 100.0 | % | 154,957.1 | 100.0 | % | 116,920.3 | 100.0 | % |
Note:
(1) | Figures stated in |
As of December 31, 2018,2019, personal loans, which comprise the largest share of our consumer loan portfolio, carried an annual average nominal interest rate of 56%66.50 % and an average maturity of 4541.4 months. Interest rates and maturities vary across products.
Plan Sueldo payroll services
Since 2001, Argentine labor law has provided for the mandatory payment of wages through accounts opened by employers in the name of each employee at financial institutions within two kilometers of the workplace, in the case of urban areas, and ten kilometers of the workplace, in the case of rural areas. There are similar requirements in place for pension payments.
We handle payroll processing for private sector companies and the public sector, which require employers to maintain an account with us for the direct deposit of employee wages. Currently, we provide payroll services for the governments of the Argentine provinces of Misiones, Salta, Jujuy and Tucumán and to the private sector for a total aggregate of 1.62.2 million retail clients (including retirees). OurPlan Sueldo payroll services provide us with a large and diversified deposit base with significant cross-selling potential.
Corporate customers
Overview
Legal and natural persons of the privatenon-financial sector that develop commercial and/or industrial activities are included in the corporate customer category. We provide our corporate customers with traditional banking products and services such as deposits, lending (including overdraft facilities), check cashing advances and factoring, guaranteed loans and credit lines for financing foreign trade and cash management services. We also provide them trust, payroll and financial agency services, corporate credit cards and other specialty products.
The corporate business is focused on classification by size and sector. We have four categories for our corporate customers: (1) small companies, which register up to Ps.200Ps.500 million in sales per year;(2) medium-sized and large companies, which register more than Ps.200Ps.500 million and less than Ps.800Ps.3,000 million in sales per year; (3) agricultural companies, which include individuals and companies who operate in agriculture or in the commerce of agricultural products; and (4) corporate companies which register more than Ps.800Ps.3,000 million in sales per year.
The following table reflects our portfolio breakdown, sortedbroken down by category as of December 31, 2017, 2018 and 2018:2019:
Portfolio conformation | 2017 | 2018 | ||||||
Corporate companies | 29 | % | 46 | % | ||||
Medium sized companies | 25 | % | 18 | % | ||||
PyMEs | 20 | % | 11 | % | ||||
Microenterprises | 5 | % | 3 | % | ||||
Agricultural companies | 21 | % | 22 | % |
Portfolio conformation | 2017 | 2018 | 2019 | |||||||||
Corporate companies | 29 | % | 46 | % | 56 | % | ||||||
Medium sized companies | 25 | % | 18 | % | 16 | % | ||||||
PyMEs | 20 | % | 11 | % | 7 | % | ||||||
Microenterprises | 5 | % | 3 | % | 2 | % | ||||||
Agricultural companies | 21 | % | 22 | % | 18 | % |
We support productive activities through the promotion of development, new trends and innovation, since our goal is to continue offering the best services for market participants active in agriculture, industry and commerce. Based on values of close customer relationships, effort, hard work, dedication and community, we offer financing lines according to each customer profile that contribute to their growth, their development and that of their communities.
At present, we have a network of branches with business officials specialized in each category, offering a wide range of products, including working capital facilities, and credit for investment projects, leasings and foreign trade transactions.
Our corporate customer base also acts as a source of demand for our excess liquidity through overnight and short-term loans to large corporate customers. See Item 5.B “Operating and Financial Review and Prospects—Liquidity and Capital Resources”.
Lending products and services
We offer short-term and medium- to long-term corporate lending products.
Short-term: Products include credit lines for up to 180 days and consist mainly of overdraft facilities, corporate credit and debit cards and factoring, as well as foreign trade related financing, such aspre-export, post-shipment and import financing. These products also include contingency lines, such as short-term guarantees (performance guarantees and bid bonds) and import letters of credit. The credit risk assigned to these kinds of transactions is the debtor rating described below, unless increased as a result of a pledge or a guarantee.
Medium- to long-term: Products include credit lines and specific lending facilities of more than 180 days. Credits are usually asset-based, such as leasing, whereby a credit enhancement is achieved by means of the underlying asset.
Medium- to long-term facility risks are mitigated through different mechanisms that range from pledges and mortgages, to structured deals through financial trusts whereby the debtor pledges the underlying asset, mostly future income flows. Regardless of the term and based on the fact that these credit lines are devoted to small tomedium-sized companies, our policy is to require personal guarantees from the owners, although the underlying debtor rating remains unchanged.
During the last years, our focus was PyMEs and regional businesses, working to offer products and services tailored to each company profile, primarily based on size and the location of operations. Our management has been focused on growing this segment and consolidating our relationships with existing clients.
We supported the growth of PyMEs through the development of businesses and sustainable links throughout the country. The geographic distribution, proximity, personalized attention and the knowledge of our clients and the regional economies allow us to detect their needs and support them in the financing of their projects, as well as to provide transactional solutions for the management of their payments and collections.
We have continued with actions aimed at financing small-scale client producers and suppliers of the value chain of our Megra customers. Among these actions are agreements with large companies buying yerba mate in the northeast region of Argentina(Medium and the tobacco companies of Salta and Jujuy.Large Sized Companies) customers.
Within our Corporate Banking division (“Corporate Banking”), in 2016, we sought to strengthen our relationship with existing and new clients, in order to position ourselves as one of the main banks in the corporate banking sector. This allowed us to provide specialized assistance to each of the companies which constitute the different value chains, with products tailored to their needs. In addition, we worked together with our Retail Banking division and our network of branches to increase the base ofPlan Sueldo and increase our market share in credit products.
Regarding our Agro Banking division (“Agro Banking”), we continued to support regional economies with tailor-made products for sectors such as tobacco, sugar and yerba mate, by financing all value chains from the primary producer to the industrial producer.
Through the “Instant Line of Credit” program for microentrepreneurs and PyMEs throughout the country and with the objective of financing working capital, we offer existing and new customers the possibility of requesting instant credit, with minimum approval requirements. This line of credit was intended to finance working capital, for a maximum amount of up to Ps. 1,500,000 and offers discount deferred payment checks, current account agreement, single signature loan, the opportunity to apply for a Macro Agro Credit Card and foreign trade financing.
We provide access to credit to PyMEs and microenterprises through different account packages and the Line of Production Investment. Likewise, we offer the “Prenda Ágil” product for the financing of roads and agricultural machinery for PyMEs.
In addition, strategic alliances were created with large supplier companies that allow our customers to access purchases of inputs with reduced financial cost. As of December 2016, more than 30 agreements were signed with manufacturers or concessionaires for U.S. dollar credit lines to finance the purchase of agricultural machinery.
During 2017, Corporate Banking made further improvements in its service model by consolidating the teams of officers specialized in Cash Management and Foreign Trade businesses, which led to an improvement in our market position in both businesses, based on a proactive segmented marketing strategy.
The Bank continues to promote development, new trends and innovation by offering the best suite of services for the rural area, industry and commerce, based on the pillars of closeness, effort, hard work, dedication and sense of belonging.
In 2017, access to credit was provided to PyMEs and Micro-Businesses through different packages and programs offering special interest rates and Productive Investment facilities, and the“Prenda Ágil” (Expeditious Pledge) product for the financing of vehicles and machinery for PyMEs. During the past year, more than 7,000 new PyMEs and Micro-Businesses joined our customer base and were offered solutions to their needs.
Our“Línea de Crédito al Instante” (Immediate Credit Line) aimed at Micro-Businesses and PyMEs across the whole Argentine territory, offers customers andnon-customers the possibility of requesting an instant loan, which is granted immediately and with minimum requirements. This line, which is used to finance working capital for up to Ps.3 million, offers discount of deferred payment checks, checking account overdrafts, signature loans, a Macro Agricultural credit card and foreign trade financing (for exporters and importers).
As regards Megra (Medium and Large Sized Companies) and Corporate Banking, we have carried out work to understand our customers’ needs and, consequently, we have developed actions aimed at incorporating suppliers and small producers to achieve integration of the value chain and boost their business. In this sense, we focused on increasing the “Plan Sueldo” (Payroll Program) customer base, acting jointly with Personal Banking and our branch network.
Committed to the growth of Argentina, we launched an exclusive UVA mortgage loan facility to finance real estate developers. The initiative aims to support the financing process of up to 80% of the construction of residential units, subsequently intended for sale.
The agricultural sector suffered negative consequences due to excessive rains during the autumn, which adversely affected crops in the main agricultural areas and made it difficult to access to the ports. In order to face the financial maturities and the impossibility of delivering the grain, the demand for loans came in earlier, and it was satisfied mainly in U.S. dollars. This was possible thanks to the flexibilization of the regulations issued by the Central Bank on the use of foreign currency derived from deposits.
During 2017, financial borrowings against delivery of crops to exporters continued. In addition, medium-term loans (three to five years) in the same currency were granted and purchases of agricultural machinery, investments or asset acquisitions were financed; U.S. dollar loans for working capital were granted; and promotional agreements on the rural credit card (known as zero interest rate) continued with an excellent performance.
We supportsupported regional economies by offering customized products to sectors such as tobacco, sugar andyerba mate, where we provide financing to the entire value chain, from the primary producer to the industrial producer that exports or sells its products in the domestic market.
As regards Foreign Trade, we recorded a strong increase in both transactions and user clients through our DigitalE-Comex platform. We also launchedMacro Pro Comex, as an exclusive free service that allows customers to make queries that help them increase their foreign trade business.Macro Pro Comex offers customized market research on exporting and/or importing markets, foreign potential buyers and/or sellers, prices and other relevant information.
We also continued to create strategic alliances with large supplier companies so that our customers can access input purchases at a reduced financial cost.
As in past years, we participated in fairs and gatherings with businessmen and entrepreneurs in which we offered the services of our business officers specialized in the Agricultural, Professionals and Businesses, and PyMEs segments, who provided advice on our services and products.
In 2018 we continued offering the best services for the agricultural, industrial and commercial sectors, trying to promote the development and the innovation in the different areas of the productive sector. We continue to offer financing for the acquisition of vehicles and machinery for PyMEs, through the“Prenda Ágil” product and also an instant credit line“Línea de Crédito Instantánea” to finance working capital of micro-entrepreneurs and PyMEs throughout the country, with immediate granting and minimum requirements. In addition, we arewere working on an electronic credit bill development process so that MiPyMEs can sell their invoices in the stock market.
In connection with agricultural companies, we continued to grow our client portfolio and we oriented commercial action to support our clients with their needs for working capital financing and investment projects. We have innovated and improved our processes for our clients to operate with grains directly with us, paying their obligations with their grain production (“Pague con Granos” Program), achieving the landmark of exceeding one million tons per year. Additionally, we perform operations in U.S.$. like working capital, medium-term loans (three to five years), financing the acquisition of agricultural machinery, investments or asset purchases; we have entered into agreements with the main manufacturers to provide predictability in their campaign plans investments, and we continued with the agreements for the development of the rural credit card (known as a “zero interest rate” card), with an excellent performance.
We continue withE-Comex Digital and MacroPro-Comex, the exclusive service, free of charge, which allows our customers to make queries that help them increase their business abroad. We complement this service by offering relevant information, such as personalized market research on exporting and/or importing markets, potential buyers and/or sellers of foreign markets and prices.
In 2018, loans to agricultural companies and loans to corporate companies stood out above the rest. The best performing lines were foreign trade and overdrafts.
Throughout 2019, we have maintained a constant growth in our Corporate customers portfolio. Our management has been focused on working to offer products and services tailored to each company profile, primarily based on size and the location of operations.
We continue to grow in our client portfolio and strengthen the value chain concept between PyMEs, Megra and Corporate Companies.
Regarding our PyMEs and Microenterprises customers, we have developed close and specialized customer relationships while focusing on maintaining long-term relationships. We offer transaction services (such as cash management) to our customers, as well as collection services, both in automatic and direct debits from checking or savings accounts.
In 2019, we developed the “Encuesta de Experiencia del Cliente Pyme” (PyME’s Experience Survey) to provide support and advice regarding our transactional and foreign trade financing. Moreover, we granted “Sociedades por Acciones Simplificadas” (simplified joint-stock companies, “SAS”, for its Spanish acronym) a tailored value proposition and a special credit limit from the moment of its creation.
We contributed to the growth and development of PyMEs through the development of the “Naves” program throughout the country. Such program provides with management tools for building business plans and innovative projects.
Furthermore, we provided specialized assistance via two programs: “Alumbra tus ganas de emprender” Program, which offers support and assistance through training, guidance, and financial and business advice, and “Cuentas Sanas” Program, which grants financial education to PyMEs’ employees.
As regards Megra (Medium and Large Sized Companies), we have developed actions aimed at incorporating suppliers and small producers to achieve integration of the value chain and boost their business.
Additionally, we focused on increasing the “Plan Sueldo” (Payroll Program) customer base, acting jointly with Personal Banking and our branch network. We continually encourage the strengthening of relationships with our companies and service improvement, as well as focusing on credit portfolio review and regulatory compliance.
During 2019, owing to our proactive segmented marketing strategy, we were able to maintain our Corporate Banking market position. We have been focused on growth in deposits, especially sight balances. In addition, we provide our working teams with a solid foundation in cash management so that they can properly advise on transactional products.
Regarding our agricultural clients, we were able to provide financing to small-scale regional producers located in the province of Salta and Jujuy for the purchase of energy from distributors through the rural credit card. Furthermore, we continued improving ourPague con Granos Program, achieving the landmark of exceeding 1.3 million tons per year.
The macroeconomic environment suffered great alterations due to the new exchange regulations. The financial problems along with the expectations of increased tax withholdings affected the decisions of the productive plans. Thus, we decided to focus on consolidating our relationships with existing clients through the financing of working capital and investment projects, the simplification of the operation processes directly with grains, the development of alliances with manufacturers in order to provide predictability, and promotional agreements on the rural credit card.
As highlighted, we implemented the “Programa de desarrollo para el Agro” (Development Program for Agro), which gives customers information to decide, contacts to strengthen and financing to invest.
In terms of the financing of the productive sector, we continued offering what we believe is the best services for the different areas of the agricultural, industrial and commercial sectors. Some of the solutions we provide are: bonus lines to aid companies in financing their semiannual installments, credit programs to boost and sustain regional activities, commercial agreements with the “Consejo Federal de Inversiones” (Federal Investment Council) to act as a financial agent in the granting of loans at special rates in Pesos and U.S. dollars.
As in past years, we participated in fairs and gatherings with businessmen and entrepreneurs in which we offered the services of our business officers specialized in the Agricultural, Professionals and Businesses, and PyMEs segments, who provided advice on our services and products.
In 2019, loans to corporate companies stood out above the rest with an increase in nominal value of 60% and the best performing line was overdrafts.
As of December 31, 2017, 2018 and 2018,2019, our commercial loan portfolio (without considering other financings) was as follows:
Commercial loan portfolio (1) | Commercial loan portfolio (1) | |||||||||||||||||||||||||||||||||||||||
(as of December 31, of each year) | (as of December 31, of each year) | |||||||||||||||||||||||||||||||||||||||
(in millions of Pesos and as percentage of consumer loan portfolio) | (in millions of Pesos and as percentage of consumer loan portfolio) | |||||||||||||||||||||||||||||||||||||||
2017 (2) | 2018 | 2017 (2) | 2018 (2) | 2019 | ||||||||||||||||||||||||||||||||||||
Overdraft | 13,241.0 | 16.4 | % | 17,157.7 | 21.1 | % | 20,335.5 | 16.4 | % | 26,350.9 | 21.1 | % | 43,033.0 | 39.9 | % | |||||||||||||||||||||||||
Documents | 23,472.0 | 29.1 | % | 22,400.1 | 27.6 | % | 36,048.3 | 29.0 | % | 34,402.1 | 27.6 | % | 18,393.3 | 17.1 | % | |||||||||||||||||||||||||
Mortgage and pledge | 10,848.1 | 13.4 | % | 8,206.2 | 10.1 | % | 16,660.5 | 13.4 | % | 12,603.0 | 10.1 | % | 8,425.0 | 7.8 | % | |||||||||||||||||||||||||
Consumer Loans (3) | 1,772.7 | 2.2 | % | 1,463.6 | 1.8 | % | ||||||||||||||||||||||||||||||||||
Others | 31,405.0 | 38.9 | % | 31,989.1 | 39.4 | % | ||||||||||||||||||||||||||||||||||
Consumer loans (3) | 2,942.5 | 2.4 | % | 2,247.9 | 1.8 | % | 1,489.2 | 1.4 | % | |||||||||||||||||||||||||||||||
Other loans | 48,231.7 | 38.8 | % | 49,128.9 | 39.4 | % | 36,451.6 | 33.8 | % | |||||||||||||||||||||||||||||||
Total Commercial Loans | 80,738.8 | 100.0 | % | 81,216.8 | 100.0 | % | 124,218.6 | 100.0 | % | 124,732.73 | 100.0 | % | 107,792.17 | 100.0 | % |
(1) | Including loans to micro credit institutions and commercial loans that, for the consolidated statements of debtors, was included as consumer portfolio following the criteria described in “Argentine Banking Regulation—Credit Portfolio.” |
(2) | Figures stated in |
(3) | Includes credit card loans and personal loans. |
Transaction services
We offer transaction services to our corporate customers, such as cash management, collection services, payments to suppliers, payroll services, foreign exchange transactions, foreign trade services, corporate credit cards, and information services, such as our Datanet and Interpymes services, described further below. There are usually no credit risks involved in these transactions, except forintra-day gapping (payments made against incoming collections), as well as settlement andpre-settlement related to foreign exchange transactions which, in general, are approved following the debtor credit rating process.
Payments to suppliers. Our payments for supplier services enable our customers to meet their payment obligations to their suppliers on a timely basis through a simple and efficient system. This service also provides payment liquidations, tax payment receipts, invoices and any other documents required by the payer.
Collection services. Our collection services include cash or check deposits at our 471463 branches, automatic and direct debits from checking or savings accounts and the transportation of funds collected from corporate customers to our branches for deposit. Our extensive branch network enables us to offer fast and efficient collection services throughout Argentina, which is of critical importance to both regional and nationwide companies.
Datanet and Interpymes. We provide our corporate clients with access to the Datanet service (“Datanet”), which is an electronic banking network linking member banks in Argentina. This service permits our clients to obtain reliable online information on a real-time basis from their bank accounts in Datanet as well as, to perform certain transactions.
Interpymes is an electronic banking system designed to meet the needs of small businesses. It does not require special installation procedures and is easily accessible through the internet, helping to simplifyday-to-day operations for our customers.
Tax collection and financial agency services. We also have exclusive, long-term arrangements to provide tax collection and financial agency services to four provinces: Salta, Misiones, Jujuy and Tucumán. These contracts expire in 2026, 2029, 2024 and 2031, respectively.
Payroll services.We provide payroll services to four provinces and to the private sector. See “Our products and services—Retail customers”.
Our distribution network
As of December 31, 2018,2019, we had the largest private sector branch network in the country, with 471463 branches spread throughout Argentina. In particular, in line with our strategy of expanding nationally, we have extensive coverage in the Argentine provinces with 94% of our branches located outside the City of Buenos Aires. Furthermore, as of December 31, 2018,2019, we had 1,4851,542 ATMs, 934955 self-service terminals (“SSTs”) and several service points used for social security benefit payments and servicing of checking and savings accounts and internet home banking service (“Home Banking”). The following table breaks down the distribution of our branches per province as of December 31, 2018:2019:
As of December 31, 2018 | As of December 31, 2019 | |||||||||||||||
Province | Branches | % of total | Branches | % of total | ||||||||||||
City of Buenos Aires | 28 | 6 | % | 29 | 6 | % | ||||||||||
Buenos Aires (Province) | 73 | 15 | % | 67 | 14 | % | ||||||||||
Catamarca | 1 | 0 | % | 1 | 0 | % | ||||||||||
Chaco | 2 | 0 | % | 2 | 0 | % | ||||||||||
Chubut | 6 | 1 | % | 6 | 1 | % | ||||||||||
Cordoba | 71 | 15 | % | 70 | 15 | % | ||||||||||
Corrientes | 4 | 1 | % | 4 | 1 | % | ||||||||||
Entre Rios | 10 | 2 | % | 10 | 2 | % | ||||||||||
Formosa | 0 | 0 | % | — | 0 | % | ||||||||||
Jujuy | 16 | 3 | % | 16 | 3 | % | ||||||||||
La Pampa | 2 | 0 | % | 2 | 0 | % | ||||||||||
La Rioja | 2 | 0 | % | 2 | 0 | % | ||||||||||
Mendoza | 16 | 3 | % | 15 | 3 | % | ||||||||||
Misiones | 36 | 8 | % | 35 | 8 | % | ||||||||||
Neuquén | 5 | 1 | % | 5 | 1 | % | ||||||||||
Rio Negro | 6 | 1 | % | 6 | 1 | % | ||||||||||
Salta | 37 | 8 | % | 37 | 8 | % | ||||||||||
San Juan | 2 | 0 | % | 1 | 0 | % | ||||||||||
San Luis | 3 | 1 | % | 2 | 10 | % | ||||||||||
Santa Cruz | 2 | 0 | % | 2 | 0 | % | ||||||||||
Santa Fe | 105 | 22 | % | 105 | 23 | % | ||||||||||
Santiago del Estero | 2 | 0 | % | 2 | 0 | % | ||||||||||
Tierra del Fuego | 2 | 0 | % | 2 | 0 | % | ||||||||||
Tucuman | 40 | 8 | % | 42 | 9 | % | ||||||||||
TOTAL | 471 | 100 | % | 463 | 100 | % |
Source: Central Bank
Technology, automated channels and credit cards processing systems
Our technological development is continuous and the number of alternative methods to perform banking transactions is increasing. Automated channels allow our clients to perform banking transactions with enhanced speed, comfort and safety, offering a wide variety of available transactions.
During the last few years we have focused on automatic channels, giving customers more accessible and flexible services. As a result, the use of automated channels continued to expand, both in terms of volume of transactions and number of users.
In 20182019 the number of transactions madeamount transacted through automatic channels increased by 70%47% compared to 2017,2018, mainly due to greater use of internet banking and mobile banking. The increase in transactions made through automatic channels has two benefits: it simplifies and ease customers’ operations and, at the same time, reduces operational tasks in the branches.
We have ATMs that operate independently of the branch and offer money extraction service and balances consultation, among other operations. New actions were implemented to maintain high security, service quality and availability standards in our ATM network through preventive management and training strategies. We increased the number of ATMs with cash recognition and online deposit crediting, as well as the number of ATMs with voice guidance for the blind or vision impaired, 97%99% of our ATMs have that feature. We also implemented a new system that allows cash withdrawals from the ATM without a debit card, using only a code created by the
Macro BancaMóvil mobile application. This has placed us in a leading position as to service quality, which is particularly important given the number and geographical dispersion of our ATMs.
Furthermore, we continued strengthening and updating the technology offered at our ATMs, reaching a total of 1,4851,542 operating ATMs, representing one of the widest reaching networks in Argentina. In 2018,2019, the amount transacted through ATMs increased by 12%36% compared to 2017.2018.
We have SSTs terminals distributed in our branch network across Argentina, offering an ample variety of operations, including the possibility of making deposits twenty-four hours a day, every day, all year long. In 2014, we incorporated the smart check deposit functionality. This development has been beneficial both to us, increasing efficiency by reducing operating tasks in branches, and to clients, increasing safety and reducing transaction times. In 2018,2019, we had 163209 intelligent self-service terminal units installed in 120146 branches all over the country, in which there have been 180,860162,378 transactions. In 2018,2019, the amount transacted through SSTs increased 5% compared to 2017.2018. As of December 2018,2019, we had 934955 SSTs installed. Our aim is to be positioned with the best offer in digital services and promote a migration channel strategy, focusing on the best experience for our customers. During 2017, the Bank initiated a strategic alliance with Globant to define and execute the Bank’s digital transformation. The key to digital transformation is, in addition to a technological and methodological challenge, a cultural challenge that it crosses the main areas of the Bank.
RegardingHome Banking, we have implemented a collections service for companies offering the following benefits: security (no cash or checks are transported to the branch), practicality (easy and safe, backup of receipts in a PDF file, possibility to review the history of payments and receipts), accessibility (from any computer) and no additional cost. We also use Home Banking to inform our retail customers about the possibility of getting a personal loan, the amount available and how to apply for it. In 2017, the migration of “MacrOnline” to the new Internet Banking System for individuals started. During 2019, we intend to launchlaunched the new Business Home Banking, through which we intend to generategenerated a substantial change in the way of operating of our corporate customers interact with us, based on the pillars of security, self-management and transactionality.
OurMacro Banca Móvil channel has developed significantly in the last three years. In line with the characteristics of the users and the technological trends supporting the development of the service, theMacro Banca Móvil application is available in the main virtual stores of the principal operating systems. InSince 2017, we worked on new functionalities that generate value for clients: U.S. dollar purchase and sale transactions, transfers to new accounts, point checking and redemptions under ourMacro Premia rewards program, and UVA loans detailed enquiries.
The transactions performedamount transacted throughHome Banking andMacro Banca Móvil increased by 76%48% in 2018.2019.
During 2017, the Bank worked together with Globant to develop a new experience in all the Bank’s websites, introducing an innovative design to generate high impact on users. New online advice tools will be added through an engine that searches for customer needs, and service through a virtual agent with artificial intelligence capabilities.
In line with the introduction of new technologies, in 2017 we partnered with Fintech Whyline, pioneering in the introduction of this application in more than 250 branches throughout the country.
Whyline is an application that reduces waiting times in branches. If the customer still feels uncomfortable about using Mobile Banking or Internet Banking and needs to approach a branch in person, they are able to manage their time better through the use of this application.
The significant sustained growth in the number of users and transactions made through automated channels has demonstrated the effectiveness and acceptance of this service in the market.
Prisma Medios de Pago S.A.
On August 23, 2017, the shareholders of Prisma Medios de Pago S.A. (“Prisma”) signed a divestment agreement in Prisma, which was approved by the Ministry of Production on September 26, 2017 (the “Divestment Process”).
In accordance with the Divestment Process, Prima’s shareholders agreed to transfer, in two stages, its shareholding in Prisma. The first stage (already completed) consisted in the proportional transfer, of each shareholder, of 51% of the shares held in Prisma, while the remaining 49% was agreed to be divested within three years from the completion of the first stage, i.e., January 31, 2022.
Additionally, as a result of the Divestment Process, on February 26, 2018, we entered into several agreements with Prisma pursuant to which (i) the processing for Visa (credit and debit) and American Express, was agreed for a term of five years, starting as from the completion of the first stage of the Divestment Process, and (ii) anon-compete agreement was signed for a five year term, starting as from the completion of the first stage of the Divestment Process in connection with the acquisition rights of Prisma, which will automatically lose effect the day in which the remaining 49% of the share capital of Prisma is transferred. For more information, please see note 2021 to our consolidated financial statements as of and for the year ended December 31, 2019 and 2018 contained elsewereelsewhere herein.
Risk management policies
To comply with the “Risk Management Guidelines for Financial Institutions” set forth under Communication “A” 5203, as amended, we have adopted various measures at our organizational structure level and have implemented procedures to ensure the establishment of an independent risk management process.
Our Board of Directors created a Risk Management Committee (the “Risk Management Committee”) and appointed a Comprehensive Risk Management Manager (the “Comprehensive Risk Manager”) and made them responsible for coordinating the application of risk management policies and the relevant responsible officers. For more information, see Item 6.C “Board Practices”.
The Comprehensive Risk Manager coordinatesManagement Committee, among other responsibilities, assures the headsestablishment of financialan independent management of risk, credit risklays out policies, procedures, measurement methodologies and operational and technological risk, who arefeedback systems in charge of implementing the guidelines contained in the risk management framework policy.
Our risk management framework policy establishes the environment for the risk management process under the notions of risk identification, measurement and monitoring and mitigation. In addition, it lays outof risks, as well as the dutiesresponsibilities of each organizationalevery level of the organization involved in the process.
Our risk management process includes setting of acceptable risk levels by our Board of Directors, monitoring of our compliance with such levels by responsible officers, the issuance of regular reports for the Risk Management Committee, follow up on alerts and the application of action plans in connection with such alerts and the guidelines for the development of stress tests.
The stress test development process we established includes documenting and formalizing the program, including selecting the persons in charge of carrying out the program, the frequency of testing and validation of the system. It also contemplates the contingency plan based on test results. The Risk Management Committee leads and coordinates these tasks.
Additionally, the system is supplemented with policies and procedures specific to each risk (financial, credit, operational, counterparty credit, country risk, securitization, reputational, compliance and strategic risks, among others).
The Risk Management Committee is in charge of Financing Risk, Credit Risk and Technology and Operational Risk. The primary procedures developed by the Risk Management Committee are:
��� | Stress tests: stress testing is a support tool for risk management and a complement to the results of risk measurement models. The objective of the tests is to assess the financial vulnerability potential of the Bank in light of the sensitivity of the main variables affecting each risk. In general, a variable with low probability of occurrence, but which if it materializes could lead to a significant overshoot in tolerance limits established for each risk. In addition, they are a tool for assessing the risk profile and are also used in the internal economic capital adequacy assessment process. |
Economic Capital Calculation: the economic capital calculation is developed for those risks that, due to their importance, could eventually affect our solvency. Risk management is directly related to the calculation of economic capital. Based on the internal models developed, we manage the risks, determine the risk profile, and therefore estimate the capital required for the development of the activities and business, adjusted to the degree of exposure to each risk
Economic capital estimate
Economic capital is the estimated amount of unexpected losses identified for each one of the individual risks (financial, credit, counterparty credit, concentration, operational, securitization, strategic and reputational) determined for us on a consolidated basis.
We have implemented a formal procedure for quantifying economic capital, both current and prospective, and it is a tool used in theday-to-day management of risks, in preparing the business plan and in the stress tests.
The methods used to measure the economic capital of each risk were documented and approved by management, pursuant to the internal rules on corporate governance and risk management.
The most significant risks we manage are financial risk, credit risk and operational and technological risk.
Financial risk
Financial risk consists of liquidity, market and interest rate risks, which, independently or in an interrelated manner, can affect our liquidity and solvency.
We have strategies, policies and limits defined for each exposure which have been approved by our Board of Directors within the framework of market, liquidity and interest rate risk management. This process is reviewed periodically by the Risk Management Committee in accordance with the guidelines set forth by the Central Bank.
Liquidity risk
Also, market liquidity risk is understood as the risk that a position cannot be offset or unwound at the market price due to:
The purposeThat the assets do not have a sufficient secondary market; or
Market alterations.
We have policies on liquidity, which aim to manage it in an efficient way, optimizing the cost and diversification of funding sources, and maximize the utility of the colocations through a prudential management that assures the necessary funding for the continuity of the operations and the fulfilment of the current regulation.
We have implemented a series of measurement and risk control tools, including the regular monitoring of liquidity gaps, differentiated by currency, as well as various liquidity rations, including “bimonetary liquidity ratio”, liquidity ratio coverage (LRC), net stable funding ratio (NSFR), among others.
Market risk
It is defined as the possibility of suffering losses in the Bank’s on andoff-balance sheet positions as a result of adverse fluctuations in the market price of various assets.
Market risks include interest rate, foreign exchange and price risks. They are exposed to general and specific market movement and changes in the level of price volatility such as interest rates, credit spreads, foreign exchange rates, shares prices and securities, among others.
We have policies for the management of Market Risk in which the processes of monitoring and control of the risks of variations in the quotations of financial risk policy is to ensureinstruments with the objective of optimizing the risk/return relationship, using the structure of limits, models and adequate management tools. In addition, we have adequate procedures and tools that allow the Risk Management Committee and senior management have the proper procedures, toolsAssets and information to enable themLiabilities Committee to measure and manage this risk.
The risks to which the investment portfolios are exposed are monitored through Montecarlo “Value at Risk” (VaR) simulation techniques. We apply the VaR methodology to calculate the market risk of the main positions taken and control the applicable risks.maximum expected loss based on a series of assumptions for a variety of changes in market conditions.
Interest rate risk
Interest rate risk is the potential for changes in our financial condition resulting from adverse fluctuations in interest rates, which could have an adverse effect on capital or earnings.
Within the framework of interest rate risk management, we have a series of policies, procedures and internal controls that allow us to monitor the variation of the net present value of assets, liabilities andoff-balance sheet items under certain scenarios of disturbance and stress in interest rates risk through Montecarlo simulations. For more information onthis purpose, the maximum potential loss is calculated considering a three month time horizon and a 99% level of confidence.
Foreign currency exchange risk
We are exposed to fluctuations in foreign currency exchange rates prevailing in our financial risk definitionposition and management processes see note 50 “Capital management, Corporate Governance Transparency Policycash flows. The largest portion of our foreign currency assets and Risk management”liabilities are denominated in U.S. dollars.
The position in foreign currency is composed by assets and liabilities denominated in Pesos, to our audited consolidated financial statements asthe exchange rate at the closure of and for the years ended December 31, 2018 and 2017.indicated dates. The open position of an institution is composed by assets, liabilities,off-balance-sheet accounts denominated in the foreign currency in which the institution assumes the risk; any devaluation or revaluation of those currencies affects the income statement.
Credit risk
Credit policy and credit risk management
The Board of Directors approves our credit policy and credit assessment in order to provide a framework for the creation of businesses to attain an adequate correlation between the risk assumed and profitability.
Our Credit Risk Management area is in charge of interpreting, executing and guaranteeing the application of our General Credit Policy approved by our Board of Directors, ensuring proper identification, assessment, control,follow-up and mitigation of credit risk.
Credit risk results from the possibility of loss derived from customers or counterparties from fully or partially breaching financial obligations they have undertaken with us.
In order to manage and control the credit risk, we establish limits regarding the amount of risk we are willing to accept, so as to monitor the indicators with respect to such limits.
Credit risk rating and approval process
In order to determine the credit risk, our Credit Risk Department qualifies each individual or company by means of a risk rating model, assigning a rating to each debtor, taking into consideration quantitative as well as qualitative concepts. The Credit Risk Department has focused its actions on increasing the quality and efficiency of the credit risk rating process.
There are specific policies and procedures for loan granting for corporate and retail customers, which differ according to the segment to which they belong (public or private payroll, retirees or open market).
The risk assessment process varies depending on whether it’s about Corporate Banking customers or Retail Banking customers.
Credit risk assessment for retail customers includes the use of risk applications based on screening and scoring methods related to an arrears level. There is also a mass-scale and centralized qualification process for clients and credit prequalification models for the assessment of potential customers from different sales campaigns.
Various credit committees, composed of members of the business and risk areas are responsible for reviewing and determining whether to approve certain loans, depending upon relevant market targeted and the amount involved. These include a senior credit committee, a junior credit committee, credit committees by customer’s categories, and credit committees by region. The senior credit committee consists of members of our Board of Directors and senior management and considers loan proposals in excess of Ps.110Ps.155 million.
For the assessment of Corporate Banking customers, we feature different methods involving several responsible levels and which become more complex according to the magnitude of the transactions, as to amounts and type of assistance, weighted by terms and existing coverage.
The risk analysis of assistance discussed in Credit Committees is performed at the Corporate Risk Management Department: specialized risk analysts prepare separate Risk Reports per client or Economic Group, which serves to support the credit decisions made by Committee members.
We have a management information system suitable for the size of our operations. Its components include an automated tool for the calculation of key performance indicators, for which alert and limit values have been determined in order to monitor business changes according to the risk appetite defined by our Board of Directors. Other credit risk management tools used are evaluation or score models, which are used at different stages of the credit cycle, attributing an internal risk rating to customers, according to which the assigned credit limits are managed and according to which the portfolio is monitored. Those tools are complemented with expected losses and provision models.
For more information on the credit risk management process see note 50 “Capital management, Corporate Governance Transparency Policy and Risk management” to our audited consolidated financial statements as of and for the years ended December 31, 2018 and 2017.
Operational and technological risk
Operational risk which we define pursuant to the Basel II Accord and Central Bank Communication “A” 5398, as amended, consists of the risk of suffering losses due to inadequate or failed internal processes, systems or persons or due to external events. This definition includes legal risk but excludes strategic and reputational risk.
Within such framework, the legal risk –which may arise internally or externally- comprises, among other aspects, the exposure to penalties, sanctions or other economic consequences or results for failure to comply with any rule or regulation or contractual obligation.
We have policies, procedures and structures, appointing a head of operational risk, whose main objective is to secure an operational risk management plan which includes policies, programs, measurements and competencies for identifying, assessing and managing risks, with the purpose of assisting our Senior Management and our Board of Directors, in an environment of rapidly changing and significant risks.
In this context, the “Evolutionary Comprehensive Operational Risk Management Model” was developed,We have a procedure to collect of events and losses for operational risk, which involves the identification, measurement, management and monitoringis composed of a collection process of operational risks. A training plan was designedevents and losses to begin conveyingsystematically register the concepts inherentfrequency, severity, category and other relevant aspects related to the events and losses for operational risk. The objective is to evaluate the situation upon the event occurrence, to better understand the profile of operational risk and, if applicable, adopt the cultural change that this generates, and an implementation plan of the model was put into practice to achieve full implementation of all of its stages.
A quantitative approach is used to measure operational risk and technological risk. In respect of risk management related to the IT and information systems, we have contingency and business continuity plans in place to minimize the risks that could affect our continuity of operations.
We have an incentives system to manage operational risk in such a way that it would encourage involvement and risk assessment. The risk assessment policy has also been reinforced for new products and in modifications to existing products.pertinent corrective measures.
In addition, the implementationEntity has a procedure which stablishes the rules for the confection of improvementsself-made risk evaluations and, in the cases of risks exceeding the tolerance limits admitted, guidelines to establish risk indicators and action plans.
The Risk Integral Management produces and sends periodic reports to the Board of Directors, the Risk Management Committee and the Senior Management. Based on different functionsthese reports, the results of ourthe monitoring of the management of the main risks to which we are exposed are made known. Each report contains information on risk management system also continued.measurement, its evolution, trends, main exposures, control of main limits and the level of capital required by type of risk.
For more information on operational risk management processes see note 5051 “Capital management, Corporate Governance Transparency Policy and Risk management” to our audited consolidated financial statements as of and for the years ended December 31, 20182019 and 2017.2018.
Competition
We believe that we have an important advantage over our competitors in providing banking products and services to small communities in thesome provinces of Argentina as a result of the close community relationships and strong loyalty we have developed over time with our customers in these areas.
We consider Banco Santander Río S.A., Banco de Galicia y Buenos Aires S.A.S.A.U., Banco BBVA Banco FrancésArgentina S.A., HSBC Bank Argentina S.A. and Banco Patagonia S.A. to be our main competitors among private banks. We also compete with certain regional banks.
In the future, we expect competition to increase in corporate transactions products, long-term lending, mortgage lending and other secured financings, credit cards, personal loans, payroll services and investment management services.
Competitive landscape
We are ranked as the fourth private bank and the sixth bank overall in Argentina in terms of total loans and total deposits as of September 30, 2018.2019. In terms of equity we are ranked as the first private bank and the second bank overall in Argentina as of September 30, 2018.2019.
Below are the rankings of banks across these metrics:metrics, figures were prepared based on Central Bank methodology. See “Market and Central Bank Data”:
Total Loans (September 30, 2018)2019)
Ps. Million | Market Share | |||||||||||
1 | Banco de la Nación Argentina (1) | 390,992 | 17 | % | ||||||||
2 | Banco de Galicia y Buenos Aires S.A. | 246,281 | 11 | % | ||||||||
3 | Santander Rio S.A. | 232,484 | 10 | % | ||||||||
4 | Banco de la Provincia de Buenos Aires (1) | 210,928 | 9 | % | ||||||||
5 | BBVA Frances S.A. | 184,691 | 8 | % | ||||||||
6 | Banco Macro S.A. (2) | 173,708 | 7 | % | ||||||||
7 | HSBC Bank Argentina S.A. | 90,064 | 4 | % | ||||||||
8 | Banco de la Ciudad de Buenos Aires | 87,135 | 4 | % | ||||||||
9 | Industrial and Commercial Bank of China (Argentina) S.A. | 79,586 | 3 | % | ||||||||
10 | Banco Patagonia S.A. | 76,814 | 3 | % | ||||||||
Remainder of the Financial System | 571,439 | 26 | % | |||||||||
Total Financial System | 2,344,122 | 100 | % |
Ps. Million | Market Share | |||||||||
1 | Banco de la Nación Argentina (1) | 430,209 | 17 | % | ||||||
2 | Banco de Galicia y Buenos Aires S.A.U. | 289,633 | 11 | % | ||||||
3 | Santander Rio S.A. | 257,139 | 10 | % | ||||||
4 | Banco de la Provincia de Buenos Aires (1) | 232,732 | 9 | % | ||||||
5 | BBVA Frances S.A. | 197,834 | 8 | % | ||||||
6 | Banco Macro S.A. | 193,089 | 7 | % | ||||||
7 | HSBC Bank Argentina S.A. | 104,886 | 4 | % | ||||||
8 | Banco de la Ciudad de Buenos Aires | 108,803 | 4 | % | ||||||
9 | Industrial and Commercial Bank of China (Argentina) S.A. | 94,331 | 4 | % | ||||||
10 | Banco Patagonia S.A. | 83,062 | 3 | % | ||||||
Remainder of the Financial System | 609,377 | 23 | % | |||||||
Total Financial System | 2,604,094 | 100 | % |
Source: Central Bank. Figures were prepared based on Central Bank methodology. See “Market and Central Bank Data”.
(1) | Public sector banks. |
Total Deposits (September 30, 2019)
Source: Central Bank. Figures |
Total Deposits (September 30, 2018)
Ps. Million | Market Share | |||||||||||
1 | Banco de la Nación Argentina (1) | 1,019,373 | 27 | % | ||||||||
2 | Santander Rio S.A. | 385,615 | 10 | % | ||||||||
3 | Banco de la Provincia de Buenos Aires (1) | 344,866 | 9 | % | ||||||||
4 | Banco de Galicia y Buenos Aires S.A. | 320,473 | 8 | % | ||||||||
5 | BBVA Frances S.A. | 247,510 | 6 | % | ||||||||
6 | Banco Macro S.A. (2) | 194,087 | 5 | % | ||||||||
7 | HSBC Bank Argentina S.A. | 138,508 | 4 | % | ||||||||
8 | Banco de la Ciudad de Buenos Aires | 126,200 | 3 | % | ||||||||
9 | Banco Credicoop Limitado | 119,444 | 3 | % | ||||||||
10 | Banco Patagonia S.A. | 97,749 | 3 | % | ||||||||
Remainder of the Financial System | 816,143 | 21 | % | |||||||||
Total Financial System | 3,809,968 | 100 | % |
Source: Central Bank. See “Market and Central Bank Data”.
(1) | Public sector banks. |
Equity (September 30, 2019)
Source: Central Bank. Figures |
Equity (September 30, 2018)
Ps. Million | Market Share | |||||||||||||
| 1 | Banco de la Nación Argentina (1) | 127,354 | 23 | % | |||||||||
2 | Banco Macro S.A. (2) | 53,673 | 10 | % | ||||||||||
3 | Santander Rio S.A. | 39,828 | 7 | % | ||||||||||
4 | Banco de Galicia y Buenos Aires S.A. | 39,759 | 7 | % | ||||||||||
5 | BBVA Frances S.A. | 37,434 | 7 | % | ||||||||||
6 | Banco de la Provincia de Buenos Aires (1) | 30,780 | 6 | % | ||||||||||
| 7 | Citibank, N,A (Argentine Branch) | 19,622 | 4 | % | |||||||||
8 | Industrial and Commercial Bank of China (Argentina) S.A. | 15,531 | 3 | % | ||||||||||
9 | HSBC Bank Argentina S.A. | 15,235 | 3 | % | ||||||||||
10 | Banco Patagonia S.A. | 15,041 | 3 | % | ||||||||||
Remainder of the Financial System | 159,225 | 29 | % | |||||||||||
Total Financial System | 553,483 | 100 | % |
Source: Central Bank. See “Market and Central Bank Data”.
(1) | Public sector banks. |
|
There is a large concentration of branches in the City of Buenos Aires and in the province of Buenos Aires for the financial system as a whole, as shown by the following table. However, we have the most extensive private-sector branch network in Argentina and a leading regional presence holding 64%66% of our total branches in six provinces including Santa Fe, Córdoba, Misiones, Salta, Tucumán and Jujuy.
As of September 30, 2018 | As of September 30, 2019 | |||||||||||||||||||||||||||||||||||||||
Banking system | Banco Macro (1) | Market Share (% share of total of branches in | Banking system | Banco Macro (1) | Market Share (% share of total of branches in | |||||||||||||||||||||||||||||||||||
Province | Branches | % of total | Branches | % of total | each province) | Branches | % of total | Branches | % of total | each province) | ||||||||||||||||||||||||||||||
City of Buenos Aires | 974 | 20.4 | % | 29 | 5.9 | % | 3.0 | % | 1,020 | 21.0 | % | 29 | 6.3 | % | 2.8 | % | ||||||||||||||||||||||||
Buenos Aires (Province) | 1,502 | 31.5 | % | 75 | 15.5 | % | 5.0 | % | 1,514 | 32.2 | % | 67 | 14.5 | % | 4.4 | % | ||||||||||||||||||||||||
Catamarca | 21 | 0.4 | % | 1 | 0.2 | % | 4.8 | % | 21 | 0.4 | % | 1 | 0.2 | % | 4.8 | % | ||||||||||||||||||||||||
Chaco | 70 | 1.5 | % | 2 | 0.4 | % | 2.9 | % | 70 | 1.4 | % | 2 | 0.4 | % | 2.9 | % | ||||||||||||||||||||||||
Chubut | 71 | 1.5 | % | 6 | 1.3 | % | 8.5 | % | 71 | 1.5 | % | 6 | 1.3 | % | 8.5 | % | ||||||||||||||||||||||||
Cordoba | 461 | 9.7 | % | 71 | 15.1 | % | 15.4 | % | 469 | 9.7 | % | 70 | 15.1 | % | 14.9 | % | ||||||||||||||||||||||||
Corrientes | 82 | 1.7 | % | 4 | 0.8 | % | 4.9 | % | 84 | 1.7 | % | 4 | 0.9 | % | 4.8 | % | ||||||||||||||||||||||||
Entre Rios | 134 | 2.8 | % | 10 | 2.1 | % | 7.5 | % | 134 | 2.8 | % | 10 | 2.2 | % | 7.5 | % | ||||||||||||||||||||||||
Formosa | 38 | 0.8 | % | 0 | 0.0 | % | 0.0 | % | 39 | 0.8 | % | — | 0.0 | % | 0.0 | % | ||||||||||||||||||||||||
Jujuy | 34 | 0.7 | % | 16 | 3.4 | % | 47.1 | % | 34 | 0.7 | % | 16 | 3.5 | % | 47.1 | % | ||||||||||||||||||||||||
La Pampa | 73 | 1.5 | % | 2 | 0.4 | % | 2.7 | % | 72 | 1.5 | % | 2 | 0.4 | % | 2.8 | % | ||||||||||||||||||||||||
La Rioja | 27 | 0.6 | % | 2 | 0.4 | % | 7.4 | % | 27 | 0.6 | % | 2 | 0.4 | % | 7.4 | % | ||||||||||||||||||||||||
Mendoza | 174 | 3.6 | % | 16 | 3.4 | % | 9.2 | % | 174 | 3.6 | % | 15 | 3.2 | % | 8.6 | % | ||||||||||||||||||||||||
Misiones | 67 | 1.4 | % | 36 | 7.6 | % | 53.7 | % | 66 | 1.4 | % | 35 | 7.6 | % | 53.0 | % | ||||||||||||||||||||||||
Neuquén | 85 | 1.8 | % | 6 | 1.1 | % | 7.1 | % | 85 | 1.8 | % | 5 | 1.1 | % | 5.9 | % | ||||||||||||||||||||||||
Rio Negro | 76 | 1.6 | % | 6 | 1.3 | % | 7.9 | % | 81 | 1.7 | % | 6 | 1.3 | % | 7.4 | % | ||||||||||||||||||||||||
Salta | 80 | 1.7 | % | 37 | 7.9 | % | 46.3 | % | 80 | 1.6 | % | 37 | 8.0 | % | 46.3 | % | ||||||||||||||||||||||||
San Juan | 42 | 0.9 | % | 2 | 0.4 | % | 4.8 | % | 41 | 0.8 | % | 1 | 0.2 | % | 2.4 | % | ||||||||||||||||||||||||
San Luis | 49 | 1.0 | % | 3 | 0.6 | % | 6.1 | % | 48 | 1.0 | % | 2 | 0.4 | % | 4.2 | % | ||||||||||||||||||||||||
Santa Cruz | 49 | 1.0 | % | 2 | 0.4 | % | 4.1 | % | 51 | 1.1 | % | 2 | 0.4 | % | 3.9 | % | ||||||||||||||||||||||||
Santa Fe | 484 | 10.2 | % | 105 | 22.3 | % | 21.7 | % | 491 | 10.1 | % | 105 | 22.7 | % | 21.4 | % | ||||||||||||||||||||||||
Santiago del Estero | 55 | 1.2 | % | 2 | 0.4 | % | 3.6 | % | 60 | 1.2 | % | 2 | 0.4 | % | 3.3 | % | ||||||||||||||||||||||||
Tierra del Fuego | 25 | 0.5 | % | 2 | 0.4 | % | 8.0 | % | 26 | 0.5 | % | 2 | 0.4 | % | 7.7 | % | ||||||||||||||||||||||||
Tucuman | 95 | 2.0 | % | 40 | 8.5 | % | 42.1 | % | 95 | 2,0 | % | 42 | 9.1 | % | 44.2 | % | ||||||||||||||||||||||||
TOTAL | 4,768 | 100 | % | 475 | 100 | % | 10.0 | % | 4,853 | 100 | % | 463 | 100 | % | 9.5 | % |
Source: Central Bank.
(1) | Includes branches of Banco Macro and Banco del Tucumán. |
Argentine Banking Regulation
Unless otherwise indicated, the regulations explained in this section should be applied to financial information of the banks calculated in accordance with Central Bank Rules. IFRS differs in certain significant respects from Central Bank Rules.
Overview
Founded in 1935, the Central Bank is the principal monetary and financial authority in Argentina. Its mission is to promote monetary and financial stability, employment and economic development with social equity. It operates pursuant to its charter, which was amended in 2012 by Law No. 26,739 and the provisions of the Financial Institutions Law. Under the terms of its charter, the Central Bank must operate independently from the Argentine government.
Since 1977, banking activities in Argentina have been regulated primarily by the Financial Institutions Law, which empowers the Central Bank to regulate the financial sector. The Central Bank regulates and supervises the Argentine banking system through the Superintendency. The Superintendency is responsible for enforcing Argentina’s banking laws, establishing accounting and financial reporting requirements for the banking sector, monitoring and regulating the lending practices of financial institutions and establishing rules for participation of financial institutions in the foreign exchange market and the issuance of bonds and other securities, among other functions.
The powers of the Central Bank include the authority to fix the monetary base, set interest rates, establish minimum capital, liquidity and solvency requirements, regulate credit, approve bank mergers, approve certain capital increases and transfers of stock, grant and revoke banking licenses, and to authorize the establishment of branches of foreign financial institutions in Argentina and the extension of financial assistance to financial institutions in cases of temporary liquidity or solvency problems.
The Central Bank establishes certain technical ratios that must be observed by financial entities, such as ratios related to levels of solvency, liquidity, the maximum credit that may be granted per customer and foreign exchange assets and liability positions.
In addition, financial entities need the authorization from the Central Bank for certain actions, such as opening or changing branches or ATMs, acquiring share interests in other financial ornon-financial corporations and establishing liens over their assets, among others.
As supervisor of the financial system, the Central Bank requires financial institutions to submit information on a daily, monthly, quarterly, semi-annual and annual basis. These reports, which include balance sheets and income statements, information related to reserve funds, use of deposits, classifications of portfolio quality (including details on principal debtors and any allowances for loan losses), compliance with capital requirements and any other relevant information, allow the Central Bank to monitor the business practices of financial entities. In order to confirm the accuracy of the information provided, the Central Bank is authorized to carry out inspections.
If the Central Bank’s rules are not complied with, various sanctions may be imposed by the Superintendency, depending on the level of infringement. These sanctions range from a notice ofnon-compliance to the imposition of fines or, in extreme cases, the revocation of the financial entity’s operating license. Additionally,non-compliance with certain rules may result in the compulsory filing of specific adequacy or restructuring plans with the Central Bank. These plans must be approved by the Central Bank in order to permit the financial institution to remain in business.
Banking Regulation and Supervision
Central Bank Supervision
Since September 1994, the Central Bank has supervised the Argentine financial entities on a consolidated basis. Such entities must file periodic consolidated financial statements that reflect the operations of head offices or headquarters as well as those of their branches in Argentina and abroad, and of their significant subsidiaries, whether domestic or foreign. Accordingly, requirements in relation to liquidity and solvency, minimum capital, risk concentration and loan loss provisions, among others, should be calculated on a consolidated basis.
Permitted activities and investments
The Financial Institutions Law governs any individuals and entities that perform habitual financial intermediation and, as such, are part of the financial system, including commercial banks, investment banks, mortgage banks, financial companies, savings and loan companies for residential purposes and credit unions. Except for commercial banks, which are authorized to conduct all financial
activities and services that are specifically established by law or by regulations of the Central Bank, the activities that may be carried out by Argentine financial entities are set forth in the Financial Institutions Law and related Central Bank Rules. Commercial banks are allowed to perform any and all financial activities inasmuch as such activities are not forbidden by law. Some of the activities permitted for commercial banks include the ability to (i) receive deposits from the public in both local and foreign currency; (ii) underwrite, acquire, place or negotiate debt securities, including government securities, in both exchange andover-the-counter (“OTC”) markets (subject to prior approval by the CNV, if applicable); (iii) grant and receive loans; (iv) guarantee customers’ debts; (v) conduct foreign currency exchange transactions; (vi) issue credit cards; (vii) act, subject to certain conditions, as brokers in real estate transactions; (viii) carry out commercial financing transactions; (ix) act as registrars of mortgage bonds; (x) participate in foreign exchange transactions; and (xi) act as fiduciary in financial trusts. In addition, pursuant to the Financial Institutions Law and Central Bank Communication “A” 3086, as amended, commercial banks are authorized to operate commercial, industrial, agricultural and other types of companies that do not provide supplemental services to the banking services (as defined by applicable Central Bank Rules) to the extent that the commercial bank’s interest in such companies does not exceed 12.5% of its voting stock or 12.5% of its capital stock. Nonetheless, if the aforementioned limits were to be exceeded, the bank should (i) request Central Bank’s authorization; or (ii) give notice of such situation to the Central Bank, as the case may be. However, even when commercial banks’ interests do not reach such percentages, they are not allowed to operate such companies if (i) such interest allows them to control a majority of votes at a shareholders’ or board of directors’ meeting, or (ii) the Central Bank does not authorize the acquisition.
Furthermore, according to the rules regarding“Complementary Services of the Financial Entities and Allowed Activities”, as amendedcommercial banks are authorized to operate in local or foreign companies that have one or two of the exclusive corporate purposes listed in section 2.2 of Communication “A” 5700 as amended by Communication “A” 6342, in which the commercial bank’s interest either exceeds 12.5% of such companies’ voting stock or allows the commercial bank to control a majority of votes at a shareholders’ or board of directors’ meeting. The financial entities shall give notice to the Superintendency if the corporate purposes of such companies include any of the corporate purposes listed in section 2.2 of that rule.
Operations and activities that banks are not permitted to perform
Section 28 of Financial Institutions Law prohibits commercial banks from: (a) creating liens on their assets without prior approval from the Central Bank, (b) accepting their own shares as security, (c) conducting transactions with their own directors or managers and with companies or persons related thereto under terms that are more favorable than those regularly offered in transactions with other clients, and (d) carrying out commercial, industrial, agricultural or other activities without prior approval of the Central Bank, except those considered financially related activities under Central Bank Rules. Notwithstanding the foregoing, banks may own shares in other financial institutions with the prior approval of the Central Bank, and may own shares or debt of public services companies, if necessary to obtain those services.
Liquidity and solvency requirements
As ofSince 1994, the Central Bank supervision of financial institutions ishas been carried out on a consolidated basis. Therefore, all of the documentation and information filed with the Central Bank, including financial statements, must show the operations of each entity’s headquartersparent company and all of its branches (in Argentina and abroad), the operations of significant subsidiaries and, as the case may be, of other companies in which such entity holds stock. Accordingly, all requirements relating to liquidity, minimum capital, risk concentration and bad debts’ reserves, among others, are calculated on a consolidated basis.
Legal reserve
Pursuant to the Financial Institutions Law, we are required to maintain a legal reserve which must be funded with no more than 20% and no less than 10% of yearly income, notwithstanding the aforementioned, pursuant to Central Bank Rules, we are required to maintain a legal reserve which is funded with 20% of our yearly income determined in accordance with Central Bank Rules. This reserve can only be used during periods in which a financial institution has incurred losses and has exhausted all other reserves. If a financial institution does not comply with the required legal reserve, it is not allowed to pay dividends to its shareholders.
Non-liquid assets
Since February 2004,non-liquid assets (computed on the basis of their closing balance at the end of each month, and net of those assets that are deducted to compute the regulatory capital) plus the financings granted to a financial institution’s related parties (computed on the basis of the highest balance during each month for each customer) cannot exceed 100% of the Argentine regulatory capital of the financial institution, except for certain particular cases in which it may exceed up to 150%.
Non-liquid assets consist of miscellaneous assets and receivables, bank property and equipment, assets securing obligations, except for swaps, futures and derivative transactions, certain intangible assets and equity investments in unlisted companies or listed shares, if the holding exceeds 2.5% of the issuing company’s equity.Non-compliance with the ratio produces an increase in the minimum capital requirements equal to 100% of the excess on the ratio.
Unless otherwise indicated, the regulations explained in this section should be applied to financial information of the banks calculated in accordance with Central Bank Rules. IFRS differs in certain significant respects from Central Bank Rules.
Minimum capital requirements
The Central Bank requires that financial institutions maintain minimum capital amounts measured as of each month’s closing. The minimum capital is defined as the greater of (i) the basic minimum capital requirement, which is explained below, or (ii) the sum of the credit risk, operational risk and market risk. Financial institutions (including their domestic Argentine and international branches) must comply with the minimum capital requirements both on an individual and a consolidated basis.
The capital composition to be considered in order to determine compliance with minimum capital requirements is the financial institution’s RPC (rules regarding to “Financial Entities Minimum Capital”, as amended).
Basic minimum capital
The basic minimum capital requirement varies depending on the type of financial institution and the jurisdiction in which the financial institution’s headquarter is registered, with Ps.26 million for banks under Category I and II (Ps.12 million for other financial entities under this category), and Ps.15 million for banks under Category III to VI (Ps.8 million for other financial entities under this category).
Regulatory Capital of Financial Institution: Tier 1 and Tier 2 capital regulations
Argentine financial institutions must comply with guidelines similar to those adopted by the Basel Committee on Banking Regulations and Supervisory Practices, as amended in 1995 (the “Basel Rules”). In certain respects, however, Argentine banking regulations require higher ratios than those set forth under the Basel Rules.
The Central Bank takes into consideration a financial institution’s RPC in order to determine compliance with capital requirements. RPC consists of Tier 1 Capital (Basic Net Worth) and Tier 2 Capital (Complementary Net Worth).
Tier 1 Capital consists of (i) Common Equity Tier 1 (“COn1”), (ii) deductible concepts from Common Equity Tier 1 (“CDCOn1”), (iii) Additional Tier 1 (“CAn1”), and (iv) deductible items from Additional Tier 1 (“CDCAn1”).
COn1 includes the following net worth items: (i) capital stock (excluding preferred stock); (ii)non-capitalized capital contributions (excluding share premium); (iii) adjustments to shareholders’ equity; (iv) earnings reserves (excluding the special reserve for debt instruments); (v) unappropriated earnings; (vi) other results either positive or negative, in the following terms:
with respect to results from prior fiscal years, 100% of net earnings or losses recorded until the last quarterly financial statements with limited review report, corresponding to the last full fiscal year and in respect of which the auditor has not issued the audit report;
100% of net earnings or losses for the current year as of the date of the most recent audited quarterly financial statements;
50% of profits or 100% of losses for the most recent audited quarterly or annual financial statements; and
100% of losses not shown in the financial statements, arising from quantification of any facts and circumstances reported by the auditor;
(vii) other comprehensive income: i) 100% of the results recorded in the following items: revaluation of property, plant and equipment and intangibles; gains or losses on financial instruments at fair value with changes in other comprehensive income, ii) 100% of the debit balance of each of the items recorded in other comprehensive income not mentioned in section i). The recognition of these concepts, registered in accounts of other comprehensive income or other accumulated comprehensive income, as appropriate, will be made in accordance with the terms of points 8.2.1.5. or 8.2.1.6., as the case may be of Central Bank Rules regarding “Financial Entities Minimum Capital”.
(viii) share premiums of the instruments included in COn1, and, in the case of consolidated entities; and
(ix) minority shareholdings (common shares issued by subsidiaries subject to consolidated supervision and belonging to third parties, if certain criteria are met).
In order for the shares to fall under COn1, at the time of issuance, the financial entity must not generate any expectation that such shares will be reacquired, redeemed or amortized, and the contractual terms must not contain any clause that might generate such an expectation.
Deductible Items
The above-mentioned items will be considered without certain deductions pursuant to subsection 8.4.1 and 8.4.2 (as applicable) of Central Bank Rules regarding “Financial Entities Minimum Capital”, as amended.
Items deductible from COn1 include, among other things: (a) positive balances resulting from the application of income tax withholdings above 10% of the previous months of basic net worth and balances in favor from deferred tax assets; (b) deposits maintained in a corresponding account with a foreign financial institutions that are not rated as “investment grade,” (c) debt securities not held by the relevant financial institutions, except in the case of securities registered by or in custody of the Central Bank (CRYL), Caja de Valores S.A., or Clearstream, Euroclear and the Depository Trust Company, (d) securities issued by foreign governments whose credit rating is at least ‘investment grade’ according to Communication “A” 5671; (e) subordinated debt instruments issued by other financial institutions; (f) shareholders; (g) real property added to the assets of the financial entity and with respect to which the
title deed is not duly recorded at the pertinent Argentine real property registry, except where such assets shall have been acquired in acourt-ordered auction sale; (h) goodwill;intangible assets; (i) items pending allocation, debtor balances and other; (j) certain assets, as required by the Superintendency resulting from differences between carry amount and the fair value of assets or actions taken to distort or disguise the true nature or scope of operations; (k) any deficiency relating to the minimum loan loss provisions required by the Superintendency; (l) equity interests in companies that have the following activities: (i) financial assistance through leasing or factoring agreements, and (ii) transitory equity acquisitions in other companies in order to further their development to the extent the ultimate purpose is selling such interest after development is accomplished;accomplished, and (iii) credit, debit and similar cards emissions; (m) the excess to the limits set forth for secured assets on Section 3 of the rules on “Affectation of Secured Assets” (n) the highest balance of that month’s financial assistance granted during the month, where the advance payments set forth in Section 3.2.5 of the rules on “Lending to thenon-financial public sector” surpass the authorized limit and/or are not settled within the terms established therein; (n)(o) income from sales relating to securitization transactions, as applicable, pursuant to the provisions of Sections 3.1.4., 3.1.5.2.3.1.5.1. and 3.1.9.3.1.5.2., and from portfolio sales or assignments with recourse. This deduction can be applied as long as the credit risk still persists and to the extent in which the capital requirement for the underlying exposures or the sold or assigned portfolio with recourse is maintained; (o)(p) in the case of liabilities from derivatives accounted for at fair value, unrealized gains or losses due to changes in the financial institution’s credit risk will be deductible. The deduction will be limited to the financial institution’s own credit risk adjustments only plus or minus, as the case may be); such adjustments may not be offset against adjustments for counterpart risk; (p)(q) equity interests in financial institutions subject to consolidated oversight, except where not permitted due to the existence of deductible amounts; or in the case of foreign financial institutions. In these cases, the deductions will be the net amount of the allowance for impairment and, when controlled financial institutions subject to the provisions of Section 8.2.1.6., item iii) are involved, the deductions will be 50% of the net amount of profits derived by these entities on a proportional basis to their respective interests.
CAn1 includes certain debt instruments of financial entities not included under COn1 that meet the regulatory criteria established in section 8.3.2 of the rules regarding “Financial Entities Minimum Capital”, as amended and supplemented, and share premiums resulting from instruments included in CAn1. Furthermore, in the case of consolidated entities, it includes instruments issued by subsidiaries subject to consolidated supervision and belonging to third parties, pursuant to applicable regulatory requirements.
The items mentioned in the previous points will be reduced, if applicable, by the deductible concepts provided in point 8.4.2 of the rules regarding “Financial Entities Minimum Capital”, as amended and supplemented, which are described below.
Moreover, debt instruments included under CAn1 must comply with the following requirements:
1) Must be totally subscribed and paid in full.
2) Must be subordinated to depositors, unsecured creditors and to the subordinated debt of the financial entity. The instruments must contemplate that in the case of the entity’s bankruptcy and once all debts with all the other creditors are satisfied, its creditors shall have priority in the distributions of funds only and exclusively with respect to the shareholders (irrespective of their class), with the express waiver of any general or special privilege.
3) Must not be insured or guaranteed by the issuer or a related entity, and with no agreement improving, either legally or economically, the payment priority in the case of the entity’s bankruptcy.
4) They shall not contemplate any type of capital payment, except in the case of liquidation of the financial entity. Provisions gradually increasing remuneration or other incentives for anticipated amortization are not allowed.
5) After 5 years, as from the issuance date, the financial entity can buy back the debt instruments if: (i) it has the prior authorization of the Superintendency; (b) the entity does not create any expectations regarding the exercise of the purchase option and (c) the debt instrument is replaced by a RPC of equal or greater value sustained by its revenue capacity, or if it is demonstrated that once the purchase option is exercised, its RPC significantly exceeds at least by 20% of the minimum capital requirements.
6) Any capital repayment requires previous authorization from the Superintendency. In the case of a capital repayment, the financial entity must not create any market expectations regarding the granting of such authorization.
7) The financial entity can cancel dividends/interest coupons at any time and at its sole discretion, which shall not be considered the default in itself and shall not grant bondholders the right to demand the conversion of their notes into ordinary shares. Furthermore, there shall be no restrictions to the financial entity, except with respect to dividend distribution to the shareholders.
8) The payment of dividends/interest coupons shall be carried out through the noting of distributable entries, in the terms of the regulations on “Results Distribution” (Section III of the Central Bank’s regulations).
9) The included dividends/interest coupons shall not have periodic adjustments because of the financial entity’s credit risk.
10) They should not have been bought by the financial entity or any other entity over which the financial entity has control or significant influence.
11) They should not have been bought with direct or indirect financing from the financial entity.
12) They shall not contain elements that makere-capitalization difficult.
Instruments considered liabilities must absorb losses once apre-established triggering event takes place. The instruments must do so through their conversion into ordinary shares or a mechanism assigning final losses to the instrument with the following effects:
a) Reduction of debt represented by the instrument in the event ofwinding-up of the entity;
b) Reduction of the amount to be repaid in case a call option is exercised;
c) Total or partial reduction of the dividends/interest coupon payments of the instrument.
Complementary Net Worth (NWc): Tier 2
Tier 2 Capital includes (i) certain debt instruments of financial entities which are not included in Tier 1 Capital and meet the regulatory criteria established in section 8.3.3 of the rules regarding “Financial Entities Minimum Capital” as amended and supplemented, (ii) share premium from instruments included in Tier 2 Capital, and (iii) loan loss provisions on the loan portfolio of debtors classified as being in a “normal situation” pursuant to Central Bank Rules on debtor classification and of financing with preferred security “A” not exceeding 1.25% of the assets measured for credit risk. Additionally, in the case of consolidated entities, it includes (iv) debt instruments issued by subsidiaries subject to a consolidated supervision and belonging to third parties, if they meet the criteria in order to be included under NWc. The above-described items will be considered less deductible items pursuant to section 8.4.2 of the rules regarding “Financial Entities Minimum Capital”, as amended and supplemented, which is described below.
Moreover, debt instruments included under NWc must comply with the following requirements:
Must be totally subscribed and paid in full.
Must be subordinated to depositors, unsecured creditors and the subordinated debt of the financial entity.
Must not be insured or guaranteed by the issuer or a related entity, and with no agreement improving either legally or economically the payment priority in case of the entity’s bankruptcy.
Maturity: (i) original maturity date within no less than five years; (ii) clauses considering gradually increasing remuneration or other incentives for anticipated amortization are not allowed and (iii) from the beginning of the last five years of life of the indebtedness, the computable amount will be diminished by 20% of its nominal issuance value.
After five years as from the issuance date, the financial entity can buy back the debt instruments with the previous authorization of the Superintendency, and if the entity does not create any expectations regarding the exercise of the purchase option. The debt instrument must be replaced by an RPC of equal or greater value sustained by its revenue capacity, or if it is demonstrated that once the purchase option is exercised its RPC significantly exceeds at least in a 20% of the minimum capital requirements.
The investor shall not be entitled to accelerate the repayment of future projected payments, except in the case of bankruptcy or liquidation.
They cannot incorporate dividends/coupons with periodic adjustments linked to the financial entity’s credit risk.
They should not have been bought by the financial entity or any other entity over which the financial entity has control or significant influence.
They should not have been bought with direct or indirect financing from the financial entity.
Additionally, instruments included in NWc and CAn1, shall present the following conditions in order to assure their loss-absorbency capacity:
a) | Their terms and conditions must include a provision pursuant to which the instruments must absorb losses–either through a release from debt or its conversion into ordinary capital–once a triggering event has occurred, as described hereunder. |
b) | If the holders receive compensation for the debt release performed, it should be carried out immediately and only in the form of common shares, pursuant to applicable regulations. |
c) | The financial entity must have been granted the authorization required for the immediate issuance of the corresponding common shares in the case of a triggering event, as described below. |
Triggering events of regulatory provisions described above are: (i) when the solvency or liquidity of the financial entity is threatened, and the Central Bank rejects the amnesty plan submitted or revokes its authorization to function, or authorizes restructuring protecting depositors (whichever occurs first) or (ii) upon the decision to capitalize the financial entity with public funds.
We have issued U.S.$400,000,000, 6.750% Series A Subordinated Resettable Notes due 2026, that are outstanding as of the date of this annual report and comply with all the requirements described above.
Further criteria regarding the eligibility of items included in the RPC calculation must be followed pursuant to the regulatory requirements of minority and other computable instruments issued by subsidiaries, subject to consolidated supervision by third parties. A minority shareholding may be included in COn1 of the financial entity if the original instrument complies with the requirements established for its qualification as common shares regarding the RPC.
Deductible items applied to the different capital levels
i) | Investments in computable instruments under the financial entity’s RPC not subject to consolidated supervision when the entity owns up to 10% of the issuer’s ordinary capital according to the following criteria: (i) investments include direct, indirect or synthetic interests; (ii) investments include the acquired net position; (iii) securities issued are placed within five (5) business days; and (iv) the investments in capital instruments that do not satisfy the criteria to be classified as COn1 (Common Capital Tier 1), AT1 (Additional Capital Tier 1) or PNc (Supplementary Capital) of the financial institution shall be regarded as COn1 –common equity shares, for the purposes of this regulatory adjustment. If the aggregate amount of these interests in the capital of financial institutions, companies providing services supplementary to the financial industry and insurance companies – which individually represent less than 10% of the COn1 of each issuer – exceeds 10% of the COn1 of the financial institution, net of applicable deductions, the amount over such 10% shall be deducted from each capital tier in accordance with the following method: i) Amount to be deducted from COn1: aggregate excess amount over 10% multiplied by the proportion represented by the COn1 holdings over the aggregate equity interests; ii) Amount to be deducted from CAn1: aggregate excess amount over 10% multiplied by the proportion represented by the CAn1 over the aggregate equity interests. iii) Amount to be deducted from PNc: aggregate excess amount over 10% multiplied by the proportion represented by the PNc holdings over the aggregate equity interest. If the financial institution does not have enough capital to make the deduction pertaining to a particular capital tier, the remaining amount shall be deducted from the next higher level. Amounts below the threshold, which are not deducted, are weighted based upon the risk or are taken into account in the calculation of the market risk requirement, as applicable. |
ii) | Investments in instruments computed as regulatory capital of financial institutions and companies rendering services supplementary to the financial industry, not subject to consolidated oversight, and insurance companies, when the institution holds more than 10% of the common equity of the issuer, or when the issuer is a subsidiary of the financial institution, shall be subject to the following criteria: i) The investments include direct, indirect and synthetic interests. For these purposes, indirect interest means an investment by a financial institution in another financial institution or company not subject to consolidated oversight, which in turn has an interest in another financial institution or company not consolidated with the first one. A synthetic interest means an investment made by a financial institution in an instrument the value of which is directly related with the equity value of another financial institution or company not subject to consolidated oversight; ii) The net acquired position is included, i.e., the gross acquired position less the position sold in the same underlying exposure, when this has the same duration than the acquired position or its residual life is at least one year; iii) The holding of securities underwritten to be sold within a five business day term may be excluded; iv) Investments in capital instruments that do not satisfy the criteria to be classified as COn1, CAn1 or PNc of the financial institution shall be regarded as COn1, common equity shares, for the purposes of this regulatory adjustment. The amount of these interests, taking into account the applicable type of instrument, shall be deducted from each of the applicable capital tiers of the financial institution. If the financial institution does not have enough capital to make the deduction pertaining to a particular capital tier, the remaining amount shall be deducted from the next higher level. |
iii) | Own repurchased instruments that satisfy the criteria for being included in CAn1 or PNc must be deducted from the applicable capital tier. |
Limits
Rules regarding “Financial Entities Minimum Capital”, as amended and supplemented, establishes minimum thresholds regarding capital integration: (i) for COn1, the amount resulting from multiplying the capital RWA by 4.5%; (ii) for NWb, the amount resulting from multiplying RWA by 6% and (iii) for the RPC, the amount resulting from multiplying RWA by 8%. The lack of compliance with any of these limitations is considered as an infringement to minimum capital integration requirements.
Pursuant to Communication “A” 5889, RWA shall be calculated as follows:
RWA = RWAc + [(MR+OR) x 12.5]
Where:
RWAc: credit risk weighted assets
MR: minimum capital requirement for market risk
OR: minimum capital requirement for operational risk
Economic Capital
Rules regarding “Financial Entities Risk Management Guidelines”, as amended and supplemented, requires financial institutions to have an integrated global internal process in place to assess the adequacy of their economic capital based on their risk profile (the “Internal Capital Adequacy Assessment Process” or “ICAAP”), as well as a strategy aimed at maintaining their regulatory capital. If, as a result of this internal process, it is found that the regulatory capital is insufficient, financial institutions must increase regulatory capital based on their own estimates to meet the regulatory requirement.
The economic capital of financial institutions is the amount of capital required to pay not only unexpected losses arising from exposure to credit, operational and market risks, but also those arising from other risks to which the financial institution may be exposed.
Financial institutions must demonstrate that their internal capital targets are well-funded and adequate in terms of their general risk profile and operations. The ICAAP should take into consideration all material risks to which the institution is exposed. To this end, institutions must define an integral process for the management of credit, operational, market, interest rate, liquidity, securitization, graduation, reputational and strategic risks and use stress tests to assess potential adverse scenarios that may affect their regulatory capital.
The ICAAP must include stress tests supplementing and validating any other quantitative or qualitative approach employed by the institution in order to provide the board of directors and senior management with a deeper understanding of the interaction among the various types of risk under stress conditions. In addition, the ICAAP must consider the short- and long-term capital needs of the institution and ensure the prudent accumulation of excess capital during positive periods of the economic cycle.
The capital level of each entity must be determined in accordance with its risk profile, taking external factors such as the economic cycle effects and political scenario.
The main elements of a strict capital evaluation include:
a) Policies and procedures to guarantee that the entity identifies, quantifies and informs all the important risks.
b) A process which relates economic capital with the current level of risk.
c) A process which sets forth capital sufficiency objectives related to the risk, taking a strategic approach from the entity and its business plan into consideration.
d) An internal process of controls, tests and audits, with the objective to guarantee that the general risk management process is exhaustive.
Requirements applicable to dividend distribution
Dividends are calculated based on our statutory financial statements of the Bank, and prepared under Central Bank Rules, that differ in certain significant aspects from IFRS.IFRS (application of IAS 29 and section 5.5. of IFRS 9). The Central Bank has imposed restrictions on the payment of dividends, substantially limiting the ability of financial institutions to distribute such dividends subject to compliance with the rules set forth in the Restated Regulations on Earnings Distributions, under the criterion that the amount to be distributed cannot affect the institution’s liquidity and solvency, which shall be verified by the satisfaction of certain requirements, on a consolidated basis.
Such regulations provides that the payment of dividends (other than dividends on common shares), the acquisition of treasury shares, the payment on other tier 1 equity instruments (as determined in accordance with the provisions set forth in the rules on “Minimum capital of financial institutions”) and/or the payment of financial incentives (bonuses) to personnel – in this case, subject to the public order labor law regulations (legal, statutory and contractual) governing the financial institutions’ relationships with their personnel– shall be subject to these rules.
Institutions may distribute earnings up to the positive amount derived from theoff-balance sheet calculation set forth herein, without exceeding the limits set forth in these rules.
To such effect, the registered balances, as of the end of the fiscal year to which they belong, in the account “Unappropriated Retained Earnings” and in the voluntary reserve for future distributions of earnings shall be computed, deducting the amounts – recorded on the same date – of the legal and statutory reserves – whose creation is mandatory – and the following items:
1. | 100 % of the negative balance of each of the items recorded under the line “Other comprehensive retained earnings.” |
2. | The result derived from the revaluation of property, plant and equipment and intangible assets and investment properties. |
3. | The net positive difference resulting from the calculation at amortized cost and the fair market value recorded by the financial institution in connection with sovereign bonds and/or currency regulation instruments issued by the Central Bank for such instruments valued at amortized cost. |
4. | The asset valuation adjustments notified by the Superintendency – whether accepted or not by the institution –, that are pending registration and/or those indicated by the external audit that have not been accounted. |
5. | The individual deductibles – regarding asset valuation – established by the |
In addition, financial institutions shall not distribute earnings out of the income derived from the first application of IFRS and are obliged to create a special reserve which shall only be reversed for capitalization purposes or to absorb possible negative balances in the item “Unappropriated Retained Earnings”.
The amount to be distributed, which shall not exceed the limits set forth by the Central Bank, shall not compromise the liquidity and solvency of the institution. This requirement shall be considered satisfied once it has been verified that there are no integration defects in the minimum capital position – whether individual and consolidated – as of the end of the fiscal year to which the unappropriated retained earnings pertain or in the last closed position, whichever has the lesser integration excess, recalculating them together (for such purpose only) with the following effects based on the data relevant as of each such date:
1. | Those arising after deducting the items set forth above in points 1 to 5, if applicable, from the assets. |
2. | The failure to consider the deductibles established by the |
3. | The deduction of the amounts relating to the following items from the unappropriated retained earnings: |
the amount to be distributed and, if applicable, the amount allocated to the creation of the reserve to repay debt instruments, capable of integrating the regulatory capital;
positive balances due to the application of the minimum presumed income tax – net of allowances for impairment – that have not been deducted from the basic shareholders’ equity, in accordance with the provisions set forth in rules on “Minimum capital of financial institutions”; and
adjustments made in accordance with paragraphs 4 andpoints 1 to 5 above.
4. | The failure to consider the limit set forth in paragraph 7.2. of the rules on “Minimum capital of financial institutions.” |
The distribution of earnings shall only be admitted if none of the following events occurs:
the institution is subject to the provisions of article 34 “Regularization and Recovery” and article 35 bis “Institution’s restructuring for the purpose of safeguarding loans and deposits” of the Financial Institutions Law;
the institution has received financial assistance from the Central Bank under section 17 of its Charter, due to illiquidity;
the institution is delayed or in breach of the reporting regime set forth by the Central Bank;
the institution records minimum capital integration deficits – whether individually or consolidated – (without computing the effects of the individual deductibles established by the SEFyC)Superintendency);
the integration of the average minimum cash – in Pesos, in foreign currency or in sovereign securities – is smaller than the requirement applicable to the last closed position or the projected position, taking into account the effect of the earnings distribution;
the institution has failed to comply with the additional capital margins applicable in accordance with Section 4.”
The aforementioned regulation contemplated transitory provision, effective until March 31, 2020, pursuant to which those financialFinancial institutions which, in order to determine distributable earnings,shall have not increased the ranges of COn1 net of deductions (CDCOn1) set forth in 1 percentage point, must obtain the prior authorization of the SEFyCCentral Bank for the distribution of earnings. This requirement shall also be applicable totheir results.
Moreover, on March 19, 2020, in the paymentmidst of the Coronavirus crisis, the Central Bank issued Communication “A” 6939, by virtue of which the distribution of dividends by financial services applicable to the issue of debt securities.entities was temporarily suspended until June 30, 2020.
Unless otherwise indicated, the regulations explained in this section should be applied to financial information of the banks calculated in accordance with Central Bank Rules. IFRS differs in certain significant respects from Central Bank Rules.Rules (application of IAS 29 and section 5.5. of IFRS 9).
Capital Conservation Buffer
It is also stated that financial entities shall maintain a capital conservation margin in addition to the minimum capital requirements in order to ensure the accrual of owned resources to cope with eventual losses, reducing thenon-compliance risk.
Financial entities consideredD-SIBs or globally systemically important(“G-SIBs”), must have a capital level that permits a greater capacity for loss absorption, by virtue of negative externalities that the effects of insolvency of such entities or their foreign holdings could create in the financial system and the economy.
The conservation capital margin shall be 2.5% of the amount of RWA. In cases of entities considered systemically important, the margin will be increased to 3.5% of the amount of capital risk weighted assets. These margins can be increased once again, according to the counter-cycle margin. The conservation capital margin, increased in the case of entities considered systemically important, must be integrated exclusively with Common Equity Tier 1 (COn1), net from deductible items (CDCOn1).
When such margin is used, the entities must raise capital with new capital contributions, or reduce future distributions.
The dividend distribution shall be limited whenever the level and composition of the computable asset liability, even when it complies with the minimum capital requirements, is within the range of the capital conservation margin. This limitation reaches solely the dividend distribution, but not the operation of the entity. Entities shall be able to operate normally when levels of Con1 are within the range of conservation margin. When the coefficient of Common Equity Tier 1 (Con1 as percentage of RWA) is within the range of margins conservation of capital, the restriction to the results distribution shall be increased whenever the coefficient of Con1 comes close to the minimum required in section 8.5.1 of regulations over “Minimum Capital for Financial Entities”. The following table shows the maximum percentages of dividend distribution, according to the compliance with the conservation margin presented:
Coefficient of Common Equity Tier 1 (COn1) net of deductions (CDcon1) – as percentage of RWA -. | ||||
Financial Entities – That are not categorized as D-SIBs orG-SIBs- | D-SIBs and G-SIBs Financial Entities | Minimum coefficient of capital conservation – as percentage of dividend distribution - | ||
4.5 – 5.13 | 4.5 – 5.38 | 100 | ||
> 5.13 – 5.75 | > 5.38 – 6.25 | 80 | ||
> 5.75 – 6.38 | > 6.25 – 7.13 | 60 | ||
> 6.38 – 7.0 | > 7.13 – 8 | 40 | ||
> 7 | > 8 | 0 |
Currently, the minimum limits required by the regulations are:
COn1/RWA: 4.5%
NWb/RWA: 6.0%
RPC/RWA: 8.0%
COn1 must be used in the first place to satisfy the minimum capital requirement of 4.5% of RWA. Subsequently, and in the event the total does not have enough Additional Tier 1 (CAn1) or Tier 2 Capital (NWc), the COn1 shall also be applied to meet requirements of 6% and 8% of Tier 1 Capital and total capital. Only the remaining COn1, if any, can be computed to satisfy the applicable conservation margin, increased in function of the counter-cycle margin, if applicable.
Any entity that desires to exceed the dividend distribution limits shall finance this distribution by new contributions of COn1 in the excess amount.
In order to determine the RPC Group “A” financial institutions shall compute as COn1 the positive difference between the accounting provision set forth by point 5.5 of IFRS 9, and the higher of the regulatory provision as calculated by the “Minimum Provision Requirement for Uncollectability Risk Rules” and the accounting provision corresponding to the balance as of November 30, 2019.
The Central Bank also establishes the counter-cycle margin in order to allow the financial entities’ capital levels to correspond to the accumulative systematic risk associated with an excessive credit expansion and the macro-financial context. When the Central Bank considers that the credit growth is excessive, creating an increase in systematic risk, it can establish, with a twelve-month advanced notice, the obligation to constitute a counter-cycle margin within a range of 0% to 2.5% of RWA. This margin can be reduced or cancelled by the Central Bank when it considers that the systematic risk has been diminished.
Financial entities with international activity shall consider the geographic location of their credit exposure with local and foreign residents of the private sector and calculate the counter-cycle margin as the mean between the required margins in foreign jurisdictions. This includes all credit exposure to private sectors subject to the requirement of credit risk capital.
In order to determine which jurisdiction corresponds to each exposure, the principle of ultimate risk shall be applied. Pursuant to this principle, one must identify the jurisdiction where the guarantor of the risk resides. The counter-cycle margin shall be observed by means of an increase in the conservation capital margin and shall be satisfied exclusively with Common Equity Tier 1, net of deductible concepts (CDCOn1).
For more information, see Item 8.A “Consolidated Statements and Other Financial Information—Amounts available for distribution and distribution approval process”.
Credit Risk
The minimum capital requirement in respect of counterparty risk (“CRC”) shall be calculated with the items included, which must be computed on the basis of the balances as of the last day of each month (capital, interests, premiums, restatements – by the CER – and price differences, as appropriate, net of thenon-recoverability and devaluation risks provisions and of accumulated depreciation and amortization attributable to them and other regularizing accounts, without deducting 100% of the minimum amount required for thenon-recoverability risk provision in the portfolio corresponding to debtors classified as in a “Normal Situation” – points 6.5.1 and 7.2.1 of the rules on “Classification of Debtors”- and financings secured by preferential guarantees “A”)
The minimum capital requirement in respect of counterparty risk must be calculated according toapplying the monthly balance. CRC is defined as:following equation:
CRC = k(k * (0.08*0.08* RWAc) + INC
Variable “k”: Minimum capital requirements also depend on the CAMELBIG rating (1 is the strongest, 5 is the weakest) assigned by the Superintendency, which also determines the “k” value. This rating system complies with international standards and provides a broad definition of the performance, risks and perspectives of financial entities. Financial entities have to adjust their capital requirements according to the following “k” factors:
CAMELBIG Rating | k Factor | |||
1 | 1.00 | |||
2 | 1.03 | |||
3 | 1.08 | |||
4 | 1.13 | |||
5 | 1.19 |
For the purposes of the calculation of the capital requirement, the rating will be that of the third month after the month of the most recent rating informed to the entity. For so long as no notice is given, the “k” factor will be equal to 1.03.
“RWAc” stands for capital risk weighted assets calculated by adding the value obtained from applying the following formula:
A * p + PFB * CCF * p + no DVPnon-DVP + (DVP + RCD + INC significant investments in companies) * 12,512.5
Variable “A” refers to computableeligible assets/exposures;
“PFB” are computableeligible items which are not registered on the balance sheet;
“CCF” the conversion credit factor; and
“p” refers to the weighting factor, expressed on a per unit basis.
DvP”refers to failed delivery against payment transactions (for purposes of these rules, failed payment against payment (PvP) transactions are also included). The amount is determined by the addition of the amounts arrived at by multiplying the current positive exposure by the applicable capital requirement.
In addition, “no DvP” refers to transactions that do not involve delivery against payment. The amount is determined by the addition of the amounts arrived at by applying the weighting factor (p) on the relevant transactions.
“RCD” refers to requirements for counterparty risk in OTC transactions.
“INC” incremental minimum capital requirements based on any excess in the fixed assets and other ratios, the limitations established under “Major Exposure to Credit Risk Regulations”.
“INC (relevant investments in companies)” means the incremental minimum capital requirements based on any excess over the following limits:
equity interest held in companies: 15%
total equity interests held in companies: 60%
The established maximum limits will be applied on the financial entity’s computable regulatory capital for the last day before the relevant date, as prescribed in the Central Bank regulations on “Credit Risk Fractioning”.
Each type of asset is weighted according to the level of risk assumed to be associated with it. In broad terms, the weights assigned to the different types of assets are:
Type of Asset | Weighting (%) | |||
Cash and cash equivalents | ||||
Cash held in treasury, in transit (when the financial institution assumes responsibility and risk for transportation), in ATMs, in checking accounts and in special accounts with the Central Bank, gold coins or bars | 0 | |||
Cash items in the process of collection, cash in armored cars and in custody at financial institutions | 20 | |||
Exposure to governments and central banks | ||||
To the Central Bank denominated and funded in Pesos | 0 | |||
To the publicnon-financial sector denominated and funded in Pesos, including securitized exposures | 0 | |||
To the publicnon-financial sector arising from financing granted to social security beneficiaries or public employees (with discount code) | 0 | |||
To | ||||
- AAA to AA- | 0 | |||
| 20 | |||
- BBB+ to BBB- | 50 | |||
- BB+ toB- | 100 | |||
- Below B- | 150 | |||
- Unrated | 100 | |||
Entities of thenon-financial public sector | 0 |
Type of Asset | Weighting (%) | |||
- AAA to AA- | 20 | |||
- A+ to A- | 50 | |||
- BBB+ to BBB- | 100 | |||
- BB+ toB- | 100 | |||
- Below B- | 150 | |||
- Unrated | 100 | |||
To the Bank for International Settlements, the IMF, the European Central Bank and the European Community | 0 | |||
To thenon-financial public sector of the provinces, municipalities and/or the Autonomous City of Buenos Aires arising from the acquisition of sovereign bonds issued in Pesos by the central administration, when they do not have any one of the guarantees described in the regulations on “Financing toNon-Financial Public Sector”, pursuant to the credit rating assigned to the respective jurisdiction | ||||
- AAA to AA- | 20 | |||
- A+ to A- | 50 | |||
- BBB+ to BBB- | 100 | |||
- BB+ toB- | 150 | |||
- Below B- | 200 | |||
- Unrated | 200 | |||
Exposure to the Multilateral Development Banks (MDB) | ||||
The International Bank for Reconstruction and Development (IBRD), the International Finance Corporation (IFC), the Inter-American Development Bank (IDB), the | 0 | |||
Other | ||||
- AAA to AA- | 20 | |||
- A+ to A- | 50 | |||
- BBB+ to BBB- | 50 | |||
- BB+ toB- | 100 | |||
- Below B- | 150 | |||
- Unrated | 50 | |||
Exposure to local financial institutions | ||||
Denominated and funded in Pesos arising from transactions with an initial contractual term of up to 3 months | 20 | |||
| ||||
Exposure to foreign financial institutions, pursuant to the credit rating assigned to the sovereign of their jurisdiction of incorporation | ||||
- AAA to AA- | ||||
- A+ to A- | 50 | |||
- BBB+ to BBB- | 100 | |||
- BB+ toB- | 100 | |||
- Below B- | 150 | |||
- Unrated | 100 | |||
Exposure to | 100 | |||
Exposures included in the retail portfolio |
Type of Asset | Weighting (%) | |||
Loans to individuals (provided that installments of loans granted by the institution do not exceed, at the time of the agreements, 30% of borrower’s income) and to Micro, Small- andMedium-Sized Companies (“MiPyMEs”) | 75 | |||
Other | 100 | |||
Exposures guaranteed by reciprocal guaranty companies (sociedades de garantía recíproca) or public security funds registered with the registries authorized by the Central Bank | 50 | |||
| ||||
If credit facility does not exceed 75% of the appraised value of such real property | ||||
- Sole, permanently-occupied family home | 35 | |||
- Other | 50 | |||
On the amount exceeding 75% of the appraised value of such real property | 100 | |||
| ||||
Up to 50% of the lower of the real property market value or 60% of the mortgage | 50 | |||
On the remaining portion of the | 100 | |||
| ||||
Weighting varies according to the loan and specific provisions Created | 50-150 | |||
| 150 | |||
| ||||
Exposures to individuals or companies originated in credit card purchases made in installments of travel tickets to foreign destinations and other touristic services abroad (lodging, car rental), either made directly to the service provider or through a travel agency or web platform | 1250 | |||
Other assets and | 100 |
* | They receive a special treatment. |
Excluded items include: (a) securities granted for the benefit of the Central Bank for direct obligations; (b) deductible assets pursuant to RPC regulations and (c) financings and securities granted by branches or local subsidiaries of foreign financial entities by order and on account of their headquarters of foreign branches or the foreign controlling entity, to the extent: (i) the foreign entity has an investment grade rating, (ii) the foreign entity is subject to regulations that entail consolidated fiscalization, (iii) in the case of finance operations, they shall be repaid by the local branch or subsidiary exclusively with funds received from the aforementioned foreign intermediaries; and (iv) in the case of guarantees granted locally, they are in turn guaranteed by their foreign branch headquarters or the foreign controlling entity and foreclosure on such guaranty may be carried out immediately and at the sole requirement of the local entity.
Credit Risk Regulation – Large Exposures
General Overview
Communication “A” 6599 of the Central Bank, as amended and restated by Communication “A” 6620, effective as of January 1, 2019, abrogated credit risk fractioning regulations (except for the provisions related to thenon-financial public sector), and replaced the former regime by regulating “large exposures to credit risk”. The system seeks to limit the maximum loss that a financial entity may suffer upon the occurrence of an unexpected default of a counterparty or group of connected counterparties who do not belong to thenon-financial public sector, therefore affecting its solvency. The regulations regarding the exposures to credit risk must be applied at all times with every counterparty of the entity.
In this regard, the regulations have established the concept of group of connected counterparties, which applies to all cases in which one of the counterparties of a financial entity have direct or indirect control over the rest or in those cases in which financial difficulties experimented by one of the counterparties causes a strong likelihood that its subsidiaries may struggle financially as well. According to the regulation, upon the detection of the existence of a group of connected counterparties by the financial entity, such group shall be considered as a single counterparty and the sum of the exposures to credit risk that a financial entity possesses with all the individual counterparties comprehended in that group shall be subject to the information and disclosure requirements provided in section 2.
One of the main aspects of Communication “A” 6599 is the introduction of the concept of large exposure to credit risk in Argentine banking regulations, which is defined as the sum of all values of exposure of a financial entity with a counterparty or group of connected counterparties when it is equal or above 10% of the Tier 1 Capital registered by the financial entity the immediately preceding month of its calculation.
However, the determination of the values of exposure to risk recognize the following exceptions:
Intraday interbank exposures;
Exposures of financial entities with qualifying central counterparties, as defined by the Central Bank regulations on minimum capital;
Exposures with the Central Bank; and
Exposures with the Argentinenon-financial public sector.
Regarding the information regime, the Central Bank has established that the financial entities shall inform the Superintendency of all the values of exposure to credit risk before and after the application of mitigation techniques, detailing:
Exposures to risk with a value equal or above 10% of Tier 1 Capital of the financial entity;
Every other exposure to risk which value is equal or above 10% of the Tier 1 Capital of the financial entity, without applying credit risk mitigation techniques;
Excluded exposures to risk which values are equal or above 10% of the financial entity’s Tier 1 Capital; and
The financial entity’s 20 largest applicable exposures to risk, regardless of its value in relation with the financial entity’s Tier 1 Capital.
Limits
On one side, Communication “A” 6620 sets at 15% the limit of exposure with a counterpart of thenon-financial private sector. Nevertheless, the limit will be increased by 10 percentage points for the part of the exposures that are covered by preferred collaterals. Additionally, it sets special limits for operating with financial institutions in the country and abroad (the general rule sets it at 25%). In the case of foreign financial institutions that do not have an international risk rating included in the “investment grade” category, the maximum limit is 5%.
On the other side, Communication “A” 6599 sets the global limit of exposure to risk with respect to affiliate counterparties at 20%. In the case of stock held in an investment portfolio, the sum of all the values of exposure to risk corresponding to the total stocks not related to the portfolio shall not exceed 15% (holdings in public services companies or companies dedicated to complementary services to financial activities are excluded). The total limit of stocks and holdings shall be the sum of all the values of exposure to risk corresponding to the total amount of stock in an investment or negotiation portfolio plus the credits for forward operations and sureties entered into in authorized Argentine markets shall not exceed 50%.
MinimunMinimum controls to exposures of affiliates
The regulations set forth three stages for the control of the financial entity’s affiliates exposure:
1) Reports for the entity’s management:
Report by the CEO;
Report by the supervisory committee; and
Acknowledgment of the reports by the entity’s management.
2) Evidence of the affiliation to the financial entity: the personnel responsible for the analysis and resolution of the credit operations shall expressly register whether or not the client is affiliated with the financial entity.
3) Affidavit evidencing affiliation: affiliated clients shall file an affidavit stating if they belong to the lending entity or if its relationship with such entity implies the existence of a controlling influence.
Interest rate risk
Until January 1, 2013, financial entities had to comply with minimum capital requirements regarding interest rate risk. These requirements were intended to capture the sensitivity of assets and liabilities to changes in the interest rates. Communication “A” 5369 removed all rules and regulations regarding minimum capital requirements for interest rate risk. Notwithstanding this change, financial entities must continue to calculate the interest rate risk and remain subject to the Superintendence’s supervision. By virtue of Communication “A” 6534, dated July 3, 2018, the Investment Portfolio Interest Rate (RTCI) risk shall be calculated.
Market risk
Overall capital requirements in relation to market risk are based on the sum of the five amounts of capital necessary to cover the risks. Market risk is defined as the possibility of incurring losses inon- andoff-balance sheet recorded positions as a result of adverse changes in market prices. The market risk minimum capital requirement is the arithmetic sum of the minimum capital requirement for interest rate (trading portfolio), stock (trading portfolio), exchange rate, commodities and options risks (trading portfolio). To meet this capital requirement, entities must apply a “Standard Measurement Method” based on an aggregate of components that separately capture the specific and general market risks for securities positions.
General considerations. Risks subject to this minimum capital requirement include risks derived from positions in instruments – such as securities and derivatives – recorded as part of the trading portfolio, and risks from foreign currency and commodities positions recorded, indistinctly, as part of the investment or trading portfolio. For the purpose of the above accounting recording, the trading portfolio of financial entities comprises positions in financial instruments included among an entity’s assets for purposes of trading or of providing hedging to other items contained in the portfolio. Pursuant to Communication “A” 5889,6690, a financial instrument may be accounted for as part of the trading portfolio – for purposes of meeting the minimum capital requirement for market risk – if such instrument may be traded free from any restriction or if the instrument may be hedged in full. Also, the portfolio must be actively managed, and its positions must be valued on a daily basis and with the required accuracy. Positions kept for trading purposes are those positions that the entity intends to sell in the short term or from which it intends to derive a profit as a result of changes, either actual or expected, in short-term prices, or by means of arbitrage activities. They include both positions that the entities keep for their own use and those they purchase in the course of services performed for customers or “market making’ activities”. Financial entities must calculate the minimum capital requirement for the counterparty credit risk involved in OTC transactions involving derivatives and securities financing transactions, such as repo transactions (repo agreements), recorded as part of the trading portfolio on a separate and additional basis to the calculation of capital requirements for general market risk and specific market risk of the underlying securities. For this purpose, entities will be required to apply the methods and weighting factors usually applicable when those transactions are recorded as part of the investment portfolio. Entities must have clearly defined policies and procedures in place, designed to determine the exposures that are to be included into or excluded from the trading portfolio in order to calculate their minimum capital requirement for market risk. On the other hand, the investment portfolio will include all securities held by the entity which are not included in the trading portfolio.
The minimum capital requirement for exchange rate risk will apply to the total position in each foreign currency. The minimum capital requirement for securities will be computed in respect of the instruments accounted for as part of the trading portfolio, which must be valued prudently (marked to market or marked to model). Instruments whose yield is determined in relation to CER must be considered fixed-rate securities. Whether recorded as part of the trading or of the investment portfolio, items to be deducted for purposes of calculating the RPC will be excluded from the calculation of the market risk minimum capital requirement.
Minimum capital requirement for interest rate risk. The minimum capital requirement for interest rate risk must be calculated in respect of any debt securities and other instruments accounted for as part of the trading portfolio, including anynon-convertible preferred shares. This capital requirement is calculated by adding two separately calculated requirements: first, the specific risk involved in each instrument, either a short or a long position, and second, the general market risk related to the effect of interest rate changes on the portfolio. A set off of the long and short positions held in different instruments will be allowed.
Minimum capital requirement for positions in stock. The capital requirement for the risk of holding equity positions in the trading portfolio applies to both long and short positions in ordinary shares, convertible debt securities that function like shares and any call or put options for shares, as well as any other instrument with a market behavior similar to that of shares, excludingnon-convertible preferred shares, which are subject to the minimum capital requirement for interest rate described in the preceding paragraph. Long and short positions in the same security may be computed on a net basis.
Minimum capital requirement for exchange rate risk. The capital requirement for exchange rate risk establishes the minimum capital required to hedge the risk involved in maintaining positions in foreign currency, including gold. To calculate the capital requirement for exchange rate risk, entities must first quantify its exposure in each currency, and then estimate the risks inherent in the combination of long and short positions in different currencies.
Minimum capital requirement for commodities risk. The capital requirement for commodities risk establishes the minimum capital required to hedge the risk involved in maintaining positions in commodities – but gold. The calculation of the capital requirement shall express every commodity position in terms of the standard measure unity, and following the rules set forth in Communication “A” 6690.
Minimum capital requirement for positions in options. The calculation of the capital requirement for the risk involved in positions in options may be based on the “simplified method” set forth in Communication “A” 58676690 if the entity only purchases options; provided that, the market value of all the options in its portfolio does not exceed 5% of the entity’s RPC for the previous month, or if its positions in sold options are hedged by long positions in options pursuant to exactly the same contractual terms. In all other cases, the entity must use the alternative “delta plus” method, provided for in the regulation.
Consequences of a Failure to Meet Minimum Capital Requirements
In the event ofnon-compliance with capital requirements by an existing financial institution, Central Bank Communication “A” 6091, as amended, provides the following:
(i) | Non-compliance reported by the institution: the institution must meet the required capital no later than the end of the second month after the date ofnon-compliance or submit a restructuring plan within thirty (30) calendar days after the end of the month in which suchnon-compliance was reported. In addition,non-compliance with minimum capital requirements will entail a number of consequences for the financial institution, including a prohibition to open branches in Argentina or in other countries, establish representative offices abroad, or own equity in foreign financial institutions, as well as a prohibition to pay cash dividends. Moreover, the Superintendency may appoint a representative, who shall have the powers set forth by the Financial Institutions Law. |
(ii) | Non-compliance detected by the Superintendency: the institution may challenge thenon-compliance determination within thirty (30) calendar days after being served notice by the Superintendency. If no challenge is made, or if the defense is dismissed, thenon-compliance determination will be deemed to be final and the procedure described in the previous item will apply. |
Furthermore, pursuant to Communication “A” 5867, as amended by “A” 5889, among others, if a financial institution fails to meet market risk daily minimum capital requirements, except for any failure to meet the requirements on the last day of the month, calculated as a sum of VaR of included assets or derived from the calculation of capital requirements for interest rate, exchange rate and stock risks, the financial institution must replace its capital or decrease its financial position until such requirement is met, and has up to ten (10) business days from the first day on which the requirement was not met to meet the requirement. If the financial institution fails to meet this requirement after ten (10) business days, it must submit a regularization and reorganization plan within the following five (5) business days and may become subject to an administrative proceeding initiated by the Superintendency.
Operational risk
The regulation on operational risk (“OR”) recognizes the management of OR as a comprehensive practice separated from that of other risks, given its importance. OR is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. The definition includes legal risk but excludes strategic and reputational risk.
Financial institutions must establish a system for the management of OR that includes policies, processes, procedures and the structure for their adequate management. This framework must also allow the financial entity to evaluate capital sufficiency.
Seven OR event types are defined, according to internationally accepted criteria:
internal fraud;
external fraud;
employment practices and workplace safety;
clients, products and business practices;
damage to physical assets;
business disruption and system failures; and
execution, delivery and process management.
Financial entities are charged with implementing an efficient OR management system following the guidelines provided by the Central Bank. A solid system for risk management must have a clear assignment of responsibilities within the organization of financial entities. Thus, the regulation describes the roles prepared by each level of the organization in managing of OR (such as the roles of the board of directors, senior management and the business units of the financial institution).
A financial institution’s size and sophistication, and the nature and complexity of its products and processes, and the extent of the transaction determines the type of “OR unit” required. For small institutions, this unit may even consist of a single person. This unit may functionally respond to the senior management (or similar) or a functional level with risk management decision capacity that reports to that senior management.
An effective risk management will contribute to prevent future losses derived from operational events. Consequently, financial entities must manage the OR inherent in their products, activities, processes and systems. The OR management process comprises:
a) | Identification and assessment: the identification process should consider both internal and external factors that could adversely affect the development of the processes and projections created according to the business strategies defined by the financial institution. Financial entities should use internal data, establishing a process to register frequency, severity, categories and other relevant aspects of the OR loss events. This should be complemented with other tools, such as self-risk assessments, risk mapping and key risk indicators. |
b) | Monitoring: an effective monitoring process is necessary for quickly detecting and correcting deficiencies in the policies, processes and procedures for managing OR. In addition to monitoring operational loss events, banks should identify forward-looking indicators that enable them to act upon these risks appropriately. |
c) | Control and mitigation: financial entities must have an appropriate control system for ensuring compliance with a documented set of internal policies, which involve periodic reviews (to occur at least annually) of control strategies and risk mitigation, and adjust these as necessary. |
Pursuant to Communication “A” 5282, as amended by Communications “A”6091 and “A”6638, among others, the minimum capital requirements regarding OR are equal to 15% of the annual average positive gross income of the lastthirty-six (36) months.
The OR formula is as follow:
The variables in the OR formula are defined as follows:
• | “Cro”: the capital requirement for operational risk. |
“α”: 15%.
“n”: the number of12-month consecutive terms with positive IB, based on the 36 months preceding the month of calculation. The maximum value of n is 3.
“IBt”: gross income from12-month consecutive terms; provided that, it is a positive figure, corresponding to the 36 months preceding the month of calculation.
IB is defined as the sum of (a) financial and service income minus financial and service expenses and (b) other income minus other expenses.
The following items are excluded from items (a) and (b) above:
(i) | expenses derived from the creation or elimination of reserves during previous fiscal years and recovered credits during the fiscal year that were written off in previous fiscal years; |
(ii) | profits or losses from holding equity in other financial institutions or companies, if these were deductible from RPC; |
(iii) | extraordinary or unusual gains (i.e., those arising from unusual and exceptional events that resulted in gains) including income from insurance recovery; and |
(iv) | gains from the sale of classified species and measures at amortized cost of fair value with changes in other integral gains. |
New financial institutions must comply, in their first month, with an OR minimum capital requirement equivalent to 10% of the aggregate requirements determined for credit and market risks, in the latter case, for the positions on the last day of that month. As from the second and up to the thirty-sixth month, the monthly capital requirement will be equivalent to 10% of the average requirements determined for the months elapsed until, and including, the calculation period based on a consideration of the risks referred to in the preceding paragraph. From the thirty-seventh month onwards, the monthly requirement is calculated based on the OR formula.
Minimum cash reserve requirements
The minimum cash reserve requirement requires that a financial institution keep a portion of its deposits or obligations readily available and not allocated to lending transactions and it is included in the Central Bank “Rules of Minimum Cash”, as amended and supplemented.
Minimum cash requirements are applicable to demand and time deposits and other liabilities arising from financial intermediation denominated in Pesos, foreign currency, or government and corporate securities, and any unused balances of advances in checking accounts under agreements not containing any clauses that permit the bank to discretionally and unilaterally revoke the possibility of using such balances.
Minimum cash reserve obligations exclude (i) amounts owed to the Central Bank, (ii) amounts owed to domestic financial institutions (excluding special deposits related to inflows of funds – Decree No. 616/2005), (iii) amounts owed to foreign banks (including their head offices, entities controlling domestic institutions and their branches) in connection with foreign trade financing facilities, (iv) cash purchases pending settlement and forward purchases, (v) cash sales pending settlement and forward sales (whether or not related to repurchase agreements), (vi) overseas correspondent banking operations, and (vii) demand obligations for money orders and transfers from abroad pending settlement to the extent that they do not exceed aseventy-two (72) business hour term as from their deposit.deposit and (iii) demand obligations with business for the sales made by credit card and / or for the purchase.
The liabilities subject to these requirements are computed on the basis of the effective principal amount of the transactions, including differences in rates (either negative or positive), excluding interest accrued, past due, or to become due on the aforementioned liabilities, provided they were not credited to the account of, or made available to, third parties, and, in the case of fixed-term deposit of UVIs and UVAs, (as defined below), the accrued amount resulting from the increment of the value of such unit.
The basis on which the minimum cash reserve requirement is computed is the monthly average of the daily balances of the liabilitiesliabilities:
registered at the end of each day during the period (monthly or bimonthly) prior to the one of its integration, in the case the liabilities are denominated in Pesos. In the case of the July/August and December/January periods, it will be of usage the June and November averages, respectively. In the case of September and February it shall be used the average of the previoustwo-month period.
registered at the end of each day during the calendar month. month, in the liabilities are denominated in foreign currency, or government and corporate securities.
The averages shall be obtained by dividing the aggregate of the daily balances into the total amount of the days of each period.
Such requirement shall be complied with on a separate basis for each currency and/or security and/or instrument under monetary regulation in which the liabilities are denominated.
The table below shows the percentage rates that should be applied to determine the required minimum cash reserve requirement, depending on whether: (i) entities included in Group “A” and / or branches or subsidiaries of banks abroad classified as systemically important(G-SIB) not included in that group; or (ii) the remaining financial entities. Section 4 of the regulations on “Authorities of financial entities” (Autoridades de entidades financieras) of the Central Bank classifies the financial entities in: a) Group “A” which includes those entities in which the amount of their assets is greater than or equal to 1% of the total of the assets of the financial system (for the purposes of calculating this indicator, the average of the assets corresponding to the months of July, August and September of the previous year will be considered, according to the data that arise from the corresponding information regime); and b)
Group “B” composed of all those entities that are not included in Group “A”. The following fees arise from Communication “A” 6616, as amended, dated December 20, 2018, its came into force will depend on the group to which financial entity belongs, being February 2, 2019 for Group “A” andG- SIB and on January 1, 2019 for the remaining entities:
Group A and G- SIB | Rate % Group B | Group A and G- SIB | Rate % Group B | |||||||||||||||||||||||||||||
Item | Pesos | Foreign Currency | Pesos | Foreign Currency | Pesos | Foreign Currency | Pesos | Foreign Currency | ||||||||||||||||||||||||
1- Checking account deposits and demand deposits opened at credit cooperatives | 45 | 20 | 45 | 20 | ||||||||||||||||||||||||||||
2- Savings account, salary/social security accounts, special accounts (except for deposits included on items 7 and 11), and other demand deposits and liabilities, pension and social security benefits credited by ANSES pending collection and immobilized reserve funds for liabilities covered by these regulations | 45 | 25 | 20 | 25 | 45 | 25 | 20 | 25 | ||||||||||||||||||||||||
3- Unused balances of advances in checking accounts under executed overdraft agreements | 45 | 20 | 45 | 20 | ||||||||||||||||||||||||||||
4- Deposits in checking accounts ofnon-bank financial institutions, computed for purposes of meeting their required minimum cash reserve | 100 | 100 | 100 | 100 | ||||||||||||||||||||||||||||
Group A and G- SIB | Rate % Group B | |||||||||||||||||||||||||||||||
Item | Pesos | Foreign Currency | Pesos | Foreign Currency | ||||||||||||||||||||||||||||
5- Time deposits, liabilities under “acceptances”, (including responsibilities for sale or transfer of credits to agents different from financial institutions), stock-exchange repos (cautions and stock exchange passive repos), constant-term investments, with an option for early termination or for renewal for a specified term and variable income, and other fixed-term liabilities, except rescheduled deposits included in the following items 7, 10 y 12 of this table, securities (including negotiable obligations), according to their outstanding term: | ||||||||||||||||||||||||||||||||
(i) Up to 29 days | 32 | 23 | 11 | 23 | ||||||||||||||||||||||||||||
(ii) From 30 days to 59 days | 22 | 17 | 7 | 17 | ||||||||||||||||||||||||||||
(iii) From 60 days to 89 days | 4 | 11 | 2 | 11 | ||||||||||||||||||||||||||||
(iv) From 90 days to 179 days | 5 | 5 | ||||||||||||||||||||||||||||||
(v) From 180 days to 365 days | 2 | 2 | ||||||||||||||||||||||||||||||
(vi) More than 365 days | ||||||||||||||||||||||||||||||||
6- Liabilities owed due to foreign facilities (not including those instrumented by term deposits, unless they are made by residents abroad linked to the entity pursuant to Section 2 of the rules on “Large Exposures to Credit Risk”, nor the acquisition of debt securities, to which they must apply the requirements provided in the previous point) | ||||||||||||||||||||||||||||||||
(i) Up to 29 days | 23 | 23 | ||||||||||||||||||||||||||||||
(ii) From 30 days to 59 days | 17 | 17 | ||||||||||||||||||||||||||||||
(iii) From 60 days to 89 days | 11 | 11 | ||||||||||||||||||||||||||||||
(iv) From 90 days to 179 days | 5 | 5 | ||||||||||||||||||||||||||||||
(v) From 180 days to 365 days | 2 | 2 | ||||||||||||||||||||||||||||||
(vi) More than 365 days | ||||||||||||||||||||||||||||||||
7- Demand and time deposits made upon a court order with funds arising from cases pending before the court, and the related immobilized balances | ||||||||||||||||||||||||||||||||
(i) Up to 29 days | 29 | 15 | 10 | 15 |
Group A and G- SIB | Rate % Group B | Group A and G- SIB | Rate% Group B | |||||||||||||||||||||||||||||
Item | Pesos | Foreign Currency | Pesos | Foreign Currency | Pesos | Foreign Currency | Pesos | Foreign Currency | ||||||||||||||||||||||||
5- Time deposits, liabilities under “acceptances”, (including responsibilities for sale or transfer of credits to agents different from financial institutions), stock-exchange repos (cautions and stock exchange passive repos), constant-term investments, with an option for early termination or for renewal for a specified term and variable income, and other fixed-term liabilities, except rescheduled deposits included in the following items 7, 10 y 12 of this table, securities (including negotiable obligations), according to their outstanding term: | ||||||||||||||||||||||||||||||||
(i) Up to 29 days | 35 | 23 | 14 | 23 | ||||||||||||||||||||||||||||
(ii) From 30 days to 59 days | 25 | 17 | 10 | 17 | 22 | 15 | 7 | 15 | ||||||||||||||||||||||||
(iii) From 60 days to 89 days | 7 | 11 | 5 | 11 | 4 | 15 | 2 | 15 | ||||||||||||||||||||||||
(iv) From 90 days to 179 days | 5 | 5 | ||||||||||||||||||||||||||||||
(v) From 180 days to 365 days | 2 | 2 | ||||||||||||||||||||||||||||||
(vi) More than 365 days | ||||||||||||||||||||||||||||||||
6- Liabilities owed due to foreign facilities (not including those instrumented by term deposits, unless they are made by residents abroad linked to the entity pursuant to Section 2 of the rules on “Large Exposures to Credit Risk”, nor the acquisition of debt securities, to which they must apply the requirements provided in the previous point) | ||||||||||||||||||||||||||||||||
(i) Up to 29 days | 23 | 23 | ||||||||||||||||||||||||||||||
(ii) From 30 days to 59 days | 17 | 17 | ||||||||||||||||||||||||||||||
(iii) From 60 days to 89 days | 11 | 11 | ||||||||||||||||||||||||||||||
(iv) From 90 days to 179 days | 5 | 5 | ||||||||||||||||||||||||||||||
(v) From 180 days to 365 days | 2 | 2 | ||||||||||||||||||||||||||||||
(vi) More than 365 days | ||||||||||||||||||||||||||||||||
7- Demand and time deposits made upon a court order with funds arising from cases pending before the court, and the related immobilized balances | 32 | 15 | 13 | 15 | ||||||||||||||||||||||||||||
(iv) More than 90 days | 15 | 15 | ||||||||||||||||||||||||||||||
8- Special deposits related to inflows of funds. Decree 616/2005 | 100 | 100 | 100 | 100 | ||||||||||||||||||||||||||||
9- Time deposits in nominative,non-transferable Peso-denominated certificates, belonging to public sector holders, with the right to demand early withdrawal in less than 30 days from its setting up | 35 | 14 | 32 | 11 | ||||||||||||||||||||||||||||
10- Deposits and term investments —including savings accounts and securities (including Notes)— in UVIs and UVAs, according their outstanding term | ||||||||||||||||||||||||||||||||
(i) Up to 29 days | 7 | 7 | 7 | 7 | ||||||||||||||||||||||||||||
(ii) From 30 days to 59 days | 5 | 5 | 5 | 5 | ||||||||||||||||||||||||||||
(iii) From 60 days to 89 days | 3 | 3 | 3 | 3 | ||||||||||||||||||||||||||||
(iv) More than 90 days | ||||||||||||||||||||||||||||||||
11- Labor Work Fund for Construction Industry Workers, denominated in UVA | 7 | 7 | 7 | 7 | ||||||||||||||||||||||||||||
12-Deposits and fixed term investments created in the name of minors for funds they receive freely |
In the case of transactions in Pesos, when the jurisdiction of the main office where the transaction takes place, according to what is established in Central Bank’s regulations regarding “Categorization of locations for financial entities”, belongs to the categories II to VI, the rates foreseen for demand deposits will be reduced by 2 percentage points and for term placements by 1 percentage point up to a minimum of zero (including point 11).zero. In both cases, it does not include the impositions in securities. The deferred impositions in Pesos arranged remotely (i.e. throughhome banking, web time deposits, etc.) will receive the same treatment as those captured in the categories II to VI.
Entities included in Group “A” and branches or subsidiaries ofG-SIB not included in that group, may integrate the period and daily requirement in pesosPesos with “National Treasury Bonds in pesosPesos at fixed rate November 2020” in up to:
a) | 5 points of the rates described in points 1, 2 (in Pesos), 3, sections (i) and (ii) of point 5 (in Pesos) and points 7 (in Pesos) and 9. |
b) | 2 points of the rate described in section (iii) of |
Financial entities included in Group “A” and branches or subsidiaries ofG-SIB not included in that group may integrate the period and daily requirement in pesosPesos with LELIQ and / or NOBAC up to 1316 percentage points of the rate provided in section (i) of point 5 (in Pesos) and 9; in up to 1013 percentage points of the rates provided by points 1, 2 (in pesos) and 3 and section (ii) of point 5 (in Pesos); in up to 3 percentage points of the rates provided by section (i) and (ii) of point 10 and 11; and in up to 2 percentage points of the rates provided by section (iii) of point 5.
Financial entities not included in the last paragraph up to 3 percentage points of the rates provided by sections (i) and (ii) of point 5, point 9, sections (i) and (iii) of point 10 and point 7 (in Pesos).11; and in up to 2 percentage points of the rates provided in section (iii) of point 5.
In order to be admitted the integration with “National Treasury Bonds in pesosPesos at a fixed rate due November 2020”, LELIQ and / or NOBAC as described above, they must be valued at market prices and be deposited inSub-account 60, minimum cash enabled in the “Central Registry and Settlement of Public Liabilities and Financial Trusts—CRyL” (Central de Registro y Liquidación de Pasivos Públicos y Fideicomisos Financieros).
The minimum cash requirement will be reduced:
1. | in accordance with the participation in the total of financing operations to thenon-financial private sector in |
Participation, in the total of financing operations to MiPyMES with respect of total of financing operations to thenon-financial private sector, in the institution. | Reductions (over the total of the concepts included in Pesos). | |
% | % | |
Less than | 0.00 | |
From 4 to less than 6 | 0.75 | |
From 6 to less than 8 | 1.00 | |
From 8 to less than 10 | 1.25 | |
From 10 to less than 12 | 1.50 | |
From 12 to less than 14 | 1.75 | |
From 14 to less than 16 | 2.00 | |
From 16 to less than 18 | 2.20 | |
From 18 to less than 20 | 2.40 | |
From 20 to less than 22 | 2.60 | |
From 22 to less than 24 | 2.80 | |
From 24 to less than 26 | 3.00 | |
From 26 to less than 28 | 3.20 | |
From 28 to less than 30 | 3.40 | |
30 or more than 30 | 3.60 |
It will be considered the mobile average balance at the end of the last 12 months prior to the low report of the financings in Pesos (Loans and Credits for Financial Leases) granted to MiPyMEs in respect of the total of such financings to thenon-financial private sector of the institution.
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i. | whose destination is the acquisition of goods and services included in the aforementioned resolution and its complementary regulations; or |
ii. | tonon-financial companies issuing credit cards at an annual interest rate of up to 17%, insofar as these companies are part of the “Ahora 12” Program. |
Effective from March 1st, 2020, Communication “A” 6916 increases the 20% decrease of the requirement for the “Ahora 12” to 35% on the aggregate of the financings. Amended by Communication “A” 6937 the limit for the calculation of this decrease is raised to 6% over the items subject to the Central Bank Rules of Minimum Cash.
3. | Depending on the cash withdrawals made through institution ATMs. The requirement will be reduced by the amount calculated on the basis of the monthly average of total daily cash withdrawals from ATMs, corresponding to the prior month, located in the institution’s operational houses, according to the jurisdiction in which is located, in accordance with the provisions of the “Locations for Financial Institutions Categorization Rules”. |
For this purpose, the included ATMs are those that – at least – allow users to make cash withdrawals regardless of the institution in which they are customers and the network managing such equipment and that –on a monthly average, computing business andnon-business days – have remained accessible to the public for at least ten hours a day.
4. | In the case of financial entities included in Group “A”, the requirement will be reduced by an amount equivalent to the 30% of the aggregate of all financing in pesos to MiPyMEs – in accordance with the definition contained in the “Determination of the Status of Micro, Small orMedium-Sized Enterprises Rules”- agreed at a maximum interest of:; |
a. | 40% fixed nominal per annum until and including February 16, 2020 (which may continue to be counted until its termination). |
b. | 35% fixed nominal per annum from February 17, 2020. |
For this purpose, the average monthly balance of the financings granted the period before the requirement was calculated that meets the above conditions shall be included. This deduction may not exceed 2% of the items in Pesos subject to the requirement, on average, of the month prior to the calculation.
The financings calculated for the point 1.5.4 deduction cannot be included for the determination of the point 1.5.1 deduction.
5. | In accordance with the special treatment provided for financing under Resolution No. 1/19 of the Ministry of Territorial Development and Habitat. |
For the period from February 2020 until January 2021 inclusive, the minimum cash requirement in Pesos will be reduced by 0.8% over the contractual balance – at the end of November 2019- from the financings that the institution decides to subject to the special treatment provided by point 6.4 of the “Credit Policy Rules”.
Whenever there is an excessive concentration of liabilities (in holders and / or terms), which implies a significant risk with respect to the individual liquidity of the financial institution and / or has a significant negative effect on the systemic liquidity, additional minimum cash may be set on the liabilities included in the financial entity and / or those complementary measures that are deemed pertinent.
Likewise, the minimum cash requirement may be increased due tonon-compliance with the rules on the “Credit Line for productive investment”.
In addition to the abovementioned requirements, the reserve for any defect in the application of resources in foreign currency net of the balances of cash in the entities, in custody in other entities, in transit and in Transporters of Securities, for a certain month, shall be applied to an amount equal to the minimum cash requirement of the corresponding currency for each month.
The minimum cash reserve must be set up in the same currency or securities or debt instruments for monetary regulation to which the requirement applies, and may include the following:
1. | Accounts maintained by financial institutions with the Central Bank in Pesos. |
2. | Accounts of minimum cash maintained by financial institutions with the Central Bank in U.S. dollars, or other foreign currency. |
3. | Special guarantee accounts for the benefit of electronic clearing houses and to cover settlement of credit card, vouchers, and ATM transactions and immediate transfer funds. |
4. | Checking accounts maintained bynon-bank financial institutions with commercial banks for the purpose of meeting the minimum reserve requirement. |
5. | Special accounts maintained with the Central Bank for transactions involving social security payments by the ANSES. |
6. | Minimum cashsub-account 60, authorized in the Registration and Settlement Central for Public Debt and Financial Trusts – CRYL (“Central de Registro y Liquidación de Pasivos Públicos y Fideicomisos Financieros– CRYL”) for public securities and securities issued by the Central Bank at their market value. |
These eligible items are subject to review by the Central Bank and may be changed in the future.
Compliance with the minimum cash reserve requirement will be measured on the basis of the monthly average of the daily balances of eligible items maintained during the monthperiod to which the minimum cash reserve refers by dividing the aggregate of such balances by the total number of days in the relevant period. The compensation of deficit positions with surplus positions corresponding to different requirements will not be accepted.
The aggregate balances of the eligible items referred to above, maintained as of each daily closing, may not, on any one day during the month, be less than 25% of the total required cash reserve, determined for the next preceding month,period, recalculated on the basis of the requirements and items in force in the month to which the cash reserves relate, without considering the effects of the application of the provisions of section “1.7 Transfers” of the “Minimum Cash” rules. The daily minimum required is 50% when a deficit to the admitted transfer margin occurs in the previous month.period.
Any deficiencies in meeting the required minimum cash reserve and the daily minimum reserve in Pesos, in foreign currency, or securities or debt instruments for monetary regulation are subject to a penalty in pesos,Pesos, equal to 1.5 times the average nominal interest rate of the shorter term pesoPeso denominated LELIQs auction published on the last business day of the relevant period or, if not available, the last one available.
LELIQ global daily position
Pursuant to Communication “A” 6661 of the Central Bank, the LELIQ global daily position of the banks shall not exceed the larger sum between:
1) the RPC of the bank in the immediately preceding month; and
2) 100% of the monthly average of the total deposits in Pesos, excluding the financial sector’s and the notes in Pesos issued until February 8, 2019 in the current month.
Internal liquidity policies of financial institutions
Pursuant to the Central Bank regulations on the liquidity coverage ratio (the “LCR”), financial institutions must adopt management and control policies that ensure the maintenance of reasonable liquidity levels to efficiently manage their deposits and other financial commitments and must comply with the liquidity coverage ratio established thereunder, under a30-day stress test scenario. Such policies should establish procedures for evaluating the liquidity of the institutions in the framework of prevailing market conditions to allow them to revise projections, take steps to eliminate liquidity constraints and obtain sufficient funds, at market terms, to maintain a reasonable level of assets over the long term. Such policies should also address (i) the concentration of assets and liabilities in specific customers, (ii) the overall economic situation, likely trends and the effect on credit availability and (iii) the ability to obtain funds by selling government debt securities and/or own assets.
The organizational structure of the entity must place a specific unit or person in charge of managing liquidity and assign levels of responsibility to the individuals who will be responsible for managing the LCR, which will require daily monitoring. The participation and coordination of the entity’s top management authority (e.g., CEO) will be necessary.
In addition, financial institutions must designate a director or advisor who will receive reports at least weekly, or more frequently if circumstances so require, such as when changes in liquidity conditions require new courses of action to safeguard the entity. In the case of branches of foreign financial institutions, the reports must be delivered to the highest authority in the country.
Appointed officers and managers will be responsible for managing the liquidity policy that, in addition to monitoring the LCR, includes taking the necessary steps to comply with minimum cash requirements.
Financial institutions must report the list of such officers and directors, as well as any subsequent changes, to the Superintendency within ten (10) calendar days from the date of any such change.
Liquidity Parameters
In addition to the LCR, there are other parameters that are used as systematic tools of control. These policies contain specific information regarding cash flows, balance structure and available underlying assets free of charge. These parameters, along with the LCR, offer basic information to evaluate the liquidity risk. The included parameters are:
gaps in contractual terms;
funding concentration;
available assets free of restrictions;
LCR for relevant currency; and
Market-related monitoring tools.
Additionally, Communication “A” 6209, as amended, sets forth that financial institutions must have an adequate stock of high-quality liquid assets (“HQLA”) free of any restrictions which can be immediately converted into cash in order to cover their liquidity needs during a period of 30 days in case of a stress scenario. Also, financial institutions must carry out their own stress tests so as to determine the liquidity level they should maintain in other scenarios, considering a period higher than 30 calendar days.
The LCR must be equal to or greater than 1 (that is to say, the stock of HQLA must not be lower than the total net cash outlays) in the absence of a financial stress scenario. If this is not the case, the LCR may fall below 1.
The Central Bank describes how to categorize a stress scenario, taking into account the following: the partial loss of retail deposits; the partial loss of wholesalenon-guaranteed funding capacity; the partial loss of guaranteed funding; additional fund outlays due to situations contractually provided for as a consequence of a significant decline in the financial institution’s credit quality; market volatility increases that have an effect on the quality of guarantees or on the potential future exposure of positions in derivatives; the
unforeseen use of credit and liquidity facilities compromised and available but not used that the financial institution may have granted to its clients; and/or the need that the financial institution may experience to repurchase debt or to comply withnon-contractual obligations so as to mitigate its reputational risk.
Pursuant to Communication “A” 5724, for implementing the above, the financial institutions must consider the following schedule:
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The LCR calculation must be made on a permanent basis and informed to the Central Bank on a monthly basis.
The HQLA can only be made up of the following portfolio assets (consider as Tier 1 (An1)) at the day of the calculation of the LCR: cash in hand, in transit, in armored transportation companies and ATMs; deposits with the Central Bank; certain national public bonds in Pesos or in foreign currency; securities issued or guaranteed by the International Payments Bank, the IMF, the European Central Bank, the European Union or Multilateral Development Banks that comply with certain conditions and debt securities issued by other sovereign entities (or their central banks).
Net Stable Funding Ratio (NSFR)
The purpose of the net stable funding ratio (“NSFR”) is to allow financial institutions to finance their activities with sufficiently stable sources to mitigate the risk of future stress situations derived from their funding requirements. By requiring financial institutions to maintain a stable funding profile relative to the breakdown of theiroff-balance sheet assets and transactions, the NSFR limits the strong dependence on short term wholesale funding, promotes a better assessment of balance sheet andoff-balance sheet items funding risk, and favors funding sources stability. The definitions of the components of the NSFR are similar to those set forth in the “Liquidity Coverage Ratio” regulations, unless otherwise expressly set forth herein.
The NSFR is defined as the available amount of stable funding relative to the required amount of stable funding, where: AASF (Available Amount of Stable Funding) is the capital and liabilities of the financial institution – calculated in the manner set forth in Section 2 – that are expected to be available over aone-year term. RASF (Required Amount of Stable Funding) is the amount of funding necessary for such period – calculated in the manner set forth in Section 3 – based on its liquidity and remaining life of the institution’s assets and itsoff-balance sheet obligations.
The NSFR shall be at all times greater than or equal to 1 (NSFR > 1). It shall be supplemented with the assessment made by the SEFyC.Superintendency. The SEFyCSuperintendency may demand the institution to adopt stricter standards to reflect its funding risk profile, also taking into account the assessment made in connection with the “Risk Management Guidelines for Financial Institutions” in connection with the institution’s liquidity.
The Financial Institutions shall observe the NSFR all times and report it on a quarterly basis to the Superintendency.
Leverage Ratio
Through Communication “A” 6431, effective as of March 1, 2018, the Central Bank incorporated a ratio to limit the leverage of financial institutions in order to avoid the adverse consequences of an abrupt reduction in leverage in the supply of credit and the economy in general, and reinforce the minimum capital requirement with a minimum capital requirement simple and not based on risk.
The leverage ratio, which must be greater than or equal to 3%, arises from the following expression:
Ratio (as %) = Measure of capital / Measure of exposure where the measure of capital will be the basic net worth, and the measure of the exposure will be the sum of (i) the exposures in the asset (excluding the items corresponding to derivatives and Securities Financing Transactions (SFT)), ( ii) exposures by derivatives; (iii) exposures for SFT transactions and(iv) off-balance-sheet items. Both measures must be calculated based on the closing balances of each quarter.
Fee regulations
Central Bank regulations granted broad protection to customers in 2013. The protection includes, among other things, the regulation of fees and commissions charged by financial institutions for services provided. Fees and charges must represent a real, direct and demonstrable cost and should be supported by a technical and economic justification. It is worth noting that Communication “A” 5514 sets forth an exception to the enforcement of Communication “A” 5460 for certain credit agreements that have pledges as collateral and are issued before September 30, 2018.
On June 10, 2014, the Central Bank issued Communications “A” 5591 and “A”5592, through which established new rules regarding fees and charges for basic financial products and services. Beginning on the effective date of the rule, financial institutions must have prior authorization from the Central Bank to implement increases to the cost of those services. The rule also specifically defines which financial services are considered basic.
On December 23, 2014, the Central Bank issued Communication “A” 5685 amending Communication “A” 5460, setting forth that any increase in commissions of new products or services must have the prior authorization of the Central Bank.
On August 21, 2015, the Central Bank issued Communication “A” 5795, as amended and supplemented by several regulations, including but not limited to Communication “A” 5828, establishing additional rules aimed at protecting financial services customers by reinforcing regulations that prohibit financial institutions from charging fees and commissions related to insurance products that financial services customers purchase as accessories of financial services, regardless of whether it is a customer request or a condition set by the financial institution to access the financial service. In this regard, beginning on November 13, 2015, financial institutions may not receive remunerations or profits from such insurance products or receive remunerations or profits, directly or indirectly, from insurance companies with respect to such products.
Furthermore, Communication “A” 5828 creates a distinction between “life insurance on debit balances” and “other insurance,” establishing for the former that financial institutions cannot charge users any fee and /or charge associated with such kind of insurance. Financial institutions must purchase life insurance on debit balances with coverage for death or permanent total disability with respect to financings granted to human beings. Alternatively, they can self-insure the risks of death and permanent total disability of financial services clients. In both cases, coverage must fully cover the amount due in case of death or total permanent disability of the beneficiary.
On March 21, 2016, the Central Bank issued Communication “A” 5927 (as supplemented by Communication “A” 5928) that established new rules aimed at protecting the financial user and an increase of the banking services use. In this regard, beginning on April 1, 2016, the electronic transfers ordered or received by clients categorized as financial services costumers will not be charged with fees or commissions. For clients that do not meet this category, as companies, transfers of funds up to Ps.250,000, ordered or received by electronic means, will not be charged fees or commissions. Communication “A” 5927 also established that immediate transfers of funds up to Ps.100,000Ps. 100,000 per day and account can be made via Home Banking every day of the year.
On March 21, 2016, the Central Bank issued Communication “A” 5928, pursuant to which all saving accounts shall be free, including the use of the corresponding debit card. In this regard, all existing saving accounts shall be now free of charge, as well as for new clients. The saving accounts shall not have amount limits, or any charge related to their creation, maintenance or renovation. In addition, pursuant to such regulation, commissions could be increased up to 20%, but such increase must be informed to the client sixty (60) days in advance. Furthermore, as of September 1, 2016 commissions’ caps are eliminated, but financial institutions will have to inform their customers in advance about the commissions that other financial entities are charging.
Central Bank issued Communication “A” 6212, effective as of April 1, 2017, which reduces credit card and debit card sales commissions on a gradual annual plan. Pursuant to Communication “A” 6212, the maximum credit card sales commission rate for 2017 is 2.0% and for 2018, 2019, 2020 and 2021 and after, will be 1.85%, 1.65%, 1.50% and 1.30%, respectively. The maximum debit card sales commissions for 2017 is 1.0% and for 2018, 2019, 2020 and 2021 and after, will be 0.90%, 0.80%, 0.70% and 0.60%, respectively.
Mandatory extension of credit facilities for productive investments
On July 5, 2012, the Central Bank issued Communication “A” 5319, mandating financial entities to extend credit facilities for productive investments, according to the terms and conditions described therein. Recently, the Central Bank issued Communications “A” 5874 and 5975 (the “2016 Quota”), “A”6352 “A” 6259 (the “2017 Quota”) and “A” 6352 (the “2018 Quota”), establishing the regulations applicable to credit facilities for productive investments corresponding for those years. The 2017 Quota and the 2018 Quota are not cumulative and must be complied with, independently, in each year.
Financial institutions subject to this regime are those operating as financial agents of the national, provincial, City of Buenos Aires and/or municipal governments and/or those whose participation in the deposits of thenon-financial private sector in Pesos, are equal to or greater than 1% of the total deposits in the financial system. Through Communication “A” 6352 issued on November 3, 2017, the Central Bank started to gradually reduce the percentage of these facilities, until its complete elimination scheduled in December 2018.
2016 and 1S 2017 Quota – Credit Lines for Production and financial inclusion
Financial entities acting as financial agents for the national, provincial, City of Buenos Aires’ and/or municipal governments and/or whose share in thenon-financial private sector deposits in Pesos in the financial system is equal to or greater than 1% (based on the simple average of daily balances of thenon-financial private sector deposit in Pesos for the previous calendar nine-month period), will be required to extend certain credit lines, pursuant to the Central Bank regulations on “Credit lines for Financial Production and Inclusion”up to an annual quota, calculated based on deposits from thenon-financial private sector in Pesos, computed based on the average and daily balances for: (i) November 2015 (for the first half of 2016), 14%; (ii) May 2016 (for the second half of 2016), 15.5% and (iii) November 2016 (for the first half of 2017), 18%.
In addition, not less than 75% of the 2016 Quota must be allocated to credit facilities intended for MiPyMEs. The amount of the financing arises from applying to the disbursed capital a weight per category and location of the company.
Communication “A” 5874, as amended, sets forth the type of financing which may be considered eligible to be computed as part of the 2016 Quota, which includes the following:
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The maximum interest rate to be applied, except for the financing facilities described in items (iii), (v), (vi) and (vii) above, will be a nominal annual fixed rate of 22% for the financings granted as of October 31, 2016 and of 17% for the financings granted from November 1, 2016. In the case of financings restated in “Purchasing Power Units”, CER adjustable, or UVA, the maximum interest rate is a nominal annual fixed rate of 1%. The rate will be free for transactions with customers who do not meet the conditions of a MiPyMEs.
Financing facilities must be denominated in Pesos and have – at the time of disbursement – an average maturity period equal to or longer than 24 months, based on weighted principal maturities, and the total maturity period must not be less than 36 months. Financing facilities described in item (i) above and to be used for working capital purposes must have an effective weighted average maturity period equal to or longer than 24 months. The discount transactions contemplated in items (ii) and (iii) will not be subject to a minimum maturity period requirement. The mortgage loans referred to in item (vi) must have a minimum term of 10 years. The working capital financing facilities for MiPyMEs described in item (x) must have an effective weighted average term equal to or longer than 18 months for financings through October 31, 2016 and a minimum term of 12 months as from November 1, 2016.
The entities may make up this portfolio with loans extended on a joint basis with other entities, in the relevant proportion. In case earlypre-payment is accepted, only debtors will be entitled to suchpre-payment right.
2017 Quota
Financial entities were required to extend credit facilities from January 1, 2017 to June 30, 2017, equivalent to at least 18% of thenon-financial private sector deposits in Pesos, calculated on the basis of the monthly average of daily balances in November 2016.
In the case of entities falling within the above scope whose share of totalnon-financial private sector deposits in Pesos is lower than 0.25% (calculated as described in the preceding paragraph) the percentage applied was not less than 10%, from January 1, 2017 to June 30, 2017. According to Communication “A” 6217, at least 75% of the 2017 quota was required to be granted to MiPyMEs and/or financial services customers.
With respect to the second half of 2017, the financial entities subject to this requirement had to maintain, from July 1, 2017 until December 31, 2017, a balance of comprised financings equal to at least 18% of private sector deposits in Pesos, calculated on the basis of the monthly average daily balances from May 2017. For financial entities whose participation in deposits in thenon-financial private sector in Pesos amounts to less than 0.25%, the percentage applied, from July 1, 2017 and until December 31, 2017, was not less than 10%, and at least 75% of the 2017 quota was required to be granted to MiPyME and/or financial services customers.
2018 Quota
The financial entities subject to this requirement have to maintain, in each of the months in 2018, a balance of comprised financings equal to at least the amount that results from applying the percentages provided in the following table to the monthly average daily balances of November 2017 of totalnon-financial private sector deposits in Pesos:
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For financial entities whose totalnon-financial private sector deposits in Pesos is less than 0.25%, the applicable percentage to apply will be derived from the table below:
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Loans and Housing Units
The Central Bank has adopted measures for taking deposits and extending loans expressed in a special measuring unit adjustable by the CER. These special units are referred to as UVAs”“UVAs”.
In addition, Law No. 27,271 provides for the adjustment of deposits and loans by reference to the construction index, expressed in a special measuring unit referred to as Housing Units (Unidades de Vivienda or “UVIs”).
Consequently, UVAs and UVIs coexist and may be used both with respect to bank loans and deposits. The initial value of the UVI was Ps.14.05(the same as the UVA), representing the cost of construction of one thousandth square meter of housing as of March 31, 2016. As of May 3, 201913, 2020 the value of UVI and UVA are 33.34%49.22% and 35.59%53.70%, respectively.
Both units are amended based on the indices published by the INDEC and the Central Bank on its website.
Foreign Exchange System
AsOn September 1, 2019, with the purpose ofmid- December 2015, there have been significant changes strengthening the normal functioning of the economy, fostering a prudent administration of the exchange market, reducing the volatility of financial variables and containing the impact of the variations of financial flows on the real economy, the Argentine government reinstated exchange controls. The new controls apply with respect to the legal framework applicableaccess to the foreign exchange market aiming at granting greater flexibility to foreign exchange transactions.
These changes, initially contemplated under Communication “A” 5850, Communication “A” 5899by residents for savings and Communication “A” 5955, among others, allowed those entities authorized to operate ininvestment purposes abroad, the exchange market to engagepayment of external financial debts abroad, the payment of dividends in foreign currency arbitrageabroad, payments of imports of goods and exchange transactions with their customers. In addition, these regulations made it less burdensome for residents to access the foreign exchange market in order to acquire external assets,services, and for the repatriation by nonresidents of both portfolio and direct investment.
Effective as of August 9, 2016, the Central Bank continued to establish more flexible rules for foreign exchange transactions, for example through the issuance of Communication “A” 6037, followed by Communication “A” 6244, which resulted in a simplification of the rules that had been in place since 2002.
The new regulations provide that foreign exchange transactions may be performed under a sworn statement detailing the subject matter of the transaction, insofar no specific requirements apply to the transaction, and eliminated the obligation to produce documents supporting each foreign exchange transaction.repatriate and settle for Pesos the proceeds from exports of goods and services, among others.
In addition, transactions involving the creation of external assets by residents are no longer limited by a specific amount, and regulations restricting market accessFor further information on this topic, please refer to transactions involving derivative instruments with foreign counterparties have been suppressed. The new regulations also provided greater flexibility to the requirements needed to engage in exchange transactions during extended schedule hours.“Item D – Exchange Controls”.
Foreign Currency Lending Capacity
The Regulations on the allocation of deposits in foreign currencies, (including Communication “A” 6428 as amended), establish that the lending capacity from foreign currency deposits, must be applied in the corresponding deposit currency to the following categories:
a. | pre-financing and financing of exports to be made directly or through principals, trustees or other brokers, acting on behalf of the owner of the merchandise; |
b. | other financing to exporters, who have a flow of future income in foreign currency and verify, in the year prior to granting the financing, a billing in foreign currency for an amount that is reasonably related to that financing |
c. | financing to producers, processors or goods collectors, provided that: |
i. | They have sale contracts of their merchandise to an exporter, with a fixed price or fixed in foreign currency -independently of the currency in which the operation is settled- and in the case of fungible merchandise with quotation, in foreign currency, normal and customary in local or foreign markets, with wide diffusion and easy access to public knowledge; |
ii. | Its main activity is the production, processing and / or collection of fungible goods with quotation, in foreign currency, normal and usual in foreign markets, widely disseminated and easy access to public knowledge, and it is found, in the year prior to the granting of financing, a total billing of these merchandise for an amount that is reasonably related to that activity and its financing; and also operations aimed to finance service providers directly used in exporting process of goods (such as those provided at port terminals, international loading and unloading services, leasing containers or port warehouses, international freights ). This, provided it is verified that the flow of future income linked to sales to exporters registers a periodicity and magnitude that it is enough for the cancellation of the financing and it is verified, in the year prior to the granting of the financing, a billing to exporters for an amount that is reasonably related to that activity and its financing. |
d. | financing for manufacturers of goods to be exported, as final products or as part of other goods, by third-party purchasers, provided that such transactions are secured or collateralized in foreign currency by third-party purchasers; |
e. | financing to suppliers of goods and / or services that are part of the merchandise production process fungibles with quotation, in foreign currency, normal and usual in local or foreign markets, widely disseminated and easy access to public knowledge, provided they have firm sales contracts for those goods and / or services in foreign currency and / or on said merchandise; |
f. | financing of investment projects, working capital and / or acquisition of all kinds of goods, including temporary imports of inputs, which increases or are linked to the production of exporting products. Even though the total income of the exporting companies does not come from their sales abroad, the financing may be imputed when the cash flow in foreign currency from their exports, is enough for its cancelation. |
g. | financing for commercial and commercial portfolio clients of credits for consumption or housing -according to the provisions established in the rules on “Classification of debtors”, whose destination is the importation of capital goods (“BK” in accordance with the Mercosur’s Common Nomenclature established in Annex I to Decree No. 690/02 and other complementary provisions), which increase the production of merchandise destined for the domestic market. |
h. | foreign currency debt securities or financial trust participation certificates including other payment rights specifically recognized on trust agreements whose underlying assets are loans made by the financial entities in the manners set forth in (a) to (d) above and first sentence of (f), or documents in which cash flows in Pesos or foreign currency have been assigned to the trustee, in foreign currency credit agreements, under the terms and conditions set forth in items mentioned before.; |
i. | financings for purposes other than those mentioned in (a) to (d) above, included under the IDB credit program (“Préstamos BID N°119/OC-AR”), not exceeding 10% of the lending capacity; |
j. | inter-financing loans; |
k. | Central Bank bills (Letras y Notas) denominated in U.S. dollars; |
l. | direct investments abroad by companies that reside in Argentina, that seek the development of productive activities ofnon-financial goods and/or services, either through contributions and/or purchases of shares in companies, to the extent that they are constituted in countries or territories considered cooperators for the purposes of fiscal transparency according to the provisions of article 1 of Decree No. 589/13 as amended; |
m. | financing of investment projects, including working capital, which allows the increase of production in the energy sector and have firm sales contracts and/or endorsements or guarantees in foreign currency. |
n. | National Treasury bills in foreign currency, up to an amount equivalent to one third of the total of the applications made in accordance with the provisions of this section; |
o. | financing of investment projects for bovine cattle, including their working capital, without exceeding 5% of deposits in foreign currency of the entity; |
p. | financing of foreign importers for the acquisition of goods and / or services produced in the country, either directly or through credit lines to foreign banks; and |
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The lending capacity shall be determined for each foreign currency raised, resulting from the aggregate of deposits and inter-financial loans received, which have been reported by the granting financial institution as coming from its foreign currency deposit lending capacity net of the minimum cash requirement on deposits, and such determination being made on the basis of the monthly average of daily balances recorded during each calendar month. Any defect in the application shall give rise to an increase in the minimum cash requirement in the relevant foreign currency.
General Exchange Position
The general exchange position (“GEP”) includes all the liquid external assets of the institution, such as gold, currency and foreign currency notes reserves, sight deposits in foreign banks, investments in securities issued by Organization for EconomicCo-operation and Development (OECD) members’ governments with a sovereign debt rating not below “AA,” certificates of time deposits in foreign institutions (rated not less than “AA”), correspondents’ debit and credit balances and the third parties funds pending of settlement. It also includes purchases and sales of these assets already arranged and pending settlement involving foreign exchange purchases and sales performed with customers within a term not exceeding two (2) business days and correspondent balances for third-party transfers pending settlement.
It does not include, however, foreign currency notes held in custody, term sales and purchases of foreign currency or securities nor direct investments abroad.
Pursuant to Communication “A” 6244, as amended, which entered into force on July 1, 2017, entities can freely determine the level and use of their GEP, thus allowing such entities to manage their exchange positions, both regarding the composition of its assets, as well as the possibility to maintain or transfer their holdings out of the country, with its subsequent impact in the reserves.
Furthermore, the aforementioned regulation foresees that the entities shall carry out arbitrage and foreign exchange operations, to the extent that the counterparty is a branch or agency of local official banks, a foreign financial institution, total or majority ownership of an entity in foreign states, a foreign financial or exchange entity that is not incorporated in countries or territories where the Recommendations of the Financial Action Task Force, or a foreign company dedicated to the trading of banknotes from different countries and/or precious metals in coins or bars of good delivery and whose head office is located in a member country of the Basel Committee for Banking Supervision.
Further changes to the GEP regulation have been introduced by Communications “A” 6770 and 6780. Prior acceptance by the Central Bank is required to increase the ownership of foreign currency from the higher of the average foreign currency owned in August 2019 and at the close of August 31, 2019. Moreover, the institutions are not permitted to buy securities on the secondary market with liquidation on foreign currency.
Foreign Currency Net Global Position
AllThe foreign currency net global position shall consider all assets, liabilities, commitments and liabilities fromother instruments and transactions through financial intermediation in foreign currency or linked to exchange rate movements, including cash, forward transactions and securitiesother derivative contracts, deposits in foreign currency (originating in spot and forward transactions) are included in the net global position, including related derivatives and agreements contemplating variations in the rate of exchange, the items included in the computation of the “General Foreign Exchange Position,” foreign currency deposits in accounts maintainedopened with the Central Bank, as well as gold position, the Central Bank Billsmonetary regulation instruments in foreign currency, subordinated debt in foreign currency and debt securities issuedinstruments in foreign currency.
Forward transactions under master agreements executed in authorized domestic markets paid by settlement of the net amount without delivery of the underlying asset are also included. Likewise, certificates or notes issued by financial trusts and claims under common trusts are also included in the relevant proportion, provided that the underlying assets are denominated in foreign currency. The value of the position in currencies other than DollarsU.S. dollars shall be expressed in that currency, at the respective exchange rate published by the Central Bank.
Decreases in foreign currency assets due to thepre-cancellation of local financing to private sector customers, can only offset the foreign currency net global position up to the original term of maturity with the net increase in holdings of National Treasury securities in foreign currency. At the original maturity of local financing in foreign currency, it may be offset with the purchase of any foreign currency assets computable at the foreign currency net global position.
Deductible assets when determining a bank’s RPC, and Argentine government bonds linked to the growth of the GDP, the included concepts that the financial entity registers in its branches abroad and the loan agreements in Pesos with variable remuneration based on the variation in the price of the U.S. dollars that are not covered by the term investments with variable remuneration based on the U.S. dollar are excluded from the ratio.
Limits
Negative Foreign Currency Net Global Position (liabilities exceeding assets): as of June 21, 2018 (Communication “A” 6529) the limit is 30% of the RPC of the immediately preceding month (Communication “A” 6781).
Positive Foreign Currency Net Global Position (assets exceeding liabilities): This daily position (daily balance converted to Pesos at the reference exchange rate of the immediately preceding month) cannot exceed 5% of the RPC of the immediately preceding month.
Positive Foreign Currency Net Global Position (assets exceeding liabilities): Thisin Cash: this daily position (monthly average of the daily(daily balance converted to Pesos at the reference exchange rate)rate of the immediately preceding month) cannot exceed 5%the higher of U.S.$ 2,500,000 or the 4% of the lesser of the RPC or the entity’s own liquid assets (own liquid assets meaning the RPC surplus over fixed assets and other concepts to be computed in accordance with Central Bank regulation related to the “fixed assets and other concepts ratio”) of the immediately preceding month.
As of June 18, 2018, the Central Bank allows that the Positive Foreign Currency Net Global Position may reach up to 30% of the RCP, or the entity’s own liquid assets whichever is less, while the total excess over the general limit originates only as a result of:
a) increase in the position in USU.S. Treasury bills in USU.S. dollars with respect to those held as of June 15, 2018, and/or
b) position in NationalU.S. Treasury bills in USU.S. dollars as of June 15, 2018, maintained as excess admitted to the current limit as of that date.
c) increase in the position in National Treasury bills linked to U.S. dollars with respect to those held as of May 13, 2019.
The excesses of these ratios are subject to a charge equal to 1.5 times the average nominal interest rate of the shorter term Peso-denominated LELIQs auction published on the last business day of the relevant period or, if not available, the last one available for a shorter term. Charges not paid when due are subject to a charge equal to one and a half times the charge established for excesses.
In addition to the above-mentioned charge, sanctions set forth in section 41 of the Financial Institutions Law shall apply (including: caution; warning; fine; temporary or permanent disqualification to dispose of a banking current account; temporary or permanent disqualification to act as promoters, founders, directors, administrators, members of surveillance committees, comptrollers, liquidators, managers, auditors, partner or shareholders; and license revocation).
Assignment of foreign exchange positions by financial and foreign exchange entities
On December 17, 2015, Communication “A” 5852 provided that financial entities authorized to deal in exchange transactions and foreign exchange entities were required to sell to the Central Bank their respective positive foreign currency positions at closing on December 16, 2015, valued at the reference exchange rate of such date, and then repurchase them in full. The repurchase transaction could be effective as of December 17, 18 or 21, 2015, at the Central Bank’s discretion, at the reference exchange rate prevailing on the day of the repurchase.
In particular, an open purchase position in U.S. dollar futures traded on theMercado a Término de Rosario S.A. (Rosario Futures Exchange, or “ROFEX”) and having had its original price adjusted as provided under Item II of Communication 657 of Argentina Clearing S.A. was required to be sold to the Central Bank at the adjusted original price resulting from the enforcement of such Communication, and then repurchased in full at the reference exchange rate prevailing on the day of the repurchase.
For the purpose of exercising the repurchase date option contemplated in the first paragraph, the entities were required to submit a letter signed by its president or chief local officer to the General OperationsSub-department before 10:00 a.m. of the selected day, expressly stating the decision it had adopted.
If an entity failed to exercise the option contemplated in the first paragraph or to comply with any of the formal requirements set forth above, the repurchase was to be completed on December 22, 2015 at the reference exchange rate prevailing on such date.
The notion of “foreign currency position” referred to above was determined as follows: (i) for foreign exchange bureaus, agencies and offices: their GEP; and (ii) for financial entities authorized to deal in foreign exchange transactions: their net global foreign currency position, less any net assets corresponding to their liabilities in foreign-currency denominated government securities, based on the currency in which the respective financial services were paid (either a foreign currency or U.S. dollar-linked Argentine Pesos).
If the determined foreign currency position was negative, no sale to the Central Bank and repurchase was required.
Fixed Assets and Other Items
The Central Bank determines that the fixed assets and other items maintained by the financial entities must not exceed 100% of the entity’s RPC.
Such fixed assets and other items include the following:
Shares of local companies;
Miscellaneous receivables;
Property and equipment; and
Other assets.
The calculation of such assets will be effected according to themonth-end balances, net of depreciations, accumulated amortizations and allowances for loan losses.
Non-compliance with the ratio produces an increase in the minimum capital requirements equal to 100% of the excess on the ratio.
Credit Ratings
Since November 28, 2014, Communication “A” 5671, as amended by Communication “A” 6162, supersedes the provisions issued by the Central Bank containing ratings requirements assigned by a local risk rating company. Where provisions require certain international ratings, the criteria set forth by Communication “A” 5671 govern.
The provisions of Communication “A” 5671 are basic guidelines to properly assess the credit risk that financial institutions must observe when implementing Central Bank Rules including the requirement of a particular rating and do not replace the credit assessment that each financial institution must make to their counterparts. International credit ratings that refer to these provisions shall be issued by rating agencies that have a code of conduct based on the “Principles of the Code of Conduct for Agents Rate Risk” issued by the International Organization of Securities Commissions.
Annex II of Communication “A” 5671 provides a table regarding the new qualification requirements for financial institutions. This table classifies the credit ratings requirements for different transactions.
Debt Classification and Loan Loss Provisions
Unless otherwise indicated, the regulations explained in this section should be applied to financial information of the banks calculated in accordance with Central Bank Rules. IFRS differs in certain significant respects from Central Bank Rules.
Credit Portfolio
The regulations on debt classification are designed pursuant to Central Bank Rules, which differ from IFRS to establish clear guidelines for identifying and classifying the quality of assets, as well as evaluating the actual or potential risk of a lender sustaining losses on principal or interest, in order to determine (taking into account any loan security) whether the provisions against such contingencies are adequate. Banks must classify their loan portfolios into two different categories: (i) consumer or housing loans and (ii) commercial loans. Consumer or housing loans include housing loans, consumer loans, credit-card financings, loans of up to Ps.7,920,000Ps. 29,740,000 to micro-credit institutions, and commercial loans of up to Ps.7,920,000Ps. 29,740,000 with or without preferred guarantees when the institution elected. All other loans are considered commercial loans. Consumer or housing loans in excess of Ps.7,920,000,Ps. 29,740,000, the repayment of which is linked to the evolution of its productive or commercial activity, are classified as commercial loans. If a customer has both kinds of loans (commercial and consumer or housing loans), the consumer or housing loans will be added to the commercial portfolio to determine under which portfolio they should be classified based on the amount indicated. In these cases, the loans secured by preferred guarantees shall be considered to be at 50% of its face value.
Under the current debt classification system, each customer, as well as the customer’s outstanding debts, are included within one of sixsub-categories. The debt classification criteria applied to the consumer loan portfolio are primarily based on objective factors related to customers’ performance of their obligations or their legal standing, while the key criterion for classifying the commercial loan portfolio is each borrower’s paying ability based on their future cash flow.
Commercial loans classification
The principal criterion used to evaluate a loan pertaining to the commercial portfolio is its borrower’s ability to repay it, whose ability is mainly measured by such borrower’s future cash flow. Pursuant to Central Bank Rules, commercial loans are classified as follows:
Classification | Criteria | |
Normal Situation | Borrowers that demonstrate their ability to comply with their payment obligations. High repayment capacity. | |
Subject to special Monitoring/Under observation | Borrowers that, among other criteria, are up to 90 days past due and, although considered to be able to meet all their financial obligations, are sensitive to changes that could compromise their ability to honor debts absent timely corrective measures. |
Subject to special Monitoring/ Under negotiation or refinancing agreement | Borrowers who are unable to comply with their obligations as agreed with the bank and, therefore, formally state, within 60 calendar days after the maturity date, their intention to refinance such debts. The borrower must enter into a refinancing agreement with the bank within 90 calendar days (if up to two lenders are involved) or 180 calendar days (if more than two lenders are involved) after the payment default date. If no agreement has been reached within the established deadline, the borrower must be reclassified to the next category according to the indicators established for each level. | ||
Troubled | Borrowers with difficulties honoring their financial obligations under the loan on a regular basis, which, if uncorrected, may result in losses to the bank. | ||
With high risk of insolvency | Borrowers who are highly unlikely to honor their financial obligations under the loan. |
Irrecoverable | Loans classified as irrecoverable at the time they are reviewed (although the possibility might exist that such loans might be collected in the future). The borrower will not meet its financial obligations with the financial institution. | |
Irrecoverable according to Central Bank’s Rules | (a) Borrower has defaulted on its payment obligations under a loan for more than 180 calendar days according to the corresponding report provided by the Central Bank, which report includes: (1) financial institutions liquidated by the Central Bank, (2) residual entities created as a result of the privatization of public financial institutions, or in the privatization or dissolution process, (3) financial institutions whose licenses have been revoked by the Central Bank and find themselves subject to judicial liquidation or bankruptcy proceedings and (4) trusts in whichSeguro de Depósitos S.A.(SEDESA) is a beneficiary; or (b) certain kinds of foreign borrowers (including banks or other financial institutions that are not subject to the supervision of the Central Bank or similar authority of the country in which they are incorporated) that are not classified as “investment grade” by any of the rating agencies approved by the Central Bank. |
Consumer or housing loans classification
The principal criterion applied to loans in the consumer and housing portfolio is the length of period for which such loans remain overdue. Under Central Bank Rules, consumer and housing borrowers are classified as follows:
Classification | Criteria | |
Normal Situation | If all payments on loans are current or less than 31 calendar days overdue and, in the case of checking account overdrafts, less than 61 calendar days overdue. | |
Low Risk | Loans upon which payment obligations are overdue for a period of more than 31 and up to 90 calendar days. | |
Medium Risk | Loans upon which payment obligations are overdue for a period of more than 90 and up to 180 calendar days. | |
High Risk | Loans in respect of which a legal action seeking collection has been filed or loans having payment obligations overdue for more than 180 calendar days, but less than 365 calendar days. | |
Irrecoverable | Loans in which payment obligations are more than one year overdue or the debtor is insolvent or in bankruptcy or liquidation. | |
Irrecoverable Loans | Loans in which payment obligations are more than one year overdue or the debtor is insolvent or in bankruptcy or liquidation. | |
Irrecoverable according to Central Bank’s Rules | Same criteria as for commercial loans in the Irrecoverable according to Central Bank Rules. |
Minimum Credit Provisions
Unless otherwise indicated, the financial regulations described in this section have been prepared in accordance with Central Bank Rules. IFRS differs in certain significant respects from Central Bank Rules. SeeItem 5B.“Critical accounting policies”and note 3 to our audited consolidated financial statements as of December 31, 2019, 2018 and 2017.
The following minimum credit provisions are required to be made by Argentine banks in relation to the credit portfolio category:
Category | With Preferred Guarantees | Without Preferred Guarantees | ||||||
“Normal situation” | 1 | % | 1 | % | ||||
“Under observation” and “Low risk” | 3 | % | 5 | % | ||||
“Under negotiation or refinancing agreement” | 6 | % | 12 | % | ||||
“With problems” and “Medium Risk” | 12 | % | 25 | % | ||||
“With high risk of insolvency” and “High Risk” | 25 | % | 50 | % | ||||
“Irrecoverable” | 50 | % | 100 | % | ||||
“Irrecoverable according to Central Bank’s Rules” | 100 | % | 100 | % |
The Superintendency may require additional provisioning if it determines that the current level is inadequate.
Financial institutions are entitled to record allowances for loan losses in amounts larger than those required by Central Bank Rules. In such cases and despite the existence of certain exceptions, recording a larger allowance for a commercial loan, to the extent the recorded allowance amount falls into the next credit portfolio category set forth by Central Bank Rules, shall automatically result in the corresponding debtor being recategorized accordingly.
Minimum frequency for classification review
In accordance with Central Bank Rules financial institutions are required to develop procedures for the analysis of the credit facilities assuring an appropriate evaluation of a debtor’s financial situation and a periodic revision of its situation concerning objective and subjective conditions of all the risks taken. The procedures established have to be detailed in a manual called “Manual of Procedures for Classification and Allowances” which shall be permanently available for the Superintendency. The frequency of the review of existing classifications must answer to the importance considering all facilities. The classification analysis shall be duly documented.
In the case of commercial loans, applicable regulations require a minimum frequency of review. Such review must take place: (i) quarterly for clients with indebtedness equal or greater than 5% of the financial entity’s RPC for the prior month and (ii) semi-annually for clients whose indebtedness is (x) higher than the lower of 1% and Ps. 19.800.00029.740.000 of the financial entity’s RPC for the prior month, and (y) lower than 5% of the financial entity’s RPC for the prior month. At the end of the first calendar semester, the total review under (i) and (ii) should have covered no less than 50% of the financial entity’s commercial loan portfolio and, if less, it shall be completed by incorporating clients (in descending order) whose total indebtedness is inferior to the limits described in the preceding point (ii)(x).
In addition, financial institutions have to review the rating assigned to a debtor in certain instances, such as when another financial institution reduces the debtor classification in the “Credit Information Database” (the “Credit Information Database”) and grants 10% or more of the debtor’s total financing in the financial system. Onlyone-level discrepancy is allowed in relation to the information submitted by financial institutions to the Credit Information Database and the lower classification awarded by at least two other banks and total lending from such banks account for 40% or more of the total informed; if there is a greater discrepancy, the financial institution will be required to reclassify the debtor.
Allowances for loan losses
The Central Bank Rules establishes minimum requirements for allowances for loan losses, in accordance with the category assigned to the client and the type of guarantee. Entities may have allowances for amounts higher than the minimum requirements, as deemed reasonable. Allowances are designed pursuant to the Central Bank Rules which differ from IFRS. SeeItem 5B.“Critical accounting policies”and note 3 to our audited consolidated financial statements as of December 31, 20182019 and 2017.2018.
Increases in the allowance are based on the level of growth of the loan portfolio, as well as on the deterioration of the quality of existing loans, while decreases in the allowance are based on regulations requiring thewrite-off ofnon-performing loans classified as irrecoverable after a certain period of time and on decisions of the management to write offnon-performing loans evidencing a very low probability of recovery.
Priority rights of depositors
Under section 49 of the Financial Institutions Law, in the event of judicial liquidation or bankruptcy of a bank all depositors, irrespective of the type, amount or currency of their deposits, will be senior to the other remaining creditors (such as shareholders of the bank), with exceptions made for certain labor liens (section 53 paragraphs (a) and (b)) and for those creditors backed by a pledge or mortgage, in the following order of priority: (a) deposits of up to Ps.1,000,000Ps.50,000 per person (including all amounts such person deposited in one financial entity), or its equivalent in foreign currency, (b) all deposits of an amount higher than Ps. 1,000,00050,000 or its equivalent in foreign currency, and (c) the liabilities originated in commercial lines granted to the financial institution and which directly affect international commerce. Furthermore, pursuant to section 53 of the Financial Institutions Law, as amended, Central Bank claims have absolute priority over other claims, except for pledged or mortgaged claims, certain labor claims, the depositors’ claims pursuant to section 49, paragraph e), points i) and ii), debt granted under section 17, paragraphs (b), (c) and (f) of the Central Bank’s Charter (including discounts granted by financial entities due to a temporary lack of liquidity, advances to financial entities with security interest, assignment of rights, pledges or special assignment of certain assets) and debt granted by the Banking Liquidity Fund backed by a pledge or mortgage.
The amendment to section 35 bis of the Financial Institutions Law by Law No. 25,780 sets forth that if a bank is in a situation where the Central Bank may revoke its authorization to operate and become subject to dissolution or liquidation by judicial resolution, the Central Bank’s Board of Directors may take certain actions. Among these actions, in the case of excluding the transfer of assets and liabilities to financial trusts or other financial entities, the Central Bank may totally or partially exclude the liabilities mentioned in section 49, paragraph (e), as well as debt defined in section 53, giving effect to the order of priority among creditors. Regarding the partial exclusion, the order of priority of paragraph (e), section 49 must be followed without treating liabilities of the same grade differently.
Mandatory deposit insurance system
Law No. 24,485, passed on April 12, 1995, as amended, created a Deposit Insurance System, or “SSGD,” which is mandatory for bank deposits, and delegated the responsibility for organizing and implementing the system to the Central Bank. The SSGD is a supplemental protection to the privilege granted to depositors by means of section 49 of the Financial Institutions Law, as mentioned above.
The SSGD has been implemented through the establishment of a Deposit Guarantee Fund, or “FGD,” managed by a private-sector corporation calledSeguro de Depósitos Sociedad Anónima, (Deposit Insurance Corporation, or “SEDESA”). According to Decree No. 1292/96, the shareholders of SEDESA are the government through the Central Bank and a trust set up by the participating financial institutions. These institutions must pay into the FGD a monthly contribution determined by Central Bank Rules. The SSGD is financed through regular and additional contributions made by financial institutions, as provided for in Central Bank Communication “A” 4271, dated December 30, 2004.
The SSGD covers deposits made by Argentine individuals and legal entities in Pesos and foreign currency and maintained in accounts with the participating financial institutions, including checking accounts, savings accounts, and time deposits up to the amount of Ps.350,000, as set forth by Central Bank Communication “A” 5659, dated October 31, 2014, as amended, which pursuant to Communication “A” 6654 of the Central Bank, dated February 26, 2019, as of march 1, 2019 the amount covered by the SSGD is currently Ps.1,000,000.Ps.1,500,000.
Effective payment on this guaranty will be made within thirty (30) business days after revocation of the license of the financial institution in which the funds are held; such payments are subject to the exercise of the depositor’s priority rights described above.
In view of the circumstances affecting the financial system, Decree No. 214/2002 provided that SEDESA may issue registered securities for the purpose of offering them to depositors in payment of the guarantee in the event it should not have sufficient funds available.
The SSGD does not cover: (i) deposits maintained by financial institutions in other financial institutions, including certificates of deposit bought in the secondary market, (ii) deposits made by persons directly or indirectly affiliated with the institution, (iii) time deposits of securities, acceptances or guarantees, (iv) any transferable time deposits that have been transferred by endorsement, (v) any deposits in which the agreed-upon interest rate is higher than the reference interest rates periodically released by the Central Bank for time deposits, with the exception of those arranged in Pesos at the minimum nominal rate for human beings up to the sum of Ps. 1,000,000 per depositor, and demand deposit account balances and available amounts from overdue deposits or closed accounts, and (vi) immobilized creditbalances from deposits and excluded transactions.
Pursuant to Communication “A” 5710,5943, every financial institution is required to contribute to the FGD a monthly amount of 0.06%0.015% of the monthly average of daily balances of deposits in local and foreign currency, as determined by the Central Bank.
When fixed term deposits in U.S. dollars of the privatenon-financial sector are used to purchase Central Bank bills denominated in U.S. dollars, financial institutions must contribute 0.015% of the monthly average of daily balances of the net position of such bills. Prompt contribution of such amounts is a condition precedent to the continuing operation of the financial institution. The first contribution was made on May 24, 1995. The Central Bank may require financial institutions to advance the payment of up to the equivalent of two years of monthly contributions and debit the past due contributions from funds of the financial institutions deposited with the Central Bank. The Central Bank may require additional contributions by certain institutions, depending on its evaluation of the financial condition of those institutions. Pursuant to Communication “A” 5943, effective as of April 7, 2016, the monthly contribution to the FDG was established as 0.015%.
When the contributions to the FGD reach the greater of Ps.2 billion or 5.0% of the total deposits of the system, the Central Bank may suspend or reduce the monthly contributions, and reinstate them when the contributions subsequently fall below that level.
Central Bank’s preventive measures in response to the pandemic ofCOVID-19
The Argentine government and the Central Bank issued a series of preventive measures in order to mitigate theCOVID-19 pandemic’s economic impact. In this regard, on March 19, 2020, the Executive Branch issued Decree No. 297/2020 by means of which a mandatory quarantine was established from March 20, 2020 through March 31, 2020, which was then subsequently extended through May 24, 2020 (the “Quarantine Period”). However, since April 13, 2020, the government supervised a gradual relaxation of the quarantine and social distancing measures.
In this context, the Central Bank issued Communications “A” 6939 and “A” 6942, by means of which it was determined that during the Quarantine Period: (i) financial institutions shall not be open to the public; and (ii) the maturity of financings granted by local financial institutions scheduled for the Quarantine Period were postponed. Communication “A” 6949 also waived any punitive interest on unpaid balances in credits granted by financial entities.
On a different note, by means of Communication “A” 6939, the Central Bank suspended, until June 30, 2020, the distribution of dividends by financial entities. For more information, please see “Argentine Banking Regulations— Requirements applicable to dividend distribution.”
Through Communication “A” 6945, the Central Bank decided that until June 30, 2020, any operation effected through ATMs shall not be subject to any charges or fees.
By virtue of Communication “A” 6964, the Central Bank determined that the unpaid balances of credit cards financings due between April 13, 2020 and April 30, 2020, will be automatically refinanced in nine equal consecutive monthly installments beginning after a three-month grace period. Moreover, by means of Communication “A” 6993, dated April 24, 2020, the Central Bank established a zero interest-rate financings policy, applicable only to the eligible clients to be determined in the future by the AFIP, in accordance with Communication “B” 12001. For more information, see “Item 4.B—Argentine Banking Regulation— Credit Card Interest Rate.”
Additionally, on March 25, 2020, the Executive Branch issued Decree No. 312/2020, by means of which both the obligation to close and inhibit checking accounts, as well the imposition of penalties, were originally suspended until April 30, 2020, which was susbsequently extended until June 30, 2020 by virtue of Decree 429/2020. Furthermore, Decree No. 319/2020 established the freezing of mortgage payments if the mortgaged property is the only and permanent residence of the debtor, until September 30, 2020. The Decree also resolved the freezing of UVA pledge loans (cr��ditos prendarios) and the suspension of mortgage foreclosures until September 30, 2020. For more information, please see “Item 3.D—Risk Factors—Risks related to the Argentine financial system—Our asset quality and that of other financial institutions may deteriorate if the Argentine private sector does not fully recover”.
Other measures
• | Classification of Debtors: On March 19, 2020, the Central Bank issued Communication “A” 6938, by virtue of which new rules regarding the criteria for debtor classification and provisioning are to be adopted. Among these rules, commercial portfolio clients of credits for consumption or housing –will be granted a default60-day rule – applicable until September 30, 2020. |
• | Facilities and Government Guarantees to Finance Payment Of Salaries: Decree 326/2020 created a fund of specific application within the FOGAR (acronym in Spanish forFondo de Garantías Argentino, or Argentine Guarantee Fund), with the aim of backing financings provided to SMEs by financial entities in order to pay salaries. Simultaneously, the Central Bank also reduced the positions restrictions on the maximum position in liquidity notes from the Central Bank (LELIQ), in order to make available liquidity and encourage the provision of credit lines to SMEs. In this line, on March 26, 2020, the Central Bank also issued Communication “A” 6946, by means of which the facilities granted at a preferential rate (not more than 24% per year) within the framework of Communication “A” 6937 may be deducted from the requirement of minimum cash in pesos, considering 130% of its amount when its destination is the payment of assets and the granting entity is the agent of payment of those assets. These assistances will be foreseen-up to their cancellation- based on the classification of the Small andMedium-Sized company at the time of granting. The amounts of: a) the reduction of the provisions by application of this measure; b) the reduction of the provisions due to the suspension of the application of the expected credit losses criterion for Group B entities; and c) the increase in the RPC due to the positive difference between the provisions according to IFRS and according to the Central Bank’s regulatory framework for Group A entities, must be subtracted from the calculation to determine the distributable profit. |
• | Remote shareholders and board of directors meetings: By means of CNV’s General Resolution No. 830/2020, dated March 3, 2020, publicly listed entities are allowed to celebrate remote shareholders and board of directors meetings, via electronic means, even if their respective bylaws do not foresee this method, respecting the minimum requirements to ensure the integrity of the vote of each participant and the presence of all shareholders and members,. At the firstface-to-face meeting after the Quarantine Period, the shareholders’ meeting shall, with the quorum and the majority for the reform of the bylaws, approve any meetings held remotely. |
• | Automatic credit card refinancing. By means of Communication “A” 6964, the Central Bank determined that the unpaid balances of credit cards financings that take place between April 13, 2020 and April 30, 2020, will be automatically refinanced in nine equal consecutive monthly installments beginning after a three-month grace period. From April 13, 2020, such unpaid balances shall only accrue compensatory interests, which cannot exceed an annual nominal rate of 43%. |
• | Time deposits minimum rate. By virtue of Communication “A” 6980, the Central Bank ruled that allnon-adjustable time deposits under Ps. 1 million integrated by natural people as of April 20, 2020, shall have a minimum rate equivalent to the 70% of the average LELIQ’s tendering. |
• | Securities-guaranteed transactions prohibition. By means of Communication “A” 6978, the Central Bank forbid financial institutions to guarantee transactions via securities (caución bursátil). |
• | Deposit Insurance System. Pursuant to Communication “A” 6973, the Central Bank raised the amount covered by the Deposit Insurance System to Ps. 1,500,000. |
Other restrictions
Pursuant to the Financial Institutions Law, financial institutions cannot create any kind of rights over their assets without the Central Bank’s authorization. Furthermore, in accordance with section 72 of Capital Markets Law, publicly offered companies are forbidden to enter into transactions with their directors, officers or affiliates in terms more favorable than arms-length transactions.
Capital Markets
Commercial banks are authorized to subscribe for and sell shares and debt securities. At present, there are no statutory limitations as to the amount of securities for which a bank may undertake to subscribe. However, under Central Bank Rules, underwriting of debt securities by a bank would be treated as “financial assistance” and, accordingly, until the securities are sold to third parties, such underwriting would be subject to limitations.
On September 9, 2013, the CNV published Resolution No. 622/2013 (the “CNV Rules”) supplementing the Capital Markets Law. The CNV Rules have been in force since September 18, 2013. On May 9, 2018, the Argentine Congress approved the Argentine Productive Financing Law No. 27,440, which modernized and completed the legal framework of the Argentine capital markets. Law No. 27,440 amended the Capital Markets Law,legal framework of the Mutual Funds Lawcapital markets (Law No. 24,08326,831), mutual funds (Law No. 24,083), negotiable obligations (Law No. 23,576), the Argentine Civil and Commercial Code (Law No. 26,994), financing of housing and construction (Law No. 24,441), the subjects obliged to report on concealing and asset laundering of criminal origin in the capital market framework (Law No. 25,246), and the Negotiable Obligations Law, among other regulations and introduced substantial changes to regulations governing markets, stock exchanges andtax relief regime for the various agents operating in capital markets, as well as certain amendments to the CNV’s powers.For more information, please see, “Risk Factors—Risks relating to Argentina—The Argentine economy remains vulnerable and any significant decline could adversely affect our financial condition.”purchase of private securities (Law No. 20,643).
TM20
Beginning October 5, 2017, the Central Bank has begun to publish on a daily basis a survey of the average interest rates paid by Banks for their fixed-term deposits of over Ps.20 million, for terms of between 30 and 35 days (the “TM20”), in order to reflect the behavior of wholesale depositors.
A TM20 denominated in U.S. dollars will also be published for deposits for the same term that are for U.S.$20 million or more.
The information published by the Central Bank is broken down by public vs. private banks, both for operations in Pesos and foreign currencies.
Financial institutions with economic difficulties
The Financial Institutions Law provides that any financial institution, including a commercial bank, operating at less than certain required technical ratios and minimum net worth levels,(i) with its solvency or liquidity affected, in the judgmentopinion of the Central Bank adoptedBank; (ii) recording deficiencies on the minimum cash reserve requirement during the periods established by members representing the majority ofCentral Bank; (iii) recording repeated failures to comply with the board of directors, with impaired solvencyvarious limits or liquiditytechnical relations established; or in any of(iv) that could not maintain the other circumstances listed in Section 44 of the Financial Institutions Law,minimum asset liability required for its particular class, location or characteristics, must (upon request from the Central Bank and in order to avoid the revocation of its license) prepare a restructuring plan or a remediation and regularization plan. The plan must be submitted to the Central Bank on a specified date, no later than thirty (30) calendar days from the date on which a request to that effect is made by the Central Bank. If the institution fails to submit, secure regulatory approval of, or comply with, a restructuring plan, the Central Bank will be empowered to revoke the institution’s license to operate as such.such, without prejudice to the application of the penalties provided for in the aforementioned law.
The Central Bank may appoint overseers with veto power, require the provision of guarantees and limit or forbid the distribution or remittance of profits, temporarily admit exceptions to the relevant limits and technical relations; exempt or defer the payment of charges and/or fines as provided by the Financial Institutions Law.
The Central Bank’s charter authorizes the Superintendency to fully or partially suspend, exclusively subject to the approval of the President of the Central Bank, the operations of a financial institution for a term of thirty (30) days if the liquidity or solvency thereof is adversely affected. Such term could be renewed for up to ninety (90) additional days, with the approval of the Central Bank’s Board of Directors. During such suspension term an automatic stay of claims, enforcement actions and precautionary measures is triggered, any commitment increasing the financial institution’s obligations shall be null and void, and debt acceleration and interest accrual shall be suspended.
Institution restructuring to safeguard credit and bank deposits
If a financial institution meets the Central Bank’s criteria and is found to be in a situation coveredany of the situations foreseen by Section 44 of the Financial Institutions Law, then the Central Bank is authorizedmay authorize the restructuring of the financial institution in defense of depositors, prior to revokerevocation of the institution’s operation license. The Central Bank may order a restructuring plan before revoking an institution’s license.authorization to operate. The restructuring plan may consist of certain steps, including, among others:
adoption of a list of measures to capitalize or increase the capital of the financial institution;
revoke the approval granted to the shareholders of the financial institution to hold interests therein;
restructureexclusion or transfer assets and liabilities;
grant temporary exemptionsjudicial intervention of the institution, displacing the statutory administrative authorities, and determine the capabilities needed to comply with technical regulations or payment of charges and penalties arising from such flawed compliance; orthe assigned function.
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Revocation of the license to operate as a financial institution
The Central Bank may revoke the license to operate as a financial institution (a) as a request of the legal or statutory authorities of the institution; (b) in the situations outlinedcases contemplated by the Argentine Civil and Commerce Code or in the laws governing its existence as a legal entity; (c) when, as opinion of the Central Bank, the affections to the solvency and/or liquidity of the institution cannot be solved through a regularization and sanitation program; (d) in the rest cases provided by the Financial Institutions Law. These situations include if a restructuring plan fails or is not deemed feasible, local laws and regulations are violated, the solvency or liquidity of the financial institution is affected, significant changes occur in the institution’s condition from when the original authorization was granted, if any decision by the financial institution’s legal or corporate authorities concerning its dissolution is adopted, among other circumstances set forth in the Financial Institutions Law. In addition, pursuant to the Central Bank regulations on “Incorporation of Financial Entities,” sanctions imposed by the Central Bank, the UIF, the CNV and/or the National Superintendency of Insurance (Superintendencia de Seguros de la Nación) on financial institutions and/or their authorities, may result in the revocation of their licenses to operate as financial institutions. Such revocation may occur when, in the opinion of the Board of Directors of the Central Bank, there was a material change in the conditions deemed necessary to maintain such license, including those relating to the suitability, experience, moral character or integrity of:
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For such purposes, the Superintendency also takes into consideration information that it receives from, and/or sanctions imposed by, equivalent foreign agencies or authorities. When weighing the significance of the sanctions, the Superintendency takes into account the type of sanctions, the underlying reason for such sanctions and the amount of sanctions imposed on the financial institution. Additionally, the Superintendency factors in the degree of participation in the events leading up to the sanction, the economic effects of the violation, the degree of damage caused to third parties, the economic benefit that the sanctioned party received from the violation, the sanctioned party’s operating volume, its liability and the title or function that such party holds.
Once the license to operate as a financial institution has been revoked, the financial institution will be liquidated.
Liquidation of financial institutions
As provided in the Financial Institutions Law, the Central Bank must notify the revocation decision to a competent court, which will then determine who will liquidate the entity: the corporate authorities (extrajudicial liquidation) or an independent liquidator appointed by the court for that purpose (judicial liquidation). The court’s decision will be based on whether there are sufficient assurances that the corporate authorities are capable of carrying out such liquidation properly.properly, prior authorization of the Central Bank and in the cases provided by subsections a) and b) of section 44 of the aforementioned law.
Bankruptcy of financial institutions
According to the Financial Institutions Law, financial institutions are not allowed to file their own bankruptcy petitions. In addition, the bankruptcy shall not be adjudged until the license to operate as a financial institution has been revoked.
Once the license to operate as a financial institution has been revoked, a court of competent jurisdiction may adjudge the former financial institution in bankruptcy, or a petition in bankruptcy may be filed by the Central Bank or by any creditor of the bank, in this case after a period of sixty (60) calendar days has elapsed since the license was revoked.
Once the bankruptcy of a financial institution has been adjudged, provisions of the Bankruptcy Law No. 24,522 (the “Bankruptcy Law”) and the Financial Institutions Law shall be applicable. In certain cases, specific provisions of the Financial Institutions Law shall supersede the provisions of the Bankruptcy Law (i.e., priority rights of depositors).
Merger consolidation and transfer of goodwill
Merger consolidation and transfer of goodwill may be arranged between entities of the same or different type and will be subject to the prior approval of the Central Bank. The new entity or the buyer must submit a financial-economic structure profile supporting the project in order to obtain authorization from the Central Bank.
Holding Companies
On June 28, 2019, the Central Bank ruled, through Communication “A” 6723, with effect from January 1, 2020, that Group “A” financial institutions (in accordance with the “Financial Institutions Authorities” rules) which are controlled bynon-financial institutions (as in our case in relation with the Bank) shall comply with the Minimum Capital requirements (please see “Argentine Banking Regulation—Liquidity and Solvency Requirements—Minimum Capital Requirements”), the Major Exposure to Credit Risk regulations (please see “ArgentineBanking Regulation—Credit Risk Regulation—Large Exposures”), the Liquidity Coverage Ratio (please see “Argentine Banking Regulation—Internal Liquidity Policies of Financial Institutions”) and theNet Stable Funding Ratio (please see “Argentine Banking Regulation—Liquidity Parameters—Net Stable Funding Ratio”) on a consolidated basis comprising thenon-financial holding and all its subsidiaries (excluding insurance companies andnon-financial subsidiaries).
Additionally, Group “A” financial institutions may not grant direct or indirect financial assistance of any kind to its holding company whenever it is anon-financial institution.
Financial system restructuring unit
The Financial System Restructuring Unit was created to oversee the implementation of a new approach towards those banks that benefit from assistance provided by the Central Bank. This unit is in charge of rescheduling maturities, determining restructuring strategies and action plans, approving transformation plans, and accelerating repayment of the facilities granted by the Central Bank.
Anti-money launderingCredit card interest rate
Recently, by virtue of Communication “A” 6964, the Central Bank determined that the unpaid balances of credit cards financings that take place between April 13, 2020 and April 30, 2020, shall be automatically refinanced for at least one year with 3 grace months in 9 equal and consecutive monthly installments. From April 13, 2020, such unpaid balances shall only accrue compensatory interests, which cannot exceed an annual nominal rate of 43% nor shall they exceed 25% of the resulting from the average interest rates that the entity has applied, during the previous month, taking only into consideration the corresponding amount of personal loans without security guarantees granted in the same period.
Furthermore, by means of Communication “A” 6993, dated April 24, 2020, the Central Bank established a zero interest-rate financing policy (applicable only to the eligible clients to be later determined by AFIP in accordance with Communication “B” 12001), to whom the financial institutions may grant credit card financings to be paid in at least 12 equal and consecutive installments after a6-month grace period. In regards to these loans, the minimum cash requirement will be reduced in accordance with the provisions of Decree No. 332/2020 (as amended and restated). Additionally, companies which are granted a zero interest-rate loan may not, until full repayment: (i) access the foreign exchange market to carry out operations corresponding to the formation of external assets, remittance of family aid and derivatives; and, (ii) sell securities with settlement in foreign currency or transfer them to other depositary entities (contado con liquidación).
Fintech regulations
The Central Bank has recently issued Communications “A” 6885 (repealing Communication “A” 6859), by means of which it began to regulate certain aspects ofFintech operations. Through these communications, it defined Payment Service Provider (“PSP”) as thosenon-financial entities in retail payments, performing under the global framework of the payment system, such as offering payment accounts to order and/or receive payments.
On January 30, 2020, the Central Bank issued Communication “A” 6885, by means of which consolidated the rules for the operation of PSPs and established a specific registry for them. Particularly, Communication “A” 6885 forbids entities to operate as PSP if (i) they are not properly incorporated in Argentina; (ii) they are incorporated as a stock exchange, clearing chamber or agent under the CNV Rules; or (iii) if its capital, right votes, administrative or inspection body are integrated by people disqualified for performing financial activities in Argentina by the Financial Institutions Law, condemned by crimes against property, the public administration, the economic and financial order or public faith, privacy violations, illicit association or by section 1.b of the Foreign Exchange Criminal Regime.
Regarding the registry, Communication “A” 6885 commands that all PSPs that offer payment account must register with the “Registry of Payment Service Providers that Offer Payment Accounts”. Additionally, all PSPs shall comply with a reporting regime to be furthered ruled by the Central Bank.
In what respects to the management of the funds, it provided that all funds credited to payment accounts offered by PSPs shall be (i) available at all times, for an amount at least equivalent to the one credited in the payment account; (ii) deposited in Pesos, inon-sight accounts in Argentine financial entities; and (iii) on an independenton-sight account from the one used for trading for own account (e.g.: creditor or salary payments).
Any breach of the rules as set on the abovementioned communication is submitted to the sanctions of the Financial Institutions Law.
Anti-Money Laundering and Terrorism Financing Regime
The concept of money laundering is generally used to denote transactions aimed at introducing funds from illicit activities into the institutional system and thus transform gains from illegal activities into assets of a seemingly legitimate source.
Terrorist financing is the act of providing funds for terrorist activities. This may involve funds raised from legitimate sources, such as personal donations and profits from businesses and charitable organizations, as well as from criminal sources, such as drug trade, weapons and other goods smuggling, fraud, kidnapping and extortion.
On April 13, 2000, the ArgentineNational Congress passed Law No. 25,246, assubsequently amended by Laws No. 26,087, 26,119, 26,286,26,268, 26,683 26,734, 26,831 and 26,860 (together26.734 (jointly, the “Anti-Money Laundering“AML/ CFT Law”), which sets forth an administrative criminal systemcreated at the national level the Anti- Money Laundering and supersedes several sectionsTerrorism Financing Regime (“AML/CFT Regime”), criminalizing money laundering, creating and designating the UIF as the enforcement authority of the regime, and establishing the legal obligation for various public and private sector entities and professionals to provide information and cooperate with the UIF.
The UIF is a decentralized agency that operates with autonomy and financial independency under the Ministry of Economy, and its mission is to prevent and deter the crimes of money laundering and terrorist financing.
The following are certain provisions relating to the AML/CFT Regime established by the AML/ CFT Law and its amending and complementary provisions, including regulations issued by the UIF and the CNV and the Central Bank. It is recommended that investors consult their own legal advisors and read the AML/ CFT Law and its complementary regulations.
Money laundering and terrorist financing in the Argentine Criminal Code
a)Money laundering
Section 303 of the Argentine Criminal Code related to money laundering.
The Anti-Money Laundering Law(the “ACC”) defines money laundering as a crime committed whenever a person converts, transfers, manages, sells, encumbers, disguisesconceals or in any other way commercializes goods obtained through a crime,puts into circulation in the market, property derived from an unlawful act, with the possible consequence that the origin of the original assetsproperty or the substitute may appear to besubordinate property acquires the appearance of a legitimate origin.lawful origin, either in a single act or by the repetition of various acts linked to each other. Section 303 of the ACC establishes the following penalties:
(i) If the amount of the operation exceeds Ps.300,000, imprisonment of three (3) to ten (10) years and fines of two to ten times the amount of the operation shall be imposed. This penalty will be increased by one third of the maximum and half of the minimum, when:
(a) the person performs the act on a habitual basis or as a member of an illicit association constituted for the continuous commission of acts of this nature;
(b) the person is a public official who committed the act in the exercise or on the occasion of his/her functions. In this case, he/she shall also be subject to a penalty of special disqualification of three to ten years. The same penalty shall be imposed to anyone who has acted in the exercise of a profession or occupation requiring special qualification.
(ii) anyone who receives money or other property from a criminal offence for the purpose of applying them in an operation as described above, which gives them the possible appearance of a lawful origin, shall be punished with imprisonment from six (6) months to three (3) years;
(iii) if the value of the assets mustgoods does not exceed Ps.300,000.Ps. 300,000, the penalty shall be imprisonment for a term of six months to three years.
b)Penalties for legal persons.
Furthermore, Section 304 of the ACC provides that when the criminal acts have been committed in the name of, or with the intervention of, or for the benefit of a legal person, the following sanctions shall be imposed to the entity jointly or alternatively:
(i) fine of two (2) to ten (10) times the value of the property subject to the offence;
(ii) total or partial suspension of activities, which in no case shall exceed ten (10) years;
(iii) debarment for public tenders or bidding processes or any other State-related activities, which in no case shall exceed ten (10) years;
(iv) dissolution and liquidation of the legal person when it was created for the sole purpose of committing the offense, or such acts constitute the main activity of the entity;
(v) loss or suspension of any State benefit that it may have;
(vi) publication of an extract of the condemnatory sentence at the expense of the legal entity.
In order to calibrate these sanctions, the Court will take into account the failure to comply with internal rules and procedures, the omission of vigilance over the activity of the authors and participants; the extent of the damage caused, the amount of money involved in the commission of the offense, the size, nature and economic capacity of the legal entity. In the cases in which it is essential to maintain the operational continuity of the entity, or of a public work, or particular service, the sanctions of suspension of activities or dissolution and liquidation of the legal person shall not be applicable.
c)Terrorism financing
Section 306 of the ACC criminalizes the financing of terrorism. This amount mayoffence is committed by any person who directly or indirectly collects or provides property or money, with the intention of it being used, or in the knowledge that it will be used, in full or in part:
(i) To finance the productcommission of oneacts which have the aim of terrorizing the population or more related transactions.compelling national public authorities or foreign governments or agents of an international organization to perform or refrain from performing an act (according to section 41.5 of the ACC);
Money laundering is a separate crime from concealment. Money laundering is a crime against(ii) By an organization committing or attempting to commit crimes for the economic and financial order, whereas concealment is considered an offense against the public administration. Therefore,purpose set out in (i);
(iii) By an individual who commits, attempts to commit or entity can be prosecutedparticipates in any way in the commission of offences for the purpose set out in (i).
The penalty is imprisonment of five (5) to fifteen (15) years and a fine of two (2) to ten (10) times the amount of the operation. Likewise, the same penalties shall apply to legal persons as described for the crime of money laundering.
Reporting Subjects obliged to inform and collaborate with the UIF
The AML/CFT Law, in line with international AML/CFT standards, not only designates the UIF as the agency in charge of preventing money laundering even if they did not participate in the underlying crimeand terrorism financing, but also establishes certain obligations to illegally obtain goods.
To comply with recommendations made by the FATF on money laundering prevention, on June 1, 2011, the Argentine Congress enacted Law No. 26,683. Under this law, money laundering is a crimeper se. Laundering one’s own money is also sanctionable. This law extends reporting duties to certain members of thevarious public and private sector who were formerly not under such an obligation.entities and individuals, which are designated as Reporting Subjects (“Sujetos obligados”), which are legally bound to inform and collaborate with the UIF.
The Anti-Money LaunderingIn accordance with the AML/ CFT Law createdand the UIF, underregulations complementing it, the Argentine Ministry of Justice, Security and Human Rights, which is responsible forfollowing persons, among others, are Reporting Subjects before the handling and transmitting of information to prevent (a) the laundering of assets mainly originated from:UIF:
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The UIF is also responsible for transmittingReporting Subjects have the following duties:
(i) obtaining from clients’ documents that indisputably prove their identity, legal status, domicile and other information, concerning their operations needed to prevent (b) terrorism financing (sections 41accomplish the intended activity (know your customer policy);
(ii) conduct due diligence procedure on its clients and 306 of the Argentine Criminal Code).
With the passage of Law No. 27,260 and its Regulatory Decree No. 895/2016, the UIF fell under the scope of the then Ministry of Treasury and Public Finance, currently the Ministry of Treasury.
The Anti-Money Laundering Law, like anti-money laundering laws of other countries, does not place sole responsibility on the Argentine government to monitor these criminal activities, but rather it also places certain duties on various private sector entities, such as banks, shareholders, stock markets and insurance companies. Under the Anti-Money Laundering law, these private sector entities are now legally bound reporting parties. These obligations essentially consist of information gathering functions, such as:
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Argentine financial institutions must comply with all applicable anti-money laundering regulations as provided by the UIF, the Central Bank, and, if applicable (as is the case of Banco Macro), by the CNV. In this regard,report any suspicious operation or fact (which, in accordance with the usual practices of the area involved, as well as the experience and competence of the Reporting Subjects, are operations that are attempted or completed which were previously identified as unusual operations by the regulated entity, as well as any operation without economic or legal justification or of unusual or unjustified complexity, whether performed in isolated or repeated manner, regardless of the amount); and
(iii) refraining from disclosing to the client or third parties the actions being conducted in compliance with the AML/ CFT Law. Within the framework of suspicious operation report analysis, Reporting Subjects shall not refrain from disclosing to UIF any information required from them, alleging that such information is subject to banking, stock market or professional secrecy or confidentiality agreements of a legal or contractual nature.
Pursuant to Annex I of Resolution No. 229/2014154/2018 of the UIF (which establishes the supervision and inspection mechanism of the UIF), both the Central Bank and the CNV are considered “Specific Control Agencies”(“Órganos de Contralor Específicofico”). In such capacity, Specific Control Agenciesthey must cooperatecollaborate with the UIF in the evaluation of compliance with AML/CFT procedures by the anti–money laundering proceedings of the legally bound reporting those partiesReporting Subjects subject to their control which have infringed the prevention regime. In that respect,control. For these purposes, they are entitled to supervise, monitor and inspect such entities,these entities. Denial or obstruction of inspections by the Reporting Subjects may result in administrative penalties by the UIF and if necessary, take disciplinary action against infringers.criminal penalties.
ResolutionThe Central Bank and the CNV must also comply with the AML/CFT regulations established by the UIF, including the reporting of suspicious transactions. In turn, Reporting Subjects regulated by these agencies are subject to UIF Resolutions No. 30/2017 and Resolution 21/2018, of the UIF (“Resolution 30” and “Resolution 21”, respectively), determine the minimum compliance requirements which a system designed to prevent the crimes of money laundering and terrorism financing should include, as is the case of the “know your customer” duties, as well as the obligations and restrictions for compliance with the reporting duty regarding suspicious money laundering and terrorist financing transactions. These two resolutions have been issued by the UIF as a result of its new risk-oriented approach, pursuant to which the UIF has shifted its formalist approach while attempting to implement a more efficient regime to prevent money laundering and terrorism financing, based on the revised FATF recommendations of 2012. Under currentrespectively. Such regulations Reporting Parties (Sujetos Obligados) have to first evaluate their risks and then adopt administrative and effective measures in order to prevent money laundering within their organizations.
Resolution 30 also providesprovide guidelines that financialsuch entities such as us, are required to take certain actions embracing a risk-oriented approach, aimed at identifying and assessing their respective exposure to money laundering and terrorism financing, in respect of their customers, countries and geographic areas, products and services, operations or distribution channels, including but not limited to:
(a) implementing an Anti-Money Laundering and Terrorism Financing System;
(b) establishing policies, procedures and controls approved by the entity’s board of directors or utmost authority that allow for identifying, assessing, mitigating and monitoring their respective risk exposures to money laundering and terrorism financing. To such ends, financial entities will be required to determine, for each of their business lines, the entity’s risk profile and its inherent level of exposure, and to assess how effective the controls in place are in mitigating the identified risks in respect of, at least, their customers, products and/or services, distribution channels, and geographic areas;
(c) developing a manual of procedures;
(d) appointing a Compliance Officer who shall watch for the implementation of and adherence to the procedures and obligations set forth in Resolution 30;
(e) setting up a Committee on Anti-Money Laundering and Terrorism Financing to give support to the Compliance Officer in embracing and fulfilling the required policies and procedures for the sound operation of the Anti-Money Laundering and Terrorism Financing System;
(f) paying special attention to the risk inherent to business relationships and operations with countries or jurisdictions where the recommendations of the Financial Action Task Force (FATF) are not sufficiently enforced, or are not enforced at all;
(g) developing an annual training plan for the entity’s directors and employees with special emphasis on the Risk-Based Approach;
(h) having policies and procedures in place to gain sufficient, timely and current knowledge about all clients, verifying the information submitted by them, and adequately monitoring their operations. Such identification techniques will have to be executed at the beginning of the business relationship and will be applied on an ongoing basis, in order to maintain updated data, records and/or copies of the entity’s customer database. The entity’s failure or inability to comply with the identification duty as set forth in Resolution 30 shall be understood as a barrier to initiate a business relationship or, if already existent, to continue pursuing it. In addition, on the basis of the applicable Money Laundering and Terrorist Financing Management policies, it should be analyzed whether or not such business relationship should be reported as suspicious activity.
The due diligence procedures aimed at gaining customer knowledge will be applied according to Money Laundering and Terrorist Financing ratings, determined on the basis of the risk model in place at the entity. To such end, consideration will be given to customer-related risk criteria, including type of customer (individual or legal entity), business activity, source of funds, actual and estimated volume of transactions, nationality and residence. The rating should be determined upon accepting new customers and keep updated throughout the relationship with them;
(i) enforcing and establishing the scope and intensity of the due diligence procedures on a tiered basis, according to, at least, High, Medium and Low Risk levels of customers. Such procedures will involve: (a) for Medium Risk customers, in addition to the minimum required information for identification purposes, securing the appropriate supporting documents in respect of (i) the customer’s business activity, and (ii) the customer’s source of income, funds and/or wealth. The entity may also request for such other additional data which, at its discretion, may be useful to identify and know their customers in order to understand and appropriately manage the risk associated to each type, according to the entity’ risk management system; (b) for High Risk customers, applying reinforced customer due diligence procedures. In addition to the minimum required information, the entity will also be required to secure the following documents in respect of High Risk customers, namely: (i) copies of invoices, title deeds or other documents that serve as irrefutable evidence of the customer’s domicile; (ii) copies of documents supporting the customer’s source of funds, wealth, revenue or earned income; (iii) copy of the decision-making body with designation of authorities; (iv) copies of other documents useful to adequately know and manage the risk associated to this type of customer; (v) check the customer’s potential history of money laundering and terrorist financing and penalties imposed by the UIF, the applicable oversight authority or the judiciary; and (vi) all such other documents as the entity may deem appropriate; and (c) for Low Risk customers, applying simplified customer due diligence procedures including, at least, the minimum requirements set forth in Resolution No. 30 for client identification purposes (both individuals and legal entities);
(j) preparing a prospective (ex ante) Transactional Profile, notwithstanding subsequent adjustments and calibrations thereto, on the basis of the requested information and documents, according to the transactions actually executed. Such profile will be based on the understanding of the expected purpose and nature of the business relationship, the transactional information, and the documents in respect of the financial position furnished by the customer or gathered by the entity itself, according to the due diligence procedures that may apply in each case;
(k) performing transactional monitoring, establishing to such end transaction control rules and automated alerts in order to appropriately and timely monitor the execution of transactions and their alignment with the Transactional Profile and risk level of the entity’s customers. To such ends, all unusual transactions will be regarded as transactions subject to review;
(l) in operating with accounts of other reporting parties, an entity should deploy reasonable due diligence policies and procedures from a risk-based approach and shall request from the UIF the reporting parties’ registration certificate. In the case of failure or unjustified unwillingness to cooperate, the entity should apply reinforced know-your-customer due diligence procedures and will have to conduct a special review of the account and, if so warranted, issue a suspicious transaction report;
(m) applying reinforcedfollow-up on cash deposits. In this regard, for deposits equal to or in excess of Ps.200,000 or its equivalent in other currencies, the financial entity should identify the person conducting the transaction, request for information and register whether the transaction is conducted on its own account or on behalf of third parties, in which case, the entity should gather the full name and/or corporate name and taxpayer identification number of such third parties;
(n) conducting certain actions during the course of the contractual or business relationship, including but not limited to:
(i) verifying adequate compliance with Resolution No. 29/2013 handed down by the UIF, as amended, in particular, with such policies and procedures to check whether or not the names of candidate customers, payors and beneficiaries of international transfers, customers and beneficial owners appear in anti-terrorist lists and in lists against the proliferation of weapons of mass destruction;
(ii) verifying whether customers meet the conditions to the regarded as a politically exposed person and comply with the rules handed down by the UIF in that regard;
(iii) maintaining an internal record of transactions subject to review, which shall include, at least, the following data: (a) transaction identification; (b) date, time and origin of the alert or other transaction identification system; (c) analyst in charge of the alert resolution; (d) actions taken leading to the alert resolution; (e) final decision, including the validation of the supervisor or higher-level officer, date and time of the final decision. In addition, all documentary files supporting such records should be kept in custody.
If unusual transactions are identified, a deeper analysis should be performed in order to obtain additional information to confirm the unusual nature of the transaction, recording in writing the findings of such analysis and the supporting documents that have been verified;
(iv) developing consistent reports as set forth in the rules handed down by the UIF;
(v) maintaining each customer’s file; and
(o) reporting to the UIF unusual transactions regarded as suspicious of money laundering or terrorist financing activities, with special consideration to the circumstances listed in Resolution No. 30. The report should be founded and should describe the rationale for which the transaction has been regarded as such; and
(p) maintaining the following elements for the term of 10 years: (i) the documents supporting the transactions carried out by the entity’s customers, in which case the10-year term should be counted as from the transaction date; (ii) the customers’ and beneficial owners’ documents gathered through due diligence processes, in which case the10-year term should be counted as from the date of termination of the relationship with the customer; (iii) the documents gathered to conduct the analysis and all such other documents gathered and/or produced in applying due diligence procedures.
Resolution No. 21/2018 of the UIF, which replaced Resolution 229/2011 and replaced partially Resolution 140/2012 (“Resolution 21”) establishes certain measures to be observed by stockbrokers and brokerage houses, managers of mutual investment funds,over-the-counter agents, intermediaries in the purchase, lease or borrowing of securities operating under the orbit of stock exchanges with or without adherent markets and intermediary agents registered in the futures and options markets (“Reporting Parties under Resolution 21”). This Resolution incorporated as Reporting Parties the persons included in section 22.20 of the Anti-Money Laundering Law acting as financial trustees whenever their securities are authorized by CNV. Resolution 21 also complement Resolution 30, directed at the financial sector, including the guidelines for money laundering and terrorist financing Risk Management and minimum compliance that the legally bound financial reporting parties of the Capital Markets sector must adopt and apply to manage, in accordance with their policies, procedures and controls, the risk of being used by third parties withfor criminal objectivespurposes of money laundrylaundering and terrorist financing.financing of terrorism.
Fundamentally,Essentially, the aforementioned resolution shiftsregulations (the Consolidated Texts of which were subsequently approved by UIF Resolution No. 156/18), change the formalistic regulatory compliance approach to a risk-based approach,Risk Based Approach (“RBA”), based on the revised recommendations issued by the Financial Action Task Force (the “FATF”) in 2012, in order to ensure that the actions implemented measures are proportional to the identified risks. Therefore, the legally bound financial reporting parties mustReporting Subjects shall identify and evaluate their risks and, dependingbased on this, adopt measures for the management and mitigation measuresof such risks, in order to more effectively prevent money laundrylaundering and terrorist financing. Thus, they are enabled to implement certified technological platforms that allow carrying out procedures at a distance, without personal display of the documentation, while complying with the Due Diligence duties.
Furthermore, new categories of agents have been contemplated, that is, the Liquidation and Compensation Agents, the Negotiation Agents (in activities carried out in the field of Capital Markets) and the Collective Investment Products Management Agents of the Mutual Funds, as well as the financial trusts with public offer, their fiduciaries, trustors and any natural or legal person directly or indirectly related to them, are also covered by the regulation, partially repealing the UIF Res. 140/2012 only on such parties, continuingLikewise, the provisions of it for the remaining trusts.
On December 28, 2018, by means of Resolution 156/2018, the amended and restated texts of Resolutions 30/2017, Resolution 21 and Resolution 28/2018, according to the terms of Decree 891/2017 of Good Practices with regard to Simplification. By virtue of Resolution 156/18, the measures, procedures and controls that the reporting parties listed in those resolutions must adopt andre-apply to manage the risk of being used by third parties with criminal purposes of money laundering and financing of the terrorism. It is also established that those reporting parties must establish a chronogram of digitization of the bundles ofpre-existing clients, taking into account the risk they present.
The Central Bank and the CNV must also comply with anti-money laundering regulations set forth by the UIF, including reporting suspicious transactions. Pursuant to Resolution No. 229/2014 of the UIF, the Central Bank and the CNV are considered “Specific Enforcement Agencies.” As such, they must cooperate with the UIF in assessing compliance with the anti-money laundering procedures by the reporting parties subject to their control. To such end, they are entitled to supervise, monitor and inspect such entities and, if necessary, implement certain corrective actions and measures.
In particular, the Central Bank must comply with UIF Resolution No. 12/2011, as supplemented, among others, by Resolutions No. 1/20124/17 are adopted, establishing the possibility of conducting special due diligence procedures with respect to clients supervised abroad (formerly called “international investors”) and No. 92/2012, which sets forth the Central Bank’s obligation to evaluate the anti-money laundering controls implemented by Argentine financial institutions (with the limitation of the access to the reports and records of suspicious operations, whichlocal clients who are as aforementioned, confidential and subject only to the UIF’s supervision), and lists examples of what circumstances should be specially considered in order to stablish if a particular transaction may be considered unusual and eventually qualified as suspicious.
The listed transactions are closely reviewed by the Central Bank. Such transactions include, any transaction involving financial institutions, regular transactions involving securities (specially daily purchases and sales of the same amount of securities), capital contributions into financial institutions that have beenpaid-in in cash (or means other than bank transfers), and capital contributions by companies incorporated or domiciled in jurisdictions that do not allow for information relating to family relations of its shareholders, board members or members of its supervisory committee, deposits or withdrawals in cash for unusual amounts by entities or individuals that normally use checks or other financial instruments and/or whose declared business does not correspond with the type or amount of the transaction; subsequent cash deposits for small amounts that, in total, add up to a relevant sum; a single client holding numerous accounts that, in the aggregate, hold relevant sums inconsistent with such client’s declared business; transfers of funds for amounts inconsistent with the client’s business or usual kind of transaction; accounts with several authorized signatories that hold no apparent relation (in particular when domiciled or actingoff-shore or in tax havens); clients that unexpectedly cancel loans; frequent cash deposits or withdrawals for relevant amounts without commercial justification. The CNV must comply with UIF Resolution No. 22/2011, as supplemented, by Resolutions No. 1/2012 and No. 92/2012, which sets forth the CNV’s obligation to evaluate the anti-money laundering controls implemented by entities subject to its control (with the limitation of the access to the reports and records of suspicious operations, which are confidential and subject only to the UIF’s supervision), and also lists some examples of what circumstances should be specially considered in order to establish if a particular transaction may be considered unusual and eventually qualified as suspicious.
Central Bank Rules require Argentine banks to take certain precautions to prevent money laundering. In this regard, the Central Bank recommends financial institutions create an anti-money laundering committee to assist in the compliance of the anti-money laundering regulations.
Each financial institution must appoint a member of the board of directors as the person responsible for money laundering prevention. This board member is in charge of centralizing any information the Central Bank may require or information that any other competent authority may request. They must also report any suspicious transactionsReporting Subjects to the UIF.
The guidelines issued by the Central Bank to detect unusual or suspected money laundering or terrorist financing transactions require the reporting of suspicious transactions and are based on the resources of the entity subject to the reporting obligation and on the type of analysis performed. In particular, the following circumstances are considered:Asset Freezing Regime
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Pursuant to Communication “A” 5738, as amended and supplemented, including without limitation, by Communication “A” 6060 and 6399, of the Central Bank, Argentine financial institutions must comply with certain additional “know your customer policies.” New commercial relationships cannot be initiated if the “know your customer policies” and the risk management legal standards have not been met. Regarding existing clients, if the “know your customer policies” cannot be complied with, the Argentine financial institution must discontinue operations with such client (i.e. cease the relationship with the client in accordance with Central Bank’s regulations for each type of product) within 150 calendar days as of the notice of such circumstances. Operations do not have to be discontinued when the “know your customer policies” are complied with in such period or when simplified due diligence procedures were implemented pursuant to the applicable laws. Further, under this Communication, Argentine financial entities must keep the documentation related to the discontinuance for 10 years and include in their prevention manuals the detailed procedures to initiate and discontinue operations with clients in accordance with the above-mentioned additional “know your customer policies” in place.
In August 2018, by means of Resolution 97/2018, the UIF approved the regulation for the Central Bank’s collaboration duty with the UIF, in order to adapt it to the new parameters established in resolution 30/2017 for supervisory procedures of financial and exchange entities.
The CNV Rules also includes a specific chapter regarding “Prevention of Money Laundering and the Financing of Terrorism” and state that the persons set forth therein (including, among others, Negotiation Agents, Clearing and Settlement Agents (which are stockbrokers), and Distribution and Placement Agents) are to be considered legally bound reporting under the Anti-Money Laundering Law, and therefore must comply with all the laws and regulations in force in connection with anti-money laundering and terrorism financing, including resolutions issued by the UIF, presidential decrees referring to resolutions issued by the United Nations Security Council in connection with the fight against terrorism and the resolutions (and its annexes) issued by the Ministry of Foreign Affairs. In addition, CNV Rules impose certain restrictions in connection with payment arrangements (restricting, among others, to Ps.1,000 the cash amount that the entities set forth therein could receive or pay per day and per client) and impose certain reporting obligations.
The CNV Rules establish that the above-mentioned entities shall only be allowed to carry out any transactions contemplated under the public offering system, if such transactions are carried out or ordered by persons organized, domiciled or resident in dominions, jurisdictions, territories or associated States included in the cooperating countries list contained in Executive Decree No. 589/2013, section 2(b). When such persons are not included in such list and in their home jurisdiction qualify as registered intermediaries in an entity under control and supervision of a body that carries out similar functions to those carried out by the CNV, they will only be allowed to carry out such transactions if they provide evidence indicating that the relevant securities and exchange commission in their home jurisdiction has signed a memorandum of understanding for cooperation and exchange of information with the CNV.
Regarding terrorism financing, Decree No. 918/2012 establishedestablishes the procedures for the freezing of assets linked to terrorism financing, (including automatic freezing), and the creation and maintenance procedures (including the inclusion and removal of suspected persons) for registries created in accordance with the relevant United Nations Security Council’s resolutions.
Additionally, UIF Resolution No. 29/2013, regulates following the guidelinesimplementation of Decree No. 918/2012 and establishes: (i) the method of reportingprocedure to report suspicious transactions of terrorism financing and the persons obligated to do so, and (ii) the administrative freezing of assets procedure on natural or legal persons or entities designated by the United Nations Security Council pursuant to Resolution 1267 (1999) and subsequent, or linked to criminal actions under Section 306 of the Argentine Criminal Code, both prior to the report issued pursuant to UIF Resolutions No. 121 and 229, and as mandated by the UIF after receiving such report.
On February 17, 2016,In order to help the “National Coordination Program for the Prevention of Asset Laundering and the Financing of Terrorism” was created byReporting Subjects to fulfil this duties, Executive Decree No. 360/2016 as489/2019 created the Public Registry of Persons and Entities linked to acts of Terrorism and its Financing (RePET, for its acronym in Spanish),which is an instrumentofficial database that includes the consolidated list of the MinistryUnited Nations Security Council.
Politically Exposed Persons
Resolution No. 134/2018 of Justicethe UIF (amended by Resolutions No. 15/2019 and Human Rights. This Program is responsible for reorganizing, coordinating128/2019), establishes the rules that Reporting Parties must follow regarding clients that are Politically Exposed Persons (PEPs).
Following the aforementioned RBA, Resolution 134/2018 establishes that Reporting Parties must determine the level of risk at the time of beginning or continuing the contractual relationship with a PEP, and strengtheningmust take due diligence measures, adequate and proportional to the national systemassociated risk and the operation or operations involved.
In addition, the UIF has issued the Guide for the preventionmanagement of risks of money laundering and the financing of terrorism. The program considers in particular the specific risks that may have an effect on Argentine territory and the global demand for a more effective compliance with international obligations and recommendations established under United Nations Conventions and the standards of the FATF. The National Coordinator leads the program and ensures its responsibilities are performed and implemented. Applicable statutory rules were also modified and the Ministry of Justice and Human Rights were placed primarily in charge of the inter-institutional coordination among all public and private agencies and entities with competent jurisdiction on this matter, while the UIF will retain the ability to perform operating coordination activities at the national, provincial and municipal levelsterrorism in relation to matters strictly withincustomers (and ultimate beneficiaries) that are PEPs, which sets up guidelines for Reporting Parties in order to comply with the Resolution No. 134/2018.
CNV Regulations
The CNV Rules stipulate, among other provisions, that the regulated entities under its jurisdictioncontrol shall only perform the operations provided for under the public offering system when these operations are performed or ordered by persons constituted, domiciled or resident in countries, domains, jurisdictions, territories or associated states not considered to benon-cooperative or high risk by the FATF.
Similarly, they establish the payment modalities and control procedures for the reception and delivery of funds from and to clients.
Central Bank Regulations
Pursuant to Communication “A” 6399 of the Central Bank, as amended and supplemented, including without limitation, by Communication “A” 6709, Reporting Subjects must keep—for a financial intelligence agency.period of 10 years—written records of the procedure applied in each case for the discontinuation of a client’s operations. Among these records, they shall keep a copy of any notification sent to the customer requesting further information and/or documentation, the corresponding notices of receipt and the documents identifying the officials who took part in the decision, in accordance with the respective procedural manuals.
Tax Amnesty System
The voluntary system of declaration under the Argentine Tax Amnesty Law No. 27,260 and its supplementalRegulatory Decree No. 895/2016, allow16 (jointly the “Tax Amnesty System”) established that the information voluntarily submitted under the Tax Amnesty System may be used for the investigation and punishment of the crimes of money laundering and financing of terrorism. For such purpose, the UIF has the power to providecommunicate information to other public entities who also have intelligence or investigation rights, so long as the sharing of this information has been previously authorized by the presidentagencies, based on a previous resolution of the UIFUIF’s President and ifprovided that there is reasonable,are serious, precise and serious evidenceconcordant indications of the commission of any ofmoney laundering and/or terrorism financing crimes. Furthermore, the crimes contemplated under the Anti-Money Laundering Law. The entities receiving the communications of the UIF providing this information will be subjectAFIP remains obliged to the confidentiality obligations of Section 22 of the Anti-Money Laundering Law, and will be subject to the criminal penalties of such law if they breach their duty of confidentiality and reveal secret information. The UIF is not entitled to exercise this right with respect to voluntary and exceptional declarations made pursuant to Law No. 27,260. In addition, pursuantreport to the UIF Resolution No. 92/2016, reporting agents have to implement a special risk management system. The UIF implemented a special reporting system forsuspicious operations carried out underdetected within the abovementioned tax amnesty disclosure prior to March 31, 2017.
On January 11, 2017, the UIF published Resolution No. 4/2017 (“Resolution 4/2017”), which allows the legally bound reporting parties detailed in subsections 1, 4 and 5 of section 20 of Law No. 25,246, as amended, (the “Legally Bound Reporting Parties of Res. 4/2017”), to apply special due diligence identification measures to foreign and national investors (which must comply with the requirements established by Resolution 4/2017 to qualify) to Argentina whenat-distance opening special investment accounts (the “Accounts”). The special due diligence regime shall not exempt the Legally Bound Reporting Parties of Res. 4/2017 from monitoring and supervising the transactions performed during the courseframework of the commercial relationship, accordingTax Amnesty System and to a risk-based approach.
Resolution 4/2017 also regulates the due diligence measures between legally bound financial reporting parties. It requires that when the opening of the Accounts is requestedprovide it with all information required by settlement and clearing agents, or the ALyCs, the local financial entity will have complied with current anti-money laundering and counter terrorist financing regulations after performing due diligence with respectit, not being able to the ALyCs. The ALyCs shall be responsible for performing due diligence with respect to its customers. Resolution 4/2017 expressly establishes that, even though the financial entities are not responsible for performing due diligence with respect to the ALyCs’ customers, they are not exempt from monitoring and supervising the transactions performed by their clients (the ALyCs) during the course of the commercial relationship, according to a risk-based approach.
In November 2018, the UIF issued Resolution 134/2018, which updates the list of persons that should be considered “politically exposed” (PEP) in Argentina, taking into account the functions in which they perform or have performed, as well as its relationship of closeness or affinity with third parties who perform or have performed in such functions.
On December 26, 2018, the UIF issued resolution 154/2018 modifying the existing supervision procedures, for new designs that are adapted and according to the international standards promoted by the FATF, which must be applied on compliance with risk-based approach. As a result, the UIF approved its “Risk Based Supervision Procedure of the UIF”, repealing the provisions of Annexes II, III and IV of Resolution 104/2010, article 7 and the provisions of the Annexes V and VI of Resolution 165/2011 and of Annex III of Resolution 229/2014.oppose fiscal secrecy.
Anti-Money Laundering and Prevention of Terrorist Financing Program of the Bank
One of the most significant operational risks that is monitored by Banco Macro is that of the activities of “Anti-Money Laundering and Prevention of Terrorist Financing.” There is a program designed to safeguard us against any unintentional involvement or participation in criminal or illicit activities or terrorist financing, and to reaffirm the policy of fully cooperating with the strict application of law and cooperation with the authorities and regulatory bodies.
In order to ensure that the financial system is not used as a channel of funds from criminal activities, employees must determine the true identity of all customers and final beneficiaries of the contracted products and services.
The term terrorism means any premeditated and politically motivated violent act perpetrated againstnon-combatant targets by clandestine agents or anti-national groups, usually aimed at influencing one or more sectors.
Our regulatory framework categorizes commercializing goods obtained through a crime, with the possible consequence that the original assets or the substitute thereof may appear to be of a legitimate origin, as money laundering. Terrorist financing refers to the funding of a criminal activity, whether through money obtained illegally or legally.
Roles and responsibilities of the program
The term “Anti-Money Laundering Program” refers to the procedures and policies we have adopted to comply with the Anti-Money Laundering Law.
All employees have roles and responsibilities in the implementation of the Anti-Money Laundering Program. These roles and responsibilities vary depending on the employee’s business line or business area.
Elements of the Anti-Money Laundering Program
We adopt specific procedures for our various operational and commercial areas as applicable.
The following are the most important components of the Bank’s Anti-Money Laundering Program:
1. Prevention: We carry out different tasks in order to mitigate the risk of money laundering:
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a. Generation of policies and procedures;
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b. Reliable identification of customers and knowledge of their activities (“Know Your Customer” process);
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c. Specific risk analysis in the product and process approval process;
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d. Training and ongoing communication to update all relevant staff;
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e. Existence of a responsible Officer and a Committee for Money Laundering and Terrorist Financing Prevention;
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2. Monitoring: We monitor the activity of clients, suppliers, etc., by setting parameters and alerts to be able to identify cases that must be reported to the appropriate authorities.
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3. Relationship with regulatory agencies or industry: We maintain relations with the Central Bank/UIF/CNV by carrying out all necessary actions in order to collect and maintain adequate identification of clients and transaction records, in accordance with regulatory requirements. Likewise, we respond to the information requirements of the mentioned entities.
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4. Audits and Reviews: this program will be periodically reviewed through by its own assurance program and different types of audits (internal, external, comptroller) to identify opportunities for improvement.
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5. Training and Communication: All our staff (including executive staff) who have a relationship with clients or handle their transactions must receive training in anti-money laundering. This training is institutional and mandatory.
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6. Know Your Client (KYC): Similar to our efforts to prevent money laundering, and terrorist financing begins with an appropriate “Know Your Customer” process.
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a. Customer awareness allows financial institutions to determine if certain customers are included on terrorist lists issued by governments and regulatory agencies. This process also allows us to establish whether we are facing high-risk clients (e.g., Politically Exposed Persons) in order to carry out an Enhanced Due Diligence process).
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b. We will not enter into any relationship with any individual or entity who cannot prove their true identity.
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7. Recognition and reporting of unusual or suspicious activities: When employees receive indications that make them assume that clients’ funds come from criminal activities, they should report this to the Money Laundering and Terrorist Financing Committee for evaluation in accordance with established procedure. |
For a thorough analysis of money laundering regulations in effect as of the date of this document, please consult with your own legal counsel and to read Title XIII, Second Book of the Argentine Criminal CodeACC and any regulations issued by the UIF, the CNV and the Central Bank in their entirety. For this purpose, interested parties may visit the websites of the Argentine Ministry of Economy, and Public Finance,www.economia.gobwww.economia.gob.ar.ar,, the UIF,www.argentina.gobwww.argentina.gob.ar/uif.ar/uif,, the CNV,www.cnv.gob.ar or the Central Bank,www.bcra.gov.ar none of which websites are incorporated by reference herein.
Corporate Criminal Liability Law
The Corporate Criminal Liability Law No. 27,401 sets forth a criminal liability regime applicable to legal entities involved in certain corruption and international briberyoffenses directly or indirectly committed in their name, on their behalf or in their interest and from which a benefit may arise, when commission ofarise. The individual offenders may be employees or third parties — even unauthorized third parties, provided that the crime iscompany ratified the consequence of an ineffective control or supervision by such legal entity.act, even tacitly.
In accordance with such law, the Board of Directors has designedapproved a Corruption and Anti-Bribery Policy that sets forth the ethical and compliance standards regarding officer corruption practices, under the scope of the Corporate Criminal Liability Law and the applicable international laws. The Board of Directors expressly prohibits this kind of practices and applies the same criterion in similar cases where private sector individual acts as counterparty.
In turn, the Board of Directors has implemented a codeCode of conductConduct applicable to all employees, contractors, suppliers and agents, with the prohibitions, restrictions and conditions imposed upon them under the Integrity Program approved by the Bank. ItBank, which was previously discussed by the Appointment and Corporate Government Committee, andCommittee.
In addition, Ernesto Medina, our Human Resources Manager, has been appointed as our Anti-Bribery Policy Officer and theour Compliance Department is responsible for the implementation of the Monitoring Program.
C. Organizational Structure
Subsidiaries
We have five subsidiaries: (i) Banco del Tucumán, our retail and commercial banking subsidiary in the province of Tucumán;Argenpay S.A.U., through which we provide electronic payment services ; (ii) Macro Bank Limited, our subsidiary in the Bahamas through which we primarily provide private banking services; (iii) Macro Securities S.A., which is a member of the BYMA, and through which we provide investment research, securities trading and custodial services to our customers; (iv) Macro Fiducia S.A., a subsidiary that acts as trustee and provides financial advisory and analysis services; and (v) Macro Fondos S.G.F.C.I. S.A., an asset management subsidiary.
Banco Macro’s direct and indirect interest | Banco Macro’s direct and indirect interest | |||||||||||||||
Subsidiary | Percentage of Capital Stock | Percentage of possible votes | Percentage of Capital Stock | Percentage of possible votes | ||||||||||||
Banco del Tucumán S.A. (1) | 99.945 | % | 99.945 | % | ||||||||||||
Argenpay S.A.U. (1) | 100.000 | % | 100.000 | % | ||||||||||||
Macro Bank Limited (2) | 99.999 | % | 100.000 | % | 99.999 | % | 100.000 | % | ||||||||
Macro Securities S.A. (1) | 99.921 | % | 99.932 | % | 99.925 | % | 99.932 | % | ||||||||
Macro Fiducia S.A. (1) | 98.605 | % | 98.605 | % | 99.046 | % | 99.046 | % | ||||||||
Macro Fondos S.G.F.C.I. S.A. (1) | 99.936 | % | 100.000 | % | 99.939 | % | 100.000 | % |
(1) | Country of residence: Argentina |
(2) | Country of residence: The Bahamas |
D. Property, plants and equipment
Property
Our headquarters consist of 54,46154,740 square meters of office area that is used by our management, accounting and administrative personnel. As of December 31, 2018,2019, our headquarters consisted of 53,713 square meters that we own and 7481,027 square meters that are leased. Our headquarters are split between offices located in Avenida Eduardo Madero 1172, Sarmiento 731442 and Leandro N. Alem 1110, all in the City of Buenos Aires. As of December 31, 2018,2019, we have a branch network that consists of 471463 branches in Argentina, of which 200175 were leased properties.
In 2011 we acquired a site, located at Avenida Eduardo Madero No. 1180, in the City of Buenos Aires, from the Government of the City of Buenos Aires, for an aggregate original amount of Ps.110 million, in which we have developed our headquarters. We have developed a project to build our new corporate offices on this site. Work on the site began in 2012 and was completed as of the date of this annual report.in 2019.
The new corporate headquarters were designed to take full advantage of natural light and maximize energy efficiency, while also using materials that do not adversely affect the environment and was built in compliance with the Leed International Sustainability Standards of the “U.S. Green Building Council”. As of December 31, 2018, theThe total aggregate amount invested in the project was approximately U.S.$172186 million at the applicable exchange rates at the end of the month as of the respective dates of such investments.
Selected Statistical Information
The following information is included for analytical purposes and should be read in conjunction with our audited consolidated financial statements as well as Item 5 “Operating and Financial Review and Prospects.” This information has been extracted from the Bank’s internal documentation that supports our financial records.
Average balance sheets, interest earned on interest-earning assets and interest paid on interest-bearing liabilities.
The following tables show average balances, interest amounts and nominal and real rates for our interest-earning assets and interest-bearing liabilities for the years ended December 31, 2017, 2018 and 20182019 based on results adjusted for inflation as of December 31, 2018,2019, as explained in our consolidated financial statements.
The nominal interest rate has been calculated by dividing the amount of interest gain or loss during the period by the related average balance, both amounts not adjusted for inflation.restated. The nominal rates calculated for each period have been converted into real rates using the following formulas:
Rp= | 1 + Np | -1 | ||||||
1 + I | ||||||||
Rp= | (1 + Nd) (1 + D) | -1 | ||||||
1 + I |
Where:
Rp = real average rate for peso-denominated assets and liabilities ( in(in Ps.) for the period;
Rd = real average rate for foreign currency denominated assets and liabilities for the period;
Np = nominal average rate for peso - Peso—denominated assets and liabilities for the period;
Nd = nominal average rate for foreign currency denominated assets and liabilities for the period;
D = devaluation rate of the Argentine pesoPeso to the U.S. dollar for the period; and
I = inflation rate in Argentina for the period based on the variation of the Consumer Price Index.
I 2017 = 24.79%
I 2018 = 47.65%
D 2017 = 18.45%
D 2018 = 101.38%
2017 | 2018 | 2017 | 2018 | 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average Balance | Interest Earned / (Paid) | Average Real Rate | Average Nominal Rate | Average Balance | Interest Earned / (Paid) | Average Real Rate | Average Nominal Rate | Average Balance | Interest Earned / (Paid) | Average Real Rate | Average Nominal Rate | Average Balance | Interest Earned / (Paid) | Average Real Rate | Average Nominal Rate | Average Balance | Interest Earned / (Paid) | Average Real Rate | Average Nominal Rate | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(in thousands of Pesos) | (in thousands of Pesos) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest-earning assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans and other financing | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-financial Public Sector | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest-earning assets Loans and other financingNon-financial Public Sector | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pesos | 1,936,833 | 293,716 | 3.30 | % | 28.91 | % | 2,523,506 | 1,065,836 | (7.94 | )% | 35.93 | % | 2,979,430 | 451,823 | 3.30 | % | 28.91 | % | 3,881,909 | 1,639,576 | (7.94 | %) | 35.93 | % | 1,803,447 | 806,054 | (5.94 | %) | 44.70 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency | — | — | 0.00 | % | 0.00 | % | 2 | — | 0.00 | % | 0.00 | % | — | — | 0.00 | % | 0.00 | % | 3 | — | 0.00 | % | 0.00 | % | 50 | — | 0.00 | % | 0.00 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 1,936,833 | 293,716 | 3.30 | % | 28.91 | % | 2,523,508 | 1,065,836 | (7.94 | )% | 35.93 | % | 2,979,430 | 451,823 | 3.30 | % | 28.91 | % | 3,881,912 | 1,639,576 | (7.94 | %) | 35.93 | % | 1,803,497 | 806,054 | (5.94 | %) | 44.69 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
Other Financial Entities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pesos | 3,921,386 | 802,257 | (3.25 | )% | 20.73 | % | 4,516,616 | 1,405,779 | (14.13 | )% | 26.78 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency | 268,381 | 11,568 | -0.95 | % | 4.35 | % | 440,093 | 22,612 | 42.38 | % | 4.39 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 4,189,767 | 813,825 | (3.10 | )% | 19.68 | % | 4,956,709 | 1,428,391 | (9.11 | )% | 24.79 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-financial Private Sector and Foreign Residents | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pesos | 151,866,510 | 43,387,897 | 3.25 | % | 28.84 | % | 151,808,342 | 49,399,413 | (12.75 | )% | 28.83 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency | 26,425,022 | 993,090 | (1.47 | )% | 3.80 | % | 37,908,669 | 1,814,449 | 41.97 | % | 4.09 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 178,291,532 | 44,380,987 | 2.55 | % | 25.13 | % | 189,717,011 | 51,213,862 | (1.82 | )% | 23.89 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Debt Securities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pesos | 42,132,088 | 9,094,144 | (2.22 | )% | 22.02 | % | 51,668,338 | 20,485,413 | (9.16 | )% | 34.13 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency | 2,736,105 | 124,806 | (0.60 | )% | 4.72 | % | 2,043,084 | 62,318 | 39.87 | % | 2.55 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 44,868,193 | 9,218,950 | (2.12 | )% | 20.97 | % | 53,711,422 | 20,547,731 | (7.29 | )% | 32.93 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Repo Transactions | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pesos | 5,540,772 | 1,119,217 | (4.33 | )% | 19.39 | % | 937,607 | 449,871 | (2.18 | )% | 44.43 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency | — | — | 0.00 | % | 0.00 | % | — | — | 0.00 | % | 0.00 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 5,540,772 | 1,119,217 | (4.33 | )% | 19.39 | % | 937,607 | 449,871 | (2.18 | )% | 44.43 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total interest-earning assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pesos | 205,397,589 | 54,697,231 | 1.80 | % | 27.03 | % | 211,454,409 | 72,806,312 | (11.80 | )% | 30.23 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency | 29,429,508 | 1,129,464 | (1.38 | )% | 3.89 | % | 40,391,848 | 1,899,379 | 41.87 | % | 4.02 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 234,827,097 | 55,826,695 | 1.40 | % | 24.13 | % | 251,846,257 | 74,705,691 | (3.19 | )% | 26.03 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non interest-earning assets |
2017 | 2018 | 2017 | 2018 | 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average Balance | Interest Earned / (Paid) | Average Real Rate | Average Nominal Rate | Average Balance | Interest Earned / (Paid) | Average Real Rate | Average Nominal Rate | Average Balance | Interest Earned / (Paid) | Average Real Rate | Average Nominal Rate | Average Balance | Interest Earned / (Paid) | Average Real Rate | Average Nominal Rate | Average Balance | Interest Earned / (Paid) | Average Real Rate | Average Nominal Rate | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(in thousands of Pesos) | (in thousands of Pesos) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash and Deposits in Banks | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Financial Entities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pesos | 22,304,577 | — | — | — | 28,148,908 | — | — | — | 6,032,268 | 1,234,112 | (3.25 | %) | 20.73 | % | 6,947,910 | 2,162,510 | (14.13 | %) | 26.78 | % | 4,176,971 | 2,042,904 | (3.20 | %) | 48.91 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency | 34,232,086 | — | — | — | 30,919,150 | — | — | — | 412,850 | 17,795 | (0.95 | %) | 4.35 | % | 676,995 | 34,784 | 42.38 | % | 4.39 | % | 506,526 | 30,408 | 9.16 | % | 6.00 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 56,536,663 | — | — | — | 59,068,058 | — | — | — | 6,445,118 | 1,251,907 | (3.10 | %) | 19.68 | % | 7,624,905 | 2,197,294 | (9.11 | %) | 24.79 | % | 4,683,497 | 2,073,312 | (1.86 | %) | 44.27 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-financial Private Sector and Foreign Residents | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pesos | 14,579,732 | — | — | — | 15,375,020 | — | — | — | 233,616,254 | 67,329,187 | 3.23 | % | 28.82 | % | 233,526,772 | 81,242,921 | (8.71 | %) | 34.79 | % | 162,892,409 | 74,655,858 | (5.20 | %) | 45.83 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency | — | — | — | — | — | — | — | — | 40,649,611 | 1,527,670 | (1.47 | %) | 3.80 | % | 58,314,906 | 2,791,167 | 41.97 | % | 4.09 | % | 62,997,591 | 4,655,193 | 10.59 | % | 7.39 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 14,579,732 | — | — | — | 15,375,020 | — | — | — | 274,265,865 | 68,856,857 | 2.53 | % | 25.11 | % | 291,841,678 | 84,034,088 | 1.42 | % | 28.79 | % | 225,890,000 | 79,311,051 | (0.80 | %) | 35.11 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Intangible Assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Debt Securities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pesos | 1,566,273 | — | — | — | 1,873,423 | — | — | — | 64,811,791 | 13,989,522 | (2.22 | %) | 22.02 | % | 79,481,404 | 31,512,711 | (9.16 | %) | 34.13 | % | 105,035,451 | 66,015,859 | 5.86 | % | 62.85 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency | — | — | — | — | — | — | — | — | 4,208,950 | 191,989 | (0.60 | %) | 4.72 | % | 3,142,876 | 95,864 | 39.87 | % | 2.55 | % | 1,939,650 | 75,369 | 6.99 | % | 3.89 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 1,566,273 | — | — | — | 1,873,423 | — | — | — | 69,020,741 | 14,181,511 | (2.12 | %) | 20.97 | % | 82,624,280 | 31,608,575 | (7.29 | %) | 32.93 | % | 106,975,101 | 66,091,228 | 5.88 | % | 61.78 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investment in associates and joint arrangements | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Repo Transactions | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pesos | 233,093 | — | — | — | 202,614 | — | — | — | 8,523,370 | 1,721,692 | (4.33 | %) | 19.39 | % | 1,442,321 | 692,037 | (2.18 | %) | 44.43 | % | 5,287,707 | 3,284,995 | 5.40 | % | 62.13 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency | 102 | — | — | — | — | — | — | — | — | — | 0.00 | % | 0.00 | % | — | — | 0.00 | % | 0.00 | % | — | — | 0.00 | % | 0.00 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 233,195 | — | — | — | 202,614 | — | — | — | 8,523,370 | 1,721,692 | (4.33 | %) | 19.39 | % | 1,442,321 | 692,037 | (2.18 | %) | 44.43 | % | 5,287,707 | 3,284,995 | 5.40 | % | 62.13 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Securities at fair value through profit or loss | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total interest-earning assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pesos | 1,300,255 | — | — | — | 1,520,555 | — | — | — | 315,963,113 | 84,726,336 | 1.63 | % | 26.82 | % | 325,280,316 | 117,249,755 | (7.86 | %) | 36.05 | % | 279,195,985 | 146,805,670 | (0.81 | %) | 52.58 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency | 155,189 | — | — | — | 290,216 | — | — | — | 45,271,411 | 1,737,454 | (1.38 | %) | 3.89 | % | 62,134,780 | 2,921,815 | 41.87 | % | 4.02 | % | 65,443,817 | 4,760,970 | 10.47 | % | 7.27 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 1,455,444 | — | — | — | 1,810,771 | — | — | — | 361,234,524 | 86,463,790 | 1.25 | % | 23.94 | % | 387,415,096 | 120,171,570 | 0.12 | % | 31.02 | % | 344,639,802 | 151,566,640 | 1.33 | % | 43.98 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Financial Instruments | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total non interest-earning assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pesos | 8,065 | — | — | — | 29,739 | — | — | — | 79,528,033 | — | — | — | 91,385,993 | — | — | — | 86,730,996 | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency | 215 | — | — | — | 582 | — | — | — | 55,015,503 | — | — | — | 51,489,020 | — | — | — | 74,904,212 | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 8,280 | — | — | — | 30,321 | — | — | — | 134,543,536 | — | — | — | 142,875,013 | — | — | — | 161,635,208 | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial Assets delivered as guarantee | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
TOTAL ASSETS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pesos | 6,584,536 | — | — | — | 6,780,144 | — | — | — | 395,491,146 | — | — | — | 416,666,309 | — | — | — | 365,926,981 | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency | 292,971 | — | — | — | 673,314 | — | — | — | 100,286,914 | — | — | — | 113,623,800 | — | — | — | 140,348,029 | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 6,877,507 | — | — | — | 7,453,458 | — | — | — | 495,778,060 | — | — | — | 530,290,109 | — | — | — | 506,275,010 | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investments in Equity Instruments | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
LIABILITIES | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest-bearing liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deposits | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non financial Public Sector | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pesos | 281,473 | — | — | — | 114,038 | — | — | — | 17,562,736 | 2,076,236 | (10.35 | %) | 11.88 | % | 19,227,476 | 4,135,858 | (19.44 | %) | 18.95 | % | 15,419,711 | 5,823,944 | (10.44 | %) | 37.77 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency | 5,992 | — | — | — | 6,719 | — | — | — | 513,972 | 1,224 | (4.85 | %) | 0.24 | % | 690,120 | 4,489 | 37.18 | % | 0.58 | % | 1,498,032 | 33,167 | 5.26 | % | 2.21 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 287,465 | — | — | — | 120,757 | — | — | — | 18,076,708 | 2,077,460 | (10.19 | %) | 11.55 | % | 19,917,596 | 4,140,347 | (17.48 | %) | 18.32 | % | 16,917,743 | 5,857,111 | (9.05 | %) | 34.62 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other financial assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non financial Private Sector and Foreign Residents | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pesos | 2,759,238 | — | — | — | 2,265,687 | — | — | — | 184,427,296 | 21,060,533 | (10.71 | %) | 11.42 | % | 183,851,021 | 36,442,536 | (18.85 | %) | 19.82 | % | 159,381,166 | 51,826,903 | (13.85 | %) | 32.52 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency | 1,077,278 | — | — | — | 1,581,397 | — | — | — | 54,428,991 | 208,557 | (4.71 | %) | 0.39 | % | 73,482,993 | 835,238 | 37.77 | % | 1.01 | % | 79,762,795 | 1,594,101 | 5.04 | % | 2.00 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 3,836,516 | — | — | — | 3,847,084 | — | — | — | 238,856,287 | 21,269,090 | (9.34 | %) | 8.90 | % | 257,334,014 | 37,277,774 | (2.68 | %) | 14.49 | % | 239,143,961 | 53,421,004 | (7.55 | %) | 22.34 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deferred income Tax Assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financing received from the Central Bank of Argentina and other financial entities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pesos | 104 | — | — | — | 106 | — | — | — | 292,614 | 66,282 | (1.19 | %) | 23.30 | % | 1,353,044 | 224,498 | (22.65 | %) | 14.21 | % | 706,271 | 297,737 | (7.59 | %) | 42.16 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency | 2,038,641 | 92,600 | (0.81 | %) | 4.50 | % | 2,193,983 | 85,869 | 41.22 | % | 3.54 | % | 3,021,964 | 153,650 | 8.22 | % | 5.08 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 2,331,255 | 158,882 | (0.86 | %) | 6.86 | % | 3,547,027 | 310,367 | 16.86 | % | 7.61 | % | 3,728,235 | 451,387 | 5.22 | % | 12.11 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issued Corporate Bonds | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pesos | 8,852,018 | 1,203,432 | (8.53 | %) | 14.15 | % | 12,608,079 | 2,788,218 | (19.82 | %) | 18.38 | % | 7,419,417 | 2,387,574 | (14.07 | %) | 32.18 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency | — | — | 0.00 | % | 0.00 | % | — | — | 0.00 | % | 0.00 | % | — | — | 0.00 | % | 0.00 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 8,852,018 | 1,203,432 | (8.53 | %) | 14.15 | % | 12,608,079 | 2,788,218 | (19.82 | %) | 18.38 | % | 7,419,417 | 2,387,574 | (14.07 | %) | 32.18 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Subordinated Corporate Bonds | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pesos | — | — | 0.00 | % | 0.00 | % | — | — | 0.00 | % | 0.00 | % | — | — | 0.00 | % | 0.00 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency | 17,304,412 | 1,153,730 | 1.27 | % | 6.69 | % | 21,672,620 | 1,530,595 | 44.45 | % | 5.91 | % | 24,383,874 | 1,703,391 | 10.18 | % | 6.99 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 17,304,412 | 1,153,730 | 1.27 | % | 6.69 | % | 21,672,620 | 1,530,595 | 44.45 | % | 5.91 | % | 24,383,874 | 1,703,391 | 10.18 | % | 6.99 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Repo Transactions | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pesos | 1,780,721 | 279,486 | (7.08 | %) | 15.96 | % | 896,730 | 336,326 | (10.82 | %) | 31.68 | % | 868,128 | 336,492 | (9.80 | %) | 38.76 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency | — | — | 0.00 | % | 0.00 | % | — | — | 0.00 | % | 0.00 | % | — | — | 0.00 | % | 0.00 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 1,780,721 | 279,486 | (7.08 | %) | 15.96 | % | 896,730 | 336,326 | (10.82 | %) | 31.68 | % | 868,128 | 336,492 | (9.80 | %) | 38.76 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total interest-earning liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pesos | 212,915,385 | 24,685,969 | (10.58 | %) | 11.59 | % | 217,936,350 | 49,927,436 | (18.62 | %) | 20.16 | % | 183,794,693 | 60,672,650 | (13.53 | %) | 33.01 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency | 74,286,016 | 1,456,111 | (3.21 | %) | 1.97 | % | 98,039,716 | 2,456,191 | 39.32 | % | 2.15 | % | 108,666,665 | 3,484,309 | 6.29 | % | 3.21 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 287,201,401 | 26,142,080 | (8.67 | %) | 9.10 | % | 315,976,066 | 46,383,627 | (0.64 | %) | 14.68 | % | 292,461,358 | 64,156,959 | (6.17 | %) | 21.94 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total non–interest bearing liabilities and shareholders’ equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pesos | 193,776,259 | — | — | — | 194,909,626 | — | — | — | 185,542,436 | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency | 14,800,400 | — | — | — | 19,404,417 | — | — | — | 28,271,216 | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 208,576,659 | — | — | — | 214,314,043 | — | — | — | 213,813,652 | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pesos | 406,691,644 | — | — | — | 412,845,976 | — | — | — | 369,337,129 | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency | 89,086,416 | — | — | — | 117,444,133 | — | — | — | 136,937,881 | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 495,778,060 | — | — | — | 530,290,109 | — | — | — | 506,275,010 | — | — | — |
2017 | 2018 | |||||||||||||||||||||||||||||||
Average Balance | Interest Earned / (Paid) | Average Real Rate | Average Nominal Rate | Average Balance | Interest Earned / (Paid) | Average Real Rate | Average Nominal Rate | |||||||||||||||||||||||||
(in thousands of Pesos) | ||||||||||||||||||||||||||||||||
Foreign currency | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Total | 104 | — | — | — | 106 | — | — | — | ||||||||||||||||||||||||
OtherNon-financial Assets | ||||||||||||||||||||||||||||||||
Pesos | 1,795,999 | — | — | — | 2,945,043 | — | — | — | ||||||||||||||||||||||||
Foreign currency | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Total | 1,795,999 | — | — | — | 2,945,043 | — | — | — | ||||||||||||||||||||||||
Non current assets held for sale | ||||||||||||||||||||||||||||||||
Pesos | 285,305 | — | — | — | 151,855 | — | — | — | ||||||||||||||||||||||||
Foreign currency | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Total | 285,305 | — | — | — | 151,855 | — | — | — | ||||||||||||||||||||||||
Total non interest-earning assets | ||||||||||||||||||||||||||||||||
Pesos | 51,698,650 | — | — | — | 59,407,132 | — | — | — | ||||||||||||||||||||||||
Foreign currency | 35,763,833 | — | — | — | 33,471,378 | — | — | — | ||||||||||||||||||||||||
Total | 87,462,483 | — | — | — | 92,878,510 | — | — | — | ||||||||||||||||||||||||
TOTAL ASSETS | ||||||||||||||||||||||||||||||||
Pesos | 257,096,239 | — | — | — | 270,861,541 | — | — | — | ||||||||||||||||||||||||
Foreign currency | 65,193,341 | — | — | — | 73,863,226 | — | — | — | ||||||||||||||||||||||||
Total | 322,289,580 | — | — | — | 344,724,767 | — | — | — | ||||||||||||||||||||||||
LIABILITIES | ||||||||||||||||||||||||||||||||
Interest-bearing liabilities | ||||||||||||||||||||||||||||||||
Deposits | ||||||||||||||||||||||||||||||||
Non financial Public Sector | ||||||||||||||||||||||||||||||||
Pesos | 11,416,977 | 1,349,695 | (10.35 | )% | 11.88 | % | 12,499,172 | 2,688,590 | (19.44 | )% | 18.95 | % | ||||||||||||||||||||
Foreign currency | 334,117 | 796 | (4.85 | )% | 0.24 | % | 448,625 | 2,918 | 37.18 | % | 0.58 | % | ||||||||||||||||||||
Total | 11,751,094 | 1,350,491 | (10.19 | )% | 11.55 | % | 12,947,797 | 2,691,508 | (17.48 | )% | 18.32 | % | ||||||||||||||||||||
Non financial Private Sector and Foreign Residents | ||||||||||||||||||||||||||||||||
Pesos | 119,890,331 | 13,668,226 | (10.67 | )% | 11.48 | % | 119,515,713 | 23,073,770 | (20.74 | )% | 17.03 | % | ||||||||||||||||||||
Foreign currency | 35,382,559 | 135,576 | (4.71 | )% | 0.39 | % | 47,768,961 | 542,962 | 37.77 | % | 1.01 | % | ||||||||||||||||||||
Total | 155,272,890 | 13,803,802 | (9.31 | )% | 8.95 | % | 167,284,674 | 23,616,732 | (4.03 | )% | 12.46 | % | ||||||||||||||||||||
Financing received from the Central Bank of Argentina and other financial entities | ||||||||||||||||||||||||||||||||
Pesos | 190,219 | 43,088 | (1.19 | )% | 23.30 | % | 879,571 | 145,939 | (22.65 | )% | 14.21 | % | ||||||||||||||||||||
Foreign currency | 1,325,256 | 60,196 | (0.81 | )% | 4.50 | % | 1,426,239 | 55,821 | 41.22 | % | 3.54 | % |
2017 | 2018 | |||||||||||||||||||||||||||||||
Average Balance | Interest Earned / (Paid) | Average Real Rate | Average Nominal Rate | Average Balance | Interest Earned / (Paid) | Average Real Rate | Average Nominal Rate | |||||||||||||||||||||||||
(in thousands of Pesos) | ||||||||||||||||||||||||||||||||
Total | 1,515,475 | 103,284 | (0.86 | )% | 6.86 | % | 2,305,810 | 201,760 | 16.86 | % | 7.61 | % | ||||||||||||||||||||
Issued Corporate Bonds | ||||||||||||||||||||||||||||||||
Pesos | 5,754,416 | 782,313 | (8.53 | )% | 14.15 | % | 8,196,112 | 1,812,532 | (19.82 | )% | 18.38 | % | ||||||||||||||||||||
Foreign currency | — | — | 0.00 | % | 0.00 | % | — | — | 0.00 | % | 0.00 | % | ||||||||||||||||||||
Total | 5,754,416 | 782,313 | (8.53 | )% | 14.15 | % | 8,196,112 | 1,812,532 | (19.82 | )% | 18.38 | % | ||||||||||||||||||||
Subordinated Corporate Bonds | ||||||||||||||||||||||||||||||||
Pesos | — | — | 0.00 | % | 0.00 | % | — | — | 0.00 | % | 0.00 | % | ||||||||||||||||||||
Foreign currency | 11,249,049 | 750,003 | 1.27 | % | 6.69 | % | 14,088,682 | 994,991 | 44.45 | % | 5.91 | % | ||||||||||||||||||||
Total | 11,249,049 | 750,003 | 1.27 | % | 6.69 | % | 14,088,682 | 994,991 | 44.45 | % | 5.91 | % | ||||||||||||||||||||
Repo Transactions | ||||||||||||||||||||||||||||||||
Pesos | 1,157,590 | 181,685 | (7.08 | )% | 15.96 | % | 582,936 | 218,635 | (10.82 | )% | 31.68 | % | ||||||||||||||||||||
Foreign currency | — | — | 0.00 | % | 0.00 | % | — | — | 0.00 | % | 0.00 | % | ||||||||||||||||||||
Total | 1,157,590 | 181,685 | (7.08 | )% | 15.96 | % | 582,936 | 218,635 | (10.82 | )% | 31.68 | % | ||||||||||||||||||||
Total interest-earning liabilities | ||||||||||||||||||||||||||||||||
Pesos | 138,409,533 | 16,025,007 | (10.51 | )% | 11.68 | % | 141,673,504 | 27,939,466 | (20.54 | )% | 17.32 | % | ||||||||||||||||||||
Foreign currency | 48,290,981 | 946,571 | (3.21 | )% | 1.97 | % | 63,732,507 | 1,596,692 | 39.32 | % | 2.15 | % | ||||||||||||||||||||
Total | 186,700,514 | 16,971,578 | (8.62 | )% | 9.17 | % | 205,406,011 | 29,536,158 | (1.97 | )% | 12.61 | % | ||||||||||||||||||||
Non-interest bearing liabilities and Shareholders’ equity | ||||||||||||||||||||||||||||||||
Deposits | ||||||||||||||||||||||||||||||||
Non financial Public Sector | ||||||||||||||||||||||||||||||||
Pesos | 6,760,571 | — | — | — | 6,470,675 | — | — | — | ||||||||||||||||||||||||
Foreign currency | 3,182,513 | — | — | — | 1,581,447 | — | — | — | ||||||||||||||||||||||||
Total | 9,943,084 | — | — | — | 8,052,122 | — | — | — | ||||||||||||||||||||||||
Financial Sector | ||||||||||||||||||||||||||||||||
Pesos | 41,134 | — | — | — | 65,584 | — | — | — | ||||||||||||||||||||||||
Foreign currency | 58,004 | — | — | — | 92,529 | — | — | — | ||||||||||||||||||||||||
Total | 99,138 | — | — | — | 158,113 | — | — | — | ||||||||||||||||||||||||
Non financial Private Sector and Foreign Residents | ||||||||||||||||||||||||||||||||
Pesos | 30,214,724 | — | — | — | 25,368,692 | — | — | — | ||||||||||||||||||||||||
Foreign currency | 4,351,080 | — | — | — | 7,929,721 | — | — | — | ||||||||||||||||||||||||
Total | 34,565,804 | — | — | — | 33,298,413 | — | — | — | ||||||||||||||||||||||||
Liabilities at fair value through profit or loss | ||||||||||||||||||||||||||||||||
Pesos | 2,462 | — | — | — | 21,475 | — | — | — | ||||||||||||||||||||||||
Foreign currency | — | — | — | — | 31,576 | — | — | — | ||||||||||||||||||||||||
Total | 2,462 | — | — | — | 53,051 | — | — | — | ||||||||||||||||||||||||
Derivative Financial Instruments | ||||||||||||||||||||||||||||||||
Pesos | 9,309 | — | — | — | 67,096 | — | — | — |
2017 | 2018 | |||||||||||||||||||||||||||||||
Average Balance | Interest Earned / (Paid) | Average Real Rate | Average Nominal Rate | Average Balance | Interest Earned / (Paid) | Average Real Rate | Average Nominal Rate | |||||||||||||||||||||||||
(in thousands of Pesos) | ||||||||||||||||||||||||||||||||
Foreign currency | — | — | — | — | 635 | — | — | — | ||||||||||||||||||||||||
Total | 9,309 | — | — | — | 67,731 | — | — | — | ||||||||||||||||||||||||
Other Financial Liabilities | ||||||||||||||||||||||||||||||||
Pesos | 11,378,620 | — | — | — | 12,713,132 | — | — | — | ||||||||||||||||||||||||
Foreign currency | 2,005,154 | — | — | — | 2,912,427 | — | — | — | ||||||||||||||||||||||||
Total | 13,383,774 | — | — | — | 15,625,559 | — | — | — | ||||||||||||||||||||||||
Current Income Tax Liabilities | ||||||||||||||||||||||||||||||||
Pesos | 4,223,273 | — | — | — | 3,506,918 | — | — | — | ||||||||||||||||||||||||
Foreign currency | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Total | 4,223,273 | — | — | — | 3,506,918 | — | — | — | ||||||||||||||||||||||||
Provisions | ||||||||||||||||||||||||||||||||
Pesos | 767,918 | — | — | — | 993,977 | — | — | — | ||||||||||||||||||||||||
Foreign currency | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Total | 767,918 | — | — | — | 993,977 | — | — | — | ||||||||||||||||||||||||
Deferred Income Tax Liabilities | ||||||||||||||||||||||||||||||||
Pesos | 2,395,878 | — | — | — | 2,108,467 | — | — | — | ||||||||||||||||||||||||
Foreign currency | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Total | 2,395,878 | — | — | — | 2,108,467 | — | — | — | ||||||||||||||||||||||||
OtherNon-financial Liabilities | ||||||||||||||||||||||||||||||||
Pesos | 5,375,207 | — | — | — | 5,734,367 | — | — | — | ||||||||||||||||||||||||
Foreign currency | 24,519 | — | — | — | 65,861 | — | — | — | ||||||||||||||||||||||||
Total | 5,399,726 | — | — | — | 5,800,228 | — | — | — | ||||||||||||||||||||||||
Shareholders’ equity | ||||||||||||||||||||||||||||||||
Pesos | 64,798,700 | — | — | — | 69,654,177 | — | — | — | ||||||||||||||||||||||||
Foreign currency | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Total | 64,798,700 | — | — | — | 69,654,177 | — | — | — | ||||||||||||||||||||||||
Total non–interest bearing liabilities and shareholders’ equity | ||||||||||||||||||||||||||||||||
Pesos | 125,967,796 | — | — | — | 126,704,560 | — | — | — | ||||||||||||||||||||||||
Foreign currency | 9,621,270 | — | — | — | 12,614,196 | — | — | — | ||||||||||||||||||||||||
Total | 135,589,066 | — | — | — | 139,318,756 | — | — | — | ||||||||||||||||||||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||||||||||||||||||
Pesos | 264,377,329 | — | — | — | 268,378,064 | — | — | — | ||||||||||||||||||||||||
Foreign currency | 57,912,251 | — | — | — | 76,346,703 | — | — | — | ||||||||||||||||||||||||
Total | 322,289,580 | — | — | — | 344,724,767 | — | — | — |
Changes in interest income and interest expense; volume and rate analysis
The following tables allocate, by currency of denomination, changes in our interest income and interest expense segregated for each major category of interest-earning assets and interest-bearing liabilities into amounts attributable to changes in their average volume and their respective nominal interest rates for fiscal year ended December 31, 2019 compared to the fiscal year ended December 31, 2018 comparedand to the fiscal year ended December 31, 2017, all based on information adjusted for inflation as of December 2018.31, 2019.
2017 | 2018 | 2019 | December 2018 / December 2017 Increase (Decrease) Due to Changes in | December 2019 / December 2018 Increase (Decrease) Due to Changes in | ||||||||||||||||||||||||||||||||
Interest Earned / (Paid) | Interest Earned / (Paid) | Interest Earned / (Paid) | Volume | Rate | Net Change | Volume | Rate | Net Change | ||||||||||||||||||||||||||||
(in thousands of Pesos) | ||||||||||||||||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||||||||||||||
Interest-earning assets Loans and other financingNon-financial Public Sector | ||||||||||||||||||||||||||||||||||||
Pesos | 451,823 | 1,639,576 | 806,054 | 670,437 | 517,316 | 1,187,753 | (991,597 | ) | 158,075 | (833,522 | ) | |||||||||||||||||||||||||
Foreign currency | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Total | 451,823 | 1,639,576 | 806,054 | 670,437 | 517,316 | 1,187,753 | (991,597 | ) | 158,075 | (833,522 | ) | |||||||||||||||||||||||||
Other Financial Entities | ||||||||||||||||||||||||||||||||||||
Pesos | 1,234,112 | 2,162,510 | 2,042,904 | 206,190 | 722,208 | 928,398 | (1,043,917 | ) | 924,311 | (119,606 | ) | |||||||||||||||||||||||||
Foreign currency | 17,795 | 34,784 | 30,408 | 11,654 | 5,335 | 16,989 | (12,548 | ) | 8,172 | (4,376 | ) | |||||||||||||||||||||||||
Total | 1,251,907 | 2,197,294 | 2,073,312 | 217,844 | 727,543 | 945,387 | (1,056,465 | ) | 932,483 | (123,982 | ) | |||||||||||||||||||||||||
Non-financial Private Sector and Foreign Residents | ||||||||||||||||||||||||||||||||||||
Pesos | 67,329,187 | 81,242,921 | 74,655,858 | (26,771 | ) | 13,940,505 | 13,913,734 | (24,572,652 | ) | 17,985,589 | (6,587,063 | ) | ||||||||||||||||||||||||
Foreign currency | 1,527,670 | 2,791,167 | 4,655,193 | 688,296 | 575,201 | 1,263,497 | (214,566 | ) | 2,078,592 | 1,864,026 | ||||||||||||||||||||||||||
Total | 68,856,857 | 84,034,088 | 79,311,051 | 661,525 | 14,515,706 | 15,177,231 | (24,787,217 | ) | 20,064,180 | (4,723,037 | ) | |||||||||||||||||||||||||
Other Debt Securities | ||||||||||||||||||||||||||||||||||||
Pesos | 13,989,522 | 31,512,711 | 66,015,859 | 3,512,283 | 14,010,906 | 17,523,189 | 4,335,888 | 30,167,260 | 34,503,148 | |||||||||||||||||||||||||||
Foreign currency | 191,989 | 95,864 | 75,369 | (43,645 | ) | (52,480 | ) | (96,125 | ) | (46,403 | ) | 25,908 | (20,495 | ) | ||||||||||||||||||||||
Total | 14,181,511 | 31,608,575 | 66,091,228 | 3,468,638 | 13,958,426 | 17,427,064 | 4,289,486 | 30,193,167 | 34,482,653 | |||||||||||||||||||||||||||
Repo Transactions | ||||||||||||||||||||||||||||||||||||
Pesos | 1,721,692 | 692,037 | 3,284,995 | (1,442,026 | ) | 412,371 | (1,029,655 | ) | 1,657,291 | 935,667 | 2,592,958 | |||||||||||||||||||||||||
Foreign currency | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Total | 1,721,692 | 692,037 | 3,284,995 | (1,442,026 | ) | 412,371 | (1,029,655 | ) | 1,657,291 | 935,667 | 2,592,958 | |||||||||||||||||||||||||
Total interest-earning assets | ||||||||||||||||||||||||||||||||||||
Pesos | 84,726,336 | 117,249,755 | 146,805,670 | 2,920,113 | 29,603,306 | 32,523,419 | (20,614,987 | ) | 50,170,902 | 29,555,915 | ||||||||||||||||||||||||||
Foreign currency | 1,737,454 | 2,921,815 | 4,760,970 | 656,305 | 528,056 | 1,184,361 | (273,516 | ) | 2,112,671 | 1,839,155 | ||||||||||||||||||||||||||
Total | 86,463,790 | 120,171,570 | 151,566,640 | 3,576,418 | 30,131,362 | 33,707,780 | (20,888,503 | ) | 52,283,573 | 31,395,070 | ||||||||||||||||||||||||||
LIABILITIES | ||||||||||||||||||||||||||||||||||||
Interest-bearing liabilities | ||||||||||||||||||||||||||||||||||||
Deposits | ||||||||||||||||||||||||||||||||||||
Non financial Public Sector | ||||||||||||||||||||||||||||||||||||
Pesos | 2,076,236 | 4,135,858 | 5,823,944 | 207,988 | 1,851,634 | 2,059,622 | (1,213,823 | ) | 2,901,909 | 1,688,086 | ||||||||||||||||||||||||||
Foreign currency | 1,224 | 4,489 | 33,167 | 432 | 2,833 | 3,265 | 4,200 | 24,478 | 28,678 | |||||||||||||||||||||||||||
Total | 2,077,460 | 4,140,347 | 5,857,111 | 208,420 | 1,854,467 | 2,062,887 | (1,209,623 | ) | 2,926,387 | 1,716,764 | ||||||||||||||||||||||||||
Non financial Private Sector and Foreign Residents | ||||||||||||||||||||||||||||||||||||
Pesos | 21,060,553 | 36,442,536 | 51,826,903 | (64,746 | ) | 15,446,749 | 15,382,003 | (4,853,189 | ) | 20,237,556 | 15,384,367 | |||||||||||||||||||||||||
Foreign currency | 208,557 | 835,238 | 1,594,101 | 78,027 | 548,654 | 626,681 | (29,634 | ) | 788,497 | 758,863 | ||||||||||||||||||||||||||
Total | 21,269,090 | 37,277,774 | 53,421,004 | 13,280 | 15,995,404 | 16,008,684 | (4,888,823 | ) | 21,026,053 | 16,143,230 | ||||||||||||||||||||||||||
Financing received from the Central Bank of Argentina and other financial entities | ||||||||||||||||||||||||||||||||||||
Pesos | 66,282 | 224,498 | 297,737 | 248,977 | (90,761 | ) | 158,216 | (124,137 | ) | 197,376 | 73,239 | |||||||||||||||||||||||||
Foreign currency | 92,600 | 85,869 | 153,650 | 6,129 | (12,860 | ) | (6,731 | ) | 21,109 | 46,672 | 67,781 | |||||||||||||||||||||||||
Total | 158,882 | 310,367 | 451,387 | 255,106 | (103,621 | ) | 151,485 | (103,028 | ) | 244,048 | 141,020 | |||||||||||||||||||||||||
Issued Corporate Bonds | ||||||||||||||||||||||||||||||||||||
Pesos | 1,203,432 | 2,788,218 | 2,387,574 | 580,611 | 1,004,175 | 1,584,786 | (1,424,529 | ) | 1,023,885 | (400,644 | ) | |||||||||||||||||||||||||
Foreign currency | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Total | 1,203,432 | 2,788,218 | 2,387,574 | 580,611 | 1,004,175 | 1,584,786 | (1,424,529 | ) | 1,023,885 | (400,644 | ) | |||||||||||||||||||||||||
Subordinated Corporate Bonds | ||||||||||||||||||||||||||||||||||||
Pesos | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Foreign currency | 1,153,730 | 1,530,595 | 1,703,391 | 296,168 | 80,697 | 376,865 | (89,508 | ) | 262,304 | 172,796 | ||||||||||||||||||||||||||
Total | 1,153,730 | 1,530,595 | 1,703,391 | 296,168 | 80,697 | 376,865 | (89,508 | ) | 262,304 | 172,796 | ||||||||||||||||||||||||||
Repo Transactions | ||||||||||||||||||||||||||||||||||||
Pesos | 279,486 | 336,326 | 336,492 | (136,368 | ) | 193,208 | 56,840 | (61,303 | ) | 61,469 | 166 | |||||||||||||||||||||||||
Foreign currency | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Total | 279,486 | 336,326 | 336,492 | (136,368 | ) | 193,208 | 56,840 | (61,303 | ) | 61,469 | 166 | |||||||||||||||||||||||||
Total interest-earning liabilities | ||||||||||||||||||||||||||||||||||||
Pesos | 24,685,969 | 43,927,436 | 60,672,650 | 836,462 | 18,405,005 | 19,241,467 | (7,676,981 | ) | 24,442,195 | 16,745,214 | ||||||||||||||||||||||||||
Foreign currency | 1,456,111 | 2,456,191 | 3,484,309 | 380,756 | 619,324 | 1,000,080 | (93,834 | ) | 1,121,952 | 1,028,118 | ||||||||||||||||||||||||||
Total | 26,142,080 | 46,383,627 | 64,156,959 | 1,217,219 | 19,024,328 | 20,241,547 | (7,770,814 | ) | 25,544,146 | 17,773,332 |
2017 | 2018 | December 2018 / December 2017 Increase (Decrease) Due to Changes in | ||||||||||||||||||
Interest Earned / (Paid) | Interest Earned / (Paid) | Net Change | Volume | Rate | ||||||||||||||||
ASSETS | (in thousands of Pesos) | |||||||||||||||||||
Interest-earning assets | ||||||||||||||||||||
Loans and other financing | ||||||||||||||||||||
Non-financial Public Sector | ||||||||||||||||||||
Pesos | 293,716 | 1,065,836 | 772,120 | 435,830 | 336,290 | |||||||||||||||
Foreign currency | — | — | — | — | — | |||||||||||||||
Total | 293,716 | 1,065,836 | 772,120 | 435,830 | 336,290 | |||||||||||||||
Other Financial Entities | ||||||||||||||||||||
Pesos | 802,257 | 1,405,779 | 603,522 | 134,037 | 469,485 | |||||||||||||||
Foreign currency | 11,568 | 22,612 | 11,044 | 7,576 | 3,468 | |||||||||||||||
Total | 813,825 | 1,428,391 | 614,566 | 141,614 | 472,952 | |||||||||||||||
Non-financial Private Sector and Foreign Residents | ||||||||||||||||||||
Pesos | 43,387,897 | 49,399,413 | 6,011,516 | 393,629 | 5,617,887 | |||||||||||||||
Foreign currency | 993,090 | 1,814,449 | 821,359 | 447,439 | 373,920 | |||||||||||||||
Total | 44,380,987 | 51,213,862 | 6,832,875 | 841,068 | 5,991,807 | |||||||||||||||
Other Debt Securities | ||||||||||||||||||||
Pesos | 9,094,144 | 20,485,413 | 11,391,269 | 2,283,224 | 9,108,045 | |||||||||||||||
Foreign currency | 124,806 | 62,318 | (62,488 | ) | (28,372 | ) | (34,116 | ) | ||||||||||||
Total | 9,218,950 | 20,547,731 | 11,328,781 | 2,254,852 | 9,073,929 | |||||||||||||||
Repo Transactions | ||||||||||||||||||||
Pesos | 1,119,217 | 449,871 | (669,346 | ) | (937,415 | ) | 268,069 | |||||||||||||
Foreign currency | — | — | — | — | — | |||||||||||||||
Total | 1,119,217 | 449,871 | (669,346 | ) | (937,415 | ) | 268,069 | |||||||||||||
Total interest-earning assets | ||||||||||||||||||||
Pesos | 54,697,231 | 72,806,312 | 18,109,081 | 2,309,305 | 15,799,776 | |||||||||||||||
Foreign currency | 1,129,464 | 1,899,379 | 769,915 | 426,643 | 343,272 | |||||||||||||||
Total | 55,826,695 | 74,705,691 | 18,878,996 | 2,735,948 | 16,143,048 | |||||||||||||||
LIABILITIES | ||||||||||||||||||||
Interest-bearing liabilities | ||||||||||||||||||||
Deposits |
2017 | 2018 | December 2018 / December 2017 Increase (Decrease) Due to Changes in | ||||||||||||||||||
Interest Earned / (Paid) | Interest Earned / (Paid) | Net Change | Volume | Rate | ||||||||||||||||
Non financial Public Sector | ||||||||||||||||||||
Pesos | 1,349,695 | 2,688,590 | 1,338,895 | 135,207 | 1,203,688 | |||||||||||||||
Foreign currency | 796 | 2,918 | 2,122 | 281 | 1,841 | |||||||||||||||
Total | 1,350,491 | 2,691,508 | 1,341,017 | 135,487 | 1,205,530 | |||||||||||||||
Non financial Private Sector and Foreign Residents | ||||||||||||||||||||
Pesos | 13,668,226 | 23,073,770 | 9,405,544 | 52,178 | 9,353,366 | |||||||||||||||
Foreign currency | 135,576 | 542,962 | 407,386 | 50,723 | 356,663 | |||||||||||||||
Total | 13,803,802 | 23,616,732 | 9,812,930 | 102,901 | 9,710,029 | |||||||||||||||
Financing received from the Central Bank of Argentina and other financial entities | ||||||||||||||||||||
Pesos | 43,088 | 145,939 | 102,851 | 161,852 | (59,001 | ) | ||||||||||||||
Foreign currency | 60,196 | 55,821 | (4,375 | ) | 3,985 | (8,360 | ) | |||||||||||||
Total | 103,284 | 201,760 | 98,476 | 165,837 | -67,361 | |||||||||||||||
Issued Corporate Bonds | ||||||||||||||||||||
Pesos | 782,313 | 1,812,532 | 1,030,219 | 377,437 | 652,782 | |||||||||||||||
Foreign currency | — | — | — | — | — | |||||||||||||||
Total | 782,313 | 1,812,532 | 1,030,219 | 377,437 | 652,782 | |||||||||||||||
Subordinated Corporate Bonds | ||||||||||||||||||||
Pesos | — | — | — | — | — | |||||||||||||||
Foreign currency | 750,003 | 994,991 | 244,988 | 192,530 | 52,458 | |||||||||||||||
Total | 750,003 | 994,991 | 244,988 | 192,530 | 52,458 | |||||||||||||||
Repo Transactions | ||||||||||||||||||||
Pesos | 181,685 | 218,635 | 36,950 | -88,648 | 125,598 | |||||||||||||||
Foreign currency | — | — | — | — | — | |||||||||||||||
Total | 181,685 | 218,635 | 36,950 | -88,648 | 125,598 | |||||||||||||||
Total interest-earning liabilities | ||||||||||||||||||||
Pesos | 16,025,007 | 27,939,466 | 11,914,459 | 522,458 | 11,392,001 | |||||||||||||||
Foreign currency | 946,571 | 1,596,692 | 650,121 | 308,959 | 341,162 | |||||||||||||||
Total | 16,971,578 | 29,536,158 | 12,564,580 | 831,418 | 11,733,162 |
Interest-earning assets: net interest margin and spread
The following table analyzes, by currency of denomination, the levels of our average interest-earning assets and net interest income, and illustrates the comparative margins and spreads for each of the years indicated all based on information adjusted for inflation as of December 31, 2018.
Year Ended December 31, | ||||||||
2017 (1) | 2018 | |||||||
(in thousands of Pesos, except percentages) | ||||||||
Average interest-earning assets | ||||||||
Pesos | 205,397,589 | 211,454,409 | ||||||
Foreign currency | 29,429,508 | 40,391,848 | ||||||
|
|
|
| |||||
Total | 234,827,097 | 251,846,257 | ||||||
|
|
|
| |||||
Net interest income (2) | ||||||||
Pesos | 38,672,224 | 44,866,846 | ||||||
Foreign currency | 182,893 | 302,687 | ||||||
|
|
|
| |||||
Total | 38,855,117 | 45,169,533 | ||||||
|
|
|
| |||||
Net interest margin (3) | ||||||||
Pesos | (4.78 | )% | (17.90 | )% | ||||
Foreign currency | (4.49 | )% | 37.41 | % | ||||
|
|
|
| |||||
Weighted average rate | (4.74 | )% | (9.03 | )% | ||||
|
|
|
| |||||
Yield spread real basis (4) | ||||||||
Pesos | 12.31 | % | 8.75 | % | ||||
Foreign currency | 1.83 | % | 2.55 | % | ||||
|
|
|
| |||||
Weighted average rate | 10.02 | % | (1.22 | )% | ||||
|
|
|
|
Year Ended December 31, | ||||||||||||
2017 (1) | 2018 (1) | 2019 | ||||||||||
(in thousands of Pesos, except percentages) | ||||||||||||
Average interest-earning assets | ||||||||||||
Pesos | 315,963,113 | 325,280,316 | 279,195,985 | |||||||||
Foreign currency | 45,271,411 | 62,134,780 | 65,443,817 | |||||||||
|
|
|
|
|
| |||||||
Total | 361,234,524 | 387,415,096 | 344,639,802 | |||||||||
|
|
|
|
|
| |||||||
Net interest income (2) | ||||||||||||
Pesos | 60,040,367 | 73,322,319 | 86,133,020 | |||||||||
Foreign currency | 281,343 | 465,624 | 1,276,661 | |||||||||
|
|
|
|
|
| |||||||
Total | 60,321,710 | 73,787,943 | 87,409,681 | |||||||||
|
|
|
|
|
| |||||||
Net interest margin (3) | ||||||||||||
Pesos | (4.64 | %) | (17.01 | %) | (14.94 | %) | ||||||
Foreign currency | (4.49 | %) | 37.41 | % | 4.99 | % | ||||||
|
|
|
|
|
| |||||||
Weighted average rate | (4.62 | %) | (8.28 | %) | (11.16 | %) | ||||||
|
|
|
|
|
| |||||||
Yield spread real basis (4) | ||||||||||||
Pesos | 12.21 | % | 10.76 | % | 12.72 | % | ||||||
Foreign currency | 1.83 | % | 2.55 | % | 4.18 | % | ||||||
|
|
|
|
|
| |||||||
Weighted average rate | 9.93 | % | 0.76 | % | 7.50 | % | ||||||
|
|
|
|
|
|
(1) |
|
(2) |
|
(3) |
|
(4) |
|
Investment portfolio: government and private securities
We own, manage and trade a portfolio of securities issued by the Argentine and other governments and private issuers. The following table analyzes, by currency of denomination, our investments in Argentine and other governments and private securities as of December 31, 2017, 2018 and 20182019 all based on information adjusted for inflation as of December 31, 2018.2019.
Year Ended December 31, | ||||||||
2017 (1) | 2018 | |||||||
(in thousands of Pesos) | ||||||||
DEBT SECURITIES AT FAIR VALUE THROUGH PROFIT OR LOSS | ||||||||
Government securities | ||||||||
In Pesos: | ||||||||
Consolidation bonds 8° Serie - Maturity:10-04-2022 | 156,330 | 169,663 | ||||||
Debt Securities of Province of Río Negro - Badlar Private + 500 basis point - Maturity:07-06-2020 | 416,185 | 122,869 | ||||||
National treasury bills capitalized - Maturity:01-31-2019 | — | 120,690 | ||||||
National treasury bills capitalized - Maturity:02-28-2019 | — | 103,193 | ||||||
Debt Securities of Province of Buenos Aires - Badlar Private + 375 basis point - Maturity:04-12-2025 | — | 82,429 | ||||||
Federal government treasury bonds - Maturity:10-03-2021 | — | 79,622 | ||||||
Federal government treasury bonds adjustment by CER - Maturity:07-22-2021 | — | 77,240 |
Year Ended December 31, | ||||||||||||
2017 (1) | 2018 (1) | 2019 | ||||||||||
(in thousands of Pesos) | ||||||||||||
DEBT SECURITIES AT FAIR VALUE THROUGH PROFIT OR LOSS | ||||||||||||
Government securities | ||||||||||||
In Pesos: | ||||||||||||
Federal government treasury bonds adjustment by CER - Maturity:07-22-2021 | — | 118,818 | 3,923,304 | |||||||||
Bonds Par denominated in pesos – Maturity:12-31-2038 | 87,845 | 56,388 | 170,419 | |||||||||
National treasury bills coupon capitalized in pesos - Maturity:02-26-2020 | — | — | 165,621 | |||||||||
Discount bonds at 5.83% – Maturity: 2033 | 203,709 | 3,498 | 131,760 | |||||||||
National treasury bills coupon capitalized in pesos - Maturity:03-11-2020 | — | — | 114,452 |
Year Ended December 31, | Year Ended December 31, | |||||||||||||||||||
2017 (1) | 2018 | 2017 (1) | 2018 (1) | 2019 | ||||||||||||||||
(in thousands of Pesos) | (in thousands of Pesos) | |||||||||||||||||||
Consolidation bonds 6° Series at 2% - Maturity:03-15-2024 | 6 | 48,396 | 9 | 74,448 | 71,286 | |||||||||||||||
National treasury bills capitalized - Maturity:03-29-2019 | — | 45,155 | ||||||||||||||||||
Federal government bonds - Badlar Private + 200 basis point - Maturity:04-03-2022 | 431 | 38,419 | ||||||||||||||||||
National treasury bills capitalized in pesos - Maturity:04-08-2020 | — | — | 66,979 | |||||||||||||||||
National treasury bills capitalized in pesos - Maturity:05-13-2020 | — | — | 58,512 | |||||||||||||||||
Debt Securities of Province of Buenos Aires - Badlar Private + 375 basis point - Maturity:04-12-2025 | — | 126,801 | 30,674 | |||||||||||||||||
Consolidation bonds 8° Serie - Maturity:10-04-2022 | 240,482 | 260,994 | 27,612 | |||||||||||||||||
Others | 466,600 | 184,450 | 1,067,146 | 1,008,305 | 32,278 | |||||||||||||||
In Foreign Currency: | ||||||||||||||||||||
Federal government bonds at 8.75% - Maturity:05-07-2024 | 13,191 | 61,833 | 20,292 | 95,118 | 9,451 | |||||||||||||||
Par bonds Argentine Law - Maturity:12-31-2038 | — | — | 4,147 | |||||||||||||||||
Federal government bonds at 8% - Maturity:10-08-2020 | — | 53,601 | 3,300 | |||||||||||||||||
National treasury bills 4,25% - Maturity:09-04-2019 | — | — | 25 | |||||||||||||||||
International bonds of the Argentina Republic at 7.5% - Maturity:04-22-2026 | — | 55,358 | — | 85,157 | — | |||||||||||||||
Federal government bonds at 8% - Maturity:10-08-2020 | — | 34,844 | ||||||||||||||||||
Discount Bonds at 8.28% - Maturity: 2033 (governed by New York State legislation) | 6 | 15,403 | ||||||||||||||||||
Discount Bonds at 8.28% – Maturity: 2033 (governed by New York State legislation) | 9 | 23,694 | — | |||||||||||||||||
Federal government treasury at 5.75% - Maturity:07-26-2019 | — | 1,965 | — | 3,023 | — | |||||||||||||||
Federal government bonds at 5.75% - Maturity:04-18-2025 | — | 1,289 | — | 1,983 | — | |||||||||||||||
Federal government bonds at fixed rate - Maturity:12-31-2033 | 483 | 31 | ||||||||||||||||||
Federal government bonds in US dollars - Maturity:01-26-2022 | 7,500 | — | ||||||||||||||||||
Federal government bonds dollars - Maturity:01-26-2027 | 1,404 | — | ||||||||||||||||||
Treasury Bill in US dollars - Maturity:02-09-2018 | 933 | — | ||||||||||||||||||
Federal government bonds at fixed rate – Maturity:12-31-2033 | 743 | 48 | — | |||||||||||||||||
Federal government bonds in US dollars – Maturity:01-26-2022 | 11,537 | — | — | |||||||||||||||||
Others | 3,596 | — | — | |||||||||||||||||
Subtotal Government securities | 1,063,069 | 1,242,849 | 1,635,368 | 1,911,876 | 4,809,820 | |||||||||||||||
Private securities | ||||||||||||||||||||
In Pesos: | ||||||||||||||||||||
Debt Securities in Financial Trust provisional Consubond | — | 377,725 | — | 581,054 | 354,317 | |||||||||||||||
Debt Securities in Financial Trusts Secubono Series 191 Class A - Maturity:06-29-2020 | — | — | 84,339 | |||||||||||||||||
Debt Securities in Financial Trust provisional Secubond | — | 121,838 | 68,271 | |||||||||||||||||
Corporate Bonds Province of Buenos Aires Class 9 - Maturity:04-18-2021 | — | 45,360 | 50,129 | |||||||||||||||||
Debt Securities in Financial Trusts Secubono Series 189A - Maturity:03-30-2020 | — | — | 22,198 | |||||||||||||||||
Debt Securities in Financial Trusts Secubono Series 191 CL.B - Maturity:07-28-2020 | — | — | 12,062 | |||||||||||||||||
Debt Securities in Financial Trusts Secubono Series 190 CL.A - Maturity:04-28-2020 | — | — | 11,169 | |||||||||||||||||
Debt Securities in Financial Trusts Secubono Series 190 CL.B - Maturity:06-29-2020 | — | — | 7,401 | |||||||||||||||||
Debt Securities in Financial Trusts Secubono Series 189B - Maturity:04-28-2020 | — | — | 6,960 | |||||||||||||||||
Debt Securities in Financial Trusts Megabono Series 180 Class A - Maturity:12-24-2019 | — | 165,980 | — | 255,327 | 5,948 | |||||||||||||||
Debt Securities in Financial Trusts PVCRED Series 038 Class A - Maturity:08-12-2019 | — | 112,600 | ||||||||||||||||||
Debt Securities in Financial Trusts Consubond Series 149 Class A - Maturity:10-25-2019 | — | 111,017 | ||||||||||||||||||
Debt Securities in Financial Trust provisional Secubond | — | 79,203 | ||||||||||||||||||
Debt Securities in Financial Trusts Consubond Series 147 Class A - Maturity:12-26-2019 | — | 39,576 | ||||||||||||||||||
Debt Securities in Financial Trusts Secubono Series 180 - Maturity:11-28-2019 | — | 34,635 | ||||||||||||||||||
Debt Securities in Financial Trust provisional Accicom Personales | — | 32,716 | ||||||||||||||||||
Corporate Bonds Province of Buenos Aires Class 2 - Maturity:11-08-2019 | — | 30,429 | ||||||||||||||||||
Corporate Bonds Province of Buenos Aires Class 9 - Maturity:04-18-2021 | — | 29,487 | ||||||||||||||||||
Corporate Bonds Banco de Inversión y Comercio Class 6 - Maturity:06-27-2020 | 145,583 | — | ||||||||||||||||||
Others | 343,244 | 161,478 | 751,987 | 803,685 | 12,071 | |||||||||||||||
In Foreign Currency: | ||||||||||||||||||||
Debt Securities in Financial Trust provisional Red Surcos | — | — | 105,308 | |||||||||||||||||
Debt Securities in Financial Trusts provisional Agrocap | — | 130,735 | — | 201,111 | 94,822 | |||||||||||||||
Debt Securities in Financial Trusts Chubut Regalías Hidrocarburíferas - Maturity:07-01-2020 | 51,576 | 48,366 | 79,341 | 74,402 | 30,193 | |||||||||||||||
Corporate Bonds John Deere Credit financial company Series A Class 016 -Maturity:04-06-2019 | — | 38,451 | ||||||||||||||||||
Corporate Bonds John Deere Credit financial company Series A Class 016 - Maturity:04-06-2019 | — | 59,149 | — | |||||||||||||||||
Subtotal Private securities | 540,403 | 1,392,398 | 831,328 | 2,141,926 | 865,188 | |||||||||||||||
TOTAL DEBT SECURITIES AT FAIR VALUE THROUGH PROFIT OR LOSS | 1,603,472 | 2,635,247 | ||||||||||||||||||
OTHER DEBT SECURITIES | ||||||||||||||||||||
MEASURED AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME | ||||||||||||||||||||
Government securities | ||||||||||||||||||||
In Pesos: | ||||||||||||||||||||
Discount bonds at 5.83% -Maturity: 2033 | 2,145 | 146,446 |
Year Ended December 31, | ||||||||
2017 (1) | 2018 | |||||||
(in thousands of Pesos) | ||||||||
Consolidation bonds 8° Serie - Maturity:10-04-2022 | 73,418 | — | ||||||
Secured bonds under Presidential Decree 1579/02 at 2% - Maturity02-04-2018 | 16,811 | — | ||||||
In Foreign Currency: | ||||||||
Federal government bonds at 8.75% - Maturity:05-07-2024 | 492,431 | 530,833 | ||||||
International bonds of the Argentina Republic at 7.125 - Maturity:06-28-2117 | — | 81,630 | ||||||
US Treasury Bill - Maturity:01-03-2019 | — | 226,836 | ||||||
US Treasury Bill - Maturity:01-02-2019 | — | 189,042 | ||||||
US Treasury Bill - Maturity:01-15-2019 | — | 188,888 | ||||||
US Treasury Bill - Maturity:01-18-2018 | 664,910 | — | ||||||
US Treasury Bill - Maturity:01-11-2018 | 360,248 | — | ||||||
Subtotal Government securities | 1,609,963 | 1,363,675 | ||||||
Instruments Issued by Central Bank | ||||||||
In Pesos: | ||||||||
Liquidity letters of Central Bank of Argentina - Maturity:01-04-2019 | — | 15,546,415 | ||||||
Liquidity letters of Central Bank of Argentina - Maturity:01-08-2019 | — | 13,787,546 | ||||||
Liquidity letters of Central Bank of Argentina - Maturity:01-02-2019 | — | 12,404,850 | ||||||
Liquidity letters of Central Bank of Argentina - Maturity:01-03-2019 | — | 7,926,384 | ||||||
Liquidity letters of Central Bank of Argentina - Maturity:01-07-2019 | — | 5,404,713 | ||||||
Central Bank of Argentina Internal Bills - Maturity:03-21-2018 | 9,350,534 | — | ||||||
Central Bank of Argentina Internal Bills - Maturity:01-17-2018 | 8,957,070 | — | ||||||
Central Bank of Argentina Internal Bills - Maturity:05-16-2018 | 8,518,595 | — | ||||||
Central Bank of Argentina Internal Bills - Maturity:04-18-2018 | 8,307,994 | — | ||||||
Central Bank of Argentina Internal Bills - Maturity:02-21-2018 | 7,894,139 | — | ||||||
Others | 5,186,673 | — | ||||||
Subtotal Instruments Issued by Central Bank | 48,215,005 | 55,069,908 | ||||||
Private securities | ||||||||
In Foreign Currency: | ||||||||
Corporate Bonds Chevron Corp - Maturity:03-03-2019 | 27,439 | — | ||||||
Subtotal Private securities | 27,439 | — | ||||||
Total Other debt securities measured at fair value through other comprehensive income | 49,852,407 | 56,433,583 | ||||||
MEASURED AT AMORTIZED COST | ||||||||
Government securities | ||||||||
In Pesos: | ||||||||
Federal government bonds - Fixed rate 26% - Maturity:11-21-2020 | — | 7,991,383 | ||||||
Discount bonds at 5.83% - Maturity: 2033 | 173,415 | 157,044 | ||||||
Secured bonds under Presidential Decree 1579/02 at 2% - Maturity02-04-2018 | 6,304 | — | ||||||
Subtotal Government securities | 179,719 | 8,148,427 | ||||||
Private securities |
Year Ended December 31, | ||||||||||||
2017 (1) | 2018 (1) | 2019 | ||||||||||
(in thousands of Pesos) | ||||||||||||
TOTAL DEBT SECURITIES AT FAIR VALUE THROUGH PROFIT OR LOSS | 2,466,696 | 4,053,802 | 5,675,008 | |||||||||
OTHER DEBT SECURITIES | ||||||||||||
MEASURED AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME | ||||||||||||
Government securities | ||||||||||||
In Pesos: | ||||||||||||
Discount bonds at 5.83% – Maturity: 2033 | 3,300 | 225,278 | 83,855 | |||||||||
Consolidation bonds 8° Serie - Maturity:10-04-2022 | 112,944 | — | — | |||||||||
Secured bonds under Presidential Decree 1579/02 at 2% – Maturity02-04-2018 | 25,860 | — | — | |||||||||
In Foreign Currency: | ||||||||||||
Federal government bonds at 8.75% - Maturity:05-07-2024 | 757,507 | 816,580 | 386,445 | |||||||||
International bonds of the Argentina Republic at 7.125 - Maturity:06-28-2117 | — | 125,571 | — | |||||||||
US Treasury Bill – Maturity:01-07-2020 | — | — | 479,070 | |||||||||
US Treasury Bill – Maturity:01-03-2019 | — | 348,942 | — | |||||||||
US Treasury Bill – Maturity:01-02-2019 | — | 290,803 | — | |||||||||
US Treasury Bill – Maturity:01-15-2019 | — | 290,567 | — | |||||||||
US Treasury Bill – Maturity:01-18-2018 | 1,022,901 | — | — | |||||||||
US Treasury Bill – Maturity:01-11-2018 | 554,169 | — | — | |||||||||
Subtotal Government securities | 2,476,681 | 2,097,741 | 949,370 | |||||||||
Instruments Issued by Central Bank | ||||||||||||
In Pesos: | ||||||||||||
Liquidity letters of Central Bank of Argentina - Maturity:01-03-2020 | — | — | 14,782,386 | |||||||||
Liquidity letters of Central Bank of Argentina - Maturity:01-07-2020 | — | — | 11,308,111 | |||||||||
Liquidity letters of Central Bank of Argentina - Maturity:01-08-2020 | — | — | 9,893,453 | |||||||||
Liquidity letters of Central Bank of Argentina - Maturity:01-06-2020 | — | — | 7,955,921 | |||||||||
Liquidity letters of Central Bank of Argentina - Maturity:01-02-2020 | — | — | 1,992,248 | |||||||||
Liquidity letters of Central Bank of Argentina - Maturity:01-04-2019 | — | 23,915,050 | — | |||||||||
Liquidity letters of Central Bank of Argentina - Maturity:01-08-2019 | — | 21,209,382 | — | |||||||||
Liquidity letters of Central Bank of Argentina - Maturity:01-04-2019 | — | 19,082,381 | — | |||||||||
Liquidity letters of Central Bank of Argentina - Maturity:01-04-2019 | — | 12,193,156 | — | |||||||||
Liquidity letters of Central Bank of Argentina - Maturity:01-04-2019 | — | 8,314,070 | — | |||||||||
Others | 74,171,359 | — | — | |||||||||
Subtotal Instruments Issued by Central Bank | 74,171,359 | 84,714,039 | 45,932,119 | |||||||||
Private securities | ||||||||||||
In Foreign Currency: | ||||||||||||
Corporate Bonds Chevron Corp - Maturity:03-03-2019 | 42,210 | — | ||||||||||
TOTAL OTHER DEBT SECURITIES MEASURED AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME | 76,690,250 | 86,811,780 | 46,881,489 |
Year Ended December 31, | ||||||||
2017 (1) | 2018 | |||||||
(in thousands of Pesos) | ||||||||
In Pesos: | ||||||||
Debt Securities in Financial Trust SAT SAPEM—Maturity:01-10-2019 | 11,178 | 2,749 | ||||||
Debt Securities in Financial Trust provisional Consubond | 532,062 | — | ||||||
Debt Securities in Financial Trust provisional Secubond | 163,228 | — | ||||||
Debt Securities in Financial Trust provisional Garbarino | 100,502 | — | ||||||
Debt Securities in Financial Trust provisional Accicom Personales | 75,360 | — | ||||||
Debt Securities in Financial Trust provisional Credicuotas Consumo | 74,152 | — | ||||||
Debt Securities in Financial Trust provisional Mila | 48,657 | — | ||||||
Debt Securities in Financial Trust provisional Best Consumer Directo | 47,447 | — | ||||||
Debt Securities in Financial Trust provisional Best Consumer Finance | 47,374 | — | ||||||
Debt Securities in Financial Trust provisional Credimas | 37,865 | — | ||||||
In Foreign Currency: | ||||||||
Debt Securities in Financial Trusts provisional Agrocap | 68,629 | — | ||||||
Subtotal Private securities | 1,206,454 | 2,749 | ||||||
Total Other debt securities measured at amortized cost | 1,386,173 | 8,151,176 | ||||||
TOTAL OTHER DEBT SECURITIES | 51,238,580 | 64,584,759 | ||||||
EQUITY INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS |
| |||||||
In Pesos: | ||||||||
Mercado Abierto Electrónico SA | 30,632 | 25,078 | ||||||
C.O.E.L.S.A | 4,500 | 4,826 | ||||||
Argentina Clearing SA | 4,750 | 4,569 | ||||||
Sedesa | 5,771 | 3,975 | ||||||
Mercado a Término Rosario SA | 3,793 | 3,663 | ||||||
Laboratorios Richmond SACIF | 3,489 | 1,256 | ||||||
Provincanje SA | 800 | 758 | ||||||
Sanatorio Las Lomas SA | 596 | 600 | ||||||
Proin SA | 757 | 513 | ||||||
El Taura SA | 273 | 185 | ||||||
Others | 356,063 | 349 | ||||||
In Foreign Currency: | ||||||||
Banco Latinoamericano de Comercio Exterior SA | 5,445 | 4,777 | ||||||
Sociedad de Telecomunicaciones Financieras Interbancarias Mundiales | 465 | 969 | ||||||
TOTAL EQUITY INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS | 417,334 | 51,518 | ||||||
TOTAL | 53,259,386 | 67,271,524 |
Year Ended December 31, | ||||||||||||
2017 (1) | 2018 (1) | 2019 | ||||||||||
(in thousands of Pesos) | ||||||||||||
MEASURED AT AMORTIZED COST | ||||||||||||
Government securities | ||||||||||||
In Pesos: | ||||||||||||
Federal government bonds - Fixed rate 26% - Maturity:11-21-2020 | — | 12,293,144 | 7,973,994 | |||||||||
National treasury bills coupon capitalized in pesos - Maturity:02-26-2020 | — | — | 1,502,176 | |||||||||
National treasury bills capitalized in pesos - Maturity:05-13-2020 | — | — | 1,437,896 | |||||||||
National treasury bills capitalized in pesos - Maturity:08-29-2020 | — | — | 1,222,188 | |||||||||
National treasury bills coupon capitalized in pesos - Maturity:03-11-2020 | — | — | 883,292 | |||||||||
National treasury bills capitalized in pesos - Maturity:04-28-2020 | — | — | 753,407 | |||||||||
National treasury bills capitalized in pesos - Maturity:04-08-2020 | — | — | 385,400 | |||||||||
Discount bonds at 5.83% – Maturity: 2033 | 266,764 | 241,581 | 321,426 | |||||||||
National treasury bills capitalized in pesos - Maturity:07-31-2020 | — | — | 230,388 | |||||||||
Federal government treasury bonds adjustment by CER - Maturity:02-26-2020 | — | — | 159,430 | |||||||||
Others | 9,705 | — | 48,787 | |||||||||
Subtotal Government securities | 276,469 | 12,534,725 | 14,918,384 | |||||||||
Private Securities | ||||||||||||
In Pesos: | ||||||||||||
Debt Securities in Financial Trusts Megabono Series 214 Class A - Maturity:09-28-2020 | — | — | 294,978 | |||||||||
Debt Securities in Financial Trusts Garbarino Series 153 Class A - Maturity:06-10-2020 | — | — | 121,009 | |||||||||
Corporate Bonds Banco Galicia S.A. Class 005 Series 001 -Maturity:04-26-2020 | — | — | 119,827 | |||||||||
Debt Securities in Financial Trusts Secubono Series 192 Class A - Maturity:07-28-2020 | — | — | 96,583 | |||||||||
Corporate Bonds YPF Class 017 -Maturity:04-30-2020 | — | — | 94,884 | |||||||||
Debt Securities in Financial Trusts Secubono Series 194 Class A - Maturity:08-28-2020 | — | — | 91,774 | |||||||||
Corporate Bonds Volkswagen Financial Services Class 004 -Maturity:02-27-2020 | — | — | 89,868 | |||||||||
Debt Securities in Financial Trusts Secubono Series 193 Class A - Maturity:07-28-2020 | — | — | 88,588 | |||||||||
Debt Securities in Financial Trusts Secubono Series 195 Class A - Maturity:10-28-2020 | — | — | 80,463 | |||||||||
Corporate Bonds Province of Buenos Aires Bank Class 012 -Maturity:02-15-2020 | — | — | 74,817 | |||||||||
Others | 1,750,368 | 4,229 | 1,560,751 | |||||||||
In Foreign Currency: | ||||||||||||
Debt Securities in Financial Trusts provisional Agrocap | 105,575 | — | — | |||||||||
Subtotal Private securities | 1,855,943 | 4,229 | 2,713,542 | |||||||||
TOTAL OTHER DEBT SECURITIES MEASURED AT AMORTIZED COST | 2,132,412 | 12,538,954 | 17,631,926 | |||||||||
TOTAL OTHER DEBT SECURITIES | 78,822,662 | 99,350,734 | 64,513,415 |
Year Ended December 31, | ||||||||||||
2017 (1) | 2018 (1) | 2019 | ||||||||||
(in thousands of Pesos) | ||||||||||||
EQUITY INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS | ||||||||||||
In Pesos: | ||||||||||||
Prisma Medios de Pago SA | — | — | 2,501,196 | |||||||||
Mercado Abierto Electrónico SA | 47,121 | 38,578 | 51,954 | |||||||||
Matba Rofex SA | — | — | 11,549 | |||||||||
Argentina Clearing SA | 7,307 | 7,028 | 10,443 | |||||||||
C.O.E.L.S.A | 6,922 | 7,424 | 9,605 | |||||||||
Mercado a Término Rosario SA | 5,835 | 5,635 | 9,189 | |||||||||
Sedesa | 8,878 | 6,115 | 6,972 | |||||||||
Provincanje SA | 1,231 | 1,166 | 2,435 | |||||||||
Proin SA | 1,164 | 789 | 1,478 | |||||||||
Sanatorio Las Lomas SA | 917 | 923 | 694 | |||||||||
Others | 553,536 | 2,752 | 592 | |||||||||
In Foreign Currency: | ||||||||||||
Banco Latinoamericano de Comercio Exterior SA | 8,377 | 7,348 | 9,352 | |||||||||
Sociedad de Telecomunicaciones Financieras Interbancarias Mundiales | 715 | 1,491 | 1,269 | |||||||||
TOTAL EQUITY INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS | 642,003 | 79,249 | 2,616,728 | |||||||||
TOTAL | 81,931,361 | 103,483,785 | 72,805,151 |
(1) | Figures stated in thousands of |
Remaining maturity of government and private securities
The following table analyzes the remaining maturities of our investment portfolio as of December 31, 20182019 in accordance with issuance terms (before allowances). Certain securities listed below have been reprofiled by the Argentine government by virtue of Decree 346/2020. For further information, see “Item 3 – Risk Factors – Argentina’s ability to obtain financing from international markets may be limited or costly, which may impair its ability to implement reforms and public policies and foster economic growth”. The table below presents the reprofiled maturities.
Maturing within 1 year | Maturing after 1 year but within 5 years | Maturing after 5 year but within 10 years | Maturing after 10 years | Without due date | Total | |||||||||||||||||||
Book Value (in thousands of Pesos, except percentages) | ||||||||||||||||||||||||
DEBT SECURITIES AT FAIR VALUE THROUGH PROFIT OR LOSS | ||||||||||||||||||||||||
Government securities | ||||||||||||||||||||||||
In Pesos: | ||||||||||||||||||||||||
Federal government treasury bonds adjustment by CER - Maturity:07-22-2021 | — | 3,923,304 | — | — | — | 3,923,304 | ||||||||||||||||||
Bonds Par denominated in pesos – Maturity:12-31-2038 | — | — | 8,521 | 161,898 | — | 170,419 | ||||||||||||||||||
National treasury bills coupon capitalized in pesos - Maturity:02-26-2020 | 165,621 | — | — | — | — | 165,621 | ||||||||||||||||||
Discount bonds at 5.83% – Maturity: 2033 | — | 13,176 | 65,880 | 52,704 | — | 131,760 | ||||||||||||||||||
National treasury bills coupon capitalized in pesos – Maturity:03-11-2020 | 114,452 | — | — | — | — | 114,452 | ||||||||||||||||||
Consolidation bonds 6° Series at 2% - Maturity:03-15-2024 | 16,617 | 54,669 | — | — | — | 71,286 | ||||||||||||||||||
National treasury bills capitalized in pesos - Maturity:04-08-2020 | 66,979 | — | — | — | — | 66,979 | ||||||||||||||||||
National treasury bills capitalized in pesos - Maturity:05-13-2020 | 58,512 | — | — | — | — | 58,512 | ||||||||||||||||||
Debt Securities of Province of Buenos Aires - Badlar Private + 375 basis point - Maturity:04-12-2025 | — | — | 30,674 | — | — | 30,674 | ||||||||||||||||||
Consolidation bonds 8° Serie - Maturity:10-04-2022 | 8,590 | 19,022 | — | — | — | 27,612 | ||||||||||||||||||
Others | 25,983 | 5,733 | 562 | — | — | 32,278 | ||||||||||||||||||
In Foreign Currency: | ||||||||||||||||||||||||
Federal government bonds at 8.75% - Maturity:05-07-2024 | 1,889 | 7,562 | — | — | — | 9,451 | ||||||||||||||||||
Par bonds Argentine Law - Maturity:12-31-2038 | — | — | 207 | 3,940 | — | 4,147 | ||||||||||||||||||
Federal government bonds at 8% - Maturity:10-08-2020 | 3,300 | — | — | — | — | 3,300 | ||||||||||||||||||
National treasury bills 4,25% - Maturity:03-02-2020 | 25 | — | — | — | — | 25 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Subtotal Government securities | 461,968 | 4,023,466 | 105,844 | 218,542 | — | 4,809,820 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Private securities | ||||||||||||||||||||||||
In Pesos: | ||||||||||||||||||||||||
Debt Securities in Financial Trust provisional Consubond | 354,317 | — | — | — | — | 354,317 |
Maturing within 1 year | Maturing after 1 year but within 5 years | Maturing after 5 year but within 10 years | Maturing after 10 years | Without due date | Total | |||||||||||||||||||
Book Value (in thousands of Pesos, except percentages) | ||||||||||||||||||||||||
DEBT SECURITIES AT FAIR VALUE THROUGH PROFIT OR LOSS | ||||||||||||||||||||||||
Government securities | ||||||||||||||||||||||||
In Pesos: | ||||||||||||||||||||||||
Consolidation bonds 8° Serie—Maturity:10-04-2022 | 16,966 | 152,697 | — | — | — | 169,663 | ||||||||||||||||||
Debt Securities of Province of Río Negro—Badlar Private + 500 basis point—Maturity:07-06-2020 | 1,029 | 121,840 | — | — | — | 122,869 | ||||||||||||||||||
National treasury bills capitalized—Maturity:01-31-2019 | 120,690 | — | — | — | — | 120,690 | ||||||||||||||||||
National treasury bills capitalized—Maturity:02-28-2019 | 103,193 | — | — | — | — | 103,193 | ||||||||||||||||||
Debt Securities of Province of Buenos Aires—Badlar Private + 375 basis point—Maturity:04-12-2025 | 1,123 | — | 81,306 | — | — | 82,429 | ||||||||||||||||||
Federal government treasury bonds —Maturity:10-03-2021 | — | 79,622 | — | — | — | 79,622 | ||||||||||||||||||
Federal government treasury bonds adjustment by CER—Maturity:07-22-2021 | — | 77,240 | — | — | — | 77,240 | ||||||||||||||||||
Consolidation bonds 6° Series at 2%—Maturity:03-15-2024 | 9,149 | 36,593 | 2,654 | — | — | 48,396 | ||||||||||||||||||
National treasury bills capitalized—Maturity:03-29-2019 | 45,155 | — | — | — | — | 45,155 | ||||||||||||||||||
Federal government bonds—Badlar Private + 200 basis point—Maturity:04-03-2022 | 109 | 38,310 | — | — | — | 38,419 | ||||||||||||||||||
Others | 58,743 | 52,346 | 35,555 | 37,806 | — | 184,450 | ||||||||||||||||||
In Foreign Currency: | ||||||||||||||||||||||||
Federal government bonds at 8,75%—Maturity:05-07-2024 | 5,156 | 20,622 | 36,055 | — | — | 61,833 | ||||||||||||||||||
International bonds of the Argentina Republic at 7,5%—Maturity:04-22-2026 | — | — | 55,358 | — | — | 55,358 | ||||||||||||||||||
Federal government bonds at 8%—Maturity:10-08-2020 | — | 34,844 | — | — | — | 34,844 | ||||||||||||||||||
Discount Bonds at 8,28% – Maturity: 2033 (governed by New York State legislation) | — | — | 7,701 | 7,702 | — | 15,403 | ||||||||||||||||||
Federal government treasury at 5,75%—Maturity:07-26-2019 | 1,965 | — | — | — | — | 1,965 | ||||||||||||||||||
Federal government bonds at 5,75%—Maturity:04-18-2025 | — | 213 | 1,076 | — | — | 1,289 | ||||||||||||||||||
Federal government bonds at fixed rate – Maturity:12-31-2033 | — | — | 16 | 15 | — | 31 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Subtotal Government securities | 363,278 | 614,327 | 219,721 | 45,523 | — | 1,242,849 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Private securities | ||||||||||||||||||||||||
In Pesos: | ||||||||||||||||||||||||
Debt Securities in Financial Trust provisional Consubond | 377,725 | — | — | — | — | 377,725 |
Maturing within 1 year | Maturing after 1 year but within 5 years | Maturing after 5 year but within 10 years | Maturing after 10 years | Without due date | Total | |||||||||||||||||||
Book Value (in thousands of Pesos, except percentages) | ||||||||||||||||||||||||
Debt Securities in Financial Trusts Secubono Series 191 Class A - Maturity:06-29-2020 | 84,339 | — | — | — | — | 84,339 | ||||||||||||||||||
Debt Securities in Financial Trust provisional Secubond | 68,271 | — | — | — | — | 68,271 | ||||||||||||||||||
Corporate Bonds Province of Buenos Aires Class 9 - Maturity:04-18-2021 | — | 50,129 | — | — | — | 50,129 | ||||||||||||||||||
Debt Securities in Financial Trusts Secubono Series 189A - Maturity:03-30-2020 | 22,198 | — | — | — | — | 22,198 | ||||||||||||||||||
Debt Securities in Financial Trusts Secubono Series 191 CL.B - Maturity:07-28-2020 | 12,062 | — | — | — | — | 12,062 | ||||||||||||||||||
Debt Securities in Financial Trusts Secubono Series 190 CL.A - Maturity:04-28-2020 | 11,169 | — | — | — | — | 11,169 | ||||||||||||||||||
Debt Securities in Financial Trusts Secubono Series 190 CL.B - Maturity:06-29-2020 | 7,401 | — | — | — | — | 7,401 | ||||||||||||||||||
Debt Securities in Financial Trusts Secubono Series 189B - Maturity:04-28-2020 | 6,960 | — | — | — | — | 6,960 | ||||||||||||||||||
Debt Securities in Financial Trusts Megabono Series 180 Class A - Maturity:12-24-2019 | 5,948 | — | — | — | — | 5,948 | ||||||||||||||||||
Others | 12,071 | — | — | — | — | 12,071 | ||||||||||||||||||
In Foreign Currency: | ||||||||||||||||||||||||
Debt Securities in Financial Trust provisional Red Surcos | 105,308 | — | — | — | — | 105,308 | ||||||||||||||||||
Debt Securities in Financial Trusts provisional Agrocap | 94,822 | — | — | — | — | 94,822 | ||||||||||||||||||
Debt Securities in Financial Trusts Chubut Regalías Hidrocarburíferas - Maturity:07-01-2020 | 30,193 | — | — | — | — | 30,193 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Subtotal Private securities | 815,059 | 50,129 | — | — | — | 865,188 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
TOTAL DEBT SECURITIES AT FAIR VALUE THROUGH PROFIT OR LOSS | 1,277,027 | 4,073,595 | 105,844 | 218,542 | — | 5,675,008 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
OTHER DEBT SECURITIES | ||||||||||||||||||||||||
MEASURED AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME | ||||||||||||||||||||||||
Government securities | ||||||||||||||||||||||||
In Pesos: | ||||||||||||||||||||||||
Discount bonds at 5,83% – Maturity: 2033 | — | 8,386 | 41,928 | 33,541 | — | 83,855 | ||||||||||||||||||
In Foreign Currency: | ||||||||||||||||||||||||
Federal government bonds at 8.75% - Maturity:05-07-2024 | 77,252 | 309,193 | — | — | — | 386,445 | ||||||||||||||||||
US Treasury Bill – Maturity:01-07-2020 | 479,070 | — | — | — | — | 479,070 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Subtotal Government securities | 556,322 | 317,579 | 41,928 | 33,541 | — | 949,370 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Maturing within 1 year | Maturing after 1 year but within 5 years | Maturing after 5 year but within 10 years | Maturing after 10 years | Without due date | Total | |||||||||||||||||||
Book Value (in thousands of Pesos, except percentages) | ||||||||||||||||||||||||
Debt Securities in Financial Trusts Megabono Series 180 Class A—Maturity:12-24-2019 | 165,980 | — | — | — | — | 165,980 | ||||||||||||||||||
Debt Securities in Financial Trusts PVCRED Series 038 Class A—Maturity:08-12-2019 | 112,600 | — | — | — | — | 112,600 | ||||||||||||||||||
Debt Securities in Financial Trusts Consubond Series 149 Class A—Maturity:10-25-2019 | 111,017 | — | — | — | — | 111,017 | ||||||||||||||||||
Debt Securities in Financial Trust provisional Secubond | 79,203 | — | — | — | — | 79,203 | ||||||||||||||||||
Debt Securities in Financial Trusts Consubond Series 147 Class A—Maturity:12-26-2019 | 39,576 | — | — | — | — | 39,576 | ||||||||||||||||||
Debt Securities in Financial Trusts Secubono Series 180—Maturity:11-28-2019 | 34,635 | — | — | — | — | 34,635 | ||||||||||||||||||
Debt Securities in Financial Trust provisional Accicom Personales | 32,716 | — | — | — | — | 32,716 | ||||||||||||||||||
Corporate Bonds Province of Buenos Aires Class 2—Maturity:11-08-2019 | 30,429 | — | — | — | — | 30,429 | ||||||||||||||||||
Corporate Bonds Province of Buenos Aires Class 9—Maturity:04-18-2021 | — | 29,487 | — | — | — | 29,487 | ||||||||||||||||||
Others | 135,079 | 25,173 | — | — | 1,226 | 161,478 | ||||||||||||||||||
In Foreign Currency: | ||||||||||||||||||||||||
Debt Securities in Financial Trusts provisional Agrocap | 130,735 | — | — | — | — | 130,735 | ||||||||||||||||||
Debt Securities in Financial Trusts Chubut Regalías Hidrocarburíferas—Maturity:07-01-2020 | 28,028 | 20,338 | — | — | — | 48,366 | ||||||||||||||||||
Corporate Bonds John Deere Credit financial company Series A Class 016 -Maturity:04-06-2019 | 38,451 | — | — | — | — | 38,451 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Subtotal Private securities | 1,316,174 | 74,998 | — | — | 1,226 | 1,392,398 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
TOTAL DEBT SECURITIES AT FAIR VALUE THROUGH PROFIT OR LOSS | 1,679,452 | 689,325 | 219,721 | 45,523 | 1,226 | 2,635,247 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
OTHER DEBT SECURITIES | ||||||||||||||||||||||||
MEASURED AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME | ||||||||||||||||||||||||
Government securities | ||||||||||||||||||||||||
In Pesos: | ||||||||||||||||||||||||
Discount bonds at 5,83% – Maturity: 2033 | — | — | 73,223 | 73,223 | — | 146,446 | ||||||||||||||||||
In Foreign Currency: | ||||||||||||||||||||||||
Federal government bonds at 8,75%—Maturity:05-07-2024 | 43,583 | 174,331 | 312,920 | — | — | 530,833 | ||||||||||||||||||
International bonds of the Argentina Republic at 7,125—Maturity:06-28-2117 | 3,963 | — | — | 77,667 | — | 81,630 | ||||||||||||||||||
US Treasury Bill – Maturity:01-03-2019 | 226,836 | — | — | — | — | 226,836 |
Maturing within 1 year | Maturing after 1 year but within 5 years | Maturing after 5 year but within 10 years | Maturing after 10 years | Without due date | Total | |||||||||||||||||||
Book Value (in thousands of Pesos, except percentages) | ||||||||||||||||||||||||
Instruments Issued by Central Bank | ||||||||||||||||||||||||
In Pesos: | ||||||||||||||||||||||||
Liquidity letters of Central Bank of Argentina - Maturity:01-03-2020 | 14,782,386 | — | — | — | — | 14,782,386 | ||||||||||||||||||
Liquidity letters of Central Bank of Argentina - Maturity:01-07-2020 | 11,308,111 | — | — | — | — | 11,308,111 | ||||||||||||||||||
Liquidity letters of Central Bank of Argentina - Maturity:01-08-2020 | 9,893,453 | — | — | — | — | 9,893,453 | ||||||||||||||||||
Liquidity letters of Central Bank of Argentina - Maturity:01-06-2020 | 7,955,921 | — | — | — | — | 7,955,921 | ||||||||||||||||||
Liquidity letters of Central Bank of Argentina - Maturity:01-02-2020 | 1,992,248 | — | — | — | — | 1,992,248 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Subtotal Instruments Issued by Central Bank | 45,932,119 | — | — | — | — | 45,932,119 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total Other debt securities measured at fair value through other comprehensive income | 46,488,441 | 317,579 | 41,928 | 33,541 | — | 46,881,489 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
MEASURED AT AMORTIZED COST | ||||||||||||||||||||||||
Government securities | ||||||||||||||||||||||||
In Pesos: | ||||||||||||||||||||||||
Federal government bonds - Fixed rate 26% - Maturity:11-21-2020 | 7,973,994 | — | — | — | — | 7,973,994 | ||||||||||||||||||
National treasury bills coupon capitalized in pesos - Maturity:02-26-2020 | 1,502,176 | — | — | — | — | 1,502,176 | ||||||||||||||||||
National treasury bills capitalized in pesos - Maturity:05-13-2020 | 1,437,896 | — | — | — | — | 1,437,896 | ||||||||||||||||||
National treasury bills capitalized in pesos - Maturity:08-29-2020 | 1,222,188 | — | — | — | — | 1,222,188 | ||||||||||||||||||
National treasury bills coupon capitalized in pesos - Maturity:03-11-2020 | 883,292 | — | — | — | — | 883,292 | ||||||||||||||||||
National treasury bills capitalized in pesos - Maturity:04-28-2020 | 753,407 | — | — | — | — | 753,407 | ||||||||||||||||||
National treasury bills capitalized in pesos - Maturity:04-08-2020 | 385,400 | — | — | — | — | 385,400 | ||||||||||||||||||
Discount bonds at 5.83% – Maturity: 2033 | — | 32,143 | 160,713 | 128,570 | — | 321,426 | ||||||||||||||||||
National treasury bills capitalized in pesos - Maturity:07-31-2020 | 230,388 | — | — | — | — | 230,388 | ||||||||||||||||||
Federal government treasury bonds adjustment by CER - Maturity:02-26-2020 | 159,430 | — | — | — | — | 159,430 | ||||||||||||||||||
Others | 25,660 | — | 1,156 | 21,971 | — | 48,787 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Subtotal Government securities | 14,573,831 | 32,143 | 161,869 | 150,541 | — | 14,918,384 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Private securities | ||||||||||||||||||||||||
In Pesos: | ||||||||||||||||||||||||
Debt Securities in Financial Trusts Megabono Series 214 Class A - Maturity:09-28-2020 | 294,978 | — | — | — | — | 294,978 |
Maturing within 1 year | Maturing after 1 year but within 5 years | Maturing after 5 year but within 10 years | Maturing after 10 years | Without due date | Total | |||||||||||||||||||
Book Value (in thousands of Pesos, except percentages) | ||||||||||||||||||||||||
US Treasury Bill – Maturity:01-02-2019 | 189,042 | — | — | — | — | 189,042 | ||||||||||||||||||
US Treasury Bill – Maturity:01-15-2019 | 188,888 | — | — | — | — | 188,888 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Subtotal Government securities | 652,312 | 174,331 | 386,143 | 150,890 | — | 1,363,675 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Instruments Issued by Central Bank | ||||||||||||||||||||||||
In Pesos: | ||||||||||||||||||||||||
Liquidity letters of Central Bank of Argentina—Maturity:01-04-2019 | 15,546,415 | — | — | — | — | 15,546,415 | ||||||||||||||||||
Liquidity letters of Central Bank of Argentina—Maturity:01-08-2019 | 13,787,546 | — | — | — | — | 13,787,546 | ||||||||||||||||||
Liquidity letters of Central Bank of Argentina—Maturity:01-02-2019 | 12,404,850 | — | — | — | — | 12,404,850 | ||||||||||||||||||
Liquidity letters of Central Bank of Argentina—Maturity:01-03-2019 | 7,926,384 | — | — | — | — | 7,926,384 | ||||||||||||||||||
Liquidity letters of Central Bank of Argentina—Maturity:01-07-2019 | 5,404,713 | — | — | — | — | 5,404,713 | ||||||||||||||||||
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Subtotal Instruments Issued by Central Bank | 55,069,908 | — | — | — | — | 55,069,908 | ||||||||||||||||||
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Total Other debt securities measured at fair value through other comprehensive income | 55,722,220 | 174,331 | 386,143 | 150,890 | — | 56,433,583 | ||||||||||||||||||
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MEASURED AT AMORTIZED COST | ||||||||||||||||||||||||
Government securities | ||||||||||||||||||||||||
In Pesos: | ||||||||||||||||||||||||
Federal government bonds—Fixed rate 26%—Maturity:11-21-2020 | 782,214 | 7,209,169 | — | — | — | 7,991,383 | ||||||||||||||||||
Discount bonds at 5,83% – Maturity: 2033 | — | — | 78,522 | 78,522 | — | 157,044 | ||||||||||||||||||
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Subtotal Government securities | 782,214 | 7,209,169 | 78,522 | 78,522 | — | 8,148,427 | ||||||||||||||||||
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Private securities | ||||||||||||||||||||||||
In Pesos: | ||||||||||||||||||||||||
Debt Securities in Financial Trust SAT SAPEM—Maturity:01-10-2019 | 2,749 | — | — | — | — | 2,749 | ||||||||||||||||||
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Subtotal Private securities | 2,749 | — | — | — | — | 2,749 | ||||||||||||||||||
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Total Other debt securities measurement at amortized cost | 784,963 | 7,209,169 | 78,522 | 78,522 | — | 8,151,176 | ||||||||||||||||||
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TOTAL OTHER DEBT SECURITIES AT FAIR VALUE THROUGH PROFIT AND LOSS | 56,507,183 | 7,383,500 | 464,665 | 229,412 | — | 64,584,759 | ||||||||||||||||||
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Maturing within 1 year | Maturing after 1 year but within 5 years | Maturing after 5 year but within 10 years | Maturing after 10 years | Without due date | Total | |||||||||||||||||||
Book Value (in thousands of Pesos, except percentages) | ||||||||||||||||||||||||
Debt Securities in Financial Trusts Garbarino Series 153 Class A - Maturity:06-10-2020 | 121,009 | — | — | — | — | 121,009 | ||||||||||||||||||
Corporate Bonds Banco Galicia S.A. Class 005 Series 001 -Maturity:04-26-2020 | 119,827 | — | — | — | — | 119,827 | ||||||||||||||||||
Debt Securities in Financial Trusts Secubono Series 192 Class A - Maturity:07-28-2020 | 96,583 | — | — | — | — | 96,583 | ||||||||||||||||||
Corporate Bonds YPF Class 017 -Maturity:04-30-2020 | 94,884 | — | — | — | — | 94,884 | ||||||||||||||||||
Debt Securities in Financial Trusts Secubono Series 194 Class A - Maturity:08-28-2020 | 91,774 | — | — | — | — | 91,774 | ||||||||||||||||||
Corporate Bonds Volkswagen Financial Services Class 004 -Maturity:02-27-2020 | 89,868 | — | — | — | — | 89,868 | ||||||||||||||||||
Debt Securities in Financial Trusts Secubono Series 193 Class A - Maturity:07-28-2020 | 88,588 | — | — | — | — | 88,588 | ||||||||||||||||||
Debt Securities in Financial Trusts Secubono Series 195 Class A - Maturity:10-28-2020 | 80,463 | — | — | — | — | 80,463 | ||||||||||||||||||
Corporate Bonds Province of Buenos Aires Bank Class 012 -Maturity:02-15-2020 | 74,817 | — | — | — | — | 74,817 | ||||||||||||||||||
Others | 1,325,330 | 235,421 | — | — | — | 1,560,751 | ||||||||||||||||||
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Subtotal Private securities | 2,478,121 | 235,421 | — | — | — | 2,713,542 | ||||||||||||||||||
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Total Other debt securities measurement at amortized cost | 17,051,952 | 267,564 | 161,869 | 150,541 | — | 17,631,926 | ||||||||||||||||||
TOTAL OTHER DEBT SECURITIES | 63,540,393 | 585,143 | 203,797 | 184,082 | — | 64,513,415 | ||||||||||||||||||
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Maturing within 1 year | Maturing after 1 year but within 5 years | Maturing after 5 year but within 10 years | Maturing after 10 years | Without due date | Total | |||||||||||||||||||
Book Value (in thousands of Pesos, except percentages) | ||||||||||||||||||||||||
EQUITY INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS | ||||||||||||||||||||||||
Measured at fair value through profit or loss | ||||||||||||||||||||||||
In Pesos: | ||||||||||||||||||||||||
Mercado Abierto Electrónico SA | — | — | — | — | 25,078 | 25,078 | ||||||||||||||||||
COELSA | — | — | — | — | 4,826 | 4,826 | ||||||||||||||||||
Argentina Clearing SA | — | — | — | — | 4,569 | 4,569 | ||||||||||||||||||
Sedesa | — | — | — | — | 3,975 | 3,975 | ||||||||||||||||||
Mercado a Término Rosario SA | — | — | — | — | 3,663 | 3,663 | ||||||||||||||||||
Laboratorios Richmond SACIF | — | — | — | — | 1,256 | 1,256 | ||||||||||||||||||
Provincanje SA | — | — | — | — | 758 | 758 | ||||||||||||||||||
Sanatorio Las Lomas SA | — | — | — | — | 600 | 600 | ||||||||||||||||||
Proin SA | — | — | — | — | 513 | 513 | ||||||||||||||||||
El Taura SA | — | — | — | — | 185 | 185 | ||||||||||||||||||
Others | — | — | — | — | 349 | 349 | ||||||||||||||||||
In Foreign Currency: | ||||||||||||||||||||||||
Banco Latinoamericano de Comercio Exterior SA | — | — | — | — | 4,777 | 4,777 | ||||||||||||||||||
Sociedad de Telecomunicaciones Financieras Interbancarias Mundiales | — | — | — | — | 969 | 969 | ||||||||||||||||||
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TOTAL EQUITY INSTRUMENTS MEASURED AT FAIR VALUE THROUGH PROFIT OR LOSS | — | — | — | — | 51,518 | 51,518 | ||||||||||||||||||
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TOTAL | 58,186,635 | 8,072,825 | 684,386 | 274,935 | 52,744 | 67,271,524 | ||||||||||||||||||
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Maturing within 1 year | Maturing after 1 year but within 5 years | Maturing after 5 year but within 10 years | Maturing after 10 years | Without due date | Total | |||||||||||||||||||
Book Value (in thousands of Pesos, except percentages) | ||||||||||||||||||||||||
EQUITY INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS | ||||||||||||||||||||||||
Measured at fair value through profit or loss | ||||||||||||||||||||||||
In Pesos: | ||||||||||||||||||||||||
Prisma Medios de Pago SA | — | — | — | — | 2,501,196 | 2,501,196 | ||||||||||||||||||
Mercado Abierto Electrónico SA | — | — | — | — | 51,954 | 51,954 | ||||||||||||||||||
Matba Rofex SA | — | — | — | — | 11,549 | 11,549 | ||||||||||||||||||
Argentina Clearing SA | — | — | — | — | 10,443 | 10,443 | ||||||||||||||||||
C.O.E.L.S.A | — | — | — | — | 9,605 | 9,605 | ||||||||||||||||||
Mercado a Término Rosario SA | — | — | — | — | 9,189 | 9,189 | ||||||||||||||||||
Sedesa | — | — | — | — | 6,972 | 6,972 | ||||||||||||||||||
Provincanje SA | — | — | — | — | 2,435 | 2,435 | ||||||||||||||||||
Proin SA | — | — | — | — | 1,478 | 1,478 | ||||||||||||||||||
Sanatorio Las Lomas SA | — | — | — | — | 694 | 694 | ||||||||||||||||||
Others | — | — | — | — | 592 | 592 | ||||||||||||||||||
In Foreign Currency: | ||||||||||||||||||||||||
Banco Latinoamericano de Comercio Exterior SA | — | — | — | — | 9,352 | 9,352 | ||||||||||||||||||
Sociedad de Telecomunicaciones Financieras Interbancarias Mundiales | — | — | — | — | 1,269 | 1,269 | ||||||||||||||||||
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TOTAL EQUITY INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS | — | — | — | — | 2,616,728 | 2,616,728 | ||||||||||||||||||
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TOTAL | 64,817,420 | 4,658,738 | 309,641 | 402,624 | 2,616,728 | 72,805,151 | ||||||||||||||||||
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Loan and other financing portfolio
The following table analyzes our loan portfolio (without consideringand other financings)financing portfolio by type as of December 31, 2017, 2018 and 2018.2019. Due to IFRS 9, as of December 31, 2018, and 2019, we calculate the allowances included in our financial statements under expected credit losses approach. For further information see note 3 to our audited consolidated financial statements.
As of December 31, | As of December 31, | |||||||||||||||||||
2017 (1) | 2018 | 2017 (1) | 2018 (1) | 2019 | ||||||||||||||||
(in thousands of Pesos) | (in thousands of Pesos) | |||||||||||||||||||
To thenon-financial government sector | 2,653,205 | 1,683,726 | 4,278,175 | 2,731,262 | 6,450,647 | |||||||||||||||
To the financial sector (2) | 4,829,136 | 5,625,090 | 7,428,890 | 8,654,365 | 3,979,803 | |||||||||||||||
To thenon-financial private sector and foreign residents | ||||||||||||||||||||
Overdrafts (3) | 13,032,123 | 16,893,917 | 20,047,914 | 25,987,913 | 37,138,490 | |||||||||||||||
Documents (4) | 25,497,785 | 24,211,165 | 39,224,414 | 37,244,035 | 19,656,651 | |||||||||||||||
Mortgages loans | 11,832,772 | 12,631,680 | 18,202,900 | 19,431,314 | 12,739,230 | |||||||||||||||
Pledged loans (5) | 6,039,573 | 4,295,242 | 9,290,958 | 6,607,369 | 4,006,661 | |||||||||||||||
Consumer loans (6) | 106,675,743 | 85,858,634 | 164,104,187 | 132,076,330 | 97,744,986 | |||||||||||||||
Other loans | 24,805,146 | 24,997,760 | 38,158,902 | 38,454,055 | 28,435,889 | |||||||||||||||
Accrued Interest, adjustments, foreign exchange and quoted price differences receivables | 3,778,822 | 6,900,146 | 5,813,138 | 10,614,497 | 15,418,012 | |||||||||||||||
Other financing | 1,987,528 | 1,275,925 | 1,114,129 | |||||||||||||||||
Less: Unposted payments | — | — | — | |||||||||||||||||
Less: Unearned discounts | (762,116 | ) | (983,905 | ) | (1,172,398 | ) | (1,513,541 | ) | (716,958 | ) | ||||||||||
Less: Allowances | (3,919,381 | ) | (3,855,695 | ) | (6,056,962 | ) | (5,951,735 | ) | (5,069,726 | ) | ||||||||||
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Total Loans | 194,462,808 | 178,257,760 | 301,307,646 | 275,611,789 | 220,897,814 |
(1) | Figures stated in thousands of |
(2) | Includes loans to financial institutions, interfinancing (granted call) and other financing to Argentine financial institutions. |
(3) | Includes overdraft lines of credit resulting from checking accounts. |
(4) | Includes the face values of drafts, promissory notes and other bills transferred to us by endorsement for which the assignor is liable, whenever the latter is part of thenon-financial private sector. |
(5) | Includes the principal amounts actually lent of automobile and other collateral granted, for which the obligor is part of thenon-financial private sector and productive investment loans. |
(6) | Includes personal loans, credit card loans and other consumer loans. Overdrafts to individuals are included under “Overdrafts”. |
Maturity composition of the loan and other financing portfolio
The following table analyzes our loan portfolio (without consideringand other financings)financing portfolio as of December 31, 20182019 by type and by the time remaining to maturity. Loans are stated before deduction of the allowance for loan losses. We expect most loans to be repaid at maturity in cash or through refinancing at market terms.
Amount as of December 31, 2018 | Maturing Within 1 Year | After 1 Year but Within 5 Years | After 5 Years | |||||||||||||
(in thousands of Pesos, except percentages) | ||||||||||||||||
To thenon-financial government sector | 1,683,726 | 842,892 | 840,834 | — | ||||||||||||
To the financial sector (1) | 5,625,090 | 5,173,585 | 451,505 | — | ||||||||||||
To thenon-financial private sector and foreign residents | ||||||||||||||||
Overdrafts (2) | 17,821,923 | 17,802,133 | 19,790 | — | ||||||||||||
Documents (3) | 24,094,477 | 20,154,604 | 3,939,703 | 170 | ||||||||||||
Mortgages loans | 15,852,607 | 2,807,774 | 4,817,928 | 8,226,905 | ||||||||||||
Pledged loans (4) | 4,367,040 | 1,976,565 | 2,390,475 | — | ||||||||||||
Consumer loans (5) | 86,944,547 | 44,388,353 | 40,378,351 | 2,177,843 | ||||||||||||
Other loans | 25,724,045 | 22,846,389 | 2,551,129 | 326,527 | ||||||||||||
Total Loans | 182,113,455 | 115,992,295 | 55,389,715 | 10,731,445 | ||||||||||||
Percentage of total loan portfolio | 100 | % | 64 | % | 30 | % | 6 | % |
Maturing | ||||||||||||||||
Amount as of December 31, 2019 | Within 1 Year | After 1 Year but Within 5 Years | After 5 Years | |||||||||||||
(in thousands of Pesos, except percentages) | ||||||||||||||||
To thenon-financial government sector | 6,450,647 | 3,583,342 | 2,867,305 | — | ||||||||||||
To the financial sector (1) | 3,979,803 | 3,469,355 | 510,448 | — | ||||||||||||
To thenon-financial private sector and foreign residents | ||||||||||||||||
Overdrafts (2) | 41,339,197 | 41,339,187 | 10 | — | ||||||||||||
Documents (3) | 20,581,845 | 15,446,144 | 5,135,629 | 72 | ||||||||||||
Mortgages loans | 20,609,791 | 3,420,215 | 4,627,291 | 12,562,285 | ||||||||||||
Pledged loans (4) | 4,068,928 | 2,386,318 | 1,682,610 | — | ||||||||||||
Consumer loans (5) | 98,995,042 | 58,738,767 | 39,105,743 | 1,150,532 | ||||||||||||
Other loans | 28,648,971 | 22,364,425 | 5,888,767 | 395,779 | ||||||||||||
Other financings | 1,293,316 | 825,148 | 468,168 | — | ||||||||||||
Total Loans and other financing | 225,967,540 | 151,572,901 | 60,285,971 | 14,108,668 | ||||||||||||
Percentage of total loan and other financings portfolio | 100 | % | 67 | % | 27 | % | 6 | % |
(1) | Includes loans to financial institutions, interfinancing (granted call) and other financing to Argentine financial institutions. |
(2) | Includes overdrafts lines of credit resulting from checking accounts. |
(3) | Includes the face value of drafts, promissory notes and other bills transferred to us by endorsement for which the assignor is liable, whenever the latter is part of thenon-financial private sector. |
(4) | Includes the principal amount actually lent of automobile and other collateral granted, for which the obligor is part of thenon-financial private sector and productive investment loans. |
(5) | Includes personal loans, credit card loans and other consumer loans. Overdrafts to individuals are included under “Overdrafts”. |
Interest rate sensitivity of outstanding loans and other financings
The following table presents the interest rate sensitivity of our outstanding loans (without consideringand other financings)financings with maturities over one year as of December 31, 2018:2019:
As of December 31, | ||||
Loans with maturities over one year: | ||||
Variable Rate | ||||
To thenon-financial government sector | ||||
To the financial sector | ||||
To thenon-financial private sector and foreign residents | ||||
Total | ||||
Fixed rate | ||||
To thenon-financial government sector | ||||
To the financial sector | ||||
To thenon-financial private sector and foreign residents | ||||
Total | ||||
Total Loans and with maturities over one year | ||||
Loans with terms of less than 1 year: | ||||
To thenon-financial government sector | ||||
To the financial sector | ||||
To thenon-financial private sector and foreign residents | ||||
Total | ||||
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Total Loans |
Loans—Loans and other financings — portfolio classification
The following table presents our loan portfolio, (without considering other financings), before deduction of the allowance for loan losses, using the classification system of the Central Bank in effect at the end of each year. As of December 31, 20182019, this classification is not used by us to calculate the allowances included in our financial statement. Due to IFRS 9 the allowances have to be determined under expected credit losses approach. For further information see note 3 to our audited consolidated financial statements:
As of December 31, | ||||||||||||||||||||||||
Loan and other financings Portfolio | 2017 (1) | 2018 (1) | 2019 | |||||||||||||||||||||
(in thousands of Pesos, except percentages) | ||||||||||||||||||||||||
Classification | ||||||||||||||||||||||||
1 - Normal situation/Performing | 300,976,480 | 97.92 | % | 272,611,720 | 96.82 | % | 219,204,256 | 97.01 | % | |||||||||||||||
2 - Subject to special monitoring – in observation – in negotiation or with rollover agreement/Low risk | 3,064,795 | 1.00 | % | 3,517,614 | 1.25 | % | 1,909,789 | 0.85 | % | |||||||||||||||
3 - Troubled/Medium risk | 1,554,419 | 0.51 | % | 3,159,144 | 1.12 | % | 1,483,488 | 0.66 | % | |||||||||||||||
4 - With high risk of insolvency/High risk | 1,416,567 | 0.46 | % | 1,913,559 | 0.68 | % | 2,914,289 | 1.29 | % | |||||||||||||||
5 - Irrecoverable | 351,781 | 0.11 | % | 360,096 | 0.13 | % | 455,456 | 0.20 | % | |||||||||||||||
6 - Irrecoverable according to Central Bank’s Rules | 566 | 0.00 | % | 1,391 | 0.00 | % | 262 | 0.00 | % | |||||||||||||||
Total Loans and other financings | 307,364,608 | 100.00 | % | 281,563,524 | 100.00 | % | 225,967,540 | 100.00 | % |
As of December 31, | ||||||||||||||||
Loan Portfolio | 2017 (1) | 2018 | ||||||||||||||
(in thousands of Pesos, except percentages) | ||||||||||||||||
Classification | ||||||||||||||||
1—Normal situation/Performing | 194,262,336 | 97.92 | % | 176,338,868 | 96.83 | % | ||||||||||
2—Subject to special monitoring – in observation – in negotiation or with rollover agreement/Low risk | 1,981,342 | 1.00 | % | 2,262,898 | 1.24 | % | ||||||||||
3—Troubled/Medium risk | 1,004,618 | 0.51 | % | 2,038,795 | 1.12 | % | ||||||||||
4—With high risk of insolvency/High risk | 916,504 | 0.46 | % | 1,239,630 | 0.68 | % | ||||||||||
5—Irrecoverable | 217,020 | 0.11 | % | 232,360 | 0.13 | % | ||||||||||
6—Irrecoverable according to Central Bank’s Rules | 369 | 0.00 | % | 904 | 0.00 | % | ||||||||||
Total Loans | 198,382,189 | 100.00 | % | 182,113,455 | 100.00 | % |
For the explanation of each category please see “Item 4.B—Business Overview—Argentine Banking Regulation—Liquidity and Solvency Requirements – Debt Classification and Loan Loss Provisions.”
(1) | Figures stated in thousands of |
Non-performing loans and other financings
The following table presents ournon-performing loan portfolio (without consideringand other financings),financings portfolio, before deduction of the allowance for loan and other financings losses. As of December 31, 2017,non-performing loans are calculated using the classification system of the Central Bank. As of December 31, 2018 and 2019 this classification is not used by us to calculate the allowances included in our financial statement. Due to IFRS 9 the allowances have to be determined under expected credit losses approach. Therefore,non-performing lending includes all lending classified for regulatory purposes as“Non-Performing” according to our internal credit rating grades disclosed in note 50.151.1 to our consolidated financial statements.
As of December 31, | As of December 31, | |||||||||||||||||||
Non-performing Loans | 2017 (1) | 2018 | ||||||||||||||||||
Non-performing Loans and other financings) | 2017 (1) | 2018 (1) | 2019 | |||||||||||||||||
(in thousands of Pesos) | (in thousands of Pesos) | |||||||||||||||||||
With preferred guarantees | 241,739 | 1,288,127 | 375,553 | 829,339 | 782,440 | |||||||||||||||
Unsecured | 1,896,772 | 2,142,122 | 2,947,780 | 4,604,851 | 4,071,055 | |||||||||||||||
Totalnon-performing loans | 2,138,511 | 3,430,249 | ||||||||||||||||||
Totalnon-performing loans and other financings | 3,323,333 | 5,434,190 | 4,853,495 |
(1) | Figures stated in thousands of |
For additional information onnon-accrual loans, past due loansof credit risk and restructured loanscredit quality please see note 50.151.1 to our audited consolidated financial statements as of and for the years ended December 31, 20172018 and 2018.2019.
Analysis of the allowance for loan losses and other financing
The Central Bank Rules establishes minimum requirements for allowances for loan losses, in accordance with the category assigned to the client and the type of guarantee, but allow us to establish additional allowances based on management´s risk policies. The allowances for the year 2017 were calculated based on Central Bank Rules and the allowances for the year 2018 and 2019 were calculated based on the expected credit loss (“ECL”) according to IFRS.
The table below sets forth the activity in the allowance for loan losses and other financing for the years ended December 31, 2017, 2018 and 2018:2019:
Commercial portfolio | Consumer portfolio | Total | Commercial portfolio | Consumer portfolio | Total | |||||||||||||||||||
(in thousands of Pesos) | (in thousands of Pesos) | |||||||||||||||||||||||
As of January 1, 2017 | 803,369 | 2,585,862 | 3,389,231 | 1,235,823 | 3,977,830 | 5,213,653 | ||||||||||||||||||
Increases | 276,034 | 2,571,678 | 2,847,712 | 424,623 | 3,956,014 | 4,380,637 | ||||||||||||||||||
Reversals | (33,732 | ) | (3,554 | ) | (37,286 | ) | (51,890 | ) | (5,467 | ) | (57,357 | ) | ||||||||||||
Charge off | (15,001 | ) | (1,413,010 | ) | (1,428,011 | ) | (23,076 | ) | (2,173,633 | ) | (2,196,709 | ) | ||||||||||||
Monetary effect | (181,116 | ) | (653,209 | ) | (834,325 | ) | (278,611 | ) | (1,004,651 | ) | (1,283,262 | ) | ||||||||||||
As of December 31, 2017 | 849,554 | 3,087,767 | 3,937,321 | |||||||||||||||||||||
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|
| ||||||||||||||||||||||
As of December 31, 2017 (1) | 1,306,869 | 4,750,093 | 6,056,962 | |||||||||||||||||||||
|
|
|
Commercial portfolio | Consumer portfolio | Total | ||||||||||
(in thousands of Pesos) | ||||||||||||
ECL as at January 1, 2018 | 611,544 | 3,351,258 | 3,962,802 | |||||||||
New assets originated or purchased | 665,315 | 2,448,529 | 3,113,844 | |||||||||
Assets derecognized or repaid | (176,916 | ) | (1,223,042 | ) | (1,399,958 | ) | ||||||
Amounts Written Off | (58,507 | ) | (307,751 | ) | (366,258 | ) | ||||||
Monetary effects | (288,488 | ) | (1,152,905 | ) | (1,441,393 | ) | ||||||
At December 31, 2018 | 752,948 | 3,116,089 | 3,869,037 |
(1) | The allowances for the year 2017 were calculated based on Central Bank Rules and the allowances for the year 2018 and 2019 were calculated based on the expected credit loss according to IFRS. |
Commercial portfolio | Consumer portfolio | Total | ||||||||||
(in thousands of Pesos) | ||||||||||||
ECL as at January 1, 2018 | 940,738 | 5,155,240 | 6,095,978 | |||||||||
Net new assets originated or purchased | 1,023,454 | 3,766,572 | 4,790,026 | |||||||||
Assets derecognized or repaid | (272,150 | ) | (1,881,406 | ) | (2,153,556 | ) | ||||||
Amounts Written Off | (90,001 | ) | (473,413 | ) | (563,414 | ) | ||||||
Monetary effects | (443,786 | ) | (1,773,513 | ) | (2,217,299 | ) | ||||||
As of December 31, 2018 | 1,158,255 | 4,793,480 | 5,951,735 |
Commercial portfolio | Consumer portfolio | Total | ||||||||||
(in thousands of Pesos) | ||||||||||||
ECL as at January 1, 2019 | 1,158,255 | 4,793,480 | 5,951,735 | |||||||||
New assets originated or purchased | 1,965,711 | 2,463,868 | 4,429,579 | |||||||||
Assets derecognized or repaid | (828,219 | ) | (1,462,861 | ) | (2,291,080 | ) | ||||||
Amounts Written Off | (39,461 | ) | (925,860 | ) | (965,321 | ) | ||||||
Monetary effects | (642,978 | ) | (1,412,209 | ) | (2,055,187 | ) | ||||||
At December 31, 2019 | 1,613,308 | 3,456,418 | 5,069,726 |
Allocation of the allowances for loan and other financings losses
The following table allocates the allowance for loan losses (without consideringand other financings)financings losses by each category of loans and sets forth the percentage distribution of the total allowance for each of the fiscal years ended December 31, 2017, 2018 and 2018.2019. The allowances for the year 2017 were calculated based on Central Bank Rules and the allowances for the year 2018 and 2019 were calculated based on the expected credit loss according to IFRS.
As of December 31, | As of December 31, | |||||||||||||||||||||||||||||||||||||||
2017 (1) | 2018 | 2017 (1) | 2018 (1) | 2019 | ||||||||||||||||||||||||||||||||||||
(in thousands of Pesos, except percentages) | (in thousands of Pesos, except percentages) | |||||||||||||||||||||||||||||||||||||||
Overdrafts | 206,440 | 5.27 | % | 265,783 | 6.89 | % | 317,575 | 5.24 | % | 409,372 | 6.88 | % | 771,738 | 15.22 | % | |||||||||||||||||||||||||
Documents | 298,991 | 7.63 | % | 525,016 | 13.62 | % | 459,952 | 7.59 | % | 807,632 | 13.57 | % | 367,294 | 7.24 | % | |||||||||||||||||||||||||
Mortgage loans | 224,591 | 5.73 | % | 248,285 | 6.44 | % | 345,499 | 5.70 | % | 381,937 | 6.42 | % | 383,043 | 7.56 | % | |||||||||||||||||||||||||
Pledged loans | 109,816 | 2.80 | % | 210,049 | 5.45 | % | 168,935 | 2.79 | % | 323,118 | 5.43 | % | 129,051 | 2.55 | % | |||||||||||||||||||||||||
Consumer Loans | 2,653,947 | 67.71 | % | 2,190,475 | 56.81 | % | 4,082,687 | 67.40 | % | 3,381,011 | 56.81 | % | 2,630,941 | 51.90 | % | |||||||||||||||||||||||||
Other loans | 425,596 | 10.86 | % | 416,087 | 10.79 | % | 654,714 | 10.81 | % | 640,062 | 10.75 | % | 774,514 | 15.28 | % | |||||||||||||||||||||||||
Other financings | 27,600 | 0.46 | % | 8,603 | 0.14 | % | 13,145 | 0.26 | % | |||||||||||||||||||||||||||||||
TOTAL ALLOWANCES | 3,919,381 | 100.00 | % | 3,855,695 | 100.00 | % | 6,056,962 | 100.00 | % | 5,951,735 | 100.00 | % | 5,069,726 | 100.00 | % |
(1) | Figures stated in thousands of |
Loans and other financings by economic activities
The table below analyzes our loan portfolio (without consideringand other financing)financings portfolio according to the borrowers’ main economic activity as of December 31, 2017, 2018 and 2018.
As of December 31, | ||||||||||||||||
2017 (1) | 2018 | |||||||||||||||
Loan Portfolio | % of Loan Portfolio | Loan Portfolio | % of Loan Portfolio | |||||||||||||
Retail Loans | 97,749,358 | 49.27 | % | 83,559,617 | 45.88 | % | ||||||||||
Agricultural livestock- Forestry – Fishing – Mining—Hunting | 20,357,572 | 10.26 | % | 25,511,855 | 14.01 | % | ||||||||||
Construction | 8,857,733 | 4.46 | % | 3,611,247 | 1.98 | % | ||||||||||
Other services | 5,229,676 | 2.64 | % | 4,246,776 | 2.33 | % | ||||||||||
Retail and consumer products | 15,437,157 | 7.78 | % | 12,416,239 | 6.82 | % | ||||||||||
Foodstuff and beverages | 10,987,630 | 5.54 | % | 9,980,625 | 5.48 | % | ||||||||||
Financial services | 5,767,639 | 2.91 | % | 6,994,567 | 3.84 | % | ||||||||||
Governmental services | 5,411,122 | 2.73 | % | 3,831,291 | 2.10 | % | ||||||||||
Real estate, business and leases | 3,211,525 | 1.62 | % | 2,266,751 | 1.25 | % | ||||||||||
Transportation, storage and communications | 4,353,677 | 2.19 | % | 3,131,138 | 1.72 | % | ||||||||||
Manufacturing and wholesales | 5,221,832 | 2.63 | % | 8,877,450 | 4.88 | % | ||||||||||
Chemicals | 3,561,718 | 1.80 | % | 5,287,945 | 2.90 | % | ||||||||||
Electricity, oil, water | 2,107,319 | 1.06 | % | 2,645,162 | 1.45 | % | ||||||||||
Hotels and restaurants | 300,186 | 0.15 | % | 230,324 | 0.13 | % | ||||||||||
Other | 9.828.045 | 4.96 | % | 9,522,468 | 5.23 | % | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Loans | 198,382,189 | 100.00 | % | 182,113,455 | 100.00 | % | ||||||||||
|
|
|
|
|
|
|
|
As of December 31, | ||||||||||||||||||||||||
2017 (1) | 2018 (1) | 2019 | ||||||||||||||||||||||
(in thousands of Pesos, except percentages) | ||||||||||||||||||||||||
Loans and other financings Portfolio | % of Loans and other financings Portfolio | Loans and other financings Portfolio | % of Loans and other financings Portfolio | Loans and other financings Portfolio | % of Loans and other financings Portfolio | |||||||||||||||||||
Retail Loans | 149,597,532 | 48.67 | % | 128,594,905 | 45.65 | % | 96,283,947 | 42.62 | % | |||||||||||||||
Agricultural livestock- Forestry – Fishing – Mining – Hunting | 31,735,887 | 10.33 | % | 39,339,823 | 13.97 | % | 33,147,873 | 14.67 | % | |||||||||||||||
Construction | 14,399,838 | 4.68 | % | 5,932,943 | 2.11 | % | 2,766,275 | 1.22 | % | |||||||||||||||
Other services | 8,115,591 | 2.64 | % | 6,549,051 | 2.33 | % | 5,788,642 | 2.56 | % | |||||||||||||||
Retail and consumer products | 23,880,366 | 7.77 | % | 19,161,519 | 6.81 | % | 14,739,634 | 6.52 | % | |||||||||||||||
Foodstuff and beverages | 16,965,271 | 5.52 | % | 15,392,770 | 5.47 | % | 21,749,078 | 9.62 | % | |||||||||||||||
Financial services | 9,627,816 | 3.13 | % | 11,131,231 | 3.95 | % | 7,838,953 | 3.47 | % | |||||||||||||||
Governmental services | 8,550,963 | 2.78 | % | 6,052,744 | 2.15 | % | 9,292,459 | 4.11 | % | |||||||||||||||
Real estate, business and leases | 5,106,979 | 1.66 | % | 3,595,805 | 1.28 | % | 3,726,564 | 1.65 | % | |||||||||||||||
Transportation, storage and communications | 6,816,891 | 2.22 | % | 4,872,445 | 1.73 | % | 8,592,589 | 3.80 | % | |||||||||||||||
Manufacturing and wholesales | 8,075,423 | 2.63 | % | 13,671,335 | 4.86 | % | 3,756,010 | 1.66 | % | |||||||||||||||
Chemicals | 5,582,165 | 1.82 | % | 8,141,945 | 2.89 | % | 8,918,438 | 3.95 | % | |||||||||||||||
Electricity, oil, water | 3,266,979 | 1.06 | % | 4,084,140 | 1.45 | % | 2,638,118 | 1.17 | % | |||||||||||||||
Hotels and restaurants | 464,313 | 0.15 | % | 357,984 | 0.13 | % | 251,383 | 0.11 | % | |||||||||||||||
Other | 15,178,594 | 4.94 | % | 14,684,884 | 5.22 | % | 6,477,577 | 2.87 | % | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total Loans and other financings | 307,364,608 | 100 | % | 281,563,524 | 100 | % | 225,967,540 | 100.00 | % |
(1) | Figures stated in thousands of |
Deposits
The following table sets out the composition of each category of deposits that exceeded 10% of average total deposits in each of the years ended December 31, 2017, 2018 and 2018.2019.
Year Ended December 31, | ||||||||
2017 (1) | 2018 | |||||||
(in thousands of Pesos) | ||||||||
Deposits in Domestic Bank Offices | ||||||||
Non-interest bearing Demand Deposits (2) | ||||||||
Average | ||||||||
Pesos | 39,476,428 | 34,433,925 | ||||||
Foreign currency | 3,320,750 | 1,800,177 | ||||||
|
|
|
| |||||
Total | 42,797,178 | 36,234,102 | ||||||
|
|
|
| |||||
Non-interest bearing Other Deposits | ||||||||
Average | ||||||||
Pesos | 3,811,238 | 3,939,036 | ||||||
Foreign currency | 4,496,224 | 1,192,031 | ||||||
|
|
|
| |||||
Total | 8,307,462 | 5,131,067 | ||||||
|
|
|
|
Year Ended December 31, | Year Ended December 31, | |||||||||||||||||||
2017 (1) | 2018 | 2017 (1) | 2018 (1) | 2019 | ||||||||||||||||
(in thousands of Pesos) | ||||||||||||||||||||
Deposits in Domestic Bank Offices | ||||||||||||||||||||
Non-interest bearing Demand Deposits (2) | ||||||||||||||||||||
Average | ||||||||||||||||||||
Pesos | 60,726,589 | 52,969,707 | 47,388,886 | |||||||||||||||||
Foreign currency | 5,108,310 | 2,769,212 | 18,924,497 | |||||||||||||||||
|
|
| ||||||||||||||||||
Total | 65,834,899 | 55,738,919 | 66,313,383 | |||||||||||||||||
|
|
| ||||||||||||||||||
Non-interest bearing Other Deposits | ||||||||||||||||||||
Average | ||||||||||||||||||||
Pesos | 5,862,827 | 6,059,419 | 4,529,609 | |||||||||||||||||
Foreign currency | 6,916,541 | 1,833,701 | 1,716,234 | |||||||||||||||||
|
|
| ||||||||||||||||||
Total | 12,779,368 | 7,893,120 | 6,245,843 | |||||||||||||||||
(in thousands of Pesos) |
|
|
| |||||||||||||||||
Savings Accounts | ||||||||||||||||||||
Average | ||||||||||||||||||||
Pesos | 39,686,617 | 35,791,731 | 61,049,923 | 55,058,420 | 43,949,204 | |||||||||||||||
Foreign currency | 17,438,512 | 27,630,875 | 26,825,663 | 42,504,575 | 28,423,747 | |||||||||||||||
|
|
|
|
| ||||||||||||||||
Total | 57,125,129 | 63,422,606 | 87,875,586 | 97,562,995 | 72,372,951 | |||||||||||||||
|
|
|
|
| ||||||||||||||||
Average real rate | ||||||||||||||||||||
Pesos | (19.63 | )% | (31.62 | )% | (19.63 | %) | (31.62 | %) | (33.44 | %) | ||||||||||
Foreign currency | (5.07 | )% | 36.40 | % | (5.07 | %) | 36.40 | % | 3.00 | % | ||||||||||
|
|
|
|
| ||||||||||||||||
Total | (15.19 | )% | (1.99 | )% | (15.19 | )% | (1.99 | %) | (19.13 | %) | ||||||||||
|
|
|
|
| ||||||||||||||||
Time Deposits | ||||||||||||||||||||
Average | ||||||||||||||||||||
Pesos | 85,349,454 | 89,755,144 | 131,293,065 | 138,070,338 | 130,851,673 | |||||||||||||||
Foreign currency | 15,466,429 | 25,526,655 | 23,792,008 | 39,267,653 | 52,837,080 | |||||||||||||||
|
|
|
|
| ||||||||||||||||
Total | 100,815,883 | 115,281,799 | 155,085,073 | 177,337,991 | 183,688,753 | |||||||||||||||
|
|
|
|
| ||||||||||||||||
Average real rate | ||||||||||||||||||||
Pesos | (11.31 | )% | (15.66 | )% | (5.90 | %) | (12.60 | %) | (6.87 | %) | ||||||||||
Foreign currency | (4.57 | )% | 39.10 | % | (4.57 | %) | 39.10 | % | 6.15 | % | ||||||||||
|
|
|
|
| ||||||||||||||||
Total | (10.28 | )% | (3.53 | )% | (5.70 | %) | (1.15 | %) | (3.12 | %) | ||||||||||
|
|
|
|
| ||||||||||||||||
Deposits in Foreign Bank Offices | ||||||||||||||||||||
Non-interest bearing Demand Deposits | ||||||||||||||||||||
Average | ||||||||||||||||||||
Pesos | — | — | — | — | — | |||||||||||||||
Foreign currency | 2,586,358 | 1,671,545 | 3,978,595 | 2,571,338 | 2,061,249 | |||||||||||||||
|
|
|
|
| ||||||||||||||||
Total | 2,586,358 | 1,671,545 | 3,978,595 | 2,571,338 | 2,061,249 | |||||||||||||||
|
|
|
|
|
(1) | Figures stated in thousands of |
(2) | Non-interest-bearing demand deposits consist of checking accounts. |
Maturity of deposits at December 31, 20182019
The following table sets forth information regarding the maturity of our deposits at December 31, 2018.2019.
Maturing | Maturing | |||||||||||||||||||||||||||||||||||||||
Total | Within 3 Months | After 3 but within 6 months | After 6 but within 12 months | After 12 months | Total | Within 3 Months | After 3 but within 6 months | After 6 but within 12 months | After 12 months | |||||||||||||||||||||||||||||||
(in thousands of Pesos) | (in thousands of Pesos) | |||||||||||||||||||||||||||||||||||||||
Checking accounts | 33,299,188 | 33,299,188 | — | — | — | 50,419,017 | 50,419,017 | — | — | — | ||||||||||||||||||||||||||||||
Savings accounts | 68,696,031 | 68,696,031 | — | — | — | 90,727,971 | 90,727,971 | — | — | — | ||||||||||||||||||||||||||||||
Time deposits | 129,778,284 | 121,828,870 | 6,715,917 | 1,162,963 | 70,534 | 109,763,236 | 105,561,251 | 3,212,952 | 937,303 | 51,730 | ||||||||||||||||||||||||||||||
Investment accounts | 1,903,037 | 1,793,037 | 110,000 | — | — | 5,979,771 | 5,979,762 | — | 9 | — | ||||||||||||||||||||||||||||||
Other | 4,277,879 | 4,277,843 | 36 | — | — | 5,975,359 | 5,975,306 | — | 53 | — | ||||||||||||||||||||||||||||||
Total Deposits | 237,954,419 | 229,894,969 | (1) | 6,825,953 | 1,162,963 | 70,534 | 262,865,354 | 258,663,307 | (1) | 3,212,952 | 937,365 | 51,730 |
(1) | Includes a total amount of |
Maturity of outstanding time deposits and investment accounts in amount of U.S.$.100,000 or more at December 31, 20182019
The following table sets forth information regarding the maturity of our time deposits and investment accounts in denominations of U.S.$.100,000 or more at December 31, 2018.2019.
Total | Within 3 Months | Maturing 6 Months | After 6, but Within 12 Months | After 12 Months | Total | Within 3 Months | Maturing After 3 but Within 6 Months | After 6, but Within 12 Months | After 12 Months | |||||||||||||||||||||||||||||||
(in thousands of Pesos) | (in thousands of Pesos) | |||||||||||||||||||||||||||||||||||||||
Domestic Bank Offices | ||||||||||||||||||||||||||||||||||||||||
Time deposits | 48,880,661 | 44,172,459 | 4,148,547 | 554,536 | 5,119 | 20,803,472 | 19,089,849 | 1,228,639 | 476,795 | 8,189 | ||||||||||||||||||||||||||||||
Investment accounts | 1,873,675 | 1,763,675 | 110,000 | — | — | 5,840,493 | 5,840,493 | — | — | — | ||||||||||||||||||||||||||||||
Total | 50,754,336 | 45,936,134 | 4,258,547 | 554,536 | 5,119 | 26,643,965 | 24,930,342 | 1,228,639 | 476,795 | 8,189 |
Return on equity and assets
The following table presents certain selected financial information and ratios for the years indicated.
Year Ended December 31, | Year Ended December 31, | |||||||||||||||||||
2017 (1) | 2018 | 2017 (1) | 2018 (1) | 2019 | ||||||||||||||||
(in thousands of Pesos, except percentages) | (in thousands of Pesos, except percentages) | |||||||||||||||||||
Net income/(loss) from continuing operations | 6,019,606 | (734,113 | ) | 9,133,465 | (1,081,829 | ) | 20,650,647 | |||||||||||||
Average total assets | 322,289,580 | 344,724,767 | 495,778,060 | 530,290,109 | 506,275,010 | |||||||||||||||
Average shareholders’ equity | 64,798,700 | 69,654,177 | 99,679,840 | 107,149,021 | 96,870,104 | |||||||||||||||
Shareholders’ equity at the end of the fiscal year | 71,751,594 | 60,910,834 | 109,900,637 | 93,692,941 | 106,056,386 | |||||||||||||||
Net income/(loss) from continuing operations as a percentage of: | ||||||||||||||||||||
Average total assets | 1.87 | % | (0.21 | )% | 1.84 | % | (0.20 | )% | 4.08 | % | ||||||||||
Average shareholders’ equity | 9.29 | % | (1.05 | )% | 9.16 | % | (1.01 | )% | 21.32 | % | ||||||||||
Declared nominal cash dividends | 3,348,315 | 6,393,977 | 3,348,315 | 6,393,978 | 12,788,268 | |||||||||||||||
Dividend payout ratio (2) | 32.98 | % | 40.53 | % | 32.98 | % | 40.53 | % | 31.34 | % | ||||||||||
Average shareholders’ equity as a percentage of Average total assets | 20.11 | % | 20.21 | % | 20.11 | % | 20.21 | % | 19.13 | % |
(1) | Figures stated in thousands of |
(2) | Declared nominal cash dividends stated as percentage of net income calculated under Central Bank Rules. Net income in nominal value calculated under Central Bank Rules as of December 31, 2017 of Ps. 10,151,813, |
Short-term borrowings
Our short-term borrowings totaled approximately Ps. 17,172.226,415.9 million, Ps. 28,408.5 million and Ps. 18,470.9 million24,092.7 for the years ended December 31, 2017, 2018 and 20182019, respectively. The table below shows the breakdown of those amounts at the end of each year:
Year Ended December 31, | Year Ended December 31, | |||||||||||||||||||||||||||||||||||||||
2017 (1) | 2018 | 2017 (1) | 2018 (1) | 2019 | ||||||||||||||||||||||||||||||||||||
Amount | Annualized Nominal Rate | Amount | Annualized Nominal Rate | Amount | Annualized Nominal Rate | Amount | Annualized Nominal Rate | Amount | Annualized Nominal Rate | |||||||||||||||||||||||||||||||
(in thousands of Pesos, except percentages) | (in thousands of Pesos, except percentages) | |||||||||||||||||||||||||||||||||||||||
Financing received from the Central Bank of Argentina and other financial entities: | ||||||||||||||||||||||||||||||||||||||||
Total amount outstanding at the end of the reported period | 1,543,950 | 5.65 | % | 2,827,666 | 10.99 | % | 2,375,058 | 5.65 | % | 4,349,799 | 10.99 | % | 2,059,767 | 5.80 | % | |||||||||||||||||||||||||
Average during year (2) | 1,316,441 | 4.27 | % | 2,060,072 | 9.70 | % | 2,025,081 | 4.27 | % | 3,169,009 | 9.70 | % | 3,104,679 | 8.56 | % | |||||||||||||||||||||||||
Maximummonth-end balance (3) | 2,507,048 | 3,458,924 | 3,856,592 | 5,320,863 | 3,918,424 | |||||||||||||||||||||||||||||||||||
Issued Corporate Bonds: | ||||||||||||||||||||||||||||||||||||||||
Total amount outstanding at the end of the reported period | 174,747 | 17.50 | % | 305,759 | 47.87 | % | 268,813 | 17.50 | % | 470,349 | 47.87 | % | 250,119 | 23.27 | % | |||||||||||||||||||||||||
Average during year (2) | 298,864 | 13.18 | % | 327,710 | 27.04 | % | 459,742 | 13.18 | % | 504,116 | 27.04 | % | 489,090 | 23.36 | % | |||||||||||||||||||||||||
Maximummonth-end balance (3) | 499,846 | 404,697 | 768,913 | 622,545 | 739,639 | |||||||||||||||||||||||||||||||||||
Subordinated Corporate Bonds: | ||||||||||||||||||||||||||||||||||||||||
Total amount outstanding at the end of the reported period | 118,123 | 6.75 | % | 165,070 | 6.75 | % | 181,709 | 6.75 | % | 253,927 | 6.75 | % | 353,663 | 6.75 | % | |||||||||||||||||||||||||
Average during year (2) | 187,351 | 6.75 | % | 226,182 | 6.75 | % | 288,202 | 6.75 | % | 347,936 | 6.75 | % | 544,312 | 6.75 | % | |||||||||||||||||||||||||
Maximummonth-end balance (3) | 297,190 | 437,688 | 457,167 | 673,295 | 785,583 | |||||||||||||||||||||||||||||||||||
Other Financial Liabilities: | ||||||||||||||||||||||||||||||||||||||||
Total amount outstanding at the end of the reported period | 15,335,332 | 0.02 | % | 15,172,438 | 0.01 | % | 23,590,341 | 0.02 | % | 23,334,423 | 0.01 | % | 21,429,153 | 0.02 | % | |||||||||||||||||||||||||
Average during year (2) | 12,493,491 | 0.01 | % | 11,515,364 | 0.02 | % | 19,218,737 | 0.01 | % | 17,714,085 | 0.02 | % | 20,840,897 | 0.03 | % | |||||||||||||||||||||||||
Maximummonth-end balance (3) | 15,335,332 | 15,172,438 | 23,590,341 | 23,339,761 | 21,796,205 | |||||||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Total short-term borrowings | 17,172,152 | 18,470,933 | 26,415,921 | 28,408,498 | 24,092,702 | |||||||||||||||||||||||||||||||||||
|
|
|
|
|
(1) | Figures stated in thousands of |
(2) | Average balances are calculated fromquarterly-end balances. |
(3) | Maximums are calculated fromquarterly-end balances. |
Interest rate sensitivity
The following table shows the interest rate sensitivity of our interest-earning assets and interest-bearing liabilities based on contractual maturities all based on information adjusted for inflation as of December 31, 2018.2019. Variations in interest rate sensitivity may also arise within the repricing periods presented.
Remaining Maturity at December 31, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||
Remaining Maturity at December 31, 2018 | 0-1 Year | 1-5 Years | 5-10 Years | Over 10 years | Without due date | Total | ||||||||||||||||||||||||||||||||||||||||||
0-1 Year | 1-5 Years | 5-10 Years | Over 10 years | Without due date | Total | (in thousands of Pesos) | ||||||||||||||||||||||||||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||||||||||||||||||||||||||
Loans tonon-financial government Sector (1) | 842,892 | 840,834 | — | — | — | 1,683,726 | ||||||||||||||||||||||||||||||||||||||||||
Loans tonon-financial Private Sector and Foreign Residents (1) | 109,975,818 | 54,097,376 | 4,156,229 | 6,575,216 | — | 174,804,639 | ||||||||||||||||||||||||||||||||||||||||||
Loans to other Financial Entities (1) | 5,173,585 | 451,505 | — | — | — | 5,625,090 | ||||||||||||||||||||||||||||||||||||||||||
Loans tonon-financial Public Sector | 3,583,342 | 2,867,305 | — | — | — | 6,450,647 | ||||||||||||||||||||||||||||||||||||||||||
Loans tonon-financial Private Sector and Foreign Residents | 137,956,111 | 55,503,050 | 3,255,615 | 10,857,774 | 2,922,412 | 210,494,962 | ||||||||||||||||||||||||||||||||||||||||||
Loans to other Financial Entities | 3,446,811 | 505,394 | — | — | — | 3,952,205 | ||||||||||||||||||||||||||||||||||||||||||
Other Debt Securities | 56,507,183 | 7,383,500 | 464,665 | 229,412 | — | 64,584,759 | 63,540,393 | 585,144 | 203,797 | 184,082 | — | 64,513,415 | ||||||||||||||||||||||||||||||||||||
Repo Transactions | 1,087,916 | — | — | — | — | 1,087,916 | ||||||||||||||||||||||||||||||||||||||||||
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Total Interest-Earning Assets | 172,499,478 | 62,773,215 | 4,620,894 | 6,804,628 | — | 246,698,214 | 209,614,573 | 59,460,893 | 3,459,412 | 11,041,856 | 2,922,412 | 286,499,145 | ||||||||||||||||||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||||||||||||||||||||||||||
Non financial Public Sector deposits | 10,469,554 | — | — | — | — | 10,469,554 | ||||||||||||||||||||||||||||||||||||||||||
Non financial Private Sector and Foreign Residents deposits | 193,174,738 | 51,699 | 31 | — | — | 193,226,468 | ||||||||||||||||||||||||||||||||||||||||||
Financing received from the Central Bank of Argentina and other financial entities | 2,059,767 | 186,037 | — | — | — | 2,245,804 | ||||||||||||||||||||||||||||||||||||||||||
Issued Corporate Bonds | 250,119 | 5,274,920 | — | — | — | 5,525,039 | ||||||||||||||||||||||||||||||||||||||||||
Subordinated Corporate Bonds | 353,663 | — | 23,958,000 | — | — | 24,311,663 | ||||||||||||||||||||||||||||||||||||||||||
Repo Transactions | 1,002,511 | — | — | — | — | 1,002,511 | ||||||||||||||||||||||||||||||||||||||||||
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Total Interest-Bearing Liabilities | 207,310,352 | 5,512,656 | 23,958,031 | — | — | 236,781,039 | ||||||||||||||||||||||||||||||||||||||||||
Asset (Liability) Gap | 2,304,221 | 53,948,237 | (20,498,619 | ) | 11,041,856 | 2,922,412 | 49,718,106 | |||||||||||||||||||||||||||||||||||||||||
Cumulative Asset/Liability Gap | 2,304,221 | 56,252,457 | 35,753,838 | 46,795,694 | 49,718,106 | |||||||||||||||||||||||||||||||||||||||||||
Cumulative sensitivity gap as a percentage of total interest-earning assets | 0.80 | % | 19.63 | % | 12.48 | % | 16.33 | % | 17.35 | % |
Remaining Maturity at December 31, 2019 | ||||||||||||||||||||||||
0-1 Year | 1-5 Years | 5-10 Years | Over 10 years | Without due date | Total | |||||||||||||||||||
(in thousands of Pesos) | ||||||||||||||||||||||||
Interest-earning assets in Pesos | ||||||||||||||||||||||||
Loans tonon-financial Public Sector | 3,583,342 | 2,867,305 | — | — | — | 6,450,647 | ||||||||||||||||||
Loans tonon-financial Private Sector and Foreign Residents | 111,962,099 | 43,631,522 | 3,255,615 | 10,857,774 | 2,422,358 | 172,129,368 | ||||||||||||||||||
Loans to other Financial Entities | 2,853,444 | 490,576 | — | — | — | 3,344,020 | ||||||||||||||||||
Other Debt Securities | 62,984,070 | 275,951 | 203,797 | 184,082 | — | 63,647,900 | ||||||||||||||||||
Repo Transactions | 1,087,916 | — | — | — | — | 1,087,916 | ||||||||||||||||||
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Total Interest-Earning Assets in Pesos | 182,470,872 | 47,265,353 | 3,459,412 | 11,041,856 | 2,422,358 | 246,659,851 | ||||||||||||||||||
Interest-bearing liabilities in Pesos | ||||||||||||||||||||||||
Non financial Public Sector deposits | 9,373,469 | — | — | — | — | 9,373,469 | ||||||||||||||||||
Non financial Private Sector and Foreign Residents deposits | 130,817,136 | 28,967 | 1 | — | — | 130,846,104 | ||||||||||||||||||
Financing received from the Central Bank of Argentina and other financial entities | 92,756 | 107,424 | — | — | — | 200,180 | ||||||||||||||||||
Issued Corporate Bonds | 250,119 | 5,274,920 | — | — | — | 5,525,039 | ||||||||||||||||||
Subordinated Corporate Bonds | — | — | — | — | — | — | ||||||||||||||||||
Repo Transactions | 1,002,511 | — | — | — | — | 1,002,511 | ||||||||||||||||||
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Total Interest-Bearing Liabilities in Pesos | 141,535,991 | 5,411,311 | 1 | — | — | 146,947,303 | ||||||||||||||||||
Asset (Liability) Gap | 40,934,881 | 41,854,042 | 3,459,411 | 11,041,856 | 2,422,358 | 99,712,548 | ||||||||||||||||||
Cumulative Asset/Liability Gap | 40,934,881 | 82,788,923 | 86,248,334 | 97,290,190 | 99,712,548 | |||||||||||||||||||
Cumulative sensitivity gap as a percentage of total interest-earning assets | 16.60 | % | 33.56 | % | 34.97 | % | 39.44 | % | 40.43 | % |
Remaining Maturity at December 31, 2018 | ||||||||||||||||||||||||
0-1 Year | 1-5 Years | 5-10 Years | Over 10 years | Without due date | Total | |||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||
Non financial Public Sector deposits | 12,942,356 | 150 | — | — | 70,534 | 12,942,506 | ||||||||||||||||||
Non financial Private Sector and Foreign Residents deposits | 183,985,360 | 70,012 | 67 | 305 | — | 184,055,744 | ||||||||||||||||||
Financing received from the Central Bank of Argentina and other financial entities | 2,827,666 | 131,773 | 38,571 | — | — | 2,998,010 | ||||||||||||||||||
Issued Corporate Bonds | 305,759 | 2,690,500 | 3,381,052 | — | — | 6,377,311 | ||||||||||||||||||
Subordinated Corporate Bonds | 165,070 | — | — | 15,123,320 | — | 15,288,390 | ||||||||||||||||||
Total Interest-Bearing Liabilities | 200,226,211 | 2,892,435 | 3,419,690 | 15,123,625 | — | 221,661,961 | ||||||||||||||||||
Asset (Liability) Gap | (27,726,733 | ) | 59,880,780 | 1,201,204 | (8,318,997 | ) | — | 25,036,253 | ||||||||||||||||
Cumulative Asset/Liability Gap | (27,726,733 | ) | 32,154,046 | 33,355,250 | 25,036,253 | 25,036,253 | ||||||||||||||||||
Cumulative sensitivity gap as a percentage of total interest-earning assets | (11.24 | )% | 13.03 | % | 13.52 | % | 10.15 | % | 10.15 | % | ||||||||||||||
Remaining Maturity at December 31, 2018 | ||||||||||||||||||||||||
0-1 Year | 1-5 Years | 5-10 Years | Over 10 years | Without due date | Total | |||||||||||||||||||
(in thousands of Pesos) | ||||||||||||||||||||||||
Interest-earning assets in Pesos | ||||||||||||||||||||||||
Loans tonon-financial Public Sector (1) | 842,812 | 840,834 | — | — | — | 1,683,646 | ||||||||||||||||||
Loans tonon-financial Private Sector and Foreign Residents (1) | 73,351,573 | 45,244,463 | 4,150,203 | 6,575,216 | — | 129,321,455 | ||||||||||||||||||
Loans to other Financial Entities (1) | 4,767,083 | 372,828 | — | — | — | 5,139,911 | ||||||||||||||||||
Other Debt Securities | 55,854,871 | 7,209,169 | 151,745 | 151,745 | — | 63,367,530 | ||||||||||||||||||
Total Interest-Earning Assets in Pesos | 134,816,339 | 53,667,294 | 4,301,948 | 6,726,961 | — | 199,512,542 | ||||||||||||||||||
Interest-bearing liabilities in Pesos | ||||||||||||||||||||||||
Non financial Public Sector deposits | 12,415,501 | 150 | — | — | — | 12,415,651 | ||||||||||||||||||
Non financial Private Sector and Foreign Residents deposits | 125,763,956 | 55,859 | 67 | 305 | — | 125,820,187 | ||||||||||||||||||
Financing received from the Central Bank of Argentina and other financial entities | 228,856 | 131,773 | 38,571 | — | — | 399,200 | ||||||||||||||||||
Issued Corporate Bonds | 305,759 | 2,690,500 | 3,381,052 | — | — | 6,377,311 | ||||||||||||||||||
Subordinated Corporate Bonds | — | — | — | — | — | — | ||||||||||||||||||
Total Interest-Bearing Liabilities in Pesos | 138,714,072 | 2,878,282 | 3,419,690 | 305 | — | 145,012,349 | ||||||||||||||||||
Asset (Liability) Gap | (3,897,733 | ) | 50,789,012 | 882,258 | 6,726,656 | — | 54,500,193 | |||||||||||||||||
Cumulative Asset/Liability Gap | (3,897,733 | ) | 46,891,279 | 47,773,537 | 54,500,193 | 54,500,193 | ||||||||||||||||||
Cumulative sensitivity gap as a percentage of total interest-earning assets | (1.95 | )% | 23.50 | % | 23.95 | % | 27.32 | % | 27.32 | % |
Remaining Maturity at December 31, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||
Remaining Maturity at December 31, 2018 | 0-1 Year | 1-5 Years | 5-10 Years | Over 10 years | Without due date | Total | ||||||||||||||||||||||||||||||||||||||||||
0-1 Year | 1-5 Years | 5-10 Years | Over 10 years | Without due date | Total | (in thousands of Pesos) | ||||||||||||||||||||||||||||||||||||||||||
Interest-earning assets in foreign currency | ||||||||||||||||||||||||||||||||||||||||||||||||
Loans tonon-financial Public Sector (1) | 80 | — | — | — | — | 80 | ||||||||||||||||||||||||||||||||||||||||||
Loans tonon-financial Private Sector and Foreign Residents (1) | 36,624,245 | 8,852,913 | 6,026 | — | — | 45,483,184 | ||||||||||||||||||||||||||||||||||||||||||
Loans to other Financial Entities (1) | 406,502 | 78,677 | — | — | — | 485,179 | ||||||||||||||||||||||||||||||||||||||||||
Loans tonon-financial Public Sector | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Loans tonon-financial Private Sector and Foreign Residents | 25,994,012 | 11,871,528 | — | — | 500,054 | 38,365,594 | ||||||||||||||||||||||||||||||||||||||||||
Loans to other Financial Entities | 593,367 | 14,818 | — | — | — | 608,185 | ||||||||||||||||||||||||||||||||||||||||||
Other Debt Securities | 652,312 | 174,331 | 312,920 | 77,667 | — | 1,217,229 | 556,322 | 309,193 | — | — | — | 865,515 | ||||||||||||||||||||||||||||||||||||
Repo Transactions | 0 | 0 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Total Interest-Earning Assets | 37,683,139 | 9,105,921 | 318,946 | 77,667 | — | 47,185,672 | 27,143,701 | 12,195,539 | — | — | 500,054 | 39,839,294 | ||||||||||||||||||||||||||||||||||||
Interest-bearing liabilities in foreign currency | ||||||||||||||||||||||||||||||||||||||||||||||||
Non financial Public Sector deposits | 526,855 | — | — | — | — | 526,855 | 1,096,085 | — | — | — | — | 1,096,085 | ||||||||||||||||||||||||||||||||||||
Non financial Private Sector and Foreign Residents deposits | 58,221,404 | 14,153 | — | — | — | 58,235,557 | 62,357,602 | 22,732 | 30 | — | — | 62,380,364 | ||||||||||||||||||||||||||||||||||||
Financing received from the Central Bank of Argentina and other financial entities | 2,598,810 | — | — | — | — | 2,598,810 | 1,967,011 | 78,613 | — | — | — | 2,045,624 | ||||||||||||||||||||||||||||||||||||
Issued Corporate Bonds | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Subordinated Corporate Bonds | 165,070 | — | — | 15,123,320 | — | 15,288,390 | 353,663 | — | 23,958,000 | — | — | 24,311,663 | ||||||||||||||||||||||||||||||||||||
Repo Transactions | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Total Interest-Bearing Liabilities | 61,512,139 | 14,153 | — | 15,123,320 | — | 76,649,612 | 65,774,361 | 101,345 | 23,958,030 | — | — | 89,833,736 | ||||||||||||||||||||||||||||||||||||
Asset (Liability) Gap | (23,829,000 | ) | 9,091,768 | 318,946 | (15,045,653 | ) | — | (29,463,940 | ) | (38,630,660 | ) | 12,094,194 | (23,958,030 | ) | — | 500,054 | (49,994,442 | ) | ||||||||||||||||||||||||||||||
Cumulative Asset/Liability Gap | (23,829,000 | ) | (14,737,233 | ) | (14,418,287 | ) | (29,463,940 | ) | (29,463,940 | ) | (38,630,660 | ) | (26,536,466 | ) | (50,494,496 | ) | (50,494,496 | ) | (49,994,442 | ) | ||||||||||||||||||||||||||||
Cumulative sensitivity gap as a percentage of total interest-earning assets | (50.50 | )% | (31.23 | )% | (30.56 | )% | (62.44 | )% | (62.44 | )% | (96.97 | %) | (66.61 | %) | (126.75 | %) | (126.75 | %) | (125.49 | %) |
Loan amounts are stated before deducting the allowance for loan losses.Non-accrual loans are included with loans as interest-earning asset. |
Item 4A. Unresolved Staff Comments
None.
Item 5. Operating and Financial Review and Prospects
This section contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including, without limitation, those set forth in “Cautionary statement concerning forward-looking statements,” “Risk Factors,” and the matters set forth in this annual report in general.
The following discussion is based on, and should be read in conjunction with, our consolidated financial statements and related notes contained elsewhere in this annual report, as well as “Selected Financial Data” and the other financial information appearing elsewhere in this annual report.
A. Operating results
FINANCIAL PRESENTATION
Our accompanying consolidated financial statements as of December 31, 2019 and 2018 have been prepared in accordance with the IFRS as issued by the IASB.
Up to the fiscal year ended December 31, 2017, we prepared its financial statements in accordance with the Central Bank Rules. The financial information for previous fiscal years included in those consolidated financial statements for comparative purposes, was
modified and is disclosed in accordance with the basis described in the preceding paragraph. The effects of changes between the standards applied at the end of the fiscal year ended December 31, 2017 and the IFRS, are explained in the reconciliations disclosed under the title “First-time Adoption of IFRS” of the note 3 to the abovementioned consolidated financial statements.
Additionally, our consolidated financial statements as of December 31, 2019 and 2018 and the corresponding figures for previous fiscal years have been restated for the changes in the general purchasing power of the functional currency of the Bank as established by IAS 29. As a result, those consolidated financial statements are stated in terms of the measuring unit current at the end of the reporting period.
MACROECONOMIC ENVIRONMENT
Information presented in this section has been prepared in accordance with economic indicators and historical information of the financial system, as published by the Central Bank of Argentina or INDEC and therefore has not been adjusted for inflation.2017
Global growth in 2016 was similar to 2015 and was almost one point below that recorded from 2010 to 2014. This result was due to the fact that developed economies, China and Latin America slowed their expansion. This slow in growth was partially offset by increases in India, Africa and the return to growth of oil economies of the former Soviet Union.
The developed economies formed by the U.S. and the European Economic Area (EEA) reduced their growth rate. The U.S. GDP grew by 1.6% in 2016, which represents a reduction of one percentage from 2015. This decrease is primarily due to the slow development of household consumption, a continuing effect of the process of deleveraging started in 2008.
In Europe, the growth rate was also reduced in the context of a slow decline in the fiscal deficit. Countries such as Spain, France, Portugal and Italy presented increasing public indebtedness and in high levels, without favoring the investment process. While Europe’s economic anchor Germany, which represents 30% of GDP in the EEA, showed a fiscal surplus and a fall in debt over the last three years Certain events are concerning for Europe. Events, as Brexit, indicate that support for the Euro Area has weakened and consequently raised concerns about the viability of the common currency in the long term.
China grew by 6.6%, continuing the diminishing growth of the last 6 years. The deceleration of its external sales, the slow pace of private investment, restrictions on leverage and the low productivity of public companies led to a loss of competitiveness with Southeast Asian countries are some of the factors that explain the decline in growth in relation to what was registered until 2010. Greater internal consumption as advocated by the authorities in recent years did not manage to compensate for the effect of the factors mentioned above.
The poor performance of the world economy and some specific sectoral situations lowered commodity prices for the third consecutive year. The commodity market was volatile throughout the year. This volatility was mainly due to fluctuations in oil prices and the change in the energy matrix towards renewable sources. A slowdown in global demand for industrial goods was largely responsible for a decrease in the price of hard metals.
The slow global growth of commodities, together with the dynamics of the economic policies that followed meant both Brazil and Argentina recorded declining trends in real GDP during 2016.
Brazil’s economy fell for the second consecutive year and recorded a 7% loss of GDP in thattwo-year period, which had a negative effect on Argentine exports, as they are heavily dependent on the Brazilian market. The outflow of capital in 2015 led to the Brazilian Real depreciation of 41% as a correlation of the institutional crisis and a strong fiscal deficit. In 2016, this situation began to partially reverse due to there-inflow of capital, which has been associated with the political changes in Brazil. The new authorities announced the freezing of public spending and advances in the deregulation of markets with the aim of improving fiscal solvency with greater competitiveness.
As a consequence of the developments discussed above, the depreciation of the Brazilian Real was reduced to an annual average of just 4% and inflation was reduced. This will lead to a more expansive monetary policy (i.e. lower rates), and allow a slight recovery of GDP for the year 2017.
During 2016, Argentina underwent the beginning of a process of deregulation of relevant variables, such as the exchange rate, interest rates, certain prices and tariffs, in addition to an opening to a broader market. Specifically, exchange controls were eliminated, export withholdings were either reduced or eliminated and restrictions to imports were suppressed while, at the same time, the process of obtaining import permits were simplified.
Such measures were complemented by a restrictive monetary policy and a gradual tax policy. In this context, the Argentine government seeks to cancel its debts (refund of wrongly withheldco-participated taxes) while inducing reforms in provincial taxes which affected investments.
The Argentine government confirmed the restructuring of the debt with the holdouts (U.S.$12.5 thousand million), which had been pending since 2005, which allowed access to capital markets in order to fund the tax authority’s necessities.
2016 closed with a primary deficit of 4.6% of the GDP, which was an improvement from the 2015 results, even with revenues affected by the GDP’s decrease and tax restructuring.
In addition to the reformulation of certain rules which affect economic decisions, the Macri administration seeks to foster private internal savings and foreign investments, as part of a chain of sustainable expansion. The transition to sustainable growth has affected the economy during 2016. Strong increases of the exchange rate and tariffs and the decreases in withholdings led to a substantial increase in the inflation rate, which reached 40% inter-annual (“i.a.”), representing a 13 percentage points increase in comparison to the previous year.
Registered inflation led to a decrease of real income with a full effect on domestic expenditures and activity. GDP fell 2.3% in the first three quarters. An improvement had been predicted for the fourth quarter although in fact a decrease was recorded.
As a result, the real GDP of the economy is believed to have fallen by 2.3% during 2016.
Towards the final quarter of 2016, most of activity indicators followed an increasing trend, which was sustained by the marginal recovery of domestic consumption, greater public expenditure, and an increase of sales to Brazil and a stock recovery.
In 2017, the global economy grew at a rate of 3.6%3.2%, equivalent to a 0.40.6 percentage point (“p.p.”) increasevis-a-vis the previous year, driven by the developed countries’ marginal improvement and accelerated growth of Latin American economies.
During the year 2017, there was a 6% increase in international trade, after three years of virtually stabilized activity, along with an emerging improvement of commodities prices.
The upturn of the U.S. and Japanese economies, coupled with China’s sustained growth and the widespread process to regain fiscal balance throughout Europe through easing monetary policies, seem to be the key building blocks of the global economy favorable development, as opposed to the political concerns that had emerged the previous year.
Such development reflects the abatement of global uncertainties and seems to be marking the end of the 2007-2009 crisis and the commencement of increasingly stronger economic dynamics.
On the other hand, the international financial market changed in line with the economy, as it availed of abundant liquidity, no major disruptive events triggering uncertainties have occurred, and expectations were extremely positive.
The U.S. economy grew by 2.2% during the year, driven by the impact of improved wages on spending, paired with declining unemployment and increasing investment.
In 2017, the Euro Area grew at a 2.1%2.5% annual rate, a record high since 2003. Such performance is directly attributable to an economic policy which successfully combined a slightly expansionary monetary policy with reduced fiscal deficit in the area’s block of countries.
China’s growth rate increased threefoldvis-a-vis global growthcentury-to-date. In 2017, the Chinese economy grew at a sustained pace for the third consecutive year (up by 6.8%). Such growth was attributable to domestic fiscal, monetary and migration policies aimed at facilitating the transition from alow-cost labor net exporter country to an economy based on internal consumption of goods and services and higher per capita income, resulting from the productivity gains achieved as a result of a vigorous private investment process, both external and internal, the latter underpinned by local lending.
During 2015 and 2016, Brazil underwenthad undergone a high volatility process as a result of fiscal weakness and a political crisis. The end of such political crisis, coupled with a fiscal rearrangement process and the enactment of structural reforms by the legislative branch, helped to turn the tide, generating sustained capital inflows back into the country in 2017, paired with currency appreciation by 8% and falling inflation to 3% per annum. Concurrently, the Brazilian Central Bank introduced gradual cuts to nominal interest rates.
Declining inflation, along with capital inflows and reduced nominal interest rates, helped to improve the purchasing power of wages and access to credit, with the ensuing boost to consumption, investment and production. Accordingly, in 2017 the Brazilian GDP grew by around 1%1.1%. Against this backdrop, Brazil would provide an additional push to the manufacturing sector in Argentina, particularly, the automotive and the metalworking industries.
During 2017, the Argentine economy remained on the path taken by the newformer administration since assuming office in late 2015.
Growth recovery was attributable, in part, to public investment in initiating new works and resuming some works that had been suspended, and to improved expectations among consumers and producers about the continuity of the economic policy, amidst a fiscal context that seeks to gradually reduce the fiscal deficit and public expenditure relative to GDP in the coming years.
In the light of the reemergence of inflationary pressures during the first quarter of 2017, the monetary authorities reinforced the contractionary bias, driving increases in domestic interest rates, a trend that was maintained untilyear-end.
The direction of the economic policy and the understanding that Argentina’s indebtedness would be maintained well below the level of other comparable countries led to a falldecrease in country risk, which improved by 140 points during the year.
At the same time, the improved expectations paved the way for capital inflows fromnon-residents, both for direct and financial investments, and also encouraged domestic companies to look to foreign financial markets for financing. This phenomenon, coupled with the fast growth of local banking lending, boosted the supply of funding for consumers and investment.
As concernsMoreover, the supply of goods and services, the tax cuts, the deregulation of certain markets that used to be under the strong control of the formerFernández de Kirchner administration, more intensive investments in construction, and recovered spending led to an upturn in the agricultural, automotive, steel, cement manufacturing, and white goods sectors.
Consequently, the manufacturing industry picked up having returned to positive levels since May, closing the year with a 1.9% increase.
The GDP development during 2017 was incremental and positive. This trend commenced in the third quarter of 2016 and continued at a sustained pace during five consecutive quarters, registering a 4%year-on-year increase during the fourth quarter of 2017. GDP increased to 2.9%2.7% in 2017.
In turn, the fiscal target set by the Argentine Governmentgovernment was achieved for the second consecutive year in 2017. Primary deficit (3.9% of GDP)3.9% of GDP was lower than the 4.6% level recorded in 2016, as a result of a decline in primary expenditure.
The Argentine Government’sgovernment’s annual revenues rose by 29.6%year-on-year, more than primary expenditures which climbed by 29.4%, for the first time in the last 12 years.
Concurrently with its fiscal management actions (budget, expenditure containment and cash management), the Argentine Governmentgovernment introduced substantial tax and fiscal reforms seeking to reduce the public-sector burden on the economy and accommodate internal costs to improve the competitiveness of domestic production, amidst the incremental opening to trade.
Accordingly, both reforms were enacted targeting at businesses, individuals, the retirement system, the provinces, and the national public-sector size, while progress is still to be made on certain aspects relating to labor productivity.
The Argentine Governmentgovernment reduced the applicable the corporate income tax contingent upon certain investment processes and imposed a gradual decline in employers’ contributions to reduce labor costs. On the other hand, individuals’ financial interest, which so far has been exempt, was made liable to tax, though limited to an approximation of income, net of the inflationary component.
In addition, the Argentine Governmentgovernment took certain actions to reduce unregistered employment and modified the mechanism to adjust the Social Security System benefits in order to curb the retirement system’s unbalance.
Concerning prices, in 2017 inflation reached 24.8%, down by 13 p.p. compared to 2016. Average monthly inflation fell from 2.7% in 2016 to 1.9% in 2017. In 2017, inflation continued to reflect the changes in relative prices associated to the tariff review and other factors, including, inflation inertia and the impact of the fiscal deficit monetary funding and the Argentine Central Bank’s hoarding of international reserves.
On the other hand, the monetary authorities’ goal of accumulating international reserves against a backdrop of strong external indebtedness prevented the Argentine Peso from appreciating even further than in the previous year. In 2017, the Argentine Peso depreciated by 18.4%.
2018
In 2018, global growth lost part of the major momentum it had been carrying from the previous fiscal years and there was less synchronicity in the expansion seen in the various countries. Economic activity started to show signs of exhaustion and was moderate in some advanced economies. As to the economies in emerging markets and in developing countries, they remained at the same pace as the previous year.
Such weaker performance is attributable to factors such as the negative effects of the rising barriers to trade between the United States and China, increased restrictions in financial conditions, geopolitical strains as well as a less favorable outlook for some economies in the emerging countries and in developing countries due to factors that are specific to each country.
A number of tariff-related measures enforced by the United States plus the measures that its trade partners adopted in retaliation rendered world trade relationships complicated and led to a slowdown in international trade in the region, which for the 2018 period —measured on ayear-on-year basis— reached a 4.2% in 2018 while in 2017 it had been at 5.2%.
When it comes to global financial conditions, in 2018 there was an increase in restrictions and in localized pressures. Interest rate increases in the United States contributed to a depreciation in the currencies of emerging markets, brought down the price of commodities, and led to a rise in emerging countries’ risk levels.
Projections forFor 2018 pointglobal growth pointed to 3.7% global growth,3.1%, measured on ayear-on-year basis, in line with the figures posted for 2017. Advanced economies would have grown by as little as 0.1 percentage points over the year 2017 with the US accountingshowed a slightly lower growth in comparison to 2017. The United States accounted for the largest portion of such increase andgrowth. Meanwhile, there was a slow-downslowdown in the Euro zone, the United Kingdom and Japan. As concernsConcerning emerging economies, forecasts point to 4.7%the growth in 2018 which standsstayed at a level that is similar to that recorded in 2017. As2017 and, as was also the case with advanced economies, performance iswas heterogeneous.
The U.S.United States’ economy would have growngrew by 2.9% driven by the impact on consumption caused by the improvement in salaries and the drop in unemployment. The fiscal stimulus stemming from the tax reform also contributed to such vigorous economic performance. The increase in rates applied by the Federal Reserve entails a stronger monetary contraction and puts pressure on economic growth, particularly on the sectors that are more dependent on loans.
In 2018, the Euro Area would have growngrew at a 2%1.9% annual rate, smaller than in 2017. Growth in the Eurozone in the past years contributed to a reduction in unemployment whilst inflation continued to be contained. Monetary conditions arewere expected to remain accommodating and increases in interest rates may not be discarded until the second half of 2019. Fiscal consolidation processes will be under pressure given the increased strains in the social and political climate in the EU’s important countries, such as Italy and France.
The pace of expansion in China compared to global growth has undergone a three-fold rise since the turn of the century. This being said, the expectation is that it should slowgrowth slowed down to 6.6% in 2018 and it should be a bit more over the coming years as a result of the trade war with the United States. If the trade war were to continue, deviations of the trade of raw materials from the United States towards other countries, including Argentina, may turn out to be a very interesting opportunity.
The slow-down expectedslowdown in China would be offset by a further expansion in the Indian economy. India would have grown by 7.3% in 2018 well above growth in 2017. India is an economy that supplements the Argentine economy quite nicely, and the Argentine Governmentgovernment is working on improving relations between India and Argentina at all levels.
Brazil, Argentina’s main trade partner, continues to leave behind the political crisis that it had gone through, during 2015 and 2016 whose consequences were an intense flight of capitals and a strong depreciation of the Brazilian Real. Within this context, the economy dropped by 7 points in thetwo-year period.
Michel Temer’s interim government made progress with a tax reform that froze the level of public expenditure in real terms and also enacted a labor reform that is expected to bring an improvement in productivity and competitiveness in the coming years. The results of this transition were positive and the Brazilian economy grew. The expectation for 2018 was 1.4% growth.
Jair Bolsonaro was elected President of Brazil in October 2018 in the ballotage round and he is now proposing a dramatic fiscal adjustment, more openness of the economy, proposing certain privatizations to reduce the country’s stock of liabilities and a reform in social security, which happens to be a key area to decrease Brazil’s high fiscal deficit. Any hurdle in the approval of these reforms may exert additional pressure over credit risk and the exchange rate, and this would affect both inflationary expectations and current inflation trends. Pursuant to the latest forecasts, a 2.4% growth is expected for 2019, which could be favorable for the Argentine economy, in particular for the alternative industry which is highly related to Brazil.
The prices of agricultural commodities remained relatively stable in 2018. Although soybean dropped by 7.3% in the year, down to U.S.$ 324 per ton, the prices of wheat and corn rose by 17.9% and 6.9%, respectively. WTI oil barrel price decreased by 25.3% during 2018.
Argentina’s economic policy in 2018 continued along the path set by the government at the start of its term in office in late 2015. The Macri administration advanced significantly in the correction of some of the previous administration’s inherited imbalances and problems as was the case of unifying, releasing and letting the exchange rate float freely, the exit from its sovereign default, the recovery of transparency in official statistics, the removal of price controls and the adjustment of relative prices, such as public utility rates, the substantial improvement in the business environment and Argentina’s insertion in the international financial community.
This notwithstanding aforementioned costs had to be borne for such corrections in the economy and, in late 2017, Argentina appeared to be vulnerable due to certain outstanding unresolved issues, in the face of a more unfavorable external scenario. The inflation was much harder than originally expected or forecasted and the fiscal deficit could be barely cut back in spite of the decrease in a major portion of subsidies.
The decision to deploy a stepwisestep-by-step strategy to reduce fiscal deficit left the country strongly dependent upon international capital markets. In late 2017 and, during 2018, Argentina’s economy sustained a significant shock which translated into a major depreciation of its currency the exchange rate between the USU.S. dollar and the Argentine pesoPeso went from Ps. 18.77 in December to Ps. 40 in late September of that year. In addition, as mentioned, during 2018 Argentina faced a significant inflation that represented 47.5%year-on-year and a reduction of 1.8% of the GDP on a yearly bases.yearly.
There were manifoldvarious causes for this crisis and they combined internal and external factors. Amongst external factors, the most important was the increase in long-term interest rates in the United States which led to US DollarU.S. dollar becoming stronger and a decreased appetite for emerging markets’ assets: Argentina was far more adversely affected by this situation than the other countries in the region.
Argentina was particularly affected by such external turbulences, mainly because some domestic factors played an overarching role. Such was the case of the country’s trade and accounts deficit, which had to a major extent to the increase of the foreign exchange market.
Foreign exchange rate movements had a negative impact on consumers’ confidence, which, together with a deterioration in actual salaries, started to have an impact on consumption. The run against the Peso led to a drop in foreign currency reserves and this in turn raised concerns about the ability to honor US Dollar-denominatedU.S. dollar-denominated debts as they fell due, which in turn triggered a new increase in the exchange rate and caused a new round of savings dollarization whilst fueling inflation.
Such adverse context of fear caused by foreign exchange instability and lack of access to the capital market compelled Argentina to turn to the IMF to restore confidence. As a result of the 2018 IMF Agreement, the country managed to replenish reserves subject to certain conditions. For have information about the 2018 IMF Agreement, please see “Risk Factors—Risk relating to Argentina—IMF Agreement.Argentina’s ability to obtain financing from international markets may be limited or costly, which may impair its ability to implement reforms and public policies and foster economic growth.”
The cost of this policy has translated into high interest nominal rates, ranging from 60% to 70%, aggravating recession and complicating funding for working capital and consumption.
Stabilization in the foreign exchange rate was accompanied towards the end of 2018 by an important drop in the inflation rate, which after peaking 6.5% per month in September started a downward path to 2.6% in December. With this mark included, inflation in 2018 was 47.6% with Argentina being positioned as a high-inflation country. Against this backdrop, the Argentine economy decreased 1.8% in 2018 after having grown by 2.9% in 2017. The deterioration in domestic conditions and an actual depreciation of more than 50% in the year led to a reduction in real salaries, consumption and investment, above all in construction and in imports of machinery and equipment.
On the fiscal front, the government continued to concentrate its efforts on the reduction of the primary deficit through a combination of cutbacks in expenditures and an increase in revenues. This way, the primary result exhibited a 1.4% improvement compared to the deficit posted in 2017 (3.8% of GDP).
In particular, total revenues accumulated a 30.2% increase, way below the average inflation for the year (which had been 34.3%) driven by VAT and taxes on imports and export fees.
Primary expenditures, in turn, reached the end of the year with a 22.4% increase, which entails an 8.9% decrease in real terms. Additionally, there was a major reduction in the floating debt which fell by 14% in real terms though with a reduction in due and enforceable capital expenditures equivalent to 30%, thereby facilitating the 2019 fiscal program.
In 2018, the GovernmentArgentine government had to fulfill financial commitments for U.S.$32.9 billion. Out of this amount, there were U.S.$9 billion from the international debt market and U.S.$24.1 billion from the IMF related to the 2018 IMF Agreement and other multilateral organizations, amongst other sources. Besides, in the first months of the year, the Treasury received U.S.$2.4 billion as temporary advances from the Central Bank which came to a halt after the first agreement with the IMF in which it was established that the Central Bank would not provide any further financial aid.
Given this scenario, the country’s net public debt reachedwas approximately 44% of GPD at the end of the year in the region of 44% of GPD,2018, which entailed anrepresented a 28.4% increasevis-à-vis the figure posted a year earlier (28.4%earlier.
2019
Following a slowdown in the economic activity during the last quarters of 2018, the global GDP growth rate remained weak during 2019. The levels of manufacturing production were notably affected, to the extent that its fragility resembled that of the global crisis of 2008. Moreover, an increase in trade and geopolitical tensions generated uncertainty regarding the future of the global trading system and international cooperation, undermining the confidence, business environment, level of investments and commerce. Owing to the Central Bank’s more accommodative monetary policies, the blow to the economic activity could be partially mitigated. Additionally, a more resistant service sector performance helped sustain employment levels.
Three factors have contributed to the decline of the global manufacturing industry. Firstly, the decrease in vehicles’ sales and production as manufacturers were forced to adapt to new emission standards and changes in demand for technological advances, thus altering the purchase of vehicles by individuals; Secondly, the decline in businessmen’s confidence in trade and tariff disputes between the United States and China, which has delayed the purchase decisions for equipment and machinery; and thirdly, the decline of business activity in China due to regulatory efforts to contain the excessive increase in domestic credit.
The retraction in the manufacturing industry dragged international trade. During the first half of 2019, trade flows grew only 1%year-on-year, the lowest record since 2012. China, East Asia and some emerging countries suffered the most and their imports were shutdown. Falls in global trade are normally correlated with a retraction of investments, since they are usually intensive expenditures on intermediate and capital goods that flow across borders.
Throughout 2019, investor’s sentiment remained very volatile, reflecting the fears caused by trade dispute between the United States and China in relation to the eventual interruption of the global production chains, on the one hand, and the uncertainty caused by Brexit and the geopolitical tensions in various regions of the world. The fall in investment spending and the slowdown in global activity led central banks, especially in developed countries, to promote more expansive financial conditions. The Federal Reserve cut the policy rate on three occasions and interrupted the normalization of its balance sheet by repurchasing securities at the end of the year. The European Central Bank announced in September another rate cut and the return of the liquidity provision program through the purchase of bonds (“quantitative easing”). Several central banks in emerging economies (including Brazil, Chile, India, Indonesia, Mexico, Peru, the Philippines, Russia, South Africa, Thailand and Turkey) followed the cycle of rate cuts in order to mitigate the impact of the economic slowdown already mentioned. As a result of these actions, the financial markets in the main regions of the world ended the year with a more positive performance than expected bymid-2019.
The IMF global GDP growth projection for 2019 is 2.9%year-on-year, the lowest since 2010. Advanced economies would have grown 0.5 percentage points below the 2018 performance, with all countries and regions slowing down compared to the previous year except Japan and the United Kingdom (Japan would grow 0.7 percentage points more than in 2018 and the United Kingdom would repeat its performance that year). As for emerging economies, a growth of 3.7% in 2019 is expected, which implies a deceleration of 0.8 percentage points compared to 2018. Here also the performance is uniform.
For 2020, the World Economic Outlook published by the IMF in April 2020 forecasts a sharp contraction of global GDP of 3.0%year-on-year, expected to be worse than the2008-09 financial crisis. In comparison with the last World Economic Outlook forecast, there is a negative difference of 6.3 percentage points. The contraction is mainly explained by the costs inflicted by theCOVID-19 pandemic. However, the IMF forecasts an acceleration of global GDP to 5.8%year-on-year for 2021, assuming the pandemic fades in the second half of 2020 and containment efforts can be gradually unwound.
The United States, which represents about 25% of world GDP, had grown 2.3% in 2019. Although investments have remained delayed, employment and consumption showed extraordinary dynamism. The moderation of the activity during 2019 is largely explained by the uncertainty caused by the trade war between the United States and China.
As a counterpart and for the purpose of cushioning the slowdown, the Federal Reserve cut the federal funds rate up to 1.75%. In addition, it announced the interruption of the normalization of its balance sheet, having already expanded at least U.S.$ 1 billion the liquidity provision through the purchase of short-term securities and pass operations with hedge funds.
Europe’s share of world GDP is close to 25% of the total. In 2019, the Euro area had grown at a rate of 1.2% per year, 0.7 percentage points lower than what was recorded in 2018. The weakness of manufacturing production is a consequence of a significant fall in external demand. Under these conditions, the growth projections carried out by the IMF for the year 2020 have been revised downwards in the main economies of the area, such as Germany, France, Italy and Spain.
Despite the recent slowdown, the growth of the Eurozone in recent years has contributed to unemployment reduction, and at the same time inflation remained contained, as it would have reached 1.2% in 2019. Given the recent economic weakness and the absence of inflationary pressures, the European Central Bank announced the resumption of bond purchases as of October 2019, cut reference rates and reaffirmed its intention to keep monetary conditions accommodative.
Europe’s fiscal consolidation process, fundamental for debt sustainability and monetary stability, will continue to be under pressure given the thinning of the social and political climate in important countries of the EU, such as Italy and France. In any case, and despite social protests, governments have so far been successful in managing the crisis without noticing a significant deterioration in fiscal balances.
In regards to Argentine foreign trade, China, India and Brazil represent opportunities for the Argentine economy. In 2019, the Chinese economy grew 6.0%, and a deceleration is expected in 2020, but it is expected to continue to generate high demand for raw materials and agro-industrial manufactures that Argentina produces. China is transitioning from being a net exporting country of low wages to an economy based on the internal consumption of goods and services, with higher income per capita due to the higher productivity resulting from a vigorous process of foreign and local private investment, the latter supported by local credit. Some of the new opportunities arising for Argentina are the export of pig meat to supply the Chinese market after an epidemic of swine fever, the sale of minerals and energy raw materials and the already traditional shipment of agricultural commodities and derivatives such as soybeans, wheat and corn, among others.
In China, indicators such as industrial production, retail sales, and fixed asset investment suggest that the contraction in economic activity in the first quarter could have been about 8% year-over-year. Even with a sharp rebound of 9.2% for 2021, the Chinese economy is expected to grow at a subdued 1.2% in 2020, lower than the pace forecasted for the Indian economy (1.9%). According to the IMF, India would have grown 4.2% in 2019. It’s worth noting that India is an economy that complements Argentina, and its middle class is bigger than that of China.
Brazil, Argentina’s main trading partner, has achieved, through a reform in pensions’ regulation towards the end of 2019, great advances which will generate a fiscal saving of up to U.S.$ 20 million over 10 years. Although structural reforms that contribute to more fiscal savings cannot be ignored or dismissed, the aforementioned reform is in and of itself a very important step. After growing 1.3% in 2018 and 1.7% in 2019, the Brazilian economy is expected to increase its annual growth rate to 2.2% in 2020 as a result of its initiatives aim at fiscal consolidation and the decreasing of the country’s risk, along with its consequent broader access to the credit market. The recovery of the Brazil’s economy is positive for Argentine’s, especially due to the spill it produces in manufacturing with a focus on the sectors linked to the automotive industry. However, it should be noted that, in the medium term, the evolution of the exchange with Brazil and the international competitiveness of some Argentine industrial sectors will depend on the functioning of Mercosur, whose current configuration may suffer tensions derived from the parties’ different approaches in this regard.
The increase in social instability in several countries of the region should be taken into account, given that it could affect the performance during 2020. Since October 2019, there have been violent riots and social protests in Chile, which ultimately triggered a political crisis that led that country to call a plebiscite in April 2020 to reform its Constitution. Meanwhile, the government has launched several initiatives to respond to social claims. Bolivia is also under a provisional government after the resignation of Evo Morales, accused of having committed fraud in the last elections. In May 2020, presidential elections will be held in that country to appoint a new president. Finally, Colombia is also going through social tensions, though these have been generally peaceful and have not had a strong impact on the economic activity.
Agricultural commodity prices increased during 2019. Soybeans rose 6.9% to $ 347 per ton, while wheat and corn rose 11.0% and 3.4%, respectively. Meanwhile, the price of a barrel of WTI oil increased during 2019 by 35.4%. The continuity of these trends will be conditioned by the global economic scenario, marked by a more challenging environment both commercially and financially.
Although for the Argentine economy, the year 2019 started with some positive signs, with some foreign-exchange-rate stability, improvements in economic activity and in inflation indicators and improvements on the foreign front, exchange rates ended impacting on inflation. This also occurred in a context in which the Central Bank maintained a contractive monetary policy with extremely high interest rates in the framework of a compromise to keep the monetary base unchanged.
Packages of economic and social policies arrived with the first symptoms, notably those aimed at controlling the foreign exchange rate volatility and inflation. Even the IMF eventually allowed the Central Bank to intervene the MULC to mitigate the excessive volatility of the foreign exchange rate.
Nevertheless, the government of Mauricio Macri lost the primary elections and the financial situation suffered a significant impact. The opposition’s victory generated a change in expectations and a large drop in Argentine asset prices, as well as an increase in the country risk indicator and a strong foreign exchange run.
At the same time just after the primary elections, and given the doubts of IMF officials regarding the program until then in force, the 2018 IMF Agreement with the fund was put on hold and the disbursement of U.S.$ 5.4 million that was planned for the end of September was not made, leaving a balance of U.S.$ 12 billion of total assistance subject to the redesign of a new program.
The Peso devalued more than 30% from 45 to 60 Pesos per U.S. dollar, while the country risk indicator measured by the EMBI, published by JP Morgan, increased from 650 to 2.500 points while the Central Bank lost around U.S.$ 21 billion in international reserves.
On the other hand, economic activity continued without recovery and the inflation rate remained at very high levels, above an annual rate of 50% and hovering around 6% in September 2019.
In this context, in September 2019 the national government decided to restructure the maturities of the Letters issued in Pesos and U.S. dollars, while the Central Bank introduced foreign exchange controls.
After the 2018 balance of payments crisis, the Argentine economy performed very poorly in 2019, as economic activity fell by about 2.6%. According to IMF, the Argentine economy would have contracted by 2.2% in 2019 and forecasts a 5.7% contraction of the Argentine GDP in 2020, lower than the region average (a contraction of 5.0% if the South American GDP).
The sharp deterioration in domestic conditions and confidence was reflected in the fall in real wages, consumption and investment. Investment plummeted by about 15% with public investment retracting in a context of fiscal consolidation and private investment also collapsing.
Industrial activity suffered the consequences of the lack of financing opportunities and the growth prospects uncertainty before and after elections, which led to the delay in the projections of investment and production. These conditions were reflected in a decline of about 6.5% of activity in the sector, led mainly by the automotive industry, in line with the collapse of the sale in the sector.
However, in 2019, there was a significant improvement in the macroeconomic imbalances exhibited by the economy, particularly in terms of fiscal deficit and the balance of payments current account. On the fiscal level, the primary deficit was reduced to 0.4% of the GDP, improving 4 points compared to 2015. Particularly, this improvement took place during 2019, when the growth of expenditures was significantly lower than that of revenues.
The balance of payments current account deficit will hover around 1% of GDP in 2019 after reaching 5% in 2017. The adjustment in the external accounts was mainly a result of a fall in imports. The drop in the activity, and a level of real exchange rate that is already close to equilibrium values have generated a moderated upturn in exports. With this performance, the goods trade balance showed a positive balance of U.S.$ 15,992 million, the highest in ten years, ant the net exports became the main growth factor.
Argentina’s public debt, excluding intra public sector debt, represented about 50% of GDP by the end of 2019.
Alberto Fernández was elected as the presidential candidate for theFrente de Todos coalition at the mandatory primary elections held in Argentina on August 11, 2019, and elected president in the runoff national presidential elections that took place in Argentina on October 27, 2019, with theFrente de Todoscoalition receiving approximately 48.10% of the votes. Mr. Fernández took office on December 10, 2019.
On December 17, 2019, the Fernandez administration submitted a bill proposing a wide range of economic and social reforms to Congress, which passed Law N° 27,541, promulgated by President Fernández on December 23, 2019. The new legislation declared a public emergency, which will remain in force until December 31, 2020, in economic, financial, fiscal, administrative, pensions, tariff, energy, health, and social matters. Law N° 27,541 sanctioned the delegation of certain congressional powers to the Executive branch, in order to tackle social and economic distress, as well as to adjust Argentina’s public debt profile. The main reforms introduced by Law N° 27,541 include the following:
1. | Public Debt and its Sustainability: The Executive branch is authorized to perform all necessary acts to recover and ensure the sustainability of the Argentine public debt. In addition, the National Government was authorized to issue debt securities to the Central Bank for an amount of up to U.S.$ 4.517 billion in exchange for reserves to be applied solely to meet Argentina’s foreign currency-denominated debt obligations. |
2. | Energy System: The Executive branch was authorized to freeze electricity and gas tariffs that are under federal jurisdiction for 180 days, starting on December 23, 2019, and to begin an integral renegotiation of such tariffs with the relevant utilities companies. Furthermore, the Executive branch was authorized to intervene in the administration of theEnte Nacional Regulador de la Electricidad (ENRE) and theEnte Nacional Regulador del Gas (ENERGAS) for aone-year period. |
3. | Tax Obligations: The income tax, personal assets tax, credit and debit in banks tax, export and import duties and social security tax rates were modified foreseeing a gradual increase in tax rates, and a new tax refund system was approved. |
Furthermore, the new legislation introduced theImpuesto Para una Argentina Inclusiva y Solidaria (“PAIS Tax”) a special tax applicable to certain foreign exchange transactions.
4. | Wages: Law N° 27,541 authorizes the Executive branch to determine minimum wage increases to be mandatorily implemented by employers in the private sector. |
5. | Pensions: Commencing on the date of promulgation of Law N° 27,541, the use of the existing formula for the calculation of the periodic state pension adjustments was suspended for 180 days. Following the temporary suspension, the Executive branch will establish a new formula to be used to calculate the necessary pension adjustments on a trimestral basis. |
Since assuming office, the Fernandez administration has announced and implemented other economic and policy reforms, including: (i) the extension of exchange control measures previously enacted; (ii) the duplication of the legal severance payment that employers must pay in case of dismissing employees without cause; (iii) the extension of the maturity of U.S. dollar-denominated Letes and bonds denominated in Pesos; (iv) the reduction in, and subsequent price freeze on, the prices of medicaments until February 1, 2020; (v) the suspension of the 2018 Fiscal Consensus to increase the provinces’ fiscal autonomy; and (vi) a price freeze on public transportation fares in the metropolitan area of Buenos Aires.
Furthermore, in response to the increasing economic uncertainty that has affected Argentina in 2019, the Central Bank has deployed a number of monetary measures aimed at containing the volatility of the Peso / U.S. dollar exchange rate and the outflow of foreign reserves. In October 2019, the Central Bank introduced new norms regulating natural and legal persons’ access to the foreign exchange market, including monthly limits on purchases of foreign currency for individuals in Argentina. The October 2019 restrictions also provided that the withdrawal of foreign currency abroad using Argentine debit cards by Argentine residents would only be possible if debited to Argentine foreign-currency-denominated bank accounts. In addition, authorized financial entities executing foreign exchange trades of a value equal to or exceeding U.S.$2 million, whether on their own account or on behalf of their customers, were required to notify the Central Bank two business days ahead of completing such trades.
The new regulations introduced in October 2019 also affect the regime regulating the import of goods into Argentina and payment thereof. Importers are required to declare the entry through customs ofpre-paid imported goods purchased form unrelated suppliers within 90 days. Thepre-payment of imports to suppliers related to the importer instead requires prior Central Bank approval. Importers can access the foreign exchange market in order to pay imported goods or to satisfy foreign-currency debt obligations arising in connection with import financing, only if certain requirements are satisfied: these include the requirement to declare and register the import of goods through the SEPAIMPO (“Seguimiento de Pagos de Importaciones”) system.
On October 31, 2019, the Central Bank published a further resolution limiting financial entities’ ability to access the foreign exchange market to satisfy payments originally made through an Argentine-issued debit or credit card for transactions relating to gambling and betting activities, the purchase of cryptocurrencies, the transfer of funds to investment accounts managed by administrators based abroad, the completion of foreign exchange operations abroad or the transfer of funds to payment services providers. Additionally, financial entities must comply with a U.S.$50per-transaction limit on cash withdrawals carried out abroad with Argentine-issued credit cards.
On November 7, 2019, the Central Bank further clarified certain aspects of the Argentine foreign exchange regime. Financial entities may allow Argentine residents to access the foreign exchange market for the purposes of repaying principal and interest on foreign-currency-denominated debt or to provide security for such obligations if (1) these debt obligations relate to import or export finance and foreign currency payments are contractually stipulated; (2) the foreign-currency-denominated funds acquired are deposited in an account opened with a local financial entity, unless contractually stipulated by an agreement entered into before August 31, 2019 that such funds should be deposited abroad; (3) the amount of deposits accumulated in foreign currency for servicing debt do not exceed the value to be paid on the next scheduled payment date for such indebtedness; (4) the daily amount of foreign currency to be obtained cannot exceed 20% of the amount set out under (3); (5) the relevant financial entity must review the underlying agreements establishing the foreign currency indebtedness, to verify that the debtor’s access to the foreign exchange market, as envisioned by such agreements, is in compliance with the terms of the Central Bank’s norms. Importantly, foreign currency funds that are not used towards debt servicing as agreed, will need to be liquidated in the foreign exchange market within five working days following the scheduled payment date.
On December 5, 2019, the Central Bank clarified that foreign financial indebtedness disbursed as from September 1, 2019, will be required to be repatriated and settled for Pesos through the foreign exchange market only if the debtor will require access to such market with the purpose of servicing principal and interest payments. This provision also applies in respect of issuances by Argentine residents of securities which are publicly registered in the country as from November 29, 2019, denominated and underwritten in foreign currency and whose services of principal and interest are payable locally in foreign currency. During the end of 2019 to the date of this annual report, the Central Bank continues to impose further restrictions of access to the foreign exchange market and to certain capital market operations commonly effected to acquire US dollars (MEP or “contado con liquidación”).
On December 28, 2019, the Fernández Administration issued Decree No. 91/2019 extending the requirement for exporters to repatriate the proceeds of export transactions, as further regulated by the Central Bank.
Money market and Argentine financial system
Information presented in this section has been prepared in accordance with economic indicators and historical information of the financial system, as published by the Central Bank of Argentina or INDEC and therefore has not been adjusted for inflation.
By the third quarter of 2016, the main monetary aggregates slightly increased. By moving from a fixed and administered exchange rate to a flexible one, the Central Bank has gained control over the main monetary aggregates. This control is an indispensable tool for the transition towards lower inflation.
Under the new exchange scheme, the expansion of the Monetary Base has decelerated substantially, from a 33% average growth on 2015 to 24% during 2016. This deceleration was reflected through lower inflation during the latter part of the year.
In order to achieve this monetary reduction, the Central Bank used Lebacs, securities and increases in legal banking reserves as absorption mechanisms. The goal of these measures was to adjust the expansion factors presented by currency purchases, government assistance and interests for passives (quasi-fiscal) that comprise the supply for the demand of Monetary Base.
The Central Bank assisted the National Treasury with Ps.151 billion and purchased U.S.$14 billion worth of currency. Another expansion factor included the interest generated by the growing debt of the Central Bank and the increase in rates.
The number of securities and Lebacs held as part of the Monetary Base doubled in 2016, reaching 87% of the Monetary Base (8% of GDP). Paid interests were 2.3% of the GDP.
Consistent with the anti-inflationary policy and prices liberation, the Central Bank raised the interest rate, in the hopes that this would help decrease inflation through saving in Pesos. The Central Bank also stipulated that the Lebacs rate would be set in the range of 38% during May, to begin a continuous lowering process from May to December, depending on the results of gradual inflation decrease, cutting down 13 percentage points from the annual maximums. Asset and liability rates followed the same pattern as Lebacs rate.
Asset and liability rates copied the direction and intensity of the Lebacs’ trail.
During 2016, financial penetration (deposits and loans / GDP) in Pesos fell, and remained stable when including assets and liabilities in dollars. The Argentine financial system continues to be the smallest one in terms of GDP in Latin America.
Deposits in the financial system grew 40% inter-annually, mainly driven by the deposits from the private sector which increased 45% i.a. Additionally, dollar deposits grew 130% i.a., due to the elimination of the restrictions on access to the foreign exchange market, the growing credibility of higher dollar rates and, in the last part of the year, as a result of capital bleaching.
In terms of assets, the financial system grew in total loans and Lebacs’ holdings in 26% and 28%, respectively.
Private loans registered an increase of 30% i.a. with a 28% i.a. increase from commercials and a 32% i.a. improvement of consumer loans.
Personal credits grew by 36% i.a. This increase was 8 percentage points more than the ones carried out through credit cards.
There was strong liquidity and a higher increase in deposits over credits in both currencies throughout the year. This meant that the financial system was in a strong position in terms of risk diversification. Furthermore, it leads to increasing the holding of Lebacs in Pesos and the excess of dollars raised the Central Bank reserves.
In 2017, treasury financing, the accumulation of reserves and the service of debt interest were the main factors that contributed to the expansion of the Argentine Central Bank’s monetary base. On average, the monetary base grew at a rate of 29% per year, a similar pace to that registered in 2016 and also in the 2010-2015 period.
In the last two years, the Argentine Central Bank purchased foreign currency in the market at an average of U.S.$15 billion, increasing international reserves in the amount of U.S.$30.8 billion. In this regard, it should be noted that, atyear-end, accumulated international reserves covered the entire monetary base, when two years earlier they only accounted for 48% of it.
When comparing the factors that led to the monetary base growth, a material change can be observed which commenced in 2015 and consolidated in the following years, that is, the Argentine Central Bank’s issuance of interest-bearing debt to sterilize the expansion of the monetary base to assist the Treasury and increase reserves. As of December 2017, the Argentine Central Bank’s liabilities associated to debt securities accounted for, on average, approximately 8.5% of GDP and 111% of the monetary base.
The interest expense on the Argentine Central Bank’s indebtedness (repos and Lebacs) has been increasing hand in hand with the increase in indebtedness. This quasi-fiscal cost is attributable to the need for sterilizing the excess in the base money supply when the goal is reducing inflation and, at the same time, hoarding international reserves, without the revenue administration’s contribution.
In theshort-run, the monetary commitment derived from the Argentine Central Bank’s multiple goals — accumulating reserves, funding the Treasury and servicing debt interest — exerts additional inflationary pressure, as the increase in demand for money it systematically surpassed.
The sterilization policy implemented through the placement of repos and Lebacs competes against and, to some extent, beats banks’ financial intermediation. During the year 2017, the volume of Lebacs as a direct savings instrument for investors experienced a twofold increase.
The relative size of the financial system in Argentina is still smaller than that of the other Latin American countries; bank lending, both in Argentine Peso and U.S. dollar, accounts for 14% of GDP, while the regional average stood at 35%.
During 2017, this situation started to improve as the system’sbi-monetary liabilities and assets (Argentine Peso and U.S. dollar) rose by 1.0% and 0.7% of GDP, respectively.
The combination of declining inflation with sustained positive yields in real terms is expected to strengthen this improvement, encouraging savings in domestic currency through institutionalized channels, fostering the depth of financial markets, in general, and the banking system, in particular.
Totalbi-monetary deposits in the Argentine financial system grew by 27%year-on-year in 2017, with peso-denominated deposits rising 24%year-on-year and U.S.-dollar deposits (as measured in Argentine Peso) rising in nominal values a 40%year-on-year, (26% measured in foreign currencies). As of December 2017, total deposits reached Ps.2,283 billion, on average, with 80% of that amount being attributable to the private sector.
In 2017, private deposits rose by 27%year-on-year on nominal values, with remarkable performance of sight deposits which, in the last two years, managed to surpass 1.5 times the increase in term deposits. Lebac competition seems to be a determining factor of this performance during the year.
The changes in foreign-currency denominated private deposits in 2016 and 2017 reflect the impact of the tax amnesty law on bank savings.
On the other hand, public-sector deposits rose by 28%year-on-year in nominal values, with strong concentration on U.S. dollar-denominated deposits which rose by 83%year-on-year (as measured in Argentine Peso).
From the assets side, in 2017 the financial system experienced growth in total loans (private + public) and Lebac holdings by 47%year-on-year and 13%year-on-year in nominal values, respectively, totaling, on average, Ps.1,581 billion and Ps.365 billion as of December 2017 in each of these lines, in nominal values.
As of December 2017, loans to the private sector rose by 50%year-on-year to Ps.1,553 billion, accounting for 98% of total loans. Commercial lending, consumer lending and secured loans rose by 50%, 42%, and 89%, respectively,year-on-year, in nominal values.
The increase in commercial lending is attributable to stronger economic activity. Peso-denominated loans rose by 37%; however, the largest increase within this segment was experienced by U.S.-dollar denominated loans (up by 82%year-on-year, as measured in Argentine Peso), outperforming local-currency loans for the second consecutive year, in nominal values.
On the other hand, demand for consumer loans also performed favorably, driven by improvements in employment and wages during the year; bank consumer loans rose by 42%year-on-year, led by personal loans which climbed by 60%year-on-year; while financing of credit card balances grew to a lesser extent (25%year-on-year).
Home-ownership mortgage loans picked up during the year following the introduction in 2016 of an index referred to as UVA(Unidad de valor adquisitivo, or purchasing power unit). This new modality has strong growth potential as inflation continues to decline and theUVA-adjusted savings offering expands in scope. During 2017,UVA-adjusted mortgage loans gained momentum, with Ps.52 billion having been lentvis-a-vis Ps.2.1 billion in 2016, with a total stock of Ps.54 billion as of December.
In order for lending to grow almost twice as much as deposit-taking (47%year-on-year versus 27%year-on-year), the financial system used a portion of the excess liquidity, and some entities issued equity securities and placed debt securities in the external and local market. In the future, maintaining the credit growth rate will depend on sustained demand, as well as on the emergence of suitable conditions for savings to be increasingly channeled through the institutionalized financial system.
In 2018, Argentina’s money market behaved in line with the foreign exchange crisis. There was an interruption in the reserve accumulation process and the flight of portfolio investments led to a reversal in financial flows which in turn triggered a drop in the Central Bank reserves plus an intervention of the Argentine Treasury selling foreign exchange currency in an approximate amount of U.S.$ 25 billion and dramatically reducing the stock of Lebacs.
In the second half of the year, given the 2018 IMF Agreement and the enhancement of a currency swap with the Central Bank of the China, Argentina was able to recover from the reduction on the Central Bank’s international reserves. Gross international reserves grew by U.S.$10,751 million in 2018 with a balance of U.S.$65,806 million as of December 31, 2018.
As a part of the 2018 IMF Agreement, the Central Bank undertook to focus on a stabilization program which was compelled to be far more restrictive in monetary terms with nominal growth objectives in the monetary base. A program was deployed to gradually reduce Lebacs through sales of international reserves, increase in the minimum capital and cash requirements imposed on banks, issuance of Government securities and LELIQS. At the end of 2018, the stock of Lebacs dropped to zero and the LELIQs substituted for a part of them. At the end of the fiscal year, their stock totaled Ps. 722 billion, 51% of the monetary base.
The quasi-fiscal deficit of the country, has been absorbed by the dramatic depreciation in the exchange rate between the Argentine Peso and the US DollarU.S. dollar and LELIQSLELIQs substituting for Lebacs.
There was a Ps. 407 billion expansion in the country’s monetary base attributable to the increase in volume caused by the settlement of Lebacs and —as a contractive factor— LELIQ-mediated absorption and through the sale of foreign currency to the private sector during the stage of failed interventions in the midst of the run on the foreign exchange market. In 2018, the Argentine Central Bank transferred Ps. 30 billion to the Treasury as temporary advances and there was no transfer of earnings.
On average, the monetary base grew at an annual 33% rate, which was a bit faster than the 32% recorded in the year 2017. This being said, with the launch of a program to maintain the monetary base growth at zero by the end of September, average expansion in the last quarter was only 3%.
Argentina’s weak monetization is nothing new, despite the improvement seen during 2017 and 2018, Argentina’s financial system continues to be Latin America’s smallest financial system in relative terms in as much as Peso-denominated and US Dollar-denominatedU.S. dollar-denominated bank lending stands for 15.8% of GDP when the regional average had been 35%.
Total deposits compared to Argentina’s GDP grew by 6.8 percentage points of GDP. The reasons for this growth are to be found, above all, in an increase in time deposit in Pesos and in U.S. Dollarsdollars which reached the end of the year at unprecedented levels. This growth was well above an increase of hardly 0.7 percentage points of GDP for total lending.
In the course of 2018, Peso-denominated time deposits grew by 54%year-on-year whilst deposits denominated in US DollarsU.S. dollars (measured in Pesos) rose by 131%year-on-year (29% measured in foreign currencies + 102% devaluation). As of December 31, 2018, deposits totaled Ps. 4,086 billion.
In 2018, private sector deposits grew by 66.0%year-on-year, the recovery in Peso-denominated term deposits rose by 65% after the banks resumed financial intermediation when the stock of Lebacs was fully settled. Prior to such resumption, depositors were allowed to access the stock of Lebacs. The behavior exhibited by private sector deposits in foreign currency are evidence of the dollarization of deposits in the course of the year and of depositors’ confidence in the local financial system.
From the side of assets, in 2018 the financial system rose by 36.4%year-on-year when measured in total loans and totaled Ps. 2,240 billion.
Loans to the private sector rose by 37.2%year-on-year, which stood for 96% of total loans.
Within the Peso-denominated category, commercial loans dropped by 0.8%year-on-year, affected by the recession and the increase in interest rates, with it being the caption that was most severely affected.
The demand for consumer loans, in turn, decreased and was adversely affected by the decrease in employment and salaries during the year. In the course of the first part of the year the demand for consumer loans performed well which was impaired in the second half of the year.
Growth was led by credit cards, which rose by 28.9%year-on-year whereas personal loans rose at a slower pace, 21%year-on-year.
Pledge and mortgage loans rose by 48.5%year-on-year during the first months of 2018 keeping the momentum inUVA-adjusted mortgage loans (Unit of Purchasing Power) but after the run on banks, the origination of these loans slowed down fast.
The spread in growth between deposits and loans denominated in Pesos mirrored increase in the liquidity ratios in the financial system. The broad system liquidity, measured as cash and cash equivalents in Pesos, integration of liquidity requirements and Argentine Central Bank instruments was 51% of deposits in late 2018. In theyear-on-year comparison, broad liquidity rose by 8%.
Against this background, there was an upward trend in interest rates thanks to the influence of a harsher monetary policy and the dollarization of deposits. As of December of 2017, monetary policy rates were approximately 27.40% and by the end of 2018 the rate was at 59.25% after peaking in October at 74%. The rest of interest rates behaved similarly: the interest rates accrued by time deposits in Pesos at 30 days averaged 21.7% at the beginning of 2018 and came to an end at 45.6%.
The interest rate charged to companies for cash advances (for7-day terms and amounts in excess of Ps. 10 million) started the year at 31.2% and came to an end at 65.0%. As to the call money interest rate (inter-banking interest rate charged between private banks), at the end of 2018 reached 55.5% as compared to 28.0% of the previous fiscal year.
In addition, in 2018 there was a general increase in the Argentine financial system’s profitability, given the higher interest income and higher income obtained from securities. Additionally, the financial spread rose by 0.2 p.p. up to 10.6% of financial assets, versus 10.4% in 2017. In addition, there was an increase in interest expense.
The administrative expenses rose by 35.5% in an annual accumulated figure, below inflation, and averaged 6.3% of Assets,assets, which decreased from 7.1% recorded in 2017. Income from services stood at 2.2% of assets against 2.9% in 2017 and rose by 18.0% in the year. Loan losses, in turn, rose up to 1.3% of assets up from 1.0%, entailing low levels inasmuch as the portfolio ofnon-performing loans averaged 2.2% of loans. Lastly, tax charges in 2018 stood at 1.2% of assets compared to 1.4% the previous fiscal year.
For most of 2019, a very restrictive monetary program was in force, consisting in zero growth of the monetary base with some allowed exceptions (seasonal adjustment and acquisition of foreign currency for the international reserves under exchange rate appreciation). In addition, a minimum interest rate was set to prevent the interest rate from falling too quickly. The objective was to sustain a positive real rate and guarantee the absence of monetary issuance, an inflationary factor. In September, the Central Bank decided to modify the zero growth of the monetary base to a 2.5% monthly, held until November, when more restrictive foreign exchange regulations were introduced.
On average, the monetary base grew at an annual rate of 23% during 2019, a rate significantly lower than the 33% rate registered in 2018. However, its evolution was not uniform, in the first half of the year it remained relatively stable until October when it began to accelerate.
The main expansionary factor was a financial assistance to the Treasury, contrary to all forecasts, as the initial monetary program did not foresee any transfer of funds to the Treasury. As a contractionary factor, it issued debt (LELIQs) and passive passes. Significantly, monetary liabilities paid on average a very high rate during the year at very short terms.
Monetization in Argentina is very weak. It is not a new phenomenon and it is explained by recurrent macroeconomic crisis that undermined residents’ confidence in Pesos. Therefore, despite the improvement shown during 2017 and 2018, in 2019 the Argentine financial system was one of the shallowest in Latin America and further declined during that year; bank credits nominated in Pesos and in U.S. dollars represented 10.8% of the GDP, when the regional average of the last 10 years was 40%.
During 2019, public and private deposits in Pesos rose by 29.6% in average, while deposits in U.S. dollars (measured in Pesos) decreased by 0.4% in average(-37% in U.S. dollars). In relation to the GDP, Peso deposits decreased 2.1 p.p. to 13.3%, both those of a transactional nature and time deposits. U.S. dollar deposits declined dramatically: it fell from US$ 32.8 billion by the end of 2018 to US$ 20.7 billion by the end of 2019, a reduction equivalent to 1.7 p.p.to 4.6% of GDP.
The increase in private sector demand accounts stood out, which grew 44% in average, while time deposits increased 23%, with a decrease in retail time deposits (representing a growth of only 6.3% in average). Private deposits in foreign currency plummeted from August onwards, as they had previously increased slightly.
What refers to credits, in 2019 loans measured in Pesos and in U.S. dollars (public and private sector) rose by 15.8% in average, totaling Ps. 2.595 billion, well below inflation. Credit in Pesos (public and private sector) rose by 17.9% in average and fell 3 percentage points in relation to GDP to 7.5%, mainly affected by the collapse of consumer loans. Credit in U.S. dollars (mostly exportspre-financings to the private sector) fell by US$ 4.800 million to the amount of US$10.7 billion.
Secured loans in Pesos decreased 4.7% in average, affected by the stop of mortgages and pledges. The deterioration of real wages and therefore of private consumption, had a negative influence on this particular segment.
Consumer credit evolved negatively, affected by the economic context. The drop in real wages led to families contracting credit card debt, with late payments raising, while total personal loans decreased during the year. Thus, consumption credit increased only 19.7% in average. Credit card debt raised 48.2% in average, while personal loans plunged 4.5% in averaged in nominal terms.
In contrast, the growth differential between deposits and loans in Pesos during the year (19.6% in average vs. 17.9% in average), increased the liquidity of the financial system. Indeed, the broad liquidity of the system reached 59.4% of deposits by the end of 2019, showing ayear-on-year increase of 4.2 p.p.
In this context, the interest rates showed a very volatile behavior as a reflection of foreign exchange instability. As of December 2018, the monetary policy rate (7 days LELIQs) closed at 59.25% per annum. As of February 2019, in a context of foreign exchange appreciation by the inflow of capital, and the Central Bank buying up reserves, the monetary policy rate reached its lowest at 43.94%.
Then, due to external pressures on the Peso and uncertainty regarding the Central Bank’s ability to intervene the foreign exchange market it gradually started to grow. In May 2019, it reached 74% and began to gradually decrease until the August primary elections, when it reached levels hovering around 60%. After the primary results were known, it escalated quickly to the highest level of the year: 86%.
The establishment and intensification of the foreign exchange regulations allowed the interest rate to fall to levels of 55% per annum once the new government and the Central Bank new administration were in office. The rest of the rates performed similarly.
Available data as of November 2019, indicated that the profitability of the consolidated financial system increased during 2019. In the first 11 months of the year, banks obtained a profit of Ps. 758.239 million, 79.4% above the Ps. 422.609 million they recorded for the same period in 2018 and higher to inflation. The return on assets reached 4.8% in average, exceeding the 3.7% average for the same period in 2018. This increase in profitability was mostly explained by the good result of security operations, which averaged 13.2% of assets, against 6.3% in 2018, a result that complemented the interest margin that averaged 11.3% of assets, slightly above 11% from a year before. Thus, the financial margin increased by 2.9 p.p. to 13.5% of assets against 10.6% in 2018. Also, there was an increase in interest expenses that averaged 14.6% of assets in 2019 versus 9.3% a year before.
On the other hand, administrative expenses grew by an accumulated 55.4%, slightly above inflation. Results for services grew by an accumulated 34.2% las year. Charges for uncollectibility of private banks increased and remained at relatively low levels, while the irregular portfolio averaged 4.4% of the financings, the highest level since 2006 and above 2.2% in 2018.
Regarding capitalization, capital represented the 17.5% of the risk weighted assets in November (over the 15.6% a year ago), with an excess of integration regarding the 101% exigence. Also, private bank exposure to the public sector averaged 19.4% of assets (which includes loans to the public sector, securities and LELIQs), above the accumulated 13.1% for the same period in 2018.
RESULTS OF OPERATIONS
The following discussion of our results of operations is for the Bank as a whole and without reference to any operating segments.
We do not manage our Bank by segments or divisions or by customers, by products and services by regions, or by any other segmentation for purpose of accounting resources or assessing profitability.
Our loanloans and other financing portfolio to the private sector has grown by 35%22% in 20182019 in nominal value, keeping up with the evolution of the financial system. In real terms, the private sector loan portfolio decreased by 8%20% compared to the total amount as of December 31, 2017.2018.
During 2018,2019, we maintained a leading position in terms of personal loans, with 1.2Ps. 56,799.2 million loans,in nominal value, which represent a 13%14% of market share. As to its credit card products, in 20182019 we maintained an 8%a 7% of market share.
During 2018, pledge and mortgages loans grew 91%share, increasing 43% in nominal value. Such growth of 2018 is the result of our active participation in the granting of mortgage loans adjustable by UVA. The increase in real terms was 7% and was mainly due to the adjustment for inflation of this portfolio.value year over year.
The coverage indicator reached a 112%130.9% ratio towards the end of the fiscal period, substantially below tohigher than the coverage ratio at the end of 2017.2018. The levels of delinquency have stayed in historically low value, however, during 2018 it registered a considerable raise, reaching a 1.9% ratio ofthenon-performing loansratio was 1.7% over total portfolio.portfolio as of December 31, 2019.
Our total deposits increased by 65%10% in 20182019 in nominal value at similar levels to those of the rest of the financial system as a whole, and a 12% increasedecreased by 28% in real terms compared to the total amount as of December 31, 2017.2018. Regarding the composition of deposits, there was a larger growth in demand deposits and a lower volume of time deposits, than in checking accounts, which were driven by larger nominal interest rates offered in 2018.year over year.
The Bank continues to be one of the four private entities with the highest volume of deposits and a market share of 6% of the financial system as a whole.
As of December 31, 20182019 the Bank’s liquidity reached Ps.135,961Ps 154,151 million, registering an increase of 88%13% in nominal year over year and achieving a 57.1%59% of liquidity ratio.
The discussion about the year ended December 31, 2018 compared to the year ended December 31, 2017 has been omitted from this annual report. Such discussion has been included in the annual report on Form20-F for the year ended December 31, 2018 filed by the Bank with the Securities and Exchange Commission on May 10, 2019.
YEAR ENDED DECEMBER 31, 20182019 COMPARED TO YEAR ENDED DECEMBER 31, 20172018
Net income
The following table sets forth certain components of our statement of income for the years ended December 31, 20172018 and 2018:2019:
Year ended December 31, | Change December 31, | |||||||||||||||
2017 (1) | 2018 | 2018-2017 | ||||||||||||||
(in thousands of Pesos) | ||||||||||||||||
Interest income | 55,826,695 | 74,733,441 | 18,906,746 | 34 | % | |||||||||||
Interest expense | (16,971,578 | ) | (29,563,908 | ) | (12,592,330 | ) | 74 | % | ||||||||
Net Interest Income | 38,855,117 | 45,169,533 | 6,314,416 | 16 | % | |||||||||||
Commissions income | 14,987,879 | 14,474,765 | (513,114 | ) | (3 | )% | ||||||||||
Commissions expense | (1,113,684 | ) | (930,045 | ) | 183,639 | (16 | )% | |||||||||
Net Commissions income | 13,874,195 | 13,544,720 | (329,475 | ) | (2 | )% | ||||||||||
Subtotal (Net Interests income + Net Commissions income) | 52,729,312 | 58,714,253 | 5,984,941 | 11 | % | |||||||||||
Net Income from measurement of financial instruments at fair value through profit or loss | 944,908 | 1,261,206 | 316,298 | 33 | % | |||||||||||
Profit/ (Loss) from sold assets at amortized cost | 18,885 | (6,129 | ) | (25,014 | ) | (132 | )% | |||||||||
Difference in quoted prices of gold and foreign currency | 2,252,700 | (1,750,282 | ) | (4,002,982 | ) | (178 | )% | |||||||||
Other operating income | 2,605,384 | 3,347,241 | 741,857 | 28 | % | |||||||||||
Credit loss expense for financial assets | (2,613,724 | ) | (2,900,048 | ) | (286,324 | ) | 11 | % | ||||||||
Net Operating Income | 55,937,465 | 58,666,241 | 2,728,776 | 5 | % | |||||||||||
Total Operating Expenses | (32,580,603 | ) | (34,617,063 | ) | (2,036,460 | ) | 6 | % | ||||||||
Net Operating Income after expenses, depreciation and amortization | 23,356,862 | 24,049,178 | 692,316 | 3 | % | |||||||||||
Income from associates and joint arrangements | 290,303 | 266,302 | (24,001 | ) | (8 | )% | ||||||||||
Loss on net monetary position | (9,218,751 | ) | (15,722,476 | ) | (6,503,725 | ) | 71 | % | ||||||||
Income before tax on continuing operations | 14,428,414 | 8,593,004 | (5,835,410 | ) | (40 | )% | ||||||||||
Income tax on continuing operations | (8,408,808 | ) | (9,327,117 | ) | (918,309 | ) | 11 | % | ||||||||
Net Income/(loss) from continuing operations | 6,019,606 | (734,113 | ) | (6,753,719 | ) | (112 | )% |
INCOME STATEMENT | Year Ended December 31, | Change December 31, | ||||||||||||||
2018 (1) | 2019 | 2019 - 2018 | ||||||||||||||
(in thousands of Pesos, except for number of shares, net income per share and dividends per share) | ||||||||||||||||
Interest Income | 120,214,259 | 151,566,640 | 31,352,381 | 26 | % | |||||||||||
Interest Expense | (46,426,316 | ) | (64,156,959 | ) | (17,730,643 | ) | 38 | % | ||||||||
Net Interest Income | 73,787,943 | 87,409,681 | 13,621,738 | 18 | % | |||||||||||
Commissions income | 22,000,691 | 19,441,433 | (2,559,258 | ) | (12 | %) | ||||||||||
Commissions expense | (1,430,689 | ) | (1,609,947 | ) | (179,258 | ) | 13 | % | ||||||||
Net fee income | 20,570,002 | 17,831,486 | (2,738,516 | ) | (13 | %) | ||||||||||
Subtotal (Net Interest Income + Net Fee Income) | 94,357,945 | 105,241,167 | 10,883,222 | 12 | % | |||||||||||
Net gain from measurement of financial instruments at fair value | 1,940,516 | 7,932,797 | 5,992,281 | 309 | % | |||||||||||
(Loss) / Profit from sold or derecognized assets at amortized cost | (9,429 | ) | 27,417 | 36,846 | 391 | % | ||||||||||
Differences in quoted prices of gold and foreign currency | (2,692,459 | ) | 3,497,301 | 6,189,760 | 230 | % | ||||||||||
Other operating income | 5,411,025 | 7,680,839 | 2,269,814 | 42 | % | |||||||||||
Credit loss expense on financial assets | (4,461,143 | ) | (4,346,885 | ) | 114,258 | (3 | %) | |||||||||
Net operating income after expenses, depreciation and amortization | 94,546,455 | 120,032,636 | 25,486,181 | 27 | % | |||||||||||
Employee benefits | (19,192,702 | ) | (21,202,596 | ) | (2,009,894 | ) | 10 | % | ||||||||
Administrative expenses | (12,726,636 | ) | (12,800,757 | ) | (74,121 | ) | 1 | % | ||||||||
Depreciation and amortization of fixed assets | (2,266,602 | ) | (3,006,376 | ) | (739,774 | ) | 33 | % | ||||||||
Other operating expenses | (19,014,152 | ) | (22,100,895 | ) | (3,086,743 | ) | 16 | % | ||||||||
Net operating income after expenses, depreciation and amortization | 41,346,363 | 60,922,012 | 19,575,649 | 47 | % | |||||||||||
Income from associates & joint ventures | 409,655 | 898,428 | 488,773 | 119 | % | |||||||||||
(Loss)/gain on net monetary position | (28,489,943 | ) | (28,194,756 | ) | 295,187 | n.m. | (1) | |||||||||
Income before tax on continuing operations | 13,266,075 | 33,625,684 | 20,359,609 | 153 | % | |||||||||||
Income tax on continuing operations | (14,347,904 | ) | (12,975,037 | ) | 1,372,867 | (10 | %) | |||||||||
Net (loss)/income from continuing operations | (1,081,829 | ) | 20,650,647 | 21,732,476 | n.m. | |||||||||||
Net(loss)/income of the fiscal year | (1,081,829 | ) | 20,650,647 | 21,732,476 | n.m. | |||||||||||
Net(loss)/income of the fiscal year attributable to controlling interest | (1,082,089 | ) | 20,650,410 | 21,732,499 | n.m. | |||||||||||
Net(loss)/income of the fiscal year attributable tonon-controlling interest | 260 | 237 | (23 | ) | (9 | %) |
(1) | n.m. means not meaningful |
2019 and 2018
Our consolidated net income/(loss)income from continuing operations for fiscal year ended as of December 31, 20182019 shows a decreasean increase of Ps. 6,753.721,732.5 million or 112%, as compared to fiscal year ended as of December 31, 2017.2018. This decreaseincrease was primarily attributable to a:
A higher loss onAn increase in net monetary positioninterest income of Ps. 6,503.713,621.7 million or 71% increase.18%.
A decreaseAn increase in differencenet income from measurement of financial instruments at fair value of Ps. 5,992.3 million or 309%.
An increase in differences in quoted prices of gold and foreign currency of Ps. 4,0036,189.8 million, from a gain of Ps. 2,252.7 million in 2017 to a loss of Ps. 1,750.32,692.5 million in 2018 (178%), and
An increaseto a gain of Ps.3,497.3 million in operating expenses of Ps. 2,036.5 million or around 6%.
The aforementioned losses were partially offset by:
An increase in net interest income of Ps.6,314.4 million or 16%, and2019.
An increase in other operating income of Ps.741.9Ps. 2,269.8 million or 28%42%.
The aforementioned profits increase in consolidated net income from continuing operations was partially offset by:
A decrease in net commissions income of Ps. 2,738.5 million or 13%.
An increase in total operating expenses of Ps. 5,910.5 million or 11%.
Interest income
The components of our interest income for the years ended December 31, 20172019 and 2018 were as follows:
Year ended December 31 | ||||||||||||||||
INTEREST INCOME | Year Ended December 31, | |||||||||||||||
2017 | 2018 | 2018 (1) | 2019 | |||||||||||||
(in thousands of Pesos) | (in thousands of Pesos) | |||||||||||||||
Interest on Cash and bank deposits | 21,347 | 27,750 | 42,687 | 260,610 | ||||||||||||
Interest from government securities | 8,935,362 | 20,321,505 | 31,260,571 | 64,664,166 | ||||||||||||
Interest from debt securities | 283,588 | 226,226 | 348,004 | 1,427,062 | ||||||||||||
Interest on loans and other financing | ||||||||||||||||
To the financial sector | 813,777 | 1,428,390 | 2,197,293 | 2,072,660 | ||||||||||||
To the non financial government sector | 6,518 | — | ||||||||||||||
To the non financial private sector | ||||||||||||||||
Interest on overdrafts | 4,421,984 | 6,569,850 | 10,106,400 | 16,100,277 | ||||||||||||
Interest on documents | 3,027,789 | 4,008,412 | 6,166,140 | 5,578,114 | ||||||||||||
Interest on mortgages loans | 1,321,931 | 1,577,943 | 7,679,158 | 8,103,107 | ||||||||||||
Interest on pledged loans | 820,614 | 718,101 | 1,104,655 | 628,394 | ||||||||||||
Interest on personal loans | 23,268,886 | 25,279,696 | 38,887,756 | 29,990,766 | ||||||||||||
Interest on credit cards | 7,245,746 | 8,488,320 | 13,057,582 | 13,206,022 | ||||||||||||
Interest on financial leases | 172,340 | 197,267 | 303,456 | 181,747 | ||||||||||||
Interest on other | 4,367,596 | 5,440,110 | 8,368,521 | 6,068,720 | ||||||||||||
Interest on Repos | ||||||||||||||||
From the BCRA | 1,057,405 | 32,070 | ||||||||||||||
From the Central Bank | 49,333 | 406,144 | ||||||||||||||
Other financial institutions | 61,812 | 417,801 | 642,703 | 2,878,851 | ||||||||||||
Total Interest Income | 55,826,695 | 74,733,441 | ||||||||||||||
Total Interest income | 120,214,259 | 151,566,640 |
(1) | Figures stated in thousands of Pesos adjusted for inflation as of December 31, 2019. See “Presentation of certain financial and other information”. |
2019 and 2018
Our interest income increased 34%26% or Ps. 18,906.731,352.4 million as compared to fiscal year ended December 31, 2017,2018, mainly due to a higher interest from government securities, and from private sector loans. Interest on loans increased 18%, or Ps.8,240.9 million, as a result of an increase of 49% indebt securities, interest on overdraft, 25% inrepos and interest on other loansoverdrafts.
Interest from government securities and 11% in interest from consumer loans. The average volume of overdraftsdebt securities increased 30%, of other loans credit increased 27% and of consumer loans increased 52% in nominal values.
During the last six months of year 2018, nominal rates of the loans increased substantially, but such increase did not match the impact of inflation. For example, the origination interest rate of personal loans went from an average of 36% in year 2017 to an average of 48% in year 2018, with annual inflation of 47.6%. Only in the case of commercial loans, advances and documents, an increase in average interest rate above the inflation rate was observed.
109% or Ps. 34,482.7 million. Interest derived from government securities increased by 127%107%, or Ps.11,386.1Ps. 33,403.6 million, beinggiven the new Central BankBank’s policy relatedand incentives for banks to LELIQs which generated this increase.invest in Leliqs. The average placements in instruments issued by the Central Bank increased approximately 117%32% in 2018.2019. The nominal interest rates of these instruments increased on average more than 60%28.9 percentage points in such year.
Interest on repos increased 375% or Ps. 2,593 million as compared to fiscal year ended December 31, 2018, due to an increase of 267% in average volume and a 17.7 percentage points in nominal average interest rate.
Interest on loans decreased 7%, or Ps. 5,941.2 million, mainly as a result of a 23% or Ps. 8,897 million decrease in interest on personal loans, and a 27% or Ps. 2,299.8 million decrease in interest on other loans. This decrease was partially offset by a 59% or Ps. 5,993.9 million increase in interest on overdraft.
The total decrease in interest on loans was a result of a decrease in average volume partially offset by an increase in average rates for total portfolio. Moreover, private sector loans as a whole decreased in average volume by 22.6% while the nominal average interest rate increased 11.2 percentages points.
Interest expenses
The components of our interest expenses for the years ended December 31, 20172018 and 20182019 were as follows:
Year ended December 31, | ||||||||
2017 | 2018 | |||||||
(in thousands of Pesos) | ||||||||
Deposits | ||||||||
Interest on checking accounts | — | 666,193 | ||||||
Interest on saving accounts | 191,202 | 88,660 | ||||||
Interest on time deposits and investments accounts | 14,952,398 | 25,575,984 | ||||||
Interest on financing received from Central Bank of Argentina and other financial institutions | 71,397 | 149,037 | ||||||
Repo transactions | — | — | ||||||
Other financial institutions | 181,685 | 218,635 | ||||||
Deposits | ||||||||
Interest on corporate bonds | 780,202 | 1,812,532 | ||||||
Interest on subordinated bonds | 750,003 | 994,991 | ||||||
Interest on other financial liabilities | 44,691 | 57,876 | ||||||
Total interest expense | 16,971,578 | 29,563,908 |
INTEREST EXPENSE | Year Ended December 31, | |||||||
2018 (1) | 2019 | |||||||
(in thousands of Pesos) | ||||||||
From deposits | ||||||||
Interest on checking accounts | 1,024,805 | 394,448 | ||||||
Interest on saving accounts | 633,960 | 658,507 | ||||||
Interest on time deposits and investments accounts | 39,794,118 | 58,225,160 | ||||||
Interest on financing received from Central Bank of Argentina and other financial institutions | 229,263 | 264,292 | ||||||
For repo transactions | ||||||||
Other financial institutions | 336,326 | 336,492 | ||||||
Interest on corporate bonds | 2,788,216 | 2,387,574 | ||||||
Interest on subordinated corporate bonds | 1,530,595 | 1,703,391 | ||||||
Interest on other financial liabilities | 89,033 | 187,095 | ||||||
Total interest expense | 46,426,316 | 64,156,959 |
(1) | Figures stated in thousands of Pesos adjusted for inflation as of December 31, 2019. See “Presentation of certain financial and other information”. |
Interest expense increased 74%38% or Ps. 12,592.317,730.6 million as compared to 2017,2018, mainly due to theinterest paid on time deposits portfolio.
Interest on deposits represented 89%92% of total interest expense and increased by 74%43% or Ps. 11,187.217,825.2 million, as compared to fiscal year ended December 31, 2017, with 95% of such increase being attributable to our portfolio of time deposits.
2018. The increase in interest on deposits was mainly due to an increase onin nominal interest rates during the last six months of fiscal year 2018,2019, from 19% on average in fiscal year ended December 31, 2017 to 30%12.5% on average in fiscal year ended December 31, 2018 to 22.3% on average in fiscal year ended December 31, 2019 for timeprivate sector deposits in pesos.(approximately an increase of 10 percentage points). Additionally, during such period an important growth was observed in2019 average volume of interest bearing deposits both in Pesosdecreased 7%, the peso deposits decreased 13% and in foreign currency.currency deposits increased 9%.
Interest on corporate bondsNet gain from measurement of financial instruments at fair value
2019 and 2018
Net gain from measurement of financial instruments at fair value increased by 132%309% or Ps. 1,032.35,992.3 million due to the higher level of indebtedness. On April 9, 2018 Series C Notes were issued for a nominal amount of Ps.3,207,500,000, at a Badlar Privada Interest rate plus a 350 bps margin, which represented a charge of Ps.898.2 million.
Interest on subordinated bonds (Series A Notes) increased by Ps. 245 million or 33% compared to 2017,2018, primarily due to an increase in the average foreign exchange rateto: i) A gain from Ps.16.5665 per dollar in 2017 to Ps.28.0937 per dollar in 2018, which was partially offset by theinvestments instruments of Ps. 3,307 million (remaining equity interest of Prisma S.A. and its inflation adjustment.adjustment of 2019); ii) A gain from instruments of derivatives (forwards transactions) of Ps. 1,123 million and iii) a gain from government securities (TC21 – BONCER 2021) of Ps. 1,046 million.
Net Commissions income
The following table provides a breakdown of our commissions income by category for the years ended December 31, 20172018 and 2018:2019:
Year ended December 31, | ||||||||
2017 | 2018 | |||||||
(in thousands of Pesos) | ||||||||
Fee charged on deposit accounts | 6,031,430 | 6,427,448 | ||||||
Debit and credit card fees | 422,711 | 247,953 | ||||||
Fees on collection services | 1,607,344 | 1,658,933 | ||||||
Insurance fees | 1,006,368 | 954,214 | ||||||
Fees on private securities | 642,984 | 548,621 | ||||||
Credit related fees | 4,686,993 | 4,055,475 | ||||||
Fees related to transferable securities | 103,393 | 104,209 | ||||||
Other fees related to foreign trade | 249,865 | 290,760 | ||||||
Other | 236,791 | 187,152 | ||||||
Total commissions income | 14,987,879 | 14,474,765 | ||||||
Total commissions expense | (1,113,684 | ) | (930,045 | ) | ||||
Net commissions income | 13,874,195 | 13,544,720 |
NET COMMISSIONS INCOME | Year Ended December 31, | |||||||
2018 (1) | 2019 | |||||||
(in thousands of pesos) | ||||||||
AFIP & Collection services | 126,693 | 138,920 | ||||||
Fees charged on deposit accounts | 9,704,802 | 7,727,146 | ||||||
Mutual funds & securities fees | 160,305 | 273,147 | ||||||
ATM transactions fees | 897,444 | 1,091,207 | ||||||
ANSES fees | 53,289 | 44,015 | ||||||
Insurance fees | 1,297,810 | 1,169,363 | ||||||
Corporate services fees | 1,880,653 | 2,133,355 | ||||||
Financial agent fees (Provinces) | 1,015,210 | 1,011,337 | ||||||
Debit card fees | 798,557 | 990,136 | ||||||
Credit card fees | 5,061,414 | 4,096,929 | ||||||
Credit related fees | 1,004,514 | 765,878 | ||||||
Total commissions income | 22,000,691 | 19,441,433 | ||||||
Total commissions expense | (1,430,689 | ) | (1,609,947 | ) | ||||
Net commissions income | 20,570,002 | 17,831,486 |
(1) | Figures stated in thousands of pesos adjusted for inflation as of December 31. 2019. See “Presentation of certain financial and other information”. |
2019 and 2018
Net commission income decreased by 2%13%, or Ps.329.5Ps. 2,738.5 million in 2018,2019, mainly due to a 3% decrease in total commissions income partially offset by a 16% decrease in total commissions’ expense.income.
Total commissions income decreased by 3%12% or Ps. 513.12,559.3 million in 2019 compared to fiscal year ended December 31, 2018, primarily due to a 20% or Ps. 1,977.7 million decrease in fees charged on deposit accounts, a 24% or Ps. 238.6 million decrease in credit related fees and a 19% or Ps. 964.5 million decrease in credit cards fees. These decreases were partially offset by a 22% or Ps. 193.8 million increase in ATM transaction fees and a 13% or Ps. 252.7 million increase in corporate services fees.
Although in 2019 there was an increase in income fee in terms of nominal value, as a result of the higher amount of accounts/clients and transactions, as well as the increase in applicable tariffs, the evolution of these fees did not offset the inflationary effect. The main increases in nominal values obey to an increase in maintenance costs of savings accounts and in the services of retirement payments and unemployment subsidies provided by the Bank, as well as an increment in credit/debit card commissions resulting from an increase in tariffs and higher consumption.
Total commissions expense increased by 13% or Ps. 179.3 million compared to fiscal year ended December 31, 2017, primarily2018, due to the decrease in fees generated by credit related fees and by debit and credit cards fees. Although in 2018 there was ana 29% or Ps. 175.6 million increase in activity and consumption, the evolution of maintenance fees and other commissions did not offset the inflationary effect.
DifferenceDifferences in the price ofquoted prices in gold and foreign currency
2019 and 2018
In fiscal year ended December 31, 2018,2019, the difference in quoted prices of gold and foreign currency totaled Ps. 3,497.3 million representing a decrease of 178%230% or Ps. 4,0036,189.8 million wasincrease compared to 2018, originated as the combination of twodifferent factors: i) the change of foreign exchange position, from a positivenegative position (asset)(liability) in average in fiscal year 20172018 to a negativepositive position (liability) in(asset) on average during fiscal year 2018 and2019, ii) the increase in the exchange rate, from Ps.16.5665an annual average of Ps. 28.0937 during fiscal year 20172018 to Ps.28.0937an annual average Ps. 48.2423 in fiscal year 2018. The2019, and iii) 48% or Ps. 1,180 million increase in result of foreign currency trading increased in line with the increase in the exchange rate.trading.
Other operating income
The components of our other operating income for the years ended December 31, 2018 and 2019 were as follows:
OTHER OPERATING INCOME | Year ended December 31, | |||||||
2018 (1) | 2019 | |||||||
(in thousands of Pesos) | ||||||||
Credit and debit cards | 331,280 | 220,421 | ||||||
Lease of safe deposit boxes | 412,607 | 428,950 | ||||||
Other service related fees | 693,381 | 749,476 | ||||||
Sale of real estate and othernon-financial assets | 75,383 | — | ||||||
Other adjustments and interest from other receivables | 407,755 | 787,089 | ||||||
Initial recognition of loans | 121,600 | 119,856 | ||||||
Sale of property, plant and equipment | 58,375 | — | ||||||
Others | 3,310,644 | 5,375,047 | ||||||
Other Operating Income | 5,411,025 | 7,680,839 |
(1) | Figures stated in thousands of Pesos adjusted for inflation as of December 31, 2019. See “Presentation of certain financial and other information”. |
2019 and 2018
Other operating income increased 28%42% or Ps.741.9Ps. 2,269.8 million, mainly due to a 62% or Ps. 2,064.4 increased in Others related to the Ps. 703.5 million generated byresults of sale of the repurchase51% equity interest in PRISMA Medios de Pagos S.A. registered in the first quarter 2019 (for further information please see note 21 to our audited consolidated financial statements as of notes issued by us (Ps.1,377,473,000 of Series B NotesDecember 31, 2019 and Ps.519,000,000 Series C Notes)2018).
Employee benefits and administrative expenses
The components of our employee benefits and administrative expenses for the years ended December 31, 20172018 and 2018 are reflected in the following table:2019 were as follows:
Year Ended December 31, | ||||||||||||||||
2017 | 2018 | 2018 (1) | 2019 | |||||||||||||
(in thousands of Pesos) | (in thousands of Pesos) | |||||||||||||||
12,536,276 | 12,476,567 | 19,192,702 | 21,202,596 | |||||||||||||
14,487,872 | 14,659,764 | |||||||||||||||
Payroll taxes | 2,819,542 | 4,303,126 | ||||||||||||||
Compensation and bonuses to employees | 1,405,378 | 1,749,590 | ||||||||||||||
Employee services | 479,910 | 490,116 | ||||||||||||||
Administrative Expenses | 7,631,898 | 8,273,181 | 12,726,636 | 12,800,757 | ||||||||||||
Taxes | 1,181,146 | 1,109,700 | 1,707,051 | 1,515,681 | ||||||||||||
Maintenance, conservation and repair expenses | 968,284 | 1,094,844 | 1,684,199 | 1,715,812 | ||||||||||||
Fees to directors and statutory audits | 720,597 | 869,805 | ||||||||||||||
Fees to directors and syndics | 1,338,022 | 2,071,603 | ||||||||||||||
Security services | 875,748 | 865,319 | 1,331,120 | 1,184,114 | ||||||||||||
Electricity and communications | 569,353 | 711,516 | 1,094,525 | 1,185,887 | ||||||||||||
Other fees | 580,273 | 678,334 | 1,043,481 | 1,012,093 | ||||||||||||
Leases | 368,112 | 398,126 | 612,437 | 225,273 | ||||||||||||
Advertising and publicity | 372,953 | 362,895 | 558,242 | 472,968 | ||||||||||||
Representation, travel and transportation expenses | 134,335 | 139,703 | 214,905 | 197,972 | ||||||||||||
Stationery and office supplies | 70,626 | 71,306 | 109,690 | 102,209 | ||||||||||||
Insurance | 73,615 | 74,625 | 114,796 | 121,477 | ||||||||||||
Hired administrative services | 29,494 | 22,212 | 123,144 | 85,610 | ||||||||||||
Other | 1,687,362 | 1,874,796 | 2,795,024 | 2,910,058 | ||||||||||||
Total Administrative Expenses | 20,168,174 | 20,749,748 | ||||||||||||||
Total Employee benefits and Administrative Expenses | 31,919,338 | 34,003,353 |
(1) | Figures stated in thousands of Pesos adjusted for inflation as of December 31. 2019. See “Presentation of certain financial and other information”. |
2019 and 2018
Employee benefits and administrative expenses increased by 3%7%, or Ps.581.6Ps. 2,084 million, in 2018,2019, due to an increase in electricityemployee benefits and communications expenses (25%) as a result of the tariff adjustment and the increase in the fees paid to directors and memberssyndics.
Employee benefits rose 10% o Ps. 2,009.9 million, mainly due to a 53% or Ps. 1,483.6 million increase in Social security contribution (for further information please see note 49 “Tax and Other Claims)” to our audited consolidated financial statements as of December 31, 2019 and 2018 and a 24% or Ps. 344.2 million increase in Compensation and bonuses of (related to severance payments occurred in the supervisory committee.last quarter 2019).
Fees to Directors and syndics increased 55% or Ps. 733.6 million as compared to fiscal year 2018.
Other operating expenses
The components of our other operating expenses for the years ended December 31, 2018 and 2019 were as follows:
OTHER OPERATING EXPENSES | Year ended December 31, | |||||||
2018 (1) | 2019 | |||||||
(in thousands of Pesos) | ||||||||
Turnover tax | 10,825,343 | 10,231,629 | ||||||
Charges for other provisions | 1,993,045 | 1,431,716 | ||||||
Deposit guarantee fund contributions | 569,938 | 575,881 | ||||||
Donations | 163,739 | 279,547 | ||||||
Insurance claims | 101,389 | 59,595 | ||||||
Punitive interests and other Central Bank’s penalties | 183 | 426 | ||||||
Other | 5,360,515 | 9,522,101 | ||||||
Other Operating Expenses | 19,014,152 | 22,100,895 |
(1) | Figures stated in thousands of Pesos adjusted for inflation as of December 31. 2019. See “Presentation of certain financial and other information”. |
2019 and 2018
Other operating expenses increased 13%16% or Ps1,388Ps.3.086.7 million mainly due to an increase in gross income taxes and municipal fees, as a result of higher revenue from computable services and, to a lesser extent, anOthers which rose 78% or Ps. 4,161.6 million. The increase in quotesOthers is related to these concepts: i) Losses in the amount of Ps. 2,866 million due to reprofiling of short term debt (Lecaps, Lelink, Letes, Lecer Notes) announced by the Argentine government on August 19, 2019 (for further information please see note 20 “Modifications of Financial Assets” to our audited consolidated financial statements as of December 31, 2019 and the applicable interest rates.2018) and ii) Ps.1,333 million related to Charges on social security contributions (for further information please see note 49 “Tax and Other Claims 49.1 c)” to our audited consolidated financial statements as of December 31, 2019 and 2018. The increase in Others was offset by a 5% or Ps. 593.7 million and a 28% or Ps. 561.3 million decrease in turnover tax and charges for other provisions respectively.
Loss on net monetary position
2019 and 2018
The loss generated by the net monetary position in fiscal year 20182019 was 71% higher1% or Ps. 295 million lower than that recorded in 2017, going2018, moving from recordingPs. 28,492 million loss in 2018 to Ps. 28,195 million loss in 2019, as a lossconsequence of Ps. 9,218.8 million in 2017 to a lossthe movements of Ps. 15,722.5 million in 2018. The net monetary position as of December 31, 2018 was 13% higher than the net monetary position asduring the year and the evolution of December 31, 2017, due to: an increase of 96% in cash and deposits in banks, 81% in government and private securities 41% in loans partially offset by an increase of 65% in deposits. Likewise, the inflation rate went from 24.8% in 2017 to 47.6% in 2018.comparison with the previous year.
B. Liquidity and Capital Resources
Our main source of liquidity consists of deposits, which totaled Ps.237,954.4Ps. 262,865.4 million as of December 31, 2019, Ps. 366,049.5 million as of December 31, 2018 and Ps.212,800.4Ps. 327,360.6 million as of December 31, 2017. These deposits include deposits generated by our branch network, from institutional, very large corporate clients and from provincial governments for whom we act as financial agent. We consider the deposits generated by our branch network and the provincial deposits to be stable.
Approximately 8%7% of our total deposits as of December 31, 20182019 were derived from thenon-financial public sector, in particular as a consequence of the Bank’s role as financial agent of four provinces. This is an important source oflow-cost funding.
Total deposits, which grew 12%10% in 2018nominal value in 2019 compared to 2017,2018, represented 82%78% of our total liabilities as of December 31, 2018.2019. Deposits were used primarily to finance the growth in credit made available to the private sector and the balance was invested in liquid assets. This approach has enabled us to maintain a high liquidity to deposits ratio while we await a return to stronger demand for private sector loans.
As of December 31, 2018,2019, we had liquid assets up to Ps.135,960.6Ps. 154,151 million, primarily comprised of cash and due from banks (Ps.74,766(Ps. 100,680 million) and LELIQS (Ps.55,069.9(Ps. 45,932 million). During 2018,2019, the liquidity ratio increased from 50.2% as of December 31, 2017 to 57.1% as of December 31, 2018.2018 to 59.0% as of December 31, 2019. Our liquidity ratio exceeds the aggregate liquidity ratio of the Argentine financial system as a whole.
On November 4, 2016, we issued our 6.75% Subordinated Resettable Series A Notes due 2026 (Series A), for a nominal amount of U.S.$400 million. In addition, on May 8, 2017, we issued our 17.50% Class B Notes due 2022 (Series B), for a nominal amount of Ps.4,620.6 million, and on April 9, 2018 we issued our Class C Notes, at a Badlar Rate, plus 3.5% due 2021 (Series C), for a nominal amount of Ps.3,207.5 million.
Additionally, on April 27, 2018, the Shareholders’ Meeting decided to increase the maximum nominal value of our Global Notes Program from U.S.$ 1,500 million to U.S.$ 2,500 million or its equivalent in other currencies. On April 10, 2019 the board of Directors decided to use the maximum amount of the Global Notes Program for the Issuance of Corporate Bonds Approved on April 27, 2018, i.e., U.S.$ 1,000,000,000 (one billion U.S. dollars) or an equal amount in other currencies or value units, for the issuance of Corporate Bonds under CNV frequent issuers system.
On October 17, 2018, the Boardboard of Directorsdirectors decided to cancel Series B Notes for a nominal value of Ps.1,229.5 million ,and on October 16, 2019 the board of directors decided to cancel Series B Notes for a nominal amount of Ps. 501.9 million, equivalent to the amountamounts of purchases of this issuancethose issuances as of that date.those dates. As of the date of this annual report and after the datedates indicated in the preceding paragraph, we have made purchases for a nominal value of Ps. 148496.9 million, with an outstanding nominal value of Ps. 3,243.12,392.3 million.
AsOn October 16, 2019 and on January 29, 2020, the board of the date of this annual report, we have made purchases of ourdirectors decided to cancel Series C Notes for a nominal value of Ps. 519750.5 million leaving anand Ps. 44 million respectively, equivalent to the amounts of purchases of this issuance as of that dates. As of the date of this annual report, the outstanding nominal value of Ps.2,688.5is Ps. 2,413 million.
Additionally, we currently have access to uncommitted lines of credit with foreign banks and to letters of credit. We manage the excess liquidity by analyzing interest rates from a limited number of liquid and short-term assets including Central Bank bills, deposits with the Central Bank and overnight loans to highly rated companies. The amount allocated to overnight loans is determined by the amount of deposits received from institutional investors, and as such, there is a high degree of volatility in our overnight allocations.
Lastly, in June 2017, we completed a capital increase through a primary public offering of Series B common shares in Argentina and a SEC registered offering in the United States of America of ADSs for a total of 74,000,000 shares for a value of U.S.$666 million; subsequently the international underwriters exercised the oversubscription option, for which 11,099,993 additional shares were issued for U.S.$100 million.
We believe that we have adequate working capital to meet our current and reasonably foreseeable needs. As of December 31, 2018,2019, we had excess regulatory capital of Ps.45,676Ps. 69,009 million. Our excess capital is aimed at supporting growth, and consequently, a higher leverage of our balance sheet.
For further information regarding management and administration guidelines in relation to liquidity risk please note 5051 “Capital Management, Corporate Governance Transparency and Risk Management” to our audited consolidated financial statements as of December 31, 20182019 and 2017.2018. Additionally, for further information regarding our restricted assets and trust agreements please see notes 4243 “Restricted assets” and 4344 “Trust activities” to our audited consolidated financial statements as of December 31, 20182019 and 2017.2018.
Minimum capital requirements
Our excess capital (representing the amount in excess of minimum reserve requirements of the Central Bank) is as set forth in nominal value in the following table:
As of December 31, | As of December 31, | |||||||||||||||||||
2017 (1) | 2018 | 2017 (1) | 2018 (1) | 2019 (1) | ||||||||||||||||
(in thousands of Pesos, except ratios and percentages) | (in thousands of Pesos, except ratios and percentages) | |||||||||||||||||||
Calculation of excess capital: | ||||||||||||||||||||
Allocated to assets at risk | 11,023,213 | 15,609,273 | 11,023,213 | 15,609,273 | 21,403,835 | |||||||||||||||
Market risk | 184,406 | 212,280 | 184,406 | 212,280 | 591,252 | |||||||||||||||
Operational risk | 3,219,309 | 4,615,577 | 3,219,309 | 4,615,577 | 7,562,571 | |||||||||||||||
|
|
|
|
| ||||||||||||||||
Required minimum capital under Central Bank Rules | 14,426,928 | 20,437,130 | 14,426,928 | 20,437,130 | 29,557,658 | |||||||||||||||
|
|
|
|
| ||||||||||||||||
Ordinary capital Level 1 (Con1) | 41,709,067 | 52,285,150 | 41,709,067 | 52,285,150 | 83,090,092 | |||||||||||||||
Deductible concepts COn1 | (1,021,975 | ) | (3,046,813 | ) | (1,021,975 | ) | (3,046,813 | ) | (10,637,093 | ) | ||||||||||
Additional capital Level 1 (CAn1) | 18,074 | 120 | 18,074 | 120 | — | |||||||||||||||
Capital Level 2 (COn2) | 8,836,474 | 16,874,710 | 8,836,474 | 16,874,710 | 26,113,428 | |||||||||||||||
|
|
|
|
| ||||||||||||||||
Total capital under Central Bank Rules | 49,541,640 | 66,113,167 | 49,541,640 | 66,113,167 | 98,566,427 | |||||||||||||||
|
|
|
|
| ||||||||||||||||
Excess capital | 35,114,712 | 45,676,037 | 35,114,712 | 45,676,037 | 69,008,769 |
(1) |
As of December 31, Funding Our principal source of funding is mainly deposits from individuals and corporate clients located in Argentina. Deposits include checking accounts, savings accounts and time deposits. The following table sets forth our sources of funding as of December 31, 2017, 2018 and
Critical accounting policies Our audited consolidated Financial Statements are prepared in accordance with IFRS as issued by the IASB. The preparation of our consolidated Financial Statements require management to make, in certain cases, estimates and assumptions to determine the book value of assets and liabilities, income, expenses and contingencies. Our financial position and results of operations are based on the best estimate regarding the probability of occurrence of different future events and, thereof, the final amount may differ from such estimates, which may have a positive or negative impact on future years. Critical accounting policies are those accounting policies that require management to make estimates based on assumptions about matters that are highly uncertain at the time the estimate is made and such estimates reasonably could have a material effect on the financial condition. Several factors are considered in determining whether or not a policy is critical in the preparation of our financial statements. These factors include, among others, whether the estimates are material to our financial statements, the nature of the estimates, the ability to readily validate the estimates with other information including information from third parties or available prices, and sensitivity of the estimates to changes in economic conditions and whether alternative accounting methods may be utilized. Note 3 to our audited consolidated Financial Statements contain a summary of our significant accounting policies. See also section “Accounting judgement, estimates and assumptions” of Note 3 for a discussion of our critical accounting estimates.
Income tax In estimating accrued taxes, we assess the relative merits and risks of the appropriate tax treatment considering statutory, judicial and regulatory guidance in the context of the tax position. On December 29, 2017, the Federal Executive signed Tax Reform Law No. 24,430. On December 23, 2019 was passed Law 27,541 which suspends, until fiscal years beginning on January 1, 2021 included, the income tax reduction. Significant matters related to the tax reform are discuss in Note 3.13) and 28) to our audited consolidated financial statements. Because of the complexity of tax laws and regulations, interpretation can be difficult and subject to legal judgment. It is possible that others, given the same information, may reach different reasonable conclusions regarding the estimated amounts of accrued taxes. Changes in the estimate of accrued taxes occur periodically due to changes in tax rates, interpretations of the status of examinations being conducted by various taxing authorities, and newly-enacted statutory and regulatory guidance that impact the relative merits and risks of tax positions. These changes, when they affect accrued taxes, can be material to our operating results. There were no unrecognized tax benefits as of December 31,
Fair Value of financial instruments As described in Note 3 section “Statement of financial position disclosures” to our audited consolidated Financial Statements, a portion of our financial assets and liabilities are measured at fair value. The fair value is the amount at which an asset can be exchanged, or at which a liability can be settled, in mutual independent terms and conditions between participants of the principal market (or most advantageous market) duly informed and willing to transact in an orderly and current transaction. The valuation of financial instruments often involves a significant degree of judgement and complexity, in particular where valuation models make use of unobservable To measure fair value, IFRS has established a three-level hierarchy to prioritize the valuation input among (1) quoted prices (unadjusted) for identical assets or liabilities in an active market that we have the ability to access, (2) other than quoted prices that are observable for the asset or liability, either directly or indirectly and (3) prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset or liability. When observable quoted prices are not available, fair value is based upon internally developed valuation techniques that use quoted prices for similar assets or liabilities in active markets. For instruments classified in Levels 1 and 2, where inputs are principally based on observable market data, there is less judgment applied in arriving at the fair value measurement. For assets and liabilities that do not have similar or identical instruments traded in the market we used an internally developed model to measure significant instruments. Those instruments would be classified as Level 3 of the fair value hierarchy, which requires significant management judgment or estimation. In arriving at an estimate valuation policies and procedures for Level 3 instruments At level 3, we mainly hold Equity instruments at fair value through profit or loss (which comprises Prisma Medios de Pago SA) and a put option taken for the mentioned holding. Additionally, the other instruments measured as level 3 include debt securities and certificates of participation in financial trusts. Management is in charge of developing, reviewing, approving and monitoring the key model inputs, critical valuation assumptions and proposed discount rates utilized for the valuation of Level 3 instruments. In addition, the management is also in charge of monitoring the changes in fair values of Level 3 instruments from period to period. Our management believes its valuation approach and techniques are appropriate and consistent with other market participants, however, the use of different methodologies, or assumptions, to determine the fair value could result in a different estimate or fair value at different reporting dates. For further details, see also Note Impairment of financial assets
The Considering that the measurement of ECL is based not only on relevant information about past events, including historical experience, and current conditions, but also on reasonable and supportable forecasts that affect the collectability of the reported amount, our management developed assumptions and estimations for its calculation. For further detail regarding our impairment method and its quantitative impact, see also
C. Research and Development, Patents and Licenses, Etc. We incur research and development expenses in connection with information technology projects. The amount spent during each of the last three years was not material. We plan infrastructure development (processing, telecommunications, Internet, information security) based upon present and projected future demand of such services. See Item 4. “Information on the Bank—Business Overview—Technology”. D. Trend Information We believe that the macroeconomic environment and the following trends in the Argentine financial system and in our business have affected and will, for the foreseeable future, continue to affect our results of operations and profitability. Our continued success and ability to For In addition, we
The uncertainty resulting from the Potential impact related to COVID-19 pandemic On March 20, 2020, the Central Bank decided that bank branches in Argentina should remain closed. From April 3 until April 10, 2020, branches were allowed to open with limited hours, only for the attention of beneficiaries of pension schemes and certain retirement benefits and beneficiaries of aid programs funded by the ANSES. During this period, the rest of the banking activities were performed only through digital platforms. Further, since April 13, 2020, we have reopened only for a limited number of services, and only by prior appointment, with teller services initially restricted to pensioners and social plan beneficiaries subject to certain health and security measures. Additionally, on April 20, 2020, the Central Bank allowed the provision of teller services exclusively for deposits in, and withdrawals from, foreign currency accounts. Potential impact on future operations: In order to provide liquidity and financial assistance mainly to PyMEs, the Central Bank has issued several regulations to help them carry on with their business activities and maintain payroll payments, including regulations allowing for delayed payments on credit cards, mortgages and other loans, and the provision of an additional 60 days of non-payment before a debtor is required to be re-classified in accordance with Central Bank regulations. Banco Macro is actively involved in these initiatives and believes its liquidity ratios are adequate. For further information, see “Recent Developments – Measures implemented to address the COVID-19 outbreak”. In recent years, and increasingly since the beginning of the COVID-19 pandemic, we have been prompting customers to join our digital platforms to reduce the number of clients attending ATMs, ATSs and branch offices, together with prevention and personal hygiene recommendations. In this context, remote availability of funds, processes and services will become more relevant. Demand of debit cards and access to ourhome banking and app have increased and are expected to continue growing. We have adopted new ways to operate, such as allowing funds withdrawals without a debit card, and we enabled password renewal and saving account openings with biometric technology. Since the start of the mandatory lock-down, there has been a significant increase in transactions through digital platforms. Particularly, monetary transactions made throughhome banking and Mobile platforms increased by 118% in period between February and May. In addition, digital customers increased approximately by 22% since February. We expect to provide access to credit with special terms and conditions to the sectors that have been most affected by the commercial slowdown. Such credit is expected to be subsidized by the Argentine government. Banco Macro has been involved in different actions in order to facilitate clients’ financial needs. For example, it has made available the following credit for payroll payments and capital expenditures, among others: Approximately Ps.15,000 million has been available for credit lines to MiPyMEs at a rate of 24%. An special credit line to pay salaries called “Asistencia pago de sueldos” is available to more than 6,000 clients for a total amount of approximately Ps. 6,000 million, approximately Ps. 3,500 million is expected to be guaranteed by the Fondo de Garantĺas Argentino (FoGAr). As of the date of this annual report, the Bank has granted more than Ps. 20,000 million in loans under these programs in 2020. Potential impact on operating results and solvency The COVID-19 pandemic will have an adverse impact on different sectors of the Argentine economy. In this context, and especially where restrictions on the mobility of customers and their suppliers are in force, sales volumes have decreased, adversely impacting the generation of income from certain product lines. There has been a decrease in the demand for consumer loans. Regarding our credit card portfolio, there has been a decrease in the volume of consumption focused on industries directly affected by the nation-wide lockdown, such as tourism, clothing, and restaurants, among others. As a consequence, the COVID-19 crisis may affect the Bank’s ability to generate financial and fee income, and therefore its operating results and solvency. The Central Bank has been lowering interest rates and eliminating certain fees to customers as a way to assist the most affected sectors. Additionally, an increase in non-performing loans in the financial system, including in the Bank’s loan portfolio, is expected. On the other hand, there are certain factors that could potentially partially offset the previously mentioned impacts. First, the Bank’s cash position in branches and ATMs was relatively high at the beginning of the crisis, while after reopening of the branches the cash position has been decreasing. In addition, the limitations on LELIQ positions was partially offset by maintaining LELIQs’ interest rates unchanged. Since the beginning of the COVID-19 pandemic, the cost of liabilities has been declining as deposit interest rates have been falling sharply, and non-interest bearing deposits are growing much faster than time deposits. Moreover, we believe that the Bank has the highest capital base and excess capital in the Argentine financial system and, therefore, it should be well positioned to manage this crisis. Finally, the Bank is highly liquid in local and foreign currency. The Bank has a low leveraged balance sheet (4.8% of asset to equity ratio as of December 31, 2019). In addition, deposits represented 78% of total liabilities as of December 31, 2019, where transactional and time deposits represented 54% and 46%, respectively, of total deposits. This explains the capacity of our transactional and structural base of retail deposits to fund our assets. The Bank’s exposure to public sector debt (excluding Central Bank instruments) as of December 31, 2019 was 6.5% of total assets, mainly concentrated in short-term peso instruments. Moreover, the Bank’s liquidity does not rely on instruments issued by the Argentine government that are expected to be restructured in 2020. Regarding liquidity mismatches, although the Bank’s liabilities are mostly short-term (sight deposits and 30 to 60 day term deposits), the nature of this funding is mainly transactional, as discussed above. Potential impact on the quality of the Bank’s asset portfolio The COVID-19 pandemic and the nation-wide lockdown are negatively impacting the national economy, resulting in higher expected defaults by borrowers. However, the steps taken by the Argentine government, the Central Bank and other governmental agencies, have helped mitigate the impact of such defaults on the financial system in the second quarter of 2020. Companies with exposure to the domestic market (as retail or construction) were already in a tight financial situation and were further affected by the sudden stop of the economic activity resulting from the lockdown, the end of which is uncertain and probably will be gradual. The COVID-19 pandemic also affects some export markets (as automobiles, warehouses, refrigeration companies or regional productions). There are other sectors that, even after the lockdown, will continue with reduced or almost zero sales levels, either due to the lack of purchasing power of individuals or due to changes in people’s habits (as tourism, passenger transport, gambling, resorts, gastronomic services, and retail credits, among others). The Bank will also be affected by the circumstances described above and an increase in the charges for uncollectibility and impairment of its assets subject to credit risk is expected. Nevertheless, we expect a solid performance of the active loan portfolio, given the sensible credit policies enforced by the Bank, with risk diversification in sectors and regions; almost no exposure in the most affected sectors (as for tourism, air transportation or airports); retail financing oriented to the most solid companies in the market; wide relative participation of financing linked to the agricultural primary production and the agro-industry, two of the sectors among the least affected by the COVID-19 pandemic; among other reasons. With regard to consumer and housing loans, we estimate an increase in default of loans granted to workers of the private sector, as well as self-employed professionals and microenterprises, derived in the first case from layoffs, suspensions and loss of purchasing power and the fall in sales and domestic consumption during and after the COVID-19 pandemic, in the latter case. In this regard, the Bank has adopted credit policies aimed at low-risk or well-scored customers, with a high relative share of loans to retirees and public sector employees, whose income and payment capacity are more stable and whose assets are credited to the Bank, which is why we expect the consumption credit portfolio to have a higher performance than in the rest of the financial institutions. Finally, despite the measures adopted by the Central Bank to temporarily reduce the default levels, Banco Macro’s accounting statements will recognize the expected credit losses prospectively, incorporating the impact of new macroeconomic scenarios on the variables affecting credit risk, in accordance with the provision of IFRS 9. Potential impact on assets The Bank’s asset structure is mainly short-term, with 59% of total assets comprised of cash and liquid instruments as of December 31, 2019. Additionally, as of December 31, 2019, long-term loans such as mortgages represented only 11% of total assets. Commercial loans such as overdrafts and documents, and retail loans such as credit cards, contribute to the relatively low average tenor of the loan portfolio. We could also be impacted by lower valuations of financial assets affected by restructurings or mandatory maturity deferrals. We continue to assess the impact of COVID-19 on our assets and our statement of financial position generally. Potential impact on human capital resources Due to the COVID-19 pandemic, the Bank has implemented a remote-work arrangement, through which employees can remotely access the Bank’s systems, supporting the continuity of operations and working to maintain adequate standards of internal control over financial information. Approximately 95% of employees at our central offices are working from home as of the date of this annual report. The Argentine Financial System The Argentine financial system has maintained a consistent positive trend in the last years with our performance improving accordingly, as evidenced by the following indicators:
Source: Central Bank for Financial System. See “Market and Central Bank Data”.
Total loans in the financial system increased Total deposits in the financial system increased in nominal values by
Private sector lending In
Source: Central Bank for Financial System. See “Market and Central Bank Data”.
Asset Quality As of December 31, Our figures evidence a tendency which is in line with the trend shown by the financial system, but with milder results, the ratio ofnon-performing portfolio reached a level of The table below reflects our asset quality and that of the financial system as of December 31, 2017, 2018 and
Source: Central Bank for Financial System. See “Market and Central Bank Data”.
Profitability In The table below reflects our profitability and that of the financial system as of December 31, 2017, 2018 and
Source: Central Bank for Financial System. See “Market and Central Bank Data”.
Commercial and balance sheet strategies We have the most extensive branch network among private-sector banks in Argentina, with 94% of our branches located outside of the City of Buenos Aires. Our extended presence in Argentine regional economies and sectors that have benefited from Argentina’s economic recovery grant us a key advantage with respect to other banks in terms of competing in the credit expansion service in Argentina. In addition, our strong network of branches and our role as the financial agent of various provinces provide us with a source of growth and low cost in our deposit base. We will continue our diversification strategy regarding the credit portfolio, thus enabling to obtain satisfactory efficiency, growth, security and profitability in commercial management. We will continue to focus our assistance to small andmedium-sized enterprises, emphasizing the election of dynamic economic sectors and growth potential in industrial, commercial and service areas for the purpose of contributing to companies’ expansion and ensuring an acceptable return of the funds assigned. At the same time, we will also offer these enterprises a complete range of corporate financial services, including exports and imports financing, letters of credit confirmation and opening, and granting guarantees to third parties on behalf of its customers. We maintain a strong position with respect to excess capital, the liquidity ratio and the level of our provisions for loan losses. To prevent a run on deposits, one of our main priorities is to give depositors confidence that we would be able to absorb losses and fulfill our obligations to them. Our practice of maintaining high liquidity levels throughout the business cycles has allowed us to withstand the economic crisis by serving two key purposes. First, we have funds available in the face of adverse systemic events. Second, we give our depositors confidence that they would be able to have access to their deposits at any time, even during the depth of a crisis. We also minimize excess cash deposited in the Central Bank, without harming our overall liquidity position. In this way, we maximize the return on our liquidity stock by keeping funds in more profitable assets, such as instruments issued by the Central Bank. E.Off-Balance Sheet Arrangements We enter into various transactions involvingoff-balance sheet financial instruments and we use these instruments to meet the risk management, trading and financing needs of customers or for our proprietary trading and asset and liability management purposes. These instruments are subject to varying degrees of credit and market risk. We monitor credit risk and market risk associated withon- andoff-balance sheet financial instruments on an aggregate basis. We use the same credit policies in determining whether to enter or extend option contracts, commitments, conditional obligations and guarantees as we do for granting loans. Our management believes that the outstandingoff-balance sheet items do not represent an unusual credit risk. For additional information of transactions and financial instruments withoff-balance sheet risk see note F. Contractual Obligations and Commercial Commitments The following table represents our contractual obligations and commercial commitments, excluding undrawn commitments of credit cards and checking accounts, as of December 31,
Item 6. Directors, Senior Management and Employees A. Directors and Senior Management We are managed by our Board of Directors, which as of the date of this annual report is comprised of 13 members and 3 alternate members. On April 16, 2012, our shareholders approved a proposal of the Board of Directors and amended our bylaws increasing the maximum size of our Board from 12 to 13 members. Currently, the shareholders may present at any annual ordinary meeting that may determine the size of the Board of Directors, provided that there shall be no less than three and no more than thirteen members of the Board of Directors. Any director so appointed will serve for three fiscal years. If the shareholders elect more than nine board members, each director will be reelected as a staggered board, to be renewed by thirds, provided that in all cases no less than three directors shall be renewed each time. The annual ordinary shareholders’ meeting may also appoint an equal or lesser number of alternate directors, to hold office for the same term than regular directors, to fill any vacancy in the board occurring for any reason whatsoever, and shall further determine the order of substitution. Alternate directors shall hold office until the regular directors in whose place they have acted as substitutes shall resume office, and in case any such absence is permanent, until the next ordinary meeting of shareholders where at directors shall be appointed. Both regular and alternate directors may bere-elected indefinitely. DUTIES AND LIABILITIES OF DIRECTORS Under Argentine Corporate Law, directors have the obligation to perform their duties with the loyalty and the diligence of a prudent business person. Directors are jointly and severally liable to a corporation, the shareholders and third parties for the improper performance of their duties, for violating the law, the bylaws and/or regulations, if any, and for any damage caused by fraud, abuse of authority or gross negligence. The following are considered integral to a director’s duty of loyalty: (i) the prohibition on using corporate assets and confidential information for private purposes; (ii) the prohibition on taking advantage, or to allow another to take advantage, by action or omission, of the business opportunities of the Bank; (iii) the obligation to exercise board powers only for the purposes for which the law, the corporation’s bylaws or the shareholders’ or the Board of Directors’ resolutions have intended; and (iv) the obligation to take strict care so that acts of the board do not go, directly or indirectly, against the Bank’s interests. A director must inform the Board of Directors and the supervisory committee of any conflicting interest he may have in a proposed transaction and must abstain from voting thereon. Under Argentine law, the Board of Directors is in charge of our management and administration and, therefore, makes any and all decisions in connection therewith, as well as those decisions expressly provided for in the Argentine Corporate Law, the Bank’s bylaws and other applicable regulations. Furthermore, the board is generally responsible for the execution of the resolutions passed by shareholders’ meetings and for the performance of any particular task expressly delegated by the shareholders. BOARD OF DIRECTORS The following table sets forth certain relevant information of the members of our board as of the date of this annual report:
The following family relationships
SENIOR MANAGEMENT Our senior management oversees ourday-to-day operations to ensure that our overall strategic objectives are being implemented. The actual composition is a deputy general manager that reports to the Board of Directors and Senior managers that report to the general manager. In addition, we have, among others the following committees comprised of different directors and senior management:
internal audit committee,
systems committee,
senior credit committee, assets and liabilities committee,
senior recovery committee,
risk management committee, ethics and compliance committee,
corporate governance and appointments committee,
personnel incentives committee,
crisis committee, and
financial services users protection committee The following table sets forth certain relevant information on our executive officers and our senior management, of the date of this annual report:
Set forth below are brief biographical descriptions of members of our directors and our senior management: Jorge Horacio Brito, was born on July 23, 1952. He was appointed as the chairman of our board of directors on April 30, 2020 and previously he had been the chairman until April 23, 2015. He has been with our bank since June 1988. He also serves as chairman of the board of directors of Inversora Juramento S.A. Delfín Jorge Ezequiel Carballo was born on November 21, 1952. Mr. Carballo Jorge Pablo Brito was born on June 29, 1979. Mr. Brito is a member of our Board of Directors and was the vice chairman of our Board of Directors since April 27,
Carlos Alberto Giovanelli was born on April 6, 1957. He has been a member of our Board of Directors since April 26, 2016. In the financial sector, he worked as Deputy Credit Manager (1980-1983), Branch Deputy Manager (1983-1986), Credit Officer (1986-1989) and Deputy Commercial Manager (1991-1997) of La Sucursal de Citibank N.A., establecida en la República Argentina. He was Vice President of Investment Banking in Citibank, N.A. (1989-1991) and Vice President of Planning in La Sucursal de Citibank N.A., establecida en la República Argentina (1997-2002). He also held the position of Deputy Chairman of Asociación de Bancos (2001-2002) and incumbent director of Banco Patagonia S.A. (2007-2016). Mr. Giovanelli also serves as chairman of Nelson Damián Pozzoli was born on May 6, 1966. He has been a member of our Board of Directors since April 26, 2016. Mr. Pozzoli holds a degree in public accounting from Universidad Católica Argentina. In the financial sector, he was Director of La Sucursal de Citibank N.A., establecida en la República Argentina (1989-1992), Head of Capital Markets (1992-1994) and Corporate Banking Manager (1996-1997) of ABN AMRO Bank Argentina, Head of Equity (LATAM origination) of ABN AMRO Netherlands (1994- 1995) and Corporate Banking Manager of ABN AMRO Bank USA (1995-1996). He also held the position of Director of Banco Liniers Sudamericano (1997-1998), Investment Banking Manager of the Bankers Trust (1997-1999) and worked for the Chase Manhattan Bank and the First National Bank of Chicago from 1998 to 1999. He was also General Manager of Deutsche Bank Argentina (1999-2003). He also serves as chairman of Caverley, Tusdar and Aspro Servicios Petroleros S.A. He is also vice chairman of New Arrecife S.A, Inverlat Investments S.A. and Desarrollo Epsilon S.A and he is incumbent director of Fabián Alejandro de Paul was born on September 6, 1963. He was appointed as director on April 30, 2019. He has been an alternate member of our Board of Directors since April 28, 2017. Mr. de Paul holds a degree in accounting from Universidad de Buenos Aires. Mr. de Paul worked in the Corporate Finance area of Citibank, N.A. (1989-1994), was Director of Investment Banking at Merrill Lynch & Co. (1994-1997), was Manager of CEI Citicorp Holdings S.A. (1997-2000), he served as Regional Financial Director of Louis Dreyfus Commodities (2001-2009) and served as Regional Executive Director of Louis Dreyfus Commodities (2007-2009). He also serves as director of Argencontrol S.A.
Constanza Brito was born on October 2, 1981. Ms. Brito has been a member of our Board of Directors since April 27, 2018. Previously, she served as Director from 2007 through 2015 and as alternate director since April 2016. She joined us in May 2005. Ms. Brito holds a degree in Human Resources Administration from Universidad del Salvador. Ms. Brito also serves as vice chairman of Mediainvest S.A. and as Mario Luis Vicens was born on July 14, 1951. He has been a member of our Board of Directors since April 26, 2016. Mr. Vicens holds a degree in economics degree from Universidad Católica Argentina and a superior course degree in monetary and banking finance of Universidad Católica Argentina. In the financial industry, he worked assessing investment projects for Caja Nacional de Ahorro y Seguro/Consejo Federal de Inversiones (1975-1978). In the Public Sector, he served as economist at the Central Bank (1980-1981) and incumbent director (1986-1988) and as Treasury Secretary of the Ministry of Economy (1999-2001). In the banking sector, he served as Planning Manager of Banco de Crédito Argentino (1981-1986), incumbent director of Banco Sudameris (2001-2002), chief executive officer of Asociación de Bancos de la Argentina (2002-2011), incumbent director of Federación Latinoamericana de Bancos (2002-2004/2008-2010), incumbent director of Seguro de Depósitos S.A. (2008-2011), incumbent director of BBVA Consolidar Seguros S.A. (2012-2016), incumbent director of Generali Arg. Cia. de Seguros (2014-2015), incumbent director of PSA Finance Arg. Cia. Financiera S.A. (2012), incumbent director of Rombo Cía. Financiera S.A. (2012-2016) and incumbent director of BBVA Francés S.A. (2012-2016). He also acted as advisor on economic and financial matters for companies and banks (1989-1999). Juan Martín Monge Varela was born on August 5, 1975. He has been a member of our Board of Directors since April 28, 2017 and was appointed as representative of theANSES-FGS. Mr. Monge Varela has a degree in Economics from Universidad de San Andrés. He was associate Director of MetLife – Chile (2000-2003), he also acted as Chief Investment Officer of MetLife – Chile (2005-2012) as Managing Director Argentina/Regional of MetLife (2012-2016) and as Operation Executive Sub Director of the FGS and he was alternate director of EDENOR S.A. Guillermo Eduardo Stanley was born on April 27, 1948. He has been a member of our Board of Directors since April 27, 2018. Previously, he served as director since May 2006 and as vice chairman of the Board during 2015-2016. Mr. Stanley holds a degree in finances from
Delfín Federico Ezequiel Carballo was born on July 4, 1984. He has been a member of our Board of Directors since April 26, 2016, and previously served on our Board from 2009 through 2011. He holds a degree in business economics from Universidad Torcuato Di Tella. Mr. Carballo also serves as incumbent director of Colbrey S.A., Milsbor Corporation Ramiro Tosi, was born on June 17, 1975. He was appointed as director on April 30, 2020. Mr Tosi holds a degree in economics from Universidad de la Plata. Mr. Tosi was appointed on December, 2019, as Subsecretary of Financiamiento at the Ministry of Economy. Santiago Horacio Seeber was born on March 27, 1977. He has been an alternate member of our Board of Directors since April 27, 2018. Mr. Seeber served in different positions in the Bank since November 2002. He also serves as
Alan Whamond was born on May 13, 1961. He Gustavo Alejandro Manriquez was born on August 23, 1969. He has been our General Manager since May 2016 and our Chief Executive Officer since November, 2017. He is a member of the Assets and Liabilities Committee, the Senior Credit Committee, the Systems Committee, and the Risk Management Jorge Francisco Scarinci was born on May 19, 1970. He is our Finance Manager since October 2006 and our Chief Financial Officer since November 2017. He is a member of the Assets and Liabilities Committee and the Risk Management Committee. Mr. Scarinci holds a BA in Economics from Universidad de Belgrano and a Master’s degree in Finance from Universidad del CEMA and a CFA degree from Association for Investment Management and Research (AIMR). Mr. Scarinci joined us in May 2006. He also serves as director of Macro Securities S.A. Gerardo Adrián Alvarezwas born on December 13, 1969. He is our Administration Manager. Mr. Alvarez holds a law degree from the
Marcelo Agustín Devoto was born on April 11, 1976. He is our Investment Banking Manager since May 2015. Mr. Devoto holds a degree in Business Management from Universidad Católica Argentina and a Alberto Figueroa was born on September 1, 1960. He is our Internal Audit Manager
Ana María Magdalena Marcet was born on February 24, 1961. She is our Credit Risk Manager since January 2002 and a member of the Senior Credit Committee, the Risk Management Committee and the Senior Recovery Committee. Mrs. Marcet holds a degree in Public Accounting, Economics and Business Management from Juan Domingo Mazzon was born on April 14, 1974. He is our Manager of Government Banking and Management Control since Ernesto Eduardo Medina was born on January 9, 1967. He is our Human Resources Manager since October 2016 and a member of the
María Milagro Medrano was born on October 27, 1976. She is our Institutional Relations and Customer Services Manager since January 2002 and a member of the Financial Services Users Protection Committee. Mrs. Medrano holds a degree in Business Management from Universidad Católica de Salta. She joined us in April 1997.
Francisco Muro was born on March 2, 1973. He is our Distribution and Sales Manager since October 2014. Mr. Muro holds a degree in Accounting from Adrian Mariano Scosceria was born on January 22, 1966. He is our Corporate Banking Manager since May 2017 and a member of the Senior Credit
Leonardo Rodolfo Maglia was born on January 18, 1969. He is our Technology Manager since August 2018 and a member of the B. Compensation General Corporation Law provides that the compensation paid to all directors and syndics in a financial year may not exceed 5.0% of the company earnings if we are not paying dividends in respect of such net income. General Corporation Law increases the annual limitation on director compensation to up to 25.0% of net income based on the amount of such dividends, if any are paid. In the case of directors that perform duties at special commissions or perform administrative or technical tasks, the aforesaid limits may be exceeded if a shareholders’ meeting so approves and such issue is included in the agenda and is in accordance with the CNV Rules. In any case, the compensation of all directors and members of the supervisory committee requires shareholders’ approval at an ordinary meeting. The aggregate nominal amount of compensation paid by Banco Macro and its subsidiaries to all of their directors, alternate directors and members of supervisory committee for fiscal year C. Board Practices Corporate Governance As a listed company on the NYSE, we are required under the rules governing listed companies to:
We incorporate the information regarding the significant ways in which our corporate governance practices differ from those followed by domestic companies under the NYSE listing standards by reference to our websitewww.macro.com.ar. For further information see item 16.G. Independence of the Members of the Board of Directors and the Supervisory Committee Within ten (10) business days from the date of the appointment of members of the Board of Directors and supervisory committee such members of the Board of Directors and/or the supervisory committee shall inform the CNV whether they are “independent” pursuant to CNV Rules. Pursuant to CNV Rules, a director is not considered independent in certain situations, including where a director: (a) is a member of the board of directors the parent company or another company belonging to the same economic group of the issuer through apre-existing relationship at the time of his or her election, or if said relationship had ceased to exist during immediately the previous three years; (b) is or has been associated with the company or any of its shareholders having a direct or indirect “significant participation” on the same, or with corporations with which also the shareholders also have a direct or indirect “signification participation”; or if he or she was associated with them through an employment relationship during the last three years; (c) has any professional relationship or is a member of a corporation that maintains frequent professional relationships of significant nature and volume, or receives remuneration or fees (other than the one received in consideration of his performance as a director) from the issuer or its shareholders having a direct or indirect “significant participation” on the same, or with corporations in which the shareholders also have a direct or indirect “significant participation.” This prohibition includes professional relationships and affiliations during the last three years prior to his or her appointment as director; (d) directly or indirectly owns 5% or more of shares with voting rights and/or a capital stock of the issuer or any company with a “significant participation” in it; (e) directly or indirectly sells and/or provides goods and/or services (different from those accounted for in section c)) on a regular basis and of a significant nature and volume to the company or to its shareholders with direct or indirect “significant participation”, for higher amounts than his or her remuneration as a member of the board of directors. This prohibition includes business relationships that have been carried out during the last three years prior to his or her appointment as director; (f) has been a director, manager, administrator or principal executive ofnot-for-profit organizations that have received funds, for amounts greater than those described in section I) of article 12 of Resolution No. 30/2011 of the UIF and its amendments, from the issuer, its parent company and other companies of the same group of which it is a part, as well as of the principal executives of any of them; (g) receives any payment, including the participation in plans or stock option schemes, from the company or companies of the same economic group, other than the compensation paid to him or her as a director, except dividends paid as a shareholder of the company in the terms of section d) and the corresponding to the consideration set forth in section e); (h) has served as member of the board of director of the issuer, its parent company or another company belonging to the same economic group for more than ten years. If said relationship had ceased to exist during the previous three years, the independent condition will be recovered; (i) is the spouse or legally recognized partner, relative up to the third level of consanguinity or up to the second level of affinity of persons who, if they were members of the board of directors, would not be independent, according to the above listed criteria; Pursuant to the CNV Rules, a director who, after his or her appointment, falls into any of the circumstances indicted above, must immediately report to the issuer, which must inform the CNV and the authorized markets where it lists its negotiable securities immediately upon the occurrence of the event or upon the instance becoming known. In all cases, the references made to “significant participation” set forth in the aforementioned independence criteria will be considered as referring to those individuals who hold shares representing at least 5% of the capital stock and or the vote, or a smaller amount when they have the right to elect one or more directors by share class or have other shareholders agreements relating to the government and administration of the company or of its parent company. The Argentine independence standards under the CNV Rules differ in many ways from U.S. federal securities law standards. The structure of the Board of Directors must be in conformity with the foregoing by the first shareholders’ meeting held after December 31, Pursuant to the Capital Markets Law, all of the members of the supervisory committee of companies admitted to the public offering regime shall have independent status. Additionally, the Buenos Aires Professional Council of Economic Sciences (Consejo Profesional de Ciencias Económicas de la Ciudad de Buenos Aires or “CPCECABA”) also established certain requirements regarding the independence of public accountants which act as members of the supervisory committee. Pursuant to regulations issued by the CPCECABA and the CNV, syndics must be independent from the company they are auditing. A syndic will not be independent if he/she:
As of the date of this annual report, Alejandro Almarza, Carlos Javier Piazza, For information on the expiration of current terms of directors see Item 6.A “Directors and Senior Management.” For information on service contracts with directors providing benefits upon termination of employment see Item 6.B “Compensation.” Supervisory Committee Our bylaws provide for a supervisory committee, which consists of three syndics and three alternate syndics that serve for a term of one fiscal year. Pursuant to the Argentine Corporate Law, only lawyers and accountants admitted to practice in Argentina or civil partnerships composed of such persons may serve as syndics of an Argentinesociedad anónima, or limited liability corporation. The primary responsibilities of the supervisory committee are to monitor the management’s compliance with the Argentine Corporate Law, the bylaws, its regulations, if any, and the shareholders’ resolutions, and to perform other functions, including:
The supervisory committee has unlimited access to our books and registers and a right to request as much information as necessary for the performance of its duties. The following table sets forth certain relevant information of the members of our supervisory committee as of the date of this annual report:
The business address of the members of the Supervisory Committee is Eduardo Madero 1172, City of Buenos Aires, Argentina. Set forth below are brief biographical descriptions of the members of our supervisory committee: Alejandro Almarza holds an accounting degree from the University of Buenos Aires in Argentina. Mr. Almarza also serves as a member of the supervisory committee of Macro Securities S.A., Macro Fiducia S.A., Carlos Javier Piazza holds an accounting degree from the University of Buenos Aires in Argentina. Mr. Piazza serves as a member of the supervisory committee of Central Tucumano S.A,
Alejandro Carlos Piazza holds accounting degree and business administration degree from the School of Economics of the University of Buenos Aires in Argentina. Mr. Piazza also serves as a member of the supervisory committee of Macro Fondos Sociedad Gerente de Fondos Comunes de Inversion S.A., Servente y Cía, CRIBA S.A. and Ingemática S.A. and as alternate syndic of Macro Securities S.A., Macro Fiducia S.A., Santa Olimpia S.A., Tikalar S.A., BKAR S.A., Otoba S.A., Culturagro S.A., Argenpay SAU and Guadimar S.A. Mr. Piazza was admitted to the Accountants Professional Association of the City of Buenos Aires in 1978. Leonardo Pablo Cortigiani holds an accounting degree from the University of Buenos Aires in Argentina. Mr. Cortigiani also serves as a member of the supervisory committee of Macro Fiducia S.A., Macro Fondos Sociedad Gerente de Fondos Comunes de Inversion S.A., Macro Securities S.A., Empresa de Energía Río Negro S.A. and Argenpay SAU. He also serves as alternate syndic of Havanna S.A. Mr. Cortigiani was admitted to the Accountants Professional Association of the City of Buenos Aires in 1995.
Audit Committee As of the date of this annual report, our audit committee is comprised of three directors, Guillermo Eduardo Stanley, Fabián Alejandro de Paul and Mario Luis Vicens, all of which satisfy the independence requirements ofRule 10A-3. The Argentine independence standards under the CNV Rules differ in many ways from the NYSE and U.S. federal securities law standards. See item 16.G “Corporate Governance.” The audit committee is responsible for the fulfillment of the duties within its powers, as set forth under the Capital Markets Law, including, among others, the following:
We currently comply with the requirements of the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder, as applicable to foreign private issuers with respect to the composition and functions of our audit committee. Committees Reporting to the Board of Directors and to the CEO and the CFO The following committees are under the supervision of our Board of Directors: Internal Audit Committee. The internal audit committee is comprised of at least two directors (a majority of them satisfies the independence requirements as per the CNV Rules), and the Internal Audit Manager of the Bank. The term of each member is for a minimum period of two years (provided their directorship does not expire beforehand) and a maximum of three years. The internal audit committee is responsible for supervising the correct functioning of our internal control systems and procedures. Furthermore, this committee takes notice of our annual and quarterly financial statements, the external auditor’s reports, the syndic’s reports, the relevant financial information and the audit committee’s reports. Systems Committee.The systems committee must be composed of, at least, one director or equivalent authority and the manager of the informatics technology and systems area. Our system committee has three directors, the General Manager, the The main functions of the systems committee are to:
Senior Credit Committee. The senior credit committee is comprised of two directors, the General Manager, the Credit Risk Manager, the Corporate Credit Risk Manager, the Corporate Banking Manager, the Commercial Banking Manager and the Legal Manager. The senior credit committee is responsible for the issuance of our credit policy and credit analysis guidelines. Furthermore, this committee reviews and approves margins of credit and/or extraordinary operations which exceed Assets and Liabilities Committee. The assets and liabilities committee is comprised of three directors, the General Manager, the Commercial Banking Manager, the Government Banking and Management Control
Senior Recovery Committee.The senior recovery committee is made up of two directors, the Credit Risk Manager and the Legal Manager. The committee manages outstanding loans on behalf of the Board of Directors, which nevertheless retains its power in that regard. This committee is in charge of the implementation of the predefined policies for the granting of withdrawals and refinancing, to define the payment arrangements that exceed the preferential parameters, as well as the decisions of which portfolios are transferred to judicial management or accounting losses. Risk Management Committee.The risk management committee is made up of three directors, the General Manager, the The committee is responsible for monitoring senior management activities involving the management of credit, market, liquidity, operational, compliance and reputational risks, among others. The committee’s mission is to supervise and ensure that the controls and procedures in place are adequate to mitigate any risk, and to recommend and implement updates to risk management policies and procedures. In addition, this committee gives advice to the Board of Directors regarding the Bank’s overall risk. This committee is also responsible for notifying the Board of Directors and senior management about any failure to comply with applicable limits to risk exposure, suggesting remedies, such as assuming the risk or mitigating the risk. Ethics and Compliance Committee. The ethics and compliance committee is comprised of three directors, the This committee is responsible for implementing ethic guidelines set forth by the Board of Directors and supervising compliance. In addition, this committee promotes the implementation of our social responsibility policies and fosters the adoption of such policies by setting forth tools and procedures that will enable our management to incorporate social responsibility policies and consequently implement those policies within the Bank. Corporate Governance and Appointments Committee.The committee is comprised of three This committee is responsible for processes related to the renewal, substitution and succession of members of our senior management. This committee is also responsible for the implementation of our corporate governance code at the Bank and its subsidiaries. Personnel Incentives Committee.The personnel incentives committee is comprised of three The committee’s main functions are to control that incentives plans to all personnel, excluding directors, are consistent with our business culture, goals, long term business plan, business strategy, control environment of the Bank. Crisis Committee. The committee meets upon request and is convened by the General Manager in accordance with the needs that arise from time to time. This committee is composed of directors and senior managers. Financial Services Users Protection Committee. The Committee is comprised of one director, the Institutional Relations and Customer Services Manager, the Legal Manager, the Compliance Manager and the Operational Risk Management Coordinator. The committee is responsible for complying with the data protection standard of the User of Financial Services and Analysis of Existing Claims. Advisors and Auditors Advisors Our main legal advisor is Bruchou, Fernández Madero & Lombardi, at 12th floor, Ing. Butty 275, City of Buenos Aires (C1001AFA). Auditors Banco Macro’s auditors for the last three fiscal years were:
Banco Macro’s alternate auditor was:
All the auditing firm’s members are enrolled in the C.P.C.E.C.A.B.A. D. Employees As of December 31,
E. Share Ownership As of The following table sets forth the beneficial ownership of our shares by the members of Banco Macro S.A.’s Board of Directors and supervisory committee, as of
Item 7. Significant Shareholders and Related Party Transactions A. Significant Shareholders As of December 31, The following table sets forth information regarding the ownership of our Class A and Class B shares as of December 31,
The table below represents the evolution of our capital stock and the material changes in equity participation of the significant shareholders, in both cases, for the last three
B. Related Party Transactions We are not party to any transactions with, and have not made any loans to, any of our directors, key management personnel or other related parties, nor are there any proposed transactions with such persons, except for those permitted by applicable law. Some of our directors have been involved in certain credit transactions with us. The Argentine Corporate Law and Central Bank Rules allow directors of a corporation to enter into a transaction with such corporation if the transaction is in line with prevailing market practice. A related party is a person or entity that is related to us that:
has control or joint control of the Bank;
has significant influence over the Bank;
is a member of the key management personnel of the Bank or of the parent of the Bank;
are members of the same group; or
in which one entity is an associate (or an associate of a member of a group of which the other entity is a member). Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Bank, directly or indirectly. We consider as key management personnel, for the purposes of IAS 24, the members of the Board of Directors and the senior management members of the Risk Management Committee, the Assets and Liabilities Committee and the Senior Credit Committee. For the years ended December 31, 2017, 2018 and Likewise, as of December 31, 2017, 2018 and For further information regarding related party transactions see note 19 “Related parties” to our audited consolidated financial statements as of December 31, C. Interest of experts and counsel Not applicable. A. Consolidated Statements and Other Financial Information See Item 18 and our audited consolidated financial statements as of December 31, Legal Proceedings We are involved in normal collection proceedings and other legal proceedings in the ordinary course of business. We are not involved in any litigation or other legal proceedings that, if adversely determined, would individually or in the aggregate have a material adverse effect on our operations. For further information regarding legal proceedings, see note Please note that we have been subject to the imposition of certain sanctions imposed by the Central Bank or the UIF and summaries at CNV or UIF. Nevertheless, these potential penalties would not involve the payment of material amounts. As of the date of this annual report, the total amount of monetary penalties received, pending to be paid for, being appealed, or about to be appealed, amount to Ps.718 thousand, which was registered according to Communication “A” Dividend Policy The decision to distribute the dividends also corresponds to the Shareholders’ Meeting, based pursuant to the Central Bank Rules and on the recommendation of the Board of Directors. The Bank is not obliged to distribute profits, being at the exclusive discretion of the Shareholders’ Meeting the determination of the maximum amount, pursuant to the Central Bank Rules and opportunity and the form of payment of the dividends to the network, being able to delegate this power to the Board of Directors. Likewise, the Shareholders’ Meeting may create special reserves for future distributions of dividends, provided that they are reasonable and respond to a prudent administration, which it can disaffect if it consider its distribution pertinent. Article 32 of the Bank’s bylaws establishes the purpose that the Shareholders’ Meeting should give to the net and realized profits, resulting from the financial statements approved by such body. The Bank’s dividend distribution policy is based on maintaining an adequate balance between the amounts distributed and the investment and expansion policies. It should be noted that this dividend policy may be conditioned in the future by the existence of regulations in the market and/or by the strategic plans that the Bank adopts at any time. Dividends are distributed under financial results calculated under Central Bank Rules, which may differ in certain significant respects from IFRS. The following table sets forth the cash dividends paid to our shareholders from 2003 through
For fiscal years ended December 31, 2011 and 2012 we were not able to distribute dividends because we did not reach the regulatory threshold for dividend distribution under Central Bank Rules. For more information, see Amounts available for distribution and distribution approval process Under the Argentine Corporate Law, declaration and payment of annual dividends, to the extent funds are legally available, is determined by our shareholders at the annual ordinary shareholders’ meeting. Generally, but not necessarily, our Board of Directors makes a recommendation with respect to the payment of dividends. Dividends may be lawfully declared and paid only out of our retained earnings stated in our yearly financial statements according to Central Bank Rules and approved by a shareholders’ meeting as described below. The Board of Directors submits our financial statements for the preceding fiscal year, together with reports thereon by the supervisory committee, at the annual ordinary shareholders’ meeting for approval. Within four months of the end of each fiscal year, an ordinary shareholders’ meeting must be held to approve the financial statements and determine the allocation of our net income for such year. In accordance with the applicable CNV Rules, cash dividends must be paid to shareholders within thirty (30) days of the shareholders’ meeting approving such dividends. According to the BYMA rules, entities who pay their dividends in cash, must start with the payments within ten (10) days as of the shareholders´ meeting approval. In the case of stock dividends, shares are required to be delivered within three months of our receipt of notice of the CNV authorization for the public offering of the shares arising paid as Central Bank and contractual limitations on distribution of dividends In the past, the Central Bank has imposed restrictions on the payment of dividends, substantially limiting the ability of financial institutions to distribute such dividends without its prior consent. The Central Bank has eased these restrictions through Communication “A” 4589, as amended by Communication “A” 4591, “A” 5072, “A” 5827 and others, by providing for a mechanism for the calculation of distributable profits of the financial institutions. The amount to be distributed, may be limited to Central Bank Rules, which may differ in certain significant aspects with IFRS and shall not compromise the liquidity and solvency of the entity, pursuant to the aforementioned. This requirement shall be deemed fulfilled only if there are no defects in the integration of the minimum capital position, both individual and consolidated, for the closing for the corresponding year to the unassigned results considered or in the last closed position verified, both of which present less excess of integration with respect to the requirement. We have obtained authorization from the Central Bank to distribute dividends for fiscal years 2003 through 2010. For fiscal years ended December 31, 2011 and 2012 we were not able to distribute dividends because we did not reach the regulatory threshold for dividend distribution under Central Bank Rules. For fiscal year 2013,
On March 19, 2020, in the For more information, see Item Additional regulatory and contractual restrictions exist which could affect the distribution of earnings and are included in note Legal reserve requirement Pursuant to the Financial Institutions Law, we are required to maintain a legal reserve which must be funded with no more than 20% and no less than 10% of yearly income (which is calculated over the income that arise from the statutory financial statements), in accordance with Central Bank Rules. Pursuant to Central Bank Rules, we maintain a legal reserve which is funded with 20% of our yearly income, which may differ in certain significant aspects with IFRS. This reserve can only be used during periods in which a financial institution has incurred losses and has exhausted all other reserves. If a financial institution does not comply with the required legal reserve, it is not allowed to pay dividends to its shareholders. Under the Argentine Corporate Law and our bylaws, our yearly net income (as adjusted to reflect changes in prior results) is allocated in the following order:
B. Significant Changes Except as otherwise disclosed in this annual report, there has been no undisclosed significant change since the date of the most recent annual financial statements included herein. For recent information, see “Item 4. Recent Developments.” A. Offer and listing details Not applicable B. Plan of Distribution Not applicable. C. Markets Our Class B shares are currently traded on the BYMA (since November 1994) and MAE (since October 2015) under the symbol “‘BMA”’. Additionally, our ADSs have been trading on the NYSE since March 2006 under the symbol “‘BMA”’. Our notes are currently listed on the BYMA and MAE. Our Series A Subordinated Resettable Notes and our Series B Notes are also currently listed on the Luxembourg Stock Exchange. D. Selling Shareholders Not applicable. E. Dilution Not applicable. F. Expenses of the issue Not applicable. Item 10. Additional Information A. Share Capital Not applicable B. Memorandum and Articles of Association General We are a financial institution incorporated under the laws of Argentina on November 21, 1966 as asociedad anónima, or a stock corporation, for a99-year period and registered on March 8, 1967 with the Public Registry of Commerce of Bahía Blanca, Province of Buenos Aires, Argentina, under No. 1154 of Book 2, Folio 75 ofEstatutos. We subsequently changed our legal address to the City of Buenos Aires and registered it with the IGJ on October 8, 1996 under No. 9777 of Book 119, Volume A ofSociedades Anónimas. As of December 31, According to our bylaws, we may issue different classes of shares of common stock entitled with one or five votes per share. However, as long as we remain in the public offering regime we cannot issue additional shares of any class of capital stock that could entitle the holder thereof to more than one vote per share. All outstanding shares are fully paid. Our Class B shares are listed on the BYMA since November 1994 and on the MAE since October 2015. Our ADSs are listed in the NYSE since March, 2006. Holders of Class A shares are permitted to convert their shares into Class B shares on aone-for-one basis. Corporate Purpose Our bylaws provide that our corporate purpose is to engage within or outside of Argentina in any banking transaction contemplated and authorized under the Financial Institutions Law and any other laws, rules and regulations governing banking activities in the place of performance, under the guidelines and with prior authorization, if appropriate, of the Central Bank. In addition, we are capable of acting as any category of “agent” under the Capital Markets Law and supplementing regulations, in connection with securities in the transactions contemplated under the legal provisions in effect governing the activity, under the guidelines and with the prior authorization, if appropriate, of the CNV. To that effect, we have full legal capacity to develop rights, incur obligations, and execute any kind of act and transaction related thereto. Furthermore, we are capable of having interests in other domestic or foreign financial institutions and or companies with the prior authorization of the Central Bank and in compliance with the rules of such entity, as applicable. In respect of the different categories of agents established by the Capital Markets Law, and the CNV Rules, Banco Macro, and certain of their subsidiaries are registered with the CNV in one or more of the following categories: negotiation, clearing and settlement agent (ALyC), custody of collective investment products agent (AC PIC FCI), placement and distribution of mutual funds agent (ACYD FCI), financial trustees agent (FF) and nonfinancial trustees agent (FNOF), as applicable. Shareholders’ liability Shareholders’ liability for losses of a company is limited to the value of their shareholdings in the company. Under the Argentine Corporate Law, however, shareholders who voted in favor of a resolution that is subsequently declared void by a court as contrary to Argentine laws or a company’s bylaws (or regulations, if any) may be held jointly and severally liable for damages to such company, other shareholders or third parties resulting from such resolution. See also Item 3.D“Risk Factors—Risks relating to our Class B shares and the ADSs—Our shareholders may be subject to liability for certain votes of their securities.” Redemption and rights of withdrawal Our shares are subject to redemption in connection with a reduction in capital by the vote of a majority of shareholders at a special shareholders’ meeting. Any shares so redeemed must be cancelled by us. Whenever our shareholders approve aspin-off or merger in which we are not the surviving corporation, the change of our corporate legal status, a fundamental change in our corporate purpose, change of our domicile outside of Argentina, voluntary withdrawal from public offering or delisting, our continuation in the case of mandatory delisting or cancellation of the public offering authorization, or a total or partial recapitalization following a mandatory reduction of our capital or liquidation, any shareholder that voted against such action that was approved or did not attend the meeting at which the decision was taken, may withdraw and receive the book value of its shares, determined on the basis of our latest balance sheet prepared or that should have been prepared in accordance with Argentine laws and regulations, provided that such shareholder exercises its appraisal rights within a determined period. However, because of the absence of legal precedent directly on point, there is doubt as to whether holders of ADSs will be able to exercise appraisal rights either directly or through the depositary with respect to Class B shares represented by ADSs. Appraisal rights must be exercised within the five (5) days following the adjournment of the meeting at which the resolution was adopted, in the event that the dissenting shareholder voted against such resolution, or within fifteen (15) days following such adjournment if the dissenting shareholder did not attend such meeting and can prove that he was a shareholder on the date of such meeting. In the case of merger orspin-off, appraisal rights may not be exercised if the shares to be received as a result of such transaction are authorized for public offering or listed. Appraisal rights are extinguished if the resolution giving rise to such rights is revoked at another shareholders’ meeting held within seventy-five (75) days of the meeting at which the resolution was adopted. Payment on the appraisal rights must be made within one year of the date of the shareholders’ meeting at which the resolution was adopted, except when the resolution was to delist our stock or to continue following a mandatory delisting, in which case the payment period is reduced to sixty (60) days from the resolution date. Preemptive and accretion rights In the event of a capital increase, a holder of existing common shares of a given class has a preemptive right to subscribe for a number of shares of the same class sufficient to maintain the holder’s existing proportionate holdings of shares of that class. In addition, shareholders are not entitled to the right to subscribe onpro-rata basis for the unsubscribed shares remaining at the end of a preemptive rights offering, known as accretion rights. Holders of ADSs may be restricted in their ability to exercise preemptive rights if an annual report under the Securities Act relating thereto has not been filed or is not effective or an exemption is not available. Preemptive rights are exercisable during the thirty (30) days following the last publication of notice to the shareholders in the Official Bulletin of the Republic of Argentina, or the Official Gazette and an Argentine newspaper of wide circulation. Pursuant to the Argentine Corporate Law, in the case of public companies, such thirty (30) days period may be reduced to a minimum of ten (10) days if approved by the company’s shareholders at a special shareholders’ meeting. Shares not subscribed by the shareholders by virtue of their exercise of preemptive Voting rights Under our bylaws, each Class A share entitles the holder thereof to five votes at any meeting of our shareholders and Class B shares entitle the holders thereof to one vote per share. However, according to the Argentine Corporate Law, shares entitle the holder to only one vote per share to vote the approval of: an early dissolution, a merger orspin-off when we are not the surviving entity, a reduction of capital stock and redemption of shares, a transformation from one type of entity to another, a limitation of shareholders’ preemptive rights, a transfer of our domicile outside Argentina, and a fundamental change of our corporate purpose set forth in our bylaws. In such cases Class A shares are entitled to only one vote per share and Class B shares are entitled to only one vote per share. In addition, pursuant to Argentine applicable law, as long as we remain public we cannot issue additional shares of any class of capital stock that could entitle the holder thereof to more than one vote per share. Registration requirements of foreign companies that hold Class B shares directly There are no restrictions imposed by Argentine law or ourby-laws or other organizational documents regarding the rights ofnon-residents or foreign persons to hold or vote our shares or our ADSs. Under Argentine regulations, foreign companies that hold shares directly (and not as ADSs) in an Argentine company must be registered with the IGJ to exercise certain shareholder rights, including voting rights. The registration requires the filing of corporate and accounting documents in order to demonstrate that the foreign shareholder’s main activity is conducted outside of Argentina. Liquidation rights In the case of our liquidation or dissolution we are requested to communicate such event to the Central Bank, and our assets will be applied to satisfy our outstanding liabilities and proportionally distributed first among our holders of preferred stock as per the terms of the preferred stock, if any. If any surplus remains, it will be proportionally distributed among holders of our common stock. Other shareholders’ rights In addition to the rights mentioned above, the shareholders of Argentine corporations are entitled to the following additional rights that cannot be subject to any kind of limitation or suspension as they protect the minority shareholders in such capacity:
Ordinary and extraordinary meetings Shareholders’ meetings may be ordinary or extraordinary. We are required to convene and hold an ordinary meeting of shareholders within four months of the close of each fiscal year to consider the matters specified in the first two paragraphs of Section 234 of the Argentine Corporate Law, such as the approval of our financial statements, allocation of net income for such fiscal year, approval of the reports of the board of directors and the supervisory committee and election and remuneration of directors and members of the supervisory committee. In addition, pursuant to the Capital Markets Law, at an ordinary shareholders’ meetings, our shareholders must consider:
Other matters which may be considered at an ordinary meeting convened and held at any time include the responsibility of directors and members of the supervisory committee, capital increases and the issuance of certain corporate bonds. Special shareholders’ meetings may be called at any time to consider matters beyond the authority of an ordinary meeting, including amendment of the bylaws, issuance of debentures, early dissolution, merger, spin off, reduction of capital stock and redemption of shares, transformation from one type of entity to another and limitation of shareholders’ preemptive rights. Notices of meetings Notices of shareholders’ meetings are governed by the provisions of Argentine Corporations Law, and in case of publicly traded companies, Capital Markets Law. Furthermore, notice of shareholders’ meetings must be published for five (5) days in the Official Gazette, in an Argentine newspaper of wide circulation and in the publications of Argentine exchanges or securities markets in which our shares are traded, at least twenty (20) but not more than forty-five (45) days prior to the date on which the meeting is to be held. Such notice must include information regarding the type of meeting to be held, the date, time and place of such meeting and the agenda. If a quorum is not available at such meeting, a notice for a second meeting, which must be held within thirty (30) days of the date on which the first meeting was called, must be published for three (3) days, at least eight (8) days before the date of the second meeting. The above described notices of shareholders’ meetings may be effected simultaneously for the second meeting to be held on the same day as the first meeting, only in the case of ordinary meetings. Shareholders’ meetings may be validly held without notice if all shares of our outstanding capital stock are present and resolutions are adopted by unanimous vote of such shares. Quorum and voting requirements The quorum for ordinary meetings of shareholders on first call is a majority of the shares entitled to vote, and action may be taken by the affirmative vote of an absolute majority of the shares present that are entitled to vote on such action. If a quorum is not available at the first meeting a second meeting may be held at which action may be taken by the holders of an absolute majority of the shares present, regardless of the number of such shares. The quorum for a special shareholders’ meeting on first call is 60% of the shares entitled to vote, and if such quorum is not available, a second meeting may be held, for which the quorum is 20% of the shares entitled to vote. Action may be taken at special shareholders’ meetings by the affirmative vote of an absolute majority of shares present that are entitled to vote on such action, except that: the approval of a majority of shares with voting rights (for these purposesnon-voting preferred shares shall have voting rights), without application of multiple votes, is required at both the first and second meeting for:
Preferred shares will be entitled to one vote in these circumstances. The Argentine Corporate Law permits companies to establish cumulative voting in order to elect up to one third of the directors and one third of the members of the supervisory committee to fill vacancies of the board of directors and of the supervisory committee, respectively, sharing such part with candidates voted for by means of the plural system. Cumulative voting is a system designed to protect minority interests, as it gives rise to the possibility, but does not ensure, that minority interests will be able to elect some of their candidates. Each shareholder who votes cumulatively shall have a number of votes equal to the result of multiplying his/her own votes by the number of vacancies. On the other hand, shareholders who vote by the ordinary procedure and those who vote by cumulative vote will compete for the election of one third of the vacancies. The larger the number of vacancies, the greater the possibility that minority groups or shareholders will win positions in the board of directors or the supervisory committee. Shareholders’ meetings may be called by the board of directors or the members of the supervisory committee whenever required by law or whenever they deem it necessary. Also, the board or the members of the supervisory committee are required to call shareholders’ meetings upon the request of shareholders representing an aggregate of at least five percent of our outstanding capital stock. If the board or the supervisory committee fails to call a meeting following such a request, a meeting may be ordered by the CNV or by the courts. In order to attend a meeting, a shareholder must also deposit with us a certificate of book-entry shares registered in its name and issued by Caja de Valores S.A. at least three (3) business days prior to the date on which the meeting is to be held. If so entitled to attend a meeting, a shareholder may be represented by proxy. Proxies may not be granted to our board, members of the supervisory committee, officers or employees. Election of directors The shareholders present at any annual ordinary meeting may determine the size of the board of directors, provided that there shall be no less than three (3) and no more than thirteen (13) directors. Any director so appointed will serve for three fiscal years. If the shareholders elect nine or more board members, each director will bere-elected as a staggered board, to be renewed by thirds, provided that in all cases no less than three directors shall be renewed each time. The annual ordinary shareholders’ meeting may also appoint an equal or lesser number of alternate directors, to hold office for the same term than regular directors, to fill any vacancy in the board occurring for any reason, and shall further determine the order of substitution. Alternate directors shall hold office until the regular directors in whose place they have acted as substitutes shall resume office, and in case any such absence is permanent, until the next ordinary meeting of shareholders where at directors shall be appointed. Both regular and alternate directors may bere-elected indefinitely. Change in capital Ourby-laws do not establish conditions for the changes in our capital more stringent than those conditions imposed by the Argentine Corporate Law. For a description of conditions for the changes in our capital imposed by the Argentine Corporate Law see “—Ordinary and extraordinary meetings.” Purchases of Equity Securities by the Issuer According to the Argentine Corporations Law, the Capital Markets Law and the CNV Rules, a stock corporation may acquire the shares it issued, provided that the public offering and listing thereof has been authorized, subject to the following terms and conditions and those set forth by the CNV. The above-mentioned conditions are:
The shares acquired by the issuer in excess of such limit shall be disposed of within a period of ninety (90) days after the date of the acquisition originating such excess. The shares acquired by the issuer shall be disposed of by the issuer within the maximum term of three years counted as from the date of acquisition thereof or cancelled. Upon disposing of the shares, the issuer shall make a preemptive offer thereof. Such preemptive offer will not be mandatory in certain specific cases, pursuant to which shares may be sold in the open market. For more information, please see Item 16E. “Purchases of Equity Securities by the Issuer and Affiliated Purchasers.” Anti-takeover provisions Our bylaws do not contain any provision that would (i) oblige us to disclose information regarding our shareholders; and (ii) have the effect of delaying, deferring or preventing a change in control, the last of which may happen only in the event of a merger, acquisition or public offering for acquisition. Tender offer regime Tender offer regime in the case of a change in control Mandatory tender offer or exchange in Argentina Pursuant to the rules set forth in the Capital Markets Law, the Productive Financing Law and the CNV Rules, anyone who, either individually or collectively, effectively achieves a “controlling interest” in a publicly traded company, will be bound to submit a mandatory tender offer (“OPA”, acronym in Spanish forOferta Pública de Adquisición Obligatoria) in any of the scenarios set forth below:
The OPA must be addressed to any and all shareholders of the company and any person with rights to share subscription or stock options granted by the company, corporate bonds or other similar securities which directly or indirectly may give right to share subscription and/or acquisition of securities, or conversion of voting shares. The addressees of the OPA must be offered an equitable price, in the terms of section 88 of the Capital Markets Law, and section III, Chapter II, Title III of the CNV Rules. In the above mentioned cases, the prospective purchase must file the request to submit a mandatory tender offer before the CNV no later than one month after the takeover has been completed. The mandatory tender offer must be launched by the prospective purchaser within five (5) days of obtaining the approval of the CNV. The term for the investors to accept or reject the offer will have to be at least ten (10) days and no more than twenty (20). Concept of “Controlling Interest” In accordance with the Capital Markets Law, a person can be considered to have a controlling interest, either individually or collectively, if: i) voting rights exceed 50% of the company, excluding the shares owned directly or indirectly by the affected Company from the calculation base; or ii) even though the shareholding is below 50%, the person acts as the “controller” of the Company in the terms of the capital markets law. Determination of the price of the OPA in the case of a change in control The equitable price of mandatory tender offers must be the higher between:
Determination of the price of the OPA in other cases (minority drag along right, for example) The equitable price in this scenario must considered the same criteria as in a change of control event, but also should bear into account (i) the face value of shares; (ii) the value of the company according to international valuation standards; and (iii) the value of liquidation of the company. Penalties for breach Without prejudice to the penalties established by the CNV, the Capital Markets Law provides that purchases of shares of a company in violation of the OPA regime shall be declared irregular and ineffective for administrative purposes by the CNV and cause the invitation of an auction of the shares acquired on infringement, without prejudice to the penalties that may correspond. Tender offer regime in the case of a voluntary withdrawal from the public offering and listing system in Argentina The Capital Markets Law and its regulations also established that when a company whose shares are publicly offered and listed in Argentina, agrees to voluntarily withdraw from the public offering and listing system in Argentina, it must follow the procedures provided for in the CNV’s regulations and it must likewise launch an OPA for its aggregate shares and/or subscription rights or securities convertible into shares or stock options under the terms provided for in such regulation. It is not necessary to extend the public offering to those shareholders that voted for the withdrawal at the shareholders’ meeting. The public offering can only be made as a purchase and sale and the consideration must be cash. The acquisition of one’s own shares must be made with liquid and realized profits or with free reserves, whenever paid up in full, and for the amortization or disposition thereof, within the term set forth in section 221 of the Argentine Companies Law and the company must present the CNV with evidence that it has the necessary solvency to effect such purchase and that the payment for the shares will not affect its solvency. The price offered should be an equitable price. To determine if an equitable price is offered, the criteria set forth for mandatory tender offers must be followed. Form and transfer Our current capital stock is represented by book-entry shares. Our shareholders are required to hold their shares through book-entries directly made by Caja de Valores S.A. in the stock registry of the company carried by Caja de Valores S.A. or through book-entries with brokers, banks and other entities approved by the CNV that have accounts with Caja de Valores S.A., or with the participants of the Caja de Valores S.A. Caja de Valores S.A. is in charge of maintaining a stock registry on our behalf based on information received from shareholders that choose to hold their shares directly by registration on the stock registry of the company and from participants of the Caja de Valores S.A. Under Argentine law, only those holders listed in the stock registry, either directly or through participants of the Caja de Valores S.A., will be recognized as shareholders. Shares held by participants of the Caja de Valores S.A. have the same rights as shares recorded in our shareholders’ register. C. Material Contracts During the past two years we did not enter into or become a party to any contract that is required to be disclosed under this item. D. Exchange Controls
On September 1, 2019, with the purpose of strengthening the normal functioning of the economy, fostering a prudent administration of the exchange market, At present, foreign exchange regulations have been consolidated in a single regulation, Communication “A” 6844, as subsequently amended and supplemented from time to time by Central Bank of Argentina’s Communications, including without limitation Communications “A” 6862, 6869, 6882 and 6915 of the Central Bank of Argentina (jointly, the “FX Regulations”). Below is a description of the main exchange control measures implemented through the aforementioned regulations Specific provisions for inward remittances Repatriation and settlement of the proceeds of exports of goods. In accordance with section 7.1 of the FX Regulations, exporters must repatriate, and settle for Pesos through the MLC, the proceeds of their exports of goods cleared through customs as from September 2, 2019. Although the FX Regulations, maintain the obligation to bring export proceeds to Argentina through the MLC, in accordance with article 2.6, exporters are authorized to avoid the settlement for Pesos to the extent that: (a) the funds are credited in foreign-denominated accounts in the name of the exporter, opened at local banks; (b) the funds are brought to Argentina within the applicable terms; (c) the funds are simultaneously applied to the making of payments for which the regulations grant access to the MLC, subject to any applicable caps; (d) if the funds correspond to the proceeds of new external financial indebtedness and are applied to the prepayment of foreign currency-denominated loans with local banks, the new indebtedness must have a longer average life than the local indebtedness, and (e) the mechanism istax-neutral. Decree No. 661/2019 clarified that the collection of the export benefits set forth under the Argentine Customs Code shall be subject to the exporter complying with the repatriation and Peso settlement obligations imposed by the new regulations. Finally, the FX Regulations authorize the application of export proceeds to the repayment of:(i) pre-export financings and export financings granted or guaranteed by local financial entities; (ii) foreignpre-export financings and export advances settled in the MLC, provided that the relevant transactions were entered into through public deeds or public registries; (v) financings granted by local financial entities to foreign importers; and (vi) financial indebtedness under contracts executed prior to August 31, 2019 providing for cancellation thereof through the application abroad of export proceeds. The application of export proceeds to the repayment of other indebtedness shall be subject to Central Bank approval. Obligation to repatriate and settle in Pesos the proceeds from exports of services Article 2.2 of the FX Regulations imposes to exporters the obligation to repatriate, and settle in the MLC, the proceeds from exports of services within 5 business days following payment thereof. External financial indebtedness Pursuant to article 2.4 of the FX Regulations, the new regulations have reinstated the requirement to repatriate, and settle in Pesos through the MLC, the proceeds of new financial indebtedness disbursed from and after September 1, 2019 as a condition for accessing the MLC to make debt service payments thereunder. Although the regulations do not establish a specific term for repatriation, this requirement shall be met any time prior to accessing the MLC. The reporting of the debt under the reporting regime established by Communication “A” 6401 (as amended and restated from time to time, “the External Assets and Liabilities Reporting Regime”) is also a condition to access the MLC to repay debt service. Subject to compliance with the aforementioned obligations, access to the MLC is granted for the repayment of debt services at maturity or up to 3 business days in advance. In addition, as set forth by article 3.5 of the FX Regulations, access to the MLC for prepayments will be granted, provided all of the following conditions are met: (i) the prepayment is simultaneous with the conversion of the new indebtedness to Pesos; (ii) the new indebtedness has a higher average life than the outstanding of the current debt being prepaid; and (iii) the first principal payment under the new indebtedness is (a) at a later date and (b) for an amount not greater than, the scheduled principal payment under the existing debt being prepaid. Furthermore, pursuant to Communication ”A” 7001, Central Bank’s prior approval shall be required to access the MLC for the repayment of debts services regarding external financial indebtedness standing as of April 19, 2020, whose maturity date has either occurred prior to such date or is not stipulated, unless the entity accessing the MLC complies with the reporting regime established by Communication “A” 7001, thus providing a sworn statement that it has no standing facilities in pesos in the terms of Communication “A” 6937. Moreover, article 3.11 of the FX Regulations authorizes (1) local borrowers under (A) foreign financial indebtedness withnon-related creditors and (B) foreign indebtedness to finance the import of goods granted by foreign financial entities or official credit agencies, and (2) Argentine security trusts created to guarantee indebtedness detailed in (A) and (B) above, to access the MLC to purchase foreign currency to constitute the guarantees for the amounts required under the relevant loan agreements, subject to compliance with the following conditions: (a) the relevant indebtedness grants the relevant borrower access to the MLC for repayment and the agreements provide for debt service guarantee accounts; (b) the funds are transferred to accounts opened in local financial entities; credit into offshore accounts shall only be admitted if that is the only alternative set forth under the financing documents provided that such financing documents were entered into before August 31, 2019; (c) the amount accumulated in guarantee accounts does not exceed the amount of the next debt service; (d) the daily purchases do not exceed 20% of the maximum amount mentioned in (c); and (e) the bank must review the financing documents and confirm that the aforementioned conditions are met. Any funds not applied to cancel debt services must be settled through in Pesos in the MLC within 5 business days from the corresponding debt service payment date. Additionally, article 3.3 of the FX Regulations states that the Central Bank’s prior approval will be required to access the MLC for the repayment of debts for imports of goods and services. Duly registered securities that are denominated and payable in foreign currency in Argentina In accordance with article 2.5 of the FX Regulations issued by the Central Bank, resident debt issuers are granted access to the MLC for the payment at maturity of principal and interest under new duly registered issuances of debt securities that are denominated and payable in foreign currency in Argentina, to the extent they (i) are fully subscribed in foreign currency, and (ii) the proceeds from the issuance are settled through the MLC. However, the settlement of the proceeds from the issuance shall not be required for the future access to the MLC for repayment of domestic issuances as provided in (ii) above, provided that certain are met (i.e., the proceeds are deposited in a local foreign currency-denominated bank accounts and are simultaneously applied to transactions having access to the MLC, and the mechanism is tax neutral, among others). Specific Provisions Regarding Access to the Exchange Market Residents are authorized to access the MLC for the payment of import of goods in accordance with article 10.1 of the FX Regulations. This regulation sets forth different requirements depending on whether it relates to the payment of imports of goods with customs clearance or the payments of import of goods pending customs clearance. Moreover the imports and import payments monitoring system (SEPAIMPO) has been reinstated, setting forth rules governing such monitoring process and exceptions thereof. Importers will need to appoint a financial entity in charge of monitoring compliance with the aforementioned obligations. Likewise, the local importer must designate a local financial entity to act as a monitoring bank, which will be responsible for verifying compliance with the applicable regulations, Repayment of principal and interest of imports of goods and services Access to the foreign exchange market for the repayment of principal and interest of imports of goods and services is granted, provided that the operation has been declared, if applicable, in the last overdue presentation of the External Assets and Liabilities Reporting. Access to Payment of dividends and corporate profits In accordance with article 3.4 of the FX Regulations, access is granted to the MLC to pay dividends tonon-resident shareholders, subject to the following conditions: Maximum amounts: The total amount of transfers executed through the MLC as of January 17, 2020, for payment of dividends tonon-resident shareholders may not exceed 30% of the total value of the new capital contributions made in the local company that had been entered and settled through the MLC as of the abovementioned date. The total amount paid tonon-resident shareholders shall not exceed the corresponding amount denominated in Minimum Period: Access to the MLC will only be
Documentation requirements: Dividends must be the result of closed and audited balance sheets. When requesting access to Derivatives transactions Article 4.4 of Communication “A” 6915 requires that derivatives transactions, including payment of premiums, constitution of collateral and settlement of futures, forwards, options and other derivatives, held in the country
An entity authorized to operate in the MLC must be designated by the debtor to track the operation and an affidavit must be provided in which the debtor undertakes to repatriate and settled the funds into Pesos that are in favor of the local client as a result of such operation, or as a result of the release of the funds of the constituted as collateral, within the following five (5) business days. Securities transactions and transfer to foreign brokerage houses – Affidavit On
a) as of the date of the foreign exchange operation, the client has not carried out any sale of securities with settlement in foreign currency and/or transferred such securities to a foreign brokerage house in the past 30 days; and b) the client agrees not to effect any sale of securities with settlement in foreign currency and/or transferred such securities to a foreign brokerage house for a30-day period starting on the date of the foreign exchange operation. In addition, Communication “A” Other Specific Provisions Exchanges and arbitrage. Transactions involving securities Pursuant to article 4.2 of the
Securities related Operations As per article 4.5 of the FX Regulations, if an individual purchases securities through payment in foreign currency, the same must have been held by the client for at least 5 business days since the settlement of the transaction before their subsequent sale or
Any operation that does not comply with the Notwithstanding the above mentioned measures adopted by the current administration, the Central Bank E. Taxation Material U.S. federal income tax considerations relating to our Class B shares and ADSs The following discussion is a summary of the material U.S. federal income tax considerations relating to the purchase, ownership and disposition of our Class B shares or ADSs. This discussion applies only to beneficial owners of Class B shares or ADSs that are
dealers in securities or currencies;
insurance companies;
individual retirement accounts and other tax deferred accounts;
tax-exempt organizations;
traders in securities that elect to mark to market;
certain financial institutions;
entities or arrangements treated as partnerships or other pass-through entities for U.S. federal income tax purposes;
holders whose functional currency for U.S. federal income tax purposes is not the U.S. dollar;
U.S. expatriates;
holders that hold Class B shares or ADSs as part of a hedge, straddle, conversion transaction, constructive sale transaction or other integrated transaction;
holders that own, directly, indirectly, or constructively, 10% or more of our shares (by vote or value);
real estate investment trusts; or
regulated investment companies. This discussion does not address the estate or gift tax consequences of holding Class B shares or ADSs or the indirect consequences to holders of equity interests in entities or arrangements treated as partnerships for U.S. federal income tax purposes that own our Class B shares or ADSs. Moreover, this discussion does not address the U.S. state, local, ornon-U.S. income or other tax consequences of an investment in our Class B shares or ADSs, or any aspect of U.S. federal taxation other than income taxation. Except as otherwise noted, this discussion assumes that we are not a passive foreign investment company (a “PFIC”) for U.S. federal income tax purposes. Our possible status as a PFIC must be determined annually and therefore may be subject to change. If we were to be a PFIC in any year, materially adverse consequences could result for U.S. holders. See “Passive Foreign Investment Company Considerations” below. For the purposes of this discussion, you are a “U.S. holder” if you are a beneficial owner of Class B shares or ADSs and you are for U.S. federal income tax purposes:
an individual who is a citizen or resident of the United States;
a corporation created or organized in or under the laws of the United States, any state thereof or the District of Columbia;
an estate the income of which is subject to U.S. federal income taxation regardless of its source; or
a trust if (i) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (ii) the trust has a valid election in effect under applicable Treasury regulations to be treated as a U.S. person. If an entity or arrangement treated as a partnership for U.S. federal income tax purposes holds our Class B shares or ADSs, the tax treatment of a partner in such partnership will generally depend upon the status of the partner and upon the activities of the partnership. A prospective investor who is a partner of an entity or arrangement treated as a partnership for U.S. federal income tax purposes holding our Class B shares or ADSs should consult its own tax advisor. In general, for U.S. federal income tax purposes, U.S. holders that are beneficial owners of ADSs will be treated as the beneficial owners of the Class B shares represented by those ADSs. No gain or loss will be recognized on the exchange of ADSs for the U.S. holder’s proportionate interest in Class B shares. A U.S. holder’s tax basis in the Class B shares received will be the same as the U.S. holder’s tax basis in the ADSs surrendered, and the holding period of the Class B shares will include the holding period of the ADSs. Taxation of Dividends. Distributions of cash with respect to the Class B shares or ADSs (including any amounts withheld in respect of Argentine taxes) generally will, to the extent made from our current or accumulated earnings and profits as determined under U.S. federal income tax principles, constitute dividends for U.S. federal income tax purposes. To the extent that a distribution by us exceeds the amount of our earnings and profits, it will be treated as anon-taxable return of capital to the extent of the U.S. holder’s adjusted tax basis in the Class B shares or ADSs, and thereafter as capital gain. However, we do not maintain calculations of our earnings and profits under U.S. federal income tax principles. U.S. holders should therefore assume that any distribution by us with respect to Class B shares or ADSs will be reported as ordinary dividend income for U.S. federal income tax purposes. In general, cash dividends (including amounts withheld in respect of Argentine taxes) paid with respect to:
the Class B shares generally will be includible in the gross income of a U.S. holder as ordinary income on the day on which the dividends are received by the U.S. holder; or
the Class B shares represented by ADSs generally will be includible in the gross income of a U.S. holder as ordinary income on the day on which the dividends are received by the depositary; and, in either case, these dividends will not be eligible for the dividends received deduction allowed to corporations. Dividends paid by us in respect of ADSs generally will be treated as “qualified dividend income”, which is taxable to anon-corporate U.S. holder at the reduced rate normally applicable to long-term capital gains, provided that (i) the ADSs are readily tradable on an established securities market in the United States (such as the NYSE, on which the ADSs are currently listed), (ii) we were not in the year prior to the year in which the dividend was paid, and are not in the year in which the dividend is paid, a PFIC, and (iii) certain other requirements are met. The ADSs (but not the Class B shares) should qualify as readily tradable on an established securities market in the United States so long as they are listed on the NYSE. See “Passive Foreign Investment Companies” below for a discussion of the PFIC rules. Dividends paid by us in respect of Class B shares will be subject to tax as ordinary dividend income. In addition, the U.S. Treasury Department has indicated that it continues to consider whether detailed information reporting guidance is necessary pursuant to which holders of ADSs and intermediaries through whom such securities are held will be permitted to rely on certifications from issuers to establish that dividends are treated as qualified dividend income. However, no such detailed procedures have yet been issued and therefore we are not certain that we will be able to comply with them. You should consult your own tax advisors regarding the availability of the reduced rate discussed above with respect to qualified dividend income in light of your own particular circumstances. Dividends paid in Pesos will be includible in the gross income of a U.S. holder in a U.S. dollar amount calculated by reference to the exchange rate in effect on the day they are received by the U.S. holder, in the case of Class B shares, or the depositary, in the case of Class B shares represented by ADSs, regardless of whether the payment is in fact converted to U.S. dollars. If dividends paid in Pesos are converted into U.S. dollars on the day they are received by the U.S. holder or the depositary, as the case may be, U.S. holders should not be required to recognize foreign currency gain or loss in respect of the dividend income. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date the dividend payment is included in the gross income of a U.S. holder through the date such payment is converted into U.S. dollars (or otherwise disposed of) will be treated as U.S. source ordinary income or loss. However, U.S. holders should consult their own tax advisors regarding the treatment of any foreign currency gain or loss if any Pesos received by the U.S. holder or the depositary are not converted into U.S. dollars on the date of receipt. A U.S. holder generally will be entitled, subject to a number of complex limitations and conditions, to claim a U.S. foreign tax credit in respect of any Argentine income taxes withheld on dividends received on Class B shares or ADSs. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, the dividends should generally constitute “passive category income”. U.S. holders who do not elect to claim a credit for any foreign taxes paid during the taxable year may instead claim a deduction of such Argentine income taxes, provided that the U.S. holder elects to deduct (rather than credit) all foreign income taxes paid or accrued for the taxable year. Dividends received with respect to the Class B shares or ADSs will be treated as foreign source income for U.S. foreign tax credit purposes. The IRS has expressed concern that intermediaries in connection with depositary arrangements may be taking actions that are inconsistent with the claiming of foreign tax credits by U.S. persons who are holders of depositary shares. Accordingly, investors should be aware that the discussion above regarding the availability of foreign tax credits for Argentine withholding tax on dividends paid with respect to Class B shares represented by ADSs could be affected by future action taken by the IRS. The rules relating to computing foreign tax credits or deducting foreign taxes are extremely complex, and U.S. holders are urged to consult their independent tax advisors regarding the availability of foreign tax credits with respect to any Argentine income taxes withheld from a dividend on the Class B shares or ADSs. Sale, Exchange or Other Taxable Disposition. In general, gain or loss realized by a U.S. holder on the sale, exchange or other taxable disposition of Class B shares or ADSs will be subject to U.S. federal income taxation as capital gain or loss in an amount equal to the difference between the amount realized on the sale, exchange or other taxable disposition and such U.S. holder’s basis in the Class B shares or the ADSs, in each case as determined in U.S. dollars. Such capital gain or loss will be long-term capital gain or loss if the U.S. holder’s holding period in the Class B shares or ADSs exceeds one year. The deductibility of capital losses is subject to limitations. Any gain or loss realized by a U.S. holder will generally be treated as a U.S. source gain or loss for U.S. foreign tax credit purposes. U.S. holders should consult their own tax advisors about how to account for proceeds received on the sale, exchange or other taxable disposition of Class B Shares that are not paid in U.S. dollars. If Argentine withholding tax is imposed on the sale, exchange or other taxable disposition of Class B shares or ADSs, the amount realized by a U.S. holder will include the gross amount of the proceeds of such sale, exchange or other taxable disposition before deduction of the Argentine withholding tax. The availability of U.S. foreign tax credits for these Argentine taxes is subject to various limitations and involves the application of rules that depend on a U.S. holder’s particular circumstances. In particular, because any gain from the sale, exchange or other taxable disposition of Class B shares or ADSs generally will be treated as U.S. source income, a U.S. holder may not be able to fully utilize its U.S. foreign tax credits in respect of such Argentine withholding taxes unless such U.S. holder has other income from foreign sources. U.S. holders are urged to consult their own tax advisors regarding the application of the U.S. foreign tax credit rules to their investment in, and disposition of, Class B shares or ADSs. Passive Foreign Investment Companies. Anon-U.S. corporation will be a PFIC in any taxable year in which, after taking into account the income and assets of the corporation and certain subsidiaries pursuant to applicable “look-through rules,” either (i) at least 75% of its gross income is “passive income” or (ii) at least 50% of the average value of its assets is attributable to assets which produce passive income or are held for the production of passive income. Passive income for this purpose generally includes interest, dividends, royalties, rents and gains from commodities and securities transactions. Although interest income generally is treated as passive income for this purpose, a special rule allows banks to treat their banking business income asnon-passive. To qualify for this rule, a bank must satisfy certain requirements regarding its licensing and activities. We believe that we currently meet, and expect that we will continue to meet, these requirements. Based on this, and the composition of our income, the value of our assets and the activities conducted by us, we do not believe that we were a PFIC for our most recent taxable year and do not expect to be a PFIC for our current taxable year or in the foreseeable future. However, our possible status as a PFIC must be determined annually and therefore may be subject to change, for example, if we fail to qualify under this special rule for any year. If we were a PFIC for any taxable year during which a U.S. holder holds Class B shares or ADSs, gain recognized by a U.S. holder on a sale or other disposition of the Class B shares or ADSs would generally be allocated ratably over the U.S. holder’s holding period for the Class B shares or ADSs. The amounts allocated to the taxable year of the sale or other disposition and to any year before we became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to U.S. federal income tax at the highest rate in effect in that year for individuals or corporations, as appropriate, and an interest charge would be imposed on the resulting U.S. federal income tax liability. The same treatment would generally apply to any distribution in respect of Class B shares or ADSs to the extent the distribution exceeds 125% of the average of the annual distributions received by the U.S. holder on the Class B shares or ADSs during the preceding three years or the U.S. holder’s holding period, whichever is shorter. Certain elections may be available that would result in alternative treatments (such asmark-to-market treatment) of the Class B shares or ADSs. In addition, if we were a PFIC for a taxable year in which we pay a dividend or in the prior taxable year, the reduced rate discussed above with respect to qualified dividend income paid to certainnon-corporate U.S. holders would not apply. Furthermore, if we are characterized as a PFIC, a U.S. holder generally will be required to annually file an IRS Form 8621 and the statute of limitations on assessment and collections will remain open with respect to any unreported PFIC interests. In addition, if we are a PFIC for any taxable year during which a U.S. holder holds Class B shares or ADSs and any of ournon-U.S. subsidiaries is also a PFIC, such U.S. holder will be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC for purposes of the application of the PFIC rules. Prospective purchasers should consult their tax advisors regarding the potential application of the PFIC rules, including elections that may be available to mitigate certain adverse implications of the PFIC regime if we were to become a PFIC. Information Reporting and Backup Withholding. Information reporting requirements will apply to dividends in respect of the Class B shares or ADSs and the proceeds from the sale, exchange or other taxable disposition of the Class B shares or ADSs paid within the United States (and, in some cases, outside of the United States) to U.S. holders, unless, in either case, the U.S. holder is an exempt recipient (such as a corporation). Backup withholding may apply to such amounts if the U.S. holder fails to provide an accurate taxpayer identification number or certification of exempt status or otherwise fails to comply with applicable certification requirements. The amount of any backup withholding from a payment to a U.S. holder will be allowed as a credit against the U.S. holder’s U.S. federal income tax liability, provided that the required information is timely furnished to the IRS. U.S. holders should consult their tax advisers about these rules and any other reporting obligations that may apply to the ownership or disposition of Class B shares or ADSs, including requirements related to the holding of certain “specified foreign financial assets”. Material Argentine tax considerations relating to our Class B shares and ADSs The following discussion is a summary of the material Argentine tax considerations relating to the purchase, ownership and disposition of our Class B shares or ADSs. The following summary is based upon tax laws of Argentina as in effect on the date of this document and is subject to any change in Argentine law that may come into effect after such date any change could apply retroactively and could affect the continued validity of this summary. On December 29, 2017, Law 27,430 was published in the Official Gazette introducing a material tax reform (the “Tax Reform Law”), which introduces several modifications to the former tax regime. The Tax Reform Law has been regulated by the This summary includes the modifications under the This summary does not purport to be a comprehensive description of all the tax considerations that may be relevant to a holder of such securities. No assurance can be given that the courts or tax authorities responsible for the administration of the laws and regulations described in this annual report will agree with this interpretation. In this regard, it is important to highlight that, notwithstanding the issuance of the Decree No.99/2019, General Resolution (AFIP) No.4659/2020 and General Resolution (AFIP) No. 4664/2020, it is expected that more regulations and explanations would be issued shortly, since to date it is not possible to determine how the recent modifications incorporated to the Argentine tax regime will be applied and/or construed by the tax authorities of Argentina. Holders are encouraged to consult their tax advisors regarding the tax treatment of our ADSs or common shares as it relates to their particular situation. Income Tax Taxation on Dividends According to the (i) Dividends originated in profits obtained during fiscal years initiated after January 1, 2018 and up to December 31, Argentine individuals and undivided estates located in Argentina are not allowed to offset income arising from the distribution of dividends on Argentine shares with other losses arisen in other type of operations. (ii) Dividends originated in profits obtained during fiscal years initiated after January 1, (iii) Dividends originated in profits obtained during tax periods before those contemplated above: no Argentine income tax withholding would apply on dividends distribution except for the application of the “Equalization Tax” (as defined below). The equalization tax (the “Equalization Tax”) is applicable when the dividends distributed are higher than the “net accumulated taxable income” of the immediate previous fiscal period from when the distribution is made. In order to assess the “net accumulated taxable income” from the income calculated by the Income Tax Law, the income tax paid in the same fiscal period should be subtracted and the local dividends received in the previous fiscal period should be added to such income. The Equalization Tax would be imposed as a 35% withholding tax on the shareholder receiving the dividend. Dividend distributions made in property (other than cash) would be subject to the same tax rules as cash dividends. Stock dividends on fully paid shares (“acciones liberadas”) are not subject to Equalization Tax. For Argentine individuals and undivided estates not registered before the Argentine tax authorities as taxpayers for income tax purposes as well as fornon-Argentine residents, the Dividend Tax withholding will be considered a final payment. Argentine individuals and undivided estates are not allowed to offset income arising from the distribution of dividends on Argentine shares with losses from other types of operations. The Holders are encouraged to consult a tax advisor as to the particular Argentine income tax consequences derived from profit distributions made on Class B shares and ADSs. Capital gains tax According to Income Tax regulations, the results derived from the transfer of shares, quotas and other equity interests, titles, bonds and other securities, are subject to Argentine income tax (unless an exemption applies), regardless of the type of beneficiary who realizes the gain. Capital gains obtained by Argentine corporate entities (in general, entities organized or incorporated under Argentine law, certain traders and intermediaries, local branches ofnon-Argentine entities, sole proprietorships and individuals carrying on certain commercial activities in Starting in 2018, income obtained by Argentine resident individuals and undivided estates located in Argentina from the sale of shares and other securities are exempt from capital gains tax in the following cases: (i) when the shares are placed through a public offering authorized by the CNV; and/or (ii) when the shares are traded in stock markets authorized by the CNV, under segments that ensure priority of price-time and interference of offers; and/or (iii) when the sale, exchange or other disposition of shares is made through a tender offer regime and/or exchange of shares authorized by the CNV. In addition, Section 34 of Law N° 27,541, provides that since tax period 2020, in the case of securities under the provisions of Section 98 of the Income Tax Law, not included in the first paragraph of Section 26 subsection u) of the Income Tax Law, Argentine resident individuals and undivided estates located in Argentina are exempt from capital gains tax derived from their sale, exchange, or disposal to the extent said securities are listed on stock exchanges or securities markets authorized by the CNV, without being applicable the provisions of Section 109 of the Income Tax Law. In this sense, Section 109 of the Income Tax Law provides that the total or partial exemptions established or that will be established in the future by special laws regarding securities, issued by the National, Provincial, or Municipal States or the City of Buenos Aires, will not have effects on income tax for Argentine resident individuals and undivided estates located in Argentina. ADSs If Argentine resident individuals and undivided estates located in Argentina perform a conversion procedure of securities representing shares, that do not meet the exemption requirements stated in the conditions mentioned in points (i), (ii) and (iii) of the paragraph above, to hold instead the underlying shares that do comply with said requirements, such conversion would be considered a taxable transfer of the securities representing shares for which the fair market value by the time the conversion takes place should be considered. The same tax treatment will apply if the conversion process involves shares that do not meet the exemption requirements stated above that are converted into securities representing shares to which the exemption is applicable. Once the underlying shares or securities representing shares are converted, the results obtained from the sale, exchange, swap or any other disposition thereof would be exempt from income tax provided that the conditions mentioned in points (i), (ii) and (iii) of the paragraph above are met. Pursuant to recent amendments introduced by Law N° 27,541, it could also be construed that a capital gains exemption could also apply for Argentine resident individuals and undivided estates located in Argentina if the securities involved are listed on stock exchanges or securities markets authorized by the CNV (although the matter is not free from doubt and further clarifications should be issued). Due to the amendments introduced to the Income Tax Law, as from 2018,non-Argentine resident individuals or legal entities (“Foreign Beneficiaries”) are also exempt from income tax derived from the sale of Argentine shares in the following cases: (i) when the shares are placed through a public offering authorized by the CNV; and/or (ii) when the shares In addition, the Tax Reform Law stated that income derived from the sale of ADSs gives rise to Argentine source income. However, capital gains obtained from the sale, exchange or other disposition of ADSs by Foreign Beneficiaries that reside in a cooperative jurisdiction and, in accordance with Section 90 of the In case Foreign Beneficiaries conduct a conversion process of shares that do not meet the exemption requirements, into securities representing shares that are exempt from income tax pursuant to the conditions stated above, such conversion would be considered a taxable transfer In case the exemption is not applicable and the Foreign Beneficiaries are For Foreign Beneficiaries As a result of the recent enactment of Law N° 27,541, certain clarifications and definitions are still pending and expected to Holders are encouraged to consult a tax advisor as to the particular Argentine income tax consequences derived from holding and disposing of Class B shares and ADSs and whether any different treatment under a treaty to avoid double taxation could apply. Tax treaties Argentina has signed tax treaties for the avoidance of double taxation with Australia, Belgium, Bolivia, Brazil, Canada, Chile, Denmark, Finland, France, Germany, Italy, Mexico, the Netherlands, Norway, Russia, Spain, Sweden, Switzerland , the UK and the Personal assets tax For tax period 2019, onwards, Argentine entities, like us, have to pay the personal assets tax corresponding to Argentine and foreign It is unclear ifnon-Argentine Value added tax The sale, exchange or other disposition of our Class B shares or ADSs and the distribution of dividends are exempted from the value added tax. Tax on debits and credits on Argentine bank accounts All credits and debits originated in bank accounts held at Argentine financial institutions, as well as certain cash payments, are subject to this tax, which is assessed at a general rate of 0.6%. There are also increased rates of 1.2% and reduced rates of 0.075%. According to Section 45 of Law N° 27,541, the applicable rate of tax on debits and credits on Argentine bank accounts (the “TDC”) is doubled for certain cash withdrawals made by certain Argentine legal entities. Owners of bank accounts subject to the general 0.6% rate may consider 33% of the tax paid as a tax credit against specific taxes. The taxpayers that are subject to the 1.2% rate may consider 33% of all tax paid as a credit against specific taxes. Such amounts can be utilized as a credit for income tax
Tax on minimum presumed income
Pursuant to Law No. 27,260, passed by the Argentine Congress on June 29, 2016, the tax on minimum presumed income PAIS Tax (“Impuesto para una Argentina inclusiva y solidaria”) Law N° 27,541 establishes, on an emergency basis and for the term of five fiscal periods from the entry into force of said law (i.e. December 23,2019), a federal tax applicable to certain transactions for the purchase of foreign currency for saving purposes or without a specific destination and other operations of currency exchange and acquisition of services performed by Argentine tax residents (individuals, undivided estates, legal entities, among others). The applicable rate is, in general, 30%. Investors should consider the provisions that apply to them according to their specific case. Gross turnover tax This tax is a local tax levied on gross revenues resulting from the regular and onerous exercise of commerce, industry, profession, business, services or any other onerous activity conducted on a regular basis within the respective jurisdiction. Each of the provinces and the City of Buenos Aires apply different tax rates depending on the type of activity. In addition, gross turnover tax could be applicable on the transfer of Class B shares or ADSs and on the perception of dividends to the extent, such activity is conducted on a regular basis within an Argentine province or within the City of Buenos Aires. However, under the Tax Code of the City of Buenos Aires, any transaction with shares as well as the perception of dividends are exempt from gross turnover tax. In accordance with the stipulations of the Fiscal Consensus entered into by and amongst the Argentine Executive Branch, the representatives of the Provinces and the City of Buenos Aires on November 16, 2017 and approved by the Argentine Congress on December 21, 2017 (theso-called “Fiscal Consensus” and/or the “Consensus”), local jurisdictions took on certain commitments in connection with certain taxes that are within their powers. The Consensus shall be effective only in connection with the jurisdictions that have their legislative branches approve the Consensus and such effectiveness shall not commence if such approval has not been granted. When it comes to the impact of the Consensus on gross turnover tax, the Argentine provinces and the City of Buenos Aires agreed to grant exemptions and impose maximum tax rates on certain businesses and for certain periods. However, it is important to point out that on December 17, 2019, the Argentine Executive Branch, the representatives of the Provinces and the City of Buenos Aires signed an agreement to suspend the Fiscal Consensus. This agreement shall be effective only in connection with the jurisdictions that have their legislative branches approve it and such effectiveness shall not commence if such approval has not been granted. Holders of Class B shares and ADSs are encouraged to consult a tax advisor as to the particular gross turnover tax consequences of holding and disposing of Class B shares and ADSs in the involved jurisdictions. Regimes for the Collection of Provincial Tax Revenues on the Amounts Credited to Bank Accounts Different tax authorities (i.e., City of Buenos Aires, Corrientes, Córdoba, Tucumán, Province of Buenos Aires and Salta, among others) have established collection regimes for gross turnover tax purposes applicable to those credits verified in accounts opened at financial entities, of any type and/or nature and including all branch offices, irrespective of territorial location. These regimes apply to those taxpayers included in the lists provided monthly by the tax authorities of each jurisdiction. The applicable rates may vary depending on the jurisdiction involved. Collections made under these regimes shall be considered as a payment on account of the gross turnover tax. Note that certain jurisdictions have excluded the application of these regimes on certain financial transactions. Holders shall corroborate the existence of any exclusions to these regimes in accordance with the jurisdiction involved. Stamp tax Stamp tax is a provincial tax, which is also levied in the City of Buenos Aires, applicable to the execution of onerous transactions within In the City of Buenos Aires, acts or instruments related to the negotiation of shares and other securities duly authorized for its public offering by the CNV are exempt from stamp tax. Regarding the Fiscal Consensus, almost all the provinces in Argentina and the City of Buenos Aires have committed to establish for the stamp tax a maximum tax rate of 0.75% as from January 1, 2019, 0.5% as from January 1, 2020, 0.25% as from January 1,2021 and abrogate the stamp tax starting from January 1, 2022. However, such commitment was delayed by one calendar year pursuant Law No 27,469 “Fiscal Consensus 2018” (published in the Official Gazette on December 4, 2018). Fiscal Consensus 2018 shall be effective only in connection with the jurisdictions that have their legislative branches approve it and such effectiveness shall not commence if such approval has not been granted. However, on December 17, 2019, the Argentine Executive Branch, the representatives of the Provinces and the City of Buenos Aires signed an agreement to suspend the Fiscal Consensus and the Fiscal Consensus 2018. Holders of Class B shares and ADSs are encouraged to consult a tax advisor as to the particular stamp tax consequences arising in the involved jurisdictions. Prospective investors should consider the tax consequences in force in the above mentioned jurisdictions at the time the concerned document is executed and/or becomes effective. Other taxes There are no Court tax In the event that it becomes necessary to institute enforcement proceedings in relation to our Class B shares and ADSs in the federal courts of Argentina or the courts sitting in the City of Buenos Aires, a court tax (currently at a rate of 3.0%) will be imposed on the amount of any claim brought before such courts. Certain court and other taxes could be imposed on the amount of any claim brought before the Province courts. Incoming Funds Arising fromNon-Cooperative or Low or Nil Tax Jurisdictions According to Section 82 of the Tax Reform Law, for fiscal purposes, any reference to “low tax or no tax countries” or“non-cooperative countries” should be understood to be“non-cooperative jurisdictions or low or nil tax jurisdictions,” as defined in Section 19 and Section 20 of the Income Tax Law. As defined under Section 19 of the Argentine Income Tax Law,non-cooperative jurisdictions are those countries or jurisdictions that do not have an agreement in force with the Argentine government for the exchange of information on tax matters or a treaty to avoid international double taxation with a broad clause for the exchange of information. Likewise, those countries that, having an agreement of this type in force, do not effectively comply with the exchange of information will also be considered asnon-cooperative. The aforementioned treaties and agreements must comply with international standards of transparency and exchange of information on fiscal matters to which the Argentine Republic has committed. The Executive Branch shall publish a list of thenon-cooperative jurisdictions based on the criteria above. 1. Bosnia and Herzegovina 2. Brecqhou 3. Burkina Faso 4. State of Eritrea 5. State of the 6. State of Libya 7. Independent State of Papua New Guinea 8. Plurinational State of Bolivia 9. Ascension Island 10. Sark Island 11. Santa Elena Island 12. Solomon Islands 13. The Federated States of Micronesia 14. Mongolia 15. Montenegro 16. Kingdom of Bhutan 17. Kingdom of Cambodia 18. Kingdom of Lesotho 19. Kingdom of Swaziland 20. Kingdom of Thailand 21. Kingdom of Tonga 22. Hashemite Kingdom of Jordan 23. Kyrgyz Republic 24. Arab Republic of Egypt 25. Syrian Arab Republic 26. Algerian Democratic and Popular Republic 27. Central African Republic 28. Cooperative Republic of Guyana 29. Republic of Angola 30. Republic of Belarus 31. Republic of Botswana 32. Republic of Burundi 33. Republic of Cape Verde 34. Republic of Ivory Coast 35. Republic of Cuba 36. Republic of the Philippines 37. Republic of Fiji 38. Republic of the Gambia 39. Republic of Guinea 40. Republic of Equatorial Guinea 41. Republic of Guinea-Bissau 42. Republic of Haiti 43. Republic of Honduras 44. Republic of Iraq 45. Republic of Kenya 46. Republic of Kiribati 47. Republic of the Union of Myanmar 48. Republic of Liberia 49. Republic of Madagascar 50. Republic of Malawi 51. Republic of Maldives 52. Republic of Mali 53. Republic of Mozambique 54. Republic of Namibia 55. Republic of Nicaragua 56. Republic of Palau 57. Republic of Rwanda 58. Republic of Sierra Leone 59. Republic of South Sudan 60. Republic of Suriname 61. Republic of Tajikistan 62. Republic of Trinidad and Tobago 63. Republic of Uzbekistan 64. Republic of Yemen 65. Republic of Djibouti 66. Republic of Zambia 67. Republic of Zimbabwe 68. Republic of Chad 69. Republic of the Niger 70. Republic of Paraguay 71. Republic of the Sudan 72. Democratic Republic of Sao Tome and Principe 73. Democratic Republic of East Timor 74. Republic of the Congo 75. Democratic Republic of the Congo 76. Federal Democratic Republic of Ethiopia 77. Lao People’s Democratic Republic 78. Socialist Democratic Republic of Sri Lanka 79. Federal Republic of Somalia 80. Federal Democratic Republic of Nepal 81. Gabonese Republic 82. Islamic Republic of Afghanistan 83. Islamic Republic of Iran 84. Islamic Republic of Mauritania 85. People’s Republic of Bangladesh 86. People’s Republic of Benin 87. Democratic People’s Republic of Korea 88. Socialist Republic of Vietnam 89. Togolese Republic 90. United Republic of Tanzania 91. Sultanate of Oman 92. British Overseas Territory Pitcairn, Henderson, Ducie and Oeno Islands 93. Tristan da Cunha 94. Tuvalu 95. Union of the Comoros In turn, low or nil tax jurisdictions are defined as those countries, territories, associated states or special tax regimes that foresee a maximum corporate tax rate below 15%. Pursuant to According to the legal presumption under Section 18.2 of Law No. 11,683, as amended, incoming funds fromnon-cooperative or low or nil jurisdictions could be deemed unjustified net worth increases for the Argentine party, no matter the nature of the operation involved. Unjustified net worth increases are subject to the following taxes:
income tax would be assessed at 110% of the amount of funds transferred.
Although the concept of “incoming funds” is not clear, it should be construed as any transfer of funds: (i) from an account in anon-cooperative/low or nil tax jurisdiction or from a bank account opened outside of anon-cooperative or low or nil tax jurisdiction but owned by an entity located in anon-cooperative or low or nil tax jurisdiction; (ii) to a bank account located in Argentina or to a bank account opened outside of Argentina but owned by an Argentine party. The Argentine party may rebut such legal presumption by duly evidencing before the Argentine tax authority that the funds arise from activities effectively performed by the Argentine party or by a third party in such jurisdiction, or that such funds have been previously declared. F. Dividends and Paying Agents Not applicable. G. Statement by Experts Not applicable. H. Documents on Display We are required to file annual reports, including exhibits, and other information with the SEC and to furnish interim information on Form6-K. You may read and copy any documents filed by the Company at the SEC’s public reference room at 100 F Street, NE, Washington, D.C. 20549. Please call the SEC at1-800-SEC-0330 for further information on the public reference room. The SEC also maintains a website athttp://www.sec.gov which contains reports and other information regarding registrants that file electronically with the SEC. We are subject to the reporting requirements of the Exchange Act of 1934, as applied to foreign private issuers. Because we are a foreign private issuer, the SEC’s rules do not require us to deliver proxy statements or to file quarterly reports. In addition, our “insiders” are not subject to the SEC’s rules that prohibit short-swing trading. We prepare quarterly and annual reports containing consolidated financial statements in accordance with Central Bank Rules which are translated into English and filed with the SEC. Our annual consolidated financial statements are certified by an independent accounting firm. We have appointed The Bank of New York Mellon to act as depositary for our ADSs. During the time the deposit agreement remains in force, we will furnish the depositary with:
our annual reports; and
summaries of all notices of general meetings of shareholders and other reports and communications that are made generally available to our shareholders. The depositary will, as provided in the deposit agreement, if we so request, arrange for the mailing of summaries in English of the reports and communications to all record holders of our ADSs. Any record holder of ADSs may read the reports, notices, or summaries thereof, and communications at the depositary’s office located at 101 Barclay Street, 22W, New York, New York 10286. I. Subsidiary Information Not applicable. Item 11. Quantitative and Qualitative Disclosure about Market Risk Market Risk As of August 1, 2016, we define market risk as the possibility of incurring losses inon- andoff-balance sheet recorded positions as a result of adverse changes in market prices. The market risk minimum capital requirement is the arithmetic sum of the minimum capital requirement for interest rate, stock price, exchange rate and options risks. The risks subject to the requirement for market risk are the risks of positions in instruments—securities and derivatives—imputed to the trading portfolio and the risks of positions in foreign currencies, regardless of the portfolio—investment or trading—to which they are charged. To meet this capital requirement, entities must apply a “Standard Measurement Method” based on an aggregate of components that separately capture the specific and general market risks for securities positions. The capital requirement for general market risk is obtained through the residual term method, which consists of the arithmetic sum of the absolute value of the net weighted position in the trading book, the vertical rejection (percentage of positions offset within each time band), horizontal rejection (percentage of positions offset through different time bands) and the net change in option positions. The requirements are calculated separately for positions in Pesos and in foreign currency, depending on the applicable area, term and coupon value. The capital requirement for stock price risk is equivalent to the arithmetic sum of the requirement for specific stock price risk (equivalent to 8% of the gross position in shares) and the requirement for general market risk (equivalent to 8% of the net position in shares—total long position minus total short positions in each stock). The capital requirement for exchange rate risk is equivalent to 8% of the total net position. For measuring options risk, entities that only buy options (and their value is less than 5% of the computable equity liability of the previous month) or whose positions are covered by positions purchased under the same conditions, may use the optionso-called “Simplified method”. This requirement incorporates both the general market risk and the specific risk. In the remaining cases, entities must use the delta-plus method, which uses Greek letters (delta, gamma and vega) to determine the delta equivalent of each position The chart below, shows the maximum, minimum, average and closing values for the years
Between 2018 and As of December 31,
Sensitivity to interest rate Sensitivity to interest rate arises in our normal course of business as there-pricing characteristics of its interest-earning assets do not necessarily match those of its interest-bearing deposits and other borrowings. There-pricing structure of assets and liabilities is matched when an equal amount of assets and liabilitiesre-price for any given period. Any excess of assets or liabilities over these matched items results in a gap or mismatch. Our interest rate sensitivity analysis measures the risk arising from the different sensitivity of assets and liabilities when interest rate changes occur (“duration” approach). It covers all the assets and liabilities excluding tradable portfolios.
The following table shows
In average and in minimum, maximum and closing points, the table shows a decrease in 2019 compared to year 2018. The decrease was primarily attributable to an inter-annual increase of the market interest rate curves. Thus, the relative impact of the disturbance shocks is lower, generating a decrease in the capital requirements for interest rate risk. It should be noted that, based on the methodological change established since August 2016 by the Central Bank in relation to the requirement for market risk, the instruments—securities and derivatives—not imputed to the trading book are incorporated into the risk measurement by rate variation. The Central Bank removed all rules and regulations regarding minimum capital requirements for interest rate risk. Notwithstanding this, financial entities must continue to calculate the interest rate risk and remain subject to the Superintendency’s supervision. For additional information regarding market and interest rate risk management see note Item 12. Description of Securities Other Than Equity Securities A- Not applicable B- Not applicable C- Not applicable D – American Depositary Shares 1. – 2. See Exhibit 2.1. 3. Fees and Charges Applicable to ADS Holders The depositary collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary also collects fees for making distributions to investors, by deducting those fees from amounts being distributed or by selling a portion of the distributable property to pay the fees. The depositary may generally refuse to providefee-attracting services until its fees for those services are paid.
4. Fees and Direct and Indirect Payments Made by the Depositary to us Future Fees and Payments The depositary has agreed to reimburse us for expenses incurred by us in connection with the administration and maintenance of the ADSs program, including, but not limited to, investor relation expenses, annual NYSE listing fees or other program related expenses. The depositary has also agreed to pay its standardout-of-pocket administrative, maintenance and shareholder services expenses for providing services to the registered American depositary receipts holders, which consist, without limitation, of expenses of postage and envelopes for mailing annual and interim financial reports, printing and distributing dividend checks, electronic filing of U.S. Federal tax information, mailing required tax forms, stationery, postage, facsimile, and telephone calls. There are limits and conditions on the amount of expenses for which the depositary will reimburse us. In Item 13. Defaults, Dividend Arrearages and Delinquencies None. Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
Item 15. Controls and Procedures Disclosure Controls and Procedures We carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules13a-15(e) and15d-15(e) of the Securities Exchange Act of 1934, as of December 31, Based upon and as of the date of our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports we file and submit under the Securities Exchange Act is recorded, processed, summarized and reported as and when required. Management’s Annual Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined inRule 13a-15(f) and15d-15(f) under the Securities Exchange Act of 1934. The Bank’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our management assessed the effectiveness of the Bank’s internal control over financial reporting as of December 31, The effectiveness of the Bank’s internal control over financial reporting as of December 31, Attestation Report of the Independent Registered Public Accounting Firm Our independent registered public accounting firm, Pistrelli, Henry Martin y Asociados S.R.L. (Member of Ernst & Young Global), has issued an attestation report on the effectiveness of the Bank’s internal control over financial reporting. The report follows below: REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of BANCO MACRO S.A. and its subsidiaries Opinion on Internal Control over Financial Reporting We have audited BANCO MACRO S.A. and its We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated Basis for Opinion The Bank’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
City of Buenos Aires, Argentina May
Changes in Internal Control Over Financial Reporting There has been no change in our internal control over financial reporting during Item 16A. Audit Committee Financial Expert As of the date of this annual report, Fabián Alejandro de Paul, independent member of the audit committee, met the standards set forth in Item 16A of Form20-F for “audit committee financial experts.” We have established a Code of Ethics for directors and senior management, including specifically to our chief executive officer, chief financial officer, as well as persons performing similar functions, expecting that their members act according to the highest standards of personal and professional integrity in all aspects of their activities; to comply with the applicable law, to discourage reproachable behaviors and to comply with our Code of conduct and other policies and procedures governing employee conduct. This Code of Ethics is supplemental to our Code of Conduct. In Item 16C. Principal Accountant Fees and Services Fees Paid to Our Principal Accountant Since 2006 Pistrelli, Henry Martin y Asociados S.R.L. (Member of EY Global) has served as our principal external auditor. Fees payable to Pistrelli, Henry Martin y Asociados S.R.L. (Member of EY Global) in
Note: figures detailed in the table above have not been adjusted for inflation. Audit Fees Audit fees were paid for professional services rendered by the auditors for the audit and limited review of our consolidated financial Audit-Related Fees Audit-related fees are typically services that are reasonably related to the performance of the audit or review of the consolidated financial statements and are not reported under the audit fees item above. This item includes fees for attestation services on our financial information. Tax Fees Tax fees consist of tax All Other Fees Fees disclosed in the table above under “All Other Fees” consisted of other fees paid for professional services. Audit Committee’sPre-approval Policies and Procedures Our audit committee is responsible for, among other things, the oversight of our independent auditors. During the year, the audit committee reviews together with management and the independent auditor, the audit plan, audit related services and othernon-audit services. The Audit Committee has approved policies and procedures forpre-approving allnon-audit work that would be performed by the Bank’s external auditor. All of the services provided by Pistrelli, Henry Martin y Asociados S.R.L. were approved by the Audit Committee pursuant to these approval policies. None of the hours expended on the principal accountant’s engagement to audit our financial statements for Item 16D. Exemptions from the Listing Standards for Audit Committees Not applicable. Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Item 16F. Change in Registrant’s Certifying Accountant None. Item 16G. Corporate Governance NYSE Corporate Governance Rules Companies listed on the NYSE must comply with certain standards regarding corporate governance as codified in Section 303A of NYSE’s Listed Company Manual, as amended. Nevertheless, the Bank, while a listed company, qualifies also as a foreign private issuer and, as such, is permitted to follow its home country corporate governance practices, governed by the Argentine Corporate Law, the Capital Markets Law and the standards of the CNV and the Central Bank, in lieu of the provisions of Section 303A, except that it is required to comply with the requirements of Sections 303A.06, 303A.11 and 303A.12 (b) and (c). Accordingly: we must comply with four principal NYSE corporate governance rules: (i) we must satisfy the audit committee requirements of Rule10A-3 under the Securities Exchange Act of 1934 (the “Exchange Act”) (Section 303A.06); (ii) we must provide a brief description of any significant differences between our corporate governance practices and those followed by U.S. companies under NYSE listing standards (Section 303A.11); (iii) our Chief Executive Officer must promptly notify the NYSE in writing after any of our executive officers become aware of anynon-compliance with the applicable NYSE corporate governance rules (Section 303A.12(b)); and (iv) we must submit an executed written affirmation (in relation to the members of our audit committee) annually or interim written affirmations, if required by the NYSE (Section 303A.12(c)). The table below discloses any significant differences between the NYSE rules and our corporate governance practices pursuant to Argentine corporate governance rules.
We have responded to Item 18 in lieu of responding to this Item. EXHIBIT INDEX
SIGNATURE The registrant hereby certifies that it meets all of the requirements for filing on Form20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
Date: May CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of BANCO MACRO S.A. and its subsidiaries Opinion on the Financial Statements We have audited the accompanying consolidated We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the internal control over financial reporting of Basis for Opinion These consolidated financial statements are the responsibility of the Bank’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical audit matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (i) relates to accounts or disclosures that are material to the financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Impairment of financial assets Description of the matter As more fully described in Note 3.2.4. to the financial statements, the Bank recognized an allowance for credit losses related to loans and investments in private and government debt securities not held at fair value through profit or loss, together with loan commitments and financial guarantee contracts, using an expected credit loss model (ECL). This allowance, that amounts to 5,135,597 thousand pesos as disclosed in note 51.1.1, represents a probability-weighted amount, which is determined by evaluating a range of possible outcomes and reasonable and supportable information about past events, current conditions and forecasts of future economic conditions. The allowance is based on the ECL associated with the probability of default in the next twelve months unless there has been a significant increase in credit risk since origination or there is objective evidence of impairment. In those cases, the allowance is based on the change in the ECL over the life of the financial instrument. Auditing the allowance for credit losses was complex and required the application of significant judgment due to the inherent complexity of the models, assumptions and the interrelationship of the variables used in measuring the ECL, including the effects of the current and future Argentine macroeconomic and financial environment in relation to the Bank’s exposure to government securities and Argentine Central Bank bills. Significant assumptions and judgments with respect to the estimation of the allowance for credit losses include the determination of significant changes in credit risk; the forecast of multiple alternative economic scenarios and the probability weighting of those scenarios, and the application of management’s expert credit judgment. The allowance for credit losses is a significant estimate for which variations in model methodology, underlying assumptions and judgments could have a material effect on its measurement. How we addressed the matter in our audit We obtained an understanding, evaluated the design and tested the operating effectiveness of the Bank’s controls, including those related to information systems used in the determination of the allowance for credit losses. The controls we tested included, amongst others, controls over the development and review of inputs and models used to calculate the ECL, data completeness and accuracy, economic forecasting, including the probability weighting of the economic scenarios and the governance and oversight over the modelled results and the use of expert credit judgment. To test the allowance for credit losses, our audit procedures included, amongst others, involving our credit risk modelling specialists to assist in assessing whether the methodology and assumptions used to estimate ECL are consistent with the requirements of IFRS, the Bank’s own historical data and industry standards; assessing significant changes in credit risk triggers; evaluating management’s forecasting methodology and comparing management’s forward-looking information to independently derived forecasts and publicly available information; evaluating the scenario probability weights used in the ECL models and performing independent recalculations; evaluating that the assumptions used were reflective of the credit quality and macroeconomic trends and testing the completeness and accuracy of data used in the measurement of the ECL. We also assessed the adequacy of the allowance for credit loss financial statement disclosures.
We have served as the Bank’s auditor since 2003 City of Buenos Aires, Argentina May 15, 2020 BANCO MACRO SA AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AS OF DECEMBER 31, (Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31,
BANCO MACRO SA AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AS OF DECEMBER 31, (Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31,
The accompanying notes 1 to BANCO MACRO SA AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME FOR THE FISCAL YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 (Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31,
BANCO MACRO SA AND ITS SUBSIDIARIES
CONSOLIDATED EARNINGS/LOSSES PER SHARE FOR THE FISCAL YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 (Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31,
BANCO MACRO SA AND ITS SUBSIDIARIES
STATEMENTS OF OTHER COMPREHENSIVE INCOME FOR THE FISCAL YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 (Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31,
The accompanying notes 1 to BANCO MACRO SA AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE FISCAL YEAR ENDED DECEMBER 31, 2019 (Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2019, except otherwise indicated)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE FISCAL YEAR ENDED DECEMBER 31, 2018 (Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31,
BANCO MACRO SA AND ITS SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE FISCAL YEAR ENDED DECEMBER 31, 2017 (Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2019, except otherwise indicated)
The accompanying notes 1 to BANCO MACRO SA AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE FISCAL YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 (Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2019, except otherwise indicated)
BANCO MACRO SA AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE FISCAL YEARS ENDED DECEMBER 31, 2019 AND 2018 (Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2019, except otherwise indicated)
The accompanying notes 1 to 54 to the consolidated financial statements are an integral part of these consolidated financial statements. BANCO MACRO SA AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31,
Banco Macro SA (hereinafter, the Bank), is a stock corporation (sociedad anónima), organized in the Argentine Republic, The Bank offers traditional banking products and services to companies, including those companies operating in regional economies, as well as to individuals, thus strengthening its goal to be a multiservice bank. In addition, through its subsidiaries, the Bank performs transactions as a trustee agent, manager and administrator of mutual funds and renders stock exchange services. Macro Compañía Financiera SA was created in 1977, as anon-banking financial institution. In May 1988, it received the authorization to operate as a commercial bank and it was incorporated as Banco Macro SA. Subsequently, as a result of the merger process with other entities, it adopted other names (among them, Banco Macro Bansud SA) and since August 2006, Banco Macro SA. The Bank’s shares have been publicly listed on Bolsas y Mercados Argentinos (BYMA) since November 1994; and as from March 24, 2006 they are listed on the New York Stock Exchange (NYSE). Additionally, on October 15, 2015, they were authorized to be listed on the Mercado Abierto Electrónico SA (MAE). Since 1994, Banco Macro SA’s market strategy was mainly focused on the regional areas outside the City of Buenos Aires. Following this strategy, in 1996, Banco Macro SA started the process to acquire entities and assets and liabilities during the privatization of provincial and other banks. On May 21, 2019, the Bank acquired 100% of Argenpay SAU for an amount of 100 conformed by 100,000 common, registered shares, with a face value of Ps. 1 each one and entitled to one vote. The main activity of such company is the development of its own network or the incorporation into other networks so that it can operate with individuals or companies,in-person or remotely, by using information and communication technologies, grant, offer or accept electronic paymentsonlineoroffline, digital and virtual wallets and e-commerce in general. This subsidiary started to develop its principal activities during the fourth quarter of 2019. These consolidated financial statements for the year ended December 31,
The Bank and the Misiones Provincial Government entered into a special-relationship agreement whereby the Bank was appointed, for a five-year term since January 1, 1996, as the Provincial Government’s exclusive financial agent, as well as revenue collection and obligation payment agent. On November 25, 1999, As of December 31,
The Bank and the Salta Provincial Government entered into a special-relationship agreement whereby the Bank was appointed, for aten-year term since March 1, 1996, as the Provincial Government’s exclusive financial agent, as well as revenue collection and obligation payment agent. On February 22, 2005, and August 22, 2014, extensions to such agreements were agreed upon, making it currently effective through February 28, 2026. As of December 31, BANCO MACRO SA AND ITS SUBSIDIARIES
The Bank and the Jujuy Provincial Government entered into a special-relationship agreement whereby the Bank was appointed, for aten-year term since January 12, 1998, as the Provincial Government’s exclusive financial agent, as well as revenue collection and obligation payment agent. On April 29, 2005 and July 8, 2014, extensions to such agreement were agreed upon, making it currently effective through September 30, 2024. As of December 31,
On July 4, 2018 the legislative body of the province of Tucumán enacted, into law a bill issued by the provincial executive, authorizing the sale of the shares held by such province in Banco de Tucumán SA to Banco Macro SA as well as the continuity as a provincial finance agent for an additional period of ten years from the expiration of the contract, and if applicable, the possibility of merging both entities. On August 10, 2018, the province of Tucumán transferred to Banco Macro SA, 43,960 Class B common registered
On On August 15, 2019, the Board of the Central Bank of Argentina (BCRA, for its acronym in Spanish) through Resolution No. 179, authorized the merger of Banco del Tucuman SA by Banco Macro SA. On September 25, 2019, Argentine Securities and Exchange Commission (CNV, for its acronym in Spanish), authorized the merger which was registered at the Public Registry of Commerce on September 30, 2019. Through Communiqué “C” 84993, the BCRA informed that according to the authorization gave in due time, on October 15, 2019 Banco Macro SA performed the merger with former Banco del Tucumán SA. Additionally, since that date, the authorization of former Banco del Tucumán SA to operate as a commercial bank was revoked and its buildings were incorporated to Banco Macro SA as branches. The exchange ratio has been agreed at 0.65258 ordinary shares of Banco Macro SA for each face value $ 1 of common share of former Banco del Tucumán SA. Therefore, the minority shareholders of former Banco del Tucumán SA Consequently, Banco Macro As of December 31, Additionally, as of December 31, 2019 and 2018, the bank granted loans to the Tucumán Provincial Government for an amount of 5,587,274 and 3, respectively. BANCO MACRO SA AND ITS SUBSIDIARIES
Presentation basis Applicable Accounting Standards These consolidated financial statements have been prepared in accordance with
The consolidated financial statements of the Bank comprise the Standards and Interpretations adopted by the IASB and includes:
the IFRS;
the International Accounting Standards (IAS); and
the interpretations developed by the IFRS Interpretations Committee (IFRIC) or former IFRIC (SIC).
Going concern The Bank’s management has made an assessment of its ability to continue as a going concern and is satisfied that it has the resources to continue in business for the foreseeable future. Furthermore, management is not aware of any material uncertainties that may cast significant doubt on the Bank’s ability to continue as a going concern. Therefore, these consolidated financial statements continue to be prepared on the going concern basis. Figures expressed in thousands of pesos The consolidated financial statements disclose figures expressed in thousands of Argentine pesos in terms of purchasing power as of December 31, Statement of financial The Bank presents its Financial assets and financial liabilities are generally reported gross in the consolidated statement of financial position. They are only offset and reported net when there is a legal and enforceable right to offset such financial assets and liabilities and the Management also intends to settle them on a net basis or to realize assets and settle liabilities simultaneously. These consolidated financial statements were Comparative information The statement of financial position as of December 31,
BANCO MACRO SA AND ITS SUBSIDIARIES
Measuring unit These consolidated financial statements as of December 31, According with IAS 29, the restatement of financial statements is needed when the functional currency is the currency of a hyperinflationary economy. To achieve consistency in identifying an economic environment of that nature, IAS 29 establishes (i) certain qualitative indicators, not limited to, consist of analyzing the general population behavior, prices, interest rates and wages with changes to a price index and the loss of purchasing power, and (ii) as quantitative characteristic, which is the mostly condition used in practice, to test if a three-year cumulative inflation rate is around 100% or more. The restatement was applied as if the economy had always been hyperinflationary; using a general price index that reflects changes in general purchasing power. To apply the restatement, a series of indexes were used, as prepared and published on a monthly basis by the Argentine Federation of Professionals Councils in Economic Sciences (FACPCE, for its acronym in Spanish), which combines consumer price index (CPI) on a monthly basis published by the Argentine Institute of Statistics and Censuses (INDEC, for its acronym in Spanish) since January 2017 (baseline month: December 2016) with the wholesale prices indexes published by the INDEC until that date. For the months of November and December 2015, for which the INDEC did not publish the wholesale price index (WPI) variation, the CPI variation for CABA was used. Considering the abovementioned indexes, the inflation rate was Below is a description of the restating mechanism provided by IAS 29: Restatement of the statements of financial position:
BANCO MACRO SA AND ITS SUBSIDIARIES
Restatement of the statements of comprehensive income:
Restatement of the statements of changes in shareholders’ equity: All equity´s components were restated by applying a general price index, as mentioned before, from the beginning of the fiscal year or the date of contribution, if later. The inflation adjustment related to “Capital stock” and “Additionalpaid-in capital” is accumulated in “Adjustment to Shareholders’ Equity” (see section of “Comparative information” of this note).
Restatement of the statements of cash flows: IAS 29 requires that all items in the statement of cash flows are expressed in terms of the measuring unit current at the end of the reporting fiscal year. The monetary gain or losses generated by cash and cash equivalents are separately disclosed in the statement of cash flows from the cash flows from operating activities and the effect of exchange rate fluctuation, as a specific item of the reconciliation between cash and cash equivalent at the beginning and the end of the fiscal years. As a consequence, the application of IAS 29 results in an adjustment for the loss of purchasing power of the argentine peso recorded in the consolidated statement of income as a loss on the net monetary position. In a period of inflation, as the Bank holds an excess of monetary assets over monetary liabilities, it loses purchasing power, which results in a loss on the net monetary position. This loss is derived as the difference resulting from the restatement ofnon-monetary assets and liabilities, equity and items in the consolidated statement of comprehensive income. Corresponding figures as of December 31, Basis for Consolidation These consolidated financial statements include the financial statements of the Bank and its subsidiaries as of December 31, Subsidiaries are all the entities controlled by the Bank. The Bank controls other entity when it is exposed, or has rights, to variable returns from its continuing involvement with such other entity, and has the ability to use its power to direct the operating and financing policies of such other entity, to affect the amounts of such returns. This generally happens when there is a shareholding of more than half of its shares having voting rights. Notwithstanding the above, under certain particular circumstances, the Bank may still have control with less than a 50% participating interest or may not have the control even if it holds more than half of the shares of such other entity. Upon evaluating whether it has power over the controlled entity, and therefore controls the variation of its returns, the Bank shall consider all relevant facts and circumstances, including:
The purpose and design of the controlled entity,
What the relevant activities are and how decisions about those activities are made and whether the Bank has the ability to direct such relevant activities,
Contractual arrangements such as call rights, put rights and liquidation rights, BANCO MACRO SA AND ITS SUBSIDIARIES
Whether the Bank is exposed, or has rights, to variable returns from its involvement with such controlled entity, and whether the Bank has the ability to use its power over the controlled entity to affect the amount of the Bank’s returns. The Bank has no interests in structured entities that required to be consolidated. Subsidiaries are completely consolidated since the date of the effective transfer of the control over the same to the Bank and consolidation ceases when the Bank loses control over the subsidiaries. These consolidated financial statements include the assets, liabilities, income and each component of other comprehensive income of the Bank and its subsidiaries. Transactions between consolidated entities are completely eliminated. Changes in a parent’s ownership interest in a subsidiary that do not result in the parent losing control of the subsidiary are equity transactions. However, if a parent company loses control of a subsidiary, it shall derecognize the assets (including any goodwill) and liabilities of the subsidiary, anynon-controlling interests in the former subsidiary and other capital components, while any profit or loss derived from the transaction, event or circumstances that resulted in the loss of control shall be recognized as in profit or loss, and any investment retained in the former subsidiary shall be recognized at its fair value at the date when control is lost. The financial statements of the subsidiaries have been prepared as of the same dates and for the same accounting periods as those of the Bank, using uniform accounting policies consistent with those applied by the entity. In case necessary, adjustments shall be made to the financial statements of the subsidiaries so that the accounting policies used by the group will be uniform. The Bank considers the Argentine peso as its functional and presentation currency. To such effect, before consolidation, the financial statements of its subsidiary Macro Bank Limited, originally expressed in US dollars, were translated to pesos (presentation currency) using the following
Assets and liabilities were converted at the reference exchange rate of the BCRA, in force for that foreign currency at the closing of business on the last business day of the fiscal years ended December 31,
Figures related to the owners’ contributions (capital stock, stock issuance premium and irrevocable capital contributions) were translated applying the effective exchange rates as of the date on which such contributions were paid in.
Income for the fiscal years ended December 31,
Foreign currency translation differences arising as a result of the preceding paragraphs are recognized as a separate component within the Shareholders’ Equity account reporting them in the statement of other comprehensive income, which is called “Foreign currency translation differences in financial statements conversion”. On the other hand,
BANCO MACRO SA AND ITS SUBSIDIARIES
The tables below show the Bank’s equity interest and voting rights in the companies it consolidates:
As of December 31, 2019:
As of December 31, 2018:
Total assets, liabilities and
The Bank’s Management considers there are no other companies or structured entities to be included in the consolidated Financial Statements as of December 31,
2018. Summary of significant accounting policies Below there is a description of the principal valuation and disclosure criteria used for the preparation of these consolidated financial statements as December 31,
The Bank considers the Argentine Peso as its functional and presentation currency. The assets and liabilities denominated in foreign currency, mainly in US dollars, were valued at BCRA benchmark US dollar exchange rate effective as of the closing date of transactions on the last business day of each fiscal year. BANCO MACRO SA AND ITS SUBSIDIARIES Additionally, assets and liabilities denominated in other foreign currencies were translated at the repo exchange rate in US Dollars communicated by the BCRA’s dealing room. Foreign exchange differences were recorded in the related Statements of income as “Difference in quoted prices of gold and foreign currency”.
Initial Recognition and Measurement The Bank recognizes a financial instrument when it becomes party to the contractual provisions thereof. The purchase and sale of financial assets requiring the delivery of assets within the term generally established by the rules and regulations or the market conditions are recorded on the transaction’s trading date, i.e., on the date the Bank undertakes to acquire or sell the relevant asset. At initial recognition, the financial assets and liabilities were recognized at fair value. Those financial assets and liabilities not recognized at fair value through profit or loss, were recognized at fair value adjusted for transactions costs directly attributable to the acquisition or issue of the financial asset or liability. At initial recognition, the fair value of a financial instrument is generally the transaction price. Nevertheless, if part of the consideration received or paid is for something different from the financial instrument, the Bank estimates the fair value of the financial instrument. If the fair value is based on a valuation technique that uses only data from observable markets, the Bank shall recognize the difference between Finally, in the normal course of business, the Bank arranges repo transactions. According to IFRS 9, assets involved in repurchase and reverse repurchase transactions and received from or delivered to third parties, respectively, do not qualify to be recognized or derecognized, Subsequent measurement – Business Model The Bank established three categories for the classification and measurement of its debt instruments, in accordance with the Bank’s business model to manage them and the contractual cash flow characteristics thereof:
At amortized cost: the objective of the business model is to hold financial assets in order to collect contractual cash flows.
At fair value through other comprehensive income: the objective of the business model is both collecting the contractual cash flows of the financial asset and/or of those derived from the sale of the financial asset.
At fair value from profit or loss: the objective of the business model is generating income derived from the purchase and sale of financial assets. Therefore, the Bank measures its financial assets at fair value, except for those that meet the following two conditions and are measured at amortized cost:
The financial assets are held within a business model whose objective is to hold financial assets in order to collect contractual cash
The contractual terms of the financial asset give rise, on specified dates, to cash flows that are solely payments of principal and interest on the principal amount outstanding.
The Bank’s business model is determined at a level that reflects how groups of financial assets are managed together to achieve a particular business objective. The business model is not assessed on aninstrument-by-instrument approach, but it should rather be determined on a higher level of aggregation and is based on observable factors such as:
BANCO MACRO SA AND ITS SUBSIDIARIES
The assessment of the business model is performed on the basis of scenarios that the Bank reasonably expects to occur, without taking into account the scenarios such as theso-called ‘worst case’ or ‘stress case’ scenarios. If after the initial recognition cash flows are realized in a way that is different from the Bank’s expectations, the classification of the remaining financial assets held in that business model does not change, but it rather considers all relevant information to assess the newly originated or newly purchased financial assets. Test of solely payments of principal and interest As part of the classification process, the Bank assessed the contractual terms of its financial assets in order to determine if such financial instruments give rise to cash flows on specific dates which are solely payments of principal and interest on the principal amount outstanding. For the purposes of this assessment, “principal” is defined as the fair value of the financial asset at initial recognition, provided such amount may change over the life of the financial instrument, for example, if there are repayments of principal or premium amortization or discount. The most significant elements of interest within a loan agreement are typically the consideration for the time value of money and credit risk. In order to SPPI test contractual cash flow characteristics, the Bank applies judgment and considers relevant factors such as the currency in which the financial asset is denominated and the period for which the interest rate is set. However, contractual terms that introduce exposure to risks or volatility in the contractual cash flows that are unrelated to a basic lending arrangement, do not give rise to contractual cash flows that are solely payments of principal and interest on the principal amount outstanding. In such cases, financial assets are required to be measured at fair value through profit or loss. Therefore, the financial assets were classified pursuant to the above expressed as “Financial assets at fair value through profit or loss”, “Financial assets at fair value through other comprehensive income” or “Financial assets at amortized cost”. Such classification is disclosed in note 12.
This category presents two subcategories: financial assets at fair value held for trading and financial assets initially designated at fair value by the Management or under section 6.7.1. of IFRS 9. The Bank has only financial assets at fair value through profit or loss for trading purposes. The Bank classifies the financial assets as held for trading when they have been acquired or incurred principally for the purpose of selling or repurchasing it in the near term or when they are part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking. Financial assets and liabilities at fair value through profit or loss are recognized at fair value in the statement of financial position. Changes in fair value are recognized under the item “Net The fair value estimation is explained on a detail basis in section “Accounting judgments, estimates and assumptions” of this
A financial asset shall be measured at fair value through other comprehensive income if (i) the financial instrument is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets and (ii) the contractual terms of the financial asset meet the BANCO MACRO SA AND ITS SUBSIDIARIES Debt instruments at fair value through other comprehensive income are recognized in the statement of financial position at fair value. Profits and losses derived from changes in fair value are recognized in other comprehensive income as “Profits or losses from financial instruments measured at fair value through other comprehensive income”. Interest income (calculating by the “effective interest method”, which is explained in the following section), profit and loss from translation differences and impairment are recognized in the statement of income in the same manner as for financial assets measured at amortized cost and are disclosed as “Interest income”, When the Bank has more than one investment on the same security, it must be considered that they shall be disclosed using the first in first out costing method. On derecognition, gains and losses accumulated previously recognized in OCI are reclassified to profit or loss.
They represent financial assets held in order to collect contractual cash flows and the contractual terms of which give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. After initial recognition, these financial assets are recognized in the statement of financial position at amortized cost using the effective interest method, less the allowances for expected credit losses. Interest income and impairment are disclosed in the statement of income as “Interest income” and “Credit loss expense on financial assets”, respectively. Changes in the allowance are presented in note 9. The effective interest method uses the rate that allows the discount of estimated future cash payments or receipts through the expected life of the financial instrument or lesser term, if applicable, to the net carrying amount of such financial instrument. When applying this method, the Bank identifies points paid or received, fees, premiums, discounts and transaction costs, incremental and direct costs as an integral part of the effective interest When a financial asset becomes credit-impaired (as set out in Note 3.2.4) and is therefore regarded a ‘Stage 3’, the Bank calculates interest income by applying the effective interest method to the net amortized cost of the financial asset. If the financial asset cures (as outlined in Note 3.2.4) and is no longer credit-impaired, the Bank reverts to calculating interest income on a gross basis.
They were valued at their nominal value plus the relevant
These transactions were recognized in the statement of financial position as financing granted (received), as “Repo transactions”. The difference between purchase and sale prices of such instruments were recognized as interest accrued during the effective term of the transactions using the effective interest method and were allocated in the statement of income as “Interest income” and “Interest expense”.
They arenon-derivative financial assets that the Bank holds within a business model whose objective is to hold financial assets in order to collect contractual cash flows and the contractual terms of which give rise, on specified dates, to cash flows that are solely payments of principal and interest on the principal amount outstanding. BANCO MACRO SA AND ITS SUBSIDIARIES
After initial recognition, loans and other financing were measured at amortized cost using the effective interest method, less the credit loss expense on financial assets. The amortized cost was calculated taking into account any discount or premium incurred in the origination or acquisition, and origination fees or commissions, which are part of the
3.2.4.1.Overview of the The Bank
The ECL allowance The Both the LTECL and 12mECL are calculated on either an individual basis or a collective basis, depending on the nature of the underlying portfolio of financial instruments. The Bank’s policy for grouping financial assets measured on a collective basis is explained in note 51.1.1.1. The Bank has established a policy to perform an assessment, at the end of each reporting period, of whether a financial instrument’s credit risk has increased significantly since initial recognition, by considering the change in the risk of default occurring over the remaining life of the financial instrument. This is further explained in note 51.1.1.6. Based on the above process, the Bank groups its loans into Stage 1, Stage 2, Stage 3 and Purchased or originated credit impaired
Stage 1: when financial
Stage 2: when a financial
Stage 3: financial
POCI: For financial BANCO MACRO SA AND ITS SUBSIDIARIES The Bank estimates an allowance for expected credit losses on the following financial
Loans and other financing.
Other financial assets at amortized cost.
Other debt Securities at amortized cost.
Other debt Securities measured at fair value through Other Comprehensive Income (OCI).
Loan commitments and letters of credit.
Guarantees and other commitments.
The Bank calculates The mechanics of the ECL calculations are outlined below and the key elements are, as follows:
PD (Probability of Default): is an estimate of the likelihood of default over a given time horizon. A default may only happen at a certain time over the assessed period, if the facility has not been previously derecognized and is still in the portfolio. The concept of PD is further explained in note 51.1.1.3.
EAD (Exposure at Default): is an estimate of the exposure at a future default date, taking into account expected changes in the exposure after the reporting date, including repayments of principal and interest, whether scheduled by contract or otherwise, expected drawdowns on committed facilities, unused agreed commitments and accrued interest from missed payments. The EAD is further explained in note 51.1.1.4.
LGD (Loss Given Default): is an estimate of the loss arising in the case where a default occurs at a given time. It is based on the difference between the contractual cash flows due and those that the lender would expect to receive, including from the realization of any collateral. It is usually expressed as a percentage of the EAD. The LGD is further explained in note 51.1.1.5. When estimating the
With the exception of credit cards and other revolving facilities, for which the treatment is separately set out in note 3.2.4.4, the maximum period for which the credit losses are determined is the contractual life of a financial instrument unless the Bank has the legal right to call it earlier. Impairment losses and releases are accounted for and disclosed separately from modification losses or gains that are accounted for as an adjustment of the financial asset’s gross carrying value. The calculation of BANCO MACRO SA AND ITS SUBSIDIARIES The mechanics of the ECL method are summarized below:
Stage 1: the 12mECL is calculated as the portion of LTECL that represents the
Stage 2: when a financial instrument has shown a significant increase in credit risk since origination, the Bank records a credit loss expense on financial
Stage 3: for financial
Loan commitments and letters of credit: when estimating LTECL for undrawn loan commitments, the Bank estimates the expected portion of the loan commitment that will be For credit cards and revolving facilities that include both a loan and an undrawn commitment,
Guarantees and other commitments: the Bank’s liability under each guarantee is measured at the higher of the amount initially recognized less cumulative amortization recognized in the income statement, and the ECL provision. For this purpose, the Bank estimates
The
The Bank’s product offering includes a variety of corporate and retail overdraft and credit cards facilities, in which the Bank has the right to cancel and/or reduce the facilities with short notice. The Bank does not limit its exposure to credit losses to the contractual notice period, but, instead calculates ECL over a period that reflects the Bank’s expectations of the customer behavior, its unused agreed commitments, its likelihood of default and the Bank’s future risk mitigation procedures, which could include reducing or cancelling the facilities. Based on the Bank’s methodology, the period over which the Bank calculates BANCO MACRO SA AND ITS SUBSIDIARIES The interest rate used to discount the
In its ECL models, the Bank relies on a broad range of
GDP growth
The inputs and models used for calculating
To mitigate its credit risks on financial To the extent possible, the Bank uses active market data for valuing financial assets held as collateral. Other financial assets which do not have readily determinable market values are valued using internal procedures.Non-financial collateral, such as real estate, is valued based on data provided by third parties such as mortgage brokers. 3.2.4.7.Collateral repossessed
Assets for which selling is determined to be a better option are transferred to assets held for sale at their fair value (if financial assets) and fair value less cost to sell In its normal course of business, the Bank does not physically repossess properties or other assets in its retail portfolio, but engages external agents to recover funds, generally at auction, to settle outstanding debt. Any surplus funds are returned to the customers/obligors. As a result of this practice, the residential properties under legal repossession processes are not recorded on the balance sheet.
The BANCO MACRO SA AND ITS SUBSIDIARIES
The Bank sometimes makes modifications to the original terms of loans as a response to the borrower’s financial difficulties, rather than taking possession or to otherwise enforce collection of collateral. The Bank considers a loan forborne when such modifications are provided as a result of the borrower’s present or expected financial difficulties and the Bank would not have agreed to them if the borrower had been financially healthy. Indicators of financial difficulties include defaults on covenants, or significant concerns raised by the Risk Management Department. Forbearance may involve extending the payment arrangements and the agreement of new loan conditions. Once the terms have been renegotiated, any impairment is measured using the original EIR as calculated before the modification of terms. It is the Bank’s policy to monitor forborne loans to help ensure that future payments continue to be likely to occur. Derecognition decisions and classification between Stage 2 and Stage 3 are determined on acase-by-case basis for commercial portfolio and collectively for consumer portfolio. If these procedures identify a loss in relation to a loan, it is disclosed and managed as an impaired Stage 3 forborne asset until it is collected or written off.
If modifications are substantial, the loan is derecognized and a new loan with different conditions is recognized.
After initial recognition, certain financial liabilities were measured at amortized cost using the effective interest method, except for derivatives that were measured at fair value through profit or loss. Interests were allocated in the statement of income as “Interest expense”. Within other financial liabilities Any increase in the liabilities related to a financial guarantee was recognized as income. The commission received has been recognized as “Commissions income” in the consolidated statement of income, based on the amortization thereof following the straight-line method over the effective term of the financial guarantee granted.
Receivables and payables from forward transactions without delivery of underlying assets It includes forward purchase, BANCO MACRO SA AND ITS SUBSIDIARIES Derecognition of financial assets and liabilities A financial asset (or, if applicable, a part of a financial asset or a part of a group of similar financial assets) shall be derecognized when: (i) the contractual rights to the cash flows from the financial asset expire, or (ii) the Bank transfers the contractual rights to receive the cash flows of the financial asset or retains the contractual rights to receive the cash flows of the financial asset, but assumes a contractual obligation to pay the cash flows received immediately to a third party pursuant to a transfer agreement. A transfer shall qualify for derecognition of the financial asset only if (i) the Bank has transferred substantially all the risks and rewards of ownership of the financial asset, or (ii) it has neither transferred nor retained substantially all the risks and rewards of ownership of the financial asset, but has transferred the control of the financial asset, considering that the control is transferred if, and only if, the transferee has the practical ability to sell the asset in its entirety to an unrelated third party and is able to exercise that ability unilaterally and without needing to impose additional restrictions on the transfer.
If the Bank neither transfers nor retains substantially all the risks and rewards of ownership of a transferred asset, and has retained the control over it, the Bank shall continue to recognize such transferred asset to the extent to which it is exposed to changes in the value of the transferred asset. The Bank derecognizes a loan when the terms and conditions have been renegotiated and if, substantially, it becomes in a new loan, recognizing the difference for derecognition in profit or loss. If the modification does not generate substantially different cash flows, the modification does not result in derecognition of the loan. The Bank recalculates the gross carrying amount of the assets as present value of modified contractual cash flows, using for the discount the original On the other hand, a financial liability is derecognized when the obligation specified in the relevant contract is discharged or cancelled or expires. When there is an exchange between an existing borrower and lender of debt instruments with substantially different terms, or the terms are substantially modified, such exchange or modification shall be accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability, recognizing the difference between the carrying amount of a financial liability extinguished or transferred to another party and the consideration paid, in the statement of income as “Other operating income”. Reclassification of financial assets and liabilities – Changes in business model
On December 1, 2019, the amortized cost of such investment amounted to 2,520,407 while its fair value as of that date amounted to 2,075,748, generating a reclassification loss for an amount of 444,658. As of December 31, 2019 this investment generated a gain since the reclassification date for an amount of 1,902,401. During this fiscal year, there were not other material reclassifications. Additionally, financial 3.3Leases From fiscal years beginning on January 1, The accounting policies applicable before IFRS 16 and as of January 1, 2019 are described as follows: BANCO MACRO SA AND ITS SUBSIDIARIES 3.3.1 Policy applicable before January 1, 2019 The determination of whether an arrangement is a lease or contains a lease, is based on the substance of the arrangement and requires an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets or whether the arrangement conveys a right to use the asset. 3.3.1.1 The Bank as a lessee Leases that do not transfer to the Bank 3.3.1.2 The bank as a lessor
The Bank grants loans through financial leases, recognizing the current value of lease payments as a financial asset, which is registered in the statement of financial position in the item “loans and other financing”. The difference between the total lease receivables and the current value of financing is recognized as interest to accrue. This income is recognized during the term of the lease using the 3.3.2 Policy applicable as of January 1, 2019 The Bank assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. 3.3.2.1 The Bank as a lessee The Bank applies a single recognition and
An associate is an entity over which the Bank has significant influence, i.e. the power to participate in the financial and operating policy decisions of such controlled entity, but without having the control thereof. Investments in associates were recognized through the equity method and they were initially recognized at cost. The Bank’s share in the profits or losses after the acquisition of its associates was accounted in the statement of income, and its share in other comprehensive income after the acquisition were accounted for in the consolidated statement of other comprehensive income. A joint arrangement is an arrangement of which the Bank and other party or parties have joint control. Under IFRS 11 “Joint Arrangements”, investments in these arrangements are classified as joint ventures or joint operations depending on the contractual rights and obligations of each investor, regardless of the legal structure of the arrangement. A joint venture is an arrangement pursuant to which the parties having joint control of the arrangement have rights to the net assets of such arrangement. A joint operation is an arrangement pursuant to which the parties having joint control of the arrangement have rights to the assets and obligations for the liabilities, relating to the arrangement. The Bank has assessed the nature of its joint arrangements and determined that the same are joint ventures. Investments in joint ventures were recognized using the equity method described in the paragraph above. See also note 14.
The Bank chose the cost model for all kinds of assets accounted for in this accounting
Depreciation of the items of property, plant and equipment was assessed in proportion to the estimated months of useful life, depreciating completely on the acquisition month of the assets and not on the derecognition date. In addition, at least at each financialyear-end, the Bank reviews if expectations regarding the useful life of each item of property, plant and equipment differ from previous estimates, in order to detect any material changes in useful life which, if confirmed, shall be adjusted applying the relevant correction to the depreciation of property, plant and equipment accounting item. Depreciation charges are recorded in the related statement of income as “Depreciation and amortization of fixed assets”. The residual value of the assets, as a whole, does not exceed their recoverable amount.
Intangible assets acquired separately were initially measured at cost. After initial recognition, they were accounted for at cost less any accumulated depreciation (for those to which finite useful lives have been allocated) and any accumulated impairment losses, if applicable. For internally generated intangible assets, only disbursements related with development are capitalized while the other disbursements are not be capitalized and are recognized in the statement of income for the period in which such expenditure is incurred.
BANCO MACRO SA AND ITS SUBSIDIARIES Useful lives of intangible assets may be finite or indefinite. Intangible assets with finite useful lives are amortized over their economic useful lives, and are reviewed in order to determine whether they had any impairment loss to the extent there is any evidence that indicates that the intangible asset may be impaired. The period and method of amortization for an intangible asset with a finite useful life are reviewed at least at the financialyear-end of each reporting period. Depreciation charges of intangible assets with finite useful lives are accounted for in the statement of income as “Depreciation and amortization of fixed assets”. Intangible assets with indefinite useful lives are not amortized and are subject to annual tests in order to determine whether they are impaired, either individually or as part of the cash-generating unit to which such intangible assets were allocated. The Bank has not intangible assets with indefinite useful lives. The gain or loss arising from the derecognition of an intangible asset shall be determined as the difference between the net disposal proceeds, if any, and the carrying amount of the asset, and it shall be recognized in the Statement of income when the asset is derecognized. Development expenditure incurred in a specific project shall be recognized as intangible asset when the Bank can demonstrate all of the following:
the technical feasibility of completing the intangible asset so that it will be available for use or sale,
its intention to complete the intangible asset and use or sell it,
how the intangible asset will generate probable future economic benefits,
the availability of adequate resources to complete the development, and
its ability to measure reliably the expenditure attributable to the intangible asset during its development. After initial recognition of the development expenditure as an asset, such asset shall be carried at its cost less any accumulated amortization and any applicable accumulated impairment losses. Amortization shall begin when the development phase has been completed and the asset is available for use. The asset amortizes over the period in which the asset is expected to generate future benefits. Amortization is accounted for in the statement of income as “Depreciation and amortization of fixed assets”. During the development phase, the asset is subject to annual tests to determine whether there is any impairment loss. 3.7Investment Property
For this kind of property, the Bank chose the cost model and as An investment property is derecognized on disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from its disposal. The difference between the net disposal proceeds and the carrying amount of the asset is recognized in the statement of income in the period of the retirement or disposal as An entity shall transfer a property to, or from, investment property when, and only when, there is a change in use. For a transfer from investment property to an item of property, plant and equipment, the property’s deemed cost for subsequent accounting is its fair value at the date of change in use. If an item of property, plant and equipment becomes an investment property the Bank recognizes the asset up to the date of change in use in accordance with the policy established for property, plant and equipment.
The Bank reclassifies in this categorynon-current assets of which the carrying amount will be recovered principally through a sale transaction rather than through continuing use. The asset (or disposal group) must be available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets (or disposal groups) and its sale must be highly probable. BANCO MACRO SA AND ITS SUBSIDIARIES Non-current assets classified as held for sale are measured, when they are reclassified to this category, at the lower of carrying amount and fair value less costs to sell and are disclosed in a separate item in the statement of financial position. Once these assets are classified as held for sale, depreciation and amortization ceased. Profit or loss generated in the sale of assets held for sale is recorded in the statement of income as
The Bank evaluates, at least at each fiscalyear-end, whether there are any events or changes in the circumstances that may indicate the impairment ofnon-financial assets or whether there is any evidence that anon-financial asset may be impaired. When there is any evidence or when an annual impairment test is required for an asset, the Bank shall estimate the recoverable amount of such asset. If the carrying amount of an asset exceeds its recoverable amount, such asset is deemed impaired and its carrying amount shall be reduced to its recoverable amount. To the date of these consolidated financial statements, there is no evidence of impairment ofnon-financial assets.
The Bank recognizes a provision if and only if the following circumstances are met: (a) the Bank has a present obligation as a result of a past event; (b) it is probable (i.e., it is more likely than not) that an outflow of resources embodying economic benefits will be required to settle the obligation; and (c) a reliable estimate can be made of the amount of the obligation.
In order to determine the amount of provisions, the risks and uncertainties were considered taking into account the opinion of independent and internal legal advisors of the Bank. Where the effect of the time value of money is material, the provisions shall be discounted using apre-tax rate that reflects if applicable, current risks specific to the liability. When the discount is recognized, the effect of the provision derived from the lapse of time is accounted for as “Interest expense” in the statement of income. Based on the analysis carried out, the Bank recognized as provision the amount of the best estimate of the expenditure required to settle the present obligation at the end of each fiscal year. The provisions accounted for by the Bank are reviewed at the end of each reporting period or fiscal year, as applicable, and adjusted to reflect the current best available estimate. In addition, provisions are recognized with specific allocation to be used only for the expenditures for which they were originally recognized. In the event: a) the obligation is possible; or b) it is not probable that an outflow of resources will be required for the Bank to settle the obligation; or c) the amount of the obligation cannot be estimated reliably, the contingent liability shall not be recognized and shall be disclosed in notes. Nevertheless, when the possibility of an outflow of resources is remote, no disclosures shall be made.
The Bank recognized its streams of income and expenses as is explained below, in accordance with IFRS 9 and 15. The majority of Bank’s income and expenses are related to financial instruments, in general recorded using the effective interest method. The remaining income and expenses are recorded depending on the period in which the performance obligation is satisfied. In notes
Revenue from interest received and expenses for interest paid were recognized according to their accrual period, applying the effective interest method, which is explained in section “Financial assets at amortized cost – Effective interest method”. Revenue from interest received includes the return on fixed income investments and negotiable instruments, as well as the discount and premium on financial instruments. Bond coupons were recognized at the time they were declared. BANCO MACRO SA AND ITS SUBSIDIARIES
Commission charges and direct incremental costs related with the granting of financing facilities were deferred and recognized adjusting the
The Bank has generally concluded that it is the principal in its revenue arrangement because it typically controls the services before transferring them to customers.
Services provided where the Bank’s performance obligations are satisfied at a point in time are recognized once control of the services is transferred to the customer. This is typically on completion of the underlying transaction or service or, for fees or components of fees that are linked to a certain performance, after fulfilling the corresponding performance criteria. The Bank typically has a single performance obligation with respect to these services, which is to successfully complete the transaction specified in the contract.
Performance obligations satisfied over time are where the customer simultaneously receives and consumes the benefits provided by the Bank’s performance as the Bank
These items are recognized according to the recognition criteria established in the conceptual Framework, as for example revenues should be accrued.
The loyalty program offered by the Bank consists in accumulating points generated by purchases made with the credit cards, which can be exchanged by any reward (including, among other offers, products, benefits and awards) available in the program platform.
The Bank concluded that the rewards to be granted originate a separate performance obligation. Therefore, at the end of each fiscal year, the Bank recognized a provision for the rewards to be granted in “Other financial liabilities”. Based on the variables that the Bank takes into account in order to estimate the fair value of the points granted to customers (and the relation thereof with the exchange of the Reward), it is worthwhile to mention that such estimates are subject to a significant level of uncertainty (and variation) that should be considered. These considerations are described in the section “Accounting judgments, estimates and assumptions” in this note.
Tax expense (tax income) comprises current tax expense (current tax income) and deferred tax expense (deferred tax income). This tax is accounted in the consolidated statement of income, except in the case of accounting items that are to be recognized directly in the statements of other comprehensive income. In this case, each accounting item is presented before assessing their impact on Income Tax, which is accounted for in the relevant accounting item. BANCO MACRO SA AND ITS SUBSIDIARIES
Current income tax: the consolidated current income tax expense is the sum of the income tax expenses of the different entities that compose the Group (see note 1), which were assessed, in each case, by applying the tax rate to the taxable income, in accordance with the Income Tax Law, or equivalent rule or provision, of the countries in which any subsidiary operates.
Deferred income tax: it is assessed based on the On December 29, 2017 the Argentine Executive Power passed and put into effect the Tax Reform Act which, among other things,
Basic earning/loss per share shall be calculated by dividing Net profit/loss attributable to parent´s shareholders of the Bank by the weighted average number of ordinary shares outstanding during the fiscal year. See also note
The Bank renders custody, administration, investment management and advisory services to third parties that originate the holding or placement of assets in the name of such third parties. These assets and the income on them are not included in these consolidated financial statements, since they are not owned by the Bank. The commissions derived from these activities are accounted for as “Commissions income” in the statement of income. See also notes Accounting judgments, estimates and assumptions The preparation of these consolidated In certain cases, the financial statements prepared in accordance IFRS, require that the assets and liabilities to be recognized and/or presented at their fair value. The fair value is the amount at which an asset can be exchanged, or at which a liability can be settled, in mutual independent terms and conditions between participants of the principal market (or most advantageous market) duly informed and willing to transact in an orderly and current transaction. When prices in active markets are available, we have used them as basis for valuation. When prices in active markets are not available, the Bank estimated those values as values based on the best available information, including the use of models and other assessment In estimating accrued taxes, the Bank assesses the relative merits and risks of the appropriate tax treatment considering statutory, judicial and regulatory guidance in the context of the tax position. Because of the complexity of tax laws and regulations, interpretation can be difficult and subject to legal judgment. It is possible that others, given the same information, may reach different reasonable conclusions regarding the estimated amounts of accrued BANCO MACRO SA AND ITS SUBSIDIARIES In the normal course of business, the Bank is a party to lawsuits of various types. In note As to the customer loyalty program, the Bank estimates the fair value of the points awarded to customers under the “Macropremia” program by applying statistics techniques. The data that feed the models include assumptions regarding exchange percentages, the product combinations available for exchange in the future and customers’ preferences. Additionally, the measurement of impairment losses under IFRS 9 across all categories of financial New standards adopted For the fiscal year beginning on January 1, 2019, the following IFRS amendments and interpretation (hereinafter, “IFRIC”) are applicable and they did not have a material impact over these consolidated financial statements, as a whole. IFRS 16 “Leases” As mentioned in item 3.3 of this note, on January 1, 2019, IFRS 16 superseded IAS 17 “Leases”, IFRIC 4,SIC-15 and SIC-27. This standard sets out the principles for the recognition, measurement, presentation and disclosure of leases, introducing significant changes when the Bank acts as lessee. In cases when the Bank acts as a lessor, no significant changes were generated with respect to the preceding IAS. Before the adoption of IFRS 16, the Bank classified its leases (as lessee) at the inception date as either a finance lease or an operating lease. The Bank has neither acted nor acts as a lessee in agreements classified as finance lease. See section 3.3.1 of this note related to the policies applicable before January 1, 2019. The Bank adopted IFRS 16 under the modified retrospective approach from January 1, 2019, as the date of initial application of the standard. Since the adoption of IFRS 16, the Bank has applied a single accounting model for the recognition and measurement of all its leases, except for short-term leases and leases oflow-value assets. In section 3.3.2 of this note, are described the policies applicable as of January 1, 2019. This standard sets specifics requirements for transition and practical expedients, which have been applied by the Bank. For leases previously classified as operating leases, the Bank recognized aright-of-use assets and lease liabilities. Theright-of-use assets were recognized based on the carrying amount as if the standard had always been applied, apart from the use of incremental borrowing rate at the date of initial application. Lease liabilities were recognized based on the present value of the remaining lease payments, discounted using the incremental borrowing rate at the date of initial application. Additionally, the Bank applied the following practical expedients established by the standard: Used a single discount rate to a portfolio of leases with reasonably similar characteristics. Applied the short-term leases exemptions to leases with lease term that ends within 12 months at the date of initial application. Excluded the initial direct costs from the measurement of theright-of-use asset at the date of initial application. As a result of the abovementioned explained, the effect of adoption of IFRS 16 as of January 1, 2019 was an increase of the Bank’s assets and liabilities for the following amounts: BANCO MACRO SA AND ITS SUBSIDIARIES
A reconciliation between
IFRIC 23 “Uncertainty over income tax treatment” This interpretation clarifies how to apply the recognition and measurement requirements in IAS 12 “Income tax”. This interpretation addresses specifically the following: whether an entity considers uncertain tax treatments separately; the assumptions an entity makes about the examination of tax treatments by taxation authorities; how an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates; and
New pronouncements The standards that are issued, but not yet effective, up to the date of issuance of these consolidated financial statements are disclosed below. The Bank intends to adopt these standards, if applicable, when they
IFRS 3 “Business Combination” – amendments in definition of a business: the amendments will help entities determine whether an acquisition made is a business or the purchase of a group of assets. The new amended definition emphasizes that the output of a business is to provide goods and services to customers, whereas the previous definition focused on returns in the form of dividends, lower costs or other economic benefits. This standard is applicable to fiscal years beginning on January 1, 2020. The Bank does not expect IAS 1 “Presentation of Financial Statements” and IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors” – amendments to definition of material: the new definition states that information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements. The amendments clarify that materiality will depend on the nature or magnitude of information or both. These amendments replaced the threshold “could influence” with “could reasonably be expected to influence”. This implies that the materiality assessment will need to take into account how primary users could reasonably be expected to be influenced in making economic decisions. This standard is applicable to fiscal years beginning on January 1, 2020. The Bank does not expect this standard to have a material impact on the consolidated financial statements. BANCO MACRO SA AND ITS SUBSIDIARIES
The following table shows holdings of debt securities at fair value through profit or loss as of December 31, 2019 and 2018
The following table shows holdings of other debt securities as of December 31, 2019 and 2018
BANCO MACRO SA AND ITS SUBSIDIARIES
As of December 31, 2019 the unrealized gains and losses from government securities amounted to 92,304 and (439,127), respectively, and the unrealized losses related to Central Bank Bills amounted to (59,329). In addition, as of December 31, 2018, the unrealized gains and losses from government securities amounted to
The following table shows holdings of equity instruments at fair value through profit or loss as of December 31,
BANCO MACRO SA AND ITS SUBSIDIARIES
Securities sold under agreements to repurchase at a specified future date are not derecognized from the statement of financial position as the Bank retains substantially all of the risks and rewards of ownership. The corresponding cash received is recognized in the consolidated statement of financial position as an asset with a corresponding obligation to return it, including accrued interest as a liability within cash collateral on securities lent and repurchase agreements, reflecting the transaction’s economic substance as a loan to the Bank. The difference between the sale and repurchase prices is treated as interest expense and is accrued over the life of agreement using the effective interest method. When the counterparty has the right to sell orre-pledge the securities, the Bank reclassifies those securities in its statement of financial position to “Financial Assets delivered as guarantee”. Conversely, securities purchased under agreements to resell at a specified future date are not recognized in the statement of financial position. The consideration paid, including accrued interest, is recorded in the statement of financial position, within cash collateral on securities borrowed and reverse repurchase agreements, reflecting the transaction’s economic substance as a loan by the Bank. The difference between the purchase and resale prices is recorded in net interest income and is accrued over the life of the agreement using the effective interest method. If securities purchased under an agreement to resell are subsequently sold to third parties, the obligation to return the securities is recorded under “Liabilities at fair value through profit or loss”. As of December 31, As of December 31, As of December 31, Profits generated by the Bank as a result of its repurchase transactions arranged during the fiscal years ended on December 31, 2019, 2018 and 2017 total
As of December 31,
BANCO MACRO SA AND ITS SUBSIDIARIES
9.1.Exposure to credit risk
The table below shows the credit quality and the maximum exposure to credit risk based on the Bank’s internal credit rating system andyear-end stage classification. The amounts presented are gross of impairment allowances. Details of the Bank’s internal grading system are explained and policies on whether ECL allowances are calculated on an individual or collective basis are set out in note
BANCO MACRO SA AND ITS SUBSIDIARIES
An analysis of changes in the gross carrying amount and the corresponding ECL allowances in relation to commercial lending is, as follows:
BANCO MACRO SA AND ITS SUBSIDIARIES
The table below shows the credit quality and the maximum exposure to credit risk based on the Bank’s internal credit rating system andyear-end stage classification. The amounts presented are gross of impairment allowances. Details of the Bank’s internal grading system and policies about whether ECL allowances are calculated on an individual or collective basis are set out in note
BANCO MACRO SA AND ITS SUBSIDIARIES
An analysis of changes in the gross carrying amount and the corresponding ECL allowances in relation to consumer lending is, as follows:
BANCO MACRO SA AND ITS SUBSIDIARIES Over the course of 2019 and 2018, the Bank generated
The contractual amount outstanding on loans and other financing that have been written off by the Bank as of December 31,
In order to meet specific financial needs of customers, the Bank’s credit policy also includes, among others, the granting of guarantees, securities, bonds, letters of credit and documentary credits. As of December 31,
Risks related to the contingent transactions described above have been evaluated and are controlled within the framework of the Bank’s credit risk policy described in note
The Bank At the beginning, derivatives often imply only a mutual exchange of promises with little or no investment. Nevertheless, these instruments frequently imply high levels of leverage and are quite volatile. A relatively small movement in the value of the underlying asset could have a significant impact in profit or loss. Furthermore,over-the-counter derivatives may expose the Bank to risks related to the absence of an exchange market in which to close an open position. The Bank’s exposure for derivative contracts is monitored on a regular basis as part of its general risk management framework. Information on the Bank’s credit risk management objectives and policies is included in note In addition, the Bank recorded a put option taken in respect of the Bank’s right to sell its equity interest in Prisma Medios de Pago SA. (See note 21). Notional values indicate the amount of the underlying pending transactions at year end and are not indicative of either the market risk or the credit risk. BANCO MACRO SA AND ITS SUBSIDIARIES
Derivatives held for trading are generally related with products offered by the Bank to its customers. The Bank shall also take positions expecting to benefit from favorable changes in prices, rates or indexes, i.e. take advantage of the high level of leverage of these contracts to obtain yields, assuming at the same time high market risk. Additionally, they may be held for arbitrage, i.e. to obtain a benefit free of risk for the combination of a derivative product and a portfolio of financial assets, trying to benefit from anomalous situations in the prices of assets in the markets.
The fair value is the amount at which an asset can be exchanged, or at which a liability can be settled, in mutual independent terms and conditions between participants of the principal market (or the most advantageous market) who are duly informed and willing to transact in an orderly and current transaction, at the measurement date under the current market conditions whether the price is directly observable or estimated using a valuation technique under the assumption that the Bank is an ongoing business. When a financial instrument is quoted in a liquid and active market, its price in the market in a real transaction provides the most reliable evidence of its fair value. Nevertheless, when there is no quoted price in the market or it cannot be an evidence of the fair value of such instrument, in order to determine such fair value, the entities may use the market value of another instrument with similar characteristics, the analysis of discounted cash flows or other applicable techniques, which shall be significantly affected by the assumptions used.
Notwithstanding the above, the Bank’s Management has used its best judgment to estimate the fair values of its financial instruments; any technique to perform such estimate implies certain inherent fragility level. Fair value hierarchy The Bank uses the following hierarchy to determine and disclose the fair value of financial instruments, according to the valuation technique applied:
Level 1: quoted prices (unadjusted) observable in active markets that the Bank accesses to at the measurement day for identical assets or liabilities. The Bank considers markets as active only if there are sufficient trading activities with regards to the volume and liquidity of the identical assets or liabilities and when there are binding and exercisable price quotes available at each reporting period.
Level 2: Valuation techniques for which the data and variables having a significant impact on the determination of the fair value recognized or disclosed are observable for the asset or liability, either directly or indirectly. Such inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical instruments in inactive markets and observable inputs other than quoted prices such as interest rates and yield curves, implied volatilities, and credit spreads. In addition, adjustments to level 2 inputs may be required for the condition or location of the asset or the extent to which it relates to items that are comparable to the valued instrument. However, if such adjustments are based on unobservable inputs which are significant to the entire measurement, the Bank will classify the instruments as Level 3.
Level 3: Valuation techniques for which the data and variables having a significant impact on the determination of the fair value recognized or disclosed are not based on observable market information. The following tables show the hierarchy in the Bank’s financial asset and liability fair value measurement, as of December 31,
BANCO MACRO SA AND ITS SUBSIDIARIES
CATEGORIES OF FINANCIAL ASSETS AND LIABILITIES AS OF
BANCO MACRO SA AND ITS SUBSIDIARIES
CATEGORIES OF FINANCIAL ASSETS AND LIABILITIES AS OF DECEMBER 31, 2018
Description of valuation process The fair value of instruments categorized as Level 1 was assessed by using quoted prices effective at the end of each fiscal year, in active markets for identical assets or liabilities, if representative. Currently, for most of the government and private securities, there are two principal markets in which the Bank operates: BYMA and MAE. Additionally, in the case of derivatives, both MAE andMercado a Término de Rosario SA (ROFEX) are deemed active markets. On the other hand, for certain assets and liabilities that do not have an active market, categorized as Level 2, the Bank used valuation techniques that included the use of market transactions performed under mutual independent terms and conditions, between interested and duly informed parties, provided that they are available, as well as references to the current fair value of another instrument being substantially similar, or otherwise the analysis of cash flows discounted at rates built from market information of similar instruments. In addition, certain assets and liabilities included in this category were valued using price quotes of identical instruments in “less active markets”. BANCO MACRO SA AND ITS SUBSIDIARIES Finally, the Bank has categorized as level 3 those assets and liabilities for which there are no identical or similar transactions in the market. As of December 31, Below is the reconciliation between the amounts at the beginning and at the end of the fiscal year of the financial assets and liabilities recognized at fair value
Instruments measured as level 3 mainly include On the other hand, the Bank includes in Level 3 the put option taken for the abovementioned participation in Prisma Medios de Pago SA which its fair value was calculated for the same appraisers abovementioned. The result of the assets measured at fair value on the basis of unobservable data is recognized in “Net gain from measurement of financial instruments at fair value”. For the measurement of this instrument, a valuation technique based on the binomial method has been used by creating an equivalent portfolio with identical conditions to the put and taking into account different scenarios. The valuation model considers the projected value of the company’s cash flows and financial debt of the exercise date (34 months after the closing of the contract). Expected cash flows are discounted using WACC (Weighted Average Cost of Capital) discount rate. Additionally, the other instruments measured as level 3 include debt securities and certificates of participation in financial trusts, for which the construction of fair values was obtained based on the Bank’s own assumptions that are not easily available in the market. The most significant assumption was the placement cutoff rate of such instruments in the market at the end of the period, used to determine the actual value of cash flows. BANCO MACRO SA AND ITS SUBSIDIARIES Quantitative information about Level 3 Fair Value Measurements Equity instruments at fair value through profit or loss The fair value of the equity interest held in Prisma Medios de Pago SA was calculated with the assistance of independent appraisers’ using a discounted cash flow method by applying a combined income and market approach. The most relevant unobservable input data include: Projected EBITDA and Free cash flow (mainly determined by the expected evolution of the level of transactions and fees) Minority discount rate (equivalent to 1 / (1 + Premium control) – 1) WACC (Weighted Average Cost of Capital) of Prisma Medios de Pago SA. g = growth factor for terminal value. Below is disclosed the sensitivity analysis for the valuation of the remaining 49% equity of Prisma Medios de Pago SA, still held by the selling shareholders. The sensitivity is related to the two following variables: the WACC and the g level for future cash flows after 2023 that determines the terminal value: Prisma Medios de Pago SA equity (49%) + minority discount (9.09%) – US$ millions g (terminal value growth – annual)
The scenario for the valuation considers WACC at 100% and g at 3%. As Banco Macro SA holds an interest in Prisma Medios de Pago SA of 4.494083% the fair value accounts amounts to 2,501,196, which is within a range of 2,406,774 and 2,604,215 according to the calculated sensitivity. Derivative financial instruments As previously mentioned, the Bank recognized the put option taken related to the participation in Prisma Medios de Pago SA. These instruments were measured using a valuation technique based on a binomial option pricing model. The most relevant unobservable input data used in the pricing model include: Monthly volatility (sensitivity to volatility ranging from 10%, 12.2% and 15%). The theoretical exercise price for the option. This price is 7 times the expected EBITDA for the third year. This EBITDA is calculated considering the expected cash flows of the business as well as the financial indebtedness, considering Cash and Banks and Short-term investments, and financial indebtedness projected for the option exercise date. Below is disclosed the sensitivity for the valuation of the put option per share, based on the level of implied volatility and the theoretical exercise price of the share price: BANCO MACRO SA AND ITS SUBSIDIARIES Sensibility - $ Volatility
The scenario considered for the valuation considers EBITDA at 100% and volatility at 12.2%. Banco Macro SA has a position of 8,910,878 shares of Prisma Medios de Pago SA. Therefore, the fair value of the put is 565,217, which is within the range of 556,306 and 592,662 according to the calculated sensitivity. Debt securities The following table provides quantitative information about the valuation techniques and significant unobservable inputs used in the valuation of
The table below describes the effect of changing the significant unobservable inputs to reasonable possible alternatives. Sensitivity data are calculated using a number of techniques including analyzing price dispersion of different price sources, adjusting model inputs to
Changes in fair value levels The Bank monitors the availability of information in the market to evaluate the classification of financial instruments into the fair value hierarchy, as well as the resulting determination of transfers between levels 1, 2 and 3 at each period end. As of December 31, BANCO MACRO SA AND ITS SUBSIDIARIES Financial assets and liabilities not recognized at fair value Next follows a description of the main methods and assumptions used to determine the fair values of financial instruments
Instruments with fair value similar to the carrying amount: financial assets and liabilities that are liquid or have short-term maturities (less than three months) were deemed to have a fair value similar to the carrying amount.
For public listed assets and liabilities, or those for which the prices are reported by certain renown The following table shows a comparison between the fair value and the carrying amount of financial instruments not measured at fair value as of December 31,
BANCO MACRO SA AND ITS SUBSIDIARIES
The Bank has lease contracts mainly for real properties recognized in the item “Property, plant and equipment”. Generally, the bank is restricted from assigning or subleasing the leased assets. As of December 31, 2019, the carrying amount of assets recognized for theright-of-use assets identified in the lease contracts, depreciation expense for the fiscal year and the additions toright-of-use assets are disclosed in note 15 to these consolidated financial statements. Set out below are the carrying amounts of lease liabilities and the movements during the fiscal year:
The short term leases for the fiscal year were recognized as expense for an amount of 111,538. The table below shows the maturity of the lease liabilities as of December 31, 2019:
The Bank, as lessor, entered into financial lease contracts, under the usual characteristics of this kind of transactions, without there being any issues that may differentiate them in any aspect from those performed in the Argentine financial market in general. The lease contracts in force do not represent significant balances with respect to the total financing granted by the Bank. The following table shows the reconciliation between the total gross investment of financial leases and the current value of the minimum payments receivables for such leases:
As of December 31,
The Bank holds an investment in the associate Macro Warrants SA. The existence of significant influence is evidenced by the representation the Bank has in the Board of Directors of the associate. In order to measure this investment, BANCO MACRO SA AND ITS SUBSIDIARIES The following table presents the summarized financial information on the Bank’s investment in the associate:
As of December 31, 2019, 2018 and 2017 the investment carrying amount in the net income amounted to
The Bank participates in the following joint ventures, implemented throughUniones Transitorias de Empresas (UTE):
The following table presents the summarized financial information on the Bank’s investment in the UTE:
As of December 31, 2019, 2018 and 2017 the investment carrying amount in the net income amounted to
On June 27, 2018, the Bank, the UTE and the tax authorities of the Misiones provincial government entered into an agreement of “termination by mutual agreement” of the adaptation agreement, without implying or modifying the Bank’s rights and obligations as a financial agent of the province for the services provision established in the agreement. As of December 31, 2019 and 2018, according to the above-mentioned, the remaining investment amounted to
The changes in property, plant and equipment during the fiscal years ended on December 31,
The changes in investment property (including in “othernon-financial assets” – see note 18) during the fiscal years ended on December 31,
BANCO MACRO SA AND ITS SUBSIDIARIES
The changes in intangible assets during the fiscal years ended on December 31,
The breakdown of the other financial and
BANCO MACRO SA AND ITS SUBSIDIARIES
A related party is a person or entity that is related to the Bank:
has control or joint control of the Bank;
has significant influence over the Bank;
is a member of the key management personnel of the Bank or of the parent of the Bank;
members of the same group;
one entity is an associate (or an associate of a member of a group of which the other entity is a member). Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Bank, directly or indirectly. The Bank considers as key management personnel, for the purposes of IAS 24, the members of the Board of Directors and the senior management members of the Risk Management Committee, the Assets and Liabilities Committee and the Senior Credit Committee. As of December 31, Information as of December 31, 2019
BANCO MACRO SA AND ITS SUBSIDIARIES
Information as of December 31, 2018
Information as of December 31, 2017
BANCO MACRO SA AND ITS SUBSIDIARIES
Transactions generated by the Bank with its related parties to it for transactions arranged within the course of the usual and ordinary course of business were performed in normal market conditions, both as to interest rates and prices and as to the required guarantees. The Bank does not have loans granted to directors and other key management personnel secured with shares. Total In addition, fees received by the Directors as of December 31, 2019, 2018 and 2017 amounted to Additionally, the composition of the Board of Directors and key management personnel of the Bank and its subsidiaries is as follows:
As explained in note 52, on August 28, 2019, the Federal Executive Power (PEN, for its acronym in Spanish), through the Emergency Decree No. 596/2019 (DNU, for its acronym in Spanish) set, for certain short-term government securities, an immediate and stepped extension of their maturities, with no effects on the denomination currency, principal and the agreed-upon interest rate. This DNU, established the following schedule related to how these obligations will be canceled: (i) 15% upon maturity according to the original terms and conditions of its issuance, (ii) 90 calendar days after the payments described in (i), 25% of the amount owed will be cancelled, plus accrued interest over the carrying amount (net of the payments made according to section (i)); and (iii) the remaining amount owed will be cancelled 180 calendar days as from the first payment described in (i). For LECAPS with maturity date from January 1, 2020, the remaining amount owed, after the payments described in section (i), will be fully cancelled at 90 calendar days after such payments. As the Bank had in its portfolio under amortized cost business model, government securities which contractual cash flows were modified as explained above, the Bank recalculated, at the modification date, the gross carrying amount of those financial assets as the present value of the modified contractual cash flows discounted at the original effective rate. At the modification date, the gross carrying amount of the modified financial assets amounted to 9,524,860. As a consequence, the new gross carrying amount amounted to 6,658,625 and generated a modification loss for 2,866,235 included in “Other operating expenses” (see additionally note 38). As of December 31, 2019 the gross carrying amount of the Bank’s residual holding on these financial assets amounted to 6,608,365. All amounts disclosed in this paragraph are in terms of the measuring unit current at the end of the reporting period. In the abovementioned note 52 are detailed other provisions established by the PEN, which have no effects for the Bank as of December 31, 2019.
As of December 31, 2018, the Bank BANCO MACRO SA AND ITS SUBSIDIARIES
On January 21, 2019, the Bank, together with the other shareholders, accepted a purchase offer made by AI ZENITH (Netherlands) B.V. (a company related to Advent International Corporation) for the acquisition of 1,933,051 common shares of par value Ps.1 each and entitled to one vote, representing 4.6775 % of its share capital, equivalent to 51% of the Bank’s capital stock in such company. On February 1, 2019, the Bank completed the transfer of such shares During July 2019, the process to determine the final selling price of the shares of Prisma Medios de Pago SA was completed and the final price was (in thousands) USD 63,456. The difference arising from a final price lower than the estimated price was deducted from the price balance, therefore there was no need for the Bank to return any amounts received. All other payment conditions were not modified and remain in full force and effect under the terms described in this note. The amounts receivable, in pesos and US dollars, are recorded in the item “Other financial assets” (see note 18). The remaining holding of the Bank in Prisma Medios de Pago SA (equivalent to 49%), is recorded in “Equity instruments at fair value through profit or loss” determined from valuations performed by independent experts. In addition, sellers The
This item includes the amounts estimated to face a liability of probable occurrence, which if occurring, would originate a loss for the Bank. The changes in provisions during the fiscal years ended on December 31,
BANCO MACRO SA AND ITS SUBSIDIARIES
The expected terms to settle these obligations are as follows:
In the opinion of the Management of the Bank and its legal counsel, there are no other significant effects than those disclosed in these consolidated financial statements, the amounts and settlement terms of which have been recognized based on the current value of such estimates, considering the probable settlement date thereof.
The table below presents the amounts of employee benefits payable as of December 31,
The Bank has not long-term employee benefits or post-employment benefits as of December 31,
The breakdown of the other financial and
BANCO MACRO SA AND ITS SUBSIDIARIES
The following tables show the analysis of financial assets and liabilities the Bank expects to recover and settle as of December 31,
BANCO MACRO SA AND ITS SUBSIDIARIES
For management purposes the Bank’s Management has determined that it has only one operating segment related to the banking business. In this sense, the Bank supervises the operating segment income (loss) for the period in order to make decisions about resources to be allocated to the segment and assess its performance, which is measured on a consistent basis with the profit or loss in the financial statements. BANCO MACRO SA AND ITS SUBSIDIARIES
Tax Reform Law 27430, amended by Laws 27468 and 27541, established the following, regarding to inflation adjustment on income tax for the fiscal years beginning on January 1, 2018.
As of December 31, 2019, all the conditions established by the income tax Law to practice the inflation adjustment are met and the current and deferred income tax was recognized, including the effects of the application of the inflation adjustment on income taxes established by Law (see section d) of this note).
The Law No. 27541 (see note 52) suspends, up to fiscal years beginning on January 1, 2019 included, the income tax rate reduction that had established the Law 27430, setting up for the suspended period a rate of 30%. For fiscal years beginning on January 1, 2022, the income rate will be 25%.
This tax shall be recognized following the liability method, recognizing (as credit or debt) the tax effect of temporary differences between the carrying amount of an asset or liability and its tax base, and its subsequent recognition in profit or loss for the fiscal year in which the reversal of such differences occurs, considering as well the possibility of using tax losses in the future. Deferred tax assets and deferred tax liabilities in the statement of financial position are as follows:
BANCO MACRO SA AND ITS SUBSIDIARIES
In the consolidated Changes in net deferred tax liabilities as of December 31, 2019 and 2018 are summarized as follows:
The income tax recognized in the statement of income and in the statement of other comprehensive income differs from the income tax to be recognized if all income were subject to the current tax rate (see note 3.13). The main items of income tax expense in the consolidated financial statements are as follows:
The table below shows the reconciliation between income tax and the amounts obtained by applying the current tax rate in Argentina to the income carrying amount:
(*) As of December 31, 2019, includes 6,647,554 related to the inflation adjustment mentioned in section a) of this note. As of December 31, 2019, 2018 and 2017, the effective income tax rate is 38.6%, 108.5% and 58.3%, respectively.
As decided by the Board of Directors in the meeting dated May 11, 2020, considering certaincase-law on the subject assessed by its legal and tax advisors, the Bank will file with the AFIP during May (May 26, 2020 is the regulatory due date) its annual income tax return considering the total effect of the inflation adjustment on income tax (see section a) iv) of this note). As a result, the current income tax determined by the Bank for fiscal year 2019 amounted to 7,002,124.
BANCO MACRO SA AND ITS SUBSIDIARIES
BANCO MACRO SA AND ITS SUBSIDIARIES
BANCO MACRO SA AND ITS SUBSIDIARIES
The statement of cash flows presents the changes in cash and cash equivalents derived from operating activities, investing activities and financing activities during the fiscal year. For the preparation of the statement of cash flows, the Bank adopted the indirect method for operating activities and the direct method for investment activities and financing activities. The Bank considers as “Cash and cash equivalents” the item Cash and deposits in banks and those financial assets that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. For the preparation of the statement of cash flows the Bank considered the following:
The table below presents the reconciliation between the item “Cash and cash equivalents” in the statement of cash flows and the relevant accounting items of the statement of financial position:
The following table shows additional information on operational cash flows interest:
The following table shows
The Bank’s subscribed andpaid-in capital as of December 31,
BANCO MACRO SA AND ITS SUBSIDIARIES
The Program dated on August 8, 2018, established, that the maximum amount of the investment amounted to 5,000,000
The Program dated on October 17, 2018, established the start over of the repurchase of the Bank’s own shares, with the pending use of funds of the abovementioned Program, already expired. At the end of this program, the Bank had acquired 6,774,019 common, registered, Class B shares with a face value of Ps. 1 each one entitled with one vote for an amount of
Basic earnings per share were calculated by dividing net profit / loss attributable to common shareholders of the Bank by the weighted average number of common shares outstanding during the fiscal year. BANCO MACRO SA AND ITS SUBSIDIARIES To determine the weighted average number of common shares outstanding during the fiscal year, the Bank used the number of common shares outstanding at the beginning of the period adjusted, if applicable, by the number of common shares bought back or issued during the fiscal year multiplied by the number of days that the shares were outstanding in the period. Note The calculation of basic earnings per share is disclosed in the table of Earnings per share included in the consolidated statement of income. Dividends paid and proposed Cash dividends paid during the fiscal years The Shareholders’ Meeting held on April Finally, the Shareholders’ Meeting
Law No. 24485 and Decree No. 540/1995 created the Deposit Guarantee Insurance System, which was featured as a limited, compulsory and onerous system, aimed at covering the risks of bank deposits, as subsidiary and supplementary to the deposit privilege and protection system established under the Financial Entities Law. The above- mentioned legislation also provided for the incorporation of Sedesa with the exclusive purpose of managing the Deposit Guarantee Fund (DGF). Sedesa was incorporated in August 1995. Banco Macro SA holds an All deposits in pesos and foreign currency placed in participating entities in the form of checking accounts, savings accounts, certificates of deposits or other forms of deposit that the BCRA may determine from time to time shall be subject to the abovementioned Deposit Guarantee Insurance System up to the amount of
As of December 31,
BANCO MACRO SA AND ITS SUBSIDIARIES
The Bank is related to several types of trusts. The different trust agreements according to the business purpose sought by the Bank are disclosed below:
Debt securities include mainly prepayments towards the placement price of provisional trust securities of the financial trusts under public and private offerings (Consubond, BANCO MACRO SA AND ITS SUBSIDIARIES In addition, the Bank’s portfolio is completed with financial trusts for investment purposes, trust securities of definitive financial trusts in public and private offering (Consubond, As of December 31, According to the latest accounting information available as of the date of issuance of these consolidated financial statements, the corpus assets of the trusts exceed the carrying amount in the related proportions.
The Bank transferred financial assets (loans) to trusts for the purpose of issuing and selling securities for which collection is guaranteed by the cash flow resulting from such assets or group of assets. Through this way the funds that were originally used by the Bank to finance the loans are obtained earlier. As of December 31,
As it is common in the Argentine banking market, the Bank requires, in some cases, that the debtors present certain assets or entitlements to receive assets in a trust as a guarantee for the loans granted. This way, the risk of losses is minimized and access to the security is guaranteed in case of the debtor’s Trusts usually act as conduits to collect cash from the debtor’s flow of operations and send it to the Bank for the payment of the debtor’s loans and thus ensure compliance with the obligations assumed by the trustor and guaranteed through the trust. Additionally, other guarantee trusts manage specific assets, mainly real property. Provided there is no As of December 31,
The Bank, through its subsidiaries, performs management duties of the corpus assets directly according to the agreements, performing only trustee duties and has no other interests in the trust. In no case shall the Trustee be liable with its own assets or for any obligation deriving from the performance as trustee. Such obligations do not imply any type of indebtedness or commitment for the trustee and they will be fulfilled only through trust assets. In addition, the trustee will not encumber the corpus assets or dispose of them beyond the limits established in the related trust agreements. The fees earned by the Bank from its role as trustee are calculated according to the terms and conditions of the agreements. Trusts usually manage funds derived from the activities performed by trustors, for the following main purposes:
As of December 31,
As of December 31,
BANCO MACRO SA AND ITS SUBSIDIARIES
The items recognized by the Bank to constitute the minimum cash requirement effective for December
The corporate bond liabilities recorded by Banco Macro SA in these consolidated financial statements amount to:
On November 4, 2016, under the abovementioned Global Program, Banco Macro SA issued Subordinated Resettable Corporate Bonds, class A, at a fixed rate of 6.750% p.a. until reset date, fully amortizable upon maturity (November 4, 2026) for a face value of USD 400,000,000 (four hundred million US dollars), under the terms and conditions set forth in the pricing supplement dated October 21, 2016. Interest is paid semiannually on May 4 and November 4 of every year and the reset date will be November 4, 2021. Since reset date, these Corporate Bonds will accrue a benchmark reset rate plus 546.3 basis points, according to the abovementioned terms and conditions. In addition, the Bank has the option to fully redeem the issuance as the reset date and under the conditions established in the pricing supplement after that date. The Bank used the funds derived from such issuance to grant loans in accordance with BCRA guidelines.
In addition, the Bank may fully redeem the issuance for tax matters, but not partially. The Bank used the funds derived from such issuance to grant loans in accordance with BCRA guidelines. BANCO MACRO SA AND ITS SUBSIDIARIES On October 17, 2018 and October 16, 2019 the Board of Directors decided to pay off these corporate bonds for a face value of pesos 1,229,518,000 and 501,861,000, respectively, equivalent to the amount of purchases made As of the date of issuance of these consolidated
In addition, the Bank may fully redeem the issuance for tax matters, but not partially. The Bank used the funds derived from such issuance to grant loans in accordance with BCRA guidelines.
The Shareholder´s Meeting held on April 27, 2018,
In addition to note 10, the Bank
(1) Related to collaterals used to secure loans transactions and other financing, under the applicable rules in force in this matter.
The a) AFIP’s challenges against the income tax returns filed by former Banco Bansud SA (for the fiscal years since June 30, 1995, through June 30, 1999, and of the irregularsix-month period ended December 31, 1999) and by former Banco Macro SA (for the fiscal years ended since December 31, 1998, through December 31, 2000).
The matter under discussion that has not been resolved as yet and on which the regulatory agency bases its position is the impossibility of deducting credits that have collateral security, an issue that has been addressed by the Federal Administrative Tax Court and CSJN in similar cases, which have issued resolutions that are favorable to the Bank’s position. b)Ex-officio turnover tax assessments in progress and/or adjustments pending resolution by the tax authorities of certain jurisdictions.
The Bank’s Management and its legal counsel consider no further significant accounting effects could arise from the final outcome of the
In addition, before merging with and into the Bank, Banco Privado de Inversiones SA (BPI) had a pending class action styled “Adecua v. Banco Privado de Inversiones on ordinary proceedings”, File No. 19073/2007, pending with Commercial Court No. 3 in and for the City of Buenos Aires, Clerk’s Office No. 5, whereby it was required to reimburse to its clients the life insurance amounts overcharged to amounts payable, as well as to reduce the amounts charged in this regard in the future; this legal proceeding was concluded upon the abovementioned merger because BPI complied in full with the terms of the court-approved agreement reached with Adecua before answering the complaint. However, in March 2013, when BPI had already been merged with and into the Bank, the trial court resolved to amend the terms of the agreement and ordered the reimbursement of amounts of money to a larger number of clients as compared to the number arising from the terms approved by the court in due time. Such resolution was appealed by the Bank as BPI’s surviving company. The appeal was dismissed by the Court of Appeals, which abrogated both the trial court decision and the court-approved agreement, thus ordering the Bank to answer the complaint. This gave rise to the filing of an extraordinary appeal against such decision, as well as the subsequent filing of a complaint for the extraordinary appeal denied. It is currently pending with the Argentine Supreme Court. |
BANCO MACRO SA AND ITS SUBSIDIARIES
Moreover, the Bank is also subject to three class actions initiated by consumers’ associations for the same purpose: a) Adecua v, Banco Macro on ordinary proceedings, File No. 20495/2007, pending with Commercial Court No. 7No.7 in and for the City of Buenos Aires, Clerk’s Office No. 13; b) Damnificados Financieros Asociación Civil Para Su Defensa et al v, Banco Macro on summary proceedings, File No. 37729/2007, pending with Commercial Court No. 7 in and for the City of Buenos Aires, Clerk’s Office No. 13; c) Unión de Usuarios y Consumidores v. Nuevo Banco Bisel on ordinary proceedings, File No. 44704/2008, pending with Commercial Court No. 26 in and for the City of Buenos Aires, Clerk’s Office No. 52.
There are also other class actions initiated by consumer protection associations in relation to the collection of certain commissions and/or financial charges or practices and certain withholdings made by the Bank to individuals as Buenos Aires City stamp tax withholding agent.
Furthermore, there is a case challenging the Bank for charging credit card users until December 2014 a commission for “purchase limit excess” that consisted of a percentage over the purchase limit excess amount. It is styled “User and Consumer Union et. al v. Banco Macro SA on summary proceedings” [Unión de Usuarios y Consumidores y otro c/ Banco Macro SA s/ Sumarísimo], file No. 31958/2010, pending with Commercial Court No. 1 in and for the City of Buenos Aires, Clerk’s Office No 1. On 03/15/2019 a court order was passed against the Bank from a trial court that ordered the reimbursement for all the collected amounts for such items plus VAT and interests.interest. Although this court decision shall bewas appealed, the BankEntity understands that itthere is lowly likelya low probability that a favorable ruling shall be obtained from the trial court, as the BankEntity became aware that the Court of Appeals approved related actions against other two banks.banks, an agreement was reached and filed for court-approvement effects on 11/03/2020. On such agreement, the Bank compromised to reimburse to credit card users for the period from August 2007 to December 2014, the amounts collected over the abovementioned concepts plus VAT over such commissions and interest calculated at the average current rate for Documents transactions in force at the Banco de la Nacion Argentina. The court agreement is pending resolution.
There are also other class actions initiated by consumer protection associations in relation to the collection of certain commissions and/or financial charges or practices and certain withholdings made by the Bank to individuals as Buenos Aires City stamp tax withholding agent.
The Bank’s Management and its legal counsel consider no further significant accounting effects could arise from the final outcome of the above-mentioned proceedings other than those disclosed in these consolidated financial statements.
RESTRICTION ON DIVIDENDS DISTRIBUTION |
a) | According to BCRA regulations, 20% of Banco Macro SA income (calculated in accordance with BCRA standards) for the year plus/less prior-year adjustments and less accumulated losses as for the prioryear-end, if any, should be allocated to the legal retained earnings. Consequently, the shareholders’ meeting |
b) |
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In addition, profits may only be distributed to the extent there arethat the financial institution has positive results, after deducting, on a nonaccountingnon-accounting basis, from retained earnings and the optional reserves for the future distribution of profits, (i) the amounts of the legal and other earnings reserves which are mandatory, (ii) all debit amounts of each one of the accounting items recognized in “Other Comprehensive Income”, (iii) income from of the revaluation of property, plant and equipment, intangible assets and investment property, (iv) the positive net difference between the amortized cost and the fair value of government debt instruments and/or monetary regulation instruments issued by the BCRA for those instruments recognized at amortized cost, (v) the adjustments identified by the Superintendency of Financial and Exchange Entities of the BCRA or by the independent external auditor and that have not been recognized in the accounting records and (vi) certain franchises granted by the BCRA. Additionally, no profit distributions shall be made out of the profit originated as a result of the first-time application of the IFRS, which profit shall be included aswas created a special reserve, the amount of whichand it balance as of December 31, 2018 is2019 was 3,475,669 and is recognized in Retained Earnings.(not restated).
BANCO MACRO SA AND ITS SUBSIDIARIES
As of December 31, 2018,2019, the related adjustments (not restated) to be made on unappropriated retained earnings are as follows:
BANCO MACRO SA AND ITS SUBSIDIARIES
i. | Legal earnings |
ii. | Debit amounts of the accounting items recognized in |
iii. | The positive net difference between the amortized cost and the fair value |
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Additionally, the maximum amount to be distributed shall not be over the minimum capital excess recalculating, exclusively for these purposes, the position in order to consider the above-mentioned adjustments, among other issues.
Finally,On the other hand, the Bank must verify that, after completion of the proposed profit distribution, a capital maintenance margin equal to 3.5% of risk-weighted assets is kept, apart from the minimum capital required by law, to be integrated by Tier 1(Con1) ordinary capital, net of deductible items (CDCOn1).
Pursuant to CNV General Resolution No. 593, the Shareholders’ Meeting in charge of analyzing the annual |
In compliance withAs mentioned in note 41, the abovementioned paragraphs and according with the shareholders’Shareholders’ meeting helddated on April 30, 2019, were applied: 3,145,849 to increase the legal retained earnings, 3,475,669 to a special reserve related to the first-time application of IFRS as established by BCRA Communiqué “A” 6618 and 12,583,394 to increase other earnings reserved for future dividends distributions. Moreover, the abovementioned shareholders’ meeting2020 approved a cash dividend distribution which is described in note 40amounted to these consolidated financial statements.12,788,268 (nominal amount).
CAPITAL MANAGEMENT, CORPORATE GOVERNANCE TRANSPARENCY POLICY AND RISK MANAGEMENT |
As financial institutions,institution, the activities of Banco Macro SA and Banco del Tucumán SA are governed by the Financial Entities Law No. 21,526, as supplementary, and the regulations issued by the BCRA. Moreover, they adhere to the good banking practices laid out in BCRA Communiqué “A” 5201 (Financial Entities Corporate Governance Guidelines) as supplementary.
The Bank publicly trades its shares on the Buenos Aires Stock Exchange (BCBA for its acronym in Spanish language)BCBA and, thus, it is subject to the regulations issued by the CNV.
Through General Resolution No. 622/13,797/19, the CNV established the minimum contents of the Corporate Governance Code, adding notions of good corporate governance to corporate management as guidelines or recommendations that seek to provide transparency thereto. The CNV does not require thatannually requires the issuance of a report in which financial institutions have to explain how the recommendations beare implemented although it does require that the Bankor to explain the reasons why it decided not to adopt the good practices described in such resolution. The Bank annually publishes a document called Corporate Governance Explanatory Report together with the Annual Report to the Shareholders for the fiscal year, required by regulations, which is available on the Bank’s website and on that of such enforcement agency.
This regulation reinforces the notions contained in Capital Markets Law establishing principles such as “full disclosure”, “transparency”, “efficiency”, “public investor protection”, “equal footing between investors” and “protection of the stability of financial entities and financial intermediaries”.
On the other hand, as the Bank lists its shares on the NYSE, qualifying as a foreign private issuer, it is required to comply with certain corporate governance standards as established in section 303A of the NYSE’s Listed Company Manual, as amended.
The main guidelines under the BCRA standards contemplated in the revised text “Financial Entities Corporate Governance Guidelines”, as supplementary, are as follows:
Ownership structure
As of December 31, 2019, the Bank’s shareholders are:
FULL NAME/ CORPORATE NAME | Participating Interest | Voting Interest | ||||||
Brito Jorge Horacio | 17.37 | 19.37 | ||||||
Carballo Delfín Jorge Ezequiel | 17.47 | 19.19 | ||||||
ANSES FGS Law No. 26425 | 28.80 | 26.90 | ||||||
Grouped shareholders (Local Stock Exchanges) | 6.11 | 6.27 | ||||||
Grouped shareholders (Foreign stock exchanges) | 30.25 | 28.27 |
BANCO MACRO SA AND ITS SUBSIDIARIES
Ownership structure
As of December 31, 2018, the Bank’s shareholders are:
FULL NAME/ CORPORATE NAME | Participating Interest | Voting Interest | ||||||
Brito Jorge Horacio | 16.59 | 18.55 | ||||||
Carballo Delfín Jorge Ezequiel | 16.68 | 18.37 | ||||||
ANSES FGS Law No. 26425 | 27.49 | 25.77 | ||||||
Grouped shareholders (Local Stock Exchanges) | 10.47 | 10.35 | ||||||
Grouped shareholders (Foreign stock exchanges) | 28.77 | 26.96 |
On the other hand, the shareholders of Banco del Tucumán SA are:
FULL NAME/ CORPORATE NAME | Participating Interest | Voting Interest | ||||||
Banco Macro SA | 99.945 | % | 99.945 | % | ||||
Others | 0.005 | % | 0.005 | % |
Board of Directors and Senior Management
The Bank’s Board of Directors is currently made up of 13 regular members. Members are renewed by thirds and the appointed Directors remain in office for three fiscal years. In the fiscal year 2016 particularly, due to the reorganization of the Board, some of them were appointed for shorter periods. Directors are nominated and appointed by the Shareholders’ Meeting. Once elected, the BCRA must confirm the designation of the Directors, expressly authorizing them to accept the designation, pursuant to the terms as to experience and knowledge, contained in the rules CREFI2-Creation, Operation and Expansion–XV- Financial Entities Authorities. The following table shows the Bank’s Board of Directors as of December 31, 2018:2019:
Name | Position | |
Delfín Jorge Ezequiel Carballo (1) | Chairman | |
Jorge Pablo Brito (1) | Vice chairman | |
Carlos Alberto Giovanelli | Director | |
Nelson Damián Pozzoli | Director | |
Fabian Alejandro de Paul (*) | Director | |
Martín Estanislao Gorosito (*)(**) (2) | Director | |
Constanza Brito | Director | |
Guillermo Stanley | Director | |
Mario Luis Vicens (*) | Director | |
Juan Martín Monge Varela(*)(**) (2) | Director | |
Marcos Brito | Director | |
Alejandro Eduardo Fargosi (*)(**) (2) | Director | |
Delfín Federico Ezequiel Carballo | Director | |
Santiago Horacio Seeber | Alternate director | |
Alejandro Guillermo Chiti (**) (2) | Alternate director | |
Alan Whamond (*) | Alternate director |
(*) | Independent |
(**) | Designated by |
The Board of Directors held on April 30, 2020, decided, among other issues the designation of Jorge Horacio Brito as Chairman and Delfín Jorge Ezequiel Carballo as Vice chairman. Jorge Pablo Brito continues as a member of the Board of Directors. |
(2) | The Shareholders’ Meeting held on April 30, |
The Board of Directors of Banco del Tucumán S.A. in turn is composed of six members. Members are renewed by thirds and the appointed Directors remain in office for three fiscal years. Directors are nominated and appointed by thenext Shareholders’ Meeting.
BANCO MACRO SA AND ITS SUBSIDIARIES
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Directors should be morally suitable, experienced and knowledgeable in the banking business and meet the requirements established in the effective regulations, issued by the BCRA. Compliance with these requirements is assessed when the Shareholders’ Meeting appoints the directors and on a regular basis during their term of office.
At present, six Directors are independent, pursuant to the provisions of the CNV rules and regulations and the provisions of the Financial Entities Corporate Governance Guidelines issued by the BCRA.
Senior Management is directed by a General Manager designated by the Board and includes as well officers reporting directly to the general manager, as well as officers of three staff areas reporting directly to the Board. Members are detailed below:
Gustavo Alejandro Manriquez | General manager | |
Ernesto Eduardo Medina | Human resources manager | |
Jorge Francisco Scarinci | Finance and investor relation manager | |
Francisco Muro | Distribution and sales manager | |
Ana María Magdalena Marcet | Credit risk manager | |
María Milagro Medrano | Institutional relations and customer service manager | |
Agustín Devoto | Investment banking manager | |
Ernesto López | Legal manager | |
Alberto Figueroa | ||
Adrian Mariano Scosceria | Corporate banking manager | |
Leonardo Maglia | Operations and system manager | |
Juan Domingo Mazzon | Government | |
Eduardo Covello | Banking operations manager | |
Gerardo | Administration manager | |
Marilis de Carballo | Organizational Process manager | |
Manuel Rawson Paz | Mergers and acquisitions manager |
BANCO MACRO SA AND ITS SUBSIDIARIES
Committees
The corporateby-laws state that the Board of Directors may establish such Committees as it deems appropriate for the business of the Bank, as well as appoint their members. The Bank currently features the following Committees:
Committee | Functions | |
CNV Audit / SEC | They are established in Capital Markets Law as supplementary. | |
Internal Audit | Overseeing the proper operation of the internal control systems defined at the Bank through a periodic assessment thereof and contributing to improving the effectiveness of internal controls. | |
Integral Risk Management | It is in charge of monitoring Senior Management’s activities involving the management of credit, market, liquidity, operational, compliance and reputation risks, among others. It advises the Board of Directors on the Bank’s risks. | |
Assets and Liabilities | Setting out the Bank’s financial strategy, analyzing the markets and establishing the policies on assets and liabilities, management of market, liquidity, interest rate and currency risks. | |
IT | Overseeing the proper operation of the information technology environment and contributing to improving the effectiveness thereof. | |
Credit | Approving credit transactions based on credit capacity. | |
Legal Recovery | Incumbent in defining payment arrangements exceeding the predetermined parameters, as well as reclassifying portfolio to be subject to legal proceedings or accounting |
BANCO MACRO SA AND ITS SUBSIDIARIES
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Personnel Incentives | Ensuring the financial incentives for personnel system is consistent with the culture, the objectives, the business in the long term, the strategy and the control environment of the Bank. | ||
Ethics and Compliance | Ensuring the Bank has the proper means with which to promote correct decision-making and compliance with internal and external regulations. | ||
Corporate Governance and Designations | The Committee’s duties include those related to the process of renewing and replacing Senior Management members and the succession plans. It is also in charge of applying the Corporate Governance Code at the Bank and at its subsidiaries. | ||
Anti-money Laundering | Planning and coordinating compliance with the policies established by the Board of Directors on the matter. | ||
Financial Services User Protection | The duties of this Committee include those related to ensure the existence and maintenance of a financial services user protection process and a customer service system. |
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Code of ethics
The Bank has established a Code of Ethics for directors and senior management, expecting that their members act according to the highest standards of personal and professional integrity in all aspects of their activities; to comply with the applicable law, to discourage reproachable behaviors and to comply with the Bank’s Code of conduct and other policies and procedures governing employee conduct. This Code of ethics is supplemental to the Bank’s Code of Conduct.
Code of Conduct
The Entity promotes a work environment where responsibility, execution, commitment, results, loyalty, honesty, good communication and teamwork are encouraged.
The goal is to base daily relationships on mutual respect, trust and cordial and simple behavior, between coworkers and bosses as well as with suppliers and customers, developing all the activities with the highest ethical working and personal principles.
In that direction, the Code of Conduct is intended to establish the principles and values that all Bank members must comply. The trust provided by shareholders, customers and the general public depends to a large extent on compliance with these principles.
BANCO MACRO SA AND ITS SUBSIDIARIES
Ethical line
According with ethical behavior standards, it was implemented for the Bank and its subsidiaries, Banco del Tucumán SA y Macro Securities SA, Macro Fondos SGFCI SA, y Macro Fiducia SA and Argenpay SAU, an Ethical line or a report channel, which is managed by an external third party, ensuring compliance with anonymity and confidentiality principles.
Reports are received by the Ethical and Compliance Committee, who takes knowledgment of them, as well as the resolution of cases, following the protocols.
Branches
The Bank has a broad network of463 branches throughout the entire country, featuring as of December 31, 2018, 437 branches of Banco Macro SA and 34 branches of Banco del Tucumán SA.country.
Subsidiaries
The Bank carries out certain transactions through its subsidiaries, which are identified in note 3.3 to the Bank’sthese consolidated financial statements.
BANCO MACRO SA AND ITS SUBSIDIARIES
Business lines
The Bank’s business lines and transactions with trusts are mentioned in notes 1, 44 and 43,45, respectively.
Incentive practices
The Bank adopts a compensation policy that comprises fixed and variable compensation; the latter is granted within the framework of an objective and competency assessment process.
The variable compensation program, in the context of the compensation policy, is consistent with the Bank’s mission, values, organization, objectives, long-term business sustainability, strategy, control environment and the prudent assumption of risk. It is aimed at recognizing the extraordinary performance displayed by employees according to:
Their contribution to the results reached
Their management in keeping with the Bank’s mission and values
The key variables in determining compensation are:
The level of responsibility and complexity of the position
The person’s competencies and potential
The person’s performance and outcomes
The position with respect to the benchmark market
The results reached by the Bank
The Incentives Committee is in charge of ensuring the financial incentives for personnel system is consistent with the culture, the objectives, the business in the long term, the strategy and the control environment of the Bank, and the prudent assumption of risks.
The Bank aims at compensating personnel ensuring performance recognition, internal equity, competitiveness, productivity, efficiency and added value.
Role of financial agent
The Bank acts as financial agent in the Provinces of Misiones, Salta, Jujuy and Jujuy. In addition, the controlled entity, Banco del Tucumán SA, acts as financial agent of the Province of Tucumán and the Municipalities of Yerba Buena and San Miguel de Tucumán.n and Yerba Buena.
Corporate Sustainability Policy
The Bank is aware of its responsibility towards the surrounding communities. The Corporate Sustainability area promotes this development by fostering and implementing policies and actions that exert a positive social, environmental and economic impact.
Thus, it engages in constant dialogue with the different areas and stakeholders with the ultimate goal of creating social value and drafting policies aimed at promoting a fair, supporting and equal world.
BANCO MACRO SA AND ITS SUBSIDIARIES
These sustainability values are disclosed in the Comprehensive Report as a major milestone to align the financial information (in documents such as the Letter to the Shareholders and financial statements) and ensure their integration and consistency with corporate sustainability.
Anticorruption policy
Pursuant to Law No. 27,40127401 (Law on Corporate Criminal Liability), the Board establishes that officers and employees of the Bank and its subsidiaries shall not offer to pay, pay or authorize the payment of money or anything of value to (public) officers to obtaining or keeping a business. It also extends these guidelines to the private sphere. These principles are contained in the Code of Ethics Code for directors and senior managers, and the Code of Conduct for all employees. Besides, the Bank has a Code of Conduct for suppliers.
The laws of other jurisdictions with similar prohibitions apply, especially the Foreign Corrupt Practices Act (FCPA) because Banco Macro S.A. is a foreign company that lists its shares in the NYSE and is subject to SEC control and oversight.
BANCO MACRO SA AND ITS SUBSIDIARIES
The Group companies that wish to perform any transaction involving any public administration officer, public agency or public company, either Argentine or foreign, shall communicate this event in advance to the Board through the General Manager and inform, before the transaction is conducted, the agents or intermediaries that may be involved in the transaction. The Bank also has a manual with guidelines for interacting with public officers.
This communication duty is not mandatory for the transactions derived from agreements with provincial financial agents (except for the subscription of framework agreements), ordinary bank transactions (for example, payroll processing) and the transactions that do not pose any major risk due to the minimum amounts involved.
These anticorruption policies, although they are aimed at transactions within the public sector, also apply to transactions between private parties, as specifically set forth in the Code of Ethic Code and the Code of Conduct.
The Bank has in place an Anticorruption Policy and an Integrity Program. The Ethics and Compliance Committee will be responsible for its adoption,follow-up and period reporting to the Board.
Transactions with related parties – Policy on conflict of interest
As an authorized financial institution, Banco Macro SA complies with the provisions and reporting requirements established in Financial and Foreign Exchange Entities Act No. 21526 and the regulations issued by the regulatory agency (BCRA).
As established by law (Argentine Business Company Law No. 19550), specific applicable regulations (Capital Markets Law, as supplementary), professional accounting standards (Technical Resolution No. 21), IAS 24 and best practice recommendations, the Bank reports on the transactions with related parties in notes to the financial statements. Such transactions are carried out under usual market conditions. See also note 19 to these consolidated financial statements.
Under current Argentine legislation, directors are required to perform their duties with the loyalty and diligence of a prudent business man. Directors are jointly and severally liable to the Bank, the shareholders and third parties for a poor performance of duties and infringements to the law, bylaws and regulations, as the case may be, and are responsible for repairing the damages caused by fraud, abuse of authority or negligence.
The loyal duties of a director are considered to include: (i) the ban from using corporate assets and the confidential information to which he/she may have access for personal purposes; (ii) the ban from taking advantage or, due to errors or omissions, allowing a third party to take advantage of the Bank’s business opportunities, (iii) the obligation of acting as director only for the purposes established in the law, the Bank’s bylaws or the intention of the shareholders or the Board of Directors; and (iv) the obligation of taking extreme care so that the acts conducted by the Board of Directors have no direct or indirect effects against the Bank’s interests.
A director should notify the Board of Directors and the Audit Committee about any conflict of interest such director may have in a transaction proposal and should refrain from voting on the matter.
BANCO MACRO SA AND ITS SUBSIDIARIES
Public information
The information related to corporate governance at the Bank is included within the transparency policy contained in such precepts and, hence, is available to interested members of the public on the website www.macro.com.ar (“Conocenos” – Relaciones con Inversores) and, www.bancodeltucuman.com.ar (“Información institucional e Inversores”) additionally, some guidelines are disclosed in other notes to these Financial Statements.consolidated financial statements. Moreover, the Bank’s public information is disclosed on the websites of the BCRA (www.bcra.gob.ar) and the CNV (www.cnv.gob.ar).
In addition, the Bank publishes the Market Discipline Report, pursuant to the guidelines established by the BCRA for such information regime, in accordance with the criteria of the Basel Banking Supervision Committee, which is available in the Bank’s website.
Risk management
Within the framework of the Corporate Governance policy, the Board of Directors of the Bank resolved the creation of a Risk Management Committee andCommittee. The Bank has appointed a HeadRisk Manager who reports directly to the Board of Integral Risk Management.Directors.
Its duties includesinclude ensuring that an independent risk management be established, establishing policies, procedures and measurement methodologies and report systems which allow the identification, measurement and monitoring of the risk under its charge and also, the duties of each organizational level in the process.
BANCO MACRO SA AND ITS SUBSIDIARIES
The risk management process includes the establishment of the exposure limits for each risk by the Board of Directors, afollow-up on the exposure to each limit by the persons in charge, the preparation of regular reports for the Risk Management Committee, afollow-up on the alerts and the implementation of action plans regarding the alerts and the guidelines for developing stress tests.
The system is supplementary with policies and procedures specific to each risk (Financial, Credit, Operational, Counterparty Credit, Country Risk, Securitization, Reputational, Compliance, Strategic Risks, among others).
In addition, the Credit Risk Management area is in charge of interpreting, executing and guaranteeing the application of the General Credit Policy as approved by the Board of Directors, pursuant to the internal and external standards and regulations on the matter. Credit Risk Management reports functionally to the General Manager.
Integral Risk Management
The Integral Risk Management area is formed by the Compliance Department and the Risk Management Department, in charge of the Financial Risk, Credit Risk and Operating and Technology Risk areas.
The main procedures carried out by the Risk Management Department are:
Stress tests
The process of stress test includes documenting and formalizing the program as well as the persons in charge of carrying it out, the frequency of testing and the validation of the system. It also contemplates the Contingency Plan based on the test results. The Risk Management Committee leads and coordinates this application.
Economic Capital Calculation
The Risk Management Department estimates the economic capital for each one of the individual risks (Market, Liquidity, Interest Rate, Credit, Counterparty Credit, Concentration, Operational, Securitization, Strategic and Reputational) determined for the Bank on a consolidated basis with its subsidiaries with the same scope as the regulation. The methods used to deal with subsidiaries are exactly the same.
The economic capital sufficiency evaluation process is an integral part of the corporate governance and risk management culture of the entities.
Quantified economic capital was implemented as a formal procedure, both currently and prospectively, and is a tool used in theday-to-day management of risks, in preparing the Business Plan and the Stress Tests.
The methods used to measure the economic capital of each risk were documented and approved by the Management, pursuant to the internal rules on Corporate Governance and Risk Management.
BANCO MACRO SA AND ITS SUBSIDIARIES
The results must serve to support decision-making, including strategic decisions adopted by the Board and the Senior Management. In this way they may:
Estimate the level and trend of the relevant risks and the effects thereof on capital needs.
- | Estimate the level and trend of the relevant risks and the effects thereof on capital needs. |
Evaluate the reasonability of the basic assumptions used in the capital measuring system and the sensitivity of the results to changes in those assumptions.
- | Evaluate the reasonability of the basic assumptions used in the capital measuring system and the sensitivity of the results to changes in those assumptions. |
Determine whether the Bank has sufficient regulatory capital to cover the different risks and if it meets the capital sufficiency goals required.
- | Determine whether the Bank has sufficient regulatory capital to cover the different risks and if it meets the capital sufficiency goals required. |
Consider its future capital requirements based on the risk profile and, according thereto, introduce the necessary adjustments into the strategic plan.
- | Consider its future capital requirements based on the risk profile and, according thereto, introduce the necessary adjustments into the strategic plan. |
The essential elements of the capital evaluation include:
Policies and proceedings ensuring the risk management process.
- | Policies and proceedings ensuring the risk management process. |
A process connecting economic capital with risk level.
- | A process connecting economic capital with risk level. |
- | A process establishing capital sufficiency goals based on the risks, taking into account the strategic approach and the business plan.
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An internal control process, in order to secure a comprehensive risk management.
- | An internal control process, in order to secure a comprehensive risk management. |
The Bank actively uses guarantees to mitigate its credit risk.
Excessive risk concentration:
To avoid excessive risk concentrations, the Bank’s policies and procedures include specific guidelines to focus on keeping a diversified portfolio. The identified credit risk concentrations are controlled and managed accordingly. The selective coverage is used at the Bank to manage risk concentrations both in terms of relationships and industry.
In addition, note that the Bank meets the provisions established by the BCRA as regards maximum assistance limits to given groups of debtors, in order to atomize the portfolio, reducing credit risk concentration.
The main types of risks that the Bank is exposed to are those related tocredit risk, liquidity risk, market risk, interest rate risk, foreign currency risk, and operational risk.
Minimum capital requirements:
The table below shows the minimum capital requirements measured on a consolidated basis, effective for the month of December 2018,2019, together with the integration thereof (computable equity) as of the end of such month:
Description | 12/31/ | |||
Minimum capital requirements | ||||
Computable equity | ||||
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Capital surplus | ||||
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The following are the policies and processes aimed at identifying, assessing, controlling and mitigating each one of the main risks:
51.1. | Credit Risk |
The Bank’s credit rating grades
The credit risk is the existing risk regarding the possibility for the Bank to incur a loss because one or several customers or counterparties fail to meet their obligations.
In order to manage and control the credit risk, the Bank establishes limits regarding the amount of risk it is willing to accept, so as to monitor the indicators with respect to such limits.
BANCO MACRO SA AND ITS SUBSIDIARIES
The Board of Directors approves the Bank’s credit policy and credit assessment in order to provide a framework for the creation of businesses to attain an adequate correlation between the risk assumed and profitability. The Bank has procedure manuals that contain guidelines, the compliance with current regulations and the prescribed limits. Such manuals are aimed at achieving the following goals:
Achieving an adequate portfolio segmentation by type of customer and by economic sector;
Boosting the use of the risk analysis and assessment tools that best adjust to the customer’s profile;
Setting consistent standards for granting loans, following conservative parameters based on the customer’s solvency, cash flows and profitability in the case of companies, and revenues and equity in the case of individuals;
Setting limits to individual powers for granting loans depending on the amount, promoting the existence of specific committees that, according to their sphere of competence, will be in charge of defining assistance levels;
Optimizing the quality of risks assumed, having appropriate guarantees according to the loan term and the level for the risk involved; and
Monitoring the loan portfolio and the level of customers’ compliance permanently.
Credit risk management implies the existence of a structure having the necessary characteristics to achieve the organizational goals in all stages of the credit cycle: admission,follow-up, monitoring and recovery.
BANCO MACRO SA AND ITS SUBSIDIARIES
The risk assessment process varies depending on whether it’s about Corporate Banking customers or Consumer Banking customers.
For the assessment of Corporate Banking customers, the Bank features different methods involving several responsible levels and which become more complex according to the magnitude of the transactions, as to amounts and type of assistance, weighted by terms and existing coverage.
When transactions exceed in amount the authorization instances by delegated powers or through the decentralized risk analysis, lines of credits are approved at Credit Committees. The powers vested on the different decision-making bodies are continuously reviewed, in order to adjust them to the number of transactions the Bank faces and optimize the credit risk rating.
The risk analysis of assistance discussed in Credit Committees is performed at the Corporate Risk Management Department: specialized risk analysts prepare separate Risk Reports per client or Economic Group, which serves to support the credit decisions made by Committee members.
Risk reports include –at least- information regarding the application of the loans and their repayment source, debtor’s historical and current behavior and the economic group to which debtor belongs; debtor’s repayment capacity based on debtor’s cash flows; the guarantees that shall secure the obligations, the ownership situation of such collaterals, enforcement possibilities and their sensibility to changes in the economy; the market in which debtor operates and debtor’s position; debtor’s equity, economic and financial position and debtor’s possibility to access to loans.
The resolutions of the Committees include the terms and conditions applicable to the assistance regarding amount, currency, terms, coverage with guarantees,follow-up provisions, etc. Committee decisions are based on debtor’s risk ofnon-performance and only on secondary basis on debtor’s equity and risk mitigating factors of the transaction.
Credit risk assessment for Consumer Banking customers, assessment systems are based mainly on a qualification score and certain maximum indebtedness and installment/income relationship rules.
There are specific rules regarding debtor’s file integration, in order to duly document the data entered into the assessment systems. Credit risk officers also define a credit power regime based on the margins to be approved and –if applicable- the admitted exceptions.
The Bank features processes to detect interrelated debtor groups that must be considered as a single customer (economic groups) and to group risk exposures with the same debtor or counterparty in different credit facilities.
Before credit rating approval, the Bank performs a series of controls in order to mitigate related credit risks, as well as to conform the transactions to the regulatory framework of technical relationships.
BANCO MACRO SA AND ITS SUBSIDIARIES
The Bank features a formal, strong and well-defined process to manage loans experiencing any problem. Proceedings vary according to the type of portfolio and the delinquency status.
To mitigate credit risk, the Bank requests the granting of guarantees on the agreed financing. A particular area of the Credit Risk Management Department is responsible for the administration of all guarantees received by the Bank, as well as of the periodic evaluation and update of the value thereof, in order to monitor the quality of risk mitigants.
Impairment assessment |
The references below show where the Bank’s impairment assessment and measurement approach is set out in these consolidated financial statements. It should be read in conjunction with note 3.2.4.1.3.2.4.
The following table shows the allowance for credit losses splitted by class of financial instrument as of December 31, 2019 and 2018:
12/31/2019 | 12/31/2018 | |||||||
Loans and other financing | 5,069,726 | 5,951,735 | ||||||
Other debt securities at amortized cost | 46,734 | 88 | ||||||
Contingent transactions | 17,273 | 16,506 | ||||||
Sundry debtors | 1,654 | |||||||
Other debt securities at fair value through OCI | 210 | |||||||
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5,135,597 | 5,968,329 | |||||||
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Basis for analysis |
Clients evaluated on a collective basis
Asset classes where the Bank calculates ECL on a collective basis include Loans and other financing of the Consumer portfolio. This portfolio comprises individual loans and comercial loans up to 19,500.
BANCO MACRO SA AND ITS SUBSIDIARIES
Clients evaluated on an individual basis
Asset classes where the Bank calculates ECL on an individual basis include:
Other Debt Securities at amortized cost.
Other Debt Securities at fair value through Other Comprehensive Income.
Loans and other financing ofthat comprise the Commercial portfolio which comprises corporate loans above 19,500, Public sector loans andin accordance with Central Bank rules.
Other financial sector loans.assets
Definition of default and cure |
Clients evaluated on a collective basis:
In some circumstances, the Bank has no reasonable and sustainable information available without effort or disproportionate cost to measure ECL over the life of the asset on an individual instrument basis. In such cases, the ECL during the life of the asset will be recognized on a collective basis.
In these cases, the Bank considers all financial instruments of the same client defaulted and therefore Stage 3 (credit -impaired)(credit-impaired) for ECL calculations in all cases when the borrower becomes 90 days past due on its contractual payments.
Clients evaluated on an individual basis:
The Bank performs a qualitative assessment of whether a customer is in default, by considering a variety of instances that may indicate unlikeliness to pay. When such events occur, the Bank carefully considers whether the event should result in treating the customer as defaulted and therefore assessed as Stage 3 for ECL calculations or whether Stage 2 is appropriate. Such events are mainly:
Significant arrears in the main credit lines granted.
BANCO MACRO SA AND ITS SUBSIDIARIES
Judicial demand by the Bank to collect the assistance granted.
Request for reorganization proceeding or bankruptcy.
Forborne loans with principal still outstanding.
It is the Bank’s policy to consider a financial instrument as “cured” and therefore reclassified out of Stage 3 when none of the default criteria are present. The decision whether to classify an asset as Stage 2 or Stage 1 once cured depends on the updated credit grade, at the time of the cure, and whether this indicates there has been a significant increase in credit risk compared to initial recognition.
The Bank’s internal rating and PD estimation process |
The Bank’s Risk Management Department operates its internal rating models. The models incorporate both qualitative and quantitative information and, in addition to information specific to the borrower, utilize supplemental external information that could affect the borrower’s behavior. Additionally, these models were developed for the commercial and consumer portfolios, as detailed below.
Commercial lending
The rating modulemodel developed by the entity, in order to identify the risks and concentrations associated with the PDs in accordance with the commercial strategies, is based on a Behavior Module considering the behavior scores of the commercial portfolio segments contemplateand contemplates variables of internal behaviourbehavior and variables from public sources. The Probabilities of Default are established based on the behavior scores of the commercial portfolio, in order to determine the ECL over each customer’s credit exposure.
BANCO MACRO SA AND ITS SUBSIDIARIES
Consumer lending
To classify the consumer portfolio per risk levels, the Bank has developed a dual-matrix methodology that combines generic Market Scores with the Bank’s internal behavior scores, to determine each customer’s Probability of Default (PD).
Credit Risk Management is responsible for the development of the Score Models.
The proposals for implementing the models, as well as the changes in the policy conditions or model parameters, are submitted to the Risk Management Committee for approval. The methodologies, variables, development population, observation windows and results that support the preparation of the models are documented in special reports, as well as their frequent validation.
The Bank’s internal credit rating grades
12/31/2019 | 12/31/2018 | |||||||||||||||||||||||
Category | Ponderate PD | % Gross Carrying Amount | Ponderate PD | % Gross Carrying Amount | Ponderate PD | % Gross Carrying Amount | ||||||||||||||||||
Performing | 2.16 | % | 95.19 | % | 2.60 | % | 95.45 | % | 2.16 | % | 95.18 | % | ||||||||||||
High Grade | 1.13 | % | 79.94 | % | 1.25 | % | 76.39 | % | 1.13 | % | 76.06 | % | ||||||||||||
Standard Grade | 4.52 | % | 16.23 | % | 4.83 | % | 8.23 | % | 4.52 | % | 15.47 | % | ||||||||||||
Sub-Standard Grade | 13.57 | % | 3.83 | % | 11.64 | % | 10.83 | % | 13.57 | % | 3.65 | % | ||||||||||||
Past Due but not impaired | 23.60 | % | 2.93 | % | 32.13 | % | 2.84 | % | 23.60 | % | 2.95 | % | ||||||||||||
Non-Performing | 100.00 | % | 1.88 | % | 100.00 | % | 1.71 | % | 100.00 | % | 1.87 | % | ||||||||||||
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Total | 100.00 | % | 100.00 | % | 100.00 | % | ||||||||||||||||||
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Exposure at default |
The EAD represents the gross carrying amount of the financial instruments subject to the impairment calculation, addressing both the client’s ability to increase its exposure while approaching default and potential early repayments too.
BANCO MACRO SA AND ITS SUBSIDIARIES
To calculate the EAD for Stage 1 financial assets, the Bank assesses the possible default events within 12 months for the calculation of the 12mECL. For Stage 2 and Stage 3 financial assets, the exposure at default is considered for events over the lifetime of the instruments.
The Bank developed a calculation method for the products that have a defined flow schedule, and another method for the products that provide the customers with a credit line (revolving products). For revolving products, the Bank calculated a credit risk factor that contemplates the use that this credit line could represent in case of default. Upon building the credit risk factors, the aging of the product and level of use was considered, among other characteristics.
Loss given default |
LGD is an estimate of the loss arising in the case where a default occurs at a given time. It is based on the difference between the contractual cash flows due and those that the lender would expect to receive, including from the realization of any collateral. It is usually expressed as a percentage of the EAD.
It is the complement to the unit of the recovery rate; that is, the proportion not collected by the Bank with respect to the EAD. Consequently, the default amount is compared with the current value of the amounts recovered after the date of default.
The Bank segments its loans into smaller homogeneous portfolios, based on key characteristics that are relevant to the estimation of future cash flows. The applied data is based on historically collected loss data and involves a different set of transaction characteristics (e.g., product type, different range of collateral types) as well as borrower characteristics.
BANCO MACRO SA AND ITS SUBSIDIARIES
The most usual approach is that known as “workout LGD”, in which estimates are based on the historical information observed in the Bank, by discounting the flows that are recorded throughout the recovery process of the contracts in default at a certain time using the EIR.
Once the recovery rates are obtained, this behavior is projected through a triangular method to estimate the periods with less aging. Finally, the weighted average of the loss for each portfolio is determinated.
Thework-out workout period corresponds to the term observed for recovery flows as from the date of default, so that an increase in the observation period does not significantly alter the recovery amount. In other words, it is a period in which it is assumed that all recovery efforts are practically exhausted.
Further recent data and forward-looking economic scenarios are used in order to determine the IFRS 9 LGD rates. When assessing forward-looking information, the expectation is based on different scenarios.
Significant increase in credit risk |
The Bank continuously monitors all assets subject to ECLs.ECL. In order to determine whether an instrument or a portfolio of instruments is subject to 12mECL or LTECL, the Bank assesses qualitative and quantitative information whether there has been a significant increase in credit risk since initial recognition.
When estimating ECLsECL on a collective basis for a group of similar assets, the Bank applies the same principles for assessing whether there has been a significant increase in credit risk since initial recognition.
The significant increase in credit risk is assessed by comparing PD as from the date of origin and the PD as from the reporting date adjusted by the forward-looking factor. The Bank considered that there is a significant increase in credit risk when there is more than one level of variation in the clients risk category at the reporting date, except for clients considered of very low risk where the variation required is more than two categories.
Moreover, when estimating ECLs on an
BANCO MACRO SA AND ITS SUBSIDIARIES
All the customers subject to individual basis,analysis are reviewed monthly in order to define the Bank also appliescorresponding stage for each of them. The staging is agreed with Corporate Risk Management and Recovery Management and presented for the approval of the Senior Management.
In order to carry out the abovementioned evaluation, the Credit Risk Management has defined a qualitative method for triggeringseries of objective data that help to analyze if there is a significant increase in credit risk, for an asset, such as moving a customer/facilitythe purpose of determine if it is appropriate to recategorize the debtor in Stage 2 due to the watch list consideringexistence of a significant increase in credit risk, or in Stage 3 when a default has occurred or is projected, or if, on the contrary, it must remain in Stage 1.
As for the defined objective criteria, the following situations:stand out:
Clients with more than 30 days past due, orMaximum arrears.
Clients with more than 10Number and amount of rejected checks that amount more than 40% of its total debt and which were not repaidrecorded in the last 3 months, orquarter.
ClientsCustomers who are non performingregister defaults in more than twoother financial entities and whose debt is at least 20% of its total debt to the Argentinian financial system.
Those clients are individually assessed by credit analysts who determine if they present a significant increase in credit risk. Once clients are on the watch list, they remain there for 60 days more after the reason why they were included there disappears.
Moreover, the Bank monitors the effectiveness of the criteria used in identifying the significant increase in credit risk through periodic reviews to confirm that:
The criteria are able to identify significant increases in credit risk before an exposure defaults.
The average time between a significant increase in credit risk is identified and the date the default occurs is reasonable.
In general, exposures are not transferred directly from the measurement of the 12mECL to impaired financial instruments.
Staging |
The conditions and indicators used by the Bank to include customers in each of the three stages, both individually and collectively, are presented below.
BANCO MACRO SA AND ITS SUBSIDIARIES
Definition of the conditions for each Stage
Customers analyzed on a collective basis
Stage 1
Customers with arrears equal to or less than 30 days as of the date of reporting in anyall of its financial instruments; orinstruments.
Customers who do not present a significant risk variation from the origin date through the date of the report.
Low risk customers who have a strong capacity to meet their contractual cash flow obligations in the nearshort term and adverse changes in economic and business conditions in the longer term may, but will not necessarily, reduce their ability to fulfil their contractual cash flow obligations.
Stage 2
Customers with arrears greater than 30 days at the time of reporting in any of its financial instruments; orinstruments.
Customers who present a significant risk variation from the origin date through the date of the report. This significant increase in credit risk is explained in further detail in note 50.1.1.6.51.1.1.6.
Customers with forborne loans less than 90 days past due.
BANCO MACRO SA AND ITS SUBSIDIARIES
Stage 3
The Bank considers a financial instrument defaulted and therefore Stage 3 (credit -impaired)(credit-impaired) for ECL calculations in all cases when the borrower becomes 90 days past due on its contractual payments.
When estimating ECLs on a collective basis for a group of similar assets (as set out in note 50.1.1.7.), the Bank applies the same principles for assessing whether there has been a significant increase in credit risk since initial recognition.
Customers analyzed on an individual basis
Stage 1
The customers whose individual assessment reflects the following characteristics are considered included in Stage 1:
The customer did not experience significant increases in the risk of its financial instruments, according to their internal risk rating.instruments.
The customer’s cash flow analysis shows that it is capable of adequately meeting all of its financial obligations.
The customer has financial liquidity, with a low level and a proper structure of indebtedness with respect to its profit-generating capacity and shows a high ability to settle payables (principal and interest) in the agreed-upon conditions.
The customer’s cash flows are not susceptible to drastic changes in the event of major variations in the behavior of own and sector variables.
The customer regularly complies with the payment of its obligations, even when there are minor and insignificant arrears.
This stage also includes customers previously included in Stage 2 or Stage 3 who improved their credit risk indicators, and therefore comply with the parameters defined for Stage 1.
Stage 2
This stage includes the customers in the Watch List who, based on the individual analysis of their payment capacity, suffer a significant increase in their risk.risk, but not as severe to set default as defined for Stage 3.
Some elements considered upon defining the existence of a significant increase in risk are:
BANCO MACRO SA AND ITS SUBSIDIARIES
The customer presents indicators of profitability, liquidity and solvency that tend to weaken.weaken:
Significant increase in the customer’s debt without a consistent rise in revenues.
Major decline in operating margins or negative operating result.
Adverse changes in the regulatory, technological or economic environment that negatively impacts the customer’s future financial flows.
Drastic drop in demand or negative changes in the customer’s business plans.
Changes in the customer’s internal behavior rating or individual assessment, which resulted in a decrease in the credit rating in real terms.
Significant changes in the value of the guarantees received.
The arrears that the customer has with the Bank are due to current operational circumstances or for an extraordinary nature and a prompt resolution is expected.
This stage also includes customers previously included in Stage 3, who improved their credit risk indicators and thus they are no longer in default, but whose status prevents them from being recategorized to Stage 1.
Stage 3
It includes customers that comprise the watch list and,who, after an individual analysis, experience some of the following situations:
- | The customer incurs in significant arrears in the major credit lines granted, and this has not been agreed with the Bank. |
The customer incurs in significant arrears in the major credit lines granted, and this has not been agreed with the Bank.BANCO MACRO SA AND ITS SUBSIDIARIES
The customer has been sued judicially by the Bank for the recovery of the assistance granted.
- | The customer has been sued judicially by the Bank for the recovery of the assistance granted. |
The customer requested its own reorganization proceeding or went into bankruptcy.
- | The customer requested its own reorganization proceeding or went into bankruptcy. |
The customer systematically refinances its debts and has still not settled over 5% of the refinanced principal.
- | The customer systematically refinances its debts and has still not settled over 5% of the refinanced principal. |
The analysis of the customer’s cash flows shows it is highly unlikely that the customer may meet all its financial obligations in the agreed-upon conditions.
- | The analysis of the customer’s cash flows shows it is highly unlikely that the customer may meet all its financial obligations in the agreed-upon conditions. |
This stage also includes customers previously included in Stage 2, with significantly impaired risk indicators.
Analysis of inputs to the ECL model under different economic scenarios |
An overview of the approach to estimating ECLsECL is set out in Note 3.2.4.1.note 3.2.4. and Significantin section “Significant accounting judgements, estimates and assumptions.assumptions”. To ensure completeness and accuracy, the Bank obtains the data used from third party sources and a team of economists within its Credit Risk Department verifies the accuracy of inputs to the Bank’s ECL models including determining the weights attributable to the multiple scenarios.
The following table set out the key drivers of expected loss and the assumptions used for the Bank’s base case estimate, ECLsECL based on the base case, plus the effect of the use of multiple economic scenarios, as of December 31, 2018.2019.
The table shows the values of the key forward looking economic variables/assumptions in Argentina used in each of the economic scenarios for the ECL calculations as of December 31, 2018. The figures for “Subsequent years” represent a long-term average and so are the same for each scenario.2019.
Key Drivers | ECL Scenario | Assigned Probabilities | 2019 | 2020 | 2021 | 2022 | ECL Scenario | Assigned Probabilities | 2020 | 2021 | 2022 | |||||||||||||||||||||||||||||||||
% | % | % | % | % | % | % | ||||||||||||||||||||||||||||||||||||||
GDP growth % | ||||||||||||||||||||||||||||||||||||||||||||
Upside | 10 | % | -1.00 | % | 4.25 | % | 4.30 | % | 4.00 | % | Upside | 10% | (1.71 | )% | 1.96 | % | 2.97 | % | ||||||||||||||||||||||||||
Base case | 60 | % | -1.50 | % | 3.50 | % | 3.30 | % | 3.00 | % | Base case | 60% | (1.96 | )% | 1.46 | % | 2.47 | % | ||||||||||||||||||||||||||
Downside | 30 | % | -2.25 | % | 1.75 | % | 0.80 | % | 1.00 | % | Downside | 30% | (2.99 | )% | (0.01 | )% | 1.54 | % | ||||||||||||||||||||||||||
Unemployment rates % |
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Central Bank base rates % | Central Bank base rates % |
| ||||||||||||||||||||||||||||||||||||||||||
Upside | 10 | % | 10.0 | % | 9.5 | % | 9.0 | % | 8.0 | % | Upside | 10% | 34.88 | % | 27.91 | % | 20.93 | % | ||||||||||||||||||||||||||
Base case | 60 | % | 10.1 | % | 10.3 | % | 9.8 | % | 9.6 | % | Base case | 60% | 34.20 | % | 27.36 | % | 20.52 | % | ||||||||||||||||||||||||||
Downside | 30 | % | 11.0 | % | 11.5 | % | 12.0 | % | 12.0 | % | Downside | 30% | 62.70 | % | 60.19 | % | 54.34 | % | ||||||||||||||||||||||||||
CPI % | CPI % |
| ||||||||||||||||||||||||||||||||||||||||||
Upside | 10% | 47.98 | % | 40.76 | % | 32.65 | % | |||||||||||||||||||||||||||||||||||||
Base case | 60% | 47.04 | % | 39.97 | % | 32.01 | % | |||||||||||||||||||||||||||||||||||||
Downside | 30% | 94.96 | % | 90.05 | % | 84.95 | % |
BANCO MACRO SA AND ITS SUBSIDIARIES
Key (contd.) | Drivers | ECL Scenario | Assigned Probabilities | 2019 | 2020 | 2021 | 2022 | |||||||||||||||||
Central Bank base rates % | ||||||||||||||||||||||||
Upside | 10% | 37.8 | % | 30.5 | % | 20.0 | % | 13.7 | % | |||||||||||||||
Base case | 60% | 36.0 | % | 29.0 | % | 19.0 | % | 13.0 | % | |||||||||||||||
Downside | 30% | 37.8 | % | 34.8 | % | 26.6 | % | 24.7 | % | |||||||||||||||
House Price index % | ||||||||||||||||||||||||
Upside | 10% | 31.5 | % | 25.2 | % | 18.9 | % | 14.7 | % | |||||||||||||||
Base case | 60% | 30.0 | % | 24.0 | % | 18.0 | % | 14.0 | % | |||||||||||||||
Downside | 30% | 33.0 | % | 31.1 | % | 28.9 | % | 26.7 | % |
Impact on regulatory capital |
The economic capital model is detailed in note 50, section “Economic Capital Calculation”. of this note. Since this model responds to the requirements established by the BCRA, which does not contemplate using ECL, currently it has no impact on economic capital. The BCRA will adoptadopted the Impairment requirements included in IFRS 9 for the years beginning on January 1, 2020.
The Bank does not expect significant effects on regulatory capital from the adoption of ECL methodology.
Overview of modified and forborne loans |
From a risk management point of view, once an asset is forborne or modified, the Bank’s special department for distressed assets continues to monitor the exposure until it is completely and ultimately derecognized.
The table below includes Stage 2 and 3 assets that were modified and, therefore, treated as forborne during the period, with the related modification loss suffered by the Bank.
BANCO MACRO SA AND ITS SUBSIDIARIES
The amortized cost of financial assetsloans modified during the period2019 and the associated net modification amounted to 610,9922,305,012 and 46,564,43,147, respectively. Moreover, certain debt securities were modified during the fiscal year. The information related to this modification is disclosed in note 20. The amortized cost of loans modified during 2018 and the associated net modification amounted to 939,887 and 71,629, respectively.
Credit quality per asset classes and industry |
The Bank’s concentrations of risk are managed by client/counterparty and industry sector. The following table shows the risk concentration by industry for the components of the statement of financial position. Additional disclosures for credit quality and the maximum exposure for credit risk per categories based on the Bank’s internal credit rating system andyear-end stage classification are further disclosed in notes 5, 9.1., 10 and 10.18.
Stage | 12/31/2019 | |||||||||||||||||||||||
1 | 2 | 3 | ||||||||||||||||||||||
Individual | Collective | Individual | Collective | Total | ||||||||||||||||||||
Loans and other financing | 94,035,693 | 112,048,827 | 3,147,415 | 12,862,531 | 3,873,074 | 225,967,540 | ||||||||||||||||||
Non-financial public sector | 6,444,118 | 6,297 | 163 | 69 | 6,450,647 | |||||||||||||||||||
Other financial entities | 3,979,622 | 181 | 3,979,803 | |||||||||||||||||||||
Non-financial private sector and foreign resident | 83,611,953 | 112,042,349 | 3,147,415 | 12,862,368 | 3,873,005 | 215,537,090 | ||||||||||||||||||
Individuals | 375,960 | 86,582,704 | 6,737,316 | 1,454,564 | 95,150,544 | |||||||||||||||||||
Manufacturing Industry | 34,052,729 | 3,468,513 | 619,855 | 913,838 | 1,193,370 | 40,248,305 | ||||||||||||||||||
Agricultural livestock, hunting, forestry and fishing | 8,113,588 | 5,653,305 | 2,325,263 | 2,098,886 | 407,340 | 18,598,382 | ||||||||||||||||||
Services | 9,678,046 | 9,699,815 | 52,916 | 1,520,139 | 254,393 | 21,205,309 | ||||||||||||||||||
Commercial activities | 9,639,580 | 3,855,288 | 146,405 | 1,043,372 | 417,108 | 15,101,753 | ||||||||||||||||||
Exploration of mines and quarries | 14,741,384 | 168,316 | 48,637 | 8,707 | 14,967,044 | |||||||||||||||||||
Financial intermediation and insurance services | 2,821,135 | 683,294 | 61,215 | 13,404 | 3,579,048 | |||||||||||||||||||
Construction activities | 1,646,660 | 1,017,816 | 2,976 | 335,072 | 112,139 | 3,114,663 | ||||||||||||||||||
Electricity supply, gas, steam and air conditioner | 2,523,257 | 73,486 | 7,218 | 1,089 | 2,605,050 | |||||||||||||||||||
Public administration, defense and compulsory social security | 19,614 | 810,758 | 94,139 | 10,812 | 935,323 | |||||||||||||||||||
Water supply, sewerage, waste management and recovery of materials, and public sanitation | 29,054 | 2,536 | 79 | 31,669 |
Stage | 12/31/2018 | |||||||||||||||||||||||
1 | 2 | 3 | ||||||||||||||||||||||
Individual | Collective | Individual | Collective | Total | ||||||||||||||||||||
Loans and other financing | 103,327,739 | 140,295,815 | 1,561,461 | 31,088,550 | 5,289,959 | 281,563,524 | ||||||||||||||||||
Non-financial Public Sector | 2,718,752 | 12,465 | 45 | 2,731,262 | ||||||||||||||||||||
Other Financial Entities | 8,653,310 | 1,055 | 8,654,365 | |||||||||||||||||||||
Non-financial Private Sector and Foreign Residents | 91,955,677 | 140,294,760 | 1,561,461 | 31,076,085 | 5,289,914 | 270,177,897 | ||||||||||||||||||
Individuals | 120,418 | 112,420,553 | 14,264,409 | 2,314,229 | 129,119,609 | |||||||||||||||||||
Manufacturing industry | 43,343,434 | 4,316,873 | 320,304 | 2,820,757 | 1,119,762 | 51,921,130 | ||||||||||||||||||
Agricultural livestock, hunting, forestry and fishing | 11,857,286 | 6,907,471 | 584,762 | 5,638,237 | 428,630 | 25,416,386 | ||||||||||||||||||
Commercial activities | 10,195,071 | 4,591,998 | 275,836 | 3,469,366 | 872,699 | 19,404,970 | ||||||||||||||||||
Services | 3,952,922 | 9,081,526 | 116,219 | 3,651,941 | 420,421 | 17,223,029 | ||||||||||||||||||
Exploration of mines and quarries | 13,048,242 | 95,373 | 76,795 | 855 | 13,221,265 | |||||||||||||||||||
Construction activities | 3,618,849 | 1,040,555 | 264,340 | 847,426 | 75,361 | 5,846,531 | ||||||||||||||||||
Electricity supply, gas, steam and air conditioner | 4,186,471 | 96,399 | 13,842 | 1,383 | 4,298,095 | |||||||||||||||||||
Financial intermediation and insurance services | 1,307,458 | 766,646 | 66,068 | 19,801 | 2,159,973 | |||||||||||||||||||
Public administration, defense and compulsory social security | 876,036 | 192,872 | 25,694 | 1,094,602 | ||||||||||||||||||||
Water supply, sewerage, waste management and recovery of materials, and public sanitation | 325,526 | 101,330 | 34,372 | 11,079 | 472,307 |
BANCO MACRO SA AND ITS SUBSIDIARIES
Stage | 12/31/2018 | 12/31/2017 | ||||||||||||||||||||||||||
1 | 2 | 3 | ||||||||||||||||||||||||||
Individual | Collective | Individual | Collective | Total | ||||||||||||||||||||||||
Loans and other financing | 67,170,083 | 91,201,856 | 1,015,056 | 20,209,680 | 3,438,825 | 183,035,500 | 199,801,999 | |||||||||||||||||||||
Non-financial Public Sector | 1,761,377 | 8,103 | 29 | 1,769,509 | 2,816,761 | |||||||||||||||||||||||
Other Financial Entities | 5,626,003 | 686 | 5,626,689 | 6,524,316 | ||||||||||||||||||||||||
Non-financial Private Sector and Foreign Residents | 59,782,703 | 91,201,170 | 1,015,056 | 20,201,577 | 3,438,796 | 175,639,302 | 190,460,922 | |||||||||||||||||||||
Individuals | 78,280 | 73,081,033 | 9,272,840 | 1,504,397 | 83,936,550 | 104,714,493 | ||||||||||||||||||||||
Manufacturing industry | 28,181,427 | 2,806,262 | 208,220 | 1,833,684 | 727,922 | 33,757,515 | 27,942,827 | |||||||||||||||||||||
Agricultural livestock, hunting, forestry and fishing | 7,708,045 | 4,490,328 | 380,135 | 3,665,239 | 278,639 | 16,522,386 | 15,034,976 | |||||||||||||||||||||
Commercial activities | 6,627,492 | 2,985,112 | 179,312 | 2,255,325 | 567,314 | 12,614,555 | 14,492,972 | |||||||||||||||||||||
Services | 2,023,869 | 5,829,613 | 75,550 | 2,328,427 | 260,422 | 10,517,881 | 13,373,077 | |||||||||||||||||||||
Exploration of mines and quarries | 8,482,248 | 61,999 | 49,922 | 556 | 8,594,725 | 3,959,071 | ||||||||||||||||||||||
Construction activities | 2,352,499 | 676,431 | 171,839 | 550,885 | 48,990 | 3,800,644 | 7,178,720 | |||||||||||||||||||||
Electricity supply, gas, steam and air conditioner | 2,721,492 | 62,666 | 8,998 | 899 | 2,794,055 | 1,549,383 | ||||||||||||||||||||||
Financial intermediation and insurance services | 849,937 | 498,372 | 42,949 | 12,872 | 1,404,130 | 979,625 | ||||||||||||||||||||||
Public administration, defense and compulsory social security | 569,483 | 125,380 | 16,703 | 711,566 | 700,336 | |||||||||||||||||||||||
Information and communications | 545,800 | 73,999 | 45,584 | 12,880 | 678,263 | 240,440 | ||||||||||||||||||||||
Water supply, sewerage, waste management and recovery of materials, and public sanitation | 211,614 | 65,872 | 22,344 | 7,202 | 307,032 | 295,002 |
The analysis of the calculation of ECL additionally includes the exposure to credit risk of unused agreed commitments amounted to 80,852,518.
BANCO MACRO SA AND ITS SUBSIDIARIEScontingent transactions as of December 31, 2019 and 2018 disclosed in note 10.
Collateral and other credit improvements |
The table below shows the types of guarantees received as of December 31, 2018:2019:
Class of financial instrument | Maximum exposure to credit risk | Fair value of collateral | Total collateral | Net exposure | Associated ECLs | Maximum exposure to credit risk | Fair value of collateral | Total collateral | Net exposure | Associated ECL | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pledges on time deposits | Deferred payment checks | Mortgage on real property | Pledges on vehicles and machinery | Pledges on personal property | Other | Pledges on time deposits | Deferred payment checks | Mortgage on real property | Pledges on vehicles and machinery | Pledges on personal property | Other | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Letters of credit | 256,788 | 104,486 | 104,486 | 152,302 | 3,461 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Guarantees and other commitments | 1,575,278 | 1,575,278 | 7,269 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans and other financing | 183,035,500 | 406,244 | 3,439,059 | 18,396,210 | 4,335,920 | 741,408 | 18,121,626 | 45,440,467 | 137,595,033 | 3,869,037 | 225,967,540 | 376,892 | 2,692,107 | 21,976,849 | 4,032,701 | 1,076,615 | 24,720,494 | 54,875,658 | 171,091,882 | 5,069,726 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt securities at fair value through profit or loss | 2,635,247 | 2,635,247 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Contingent transactions | 94,567,785 | 2,047 | 662,858 | 664,905 | 93,902,880 | 17,273 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other debt securities at fair value through OCI | 46,881,489 | 46,881,489 | 210 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other debt securities at amortized cost | 8,151,176 | 8,151,176 | 57 | 17,631,926 | 17,631,926 | 46,734 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other debt securities at fair value through OCI | 56,433,583 | 56,433,583 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sundry debtors | 1,616,781 | 1,616,781 | 1,654 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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TOTAL | 252,087,572 | 406,244 | 3,439,059 | 18,396,210 | 4,335,920 | 741,408 | 18,226,112 | 45,544,953 | 206,542,619 | 3,879,824 | 386,665,521 | 378,939 | 2,692,107 | 21,976,849 | 4,032,701 | 1,076,615 | 25,383,352 | 55,540,563 | 331,124,958 | 5,135,597 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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The table below provides an analysis of the current fair values of collateral held for stage 3 assets as of December 31, 2018:2019:
Class of financial instrument | Maximum exposure to credit risk | Fair value of collateral | Net exposure | Associated ECLs | Maximum exposure to credit risk | Fair value of collateral | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pledges on time deposits | Deferred payment checks | Mortgage on real property | Pledges on vehicles and machinery | Other | Total collateral | Deferred payment checks | Mortgage on real property | Pledges on vehicles and machinery | Pledges on personal property | Other | Total collateral | Net exposure | Associated ECL | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans and other financing | 3,438,825 | 3,905 | 70,171 | 489,570 | 142,248 | 463,511 | 1,169,405 | 2,269,420 | 1,527,108 | 3,873,074 | 2,267 | 540,206 | 122,688 | 8,671 | 701,817 | 1,375,649 | 2,497,425 | 2,179,701 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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TOTAL | 3,438,825 | 3,905 | 70,171 | 489,570 | 142,248 | 463,511 | 1,169,405 | 2,269,420 | 1,527,108 | 3,873,074 | 2,267 | 540,206 | 122,688 | 8,671 | 701,817 | 1,375,649 | 2,497,425 | 2,179,701 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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The table below shows the types of guarantees received as of December 31, 2017:2018:
Class of financial instrument | Maximum exposure to credit risk | Fair value of collateral | Total collateral | Net exposure | Maximum exposure to credit risk | Fair value of collateral | Total collateral | Net exposure | Associated ECL | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pledges on time deposits | Deferred payment checks | Mortgage on real property | Pledges on vehicles and machinery | Pledges on personal property | Other | Pledges on time deposits | Deferred payment checks | Mortgage on real property | Pledges on vehicles and machinery | Pledges on personal property | Other | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Letters of credit | 133,286 | 68,363 | 68,363 | 64,923 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Guarantees and other commitments | 1,754,594 | 1,419 | 277,521 | 278,940 | 1,475,654 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans and other financing | 199,801,999 | 652,038 | 6,024,417 | 14,847,202 | 6,267,483 | 1,118,784 | 28,689,667 | 57,599,591 | 142,202,408 | 281,563,524 | 624,925 | 5,290,304 | 28,298,890 | 6,669,946 | 1,140,508 | 27,876,497 | 69,901,070 | 211,662,454 | 5,951,735 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt securities at fair value through profit or loss | 1,603,472 | 1,603,472 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Contingent transactions | 148,988,857 | 160,731 | 160,731 | 148,828,126 | 16,506 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other debt securities at fair value through OCI | 86,811,780 | 86,811,780 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other debt securities at amortized cost | 1,386,173 | 1,386,173 | 12,538,954 | 12,538,954 | 88 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other debt securities at fair value through OCI | 49,852,407 | 49,852,407 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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TOTAL | 254,531,931 | 653,457 | 6,024,417 | 14,847,202 | 6,267,483 | 1,118,784 | 29,035,551 | 57,946,894 | 196,585,037 | 529,903,115 | 624,925 | 5,290,304 | 28,298,890 | 6,669,946 | 1,140,508 | 28,037,228 | 70,061,801 | 459,841,314 | 5,968,329 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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BANCO MACRO SA AND ITS SUBSIDIARIES
The table below provides an analysis of the current fair values of collateral held for stage 3 assets as of December 31, 2017:2018:
Class of financial instrument | Maximum exposure to credit risk | Fair value of collateral | Net exposure | Maximum exposure to credit risk | Fair value of collateral | Net exposure | Associated ECL | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deferred payment checks | Mortgage on real property | Pledges on vehicles and machinery | Other | Total collateral | Pledges on time deposits | Deferred payment checks | Mortgage on real property | Pledges on vehicles and machinery | Other | Total collateral | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans and other financing | 2,093,697 | 9,417 | 263,463 | 64,505 | 419,866 | 757,251 | 1,336,446 | 5,289,959 | 6,007 | 107,944 | 753,106 | 218,820 | 713,019 | 1,798,896 | 3,491,063 | 2,349,145 | ||||||||||||||||||||||||||||||||||||||||||||||||
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TOTAL | 2,093,697 | 9,417 | 263,463 | 64,505 | 419,866 | 757,251 | 1,336,446 | 5,289,959 | 6,007 | 107,944 | 753,106 | 218,820 | 713,019 | 1,798,896 | 3,491,063 | 2,349,145 | ||||||||||||||||||||||||||||||||||||||||||||||||
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Liquidity Risk |
LiquidityThe liquidity risk is defined as the risk of imbalances occurring between marketable assetspossibility that the Bank may not be able to comply with expected and payable liabilities (“mismatches” between payments and collections) that could affect the Bank’s ability to meet all of itsunexpected current and future cash flows effectively, as well as guarantees, without affecting daily transactions or its financial obligations, taking into considerationposition.
In addition, the different currencies and settlement terms of its rights and obligations, without incurring significant losses.market liquidity risk refers to the risk that the Bank may not be able to clear or delete a position at market price:
because the assets involved have no sufficient secondary market; or
due to market variations.
The Bank features policies regarding liquidity, the purpose of which is to manage liquidity efficiently, optimizing cost and diversification of funding sources, and maximizing the profit from placements through prudent management that ensures the necessary funds to allow the continuity of transactions and compliance with the rules and regulations in force.
In order to reduce the liquidity risk, deriving from the uncertainty that the Bank may be exposed to with respect to its capacity to honor the financial commitments assumed with its customers in due time and manner, a policy has been established a policy which the main aspects of which are as follows:
Assets: a high-liquidity assets portfolio will be maintained to cover at least 25% of total liabilities, comprising deposits, the corporate bonds issued by the Bank, the repo agreements taken and the financial and interbank loans borrowed.
Liabilities: to minimize the unintended effects of illiquidity, deriving from the possible withdrawal of deposits and the repayment of interbank loans taken, the Bank has implemented the following policies, thefollow-up and control of which are under the charge of the Assets and Liabilities Committee:Bank:
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In addition, the Bank implemented a series a risk measurement and control tools, including the regular monitoring of liquidity gaps, separated by currency, as well as different liquidity ratios, included“bi-monetary liquidity ratio”, “Liquidity Coverage Ratio” (LCR) and “Net Stable Funding Ratio” (NSFR), among others.
The Executive Risk Management Department regularly monitors compliance of the different levels set by the Board of Directors in relation to liquidity risk, which include minimum levels of liquidity, maximum concentration levels allowed by type of deposit and by type of customer, among others.
The Bank features policies regarding liquidity, the purpose of which is to manage liquidity efficiently, optimizing cost and diversification of funding sources, and maximizing the profit from placements through prudent management that ensures the necessary funds to allow the continuity of transactions and compliance with the rules and regulations in force.
BANCO MACRO SA AND ITS SUBSIDIARIES
In the event of a liquidity crisis, the Bank has a contingency plan with the following actions:
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Financing through call banking and repo agreements with the BCRA.
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Spot sale of securities government portfolio.
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Limit credit assistance to private sector.
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Increase deposit rates in order to capture deposits.
The following table shows the liquidity ratios during the fiscal years 20182019 and 2017,2018, which arise from dividing net liquid assets, made up of cash and cash equivalents, by total deposits.
BANCO MACRO SA AND ITS SUBSIDIARIES
2018 | 2017 | |||||||
December, 31 | 55.40 | % | 47.00 | % | ||||
average | 47.48 | % | 46.20 | % | ||||
max | 57.08 | % | 51.90 | % | ||||
min | 42.23 | % | 40.84 | % |
2019 | 2018 | |||||||
December, 31 | 57.75 | % | 55.40 | % | ||||
Average | 61.24 | % | 47.48 | % | ||||
Max | 70.13 | % | 57.08 | % | ||||
Min | 51.73 | % | 42.23 | % |
The tables below summarize the maturity of the contractual cash flows of loans and other financing, before ECL, including interest and charges to be accrued until maturity of the contract as of December 31, 20182019 and 2017 and January 1, 2017:2018:
Remaining terms to maturity as of December 31, 2018 | Remaining terms to maturity as of December 31, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Past due | Up to 1 month | Over 1 month and up to 3 months | Over 3 months and up to 6 months | Over 6 months and up to 12 months | Over 12 months and up to 24 months | Over 24 months | Past due | Up to 1 month | Over 1 month and up to 3 months | Over 3 months and up to 6 months | Over 6 months and up to 12 months | Over 12 months and up to 24 months | Over 24 months | |||||||||||||||||||||||||||||||||||||||||||||||||||
Item | Total | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non financial government sector | 156,275 | 403,613 | 434,592 | 745,089 | 968,517 | 323,784 | 3,031,870 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-financial government sector | 2,734,557 | 647,071 | 764,311 | 1,837,175 | 3,027,704 | 2,020,860 | 11,031,678 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial sector | 1,097,205 | 1,733,758 | 1,205,293 | 1,698,740 | 598,110 | 22,143 | 6,355,249 | 1,835,332 | 2,206,616 | 471,817 | 631,406 | 892,996 | 5,467 | 6,043,634 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Non financial private sector and foreign residents | 1,896,929 | 52,337,082 | 23,411,664 | 25,455,967 | 30,819,902 | 35,342,048 | 69,687,361 | 238,950,953 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-financial private sector and foreign residents | 3,625,771 | 90,697,310 | 27,012,879 | 24,246,954 | 30,283,464 | 43,673,909 | 67,383,281 | 286,923,568 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total | 1,896,929 | 53,590,562 | 25,549,035 | 27,095,852 | 33,263,731 | 36,908,675 | 70,033,288 | 248,338,072 | 3,625,771 | 95,267,199 | 29,866,566 | 25,483,082 | 32,752,045 | 47,594,609 | 69,409,608 | 303,998,880 | ||||||||||||||||||||||||||||||||||||||||||||||||
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Remaining terms to maturity as of December 31, 2017 | ||||||||||||||||||||||||||||||||
Past due | Up to 1 month | Over 1 month and up to 3 months | Over 3 months and up to 6 months | Over 6 months and up to 12 months | Over 12 months and up to 24 months | Over 24 months | ||||||||||||||||||||||||||
Item | Total | |||||||||||||||||||||||||||||||
Non financial government sector | 76,520 | 332,942 | 270,689 | 802,978 | 1,450,392 | 1,293,752 | 4,227,273 | |||||||||||||||||||||||||
Financial sector | 1,318,043 | 667,597 | 1,056,931 | 1,133,026 | 1,490,682 | 382,808 | 6,049,087 | |||||||||||||||||||||||||
Non financial private sector and foreign residents | 1,313,322 | 54,217,784 | 27,751,201 | 26,559,754 | 30,112,374 | 45,297,068 | 79,558,577 | 264,810,080 | ||||||||||||||||||||||||
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Total | 1,313,322 | 55,612,347 | 28,751,740 | 27,887,374 | 32,048,378 | 48,238,142 | 81,235,137 | 275,086,440 | ||||||||||||||||||||||||
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Remaining terms to maturity as of January 1, 2017 | ||||||||||||||||||||||||||||||||
Past due | Up to 1 month | Over 1 month and up to 3 months | Over 3 months and up to 6 months | Over 6 months and up to 12 months | Over 12 months and up to 24 months | Over 24 months | ||||||||||||||||||||||||||
Item | Total | |||||||||||||||||||||||||||||||
Non financial government sector | 1,379,189 | 235,318 | 709,154 | 262,540 | 501,535 | 424,583 | 3,512,319 | |||||||||||||||||||||||||
Financial sector | 745,121 | 952,178 | 900,053 | 718,461 | 471,306 | 136,828 | 3,923,947 | |||||||||||||||||||||||||
Non financial private sector and foreign residents | 999,170 | 54,829,527 | 23,981,844 | 22,566,721 | 25,541,148 | 35,645,714 | 47,260,716 | 210,824,840 | ||||||||||||||||||||||||
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Total | 999,170 | 56,953,837 | 25,169,340 | 24,175,928 | 26,522,149 | 36,618,555 | 47,822,127 | 218,261,106 | ||||||||||||||||||||||||
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BANCO MACRO SA AND ITS SUBSIDIARIES
Remaining terms to maturity as of December 31, 2018 | ||||||||||||||||||||||||||||||||
Past due | Up to 1 month | Over 1 month and up to 3 months | Over 3 months and up to 6 months | Over 6 months and up to 12 months | Over 12 months and up to 24 months | Over 24 months | ||||||||||||||||||||||||||
Item | Total | |||||||||||||||||||||||||||||||
Non-financial government sector | 240,398 | 620,878 | 668,533 | 1,146,170 | 1,489,870 | 498,077 | 4,663,926 | |||||||||||||||||||||||||
Financial sector | 1,687,830 | 2,667,040 | 1,854,102 | 2,613,172 | 920,073 | 34,063 | 9,776,280 | |||||||||||||||||||||||||
Non-financial private sector and foreign residents | 2,918,046 | 80,510,133 | 36,014,163 | 39,158,914 | 47,410,255 | 54,366,672 | 107,200,067 | 367,578,250 | ||||||||||||||||||||||||
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Total | 2,918,046 | 82,438,361 | 39,302,081 | 41,681,549 | 51,169,597 | 56,776,615 | 107,732,207 | 382,018,456 | ||||||||||||||||||||||||
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Additionally, the tables below disclose the maturity of the contractual future cash flows of financial liabilities, including interest and charges to be accrued until maturity of the contracts, as of December 31, 20182019 and 2017 and January 1, 2017:2018:
Remaining terms to maturity as of December 31, 2018 | ||||||||||||||||||||||||||||
Up to 1 month | Over 1 month and up to 3 months | Over 3 months and up to 6 months | Over 6 months and up to 12 months | Over 12 months and up to 24 months | Over 24 months | Total | ||||||||||||||||||||||
Item | ||||||||||||||||||||||||||||
Deposits | 198,459,625 | 33,817,014 | 7,493,854 | 1,310,113 | 64,511 | 15,985 | 241,161,102 | |||||||||||||||||||||
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From the non financial government sector | 17,319,378 | 1,670,962 | 639,754 | 46,091 | 206 | 19,676,391 | ||||||||||||||||||||||
From the financial sector | 148,275 | 148,275 | ||||||||||||||||||||||||||
From the non financial private sector and foreign residents | 180,991,972 | 32,146,052 | 6,854,100 | 1,264,022 | 64,305 | 15,985 | 221,336,436 | |||||||||||||||||||||
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Derivative instruments | 1,019 | 350 | 1,369 | |||||||||||||||||||||||||
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Repo Transactions | 164,667 | 164,667 | ||||||||||||||||||||||||||
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Other financial institutions | 164,667 | 164,667 | ||||||||||||||||||||||||||
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Other financial liabilities | 15,140,459 | 18,645 | 9,221 | 13,064 | 20,085 | 140,505 | 15,341,979 | |||||||||||||||||||||
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Financing received from the Central Bank of Argentina and other financial institutions | 425,053 | 918,813 | 1,083,024 | 470,177 | 87,151 | 125,173 | 3,109,391 | |||||||||||||||||||||
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Issued corporate bonds | 362,534 | 584,698 | 734,105 | 1,441,379 | 7,387,182 | 10,509,898 | ||||||||||||||||||||||
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Subordinated corporate bonds | 510,412 | 510,412 | 1,020,824 | 21,757,164 | 23,798,812 | |||||||||||||||||||||||
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Total | 214,553,357 | 34,754,472 | 9,681,559 | 3,037,871 | 2,633,950 | 29,426,009 | 294,087,218 | |||||||||||||||||||||
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Remaining terms to maturity as of December 31, 2017 | Remaining terms to maturity as of December 31, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Up to 1 month | Over 1 month and up to 3 months | Over 3 months and up to 6 months | Over 6 months and up to 12 months | Over 12 months and up to 24 months | Over 24 months | Total | Up to 1 month | Over 1 month and up to 3 months | Over 3 months and up to 6 months | Over 6 months and up to 12 months | Over 12 months and up to 24 months | Over 24 months | Total | |||||||||||||||||||||||||||||||||||||||||||
Item | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deposits | 181,183,593 | 29,262,291 | 4,101,328 | 794,401 | 42,426 | 11,593 | 215,395,632 | 234,410,912 | 26,115,912 | 3,473,109 | 1,027,584 | 53,535 | 22,672 | 265,103,724 | ||||||||||||||||||||||||||||||||||||||||||
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From the non financial government sector | 16,960,126 | 1,697,075 | 471,333 | 1,670 | 25,934 | 19,156,138 | ||||||||||||||||||||||||||||||||||||||||||||||||||
From the non-financial government sector | 16,875,269 | 778,208 | 42,757 | 2,080 | 17,698,314 | |||||||||||||||||||||||||||||||||||||||||||||||||||
From the financial sector | 120,123 | 120,123 | 314,162 | 314,162 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
From the non financial private sector and foreign residents | 164,103,344 | 27,565,216 | 3,629,995 | 792,731 | 16,492 | 11,593 | 196,119,371 | |||||||||||||||||||||||||||||||||||||||||||||||||
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Liabilities as fair value through profit or loss | 9,523 | 9,523 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
From the non-financial private sector and foreign residents | 217,221,481 | 25,337,704 | 3,430,352 | 1,025,504 | 53,535 | 22,672 | 247,091,248 | |||||||||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
Derivative instruments | 34,116 | 34,116 | 293,136 | 341,147 | 134,449 | 768,732 | ||||||||||||||||||||||||||||||||||||||||||||||||||
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Repo Transactions | 3,968,851 | 3,968,851 | 1,002,612 | 1,002,612 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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Other financial institutions | 3,968,851 | 3,968,851 | 1,002,612 | 1,002,612 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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Other financial liabilities | 15,355,113 | 32,069 | 15,828 | 24,388 | 37,737 | 242,087 | 15,707,222 | 21,072,094 | 97,991 | 104,046 | 167,461 | 324,804 | 429,745 | 22,196,141 | ||||||||||||||||||||||||||||||||||||||||||
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Financing received from the Central Bank of Argentina and other financial institutions | 1,369,280 | 135,384 | 17,134 | 23,575 | 50,626 | 138,948 | 1,734,947 | 1,031,099 | 830,067 | 150,581 | 98,185 | 169,657 | 45,817 | 2,325,406 | ||||||||||||||||||||||||||||||||||||||||||
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Issued corporate bonds | 596,931 | 596,931 | 1,193,862 | 9,806,722 | 12,194,446 | 320,280 | 514,980 | 739,479 | 3,364,160 | 3,089,501 | 8,028,400 | |||||||||||||||||||||||||||||||||||||||||||||
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Subordinated corporate bonds | 392,858 | 401,500 | 802,999 | 16,708,703 | 18,306,060 | 808,582 | 808,583 | 1,617,165 | 32,850,011 | 36,084,341 | ||||||||||||||||||||||||||||||||||||||||||||||
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Total | 201,920,476 | 29,429,744 | 5,124,079 | 1,840,795 | 2,127,650 | 26,908,053 | 267,350,797 | 258,130,133 | 27,385,117 | 5,185,747 | 2,841,292 | 5,529,321 | 36,437,746 | 335,509,356 | ||||||||||||||||||||||||||||||||||||||||||
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BANCO MACRO SA AND ITS SUBSIDIARIES
Remaining terms to maturity as of January 1, 2017 | Remaining terms to maturity as of December 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Up to 1 month | Over 1 month and up to 3 months | Over 3 months and up to 6 months | Over 6 months and up to 12 months | Over 12 months and up to 24 months | Over 24 months | Total | Up to 1 month | Over 1 month and up to 3 months | Over 3 months and up to 6 months | Over 6 months and up to 12 months | Over 12 months and up to 24 months | Over 24 months | Total | |||||||||||||||||||||||||||||||||||||||||||
Item | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deposits | 173,114,760 | 31,834,826 | 3,229,799 | 580,267 | 17,530 | 6,712 | 208,783,894 | 305,290,441 | 52,020,713 | 11,527,796 | 2,015,347 | 99,236 | 24,590 | 370,978,123 | ||||||||||||||||||||||||||||||||||||||||||
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From the non financial government sector | 13,109,910 | 4,034,951 | 491,221 | 159,705 | 216 | 17,796,003 | ||||||||||||||||||||||||||||||||||||||||||||||||||
From the non-financial government sector | 26,642,399 | 2,570,441 | 984,134 | 70,902 | 317 | 30,268,193 | ||||||||||||||||||||||||||||||||||||||||||||||||||
From the financial sector | 102,938 | 102,938 | 228,091 | 228,091 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
From the non financial private sector and foreign residents | 159,901,912 | 27,799,875 | 2,738,578 | 420,562 | 17,314 | 6,712 | 190,884,953 | |||||||||||||||||||||||||||||||||||||||||||||||||
From the non-financial private sector and foreign residents | 278,419,951 | 49,450,272 | 10,543,662 | 1,944,445 | 98,919 | 24,590 | 340,481,839 | |||||||||||||||||||||||||||||||||||||||||||||||||
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Derivative instruments | 1,568 | 538 | 2,106 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
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Repo Transactions | 2,018,763 | 2,018,763 | 253,307 | 253,307 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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Other financial institutions | 2,018,763 | 2,018,763 | 253,307 | 253,307 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Other financial liabilities | 10,605,033 | 885,593 | 12,730 | 12,655 | 19,947 | 271,144 | 11,807,102 | 23,290,568 | 28,682 | 14,185 | 20,096 | 30,896 | 216,139 | 23,600,566 | ||||||||||||||||||||||||||||||||||||||||||
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Financing received from the Central Bank of Argentina and other financial institutions | 158,242 | 90,587 | 166,526 | 26,177 | 18,180 | 23,548 | 483,260 | |||||||||||||||||||||||||||||||||||||||||||||||||
Financing received from the Central Bank of Argentina and other financial entities | 1,118,029 | 1,413,410 | 1,666,016 | 723,273 | 134,064 | 192,554 | 5,247,346 | |||||||||||||||||||||||||||||||||||||||||||||||||
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Issued corporate bonds | 3,126,512 | 3,126,512 | 557,686 | 1,001,579 | 1,565,328 | 3,130,655 | 11,817,897 | 18,073,145 | ||||||||||||||||||||||||||||||||||||||||||||||||
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Subordinated corporate bonds | 394,266 | 394,266 | 788,529 | 17,990,167 | 19,567,228 | 785,167 | 785,167 | 1,570,333 | 32,686,205 | 35,826,872 | ||||||||||||||||||||||||||||||||||||||||||||||
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Total | 185,896,798 | 35,937,518 | 3,803,321 | 1,013,365 | 844,186 | 18,291,571 | 245,786,759 | 330,511,599 | 53,462,805 | 14,995,281 | 5,109,211 | 4,965,184 | 44,937,385 | 453,981,465 | ||||||||||||||||||||||||||||||||||||||||||
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Market Risk |
Market risk is defined as the possibility of suffering losses in positions on and off the Bank’s balance sheet as a result of the adverse fluctuations in the market prices of different assets.
Market risks arise from interest rate, currency and price positions, all of which are exposed to general and specific market changes and changes in the price volatility such as interest rates, credit margins, foreign currency exchange rates and prices of shares and securities, among others.
The Bank determines the market risk exposure arising from the fluctuation in the value of portfolios of investments for trading, which result from changes in market prices, the Bank’s net positions in foreign currency, and government and private securities with normal quoted prices.
These risks arise from the size of the Bank’s net positions and/or the volatility of the risk factors involved in each financial instrument.
The Bank features Market Risk Management Policies in which the Bank establishes the proceedings to monitor and control of risks derived of the variations in the quotes of financial instruments in order to optimize the risk-return relationship, making use of the appropriate structure of limits, models and management tools. In addition, the Bank features proper tools and proceedings allowing the Risk Management Committee and the Assets and Liabilities Committee to measure and administer this risk.
Risks to which those investment portfolios are exposed are monitored through historical simulation techniques of “Value at Risk” (VaR). The Bank applies the VaR methodology to calculate the market risk of the main positions adopted and the expected maximum loss based on a series of assumptions for a variety of changes in market conditions.
The Bank calculates the economic capital by market risk using the Value at Risk methodology, using the historical simulation approach.
In order to carry out the above mentioned simulation, the Bank needs to have the Price historical series of those instruments that compose the portfolio.
Prices are corrected by purging the effects of coupon payments and dividend payments, in the case of shares, in order to avoid affecting returns.
In this wayThe method consists in creating return or price scenarios concerning an asset through the Bank obtains the pricesgeneration of business days for each instrument between the valuation date and the oldest date, the latter to be establishedrandom numbers. This is based on the daysselection of historya stochastic model describing the performance of prices for each asset with which the Bank intends to calculate VaR.
Once the Bank has obtained the Price matrix, it proceeds to calculate price variations(10-days returns since itresulting specification of certain parameters required for calculation purposes. The model used is the established Holding Period) occurred in the history during a period of time similar to the chosen holding period, for each instrument separately, obtaining the return matrix.geometric Brownian motion.
BANCO MACRO SA AND ITS SUBSIDIARIES
WithOnce all “n” potential scenarios are obtained for valued positions, the return matrix,P&L vector must be calculated as the difference between the estimated value of the future portfolio and its value upon calculation. Then profit and loss will be placed in order to generateobtain the different simulations of prices of each ofvalue at risk according to the “n” instruments, the Bank multiplies the current price of each instrument by the relevant returns.
In order to get the portfolio simulations, the Bank multiplies instrument simulations by the position of each instrument in the portfolio and adds the positions of all instruments for each date.
Once all simulations are completed, the Bank obtains the critical value of the portfolio, giving the relevant99% percentage to confidence level chosen (99% confidence level).applied.
Finally, the Economic Capital by market risk is obtained as the difference between the current value of the portfolio and the critical value previously obtained.
Interest Rate Risk |
The interest rate risk is defined as the possibility that changes occur in the Bank’s financial condition as a result of adverse interest rate fluctuations with a negative impact on net financial incomethe Shareholders’ equity and its economic value.profit or loss.
Within the framework of the interest rate risk management the Bank features a series of policies, procedures and internal controls included in the Structural Risk Management Manual for this kind of risk.Management.
The Bank calculatesmonitors of the risknet present value of its assets, liabilities and off balance sheet items, upon certain disturbance scenarios and interest rate mismatches by making a sensitivity analysis of changes in the net value of assets upon an interest rate increasestress through the economic value approach with a VaR model.Montecarlo simulation techniques.
For this purpose, the maximum potential loss in the net economic value of the assets and liabilities portfolio is determined considering a periodtemporal line of three months with aand 99% confidence level interval.
The Economic Value Model (EVM) is determined as the net sum of cash flows (losses)(interest and principal losses) that the Bank can generate, discounted at market interest rate curve for each accounting item.curve. If the market interest rate curve (usedused for the discount)discount is affected, the effect of such variation impacts directly on the Economic Valuevalue of the Bank. Generally speaking, reports related to EVM seek to analyze the Bank’s long-term solvency.
It is noteworthy that the use of that approach does not avoid losses beyond those limits in the event of the most significant market changes.
As of December 31, 20182019 and 2017,2018, the Bank’s VaR by type of risk is as follows:
VaR of the trading and investment portfolio | 12/31/2018 | 12/31/2017 | ||||||||||||||
Economic capital (EC – in millions) | 12/31/2019 | 12/31/2018 | ||||||||||||||
Interest rate risk | 6,262 | 3,754 | 8,745 | 9,633 | ||||||||||||
Currency Exchange rate risk | 182 | 37 | 2,759 | 265 | ||||||||||||
Price risk | 82 | 35 | 192 | 126 |
Foreign Currency Exchange Rate Risk |
The Bank is exposed to fluctuations in foreign currencycurrencies exchange rates in its financial position and cash flows. The larger proportion of assets and liabilities kept are related to US dollars.
The foreign currency position includes assets and liabilities reflectedexpressed in pesos at the exchange rate as of the closing dates mentioned below. An institution’s open position comprises assets, liabilities and memorandum accounts stated in foreign currency, where an institution assumes the risk. Any devaluation / revaluation of those currencies would affect the Bank’s statement of income.
Foreign currency transactions are performed at the supply and demand exchange rates. The Bank’s open position, stated in Argentine pesos by currency, is disclosed in note 2526 to these consolidated financial statements.
Operational Risk |
Operational risk is defined as the risk of loss arising from the inadequacy or failure of internal processes, human errors and/or internal system failures, or those originated by external events. This definition includes the Legal Risk but excludes the Strategic Risk and Reputational Risk.
Within such framework, the legal risk –which may occur from within the Bank or externally- comprises, among other aspects, the exposure to penalties, sanctions or other economic consequences or results for failure to comply with any rule or regulation or contractual obligation.
BANCO MACRO SA AND ITS SUBSIDIARIES
On the other hand, the Bank implemented an operational risk management system that meets the guidelines and provisions established by the BCRA in its Communiqué “A” 5398, as amended, and under Communiqué “A” 5272 the BCRA provided for a minimum capital requirement under this description, effective as of February 1, 2012.
BANCO MACRO SA AND ITS SUBSIDIARIES
The operating risk management system is formed by:
a) | Organizational structure: the Bank has an Operational Risk Management that is in charge of managing operational risk and a Risk Management Committee. |
b) | Policies: the Bank has a |
c) | Procedures: the Bank features a procedure for the “Gathering of events and losses from Operational Risk” that includes a process to gather the Operational Events and Losses to register on a systematic basis the frequency, severity, category and other relevant aspects related to the events and losses from Operational Risk. |
d) | The objective is to assess the Bank’s situation upon occurrence of events, in order to better understand the Operational Risk profile and, if applicable, take the necessary corrective actions. |
In addition, the Bank has a procedure that establishes the guidelines to prepare risk self-assessments and, in the event of risks exceeding allowed tolerance levels, guidelines to establish risk indicators and action plans.
e) | Systems: the Bank has a comprehensive system that allows managing all Operational and Technology Risks. |
f) | Database: The Bank has an operational risk event database prepared pursuant to the guidelines established in Communiqué “A” 4904, as supplementary. |
g) | Information systems to measure risks: The Comprehensive Risk Management Department generates and sends, on a |
At the meeting of the Integral Risk Management Committee, the Comprehensive Risk Management Department shall submit for consideration the results of the performance of such department and the reports issued during the period under analysis. The resolutions adopted by the Committee shall be recorded in Minutes to be considered by the Board of Directors, who shall subsequently approve, in this manner, the performance and risk level of the analyzed period.
h) | Stress tests: stress tests are a support tool to manage risks and a supplement of the results reported by the measurement models of the different risks, which in general show risk measurements that are valid for “normal situations”. |
They also are an instrument to evaluate the risk profile since they are used to quantify the potential impact in a situation of significant fluctuation of the variables affecting each risk. Stress tests are as well used in the process of internal assessment of economic capital sufficiency.
Stress tests are aimed at evaluating the Bank’s financial vulnerability potential faced with the sensibility of the main variables affecting each risk. Generally, it is considered a variation of low probability of occurrence, but if materialized may cause significant excess of the tolerance limits established for each risk.
i) | Assessment of economic capital sufficiency: each year, the Bank calculates the economic capital for those risks which, for their significance, may, eventually, affect the Bank’s solvency. |
At present, the Bank calculates the economic capital of the following risks: Credit, Concentration, Market, Operational, Interest Rate, Liquidity and Concentration of Funding Sources, Securitization, Reputational and Strategic.
Risk management is directly related to economic capital assessment. Thus, it is expected that with a better management andfollow-up, the Bank will need to allocate less amount of capital.
BANCO MACRO SA AND ITS SUBSIDIARIES
Based on the internal models developed, Banco Macro manages its risks, determines its risk profile and calculates, therefore, the necessary capital to develop its activities and businesses, adjusting each risk to its relevant exposure level.
BANCO MACRO SA AND ITS SUBSIDIARIES
j) | Transparency: As a supplement to this Manual and as part of the Corporate Governance policy, the Bank features an Information Policy aimed at allowing shareholders, investors and the market in general to evaluate aspects of the Bank related to capital, risk exposure, risk assessment procedures and capital adequacy. |
CHANGES IN THE ARGENTINE MACROECONOMIC ENVIRONMENT OF THE FINANCIAL AND CAPITAL MARKETS |
The international and local macroeconomic context generates a certain degree of uncertainty regarding its future progress as a result of the financial assets and foreign exchange market volatility and additionally certain political events and the level of economic growth, among other issues. Atissues, including what is mentioned in note 53.
Specifically, in Argentina, as a local level,step prior to general presidential elections, the PASO (open primary elections) were held on August 11, 2019. The results were adverse to the party running the Argentine government, which was confirmed with the results of the general presidential elections held on October 27, 2019, giving rise to a change in federal authorities on December 10, 2019. The market values of Argentine government and private financial instruments plummeted the day after the PASO, so the country risk and the value of the US dollar also skyrocketed. The Bank is unable to uphold, as of the date of issuance of these consolidated financial statements, that these situations have been redressed or stabilized to date.
Among other measures introduced by the PEN after the PASO, DNU No. 596/2019 was issued on August 28, 2019, whereby it was set forth that short-term Government securities (Letes, Lecaps, Lelinks and Lecer) will be paid according to the following schedule: 15% upon maturity according to the original terms and conditions of its issuance; 25% of the amount owed plus interest within 90 calendar days as from the previous payment; and the remaining 60% plus interest within 180 calendar days as from the first payment. The deferral did not affect natural persons or the Non-financial Public Administration for the Autonomous City of Buenos Aires that invested in these assets (see note 20).
Then, the new PEN issued Presidential Decree No. 49/2019 on December 19, 2019, to extend through August 31, 2020, the amortization of treasury bills (Letes) in US dollars. In addition, on January 20, 2020, the PEN voluntarily swapped Lecaps for about 60% of the stock for the new Lebads, which will pay BADLAR plus a spread with maturity date in 240 and 335 days. On February 11, 2020, through Presidential Decree No. 141/2020 it was decided to delay through September 30, 2020, the charge for the principal amortization of Federal Government bonds of dual currency (AF20, as its acronym in Spanish) to be made on February 13, 2020, without interrupting the payment of interest established in the original terms and conditions, barring natural persons with holdings as of December 20, 2019, up to a nominal value of USD 20,000. Finally, and combined with other operations of the administration of public debt, dated April 6, 2020, the payment of all public debt issued under Argentine legislation was deferred through Decree No. 346/2020 until December 31, 2020.
Between August 2019 and the date of issuance of these consolidated financial statements, the BCRA issued several regulations that, along with Presidential Decree No. 609/2019 of September 1, 2019, introduced certain restrictions with different scopes and specifications for natural and artificial persons, including the acquisition of foreign currency for hoarding purposes, transfers abroad and foreign exchange transactions, among other issues, effective as of the date of issuance of these consolidated financial statements according to BCRA Communiqué “A” 6844, as supplemented and amended. In addition, in the last few months the gap between the official price of the US dollar -used mainly for foreign trade- and the alternative values that arise through the stock market operation and also with respect to the unofficial value, has begun to widen around 60% as of the date of issuance of these consolidated financial statements.
Besides, on December 23, 2019, “Social Solidarity and Productive Reactivation” Law No. 27541 was published in the Official Bulletin. Furthermore, on December 28, 2019, Presidential Decree No. 99/2019 was published including several economic, financial, tax and other social security, administrative, fee, energy, sanitary and social reforms, and empowered the PEN to complete the formalities and acts needed to recover and secure the sustainability of the government debt as already mentioned and introduced minimum salary increases, among other issues.
Through Law No. 27541, among other provisions, redressing systems were added, amendments to employer contributions were made and a “tax for an inclusive and supportive Argentina” (PAIS tax, for its acronym in Spanish) was created for five fiscal years at a 30% rate on the acquisition of foreign currency for hoarding purposes, to purchase assets and services in foreign currency and international passenger transportation, among others. Finally, note 28 a) and b) explains the amendments introduced pursuant to Income Tax Law.
BANCO MACRO SA AND ITS SUBSIDIARIES
Finally, in addition to the aforementioned extension, the PEN is undergoing formalities to reach a debt restructuring with government debt under Argentine and foreign regulations, considering the powers granted by Law No. 27541. On February 12, 2020, Law No. 27544 “Restoration of the sustainability of government debt issued under foreign law” was published in the Official Bulletin which, among other issues, empowers the PEN to perform transactions to manage liabilities or swaps or restructuring of interest expiry and principal amortization of government securities issued under foreign law. In line with the above, on April 16, 2020, the National Government announced the offer of restructuring of public debt represented by 21 eligible bonds issued under foreign legislation totaling USD 66,238 million, which contemplates a withdrawal of approximately 62% of interest and 5% of capital, along with a three-year grace period, as expressed by the Minister of Economy of the Nation. As the date of these consolidated financial statements, there is an increase inuncertainty as to whether the prices for other relevant economic variables, such as salary costs,Argentine government will be able to successfully carry out the exchange rate, interest rates and prices of the main raw materials.restructure its foreign public indebtedness.
Therefore, the Bank’s Management permanently monitors any changes in the abovementioned situations in international and local markets, to determine the possible actions to adopt and to identify the possible impact on its financial situation that may need to be reflected in the future consolidated financial statements for future periods.statements.
EFFECTS OF THE CORONAVIRUS(COVID-19) OUTBREAK |
In early March 2020, the World Health Organization recognized Coronavirus(Covid-19) as a pandemic that is severely affecting almost all countries around the world. The spread of this disease globally has forced the authorities to take drastic health and financial measures to contain and mitigate its effects on health and economic activity.
Particularly in the Argentine Republic, on March 19, 2020, through Decree No. 297/2020, the Government established the “social, preventive and compulsory isolation” measure until March 31, 2020, which was then extended until May 24, 2020.
Along with health protection rules, tax and financial measures were taken to mitigate the impact on the economy associated with the pandemic, including public direct financial assistance measures for part of the population, the establishment of financial and fiscal facilities for both individuals and companies. As regards measures related to the Entity’s business, the BCRA established maturities extensions, froze the mortgage loan installments and encouraged banks to lend to companies at reduced rates. In addition, as explained in note 50, the distribution of dividends of the finance institutions was suspended until June 30, 2020.
In addition, in the mandatory quarantine context, the BCRA ruled that financial institutions would not be able to open their branches for public service during that period and should continue to provide services to users remotely. They could also trade with each other and their clients in the exchange market remotely. During quarantine, remote trading of stock exchanges and capital markets authorized by the CNV, the custodians and capital market agents registered with the CNV was admitted.
In view of the extension of mandatory quarantine, the BCRA then decided that financial institutions would open their branches from Friday, April 3, 2020 for public attention through previous appointments obtained by the Bank’s website.
The Bank is developing its activities under the conditions detailed above, giving priority to the compliance of social isolation measures by its employees, with the primary objective of taking care of the public health and well-being of all its stakeholders (employees, suppliers, customers, among others). To this end, it has put in place contingency procedures and has enabled its staff to carry out their tasks remotely. From a commercial point of view, it has emphasized maintaining a close relationship with its customers, trying to respond to their needs at this difficult time, sustaining all virtual channels of care to ensure operability and a good response to requirements, monitoring compliance with their business obligations and monitoring the active portfolio in order to detect possible delays in collection and set new conditions for them.
Considering the size of the abovementioned situation, the Bank’s Management estimates that this situation could have an impact on its operations and the financial situation and the results of the Bank, which are under analysis, and will ultimately depend on the extent and duration of the health emergency and the success of the measures taken and taken in the future.
54. | EVENTS AFTER REPORTING PERIOD |
No other events occurred between the end of the fiscal year and the issuance of these consolidated financial statements that may materially affect the financial position or the profit and loss for the fiscal year, not disclosed in these consolidated financial statements.
F-106F-100