Banco Macro (BMA) 20-F 2020 FY Annual report (foreign)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-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, 2020

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, 24^th 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)	Name of Each Exchange On Which Registered
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

628,177,738 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 Regulation S-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, a non-accelerated filer or an emerging growth company. See definition of “large accelerated filer, accelerated filer and emerging growth company” in Rule 12b-2 of the Exchange Act.:

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Emerging growth company	☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  ☒

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		Other  ☐
	by the International Accounting Standards Board	☒

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 Rule 12b-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, 12^th Floor C1001AFA–Buenos Aires, Argentina Jeffrey Cohen Linklaters LLP 1290 Avenue of the Americas New York, NY 10104

Table of Contents

PART I		3
Item 1.	Identity of Directors, Senior Management and Advisers	3
Item 2.	Offer Statistics and Expected Timetable	3
Item 3.	Key Information	3
Item 4.	Information on the Bank	25
Item 4A.	Unresolved Staff Comments	112
Item 5.	Operating and Financial Review and Prospects	112
Item 6.	Directors, Senior Management and Employees	151
Item 7.	Significant Shareholders and Related Party Transactions	162
Item 8.	Financial Information	164
Item 9.	The Offer and Listing	167
Item 10.	Additional Information	167
Item 11.	Quantitative and Qualitative Disclosure About Market Risk	200
Item 12.	Description of Securities Other Than Equity Securities	202
PART II		203
Item 13.	Defaults, Dividend Arrearages and Delinquencies	203
Item 14.	Material Modifications to the Rights of Security Holders and Use of Proceeds	203
Item 15.	Controls and Procedures	204
Item 16A.	Audit Committee Financial Expert	206
Item 16B.	Code of Ethics	206
Item 16C.	Principal Accountant Fees and Services	206
Item 16D.	Exemptions from the Listing Standards for Audit Committees	207
Item 16E.	Purchases of Equity Securities by the Issuer and Affiliated Purchasers	207
Item 16F.	Change in Registrant’s Certifying Accountant	207
Item 16G.	Corporate Governance	207
PART III		217
Item 17.	Financial Statements	217
Item 18.	Financial Statements	217
Item 19.	Exhibits	218

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 the Banco Central de la República Argentina, or the Argentine Central Bank, the term “Superintendency” refers to the Superintendencia de Entidades Financieras y Cambiarias or the Superintendency of Financial and Exchange Entities, the term “CNV” refers to the Comisión Nacional de Valores, or the Argentine Securities Commission, the term “BYMA” refers to Bolsas y Mercados Argentinos S.A., or the Buenos Aires Stock Exchange, the term “MAE” refers to Mercado Abierto Electrónico, the term “NYSE” refers to the New York Stock Exchange, the term “IGJ” refers to the Inspección General de Justicia, or Public Registry of Buenos Aires, the term “ANSES” refers to the Administración Nacional de la Seguridad Social or National Social Security Agency, and the term “UIF” refers to the Unidad de Información Financiera or Financial Information Unit. The term “EU” refers to the European Union. The term “PyME” refers to Pequeñas y Medianas Empresas or small- and medium-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 of one-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 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.

The consolidated financial statements as of December 31, 2020 and the corresponding figures for the previous fiscal years 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 the measuring unit current at the end of the reporting period (December 31, 2020), except otherwise indicated. The inflation rate was 36.14%, 53.83% and 47.64% for the fiscal years ended on December 31, 2020, 2019 and 2018, respectively.

Solely for the convenience of the reader, the reference exchange rate for U.S. dollars as of December 31, 2020, as reported by the Central Bank was Ps.84.145 to U.S.$1.00.

The accompanying consolidated financial statements include the financial statements, as of December 31, 2020, of the Bank and the following subsidiaries.

• Macro Bank Limited;

• Macro Securities S.A. (“Macro Securities”);

• Macro Fiducia S.A. (“Macro Fiducia”);

• Macro Fondos S.G.F.C.I. S.A. (“Macro Fondos”); and

• Argenpay S.A.U. (“Argenpay”).

1

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.

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 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.

Our internet site is not part of this Annual Report

We maintain our website at www.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, 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 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.”

2

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 disclaim any obligation to update publicly or to revise any forward-looking statements after we distribute this annual report due 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.”

PART I

Item 1. Identity of Directors, Senior Management and Advisers

Not applicable.

Item 2. Offer Statistics and Expected Timetable

Not applicable.

Item 3. Key Information

A. Selected Financial Data

Our consolidated financial statements as of December 31, 2020, 2019 and 2018 have been prepared in accordance with IFRS, as issued by IASB. In 2018 the Bank adopted IFRS with a transition date at January 1, 2017. Prior to January 1, 2018 the Bank prepared its consolidated financial statements in 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 Pesos stated in terms of the measuring unit current at the end of the reporting period (December 31, 2020). 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—Risks Relating to Argentina— Continuing high inflation could have a material adverse effect on Argentina’s economic prospects” 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, 2020 and 2019.

The consolidated statement of income for the years ended December 31, 2020, 2019 and 2018 and the consolidated statement of financial position as of December 31, 2020 and 2019, are derived from our audited consolidated financial statements and related notes included elsewhere in this annual report. We have derived our selected consolidated financial position data for the year ended December 31, 2018 and 2017 and our selected consolidated statement of income for the year ended December 31, 2017 from our audited consolidated financial statements not included in this annual report.

The following tables present summary historical consolidated financial data for each of the periods indicated. You should read this information in conjunction with our consolidated financial statements and related notes, and the information under Item 5. “Operating and Financial Review and Prospects” included elsewhere in this annual report.

3

	Year Ended December 31,
Selected Consolidated Statement of Income Data	2017 (1)			2018 (1)			2019 (2)			2020
	(in thousands of  Pesos, except for number of shares, net income per  share and dividends per share)
Net Interest Income		82,122,329			100,455,342			119,000,061			96,246,293
Net Commissions income		28,688,771			28,004,120			24,275,887			22,695,475
Subtotal (Net Interests income + Net Commissions income)		110,811,100			128,459,462			143,275,948			118,941,768
Net gain from measurement of financial instruments at fair value through profit or loss		1,978,724			2,641,829			10,799,758			13,978,694
Profit / (Loss) from sold or derecognized assets at amortized cost		39,552			(12,837	)		37,325			1,292,836
Differences in quoted prices of gold and foreign currency		4,717,862			(3,665,529	)		4,761,247			4,229,690
Other operating income		5,825,773			7,378,344			10,450,998			5,369,762
Credit loss expense on financial assets		(5,473,957	)		(6,073,426	)		(5,917,873	)		(7,861,600	)
Net Operating Income before expenses, depreciation and amortization		117,899,054			128,727,843			163,407,403			135,951,150
Total Operating Expenses (7)		(68,407,708	)		(72,426,921	)		(80,473,660	)		(66,017,796	)
Net operating income after expenses, depreciation and amortization		49,491,346			56,300,922			82,933,743			69,933,354
Income/(Loss) from associates and joint arrangements		607,982			557,706			1,223,124			(6,856	)
Loss on net monetary position		(20,054,296	)		(38,523,196	)		(38,333,403	)		(30,724,854	)
Income before tax on continuing operations		30,045,032			18,335,432			45,823,464			39,201,644
Income tax on continuing operations		(17,610,679	)		(19,835,151	)		(17,618,151	)		(13,046,950	)
Net Income/(Loss) from continuing operations		12,434,353			(1,499,719	)		28,205,313			26,154,694
Net Income/(Loss) for the fiscal year		12,434,353			(1,499,719	)		28,205,313			26,154,694
Net Income/(Loss) for the fiscal year attributable to controlling interest		12,433,593			(1,500,074	)		28,205,071			26,154,332
Net Income for the fiscal year attributable to non-controlling interest		760			355			242			362
Other Comprehensive Income/(Loss)		(188,870	)		(151,209	)		204,750			979,131
Foreign currency translation differences in financial statements conversion		(132,257	)		801,541			116,159			119,864
Profit or losses for financial instruments measured at fair value through other comprehensive income		(58,160	)		(952,750	)		88,591			859,267
Other comprehensive income		1,547			—			—			—
Total Comprehensive Income/(Loss) for the fiscal year		12,245,483			(1,650,928	)		28,410,063			27,133,825
Total Comprehensive Income/(Loss) attributable to controlling interest		12,244,730			(1,651,270	)		28,409,843			27,133,463
Total Comprehensive Income attributable to non-controlling interest		753			342			220			362
Basic earnings / (loss) per share (3)		19.75			(2.28	)		44.11			40.90
Dividends per share approved by the shareholders’ meeting (4)		5.00			10.00			20.00	(5)			(6)
Dividends per share in US$ approved by the shareholders’ meeting		0.27			0.26			0.33				(6)
Weighted average number of outstanding common shares (in thousands)		629,531			661,141			639,402			639,413

(1) Figures adjusted for inflation as of December 31, 2020 and considering the merger effects mentioned in note 2.4 to our audited consolidated financial statements as of December 31, 2019 and 2020. See “Presentation of certain financial and other information”.

(2) Figures adjusted for inflation as of December 31, 2020. See “Presentation of certain financial and other information”.

(3) Net income/(loss) for the fiscal year attributable to controlling interest divided by weighted average number of outstanding shares.

(4) Not adjusted for inflation.

(5) In addition to the dividend approved by the shareholder’s meeting held on April 30, 2020, the shareholder’s meeting held on October 21, 2020 resolved to approve a complementary dividend for a total amount of Ps. 3,791.7 million subject to prior authorization of the Central Bank.

(6) At its meeting held on March 17, 2021, the Board of Directors resolved to submit for discussion by the Shareholders’ Meeting the motion to distribute as cash dividend of dividend in kind, in this case valued at market price, or in any combination of both alternatives, the amount of Ps. 15,64 per share. The dividend is calculated on figures expressed in constant currency as of December 31, 2020. By virtue of Communication “A” 7181 of the Central Bank, dividend distributions by financial entities have been suspended at least until June 30, 2021.

(7) Includes employee benefits, administrative expenses, depreciation and amortization of fixed assets and other operating expenses.

4

			As of December 31,
Selected Consolidated Statement of Financial Position  Data	2017 (1)		2018 (1)		2019 (2)		2020
	(in thousands of Pesos)
ASSETS
Cash and Deposits in Banks		109,962,111		156,581,272		137,066,430		129,967,486
Investments in Debt Securities and Equity Instruments		111,541,836		140,885,631		99,117,363		269,319,697
Derivative Financial Instruments		25,442		36,216		838,493		989,478
Repo Transactions		4,390,273		—		1,481,096		39,421,705
Loans and other financing		410,202,002		375,224,887		300,731,589		257,421,195
Other Financial Assets		30,646,503		20,431,885		22,922,305		33,178,648
Investment in associates and joint arrangements		677,020		227,907		199,216		203,905
Property, Plant and Equipment		31,845,671		32,554,081		35,052,877		34,369,465
Intangible Assets		3,405,884		4,441,128		4,822,183		5,104,060
Deferred Income Tax Assets		—		—		59,115		63,189
Other Non-financial Assets		4,553,448		2,063,777		1,477,587		2,232,053
Non-current assets held for sale		771,395		3,134,634		2,383,947		2,258,182
TOTAL ASSETS		708,021,585		735,581,418		606,152,201		774,529,063
Average Assets		674,955,166		721,940,074		689,245,775		701,537,652
LIABILITIES
Deposits		445,670,635		498,349,718		357,866,442		488,741,363
Liabilities at fair value through profit or loss		19,945		—		—		—
Derivative Financial Instruments		71,451		2,867		1,046,556		230
Repo Transactions		8,312,017		344,445		1,364,825		618,572
Other Financial Liabilities		32,656,940		32,074,038		30,181,836		49,215,887
Financing received from the Central Bank of Argentina and other financial entities		3,630,540		6,278,682		3,057,451		919,103
Corporate Bonds		37,965,480		45,374,118		40,619,860		39,227,193
Current Income Tax Liabilities		12,292,330		6,170,762		11,076,651		5,145,324
Provisions		2,148,802		2,212,870		2,006,052		1,310,517
Deferred Income Tax Liabilities		3,925,552		4,903,673		763,179		7,448,122
Other Non-financial Liabilities		11,672,968		12,309,288		13,776,518		30,356,941
TOTAL LIABILITIES		558,366,660		608,020,461		461,759,370		622,983,252
SHAREHOLDERS’ EQUITY
Net Shareholder’s Equity attributable to the controlling interest		149,652,411		127,558,845		144,390,918		151,543,943
Net Shareholders’ Equity attributable to non-controlling interest		2,514		2,112		1,913		1,868
TOTAL SHAREHOLDERS’ EQUITY		149,654,925		127,560,957		144,392,831		151,545,811
Average Shareholders’ Equity		135,704,721		145,873,310		131,879,530		146,585,823

(1) Figures stated in thousands of Pesos adjusted for inflation as of December 31, 2020 and considering the merger effects mentioned in note 2.4 to our audited consolidated financial statements as of December 31, 2019 and 2020. See “Presentation of certain financial and other information.”

(2) Figures adjusted for inflation as of December 31, 2020. See “Presentation of certain financial and other information”.

5

	As of and for the year ended December 31,
	2017			2018			2019			2020
	(in thousands of pesos)
Selected consolidated ratios:
Profitability and performance
Net interest margin (%) (1)		16.70	%		19.05	%		25.36	%		20.25	%
Fee income ratio (%) (2)		27.42	%		22.97	%		18.19	%		20.45	%
Efficiency ratio (%) (3)		40.41	%		38.15	%		32.05	%		34.89	%
Fee income as a percentage of administrative expense (%)		56.05	%		52.67	%		49.27	%		39.78	%
Return on average equity (%)		9.16	%		(1.03	%)		21.39	%		17.84	%
Return on average assets (%)		1.84	%		(0.21	%)		4.09	%		3.73	%
Liquidity
Loans and other financings as a percentage of total deposits (%)		93.89	%		76.92	%		85.96	%		54.70	%
Liquid assets as a percentage of total deposits (%) (4)		51.50	%		61.66	%		66.79	%		90.13	%
Capital
Total equity as a percentage of total assets (%)		21.14	%		17.34	%		23.82	%		19.57	%
Regulatory capital as a percentage of risk-weighted assets (%)		28.10	%		26.47	%		27.25	%		34.23	%
Asset Quality
Non-performing loans and other financings included in Stage 3 as a percentage of total loans and other financings (%) (5)		1.08	%		1.88	%		1.71	%		1.13	%
Allowances for loan losses as a percentage of total loans and other financings		(1.97	%)		(2.11	%)		(2.24	%)		(3.71	%)
Allowances for credit losses as a percentage of non-performing loans and other financings included in Stage 3 (%) (5)		(182.26	%)		(112.51	%)		(130.90	%)		(327.67	%)
Operations
Number of branches		445			471			463			463
Number of employees (6)		8,774			9,028			8,768			8,561

(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 expense includes employee benefits, administrative expenses, depreciation and amortization of fixed assets and other operating expenses. Operating income includes net interest income, net commissions income, net income from measurement of financial instruments at fair value, differences in quoted prices of gold and foreign currency net and other operating income.

(4) Liquid assets include cash, cash collateral, reverse repos, instruments issued by Central Bank, other government securities and interbank 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, 2020, 2019 and 2018, non-performing loans are calculated according to our internal credit rating grades disclosed in note 51.1 to our consolidated financial statements.

(6) Had 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 been included, the number of employees of the Bank would have been 8,826, 9,113 and 8,788 for 2017, 2018 and 2019, respectively. We do not account for such workers as employees, as we do not remunerate them for their services, which are paid directly by the Argentine province where they work.

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.

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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.

The following summarizes some, but not all, of the risk factors provided below:

• Risks Relating to Argentina:

• the economy remains vulnerable;

• the effects on the Argentine economy of developments in the global market;

• limitation on Argentina’s ability to obtain financing from international markets;

• adverse judgments or injunctions against Argentina;

• the effects on the economy of governmental measures;

• exchange controls and capital inflow restrictions limit international credit;

• declines in international prices for Argentina’s main commodity exports;

• high levels of inflation;

• devaluation of the Peso against the U.S. dollar;

• high public expenditure;

• institutional deterioration and corruption;

• economic uncertainty and political environment; and

• the COVID-19 pandemic.

• Risks relating to the Argentine financial system:

• dependence of the growth and profitability of the financial system on the growth of the long-term credit market;

• dependence of the stability of the financial system on the confidence of depositors;

• deterioration of the asset quality;

• limitations on enforcement of creditors’ rights;

• reduced spreads between interest rates received on loans and those paid on deposits that does not correspond with the increases in lending volumes;

• application of the Consumer Protection Law;

• class actions;

• governmental measures and regulatory framework affecting financial entities;

• insufficient or incorrect implementation of certain anti-money laundering and combating the financing of terrorism recommendations;

• changes to services and commissions charged by financial entities on debit and credit card sales;

• changes in the laws and regulations; and

• increased operating costs.

• Risks relating to us:

• adverse effects on our target market as a result of the economic recessions;

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• significant shareholders’ ability to direct our business and their interests could conflict with yours;

• consideration of acquisition opportunities, which may not be successful;

• our estimates and established reserves for credit risk and potential credit losses may prove to be inaccurate and/or insufficient;

• changes in market conditions;

• cybersecurity events;

• reliance on properly functioning information technology systems and improvements to such systems;

• increase in fraud or transactions errors;

• liquidity issues;

• Argentina’s implementation of the Corporate Criminal Liability Law and other anti-corruption laws and regulations; and

• Increased attention to environmental, social and governance matters.

• Risks relating to our Class B shares and the ADSs:

• holders may not receive any dividends;

• holders located in the United States may not be able to exercise preemptive rights;

• investors may not be able to easily move shares for trading between the markets we are traded;

• shareholders may be subject to liability for certain votes of their securities;

• payment on Class B shares or ADSs may be subject to FATCA withholding; and

• difficulty to enforce civil liabilities against us, our directors, officers and certain experts.

Risks relating to Argentina

The Argentine economy remains vulnerable.

The Argentine economy has experienced significant volatility in recent decades, characterized by periods of low or negative growth, high levels of inflation and currency 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.

Substantially all of our operations, properties and customers are located in Argentina and, as a result, our business is to a large extent dependent upon macroeconomic, political, regulatory and social conditions prevailing in Argentina. Developments in economic, political, regulatory and social conditions in Argentina, and measures taken by the Argentine government, have had and are expected to continue to have a significant impact on our business, results of operations and financial condition. Argentina is an emerging market and investing in such markets generally carries additional risks.

Argentina’s economy has contracted since 2018 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 2019 to December 2020 was 36.14%, and consumer price inflation during January, February and March 2021 was 4.0%, 3.6% and 4.8%, respectively. According to the market expectations survey published by the Central Bank, this tendency is expected to persist, as expectations for 2021 CPI are around 46%;

• according to a report published by the INDEC in March 2021, GDP for 2020 decreased 9.9%. 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;

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• Argentina’s foreign currency reserves remain 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 meet industrial demand (thereby limiting industrial development) and consumption;

• unemployment and informal employment remain high; according to INDEC, unemployment rate during the fourth quarter of 2020 was 11%; 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.

Additionally, in the presidential and legislative general elections in Argentina that took place on October 27, 2019 the “Frente de Todos,” a political coalition which was part of the former opposition, won the presidential election, and on December 10, 2019, president Fernández took office. Legislative mid-term elections will take place in October 2021, by virtue of which one third of the seats in the senate, and half of the seats in the house of representatives, will be up for election. Political uncertainty in Argentina regarding the policies that may be adopted in the future by the government could lead to further volatility and adversely affect Argentina’s economy.

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.

Argentina’s economy remains vulnerable to external shocks that could be caused by adverse regional or global developments. A significant decline in the economic growth of any of Argentina’s major trading partners (including Brazil, the European Union, 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, Argentina may be affected by economic and market conditions in markets worldwide, as was the case in 2008, when the global economic crisis led to a sudden economic decline in Argentina in 2009. The ongoing COVID-19 pandemic has had, and continues to have, a significant impact on the global economy and the economies of countries across Latin America, the full impact of which cannot be accurately predicted at this time.

In the past, emerging market economies have been affected by changes in U.S. monetary policy, at times resulting in the unwinding of investments and increased volatility in the value of their currencies. If interest rates rise significantly in developed economies, including the United States, emerging market economies, including Argentina, could find it more difficult and expensive to borrow capital and refinance existing debt, which would negatively affect their economic growth.

Brexit has created uncertainty about the future relationship between the United Kingdom and the European Union. The United Kingdom formally exited the European Union on January 31, 2020. On December 24, 2020, the United Kingdom and European Union announced they had entered into a post-Brexit deal on certain aspects of trade and other strategic and political issues, which relationship became effective on December 31, 2020. However, the extent and process by which the United Kingdom will exit the European Union, and the longer term economic, legal, political and social framework to be put in place between the United Kingdom and the European Union are unclear and are likely to lead to ongoing political and economic uncertainty and periods of exacerbated volatility in both the United Kingdom and in wider European markets for some time, which could have an impact on emerging market economies, including Argentina.

In July 2019, the Common Market of the South (“MERCOSUR”) signed a strategic partnership agreement with the European Union, which is expected to enter into force in the second half of 2021, once approved by the relevant legislatures of each member country. The objective of this agreement is to promote investments, regional integration, increase the competitiveness of the economy and achieve an increase in GDP. However, the effect that this agreement could have on the Argentine economy and the policies implemented by the Argentine government is uncertain.

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.

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Global economic and financial crises, and the general weakness of the global economy, negatively affect emerging economies like Argentina’s. If international and domestic conditions for Argentina were to worsen further, the Argentine economy could be negatively affected as a result of lower international demand and lower prices for its products and services, lower capital inflows and higher risk aversion, which may also adversely affect our business, results of operations, financial condition and cash flows.

We cannot assure you that developments in other markets will not affect macroeconomic, political or social conditions in Argentina and, consequently, our business, results of operations and financial condition.

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 Argentine government has defaulted on its sovereign debt instruments in the past and has most recently reprofiled its debt in 2019/2020. As a result, the Argentine government may not have access to international financing, or its access may be costly, which may limit its ability to make investments and foster economic growth. Additionally, companies in the country’s private sector may also have difficulty accessing international financing at reasonable costs or at all, as has occurred on prior occasions.

During March 2020, the Argentine government initiated discussions with various groups of creditors to discuss a path for Argentina’s debt sustainability. With respect to Argentina’s international bonds, in April 2020, the Argentine executive branch approved the restructuring of certain eligible global bonds issued under foreign laws for up to U.S.$65 billion (the “Eligible Bonds”) and filed with the SEC an invitation to exchange those instruments for new bonds. On August 31, 2020, the Argentine government announced that it had obtained the consents required to exchange 99% of the aggregate principal amount outstanding of all series of Eligible Bonds, following which the exchange was consummated.

On August 18, 2020, the Argentine government offered holders of its foreign currency bonds governed by Argentine law to exchange such bonds for new bonds, in terms that were equitable to the terms of the invitation made to holders of foreign law-governed bonds.

On September 18, 2020, Argentina announced that holders representing 99.4% of the aggregate principal amount outstanding of all series of eligible bonds invited to participate in the local exchange offer had participated. However, there is still a high probability of a new default as reflected by prices of credit default swaps on Argentine sovereign bonds.

In addition, in June 2018, the Argentine government and the IMF signed a three-year, U.S.$50 billion loan agreement, as further amended to U.S.$57.1 billion through 2021 (the “IMF 2018 Agreement”). Following an IMF report in February 2020 stating that Argentina’s debt may not be sustainable, the Argentine government requested to begin discussions with the IMF to renegotiate the IMF 2018 Agreement. As of the date of this annual report, negotiations with the IMF are ongoing.

As of the date of this annual report, there is uncertainty as to whether the Argentine government will be able to successfully negotiate a new program with the IMF, or even if a new renegotiation process with foreign creditors will be required to cure the high implicit probability of default arising from credit default swap’s prices. As a result, we cannot guarantee that Argentina will be able to obtain financing in the international or domestic capital markets, nor the impact a failure to keep the country’s external financial commitments could have, or in case a new 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 lack of access to financing in the international financial markets may have a direct impact in our ability to access the financial markets to fund our operations, including the financing of capital expenditures, which in turn may negatively affect our business, financial position and results of operations.

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.

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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 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.$320.8 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. 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.

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 nationalization during the government of Cristina Fernández de Kirchner of the private retirement system, made in 2008. As reported by the ICSID on its website the demand is for US $ 500 million. On February 23, 2021, Argentina filed observations on the claimants’ response of February 17, 2021. As of the date of this annual report, the tribunal’s decision is pending and the outcome of these 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.

Governmental 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 the past, the Argentine government has had 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:

• 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.

• 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.

• Regulations related to domestic capital 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.

Moreover, in the midst of a judicial reorganization procedure, the administration briefly intervened producer of soymeal livestock, Vicentin S.A.I.C. Even though the Argentine government eventually abandoned the expropriation project, we cannot assure you that similar measures will not be adopted in the future, such as expropriation, nationalization, intervention by the CNV, or modification of existing contracts, changes in laws, regulations and policies affecting foreign trade and investments.

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 declared a labor emergency, which has been extended until December 31, 2021. During the labor emergency, severance payments by employers for unjustified terminations are double the amount than it would otherwise apply.

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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.

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.

The Argentine government has in several occasions increased controls on the sale of foreign currency, limiting transfers of funds abroad. Measures taken by the Argentine government significantly curtailed access to the official foreign exchange market and, as a result, an unofficial U.S. dollar trading market developed in which the peso-U.S. dollar exchange rate differed substantially from the official peso-U.S. dollar exchange rate. While the former administration had initially eliminated foreign exchange restrictions in 2016, in September 2019, in response to significant capital flight from the country, the Argentine Central Bank imposed restrictions on foreign exchange transactions, which were effective until December 31, 2019. Following the change in administration in December 2019, the new administration has extended the measures, and established further restrictions, including a new tax (impuesto PAIS) on certain transactions involving the purchase of foreign currency by Argentine residents. Although the official exchange rate has largely stabilized since the adoption of these foreign exchange controls, we cannot assure you that the official exchange rate will not fluctuate significantly in the future.

The current exchange 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 and exports of goods and services, and the obligation to repatriate and settle the proceeds from exports of goods and services for pesos, among others. For further information, see “Item 10.D – Exchange Controls”. It is not possible to anticipate for how long these measures will be in force or even if additional restrictions will be imposed. The Argentine government could maintain or impose new exchange control regulations, restrictions and take other measures in response to capital flight or a significant depreciation of the peso, which could limit access to the international capital markets. Such measures could undermine the Argentine government’s public finances, which could adversely affect Argentina’s economy, which, in turn, could adversely affect our business, results of operations and financial condition.

Additionally, the level of international reserves held 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 held by the Central Bank increased to U.S.$65.8 billion as of December 31, 2018, plummeted to U.S.$44.7 billion as of December 31, 2019 and continued to decrease the following year down to U.S.$39.4 billion as of December 31, 2020. Notwithstanding the measures that may be adopted by the Fernández administration in the future, the level of international reserves held 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 (i.e. soy) have increased after a long period of decline. If international commodity prices decrease again or experience sustained declines, the Argentine government’s revenues could decrease significantly, affecting Argentina’s economic activity, which in turn could produce a negative effect on our business, financial condition and results of operations.

In addition, adverse weather conditions can affect the production of commodities in the agricultural sector, which accounts 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.

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Continuing 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 discontinuation 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 (“CPI”) (Índice de Precios al Consumidor, or IPC, per its initials in Spanish). The CPI was 47.64% for 2018, 53.83% for 2019 (the highest rate since 1991), 36.14% for 2020, 4.0%, 3.6% and 4.8% for January, February and March 2021, respectively. 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. Continuing 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 a far-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. In 2018, 2019 and 2020, the Peso depreciated approximately 51%, 37% and 29%, respectively, with respect to the U.S. dollar. Additionally, the stock of international reserves held by the Central Bank increased to U.S.$65.8 billion as of December 31, 2018 and decreased to U.S.$44.7 billion as of December 31, 2019. During 2020 the stock of international reserves held by the Central Bank kept plummeting to U.S. $39.4 billion as of December 30, 2020.

The Argentine macroeconomic environment, in which we operate, was and still is 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 years, the Argentine government has substantially increased public expenditure and has resorted regularly to the Central Bank’s monetary issuance and transfers from ANSES to source part of its funding requirements.

In 2018 and 2019, public sector expenditure increased approximately 22.4% and 37.2%, respectively (measured in nominal Pesos) and the government informed a primary fiscal deficit of approximately 2.4% and 1.3% of GDP, respectively, according to the Ministry of Treasury.

In 2020, the Fernandez administration announced a package of fiscal stimulus measures to mitigate the effects of the recession caused by COVID-19 pandemic, focused on sustaining the level of income of the most vulnerable families and companies most affected. Such measures increased spending and produced a drop in revenues, which caused a significant raise in the fiscal deficit for the year 2020. In 2020, the government informed a primary fiscal deficit of Ps.1.7 trillion, compared to a deficit of Ps.819.4 billion in 2019, and was equivalent to 6.5% of GDP for 2020 and the highest in more than 40 years. Moreover, the Argentine government informed a financial deficit of Ps.2.3 trillion equivalent to 8.5% of GDP. These results are partly explained by a decrease in Argentine government income (equivalent to -0.7% of GDP) and an increase of public expenditure (equivalent to 3.5% of GDP).

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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 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.

Failure to adequately address actual and perceived risks of institutional deterioration and corruption may adversely affect Argentina’s economy and financial 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 2020 Corruption Perceptions Index survey of 180 countries, Argentina was ranked 78, dropping from the previous survey in 2019. In the World Bank’s Doing Business 2020 report, Argentina ranked 126 out of 190 countries, down from 119 in 2019.

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 former administration announced several measures aimed at strengthening Argentina’s institutions and reducing corruption. These measures included 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, and stablishing a corporate criminal liability regime for corruption offenses aimed at promoting anticorruption compliance, among others. The current Argentine Government’s ability to implement them, or promote further transparency and integrity measures is uncertain in a highly polarized political context.

The ongoing economic uncertainty and political environment 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 crises 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 2020 and may be accentuated in 2021. For more information, see “Item 3.D - Risk Factors – Risks relating to Argentina – The Argentine economy remains vulnerable and a significant decline could adversely affect our financial condition.”

In addition, certain ongoing investigations into allegations of money laundering and corruption being conducted by the Office of the Argentine Federal Prosecutor 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. Several senior politicians 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 ongoing corruption-related investigations is uncertain in most cases, 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 cannot predict the outcome of any such allegations nor their effect on the Argentine economy.

The deterioration of the general market perception of the economy, political environment and the capital markets in Argentina could have a negative impact on our business, financial condition and results of our operations.

COVID-19 affected and keeps affecting the Argentine economy and could have an adverse effect on Argentine economy.

In December 2019, COVID-19 was reported in Wuhan, China, and the World Health Organization declared COVID-19 a pandemic on March 11, 2020. The COVID-19 pandemic has disrupted business activities in Argentina and worldwide. The Argentine government has issued a shelter-in-place order from March 20, 2020, restricting the free circulation in public areas and ordering most businesses to close, with certain exemptions. In Argentina, around 2.9 million confirmed cases had been reported by April 27, 2021, along with a death toll of approximately 63,000.

The COVID-19 pandemic has, and it is still 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

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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. Even though the Argentine government has started a vaccination campaign, a second wave of infections is broadening the effects of the COVID-19 pandemic on the Argentine economy overall. Additionally, conflicting orders from the federal and local governments could also adversely affect the political environment in Argentina.

In order to assuage the adverse effect of the COVID-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 included: layoff limitations, price controls, lower reserve requirements on bank lending to households and micro-, small- and medium-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 with the COVID-19 pandemic. Moreover, banks may not distribute dividends until at least June 30, 2021 or carry out wrongful dismissals until at least May 31, 2021. Although such measures already helped to attenuate the impact of the pandemic and could help on the future such impact on the Argentine economy overall, they may also have a negative impact on our business, financial condition and results of operations.

For more information regarding the effects of the COVID-19 pandemic and its impact, see note 51.1.4 “Adjustment for expected losses due to COVID-19 pandemic” and note 53 “Effects of the coronavirus (Covid-19) outbreak” to our audited consolidated financial statements as of December 31, 2020 and 2019, and item 5.D. “Trend Information/Potential impact related to COVID-19 pandemic.”

The long-term effects of epidemics and other public health crises, such as COVID-19, on the economy are difficult to assess or predict. For example, risks that the Bank’s 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 their activity.

As a result of the above, the COVID-19 pandemic and the measures adopted by the government to mitigate its impact could adversely affect the Argentine economy. The extent of the impact of the pandemic on the Argentine economy 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 to the economic partners of Argentina, all of which remain uncertain.

For more information, see “Item 4.B.—Business Overview—Argentine Banking Regulation— Central Bank’s preventive measures in response to the pandemic of COVID-19;” and “item 5.D. – Trend Information/Potential impact related to COVID-19 pandemic”, and notes 51.1.4 “Adjustment for expected losses due to COVID-19 pandemic” and 53 “Effects of the coronavirus (Covid-19) outbreak” to our audited consolidated financial statements as of December 31, 2020 and 2019.

Risks relating to the Argentine financial system

The growth and profitability of Argentina’s financial system depends on the growth of the long-term credit market.

Until recent years, the loan portfolio of the Argentine financial system had been growing significantly. Loans to the private sector (in nominal value without adjusting for inflation) grew by approximately 36% in 2018, 21% in 2019 and 33% in 2020. In the past, the pace of growth of long-term loans was slower than that of the rest of the loan portfolio, however during 2017 and 2018 was a significant increase in mortgage loans. In 2019, the increase in mortgage loans abruptly stopped due to higher inflation expectations and its impact on the cost of credits adjusted by UVAs, while during 2020, mortgage loans decreased by 24% in real terms.

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.

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If longer-term financial intermediation activity does not grow, the ability of financial institutions, including us, to generate profits will be negatively affected.

The stability 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 regarding financial institutions, 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.

The Argentine financial system’s growth depends heavily on deposit levels, due to the small size of its capital market and the absence of foreign investments in previous years. 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 has come to an end due to the adverse macroeconomic conditions in recent years. Therefore, there is uncertainty about whether the current availability of funds in international markets will be regained 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 were 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 and 2020 as a consequence of high interest rates and the difficult financial and macroeconomic environment.

As a result of the aforementioned, 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 further loss of confidence due to such economic, social and political events causing depositors to withdraw significant holdings from banks, there could be a substantially 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 continue to 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.

As of December 31, 2018, 2019 and 2020, the ratio of non-performing private sector lending reached 3.1%, 5.7% and 3.9%, 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 as a whole, as our non-performing lending rate reached 1.9%, 2.1% and 0.8%, as of December 31, 2018, 2019 and 2020, respectively, calculated pursuant to Central Bank Rules.

As a result of the macroeconomic environment prevailing in Argentina 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 of COVID-19 and its economic impact in the course of 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 COVID-19 pandemic and the nation-wide lockdown established by the Argentine government since March 20, 2020 and extended several times until the date of this annual report, with an interim period between November 2020 and March 2021 (when the country entered a “social distancing” phase), have had a significant negative impact on the Argentine economy and, therefore, on the behavior of financial system debtors.

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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, despite the measures adopted by the Central Bank in order to temporarily reduce non-performing levels, the negative results of the impairment in the debtors’ financial capacity are undeniable, thus an increase in the impairment of assets subject to credit risk is expected. Since statistical models do not appropriately reflect the effects arising from the pandemic on expected credit losses, the Bank decided to make a special adjustment prospectively based on an estimate of the impairment of certain financial assets showing greater vulnerability levels or signs of difficulties related to the payment of obligations. For more information, see note 51.1.4. “Adjustment for expected losses due to COVID-19 pandemic” to our audited consolidated financial statements as of December 31, 2020 and 2019.

We cannot assure you when the economic crisis will subside and 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 continues 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 of non-performing loans.

Limitations on enforcement of creditors’ rights in Argentina may adversely affect financial institutions.

To protect debtors affected by the economic crisis, 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.

To protect debtors affected by the COVID-19 crisis, the Argentine government adopted a series of rules regarding the enforcement of creditors’ rights upon default. In connection with the ongoing COVID-19 pandemic, the Argentine government, among other measures, (i) suspended foreclosures and evictions nationwide, including those that have already been ordered, until March 31, 2021; (ii) froze mortgage and UVA credits installments as of March 2020’s value until January 31, 2021; (iii) froze the price of rentals as of March 2020’s value until March 31, 2021; and (iv) prohibited the application of punitive interests or other penalties provided for in the contract. Even though the rules are no longer in force, we cannot be certain regarding the impact of such measures’ expiration over the delinquency of the Bank’s clients.

We cannot assure you that in a 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 previous 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 by non-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 interest bearing 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 and our business.

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.

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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.

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 an ad 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 of non-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.

In recent years, a series of 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’s prior approval. However, access is only granted to the FX Market to pay dividends to non-resident shareholders subject to certain conditions. By virtue of Communication “A” 7181 of the Central Bank, dividend distributions by financial entities have been suspended at least until June 30, 2021.

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.

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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.

It 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 our 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.—Business Overview—Argentine Banking Regulation— Central Bank’s preventive measures in response to the pandemic of COVID-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.

Since 2013, Argentina has taken steps towards improving its AML/CFT regime, including the issuance of new regulations strengthening KYC and suspicious transaction reporting duties and the UIF´s existing powers to apply sanctions for AML/ CFT deficiencies. Financial Action Task Force (“FATF”). As a result of such progress, in 2014 the FATF removed Argentina from the compliance monitoring process. In June 2017, Argentina was unanimously elected to preside the FATF.

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.

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 Argentine financial institutions.

Financial institutions receive income from the commissions they 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 revenues of the Argentine financial institutions.

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, 2018 and 2019 was of 2.0%, 1.85% and 1.65%, respectively, and for 2020 and 2021 and after, will be 1.50% and 1.30%, respectively. The maximum debit card sales commissions for 2017, 2018 and 2019 was of 1.0%, 0.90% and 0.80%, respectively, and for 2020 and 2021 and after, will be 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 and the nominal interest rates shall not exceed 43%, considering each the amount financed by such concept is lower than Ps.200,000. Also, for the

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unpaid balances of credit cards financings that take place between September 1, 2020 and September 20, 2020, will be automatically refinanced in nine equal consecutive monthly installments beginning after a three-month grace period and the nominal interest rates shall not exceed 40%.

It is not possible to offer any guarantee that new regulations on such a matter will not be implemented in the future that may reduce future financial revenues. Such could in turn have a negative impact on the Argentine financial institutions and, in turn, on our business, financial position and results of operations.

Changes in the laws and regulations may negatively affect Argentine financial institutions.

Argentine financial institutions are subject to extensive regulation and supervision by the Argentine 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 the Argentine financial institutions results of operations.

Argentine 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, 2020, our significant shareholders, Trust JHB and Delfín Jorge Ezequiel Carballo, directly or beneficially owned 5,995,496 Class A shares and 104,473,881 Class B shares, and 4,899,897 Class A shares and 106,824,523 Class B shares, respectively. The shares owned by Trust JHB were transferred to such trust upon the death of Jorge Horacio Brito in November 2020 as a testamentary disposition, ad referendum of the Central Bank of Argentina. Trust JHB’s beneficiaries are Mr. Jorge Horacio Brito’s heirs apparent, who are also the shareholders of the trustee. Trust JHB’s decisions are made by the trustee.

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Although there is no agreement among them, if voting together, they could control all decisions made by shareholders with respect to us. They might, without the attendance 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.

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 and extended several times until November 6, 2020 (when the country entered a “social distancing” phase), have had a significant negative impact on the Argentine economy. 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 ended on December 31, 2020 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. For more information, see (i) note 51.1.4. “Adjustment for expected losses due to COVID-19 pandemic” to our audited consolidated financial statements as of December 31, 2020 and 2019; (ii) “Item 3.D – Risk Factors – Risks Relating to Argentina – COVID-19 affected and keeps affecting the Argentine economy and could have an adverse effect on the Argentine economy”; and (iii) “Item 4.B.—Business Overview—Argentine Banking Regulation— Central Bank’s preventive measures in response to the pandemic of COVID-19”.

Overall, if we are unable to effectively control the level of non-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

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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 computer break-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.

During last year, there has been an increase in cases of phishing, and especially of telephone phishing or Vishing and Angler phishing, through social networks, in order to deceive clients and obtain confidential information using different techniques of social engineering. Preventive measures and security components continue to be developed to improve the preventive measures against such kinds of fraud and increase the level of protection of information. In this sense, we have taken measures to mitigate the cases of phishing and digital fraud and protect our customers.

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, the COVID-19 pandemic can worsen this situation. For more information, see “Item 3.D – Risk Factors – Risks Relating to Argentina – COVID-19 affected and keeps affecting the Argentine economy and could have an adverse effect on the Argentine economy.”

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.

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Liquidity issues could arise that may adversely affect our business.

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.

Argentina’s implementation of the Corporate Criminal Liability Law and other anti-corruption laws and regulations may expose us to compliance risks.

Due to the nature of our business, 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”), regarding customer and market conduct, anti-corruption and the prevention of money laundering and the financing of terrorists. These laws and regulations generally prohibit improper payments to government officials for the purpose of obtaining or keeping business or securing any improper advantage. 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, as we directly or indirectly deal with entities whose employees are government officials, there is a risk that our management, employees or representatives may take actions that could violate applicable laws and regulations. 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.

In addition, there is a risk that third parties using our banking network may carry out illegal or improper activities. Moreover, as technology keeps evolving, the surge of cryptocurrencies and blockchain, and adverse economic conditions, financial crimes could increase while limiting our ability to track the movement of funds.

Increased attention to environmental, social and governance (“ESG”) matters may impact our business.

Our business faces increasing public scrutiny related to ESG activities. We risk damage to our brand and reputation if we fail to act responsibly in a number of areas, such as environmental stewardship, corporate governance and transparency as well as considering ESG factors in our operations. Adverse incidents with respect to ESG activities could impact our brand, the cost of our operations and relationships with clients and other stakeholders, all of which could adversely affect our business and results of operations. Additionally, new regulatory initiatives related to ESG could adversely affect our business and increase our cost of operations.

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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 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 considered D-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.

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 met the requirements, as we exceed the capital needed to cover the legal requirements and, as we complied 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 January 31, 2020, the Central Bank issued Communication “A” 6886, pursuant to which financial entities must obtain prior approval of the Central Bank in order to distribute dividends. The Superintendency shall take into account the effects of the enforcement of section 5.5 of the International Financial Reporting Standards 9 by Communication “A” 6430 and the restatement of the financial statements as provided by Communication “A” 6651, among others.

On March 19, 2020, in the midst of the COVID-19 crisis, the Central Bank issued Communication “A” 7181 by virtue of which the distribution of dividends by financial entities have been suspended at least until June 30, 2021. We cannot assure this measure will not be extended after this period nor the extent to which the 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 number of shares to maintain their existing shareholding. Rights to subscribe for shares in these circumstances are known as preemptive 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 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 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.

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.

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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 the date that is two years after the date on which final regulations defining “foreign pass through 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 ADSs.

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 States. 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 a sociedad anónima, a stock corporation, duly incorporated under the laws of Argentina for a 99-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 of Estatutos. 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 of Sociedades Anónimas.

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We file reports, including our annual reports on Form 20-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 at http://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 a non-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 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 S.A., which was merged with the Bank in October 2019. Additionally, on May 21, 2019, Banco Macro acquired 100% of Argenpay SAU. Additionally, in 2020 the Bank together with other banks of the Argentine financial system incorporated the fintech Play Digital S.A.

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 Macro Bank Limited, Macro Securities S.A., Macro Fiducia S.A., Macro Fondos S.G.F.C.I. S.A. and Argenpay S.A.U.

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 built our new corporate headquarters on this site, which was completed in 2019.

The building has an area of 52,700 square meters and, the total aggregate amount invested in the project was approximately U.S.$186 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 was built in compliance with the Leed International Sustainability Standards of the “U.S. Green Building Council. For more information, see Item 4.D “Property, plants and equipment.”

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 on low- 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, 2020, we were ranked first in terms of branches and equity and third in terms of both total loans and total deposits among private banks in Argentina.

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As of December 31, 2020, on a consolidated basis, we had:

• Ps. 774,529.1 million (U.S.$ 9,204.7 million) in total assets;

• Ps. 257,421.2 million (U.S.$ 3,059.3 million) in total loans and other financings;

• Ps. 488,741.4 million (U.S.$ 5,808.3 million) in total deposits;

• approximately, 4.1 million retail customers and 0.1 million corporate customers; and

• approximately, 0.9 million customers with employee payroll accounts for private sector and provincial governments and 0.7 million retiree customers.

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 offer Plan Sueldo payroll services, lending, corporate credit cards, mortgage finance, transaction processing and foreign exchange. In addition, our Plan 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, 2020, we had excess of regulatory capital of Ps. 132,091 million. (34.2% capitalization ratio). Our excess capital is aimed at supporting growth, and consequently, a higher leverage of our balance sheet.

• Strong shareholders’ equity. Our shareholders’ equity as of December 31, 2018, 2019 and 2020 was Ps. 127,561 million, Ps. 144,392.8 million, and Ps. 151,545.8 million, respectively.

• Strong presence in fast-growing target customer market. We have achieved a leading position with low- 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 to export-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 463 branches and 1,578 ATMs as of December 31, 2020, we have the most extensive branch network among private-sector banks in Argentina. We consider our branch network to be our key distribution channel for marketing our products and services to our entire customer base with a personalized approach. In line with our strategy, approximately 94% of these branches are located outside of the City of Buenos Aires.

• Loyal customer base. We believe that our customers are loyal to us due to our presence in traditionally underserved markets and our Plan Sueldo payroll services. We have benefited from Argentine regulations that require all employees to maintain Plan Sueldo accounts for the direct deposit of their wages. In addition, we emphasize face-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 with Plan Sueldo accounts, giving us access to substantial low-cost funding and a large number of loyal customers.

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• 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 plan to 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 both low- 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 and fee-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.

• Expand Plan Sueldo payroll services. We will continue to actively market our Plan 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.

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• 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 our high-end customer base through our Selecta 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 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 of low- 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 broken down by category as of December 31, 2018, 2019 and 2020:

Retail Customers by category	2018		2019		2020
Open Market		1,506,733		1,844,412		2,244,041
Plan Sueldo (private and public sector)		870,678		867,322		897,153
Retirees		716,081		698,133		698,395
Professionals and business and others		552,274		292,937		285,956
Total Retail Customers		3,645,766		3,702,804		4,125,545

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, 2020, only 16% of our retail customers currently have a personal loan from us and only 30% 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.

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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 11% in 2018, by 9% in 2019, and by 14% in 2020.

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 6%, 8% and 10% in 2018, 2019 and 2020, respectively. In 2018 we highlight the migration of our debit cards to EMV technology (Europay, MasterCard, Visa), cards with integrated 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 limits of extraction, 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, 2018, 2019 and 2020:

Product	2018		2019		2020
Savings
Total savings accounts		4,083,512		4,469,531		5,116,756
Open Market		1,833,246		1,950,655		2,460,278
Retirees		814,590		902,580		936,514
Plan Sueldo (private sector)		681,810		744,850		801,889
Plan Sueldo (public sector)		467,436		542,731		584,576
Professionals and business and others		286,430		328,715		333,499
Checking
Checking accounts		881,736		822,227		750,711
Electronic Account Access
Debit Cards		3,473,479		3,601,847		3,948,147

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 as low- 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 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.

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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 the Plan 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, one of our initiatives to expand lending is to encourage low- 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.

Towards the end of 2019, the Argentine government ordered the freezing of mortgage loan installments for first house (primera vivienda) (for amounts of up to 120,000 UVAs) applicable from September 2019 to January 2020. To return to the contractually agreed installment, the Argentine Central Bank implemented a gradual increasing system which was originally expected to be applied within 12 months in relation to the inflation index in the period in which the freezing applied.

This system was only applied for 2 months, since through Decree 319/2020 and subsequent provisions, the government ordered new freezes, expanding its scope to all UVA first house mortgage loans.

The Decree 319/2020 of March 29, 2020, established a freeze from April to September 30, 2020, on the value of instalments on mortgage loans for single-family homes and pledge loans adjusted by UVAs. The Decree was later extended by Decree 767/20 dated September 25, 2020, and as a result, the monthly value of instalments in pesos of loans granted in UVA will remain unchanged until February 2021 with respect to March 2020 values. The differentials surged from the differences between the contractual instalments and the instalments resulting from the freeze established in Decrees No. 319/2020 and 767/2020 shall be refinanced in order to be paid at the end of the life of the loan, unless otherwise explicitly indicated by the debtor.

From February 2021, the installments were adjusted again on a monthly basis according to the change in the price of UVAs, although the total adjustment that occurred during the freezing periods is not applied, but rather a convergence plan is in place. Such adjustment will be made increasingly over a period of 18 months, from February 2021 to July 2022, with each installment increasing on a monthly basis by one eighteenth cumulative part of the total adjustment to be applied. The unpaid balances between the amounts of the contractual fees that should have been paid and the amounts of the fees reduced as a result of the freezing and convergence, will be converted to UVAs and will expire at the end of the current schedule of the loan, without accruing interests.

According to Communication “A” 6949 issued by the Central Bank on April 1, 2020, unpaid balances corresponding to maturities of credit assistance granted by financial institutions as from April 1, 2020, until June 30, 2020 (later postponed until March 31, 2021), could only accrue compensatory interest at the contractually stipulated rate therefore they would not accrue punitive interest. The unpaid balances of financings from financial institutions, excluding credit cards, which operated in the aforementioned period, should be incorporated in the month following the end of the life of the credit, considering the accrual of the compensatory interest rate.

By means of Communication “A” 7044 of June 18, 2020, the Central Bank established that the incorporation of unpaid instalments at the end of the life of the credit was extended to maturities until September 30, 2020. By means of Communication “A” 7107, the Central Bank further extended the measure until December 31, 2020.

In the case of financings from financial institutions under the credit card regime, maturities of account statements that occurred between the 1^st and 12^th of April 2020 could be cancelled by customers on April 13, 2020, for the same amount of the statement and without any surcharge.

According to Central Bank’s Communication “A” 6964 dated April 10, 2020, financial institutions were required to automatically refinance unpaid credit card balances for a one-year term with a three-month grace period, on nine equal and consecutive monthly instalments and an annual nominal rate of 43%. By means of Communication “A” 7095, the Central Bank extended the treatment to unpaid balances due from September 1, 2020 to September 30, 2020, except that accrued compensatory interest may not exceed an annual nominal rate of 40%.

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As of December 31, 2018, 2019 and 2020, our consumer loan portfolio (without considering other financings) was as follows:

	Consumer loan portfolio
	(as of December 31, of each year)
	(in millions of Pesos and as percentage of consumer loan portfolio)
	2018 (1)				2019 (1)				2020
Overdraft		1,398.6	0.7	%		847.2	0.5	%		751.1	0.5	%
Documents		3,542.7	1.7	%		2,094.5	1.3	%		2,669.8	1.7	%
Mortgage and pledge		25,120.5	11.9	%		22,128.3	13.9	%		19,868.3	12.4	%
Credit Card		58,864.5	27.9	%		55,363.9	34.8	%		62,179.8	38.9	%
Personal loans		119,860.5	56.8	%		77,379.6	48.6	%		70,218.7	43.9	%
Others		2,172.7	1.0	%		1,362.6	0.9	%		4,182.0	2.6	%
Total		210,959.4	100.0	%		159,176.1	100.0	%		159,869.6	100.0	%

Note:

(1) Figures stated in millions of Pesos in terms of purchasing power of Argentine Pesos as of December 31, 2020.

As of December 31, 2020, personal loans, which comprise the largest share of our consumer loan portfolio, carried an annual average nominal interest rate of 55.16% and an average maturity of 40.9 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 1.6 million retail clients (including retirees). Our Plan 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 private non-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.600 million in sales per year; (2) medium-sized and large companies, which register more than Ps.600 million and less than Ps.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.3,000 million in sales per year.

The following table reflects our portfolio breakdown, broken down by category as of December 31, 2018, 2019 and 2020:

Portfolio conformation	2018			2019			2020
Corporate companies		46	%		56	%		31	%
Medium sized companies		18	%		16	%		20	%
PyMEs		11	%		7	%		21	%
Microenterprises		3	%		2	%		3	%
Agricultural companies		22	%		18	%		25	%

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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 as pre-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 to medium-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 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 (Medium and Large Sized Companies) customers.

Within our Corporate Banking division (“Corporate Banking”), 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.

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.

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 were working on an electronic credit bill development process so that PyMEs can sell their invoices in the stock market.

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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 with E-Comex Digital and Macro Pro-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 provinces of Salta and Jujuy for the purchase of energy from distributors through the rural credit card. Furthermore, we continued improving our Pague 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.

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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 2020, regarding PyME and Micro-entrepreneurship segments, we implemented a new PyME segmentation focused on the activity of our customers, which allowed us to develop a specific and exclusive value proposition for retailers, small businesses and institutions.

We simplified and improved the credit process, incorporated improvements in our credit analysis tools and engines, and increased the nominal caps ratings in order to provide a better quality of response. Also, in order to better understand the needs of the sector, we launched the new PyME customer experience survey.

To mitigate the impact of the pandemic on micro, small and medium-sized enterprise customers, we granted more than $70 billion in loans at reduced rates in line with the credit policies established by the Central Bank. This positioned us as the No. 1 private entity in amounts granted to micro, small and medium-sized enterprises.

To preserve the level of employment, since the beginning of the pandemic we granted 1,300 loans to companies that benefited from the Emergency Assistance Programme for Work and Production (ATP) of the National Ministry of Productive Development, is an aggregate amount of Ps.800 million for the payment of salaries. In turn, we granted 60,000 grants for Ps.6,500 million in zero-rate loans to taxpayers under the simplified tax regime, self-employed workers and people involved in culture.

In order to provide our customers with more tools, we accelerated the digital transformation. At the same time, we prioritized generating proximity with these segments by improving personalized attention and focusing on strengthening long-term relationships. We managed to maintain our positioning based on a proactive commercial strategy, we strengthened the teams of collaborators that serve this segment and reinforced the training of officers in all divisions.

Regarding Megra Banking, the pandemic challenged us to strengthen contact with our customers by initiating early on the modality of virtual meetings (Zoom, Teams, etc.) and communication via chat between account officers and customers. These alternative channels allowed us to maintain proximity quickly and efficiently to ensure and facilitate the Bank’s operations. We also held virtual seminars on regulatory changes in foreign trade so that our customers could operate with greater security and knowledge.

Regarding Corporate Banking, we focused this year on increasing the number of deposits (especially demand deposits) and, in cash management operations, incorporating eCheq and digital means of collection. During the pandemic, we financed corporate customers in the health sector with a 24% line of credit in order to cope with the economic situation in the context of the pandemic.

At the beginning of this year, the Agricultural segment looked promising in view of rising stocks and record harvests. The unfavorable macroeconomic context, coupled with a year with a severe water deficit, led to significant changes in the production decisions of these customers.

We decided to contain and assist them, both virtually and in person, by financing working capital and investment projects, financing the purchase of agricultural machinery and investments or the purchase of assets. We also simplified the processes of operating directly with grains and entered into alliances with manufacturers to provide predictability. We continue with promotions on the rural credit card and provide personalized advice to our customers.

During 2020, we supported our customers with special financing lines to pay salaries and meet working capital needs, with zero-rate loans and the ATP governmental program. We also provide financing in line with commodity crop cycles and regional production.

We also professionalized the model of integral attention for agricultural producers with an integrated offer of financing and grain commercialization. And we adapted the way we serve our customers in the context of the pandemic, incorporating video calls as a means of communication, reorganizing internal processes and rapidly migrating to the acceptance of digital signatures with their due authorizations.

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With regard to the evolution of the commercial portfolio, in 2020 there was an increase in nominal terms in financing to small businesses of 186.5%, to the Agricultural segment of 43.6% and to Megra banking of 47% compared to the end of the previous year.

As of December 31, 2018, 2019 and 2020, our commercial loan portfolio (without considering other financings) was as follows:

	Commercial loan portfolio (1)
	(as of December 31, of each year)
	(in millions of Pesos and  as percentage of consumer loan portfolio)
	2018 (2)				2019 (2)				2020
Overdraft		35,874.3	21.1	%		58,585.4	39.9	%		16,597.1	15.7	%
Documents		46,835.2	27.6	%		25,040.7	17.1	%		23,477.4	22.3	%
Mortgage and pledge		17,157.8	10.1	%		11,469.8	7.8	%		8,860.2	8.4	%
Consumer loans (3)		3,060.3	1.8	%		2,027.4	1.4	%		2,217.2	2.1	%
Other loans		66,884.4	39.4	%		49,625.4	33.8	%		54,355.9	51.5	%
Total Commercial Loans		169,812.0	100.0	%		146,748.8	100.0	%		105,507.9	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 millions of Pesos in terms of purchasing power of Argentine Pesos as of December 31, 2020.

(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 for intra-day gapping (payments made against incoming collections), as well as settlement and pre-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 463 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 simplify day-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, 2020, we had the largest private sector branch network in the country, with 463 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, 2020, we had 1,578 ATMs, 960 self-service terminals (“SSTs”) and several service points used for social security benefit payments and servicing of checking and savings

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accounts and internet home banking service (“Home Banking”). The following table breaks down the distribution of our branches per province as of December 31, 2020:

	As of December 31, 2020
Province	Branches		% of total
City of Buenos Aires		28		6	%
Buenos Aires (Province)		67		15	%
Catamarca		1		0	%
Chaco		2		0	%
Chubut		6		1	%
Cordoba		70		15	%
Corrientes		4		1	%
Entre Rios		10		2	%
Formosa		—		0	%
Jujuy		16		4	%
La Pampa		2		0	%
La Rioja		2		0	%
Mendoza		15		3	%
Misiones		36		8	%
Neuquén		5		1	%
Rio Negro		6		1	%
Salta		37		8	%
San Juan		1		0	%
San Luis		2		0	%
Santa Cruz		2		0	%
Santa Fe		105		23	%
Santiago del Estero		2		0	%
Tierra del Fuego		2		0	%
Tucuman		42		9	%
TOTAL		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 a year characterized by the fight against COVID-19 pandemic, we were able to adapt our way of working and provide our customers with all the tools they needed to continue to operate without putting their health at risk and considering all governmental recommendations in such a respect. We strengthened our website with a range of tools and means of communications to encourage online transactions, avoid crowds and keep our customers updated.

In 2020, the COVID-19 pandemic led us to shift more than 2,100 employees to work from their homes. To make this feasible, we have them the necessary tools to access the Bank’s cloud-based information and to communicate through video conferencing platforms.

In 2020 the amount transacted through automatic channels increased by 43% compared to 2019, 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 easer 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

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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, 99% of our ATMs have that feature. We also implemented a system that allows cash withdrawals from the ATM without a debit card, using only a code created by the Macro Banca Móvil 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 1,578 operating ATMs, representing one of the widest reaching networks in Argentina. In 2020, the average monthly amount transacted through ATMs increased by 80% compared to 2019, as a result of the restrictive measures enforced regarding customer service during the COVID-19 pandemic.

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 2020, we had 212 intelligent self-service terminal units installed in 148 branches all over the country, in which there have been 168,456 transactions. In 2020, the amount transacted through SSTs increased 13% compared to 2019. As of December 2020, we had 960 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.

Regarding Home 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. During 2019, we launched the new Business Home Banking, through which we generated 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. In 2020, we added certain functionalities to our Home Banking in order to facilitate the user experience, and completed the migration of all stages of the new Business Internet Banking (Banca Internet Empresas). Nowadays, customers can operate consultative and transactional modules, through administrators and operators who are fully compliant with the established powers. For example, payroll, supplier and foreign trade payments are now available, enabling us to provide a fully digital solution.

Our Macro Banca Móvil channel has developed significantly in the last years. In line with the characteristics of the users and the technological trends supporting the development of the service, the Macro Banca Móvil application is available in the main virtual stores of the principal operating systems. Since 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 our Macro Premia rewards program, and UVA loans detailed enquiries.

The amount transacted through Home Banking and Macro Banca Móvil increased by 97% in 2020.

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, Prisma’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) a non-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 21 to our consolidated financial statements as of December 31, 2020 and 2019 contained elsewhere herein.

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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 Risk Management 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 Risk Management Committee, among other responsibilities, assures the establishment of an independent management of risk, lays out policies, procedures, measurement methodologies and feedback systems in charge of the identification, measurement and monitoring of risks, as well as the responsibilities of every 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.

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 the day-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.

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Liquidity risk

Liquidity risk is defined as the possibility that we may not be able to comply efficiently with expected and unexpected current and future cash flows, and guarantees without affecting our daily operations or financial condition.

Also, market liquidity risk is understood as the risk that a position cannot be offset or unwound at the market price due to:

• That 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 coverage ratio” (“LCR”), “net stable funding ratio” (“NSFR”), among others.

Market risk

It is defined as the possibility of suffering losses in the Bank’s on and off-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, prices of shares 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 instruments 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 the Assets and Liabilities 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 the 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 and off-balance sheet items under certain scenarios of disturbance and stress in interest rates risk through Montecarlo simulations. For this 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 position and cash flows. The largest portion of our foreign currency assets and liabilities are denominated in U.S. dollars.

The position in foreign currency is composed by assets and liabilities denominated in Pesos, to the exchange rate at the closure of the 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.

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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.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 by specialized risk analysts that 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.

Operational and technological risk

Operational risk 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.

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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.

We have a procedure to collect of events and losses for operational risk, which is composed of a collection process of operational events and losses to systematically register the frequency, 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 pertinent corrective measures.

In addition, we have a procedure which stablishes the rules for the confection of self-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 these reports, the results of the monitoring of the management of the main risks to which we are exposed are made known. Each report contains information on risk measurement, its evolution, trends, main exposures, control of main limits and the level of capital required by type of risk.

For more information on risk management processes see note 51 “Capital management, Corporate Governance Transparency Policy and Risk management” to our audited consolidated financial statements as of December 31, 2020 and 2019.

Competition

We believe that we have an important advantage over our competitors in providing banking products and services to small communities in some 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.U., Banco BBVA Argentina S.A., Industrial and Commercial Bank of China (Argentina), 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 third private bank and the fifth bank overall in Argentina in terms of total loans and total deposits as of September 30, 2020. In terms of equity we are ranked as the first private bank and the second bank overall in Argentina as of September 30, 2020.

Below are the rankings of banks across these metrics, figures were prepared based on Central Bank methodology:

Total Loans (September 30, 2020)

		Ps. Million		Market Share
1	Banco de la Nación Argentina (1)		540,328		17	%
2	Banco de Galicia y Buenos Aires S.A.U.		385,491		12	%
3	Banco Santander Rio S.A.		333,404		10	%
4	Banco de la Provincia de Buenos Aires (1)		266,527		8	%
5	Banco Macro S.A.		236,799		7	%
6	Banco BBVA Argentina S.A.		234,901		7	%
7	Banco de la Ciudad de Buenos Aires		117,517		4	%
8	Industrial and Commercial Bank of China (Argentina) S.A.		111,928		3	%
9	HSBC Bank Argentina S.A.		110,414		3	%
10	Banco Patagonia S.A.		92,718		3	%
	Remainder of the Financial System		781,753		24	%
	Total Financial System		3,211,778		100	%

Source: Central Bank. Figures were prepared based on Central Bank methodology.

(1) Public sector banks.

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Total Deposits (September 30, 2020)

		Ps. Million		Market Share
1	Banco de la Nación Argentina (1)		1,525,407		21	%
2	Banco de la Provincia de Buenos Aires (1)		718,349		10	%
3	Banco Santander Rio S.A.		684,274		9	%
4	Banco de Galicia y Buenos Aires S.A.U.		616,451		8	%
5	Banco Macro S.A.		480,827		7	%
6	Banco BBVA Argentina S.A.		398,187		5	%
7	Banco Credicoop Limitado		290,609		4	%
8	Banco de la Ciudad de Buenos Aires		284,018		4	%
9	HSBC Bank Argentina S.A.		267,515		4	%
10	Citibank, N.A. (Argentine Branch)		240,586		3	%
	Remainder of the Financial System		1,848,763		25	%
	Total Financial System		7,354,986		100	%

Source: Central Bank. Figures were prepared based on Central Bank methodology.

(1) Public sector banks.

Equity (September 30, 2020)

		Ps. Million		Market Share
1	Banco de la Nación Argentina (1)		242,289		16	%
2	Banco Macro S.A.		133,922		9	%
3	Banco de Galicia y Buenos Aires S.A.U.		131,582		9	%
4	Banco Santander Rio S.A.		107,318		7	%
5	Banco BBVA Argentina S.A.		104,677		7	%
6	Banco de la Provincia de Buenos Aires (1)		92,383		6	%
7	Banco Credicoop Limitado		70,321		5	%
8	Citibank, N.A. (Argentine Branch)		65,263		4	%
9	Industrial and Commercial Bank of China (Argentina) S.A.C		53,914		4	%
10	HSBC Bank Argentina S.A.		51,086		3	%
	Remainder of the Financial System		441,845		30	%
	Total Financial System		1,494,600		100	%

Source: Central Bank. Figures were prepared based on Central Bank methodology.

(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 66% of our total branches in six provinces including Santa Fe, Córdoba, Misiones, Salta, Tucumán and Jujuy.

	As of September 30, 2020
	Banking system					Banco Macro (1)					Market Share (% share of total of branches in
Province	Branches		% of total			Branches		% of total			each province)
City of Buenos Aires		944		20.1	%		28		6.0	%		3.0	%
Buenos Aires (Province)		1,450		30.9	%		67		14.5	%		4.6	%
Catamarca		22		0.5	%		1		0.2	%		4.5	%
Chaco		69		1.5	%		2		0.4	%		2.9	%
Chubut		70		1.5	%		6		1.3	%		8.6	%
Cordoba		449		9.6	%		70		15.1	%		15.6	%
Corrientes		81		1.7	%		4		0.9	%		4.9	%
Entre Rios		138		2.9	%		10		2.2	%		7.2	%

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	As of September 30, 2020
	Banking system					Banco Macro (1)					Market Share (% share of total of branches in
Province	Branches		% of total			Branches		% of total			each province)
Formosa		37		0.8	%		—		0.0	%		0.0	%
Jujuy		34		0.7	%		16		3.5	%		47.1	%
La Pampa		73		1.6	%		2		0.4	%		2.7	%
La Rioja		27		0.6	%		2		0.4	%		7.4	%
Mendoza		174		3.7	%		15		3.2	%		8.6	%
Misiones		68		1.4	%		36		7.8	%		52.9	%
Neuquén		79		1.7	%		5		1.1	%		6.3	%
Rio Negro		75		1.6	%		6		1.3	%		8.0	%
Salta		77		1.6	%		37		8.0	%		48.1	%
San Juan		40		0.9	%		1		0.2	%		2.5	%
San Luis		52		1.1	%		2		0.4	%		3.8	%
Santa Cruz		49		1.0	%		2		0.4	%		4.1	%
Santa Fe		480		10.2	%		105		22.7	%		21.9	%
Santiago del Estero		54		1.2	%		2		0.4	%		3.7	%
Tierra del Fuego		25		0.5	%		2		0.4	%		8.0	%
Tucuman		124		2.6	%		42		9.1	%		33.9	%
TOTAL		4,691		100.0	%		463		100.0	%		9.9	%

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 or non-financial corporations and establishing liens over their assets, among others.

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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 of non-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 parent companies 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 and over-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 amended commercial 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.

Under Central Bank Rules regarding to “Financial Entities Minimum Capital”, the holdings of a commercial bank in the capital stock of third parties, including participations in mutual funds, shall not exceed 60% of the Computable Equity Liability (“RPC”¸ as per its acronym in Spanish) of such commercial bank. In addition, the total amount of a commercial bank’s holdings, considered as a whole, in (i) unlisted shares, excluding holdings in companies that provide complementary services to the financial activity and holdings in state-owned companies that provide public services, (ii) listed shares and mutual fund shares that do not trigger minimum capital requirements on a market risk bases, and (iii) publicly traded shares that do not have a “market price available to the general public,” is limited to 15% of such commercial bank’s RPC. For this purpose, a given market price of the shares is considered to be “available to the general public” when market rates that measure the daily volume of significant transactions are available, and the sale of such shares held by such bank would not materially affect the share price.

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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

Since 1994, the Central Bank supervision of financial institutions has 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 parent 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).

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Category	Banks		Other Entities (*)
I and II	Ps.	26 million	Ps.	12 million
III to VI	Ps.	15 million	Ps.	8 million

(*) Except credit entities.

Financial institutions directly involved in foreign trade operations must comply with the requirements established for banks in the respective 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

Tier 1 Capital consists of (i) Common Equity Tier 1 (“COn1”), (ii) deductible concepts from Common Equity Tier 1 (“CDCOn1”), (iii) Additional Equity Tier 1 (“CAn1”), and (iv) deductible concepts from Additional Equity Tier 1 (“CDCAn1”).

COn1 Capital

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:

• 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

(ix) in the case of consolidated entities 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.

For the purpose of determining the RPC, financial institutions included in Group A must compute as COn1 the positive difference between the higher of the accounting allowance stipulated in point 5.5 of IFRS 0 and the regulatory allowance calculated in accordance with the rules on “Establishment of minimum provisions for loan losses” or the accounting provision corresponding to the balance as of November 30, 2019.

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Deductible Concepts

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.

Concepts 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 a court-ordered auction sale; (h) 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) those required by the Superintendeny; (l) any deficiency relating to the minimum loan loss provisions required by the Superintendency; (m) equity interests in companies that have the following activities: (i) financial assistance through leasing or factoring agreements, (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, and (iii) credit, debit and similar cards emissions; (n) the excess to the limits set forth for secured assets on Section 3 of the rules on “Affectation of Secured Assets” (o) 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 the non-financial public sector” surpass the authorized limit and/or are not settled within the terms established therein; (p) income from sales relating to securitization transactions, as applicable, pursuant to the provisions of Sections 3.1.4., 3.1.5.1. and 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; (q) 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; (r) 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 Capital

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.

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5) After five (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 make re-capitalization difficult.

Instruments considered liabilities must absorb losses once a pre-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 of winding-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 concepts will be considered less deductible concepts 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 (5) 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 (5) 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.

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• 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.

• They shall not contain elements that affect re-capitalization.

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 concepts 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 Equity Tier 1), AT1 (Additional Equity Tier 1) or NWc (Complementary Net Worth) 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 NWc: aggregate excess amount over 10% multiplied by the proportion represented by the NWc 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

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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 NWc 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 NWc 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, as amended from time to time, 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.

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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.

The required amount of capital of each institution shall be determined based on its risk profile, taking into consideration other external factors such as the effects of the economic cycle and the economic scenario.

Communication “A” 6534 which replaced Communication “A” 6459, provides guidelines for the calculation of economic capital, depending on the type of financial entity. Entities considered within Group A pursuant to Central Bank rules shall use their internal models to quantify the needs of economic capital with relation to its risk profile. Conversely, Group B or C entities may opt for a simplified calculation methodology. Such option must be approved by the board of directors of such entity.

Group B or C entities which have opted for the simplified methodology shall apply the following expression:

EC = (1.05 x MC) + max [0; r EVE – 15 % x bNW)]

Where:

EC: economic capital

MC: minimum capital requirements

EVE: measure of risk calculated according to a standardized framework foreseen in section 5.4 of Communication “A” 6534

bNW: basic net worth (tier 1 capital)

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 aspects from IFRS. 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 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 the off-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 concepts:

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 Superintendency, including the adjustments derived from the failure to consider agreed adjustment plans.

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6. The resulting lower provisions and higher RPC from the treatment established on point 2 of the Central Bank’s Communication “A” 6946 (as amended) for financing PyMEs for the payment of salaries.

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 concepts set forth above in points 1 to 5, if applicable, from the assets.

2. The failure to consider the deductibles established by the Superintendency affecting the requirements, integrations and minimum capital position.

3. The deduction of the amounts relating to the following concepts 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 points 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 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.

Financial institutions shall have prior authorization of the Central Bank for the distribution of their results.

Moreover, on March 19, 2020, in the midst of the COVID-19 crisis, the Central Bank issued Communication “A” 7181, as amended from time to time, by virtue of which the distribution of dividends by financial entities was temporarily suspended until June 30, 2021.

Additionally, in accordance with the FX Regulations, the access to the FX Market to pay dividends to non-resident shareholders is subject to certain requirements. For more information, please see “Item 10.D Exchange Controls – Payments of dividends and corporate profits”.

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 respects from Central Bank Rules.

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 the non-compliance risk.

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Financial entities considered D-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 concepts (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 or G-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 Equity 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.

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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 the non-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 the non-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 applying the following equation:

CRC = (k * 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 + non-DvP + (DVP + RCD + INC significant investments in companies)* 12.50

Where:

Variable “A” refers to eligible assets/exposures;

“PFB” are eligible 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.

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“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 _{(significant 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 public non-financial sector denominated and funded in Pesos, including securitized exposures		0
To the public non-financial sector arising from financing granted to social security beneficiaries or public employees (with discount code)		0
To other sovereign states or their central banks
- AAA to AA-		0
- A+ to A-		20
- BBB+ to BBB-		50
- BB+ to B-		100
- Below B-		150
- Unrated		100
Entities of the non-financial public sector from other sovereigns, pursuant to the credit rating assigned to the respective sovereign
- AAA to AA-		20
- A+ to A-		50
- BBB+ to BBB-		100
- BB+ to B-		100
- Below B-		150
- Unrated		100
To the Bank for International Settlements, the IMF, the European Central Bank and the European Community		0
To the non-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 to Non-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+ to B-		150
- Below B-		200
- Unrated		200

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Type of Asset	Weighting (%)
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 Asian Development Bank (ADB), the European Investment Bank (EIB), among others		0
Other
- AAA to AA-		20
- A+ to A-		50
- BBB+ to BBB-		50
- BB+ to B-		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
Other. The weighting percentage to be applied will be the one for one category less favorable than the one assigned to the exposures with the Argentine government in foreign currency, as provided for the Exposure to the public non-financial sector and the Central Bank, with a maximum of 100%, except that the grade was less than B-, in which case the weighting percentage will be 150%
Exposure to foreign financial institutions, pursuant to the credit rating assigned to the sovereign of their jurisdiction of incorporation
- AAA to AA-		20
- A+ to A-		50
- BBB+ to BBB-		100
- BB+ to B-		100
- Below B-		150
- Unrated		100
Exposure to companies and other legal entities in the country and abroad, including exchange institutions, insurance companies and stock exchange entities		100
Exposures included in the retail portfolio
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- and Medium-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
First mortgage loans on residential property or mortgage loans with any order of preference provided that the institution remains the creditor, irrespective of the order of preference, to the extent that the debt balance under no circumstances exceeds the valuation price of the mortgaged property
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
First mortgage loans on other than residential property or mortgage loans with any order of preference provided that the institution is also the creditor of senior loans
Up to 50% of the lower of the real property market value or 60% of the mortgage loan		50

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Type of Asset	Weighting (%)
On the remaining portion of the loan		100
Past due loans over 90 days
Weighting varies according to the loan and specific provisions Created		50-150
Equity holdings		150
Securitization exposures, failed DvP transactions, non-DvP transactions, exposures to central counterparty institutions (CCP) and derivative transactions not included in said exposures			*
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 off-balance categories		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 the non-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 the non-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 Argentine non-financial public sector.

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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 the non-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%.

Minimum 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 in on- and off-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.

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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” 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 any non-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, excluding non-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” 6690 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 of non-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 of non-compliance or submit a restructuring plan within thirty (30) calendar days after

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the end of the month in which such non-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 the non-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, the non-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.

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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 last thirty-six (36) months.

The OR formula is as follow:

The variables in the OR formula are defined as follows:

• “C_ro”: the capital requirement for operational risk.

• “α”: 15%.

• “n”: the number of 12-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 from 12-month consecutive terms; provided that, it is a positive figure, corresponding to the 36 months preceding the month of calculation.

Gross income (ingresos brutos) (“IB”, as per its acronym in Spanish) is defined as the sum of (a) financial and service income net of financial and service expenses and (b) sundry gains net of sundry losses.

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, in accordance with the following formula:

For every t-month:

• “C_RCt”: the capital requirement for credit risk.

• “RM_P,t”: the capital requirement for market risk for the last day of such t-month.

• “n”: the number of months preceding the month of calculation, inclusive. 2£ n £ 36.

From the thirty-seventh month onwards, the monthly requirement is calculated based on the OR formula.

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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, and with multilateral development banks, (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, (vii) demand obligations for money orders and transfers from abroad pending settlement to the extent that they do not exceed a seventy-two (72) business hour term as from their deposit; and (viii) 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, 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 average of the daily balances of the liabilities:

• registered at the end of each day during the period prior to the one of its integration, in the case the liabilities are denominated in Pesos; or

• registered at the end of each day during the calendar 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. Those days in which no movements are registered shall repeat the balance corresponding to the immediately preceding Business Day.

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 for financial institutions, depending on whether: (i) the financial entities are included in Group “A”, as provided by Section 4 of the regulations on “Authorities of financial entities” (Autoridades de entidades financieras), and/or branches or subsidiaries of foreign banks are 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” 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); (b) Group “B” which includes those entities in which the amount of their assets do not exceed 1% and greater than or equal to 0.25% of the total of the assets of the financial system; and (c) Group “C” which includes those institutions whose deposits do no exceed

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0.25% of the total of the assets of the financial system and/or, being Group B institutions, the ration between their deposits and their RPC is less than 100%. The following fees arise from Communication “A” 6991:

	Group A and G- SIB				Remaining financial institutions
Item	Pesos		Foreign Currency		Pesos		Foreign Currency
1- Checking account deposits and demand deposits opened at credit cooperatives		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
3- Unused balances of advances in checking accounts under executed overdraft agreements		45				20
4- Deposits in checking accounts of non-bank financial institutions, computed for purposes of meeting their required minimum cash reserve		100				100
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 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
(ii) From 30 days to 59 days		22		15		7		15
(iii) From 60 days to 89 days		4		15		2		15
(iv) More than 90 days		—		15		—		15
8- Special deposits related to inflows of funds. Decree 616/2005				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		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
(ii) From 30 days to 59 days		5				5
(iii) From 60 days to 89 days		3				3
(iv) More than 90 days
11- Labor Work Fund for Construction Industry Workers, denominated in UVA		7				7
12-Deposits and fixed term investments created in the name of minors for funds they receive freely
13- Deposits in Pesos in demand accounts that constitute the assets of mutual funds (money market).		—				—

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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. In both cases, it does not include the impositions in securities. The deferred impositions in Pesos arranged remotely (i.e. through home banking, web time deposits, etc.) will receive the same treatment as those captured in the categories II to VI.

Financial entities included in Group “A” and branches or subsidiaries of G-SIB not included in that group may integrate the period and daily requirement in Pesos with “National Treasury Bonds in Pesos at a fixed rate due November 2020” and “National Treasury Bonds in pesos at a fixed rate due May 2022” in up to:

a) 5 percentage points of the rates described in points 1, 2 (in Pesos), 3, 9, and sections (i) and (ii) of point 5 and point 7 (both in Pesos).

b) 2 percentage points of the rate described in section (iii) of points 5 and 7 (both in Pesos).

Financial entities included in Group “A” and branches or subsidiaries of G-SIB not included in that group may integrate the period and daily requirement in Pesos with LELIQ and/or NOBAC in up to:

a) 16 percentage points of the rates provided in section (i) of point 5 (in Pesos) and 9;

b) 13 percentage points of the rates provided by section (ii) of point 5 (in Pesos);

c) 3 percentage points of the rates provided by section (i) and (ii) of point 10 and 11; and

d) 2 percentage points of the rates provided by section (iii) of point 5.

Financial entities not included in the last paragraph in up to:

a) 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 11; and

b) 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 Pesos at a fixed rate due November 2020”, “National Treasury Bonds in pesos at a fixed rate due May 2022”, LELIQ and/or NOBAC as described above, they must be valued at market prices and be deposited in Sub-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 the non-financial private sector in Pesos in the entity of financing to MiPyMEs in the same currency;

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Participation, in the total of financing operations to MiPyMES with respect of total of financing operations to the non-financial private sector, in the institution.	Reductions (over the total of the concepts included in Pesos) %
Less than 4	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 the non-financial private sector of the institution.

2. Depending on the granting of financing under the “Ahora 12” Program (The implementation of the Consumer Promotion Program and the Production of Goods and Services named “Ahora 12” was created by Joint Resolution 671/2014 and 267/2014 of the former Ministry of Economy and Public Finance and the Ministry of Industry), in an amount equivalent to 20% of the sum of the financing in Pesos that the entity grants:

i. whose destination is the acquisition of goods and services included in the aforementioned resolution and its complementary regulations; or

ii. to non-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 1, 2020, Communication “A” 6916 increased the 20% decrease of the requirement for “Ahora 12,” to 35% of the aggregate financings in Pesos granted by the relevant institution until September 30, 2020, and 50% of the aggregate financings in Pesos granted from October 1, 2020. Additionally, effective from March 19, 2020, Communication “A” 6937 set the limit of the deduction at 6% over the items in Pesos 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 and non-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 or Medium-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.

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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 financings under Decree No. 260/2020.

The requirement will be reduced by an amount equivalent to 40% of the sum of the financings in pesos agreed to an annual rate of up to 24% with the following objectives:

a. MiPyMEs if at least 50% of such financings are allocated to working capital.

b. Providers of human health services if they provide hospitalization in the framework of the health emergency as provided by Decree No. 260/2020.

c. Non-MiPyMEs clients that agree such financings for the acquisition of machines and equipment produced by local MiPyMEs.

This deduction may not exceed 4% of the concepts in Pesos subject to demand on average of the month immediately previous of the month of computation, and can be extended up to 6% in the case of the following financings agreed as from July 1, 2020:

• Clients that received the assistance provided for in point (5) a. above, up to the total amount equivalent to the monthly wage bill (without the supplementary annual salary) to be paid by the applicant;

• Clients that did not received such special assistance.

6. In accordance with the special treatment provided for under Decree No. 322/2020. The requirement will be reduced by an amount equivalent to:

a. 60% of the amount of the “Zero Interest-Rate Credits”, “Loans at Subsidized Rate for Companies” and “Zero Interest-Rate Culture Credits” agreed under the framework of Decree No. 322/2020 (as amended) and disbursed until November 5, 2020;

b. 24% of the “Loans at Subsidized Rate for Companies” disbursed until November 6, 2020, at a nominal annual rate of 27%;

c. 7% of the “Loans at Subsidized Rate for Companies” disbursed as of November 6, 2020 at a nominal annual rate of 33%.

7. In the case of financings to MiPyMEs not informed at the Financial System’s Debtors Center (Central de Deudores del Sistema Financiero), the requirement will be reduced by an amount equivalent to 40% of the financings in pesos to MiPyMEs agreed at a nominal annual rate of 24% measured on a monthly average of daily balances from the previous month.

8. In the case of financings included in the “Line of financings for the productive investments of MiPyMEs”, the requirement will be reduced by an amount equivalent to 14% of the financings foreseen in point 4.1. of such line of credits, provided such financings are agreed at an annual nominal interest rate of up to 30%, measured on a monthly average of daily balances from the previous month.

The financings computed for the deduction provided in points 1 and 4 to 7 can only be computed in one of the above-mentioned points. In addition, the financings computed for the deduction provided in points 4, 5 and 7 shall (i) continue to be computed for the corresponding deduction their monthly average daily balances for the financings provided before October 15, 2020, inclusive; (ii) be voluntary and may not be counted against the deductions of points 4, 5 and 7.

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 to non-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.

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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 by non-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 cash sub-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 period 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 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 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, 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.

LELIQ global daily position

Pursuant to Communication “A” 7054 of the Central Bank, the LELIQ global daily position of the banks is subject to the following restrictions:

1) From April 17, 2020, until April 30, 2020, it shall not surpass 90% of the exceeding holdings registered as of March 19, 2020; and

2) it shall not surpass, on monthly averages of daily balances, the percentages as set forth in the following table and according to the financings computed on the previous period:

Financings as a percentage of potential credit to MiPyMEs	Limits to the net position excess (as a percentage of the exceeding  holdings registered as of March 19, 2020)
	from May 1, 2020	from July 1, 2020	from September 1, 2020
100%	90	85	85
< 100% up to 75%	85	80	70
< 75% up to 50%	80	75	65
< 50% up to 25%	75	70	60
< 25%	70	65	55

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For the purposes of this scheme, the “potential credit to MiPyMEs” shall be calculated as follows:

1. From July 1, 2020, to August 31, 2020, it will be the sum of:

a. 10% of the LELIQs holdings exceeding those admitted for the integration of the minimum cash requirement in Pesos provided in point 1.3.16 of the “Minimum Cash” rules, registered as of March 19, 2020; and

b. The amount of the decrease of the requirement provided in point 1.5.5. of the “Minimum Cash” rules or the 4% of the concepts subject to the requirement, whichever is lower.

2. Form September 1, 2020, it will be the sum of:

a. 15% of the LELIQs holdings exceeding those admitted for the integration of the minimum cash requirement in pesos provided in point 1.3.16 of the “Minimum Cash” rules, registered as of March 19, 2020; and

b. The amount of the decrease of the requirement provided in point 1.5.5. of the “Minimum Cash” or the 6% of the concepts subject to the requirement, whichever is lower, plus the 40% of the monthly average of daily balances of the previous period of financing charged to the “Credit line for the productive investment of MiPyMEs”.

As from June 1, 2020, for financial institutions that raise deposits at the minimum deposit rate set out in point 1.11.11.(ii) of the “Deposits and Term Investments” rules, the limit for their net position excess of LELIQ shall be in the amount equivalent to 18% of the deposits and term investments in Pesos constituted by the non-financial private sector.

As from August 1, 2020, the limit for their net position excess of LELIQ shall be increased by the amount resulting from the positive difference between the limit for the cash position between the greater of U.S.$2,500,000 or 4% of the RPC of the immediately preceding month, and the monthly average of daily observed cash position balances, or zero if negative, for the same month. This position may not exceed the amount resulting from multiplying the percentage corresponding to the computation month (according to the table below) by the increase verified during March 2021:

Computation month	Extension limit
April 2021		80	%
May 2021		50	%
June 2021		15	%
July 2021		0	%
August 2021		100	%
September 2021		100	%
October 2021		100	%
November 2021		100	%
December 2021		65	%
January 2022		30	%
From February 2022		0	%

As from September 1, 2020, for financial institutions that raise deposits at the minimum deposit rate set out in point 1.11.11.(i) of the “Deposits and Term Investments” rules, the limit for their net position excess of LELIQ shall be in the amount equivalent to 13% of such deposits, measured regarding the monthly average of balance of the immediately preceding month.

From May 11, 2020 until June 30, 2020, financial institutions shall reduce their net position excess of LELIQ by an additional 1% of the excess holding recorded as of March 19, 2020. The financial institutions shall decrease their excess net position as they collect LELIQ payments.

From July 1, 2020, the net position excess shall be reduced following the next chart:

Reached Percentage	Reduction of the net position excess
100%	1%
< 100% up to 75%	1.5%
< 75% up to 50%	2%
< 50% up to 25%	2.5%
< 25%	3%

Where “Reached percentage” means the sum of (i) the reduction in the LELIQ position established in the first paragraph of point 8 of the Communication “A” 7054; (ii) the decrease in the minimum cash requirement in Pesos provided in point 1.5.7 of the “Minimum Cash” rules; and (iii) the amount equivalent to 40% of the monthly average of daily balances of the previous period of financing affected to the “Credit line for the productive investment of MiPyMEs”.

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From October 2, 2020, inclusive, financial institutions shall reduce the net position excess by an amount equivalent to 20% of the net position excess of LELIQ recorded in monthly average daily balances in September of 2020.

Financial institutions that, as of and including November 13, 2020, hold a percentage of time deposits in Pesos constituted by the non-financial private sector with respect to total deposits in Pesos by that sector of less than 10% - measured on a monthly average of daily balances, considering only capital without interest or adjustments- may not:

• Acquire LELIQ for their net position excess; nor

• Carry out 7-day swap transactions with the Central Bank.

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 a 30-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 wholesale non-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

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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 with non-contractual obligations so as to mitigate its reputational risk.

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 their off-balance sheet assets and transactions, the NSFR limits the strong dependence on short term wholesale funding, promotes a better assessment of balance sheet and off-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 a one-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 its off-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 Superintendency. The Superintendency 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.

Interest rate and fee regulations

Maximum lending rates

On December 17, 2015, the Central Bank issued Communication “A” 5853 (as amended by Communication “A” 5891, among others), pursuant to which the provisions that established maximum interest rates applicable to the lending transactions ceased to have effect in respect of any new transactions conducted as from and including such date. In addition, Communication “A” 5853 established the basic requirement that compensatory interest rates be freely agreed upon among financial institutions and their customers in accordance with established provisions under applicable statutory regulations, such as Central Bank rules which state the maximum interest rate applicable to credit card facilities. Also, the punitive fee in addition to compensatory interest will be freely agreed upon among financial institutions and their customers.

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Regulations set forth that the fixed-rate loan agreements shall not contain clauses that allow their modification under certain circumstances, unless those modifications come from decisions taken by the competent authority and the variable-rate loan contracts must clearly specify the parameters that will be used for its determination and periodicity of variation.

With respect to transactions linked to credit cards:

• in those granted by financial institutions, the rate may not exceed more than 25% of the average of the interest rates applied by the entity, during the immediately preceding month, weighted by the corresponding amount of personal loans without in rem security interests granted in the same period;

• in those granted by other issuing entities, the rate may not exceed the simple average of the system’s rates for open market personal loan operations (general customers) by more than 25%, with no in rem security interest, published by the Central Bank on a monthly basis, prepared on the basis of information corresponding to the second previous month, taking into account the provisions of the preceding point.

• Punitive fees in credit cards linked financing transactions, may not exceed more than 50% to the compensatory interest rate that the issuer charges for the financing of outstanding debt of credit cards.

Zero interest-rate financings policy

By means of Communication “A” 6993, dated April 24, 2020, with the purpose of containing the impact the ongoing COVID-19 pandemic, the Central Bank established a zero interest-rate financing policy, applicable only to the eligible clients to be later determined by AFIP to whom the financial institutions may grant credit card financings to be paid in at least 12 equal and consecutive installments after a 6-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).

Minimum term deposit rates

Pursuant to Communication “A” 5853 (as amended by Communication “A” 5891, among others) the provisions that established minimum interest rates applicable to the term deposits ceased to have effect in respect of any new transactions conducted as from and including such date. The remuneration for deposits and term investments will be established at a rate freely agreed upon among the parties according to the applicable rules for each type of operation.

Fees

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.

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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. 100,000 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.

On April 17, 2019, the Central Bank issued Communication “A” 6681, pursuant to which it ruled that banks will not be allowed to charge fees or commissions to SMEs for over-the-counter cash deposits.

Later, on March 26, 2020, through Communication “A” 6945 (as amended by Communications “A” 6957, “A” 6963, “A” 7009, “A” 7044, “A” 7107 and lastly by Communication “A” 7181 dated December 17, 2020), the Central Bank determined that until March 31, 2021, any operation effected through ATMs would not be subject to any charges or fees.

Maximum term for payments to commerces and providers

By virtue of Communication “A” 6680, effective as of May 1, 2019, the Central Bank established a maximum term of ten business days for financial entities to deposit payments to commerces and providers for sales made via credit cards or purchase cards, calculated from the sale date. Furthermore, financial entities shall not charge any fee or interest related to such payment term, nor block this payment mechanism in any way.

Nevertheless, by virtue of Communication “A” 6680, the Central Bank excluded from the scope of the provisions disclosed by Communication “A” 6680 the credit and/or purchase cards issued to individuals or legal entities that are intended for the payment of purchases with a deferred term or more than one month related to their productive activity, i.e. agricultural o distribution activities.

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”.

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 April 29, 2021 the value of UVI and UVA are Ps. 77.6 and Ps. 74.75, respectively.

Both units are amended based on the indices published by the INDEC and the Central Bank on its website.

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Foreign Exchange System

On September 1, 2019, with the purpose 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 Argentine government reinstated exchange controls. 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 for Pesos the proceeds from exports of goods and services, among others.

For further information on this topic, please refer to “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.;

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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 of non-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

q. financing of local residents that are secured by letters of credit (“stand-by letters of credit”) issued by foreign banks or multilateral development banks that comply with the provisions of point 3.1. of regulations on “Credit assessments”, requiring for that purpose an international rating of investment grade risk, to the extent that such letters of credit are unrestricted and that the accreditation of the funds is made immediately at the simple request of the beneficiary entity.

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 Economic Co-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.

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Foreign Currency Net Global Position

The foreign currency net global position shall consider all assets, liabilities, commitments and other instruments and transactions through financial intermediation in foreign currency or linked to exchange rate movements, including cash, forward transactions and other derivative contracts, deposits in foreign currency in accounts opened with the Central Bank, gold position, the Central Bank monetary regulation instruments in foreign currency, subordinated debt in foreign currency and debt instruments 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 U.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 the pre-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, 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): 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 in Cash: this daily position (daily balance converted to Pesos at the reference exchange rate of the immediately preceding month) cannot exceed the higher of U.S.$ 2,500,000 or the 4% of the RPC 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, while the total excess over the general limit originates only as a result of:

a) increase in the position in U.S. Treasury bills in U.S. dollars with respect to those held as of June 15, 2018, and/or

b) position in U.S. Treasury bills in U.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.

As provided by Communication “A” 7093, it includes national treasury bills denominated in foreign currency that the institutions receive in exchange for National Treasury Bills – under Law 27,556 – that they have imputed to this point on the Business Day immediately preceding the day on which they are delivered in exchange.

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).

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Credit Ratings

Since November 28, 2014, Communication “A” 5671, as amended by Communication “A” 6558, 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 for Regulatory Purposes

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. 72,640,000 to micro-credit institutions, and commercial loans of up to Ps. 72,640,000 with or without preferred guarantees when the institution elected. All other loans are considered commercial loans. Consumer or housing loans in excess of Ps. 72,640,000, the repayment of which is linked to the evolution of its productive or commercial activity, are classified as commercial loans.

At the entity’s option, financing of a commercial nature of up to Ps.72,640,000, whether or not such financing has preferred guarantees, may be grouped together with credits for consumption or housing, in such case they will receive the treatment provided for the latter. 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 six sub-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.

For recent developments, please see “Central Bank’s preventive measures in response to the pandemic of COVID-19”.

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.

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Classification	Criteria
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 which Seguro 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 by Technical Provision	Loans granted to clients who meet the conditions set for irrecoverable by technical provision clients by the 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. See Item 5B.“Critical accounting policies” and note 3 to our audited consolidated financial statements as of December 31, 2019, 2018 and 2017.

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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 by technical provision”		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.

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 higher than (x) the lower of 1% and Ps. 72,640,000 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. Only one-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. See Item 5B.“Critical accounting policies” and note 3 to our audited consolidated financial statements as of December 31, 2020 and 2019.

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 the write-off of non-performing loans classified as irrecoverable after a certain period of time and on decisions of the management to write off non-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.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. 50,000 or its equivalent in

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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 called Seguro 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.1,500,000, as set forth by Central Bank Communication “A” 6973 of the Central Bank.

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, and they shall also be excluded if these interest rate ceilings are distorted by additional incentives or rewards, and (vi) immobilized balances from deposits and excluded transactions.

Pursuant to Communication “A” 5943, every financial institution is required to contribute to the FGD a monthly amount of 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 private non-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.

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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 of COVID-19

The Argentine government and the Central Bank issued a series of preventive measures to contain the spread of COVID-19 and mitigate its economic impact. In this regard, on March 19, 2020, the Executive Branch declared a nationwide lockdown from March 20, 2020 through March 31, 2020, which was extended several times until November 6, 2020, when the country shifted towards a “social distancing” phase (DISPO, per its acronym in Spanish), instead of a strict lockdown.

In this context, the Central Bank issued a series of Communications within the framework of Decree No. 297/2020, as amended, of the Government of Argentina, by which it determined that: (i) financial institutions shall open to the public only with prior appointment and provide its services remotely; (ii) financial institutions shall restrain the use of enclosed areas to a maximum of 50% of their capacity; (iii) financial institutions shall adopt all necessary measures to secure the sufficient supply of cash in ATMs and the continuity of operations related to cash withdrawals at out-of-bank withdrawal points; and (iv) money exchange houses shall only open for the purchase of foreign currency, the sale of currency of bordering countries and certain arbitrages.

On a different note, by means of Communication “A” 7181, as amended, the Central Bank suspended until June 30, 2021, the distribution of dividends by financial entities. For more information, please see “Argentine Banking Regulations— Requirements applicable to dividend distribution.”

Through Communication “A” 6945, as amended, the Central Bank determined that until March 31, 2021, any operation effected through ATMs will not be subject to any charges or fees.

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.

By virtue of Communication “A” 7025, as amended, the Central Bank determined that the unpaid balances of credit card financings due between April 13 and April 30, 2020, shall be automatically refinanced in nine equal consecutive monthly installments beginning after a 3-month grace period. Interest rates on such unpaid balances may not exceed an annual nominal rate of 43% when the amount financed by such concept is lower than Ps.200,000. Additionally, the unpaid balances of credit card financings due between September 1 and September 30, 2020, shall be automatically refinanced in nine equal consecutive monthly installments beginning after a 3-month grace period. Interest rates on such unpaid balances may not exceed an annual nominal rate of 40%. For more information, see “Argentine Banking Regulations— Credit Card Interest Rate.”

Furthermore, by means of Communication “A” 7181 the Central Bank extended until March 31, 2021, the following provisions: (i) unpaid installments corresponding to maturities of credit assistance not covered by the Law of Credit Cards granted by financial institutions and operating as from April 1, 2020, may only accrue compensatory interest at the contractually stipulated rate; and (ii) the increase of up to 60 days the period of non-payment before a loan is required to be classified as non-performing for levels 1, 2 and 3 pursuant to Central Bank rules on debtor classification and the suspension of the mandatory reclassification of debtors provided in sections 6.6 and 7.3 of such rules. Moreover, it establishes that financial institutions shall provide the means so that in all ATMs operated by them in the country, individuals and legal entities may withdraw, per day and in a single withdrawal, up to Ps.15,000, without any distinction between customers and non-customers, regardless of the type of demand account on which the corresponding transaction is made and of the financial institution and/or ATM network to which it belongs.

Additionally, on March 25, 2020, the Executive Branch issued Decree No. 312/2020, as amended and supplemented from time to time, by means of which both the obligation to close and inhibit checking accounts, as well the imposition of penalties, were suspended until December 31, 2020. Furthermore, Decree No. 319/2020, as amended and supplemented from time to time, established the freezing of mortgage payments if the mortgaged property is the only and permanent residence of the debtor, until January 31, 2021. The Decree also resolved the freezing of mortgage and UVA pledge loans (créditos prendarios) and the suspension of mortgage foreclosures until January 31, 2021. These measures were subsequently extended by virtue of Decree 66/2021 until March 31, 2021. Although these restrictions are no longer in force as of the date of this annual report, Communication “B” 12123 and Communication “A” 7270 established that financial institutions must enable an instance to consider the situation of those customers in which the installment of the UVA loan to be paid exceeds 35% of their income. 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, as amended from time to time, by which new rules regarding the criteria for debtor classification and provisioning are to be adopted until March 31, 2021. These rules provide an additional 60-day period of non-payment before a loan is required to be classified as non-performing, and include all financings to commercial portfolio clients and loans granted for consumption or housing purposes. On March 25, 2021, through Communication “A” 7245, the Central Bank established a gradual

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transition in the definition of debtors for clients who chose to postpone the payment of installments, a benefit was not renewed from the due date at the end March 31, 2021. Financial entities and other obligated parties must increase the grace period to classify their debtors in levels 1, 2 and 3, both for the commercial portfolio and for the consumer or housing portfolio, according to the following schedule: i) Until March 31, 2021, in 60 days, ii) Until May 31, 2021, in 30 days, and iii) As of June 1, 21, financial entities must classify their debtors according to the general debtor classification.

• Facilities and Government Guarantees to Finance Payment of Salaries: Decree 326/2020 created a fund of specific application within the FOGAR (acronym in Spanish for Fondo de Garantías Argentino), with the aim of backing financings provided to SMEs by financial entities in order to pay salaries. Simultaneously, the Central Bank set 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 SMEs. 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 (as amended by Communications “A” 6943, “A” 7006 and “A” 7157) to SMEs and households may be deducted from reserve requirements, considering 130% of its amount when its proceeds are for the payment of salaries and the granting entity is the agent of payment of those salaries. These assistances will be provisioned in the financial statements until their cancellation based on the classification of the small and medium-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 April 3, 2020, public entities are allowed to hold remote shareholders and board of directors meetings, via electronic means, even if their respective bylaws do not provide for this, respecting the minimum requirements to ensure the integrity of the vote of each participant and the presence of all shareholders and members, respectively. In case the bylaws do not provide for the possibility of holding board of directors meetings remotely, at the first face-to-face meeting after the lockdown period, the shareholders’ meeting shall, with the quorum and the majority for the reform of the bylaws, approve any board of directors meetings that have been held remotely.

• Time deposits minimum rate. By virtue of Communication “A” 6980, the Central Bank ruled that all non-adjustable time deposits under Ps.1 million made by individuals as of April 20, 2020, shall have a minimum rate equivalent to the 70% of the average LELIQ’s tendering during the week prior to the date in which the deposit is made. For more information, see “Argentine Banking Regulations - Liquidity and Solvency Requirements - Minimum Cash Reserve Requirements - LELIQ global daily position.”

• 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.

• Credit line for productive investment of MiPyMEs. Pursuant to Communication “A” 7140, the Central Bank approved the rules for a “Credit line for productive investment of MiPyMEs” (lineas para el financiamiento productivo) destined to the acquisition of capital goods, and/or the construction of facilities necessary for the production of goods and/or services, and the commercialization of goods and/or services, with a maximum annual nominal rate from 30% to 35%. On January 6, 2021, through Communication “A” 7197, the central bank ruled that the 65% amount of credit lines granted to finance working capital needs from SMEs disbursed since October 16, 2020 may be applied to achieve the abovementioned 30% of total origination of the 30% interest rate credit line. On February 25, 2021, through Communication “A” 7227, the central bank increased from 65% to 100% the amount of credit lines granted to fund working capital needs from SMEs disbursed since October 16, 2020 that can be applied to achieve the required origination of the 30% interest rate credit line. In addition, through Communication “A” 7240, the Central Bank ruled that the balance of credit lines to SMEs shall be equivalent to (i) a minimum quota of 7.5% of the average balance of deposits from private sector as of September 2020, for the 2020 quota, and (ii) a minimum quota of 7.5% of the average balance of deposits from private sector as of March 1, 2021. The 2020 quota was in force between October 16, 2020 and March 31, 2021, whereas the 2021 quota will be in force from April 1, 2021 until September 30, 2021.

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• Solidary and Extraordinary Contribution. By means of Decree 42/2021 the Government of Argentina regulated the Solidary and Extraordinary Contribution Law, which establishes a one-time extraordinary and mandatory contribution for resident individuals and undivided estates, at the country or abroad, whose total value of assets exceed the amounts specified in the Law.

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. 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 legal framework of the capital markets (Law No. 26,831), 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 tax relief regime for the 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, (i) with its solvency or liquidity affected, in the opinion of the Central Bank; (ii) recording deficiencies on the minimum cash reserve requirement during the periods established by the Central Bank; (iii) recording repeated failures to comply with the various limits or technical relations established; or (iv) that could not maintain the 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, 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.

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Institution restructuring to safeguard credit and bank deposits

If a financial institution meets the Central Bank’s criteria and is found to be in any of the situations foreseen by Section 44 of the Financial Institutions Law, the Central Bank may authorize the restructuring of the financial institution in defense of depositors, prior to revocation of the 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;

• exclusion or transfer assets and liabilities;

• judicial intervention of the institution, displacing the statutory administrative authorities, and determine the capabilities needed to comply with the assigned function.

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 cases 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.

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, 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 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 and transfer of goodwill

Merger 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 by non-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 “Argentine Banking Regulation—Credit Risk Regulation—Large Exposures”), the Liquidity Coverage Ratio (please see “Argentine Banking Regulation—Internal Liquidity Policies of Financial Institutions”) and the Net Stable Funding Ratio (please see “Argentine Banking Regulation—Liquidity Parameters—Net Stable Funding Ratio”) on a consolidated basis comprising the non-financial holding and all its subsidiaries (excluding insurance companies and non-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 a non-financial institution.

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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.

Fintech regulations

The Central Bank has recently issued Communications “A” 6885 (as amended and restated by Communication “A” 7175), by means of which it began to regulate certain aspects of Fintech operations. Through these communications, it defined Payment Service Provider (“PSP”) as those non-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. Shareholdings acquired on stock exchanges that do not reach the threshold of 20% of the capital or voting rights are exempt from the provisions of point (iii).

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, in on-sight accounts in Argentine financial entities; and (iii) on an independent on-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.

Gender Parity Requirements

On September 3, 2020, by means of Communication “A” 7100, the Central Bank amended the rules on “Guidelines for Corporate Governance in Financial Institutions” (Lineamientos para el gobierno societario en entidades financieras) to include a requirement of gender parity.

By virtue of such Communication, the Central Bank suggested to financial institutions to consider the progressive incorporation of women on new appointments and/or renewals, until gender parity is achieved. In this regard, the Central Bank defined gender parity as the guideline that aims at equalizing the participation of men and women in labor decision-making spaces, ensuring the right to equal opportunities and non-discrimination on the bases of gender.

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 National Congress passed Law No. 25,246, (subsequently amended and complemented, the “AML/ CFT Law”), which created at the national level the Anti- Money Laundering and Terrorism 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.

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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 (the “ACC”) defines money laundering as a crime committed whenever a person converts, transfers, manages, sells, encumbers, conceals or in any other way puts into circulation in the market, property derived from an unlawful act, with the possible consequence that the origin of the original property or the subordinate property acquires the appearance of a 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 goods does not exceed 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 offence 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 commission of acts which have the aim of terrorizing the population or 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);

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(ii) By an organization committing or attempting to commit crimes for the purpose set out in (i);

(iii) By an individual who commits, attempts to commit or participates 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 and terrorism financing, but also establishes certain obligations to various public and private sector entities and individuals, which are designated as Reporting Subjects (“Sujetos obligados”), which are legally bound to inform and collaborate with the UIF.

In accordance with the AML/ CFT Law and the regulations complementing it, the following persons, among others, are Reporting Subjects before the UIF:

(i) banks, financial entities and insurance companies;

(ii) exchange agencies and natural and legal persons authorized by the Central Bank to intervene in the purchase and sale of foreign currency with funds in cash or checks issued in foreign currency or through the use of debit or credit cards or in the transfer of funds within or outside the national territory;

(iii) Settlement and Clearing Agents, Trading Agents; natural and/or legal persons registered with the CNV acting in the placement of investment funds or other collective investment products authorized by such agency; Crowdfunding companies, Global Investment Advisors and the legal persons acting as financial trustees whose trust securities are authorized for public offering by the CNV, and the agents registered by the above mentioned controlling agency that intervene in the placement of negotiable securities issued within the framework of the above mentioned financial trusts;

(iv) government organizations such as the Central Bank, the Federal Public Revenue Administration (“AFIP”, as per its acronym in Spanish), the Superintendence of Insurance of the Nation (“SSN”, as per its acronym in Spanish), the CNV and the IGJ; and

(v) professionals in the area of economic sciences and notaries public.

The Reporting 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 accomplish the intended activity (know your customer policy);

(ii) conduct due diligence procedure on its clients and 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. 154/2018 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 Específico”). In such capacity, they must collaborate with the UIF in the evaluation of compliance with AML/CFT procedures by the Reporting Subjects subject to their control. For these purposes, they are entitled to supervise, monitor and inspect these entities. Denial or obstruction of inspections by the Reporting Subjects may result in administrative penalties by the UIF and criminal penalties.

The 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 21/2018, respectively. Such regulations provide guidelines that such entities shall adopt and apply to manage, in accordance with their policies, procedures and controls, the risk of being used by third parties for criminal purposes of money laundering and financing of terrorism.

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Essentially, the aforementioned regulations (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 (“RBA”), based on the revised recommendations issued by the Financial Action Task Force (the “FATF”) in 2012, in order to ensure that the implemented measures are proportional to the identified risks. Therefore, the Reporting Subjects shall identify and evaluate their risks and, based on this, adopt measures for the management and mitigation of such risks, in order to more effectively prevent money laundering and terrorist financing. Likewise, the provisions of UIF Resolution No. 4/17 are adopted, establishing the possibility of conducting special due diligence procedures with respect to clients supervised abroad (formerly called “international investors”) and local clients who are Reporting Subjects to the UIF.

Asset Freezing Regime

Decree No. 918/2012 establishes the procedures for the freezing of assets linked to terrorism financing, 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 the implementation of Decree No. 918/2012 and establishes: (i) the procedure 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.

In order to help the Reporting Subjects to fulfil this duties, Executive Decree No. 489/2019 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 official database that includes the consolidated list of the United Nations Security Council.

Politically Exposed Persons

Resolution No. 134/2018 of the UIF (amended by Resolutions No. 15/2019 and 128/2019), 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 must take due diligence measures, adequate and proportional to the associated risk and the operation or operations involved.

In addition, the UIF has issued the Guide for the management of risks of money laundering and financing of terrorism in relation to customers (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 Reporting Subjects under its control 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 be non-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 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 Regulatory Decree No. 895/16 (jointly the “Tax Amnesty System”) established that the information voluntarily submitted under the Tax Amnesty System may be used for

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the investigation and punishment of the crimes of money laundering and financing of terrorism. For such purpose, the UIF has the power to communicate information to other public intelligence or investigation agencies, based on a previous resolution of the UIF’s President and provided that there are serious, precise and concordant indications of the commission of money laundering and/or terrorism financing crimes. Furthermore, the AFIP remains obliged to report to the UIF suspicious operations detected within the framework of the Tax Amnesty System and to provide it with all information required by it, not being able to 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.

Roles and responsibilities of the program

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:

a. Generation of policies and procedures;

b. Reliable identification of customers and knowledge of their activities (“Know Your Customer” process);

c. Specific risk analysis in the product and process approval process;

d. Training and ongoing communication to update all relevant staff;

e. Existence of a responsible Officer and a Committee for Money Laundering and Terrorist Financing Prevention;

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.

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.

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.

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.

6. Know Your Client (KYC): Similar to our efforts to prevent money laundering, and terrorist financing begins with an appropriate “Know Your Customer” process.

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).

b. We will not enter into any relationship with any individual or entity who cannot prove their true identity.

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.

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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 read Title XIII, Second Book of the ACC 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, www.economia.gob.ar, the UIF, www.argentina.gob.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 offenses directly or indirectly committed in their name, on their behalf or in their interest and from which a benefit may arise. The individual offenders may be employees or third parties — even unauthorized third parties, provided that the company ratified the act, even tacitly.

In accordance with such law, the Board of Directors has approved 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 Code of Conduct 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, which was previously discussed by the Appointment and Corporate Government Committee.

In addition, Ernesto López, our Legal Manager, has been appointed as our Anti-Bribery Policy Officer and our Compliance Department is responsible for the implementation of the Monitoring Program.

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C. Organizational Structure

Subsidiaries

We have five subsidiaries: (i) 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
Subsidiary	Percentage of Capital Stock			Percentage of possible votes
Argenpay S.A.U. (1)		100.000	%		100.000	%
Macro Bank Limited (2)		99.999	%		100.000	%
Macro Securities S.A. (1)		99.925	%		99.932	%
Macro Fiducia S.A. (1)		99.046	%		99.046	%
Macro Fondos S.G.F.C.I. S.A. (1)		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 54,740 square meters of office area that is used by our management, accounting and administrative personnel. As of December 31, 2020, our headquarters consisted of 53,713 square meters that we own and 1,027 square meters that are leased. Our headquarters are split between offices located in Avenida Eduardo Madero 1172, Sarmiento 442 and Leandro N. Alem 1110, all in the City of Buenos Aires. As of December 31, 2020, we have a branch network that consists of 463 branches in Argentina, of which 176 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, 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 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”. The total aggregate amount invested in the project was approximately U.S.$186 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.

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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, 2018, 2019 and 2020 based on results adjusted for inflation as of December 31, 2020, 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 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 Ps.) for the period;

Rd = real average rate for foreign currency denominated assets and liabilities for the period;

Np = nominal average rate for 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 Peso 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.

	2018										2019										2020
	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)
ASSETS
Interest-earning assets Loans and other financing Non-financial Public Sector
Pesos		5,284,854		2,232,128		(7.94	%)		35.93	%		2,455,223		1,097,367		(5.94	%)		44.70	%		6,252,514		2,221,379		(0.45	%)		35.53	%
Foreign currency		4		—		—			—			68		—		—			—			—		—		—			—
Total		5,284,858		2,232,128		(7.94	%)		35.93	%		2,455,291		1,097,367		(5.94	%)		44.70	%		6,252,514		2,221,379		(0.45	%)		35.53	%
Other Financial Entities
Pesos		9,458,926		2,944,054		(14.13	%)		26.78	%		5,686,553		2,781,222		(3.20	%)		48.91	%		2,377,951		999,709		4.33	%		42.04	%
Foreign currency		921,665		47,355		42.38	%		4.39	%		689,587		41,398		9.16	%		6.00	%		185,585		12,527		10.16	%		6.75	%
Total		10,380,591		2,991,409		(9.11	%)		24.79	%		6,376,140		2,822,620		(1.86	%)		44.27	%		2,563,536		1,012,236		4.75	%		39.49	%
Non-financial Private Sector and Foreign Residents
Pesos		317,924,720		110,662,709		(8.71	%)		34.79	%		221,762,683		101,636,929		(5.20	%)		45.83	%		220,978,159		77,305,508		(0.85	%)		34.98	%
Foreign currency		79,390,256		3,799,911		41.97	%		4.09	%		85,765,291		6,337,607		10.59	%		7.39	%		37,159,403		5,147,826		17.49	%		13.85	%
Total		397,314,976		114,462,620		1.42	%		28.79	%		307,527,974		107,974,536		(0.80	%)		35.11	%		258,137,562		82,453,334		1.79	%		31.94	%
Other Debt Securities
Pesos		108,206,451		42,901,590		(9.16	%)		34.13	%		142,995,880		89,874,378		5.86	%		62.85	%		172,548,742		64,285,939		0.82	%		37.26	%
Foreign currency		4,278,730		130,510		39.87	%		2.55	%		2,640,651		102,608		6.99	%		3.89	%		4,891,461		39,935		4.04	%		0.82	%
Total		112,485,181		43,032,100		(7.29	%)		32.93	%		145,636,531		89,976,986		5.88	%		61.78	%		177,440,203		64,325,874		0.91	%		36.25	%
Repo Transactions
Pesos		1,963,584		942,143		(2.18	%)		44.43	%		7,198,715		4,472,212		5.40	%		62.13	%		30,916,023		7,067,389		(9.76	%)		22.86	%
Foreign currency		—		—		—			—			—		—		—			—			—		—		—			—
Total		1,963,584		942,143		(2.18	%)		44.43	%		7,198,715		4,472,212		5.40	%		62.13	%		30,916,023		7,067,389		(9.76	%)		22.86	%
Total interest-earning assets
Pesos		442,838,535		159,682,624		(7.86	%)		36.05	%		380,099,054		199,862,108		(0.81	%)		52.58	%		433,073,394		151,879,924		(0.79	%)		35.07	%
Foreign currency		84,590,655		3,977,776		41.87	%		4.02	%		89,095,597		6,481,613		10.47	%		7.27	%		42,236,449		5,200,288		15.90	%		12.31	%
Total		527,429,190		163,660,400		0.12	%		31.02	%		469,194,651		206,343,721		1.33	%		43.98	%		475,309,843		157,080,212		0.69	%		33.05	%
Total non interest-earning assets
Pesos		124,413,430		—		—			—			118,076,089		—		—			—			123,900,026		—		—			—
Foreign currency		70,097,454		—		—			—			101,975,035		—		—			—			102,327,783		—		—			—
Total		194,510,884		—		—			—			220,051,124		—		—			—			226,227,809		—		—			—
TOTAL ASSETS
Pesos		567,251,965		—		—			—			498,175,143		—		—			—			556,973,420		—		—			—

92

	2018										2019										2020
	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)
Foreign currency		154,688,109		—		—			—			191,070,632		—		—			—			144,564,232		—		—			—
Total		721,940,074		—		—			—			689,245,775		—		—			—			701,537,652		—		—			—
LIABILITIES
Interest-bearing liabilities
Deposits
Non financial Public Sector
Pesos		26,176,399		5,630,581		(19.44	%)		18.95	%		20,992,485		7,928,752		(10.44	%)		37.77	%		37,767,276		9,575,598		(7.93	%)		25.35	%
Foreign currency		939,533		6,111		37.18	%		0.58	%		2,039,430		45,154		5.26	%		2.21	%		1,437,272		12,480		4.09	%		0.87	%
Total		27,115,932		5,636,692		(17.48	%)		18.32	%		23,031,915		7,973,906		(9.05	%)		34.62	%		39,204,548		9,588,078		(7.49	%)		24.46	%
Non financial Private Sector and Foreign Residents
Pesos		250,295,861		49,671,199		(18.85	%)		19.82	%		216,982,456		70,557,449		(13.85	%)		32.52	%		223,251,786		46,480,992		(11.25	%)		20.82	%
Foreign currency		100,040,179		1,137,098		37.77	%		1.01	%		108,589,538		2,170,218		5.04	%		2.00	%		58,037,686		461,282		4.01	%		0.79	%
Total		350,336,040		50,808,297		(2.68	%)		14.49	%		325,571,994		72,727,667		(7.55	%)		22.34	%		281,289,472		46,942,274		(8.10	%)		16.69	%
Financing received from the Central Bank of Argentina and other financial entities
Pesos		1,842,042		305,633		(22.65	%)		14.21	%		961,521		405,341		(7.59	%)		42.16	%		477,621		110,151		(9.61	%)		23.06	%
Foreign currency		2,986,901		116,903		41.22	%		3.54	%		4,114,120		209,180		8.22	%		5.08	%		862,950		52,022		9.42	%		6.03	%
Total		4,828,943		422,536		16.86	%		7.61	%		5,075,641		614,521		5.22	%		12.11	%		1,340,571		162,173		2.64	%		12.10	%
Issued Corporate Bonds
Pesos		17,164,713		3,795,896		(19.82	%)		18.38	%		10,100,838		3,250,457		(14.07	%)		32.18	%		5,805,325		1,547,872		(6.96	%)		26.66	%
Foreign currency		—		—		—			—			—		—		—			—			—		—		—			—
Total		17,164,713		3,795,896		(19.82	%)		18.38	%		10,100,838		3,250,457		(14.07	%)		32.18	%		5,805,325		1,547,872		(6.96	%)		26.66	%
Subordinated Corporate Bonds
Pesos		—		—		—			—			—		—		—			—			—		—		—			—
Foreign currency		29,505,232		2,083,761		44.45	%		5.91	%		33,196,349		2,319,007		10.18	%		6.99	%		33,608,755		2,397,775		10.55	%		7.13	%
Total		29,505,232		2,083,761		44.45	%		5.91	%		33,196,349		2,319,007		10.18	%		6.99	%		33,608,755		2,397,775		10.55	%		7.13	%
Repo Transactions
Pesos		1,220,813		457,876		(10.82	%)		31.68	%		1,181,875		458,102		(9.80	%)		38.76	%		920,365		195,747		(10.92	%)		21.27	%
Foreign currency		—		—		—			—			—		—		—			—			—		—		—			—
Total		1,220,813		457,876		(10.82	%)		31.68	%		1,181,875		458,102		(9.80	%)		38.76	%		920,365		195,747		(10.92	%)		21.27	%
Total interest-bearing liabilities
Pesos		296,699,828		59,861,185		(18.62	%)		20.16	%		250,219,175		82,600,101		(13.53	%)		33.01	%		268,222,373		57,910,360		(10.69	%)		21.59	%
Foreign currency		133,471,845		3,343,873		39.32	%		2.15	%		147,939,437		4,743,559		6.29	%		3.21	%		93,946,663		2,923,559		6.40	%		3.11	%
Total		430,171,673		63,205,058		(0.64	%)		14.68	%		398,158,612		87,343,660		(6.17	%)		21.94	%		362,169,036		60,833,919		(6.26	%)		16.80	%
Total non–interest bearing liabilities and shareholders’ equity
Pesos		265,351,113		—		—			—			252,598,564		—		—			—			299,353,557		—		—			—
Foreign currency		26,417,288		—		—			—			38,488,599		—		—			—			40,015,059		—		—			—
Total		291,768,401		—		—			—			291,087,163		—		—			—			339,368,616		—		—			—
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY																								—		—			—
Pesos		562,050,941		—		—			—			502,817,739		—		—			—			567,575,930		—		—			—
Foreign currency		159,889,133		—		—			—			186,428,036		—		—			—			133,961,722		—		—			—
Total		721,940,074		—		—			—			689,245,775		—		—			—			701,537,652		—		—			—

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, 2020 compared to the fiscal year ended December 31, 2019 and to the fiscal year ended December 31, 2018, all based on information adjusted for inflation as of December 31, 2020.

	2018		2019		2020		December 2019 / December 2018 Increase (Decrease) Due to Changes in								December 2020 / December 2019 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 financing Non-financial Public Sector
Pesos		2,232,128		1,097,367		2,221,379		(1,349,966	)		215,205		(1,134,761	)		1,697,507			(573,495	)		1,124,012
Foreign currency		—		—		—		—			—		—			—			—			—
Total		2,232,128		1,097,367		2,221,379		(1,349,966	)		215,205		(1,134,761	)		1,697,507			(573,495	)		1,124,012
Other Financial Entities
Pesos		2,944,054		2,781,222		999,709		(1,421,195	)		1,258,363		(162,832	)		(1,618,166	)		(163,347	)		(1,781,513	)
Foreign currency		47,355		41,398		12,527		(17,082	)		11,125		(5,957	)		(30,263	)		1,392			(28,871	)
Total		2,991,409		2,822,620		1,012,236		(1,438,277	)		1,269,488		(168,789	)		(1,648,429	)		(161,955	)		(1,810,384	)
Non-financial Private Sector and Foreign Residents

93

	2018		2019		2020		December 2019 / December 2018 Increase (Decrease) Due to Changes in								December 2020 / December 2019 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)
Pesos		110,662,709		101,636,929		77,305,508		(33,511,472	)		24,485,692		(9,025,780	)		(362,639	)		(23,968,782	)		(24,331,421	)
Foreign currency		3,799,911		6,337,607		5,147,826		(292,111	)		2,829,807		2,537,696			(3,591,527	)		2,401,746			(1,189,781	)
Total		114,462,620		107,974,536		82,453,334		(33,803,583	)		27,315,499		(6,488,084	)		(3,954,166	)		(21,567,036	)		(25,521,202	)
Other Debt Securities
Pesos		42,901,590		89,874,378		64,285,939		5,902,904			41,069,884		46,972,788			18,572,506			(44,160,945	)		(25,588,439	)
Foreign currency		130,510		102,608		39,935		(63,173	)		35,271		(27,902	)		87,670			(150,343	)		(62,673	)
Total		43,032,100		89,976,986		64,325,874		5,839,731			41,105,155		46,944,886			18,660,176			(44,311,288	)		(25,651,112	)
Repo Transactions
Pesos		942,143		4,472,212		7,067,389		2,256,246			1,273,823		3,530,069			14,735,913			-12,140,736			2,595,177
Foreign currency		—		—		—		—			—		—			—			—			—
Total		942,143		4,472,212		7,067,389		2,256,246			1,273,823		3,530,069			14,735,913			-12,140,736			2,595,177
Total interest-earning assets
Pesos		159,682,624		199,862,108		151,879,924		(28,123,483	)		68,302,967		40,179,484			33,025,121			(81,007,305	)		(47,982,184	)
Foreign currency		3,977,776		6,481,613		5,200,288		(372,366	)		2,876,203		2,503,837			(3,534,120	)		2,252,795			(1,281,325	)
Total		163,660,400		206,343,721		157,080,212		(28,495,849	)		71,179,170		42,683,321			29,491,001			(78,754,510	)		(49,263,509	)
LIABILITIES
Interest-bearing liabilities
Deposits
Non financial Public Sector
Pesos		5,630,581		7,928,752		9,575,598		(1,652,505	)		3,950,676		2,298,171			6,335,948			(4,689,102	)		1,646,846
Foreign currency		6,111		45,154		12,480		5,718			33,325		39,043			-13,390			(19,284	)		(32,674	)
Total		5,636,692		7,973,906		9,588,078		(1,646,787	)		3,984,001		2,337,214			6,322,558			(4,708,386	)		1,614,172
Non financial Private Sector and Foreign Residents
Pesos		49,671,199		70,557,449		46,480,992		(6,665,276	)		27,551,526		20,886,250			2,044,032			(26,120,489	)		(24,076,457	)
Foreign currency		1,137,098		2,170,218		461,282		(40,344	)		1,073,464		1,033,120			(1,009,464	)		(699,472	)		(1,708,936	)
Total		50,808,297		72,727,667		46,942,274		(6,705,620	)		28,624,990		21,919,370			1,034,568			(26,819,961	)		(25,785,393	)
Financing received from the Central Bank of Argentina and other financial entities
Pesos		305,633		405,341		110,151		(169,001	)		268,709		99,708			(203,976	)		(91,214	)		(295,190	)
Foreign currency		116,903		209,180		52,022		28,737			63,540		92,277			(165,342	)		8,184			(157,158	)
Total		422,536		614,521		162,173		(140,264	)		332,249		191,985			(369,318	)		(83,030	)		(452,348	)
Issued Corporate Bonds
Pesos		3,795,896		3,250,457		1,547,872		(1,939,362	)		1,393,923		(545,439	)		(1,382,303	)		(320,282	)		(1,702,585	)
Foreign currency		—		—		—		—			—		—			—			—			—
Total		3,795,896		3,250,457		1,547,872		(1,939,362	)		1,393,923		(545,439	)		(1,382,303	)		(320,282	)		(1,702,585	)
Subordinated Corporate Bonds
Pesos		—		—		—		—			—		—			—			—			—
Foreign currency		2,083,761		2,319,007		2,397,775		(121,857	)		357,103		235,246			30,245			48,523			78,768
Total		2,083,761		2,319,007		2,397,775		(121,857	)		357,103		235,246			30,245			48,523			78,768
Repo Transactions
Pesos		457,876		458,102		195,747		(83,458	)		83,684		226			(101,369	)		(160,986	)		(262,355	)
Foreign currency		—		—		—		—			—		—			—			—			—
Total		457,876		458,102		195,747		(83,458	)		83,684		226			(101,369	)		(160,986	)		(262,355	)
Total interest-bearing liabilities
Pesos		59,861,185		82,600,101		57,910,360		(10,509,602	)		33,248,518		22,738,916			6,692,332			(31,382,073	)		(24,689,741	)
Foreign currency		3,343,873		4,743,559		2,923,559		(127,746	)		1,527,432		1,399,686			(1,157,951	)		(662,049	)		(1,820,000	)
Total		63,205,058		87,343,660		60,833,919		(10,637,348	)		34,775,950		24,138,602			5,534,381			(32,044,122	)		(26,509,741	)

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, 2020.

	Year Ended December 31,
	2018 (1)		2019 (1)		2020
	(in thousands of Pesos, except percentages)
Average interest-earning assets
Pesos		442,838,535		380,099,054		433,073,394
Foreign currency		84,590,655		89,095,597		42,236,449
Total		527,429,190		469,194,651		475,309,843
Net interest income (2)
Pesos		99,821,439		117,262,007		93,969,564
Foreign currency		633,903		1,738,054		2,276,729
Total		100,455,342		119,000,061		96,246,293

94

	Year Ended December 31,
	2018 (1)			2019 (1)			2020
	(in thousands of Pesos, except percentages)
Net interest margin (3)
Pesos		(17.01	%)		(14.94	%)		(10.61	%)
Foreign currency		37.41	%		4.99	%		8.76	%
Weighted average rate		(8.28	%)		(11.16	%)		(8.89	%)
Yield spread real basis (4)
Pesos		10.76	%		12.72	%		9.90	%
Foreign currency		2.55	%		4.18	%		9.50	%
Weighted average rate		0.76	%		7.50	%		6.95	%

(1) Figures adjusted for inflation as of December 31, 2020. See “Presentation of certain financial information”.

(2) Defined as interest earned less interest paid.

(3) The nominal rates calculated for each period have been converted into real rates using the formulas disclosed in “Item 4. Selected Statistical Information—Average balance sheet, interest earned on interest-earning assets and interest paid on interest-bearing liabilities.”

(4) Defined as the difference between the average real rate on interest-earning assets and the average real rate on interest-bearing liabilities.

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, 2018, 2019 and 2020 all based on information adjusted for inflation as of December 31, 2020.

	Year Ended December 31,
	2018 (1)		2019 (1)		2020
	(in thousands of Pesos)
DEBT SECURITIES AT FAIR VALUE THROUGH PROFIT OR LOSS
Government securities
In Pesos:
National treasury bills at discount - Maturity: 01-29-2021		—		—		17,049,960
National treasury bills at discount - Maturity: 02-26-2021		—		—		11,273,975
Federal government treasury bonds adjusted by CER - Maturity: 07-22-2021		161,760		5,341,210		10,000,259
Federal government treasury bonds adjusted by CER - Maturity: 08-05-2021		—		—		7,747,857
Federal government treasury bonds BADLAR + 100 PB - Maturity: 08-05-2021		—		—		5,971,755
Federal government treasury bonds adjusted by CER - Maturity: 03-25-2023		—		—		974,607
Federal government bonds - Badlar Private + 200 basis point - Maturity: 04-03-2022		80,459		3,296		533,627
Federal government treasury bonds adjusted by CER - Maturity: 11-09-2026		—		—		314,671
Federal government treasury bonds adjusted by CER - Maturity: 03-18-2022		—		—		307,664
Federal government treasury bonds adjusted by CER - Maturity: 03-25-2024		—		—		252,086
Others		2,003,116		1,180,573		171,603
In Foreign Currency:
Federal government treasury bonds linked to dollar - Maturity: 11-30-2021		—		—		3,405

95

	Year Ended December 31,
	2018 (1)		2019 (1)		2020
	(in thousands of Pesos)
Bonds of the Argentine Republic Step Up New York Law - Maturity: 07-09-2030		—		—		2,546
Federal government bonds at 8.75% - Maturity: 05-07-2024		129,494		12,866		—
Par bonds Argentine Law - Maturity: 12-31-2038		—		5,646		—
Federal government bonds at 8% - Maturity: 10-08-2020		72,973		4,493		—
National treasury bills 4,25% - Maturity: 09-04-2019		—		34		—
International bonds of the Argentina Republic at 7.5% - Maturity: 04-22-2026		115,933		—		—
Discount Bonds at 8.28% – Maturity: 2033 (governed by New York State legislation)		32,257		—		—
Federal government treasury at 5.75% - Maturity: 07-26-2019		4,116		—		—
Federal government bonds at 5.75% - Maturity: 04-18-2025		2,700		—		—
Others		69		—		—
Subtotal Government securities		2,602,877		6,548,118		54,604,015
Private securities
In Pesos:
Debt Securities in Financial Trust provisional Red Surcos		—		—		249,107
Debt Securities in Financial Trust provisional Secubond		165,871		92,945		126,983
Values of business of services public		2,568		2,371		2,354
Debt Securities in Financial Trust provisional Consubond		791,050		482,369		—
Debt Securities in Financial Trusts Secubono Series 191 Class A - Maturity: 06-29-2020		—		114,820		—
Corporate Bonds Province of Buenos Aires Class 9 - Maturity: 04-18-2021		61,753		68,246		—
Debt Securities in Financial Trusts Secubono Series 189A - Maturity: 03-30-2020		—		30,220		—
Debt Securities in Financial Trusts Secubono Series 191 CL.B - Maturity: 07-28-2020		—		16,421		—
Debt Securities in Financial Trusts Secubono Series 190 CL.A - Maturity: 04-28-2020		—		15,206		—
Debt Securities in Financial Trusts Secubono Series 190 CL.B - Maturity: 06-29-2020		—		10,076		—
Others		1,439,216		31,635		—
In Foreign Currency:
Debt Securities in Financial Trust provisional Red Surcos		—		143,368		—
Corporate Bonds Aluar Aluminio Argentino SA - Maturity: 07-30-2023		—		—		6
Debt Securities in Financial Trusts provisional Agrocap		273,802		129,091		—
Debt Securities in Financial Trusts Chubut Regalías Hidrocarburíferas - Maturity: 07-01-2020		101,291		41,105		—
Corporate Bonds John Deere Credit financial company Series A Class 016 - Maturity: 04-06-2019		80,526		—		—
Subtotal Private securities		2,916,077		1,177,873		378,450
TOTAL DEBT SECURITIES AT FAIR VALUE THROUGH PROFIT OR LOSS		5,518,954		7,725,991		54,982,465

96

	Year Ended December 31,
	2018 (1)		2019 (1)		2020
	(in thousands of Pesos)
OTHER DEBT SECURITIES
MEASURED AT FAIR VALUE THROUGHT OTHER COMPREHENSIVE INCOME
Government securities
In Pesos:
Federal government treasury bonds BADLAR + 100 PB - Maturity: 08-05-2021		—		—		19,275,639
Federal government treasury bonds adjusted by CER - Maturity: 07-22-2021		—		—		8,941,173
Federal government treasury bonds adjusted by CER - Maturity: 04-17-2021		—		—		8,601,842
Federal government treasury bonds adjusted by CER - Maturity: 08-05-2021		—		—		3,419,978
Federal government treasury bonds adjusted by CER - Maturity: 03-25-2023		—		—		1,039,269
Federal government treasury letters at variable rate - Maturity: 03-31-2021		—		—		986,265
Federal government treasury bonds adjusted by CER - Maturity: 03-25-2024		—		—		875,759
Treasury bills of Province of Neuquén S. 1 C. 1 - Maturity: 04-07-2021		—		—		264,546
Federal government bonds - Badlar Private + 200 basis point - Maturity: 04-03-2022		—		—		32,945
Federal government treasury bonds adjusted by CER - Maturity: 03-18-2022		—		—		1,705
Others		306,699		114,160		1
In Foreign Currency:
Federal government treasury bonds linked to dollar - Maturity: 11-30-2021		—		—		900,540
Bonds of the Argentine Republic Step Up Argentine Law - Maturity: 07-09-2030		—		—		417,330
Bonds of the Argentine Republic at 1% - Maturity: 07-09-2029		—		—		31,618
Federal government bonds at 8.75% - Maturity: 05-07-2024		1,111,697		526,108		—
International bonds of the Argentina Republic at 7.125 - Maturity: 06-28-2117		170,953		—		—
US Treasury Bill – Maturity: 01-14-2021		—		—		2,524,323
US Treasury Bill – Maturity: 01-19-2021		—		—		841,433
US Treasury Bill – Maturity: 01-21-2021		—		—		673,150
US Treasury Bill – Maturity: 01-28-2021		—		—		501,908
US Treasury Bill – Maturity: 01-07-2020		—		652,210		—
Others		1,266,572		—		—
Subtotal Government securities		2,855,921		1,292,478		49,329,424
Instruments Issued by Central Bank
In Pesos:
Liquidity letters of Central Bank of Argentina - Maturity: 01-21-2021		—		—		21,218,562
Liquidity letters of Central Bank of Argentina - Maturity: 01-12-2021		—		—		19,732,940
Liquidity letters of Central Bank of Argentina - Maturity: 01-28-2021		—		—		18,420,266

97

	Year Ended December 31,
	2018 (1)		2019 (1)		2020
	(in thousands of Pesos)
Liquidity letters of Central Bank of Argentina - Maturity: 01-19-2021		—		—		17,642,322
Liquidity letters of Central Bank of Argentina - Maturity: 01-05-2021		—		—		15,109,347
Liquidity letters of Central Bank of Argentina - Maturity: 01-26-2021		—		—		13,603,450
Liquidity letters of Central Bank of Argentina - Maturity: 01-14-2021		—		—		12,025,981
Liquidity letters of Central Bank of Argentina - Maturity: 01-07-2021		—		—		10,922,852
Liquidity letters of Central Bank of Argentina - Maturity: 01-03-2020		—		20,124,827		—
Liquidity letters of Central Bank of Argentina - Maturity: 01-07-2020		—		15,394,929		—
Others		115,331,992		27,012,501		—
Subtotal Instruments Issued by Central Bank		115,331,992		62,532,257		128,675,720
Total Other debt securities measured at fair value through other comprehensive income		118,187,913		63,824,735		178,005,144
MEASURED AT AMORTIZED COST
Government securities
In Pesos:
Federal government bonds at 22% - Maturity: 05-21-2022		—		—		20,159,269
Federal government treasury bonds adjusted by CER - Maturity: 04-17-2021		—		—		8,573,109
Federal government treasury letters at variable rate - Maturity: 03-31-2021		—		—		1,583,139
Discount bonds at 5.83% – Maturity: 2033		328,890		437,591		183,639
Federal government treasury bonds adjusted by CER - Maturity: 03-18-2022		—		—		55,692
Bonds Par denominated – Maturity: 12-31-2038		—		31,485		28,251
Federal government bonds - Fixed rate 26% - Maturity: 11-21-2020		16,736,225		10,855,842		—
National treasury bills coupon capitalized - Maturity: 02-26-2020		—		2,045,071		—
National treasury bills capitalized - Maturity: 05-13-2020		—		1,957,560		—
National treasury bills capitalized - Maturity: 05-21-2022		—		1,663,894		—
Others		—		3,318,533		—
Subtotal Government securities		17,065,115		20,309,976		30,583,099
Private securities
In Pesos:
Corporate Bonds YPF C046 - Maturity: 03-04-2021		—		80,217		97,853
Debt Securities in Financial Trusts Secubono Series 201A - Maturity: 08-30-2021		—		—		78,659
Corporate Bonds YPF C043 - Maturity: 10-21-2023		—		100,337		74,269
Debt Securities in Financial Trusts Secubono Series 200A - Maturity: 06-28-2021		—		—		71,025
Corporate Bonds Tecpetrol SA Class 3 -Maturity: 02-20-2021		—		—		49,563
Corporate Bonds Central Térmica Roca SA Class 4 - Maturity: 07-24-2021		—		35,559		36,863

98

	Year Ended December 31,
	2018 (1)		2019 (1)		2020
	(in thousands of Pesos)
Corporate Bonds Albanesi SA Class 3 - Maturity: 06-15-2021		—		38,446		30,897
Corporate Bonds Banco Santander Río SA Class 21 - Maturity: 01-26-2022		—		—		25,709
Corporate Bonds Generación Mediterranea SA Class 8B - Maturity: 08-29-2021		—		21,943		20,973
Corporate Bonds Rombo Compañía Financiera SA 41 - Maturity: 01-29-2021		—		69,082		17,000
Others		5,757		3,348,650		27,879
Subtotal Private securities		5,757		3,694,234		530,690
Total Other debt securities measurement at amortized cost		17,070,872		24,004,210		31,113,789
TOTAL OTHER DEBT SECURITIES		135,258,785		87,828,945		209,118,933
EQUITY INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
In Pesos:
Prisma Medios de Pago SA		—		3,405,143		4,975,977
Mercado Abierto Electrónico SA		52,523		70,730		144,222
Matba Rofex SA		—		15,723		21,242
C.O.E.L.S.A		10,107		13,076		19,511
Argentina Clearing SA		9,568		14,217		14,731
Sedesa		8,325		9,492		11,682
Provincanje SA		1,587		3,315		6,243
Inversora SA		—		—		5,389
Mercado a Término Rosario SA		7,672		12,510		4,308
Proin SA		1,074		2,012		1,960
Others		5,003		1,751		1,407
In Foreign Currency:
Banco Latinoamericano de Comercio Exterior SA		10,003		12,731		9,728
Sociedad de Telecomunicaciones Financieras Interbancarias Mundiales		2,030		1,727		1,899
TOTAL EQUITY INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS		107,892		3,562,427		5,218,299
TOTAL		140,885,631		99,117,363		269,319,697

(1) Figures adjusted for inflation as of December 31, 2020. See “Presentation of certain financial information”.

Remaining maturity of government and private securities

The following table analyzes the remaining maturities of our investment portfolio as of December 31, 2020 in accordance with issuance terms (before allowances). 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.

99

	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:
National treasury bills at discount - Maturity: 01-29-2021		17,049,960			—			—			—			—		17,049,960
National treasury bills at discount - Maturity: 02-26-2021		11,273,975			—			—			—			—		11,273,975
Federal government treasury bonds adjusted by CER - Maturity: 07-22-2021		10,000,259			—			—			—			—		10,000,259
Federal government treasury bonds adjusted by CER - Maturity: 08-05-2021		7,747,857			—			—			—			—		7,747,857
Federal government treasury bonds BADLAR + 100 PB - Maturity: 08-05-2021		5,971,755			—			—			—			—		5,971,755
Federal government treasury bonds adjusted by CER - Maturity: 03-25-2023		—			974,607			—			—			—		974,607
Federal government bonds - Badlar Private + 200 basis point - Maturity: 04-03-2022		—			533,627			—			—			—		533,627
Federal government treasury bonds adjusted by CER - Maturity: 11-09-2026		—			188,802			125,869			—			—		314,671
Federal government treasury bonds adjusted by CER - Maturity: 03-18-2022		—			307,664			—			—			—		307,664
Federal government treasury bonds adjusted by CER - Maturity: 03-25-2024		—			252,086			—			—			—		252,086
Others		103,291			44,112			10,667			13,533			—		171,603
In Foreign Currency:
Federal government treasury bonds linked to dollar - Maturity: 11-30-2021		3,405			—			—			—			—		3,405
Bonds of the Argentine Republic Step Up New York Law - Maturity: 07-09-2030		—			509			2,037			—			—		2,546
Subtotal Government securities		52,150,502			2,301,407			138,573			13,533			—		54,604,015
Private securities
In Pesos:
Debt Securities in Financial Trust provisional Red Surcos		249,107			—			—			—			—		249,107
Debt Securities in Financial Trust provisional Secubond		126,983			—			—			—			—		126,983
Values of business of services public		—			—			—			—			2,354		2,354
Corporate Bonds Aluar Aluminio Argentino - Maturity: 07-30-2023		—			6			—			—			—		6
Subtotal Private securities		376,090			6			—			—			2,354		378,450
TOTAL DEBT SECURITIES AT FAIR VALUE THROUGH PROFIT OR LOSS		52,526,592			2,301,413			138,573			13,533			2,354		54,982,465
Weighted average rate		25.33	%		18.32	%		7.80	%		8.51	%
OTHER DEBT SECURITIES
MEASURED AT FAIR VALUE THROUGHT OTHER COMPREHENSIVE INCOME
Government securities
In Pesos:
Federal government treasury bonds BADLAR + 100 PB - Maturity: 08-05-2021		19,275,639			—			—			—			—		19,275,639

100

	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
Federal government treasury bonds adjusted by CER - Maturity: 07-22-2021		8,941,173			—			—			—			—		8,941,173
Federal government treasury bonds adjusted by CER - Maturity: 04-17-2021		8,601,842			—			—			—			—		8,601,842
Federal government treasury bonds adjusted by CER - Maturity: 08-05-2021		3,419,978			—			—			—			—		3,419,978
Federal government treasury bonds adjusted by CER - Maturity: 03-25-2023		—			1,039,269			—			—			—		1,039,269
Federal government treasury letters at variable rate - Maturity: 03-31-2021		986,265			—			—			—			—		986,265
Federal government treasury bonds adjusted by CER - Maturity: 03-25-2024		—			875,759			—			—			—		875,759
Treasury bills of Province of Neuquén S. 1 C. 1 - Maturity: 04-07-2021		264,546			—			—			—			—		264,546
Federal government bonds - Badlar Private + 200 basis point - Maturity: 04-03-2022		—			32,945			—			—			—		32,945
Federal government treasury bonds adjusted by CER - Maturity: 03-18-2022		—			1,705			—			—			—		1,705
Others		—			—			1			—			—		1
In Foreign Currency:
Federal government treasury bonds linked to dollar - Maturity: 11-30-2021		900,540			—			—			—			—		900,540
Bonds of the Argentine Republic Step Up Argentine Law - Maturity: 07-09-2030		—			83,466			333,864			—			—		417,330
Bonds of the Argentine Republic at 1% - Maturity: 07-09-2029		—			6,324			25,294			—			—		31,618
US Treasury Bill – Maturity: 01-14-2021		2,524,323			—			—			—			—		2,524,323
US Treasury Bill – Maturity: 01-19-2021		841,433			—			—			—			—		841,433
US Treasury Bill – Maturity: 01-21-2021		673,150			—			—			—			—		673,150
US Treasury Bill – Maturity: 01-28-2021		501,908			—			—			—			—		501,908
Subtotal Government securities		46,930,797			2,039,468			359,159			—			—		49,329,424
Instruments Issued by Central Bank
In Pesos:
Liquidity letters of Central Bank of Argentina - Maturity: 01-21-2021		21,218,562			—			—			—			—		21,218,562
Liquidity letters of Central Bank of Argentina - Maturity: 01-12-2021		19,732,940			—			—			—			—		19,732,940
Liquidity letters of Central Bank of Argentina - Maturity: 01-28-2021		18,420,266			—			—			—			—		18,420,266
Liquidity letters of Central Bank of Argentina - Maturity: 01-19-2021		17,642,322			—			—			—			—		17,642,322
Liquidity letters of Central Bank of Argentina - Maturity: 01-05-2021		15,109,347			—			—			—			—		15,109,347
Liquidity letters of Central Bank of Argentina - Maturity: 01-26-2021		13,603,450			—			—			—			—		13,603,450
Liquidity letters of Central Bank of Argentina - Maturity: 01-14-2021		12,025,981			—			—			—			—		12,025,981
Liquidity letters of Central Bank of Argentina - Maturity: 01-07-2021		10,922,852			—			—			—			—		10,922,852
Subtotal Instruments Issued by Central Bank		128,675,720			—			—			—			—		128,675,720
Total Other debt securities measured at fair value thought other comprehensive income		175,606,517			2,039,468			359,159			—			—		178,005,144
Weighted average rate		42.91	%		3.83	%		8.51	%		0.00	%

101

	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
MEASURED AT AMORTIZED COST
Government securities
In Pesos:
Federal government bonds at 22% - Maturity: 05-21-2022		—			20,159,269			—			—			—		20,159,269
Federal government treasury bonds adjusted by CER - Maturity: 04-17-2021		8,573,109			—			—			—			—		8,573,109
Federal government treasury letters at variable rate - Maturity: 03-31-2021		1,583,139			—			—			—			—		1,583,139
Discount bonds at 5.83% – Maturity: 2033		—			36,726			91,815			55,098			—		183,639
Federal government treasury bonds adjusted by CER - Maturity: 03-18-2022		—			55,692			—			—			—		55,692
Bonds Par denominated – Maturity: 12-31-2038		—			—			4,238			24,013			—		28,251
Subtotal Government securities		10,156,248			20,251,687			96,053			79,111			—		30,583,099
Private securities
In Pesos:
Corporate Bonds YPF C046 - Maturity: 03-04-2021		97,853			—			—			—			—		97,853
Debt Securities in Financial Trusts Secubono Series 201A - Maturity: 08-30-2021		78,659			—			—			—			—		78,659
Corporate Bonds YPF C043 - Maturity: 10-21-2023		24,754			49,515			—			—			—		74,269
Debt Securities in Financial Trusts Secubono Series 200A - Maturity: 06-28-2021		71,025			—			—			—			—		71,025
Corporate Bonds Tecpetrol SA Class 3 -Maturity: 02-20-2021		49,563			—			—			—			—		49,563
Corporate Bonds Central Térmica Roca SA Class 4 - Maturity: 07-24-2021		36,863			—			—			—			—		36,863
Corporate Bonds Albanesi SA Class 3 - Maturity: 06-15-2021		30,897			—			—			—			—		30,897
Corporate Bonds Banco Santander Río SA Class 21 - Maturity: 01-26-2022		—			25,709			—			—			—		25,709
Corporate Bonds Generación Mediterranea SA Class 8B - Maturity: 08-29-2021		20,973			—			—			—			—		20,973
Corporate Bonds Rombo Compañía Financiera SA 41 - Maturity: 01-29-2021		17,000			—			—			—			—		17,000
Others		24,956			2,923			—			—			—		27,879
Subtotal Private securities		452,543			78,147			—			—			—		530,690
Total Other debt securities measurement at amortized cost		10,608,791			20,329,834			96,053			79,111			—		31,113,789
Weighted average rate		5.00	%		21.98	%		8.51	%		8.51	%
TOTAL OTHER DEBT SECURITIES		186,215,308			22,369,302			455,212			79,111			—		209,118,933
Weighted average rate		37.20	%		20.88	%		8.09	%		8.51	%
EQUITY INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
In Pesos:
Prisma Medios de Pago SA		—			—			—			—			4,975,977		4,975,977
Mercado Abierto Electrónico SA		—			—			—			—			144,222		144,222
Matba Rofex SA		—			—			—			—			21,242		21,242

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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
C.O.E.L.S.A		—		—		—		—		19,511		19,511
Argentina Clearing SA		—		—		—		—		14,731		14,731
Sedesa		—		—		—		—		11,682		11,682
Provincanje SA		—		—		—		—		6,243		6,243
Inversora SA		—		—		—		—		5,389		5,389
Mercado a Término Rosario SA		—		—		—		—		4,308		4,308
Proin SA		—		—		—		—		1,960		1,960
Others		—		—		—		—		1,407		1,407
In Foreign Currency:
Banco Latinoamericano de Comercio Exterior SA		—		—		—		—		9,728		9,728
Sociedad de Telecomunicaciones Financieras Interbancarias Mundiales		—		—		—		—		1,899		1,899
TOTAL EQUITY INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS		—		—		—		—		5,218,299		5,218,299
TOTAL		238,741,900		24,670,715		593,785		92,644		5,220,653		269,319,697

Loans and other financing portfolio

The following table analyzes our loans and other financing portfolio by type as of December 31, 2018, 2019 and 2020. Due to IFRS 9, as of December 31, 2018, 2019, and 2020, 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,
	2018 (1)			2019 (1)			2020
	(in thousands of Pesos)
To the non-financial government sector		3,721,504			8,781,948			3,614,805
To the financial sector (2)		11,782,284			5,418,129			1,839,256
To the non-financial private sector and foreign residents
Overdrafts (3)		35,380,647			50,560,558			17,075,339
Documents (4)		50,718,074			26,770,518			26,175,074
Mortgages loans		26,454,319			17,343,262			13,483,225
Pledged loans (5)		8,995,455			5,454,693			3,258,583
Consumer loans (6)		179,799,276			133,060,762			130,968,712
Other loans		52,352,393			38,638,762			50,717,508
Accrued Interest, adjustments, foreign exchange and quoted price differences receivables		14,450,861			21,064,199			19,761,105
Other financing		1,733,507			1,516,781			1,799,552
Less: Unearned discounts		(2,060,576	)		(976,070	)		(1,343,842	)
Less: Allowances		(8,102,857	)		(6,901,953	)		(9,928,122	)
Total Loans and other financing		375,224,887			300,731,589			257,421,195

(1) Figures adjusted for inflation as of December 31, 2020. See “Presentation of certain financial and other information.”

(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.

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(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 the non-financial private sector.

(5) Includes the principal amounts actually lent of automobile and other collateral granted, for which the obligor is part of the non-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 loans and other financing portfolio

The following table analyzes our loans and other financing portfolio as of December 31, 2020 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.

	Maturing
	Amount as of December 31, 2020			Within 1 Year			After 1 Year but Within 5 Years			After 5 Years
	(in thousands of Pesos, except percentages)
To the non-financial government sector		3,611,609			1,796,038			1,815,571			—
To the financial sector (1)		1,839,256			1,236,222			603,034			—
To the non-financial private sector and foreign residents
Overdrafts (2)		17,341,905			17,341,905			—			—
Documents (3)		26,147,162			24,371,417			1,775,745			—
Mortgages loans		25,402,728			4,997,816			4,084,133			16,320,779
Pledged loans (4)		3,325,777			2,400,479			925,298			—
Consumer loans (5)		134,583,258			85,600,923			48,537,648			444,687
Other loans		53,264,758			47,734,391			4,986,347			544,020
Other financings		1,832,864			1,146,159			686,043			662
Total Loans and other financing		267,349,317			186,625,350			63,413,819			17,310,148
Percentage of total loans and other financing portfolio		100	%		70	%		24	%		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 the non-financial private sector.

(4) Includes the principal amount actually lent of automobile and other collateral granted, for which the obligor is part of the non-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 financing

The following table presents the interest rate sensitivity of our outstanding loans and other financings with maturities over one year as of December 31, 2020:

	As of December 31, 2020
Loans and other financing with maturities over one year:
Variable Rate
To the non-financial government sector		1,815,315
To the financial sector
To the non-financial private sector and foreign residents		21,816,303
Total		23,631,618
Fixed rate
To the non-financial government sector		256
To the financial sector		603,034

104

	As of December 31, 2020
To the non-financial private sector and foreign residents		56,489,059
Total		57,092,349
Total Loans and other financing with maturities over one year		80,723,967
Loans and other financing with terms of less than 1 year:
To the non-financial government sector		1,796,038
To the financial sector		1,236,222
To the non-financial private sector and foreign residents		183,593,090
Total loans and other financing with terms of less than 1 year		186,625,350
Total Loans and other financing		267,349,317

Loans and other financing — portfolio classification

The following table presents our loan portfolio, 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, 2020, 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, 2020 and 2019.

	As of December 31,
Loans and other financing Portfolio	2018 (1)				2019 (1)				2020
	(in thousands of Pesos, except percentages)
Classification
1 - Normal situation/Performing		371,140,706	96.82	%		298,425,968	97.00	%		262,110,593	98.04	%
2 - Subject to special monitoring – in observation – in negotiation or with rollover agreement/Low risk		4,788,900	1.25	%		2,599,998	0.85	%		3,084,688	1.15	%
3 - Troubled/Medium risk		4,300,877	1.12	%		2,019,629	0.66	%		298,770	0.11	%
4 - With high risk of insolvency/High risk		2,605,130	0.68	%		3,967,530	1.29	%		471,548	0.18	%
5 - Irrecoverable		490,237	0.13	%		620,060	0.20	%		1,383,655	0.52	%
6 - Irrecoverable according to Central Bank’s Rules		1,894	0.00	%		357	0.00	%		63	0.00	%
Total Loans and other financing		383,327,744	100.00	%		307,633,542	100.00	%		267,349,317	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 adjusted for inflation as of December 31, 2020. See “Presentation of certain financial and other information”-

Non-performing loans and other financings

The following table presents our non-performing loans and other financing portfolio determined in accordance with the Central Bank Rules, before deduction of the allowance for loans and other financing losses. As of December 31, 2018, 2019 and 2020 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.

	As of December 31,
Non-performing Loans and other financings	2018 (1)		2019 (1)		2020
	(in thousands of Pesos)
With preferred guarantees		1,129,067		1,065,218		923,731
Unsecured		6,269,071		5,542,358		1,230,305
Total non-performing loans and other financings		7,398,138		6,607,576		2,154,036

(1) Figures adjusted for inflation as of December 31, 2020. See “Presentation of certain financial and other information.”

105

For additional information of credit risk and credit quality please see note 51.1 to our audited consolidated financial statements as of December 31, 2019 and 2020.

Analysis of the allowance for loan losses and other financing

The allowances for the year 2018, 2019 and 2020 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 for the years ended December 31, 2018, 2019 and 2020:

	Commercial portfolio			Consumer portfolio			Total
	(in thousands of Pesos)
ECL of January 1, 2018		1,280,726			7,018,374			8,299,100
Assets originated or purchased		1,393,338			5,127,962			6,521,300
Assets derecognized or repaid		(370,507	)		(2,561,357	)		(2,931,864	)
Amounts Written Off		(122,528	)		(644,507	)		(767,035	)
Monetary effects		(604,173	)		(2,414,471	)		(3,018,644	)
As of December 31, 2018		1,576,856			6,526,001			8,102,857

	Commercial portfolio			Consumer portfolio			Total
	(in thousands of Pesos)
ECL as of January 1, 2019		1,576,856			6,526,001			8,102,857
Assets originated or purchased		2,676,131			3,354,324			6,030,455
Assets derecognized or repaid		(1,127,543	)		(1,991,548	)		(3,119,091	)
Amounts Written Off		(53,722	)		(1,260,472	)		(1,314,194	)
Monetary effects		(875,360	)		(1,922,714	)		(2,798,074	)
As of December 31, 2019		2,196,362			4,705,591			6,901,953

	Commercial portfolio			Consumer portfolio			Total
	(in thousands of Pesos)
ECL as of January 1, 2020		2,196,362			4,705,591			6,901,953
Assets originated or purchased		1,884,954			6,166,843			8,051,797
Assets derecognized or repaid		(1,175,031	)		(540,367	)		(1,715,398	)
Amounts Written Off		(329,807	)		(760,077	)		(1,089,884	)
Monetary effects		(513,686	)		(1,706,660	)		(2,220,346	)
At December 31, 2020		2,062,792			7,865,330			9,928,122

Allocation of the allowances for loans and other financing losses

The following table allocates the allowance for loans and other financing 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, 2018, 2019 and 2020. The allowances for the year 2018, 2019 and 2020 were calculated based on the expected credit loss according to IFRS.

	As of December 31,
	2018 (1)				2019 (1)				2020
	(in thousands of Pesos, except percentages)
Overdrafts		557,321	6.88	%		1,050,649	15.22	%		677,491	6.82	%
Documents		1,099,515	13.57	%		500,036	7.24	%		518,062	5.22	%
Mortgage loans		519,971	6.42	%		521,477	7.56	%		693,552	6.99	%
Pledged loans		439,895	5.43	%		175,691	2.55	%		131,784	1.33	%
Consumer Loans		4,603,059	56.81	%		3,581,776	51.90	%		6,300,828	63.46	%
Other loans		871,384	10.75	%		1,054,428	15.28	%		1,572,853	15.84	%
Other financings		11,712	0.14	%		17,896	0.26	%		33,552	0.34	%
TOTAL ALLOWANCES		8,102,857	100.00	%		6,901,953	100.00	%		9,928,122	100.00	%

(1) Figures adjusted for inflation as of December 31, 2020. See “Presentation of certain financial and other information.”

106

Loans and other financing by economic activities

The table below analyzes our loans and other financing portfolio according to the borrowers’ main economic activity as of December 31, 2018, 2019 and 2020.

	As of December 31,
	2018 (1)					2019 (1)					2020
	(in thousands of Pesos, except percentages)
	Loans and other financing Portfolio		% of Loans and other financing Portfolio			Loans and other financing Portfolio		% of Loans and other financing Portfolio			Loans and other financing Portfolio		% of Loans and other financing Portfolio
Retail Loans		175,075,367		45.65	%		131,081,538		42.62	%		122,287,957		45.73	%
Agricultural livestock- Forestry – Fishing – Mining – Hunting		53,557,466		13.97	%		45,127,709		14.67	%		40,902,245		15.30	%
Construction		8,077,143		2.11	%		3,766,023		1.22	%		4,907,053		1.84	%
Other services		8,915,917		2.33	%		7,880,691		2.56	%		8,633,759		3.23	%
Retail and consumer products		26,086,605		6.81	%		20,066,624		6.52	%		23,785,985		8.90	%
Foodstuff and beverages		20,955,808		5.47	%		29,609,323		9.62	%		14,940,547		5.59	%
Financial services		15,154,123		3.95	%		10,671,997		3.47	%		6,358,074		2.38	%
Governmental services		8,240,241		2.15	%		12,650,808		4.11	%		8,213,611		3.07	%
Real estate, business and leases		4,895,350		1.28	%		5,073,366		1.65	%		10,420,474		3.90	%
Transportation, storage and communications		6,633,375		1.73	%		11,698,001		3.80	%		12,057,459		4.51	%
Manufacturing and wholesales		18,612,236		4.86	%		5,113,454		1.66	%		3,500,618		1.31	%
Chemicals		11,084,492		2.89	%		12,141,614		3.95	%		2,095,200		0.78	%
Electricity, oil, water		5,560,172		1.45	%		3,591,549		1.17	%		1,340,790		0.50	%
Hotels and restaurants		487,362		0.13	%		342,234		0.11	%		927,217		0.35	%
Other		19,992,087		5.22	%		8,818,611		2.87	%		6,978,328		2.61	%
Total Loans and other financings		383,327,744		100	%		307,633,542		100	%		267,349,317		100	%

(1) Figures adjusted for inflation as of December 31, 2020. See “Presentation of certain financial and other information.”

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, 2018, 2019 and 2020.

	Year Ended December 31,
	2018 (1)		2019 (1)		2020
	(in thousands of Pesos)
Deposits in Domestic Bank Offices
Non-interest bearing Demand Deposits (2)
Average
Pesos		72,113,270		64,515,508		84,660,649
Foreign currency		3,770,021		25,763,921		19,865,246
Total		75,883,291		90,279,429		104,525,895
Non-interest bearing Other Deposits
Average
Pesos		8,249,329		6,166,636		7,089,762
Foreign currency		2,496,411		2,336,491		2,211,323

107

	Year Ended December 31,
	2018 (1)			2019 (1)			2020
	(in thousands of Pesos)
Total		10,745,740			8,503,127			9,301,085
Savings Accounts
Average
Pesos		74,956,857			59,832,705			72,820,159
Foreign currency		57,865,978			38,696,256			25,559,334
Total		132,822,835			98,528,961			98,379,493
Average real rate
Pesos		(31.62	%)		(33.44	%)		(23.90	%)
Foreign currency		36.40	%		3.00	%		3.21	%
Total		(1.99	%)		(19.13	%)		(16.86	%)
Time Deposits
Average
Pesos		187,969,770			178,142,237			187,372,235
Foreign currency		53,459,214			71,932,711			33,519,854
Total		241,428,984			250,074,948			220,892,089
Average real rate
Pesos		(12.60	%)		(6.87	%)		(5.69	%)
Foreign currency		39.10	%		6.15	%		4.64	%
Total		(1.15	%)		(3.12	%)		(4.12	%)
Deposits in Foreign Bank Offices
Non-interest bearing Demand Deposits
Average
Pesos		—			—			—
Foreign currency		3,500,635			2,806,197			12,008,651
Total		3,500,635			2,806,197			12,008,651

(1) Figures adjusted for inflation as of December 31, 2020. See “Presentation of certain financial and other information.”

(2) Non-interest-bearing demand deposits consist of checking accounts.

Maturity of deposits at December 31, 2020

The following table sets forth information regarding the maturity of our deposits at December 31, 2020.

	Maturing
	Total		Within 3 Months (1)		After 3 but within 6 months		After 6 but within 12 months		After 12 months
			(in thousands of Pesos)
Checking accounts		97,663,907		97,663,907		—		—		—
Savings accounts		138,844,482		138,844,482		—		—		—
Time deposits		222,523,353		218,246,156		3,671,296		584,731		21,170
Investment accounts		23,129,041		19,869,546		1,435,135		1,824,360		—
Other		6,580,580		6,580,293		—		36		251
Total Deposits		488,741,363		481,204,384		5,106,431		2,409,127		21,421

(1) Includes a total amount of Ps. 238,381,658 corresponding to deposits without due date.

Maturity of outstanding time deposits and investment accounts in amount of U.S.$100,000 or more at December 31, 2020

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, 2020.

108

	Total		Within 3 Months		Maturing After 3 but Within 6 Months		After 6, but Within 12 Months		After 12 Months
	(in thousands of Pesos)
Domestic Bank Offices
Time deposits		95,630,000		93,973,557		1,465,101		191,342		—
Investment accounts		22,319,025		19,087,441		1,411,584		1,820,000		—
Total		117,949,025		113,060,998		2,876,685		2,011,342		—

Return on equity and assets

The following table presents certain selected financial information and ratios for the years indicated.

	Year Ended December 31,
	2018 (1)			2019 (1)			2020
	(in thousands of Pesos, except percentages)
Net income/(loss) from continuing operations		(1,499,719	)		28,205,313			26,154,694
Average total assets		721,940,074			689,245,775			701,537,652
Average shareholders’ equity		145,873,310			131,879,530			146,585,823
Shareholders’ equity at the end of the fiscal year		127,560,957			144,392,831			151,545,811
Net income/(loss) from continuing operations as a percentage of:
Average total assets		(0.21	%)		4.09	%		3.73	%
Average shareholders’ equity		(1.03	%)		21.39	%		17.84	%
Declared nominal cash dividends (2)		6,393,978			12,788,268	(3)		—
Dividend payout ratio (4)		40.53	%		31.34	%		—
Average shareholders’ equity as a percentage of Average total assets		20.21	%		19.13	%		20.89	%

(1) Figures adjusted for inflation as of December 31, 2020. See “Presentation of certain financial and other information.”

(2) Figures not restated.

(3) In addition to the dividend approved by the shareholder´s meeting held on April 30, 2020, the shareholder’s meeting held on October 21, 2020 resolved to approve a complementary dividend for a total amount of Ps. 3,791.7 million subject to prior authorization of the Central Bank. Pursuant to Communication “A” 7181 of the Central Bank, dividend distributions by financial entities have been suspended at least until June 30, 2021.

(4) Declared nominal cash dividends stated as percentage of net income calculated under Central Bank Rules. Net income calculated under Central Bank Rules as of December 31, 2018 of Ps. 15,776,892, as December 31, 2019 of Ps. 40,800,410 and as December 31, 2020 of Ps. 30,269,354.

109

Short-term borrowings

Our short-term borrowings totaled approximately Ps. 38,675.3 million, Ps. 32,799.9 million, and Ps. 52,511.1 for the years ended December 31, 2018, 2019 and 2020, respectively. The table below shows the breakdown of those amounts at the end of each year:

	2018 (1)					Year Ended December 31, 2019 (1)					2020
	Amount		Annualized Nominal Rate			Amount		Annualized Nominal Rate			Amount		Annualized Nominal Rate
	(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		5,921,816		10.99	%		2,804,179		5.80	%		880,532		14.36	%
Average during year (2)		4,314,289		9.70	%		2,059,767		8.56	%		934,591		9.35	%
Maximum month-end balance (3)		7,243,823					5,334,660					1,651,053
Issued Corporate Bonds:
Total amount outstanding at the end of the reported period		640,333		47.87	%		340,514		23.27	%		2,549,205		35.87	%
Average during year (2)		686,304		27.04	%		250,119		23.36	%		2,242,330		34.24	%
Maximum month-end balance (3)		847,533					1,006,973					4,227,734
Subordinated Corporate Bonds:
Total amount outstanding at the end of the reported period		345,696		6.75	%		481,479		6.75	%		642,292		6.75	%
Average during year (2)		473,680		6.75	%		353,663		6.75	%		879,427		6.75	%
Maximum month-end balance (3)		916,624					1,069,523					1,612,208
Other Financial Liabilities:
Total amount outstanding at the end of the reported period		31,767,483		0.01	%		29,173,776		0.02	%		48,439,088		0.02	%
Average during year (2)		24,115,955		0.02	%		21,429,153		0.03	%		37,095,915		0.02	%
Maximum month-end balance (3)		31,774,751					29,674,007					65,944,974
Total short-term borrowings		38,675,328					32,799,948					52,511,117

(1) Figures adjusted for inflation as of December 31, 2020. See “Presentation of certain financial and other information.”

(2) Average balances are calculated from quarterly-end balances.

(3) Maximums are calculated from quarterly-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, 2020. Variations in interest rate sensitivity may also arise within the repricing periods presented.

	Remaining Maturity at December 31, 2020
	0-1 Year		1-5 Years		5-10 Years		Over 10 years		Without due date		Total
	(in thousands of Pesos)
Interest-earning assets:
Loans and other financing to non-financial Public Sector		1,799,115		1,815,499		—		—		—		3,614,614
Loans and other financing to non-financial Private Sector and Foreign Residents		175,832,326		59,282,238		2,690,440		14,176,977		—		251,981,981

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	Remaining Maturity at December 31, 2020
	0-1 Year			1-5 Years			5-10 Years			Over 10 years			Without due date			Total
	(in thousands of Pesos)
Loans and other financing to other Financial Entities		1,145,313			679,287			—			—			—			1,824,600
Other Debt Securities		186,215,308			22,369,302			455,212			79,111			—			209,118,933
Total Interest-Earning Assets		364,992,062			84,146,326			3,145,652			14,256,088			—			466,540,128
Interest-bearing liabilities:
Non-financial Public Sector deposits		41,943,837			—			—			—			—			41,943,837
Non-financial Private Sector and Foreign Residents deposits		327,526,983			21,125			45			—			—			327,548,153
Financing received from the Central Bank of Argentina and other financial entities		880,532			38,571			—			—			—			919,103
Issued Corporate Bonds		2,549,205			2,377,696			—			—			—			4,926,901
Subordinated Corporate Bonds		642,292			—			33,658,000			—			—			34,300,292
Repo Transactions		618,572			—			—			—			—			618,572
Total Interest-Bearing Liabilities		374,161,421			2,437,392			33,658,045			—			—			410,256,858
Asset (Liability) Gap		(9,169,359	)		81,708,934			(30,512,393	)		14,256,088			—			56,283,270
Cumulative Asset/Liability Gap		(9,169,359	)		72,539,575			42,027,182			56,283,270			56,283,270
Cumulative sensitivity gap as a percentage of total interest-earning assets		(1.97	%)		15.55	%		9.01	%		12.06	%		12.06	%
Interest-earning assets in Pesos
Loans and other financing to non-financial Public Sector		1,799,115			1,815,499			—			—			—			3,614,614
Loans and other financing to non-financial Private Sector and Foreign Residents		159,325,515			52,466,425			2,690,440			14,176,977			—			228,659,357
Loans and other financing to other Financial Entities		1,124,079			679,287			—			—			—			1,803,366
Other Debt Securities		180,773,954			22,279,512			96,054			79,111			—			203,228,631
Total Interest-Earning Assets in Pesos		343,022,663			77,240,723			2,786,494			14,256,088			—			437,305,968
Interest-bearing liabilities in Pesos
Non-financial Public Sector deposits		41,163,487			—			—			—			—			41,163,487
Non-financial Private Sector and Foreign Residents deposits		274,061,073			20,754			2			—			—			274,081,829
Financing received from the Central Bank of Argentina and other financial entities		410,918			38,571			—			—			—			449,489
Issued Corporate Bonds		2,549,205			2,377,696			—			—			—			4,926,901
Repo Transactions		618,572			—			—			—			—			618,572
Total Interest-Bearing Liabilities in Pesos		318,803,255			2,437,021			2			—			—			321,240,278
Asset (Liability) Gap		24,219,408			74,803,702			2,786,492			14,256,088			—			116,065,690
Cumulative Asset/Liability Gap		24,219,408			99,023,110			101,809,602			116,065,690			116,065,690
Cumulative sensitivity gap as a percentage of total interest-earning assets		5.54	%		22.64	%		23.28	%		26.54	%		26.54	%
Interest-earning assets in foreign currency
Loans and other financing to non-financial Private Sector and Foreign Residents		16,506,811			6,815,813			—			—			—			23,322,624
Loans and other financing to other Financial Entities		21,234			—			—			—			—			21,234
Other Debt Securities		5,441,354			89,790			359,158			—			—			5,890,302
Repo Transactions		—			—			—			—			—			—
Total Interest-Earning Assets		21,969,399			6,905,603			359,158			—			—			29,234,160

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	Remaining Maturity at December 31, 2020
	0-1 Year			1-5 Years			5-10 Years			Over 10 years			Without due date			Total
	(in thousands of Pesos)
Interest-bearing liabilities in foreign currency
Non-financial Public Sector deposits		780,350			—			—			—			—			780,350
Non-financial Private Sector and Foreign Residents deposits		53,465,910			371			43			—			—			53,466,324
Financing received from the Central Bank of Argentina and other financial entities		469,614			—			—			—			—			469,614
Subordinated Corporate Bonds		642,292			—			33,658,000			—			—			34,300,292
Total Interest-Bearing Liabilities		55,358,166			371			33,658,043			—			—			89,016,580
Asset (Liability) Gap		(33,388,767	)		6,905,232			(33,298,885	)		—			—			(59,782,420	)
Cumulative Asset/Liability Gap		(33,388,767	)		(26,483,535	)		(59,782,420	)		(59,782,420	)		(59,782,420	)
Cumulative sensitivity gap as a percentage of total interest-earning assets		(114.21	%)		(90.59	%)		(204.50	%)		(204.50	%)		(204.50	%)

(1) Includes instruments issued by the Central Bank.

(2) 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, 2020 and 2019 have been prepared in accordance with the IFRS as issued by the IASB.

Additionally, our consolidated financial statements as of December 31, 2020 and 2019 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

Year 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.

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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 a year-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.

For 2018 global growth pointed to 3.1%, measured on a year-on-year basis, in line with the figures posted for 2017. Advanced economies showed a slightly lower growth in comparison to 2017. The United States accounted for the largest portion of such growth. Meanwhile, there was a slowdown in the Euro zone, the United Kingdom and Japan. Concerning emerging economies, the growth in 2018 stayed at a level that is similar to that recorded in 2017 and, as was also the case with advanced economies, performance was heterogeneous.

The United States’ economy grew 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 grew at a 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 were 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 growth 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 slowdown in China would be offset by a further expansion in the Indian economy. India is an economy that supplements the Argentine economy quite nicely, and the Argentine government 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 the two-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.

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.

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.

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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 step-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 U.S. dollar and the Argentine Peso 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 yearly.

There were various 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 U.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 U.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 more information about the 2018 IMF Agreement, please see “Risk Factors—Risks relating to Argentina— 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.”

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 47.64% 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 Argentine 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.

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Given this scenario, the country’s net public debt was approximately 44% of GPD at the end of 2018, which represented a 28.4% increase vis-à-vis the figure posted a year earlier.

Year 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 by mid-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 the 2008-09 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 the COVID-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.

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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 regard 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.

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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 forecasted a 5.7% contraction of the Argentine GDP in 2020, lower than the region average (a contraction of 5.% 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 the Frente 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 the Frente de Todos coalition 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.

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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 the Ente Nacional Regulador de la Electricidad (ENRE) and the Ente Nacional Regulador del Gas (ENERGAS) for a one-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 the Impuesto 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 of pre-paid imported goods purchased form unrelated suppliers within 90 days. The pre-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.$50 per-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.

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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.

Year 2020

In December 2019, COVID-19 was reported in Wuhan, China, and the World Health Organization declared COVID-19 a pandemic on March 11, 2020. In 2020, global GDP fell by 3.5% according to IMF estimates, with a drop of 4.9% in developed markets and 2.4% in emerging markets. Regarding emerging markets, the decrease was not comparable to that of developed markets’ due to China’s fast recovery. China ended 2020 with a 2.3% increase of GDP, while the United States, the Eurozone, the United Kingdom, Japan, India and Latin America all suffered drops of GDP by 3.4%, 7.2%, 10%, 5.1%, 8% and 7.4%, respectively.

Virtually all countries had swift and strong responses to the COVID-19 pandemic, with important fiscal measures aimed at securing revenues for individuals and business that had to close or downsize. Therefore, fiscal deficits in many countries reached historic highs, as did debt-to-GDP ratios. Meanwhile, the central banks of the major countries lowered the benchmark interest rate to almost zero, enabling many countries and companies to obtain cheap financing. Moreover, many countries implemented highly expansionary monetary policies to provide additional liquidity to their economies.

The COVID-19 pandemic mostly affected the services sector, particularly everything related to tourism, leisure, events and culture, which came to a near-total standstill. Goods manufacturers suffered relatively less and, despite decreases, and the effects of the second wave of infections, manufacturing output in many countries is in expansionary territory in contrast to services which remain in negative.

The IMF forecasts for 2021 a global GDP recovery of 5.5% year-on-year, with a growth of 6.3% in emerging markets, and 4.3% among developed countries. The United States is expected to grow 5.1% and the Eurozone would lag behind with 4.2% and continue to lose share of the world GDP. Among the large emerging economies, India would lead the recovery with more than 11%, followed by China with 8.1%. Latin America would recover with an increase of 4.1%, which implies a decrease by 3.6% if taken 2020 and 2021 as a whole. The region as a whole is unlikely to recover in 2022 the level of activity reached in 2019, although Brazil, the region’s most important economy to Argentina, may do so as it is expected to grow 3.5% in 2021, after a 4.5% drop in 2020. Argentina, Mexico and Peru are facing a much more difficult outlook.

The United States’ economy fell 2.5% in 2020 relative to 2019, but showed greater volatility throughout the year, basically in line with the evolution of the COVID-19 pandemic. In the second quarter of 2020, the economic activity fell at an annualized rate of 31.4% before recovering by 33.4% in the third quarter and maintaining a much more moderate annualized growth rate of 4% in the last quarter of the 2020 year. Unemployment rose from 4% to 14% in the first month of the health crisis, and then stagnated below 7% for the rest of the year. Inflation ended at 1.4% and, although it accelerated in the last months of the year, it remains below the 2% annual rate set by the monetary authorities as a benchmark for managing monetary policy and eventually tapering the stimulus programs in place.

The United States’ elections may also have had an impact on the economy. However, the financial markets showed no significant signs of concern and expected a recovery of the economy. With Joe Biden’s victory and the control of Congress by the Democratic Party, it is expected that measures to address the pandemic will be intensified and aid programs will be renewed in a framework in which the United States will return to an attitude of greater openness and commitment to global concerns and, particularly, regarding the western hemisphere’s countries.

The first wave of the COVID-19 infections hit several European countries relatively hard, particularly Italy and Spain, which suffered from the collapse of health systems in some of the worst affected regions. Both the United Kingdom and most of the countries in Europe have introduced restrictive measures on the movement of their populations that have affected both their economies and that of the continent.

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In the second quarter of 2020, the Eurozone fell 14.7% as from the same period a year earlier. Unemployment climbed from 7.2% in February 2020 to a peak of 8.7% in July. Inflation, which had ended 2019 at 1.3%, turned into deflation as the COVID-19 pandemic’s impact on the economy progressed. Since August 2020, prices for the last 12 months showed declines and inflation closed at negative 0.3% with core inflation still positive at 0.2% and food at 0.9%. In almost all major Europeans countries interest rates for sovereign debt are negative. Other debtors that were once considered risky, such as Portugal and Greece, are getting financing at rates close to 0%.

Brazil performed better than most countries in the region, with a fall of around 4.5%. Although the COVID-19 pandemic hit hard in many parts of the country, the restrictions were relatively less than in other countries in the region. With an interest rate of 2% (negative in real terms), Brazil started the recovery and is expected to continue strongly, leveraged by good commodity export prices. While down somewhat from the peak of 14.6%, unemployment in Brazil remains high at 14.1% as of November 2020.

The early shutdown of many parts of China in the early 2020 affected global value chains and generated input shortages in several sectors of the global productive apparatus. Nevertheless, the policies of the Chinese government, which were initially very restrictive, enabled a rapid return to a certain degree of normality. China closed 2020 growing at a year-on-year rate of 6.5%, in line with its pre-pandemic growth. Unemployment also returned to pre-pandemic levels while inflation fell to 5.4% year-on-year in January to 0.2% year-on-year in December (12 months period).

Stock markets around the world ended the year positive, despite the pandemic and the global recession. The Standard & Poor’s 500 index increased 16.3% driven by technology companies. The Nasdaq index increased 43.6%, the highest in a decade. Markets took a big tumble at the start of the COVID-19 pandemic, but by the end of the second quarter they had recovered their losses and optimism prevailed. This contrasts with negative values for European stock markets. The old continent has less technology components and a high preponderance of tourism, a sector very affected by the COVID-19 pandemic. The Stoxx 600 index drop by 3.8%. The United Kingdom index FTSE fell 14%, the French CAC 40 lost 7%, the Milan Stock Exchange index gave up 5.4% of its value in 2020, while the German DAX was the only positive performer with a 3.5% increase, but underperformed United States stocks.

Fixed income markets also had their share of volatility. The interest rate on the 10-year United States Treasury bond started at 1.8% to fall to 0.6% at the peak of the pandemic to close the year above 1%. This is still a negative yield in real terms, but it began to reflect expectations of some normalizations of the United States economy and, eventually higher inflation. The yield on the 30-year Treasury bond is close to 2% per annum, while debt with a maturity of less than 2 years has been stable at around 0.1% per annum. As mentioned above, most large European countries have negative bond yields. In a second group is Spain, with virtually zero returns while Italy pays around 0.6% per annum on its 10-year debt.

Commodities were also volatile during 2020, although they closed the year with improvements. The price of oil plummeted at the beginning of the pandemic to the point that WTI futures traded at negative values, but then recovered to end the year almost as it began, above U.S.$50 per barrel. OPEC countries agreed to cut production to stabilize prices. Gold had an auspicious start, with a peak in August at U.S.$ 2,000 per ounce, which it did not reached again. Among agricultural commodities, soybeans, Argentina’s main crop, averaged U.S.$ 349 per ton, but ended the year close to U.S.$ 500. Corn started the year at 385 cents per bushel and closed at 511 cents.

Among industrial commodities, copper started the year at U.S.$ 2.64 per pound and then fell to a low U.S.$2.10, to close the year at U.S.$3.60.

Part of the good performance of commodities is associated with the weakness of the U.S. Dollar, which went from 1.09 per euro to 1.21 at the end of last year. This also helped strengthen emerging currencies as commodity producers.

With the Economic Emergency Law passed at the end of 2019, the Argentine government sought to improve the fiscal situation by increasing taxes, de-indexing pension spending, restructuring public debt services and betting on the positive impact of the reactivation of the economy.

The economic plan put in place by the Economy Minister Martín Guzmán was basically focused on the short term, as it included emergency measures. Export taxes were increased, a 30% tax on purchases and consumption in foreign currency was imposed, and the rate of personal property tax was increased and income from fixed-term deposits and public debt securities in local currency was eliminated from the income tax base. Regarding expenditure, the main novelty was the suspension until December 31, 2020, the Pension Mobility Law, replacing it with a discretionary regime for increases controlled by the executive branch. By means of Resolution 3/2021, the executive branch established a new formula to calculate the necessary pension adjustments on a trimestral basis with effects from March 1, 2021.

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In terms of public debt, the executive branch decided to restructure the maturities of treasury bills issued in U.S. Dollars to institutional investors until August, while continuing to pay the maturities of bills issued in Pesos, and taking advantage of the market conditions at that time, the Ministry of Economy successfully reopened the placement of the latter.

The Fernández government dedicated its first months to containing the social and economic situation, while seeking to gain time for the restructuring of the foreign debt. Days before the announcement of the lockdown, Economy Minister Guzmán and Production Minister Kulfas had presented an emergency economic package, which included special bonuses for retirees with minimum pensions and social assistance beneficiaries, an increase in unemployment insurance, a public infrastructure plan and a 30-day price freeze on basic goods, as well as a freeze on utility rates.

Nevertheless, the economic and social reality changed dramatically in the second half of March, with the appearance of the first cases of COVID-19 in the country. The crisis resulting from the COVID-19 pandemic and the restructuring of sovereign debt in foreign currency set the agenda for Argentina’s economic policy in 2020. On March 19, 2020, President Fernández announced a compulsory nationwide lockdown that would begin on March 20, and after successive extensions and reconsiderations would formally end only on November 9, 2020.

As most of the developed countries announced fiscal and monetary stimulus packages to cope with the inevitable recession, Argentina launched measures aimed primarily at assisting families. Around 8 million informal and self-employed workers received transfers of Ps.10,000 from ANSES, which implied a fiscal effort of Ps.80 billion. The first transfer was followed by two more as the year progressed. In addition, through the ANSES, a bonus was granted to retirees receiving the minimum wage and the beneficiaries of the universal child allowance and pregnancy allowance, at a total fiscal cost of Ps. 27.5 billion. On the other hand, it launched a program of loan guarantees to companies at an annual rate of 24% for a total of Ps.350 billion in order to help them pay up to 50% of salaries and other current expenses. In this way, the fiscal cost of the package reached 1.2% of GDP in the first month of the nationwide lockdown alone and ended up at around 4% of GDP with the renewals throughout the year.

The social isolation measures deepened the recession that the economic activity had already been experiencing, and led to the largest monthly and year-on-year drops in the INDEC records. For the first time since the beginning of the official records in 2004, the fifteen activity sectors included in the official indicator showed year-on-year declines. Manufacturing industry recorded falls of more than 30%, construction plummeted by more than 80% and wholesale and retail trade fell by more than 25% year-on-year. One of the most affected sectors was the health industry, which fell by more than 30% year-on-year as, with the exception of pandemic-related care, health centers were not very active. In hotels and restaurants, the most affected by the quarantine, the decrease was over 85%.

The Central Bank’s exchange rate policy continued to focus on avoiding big gaps in the U.S. Dollar by intervening the market with its freely available reserves. In this way, the official exchange rate raised at a constant daily rate of 0.09%, increasing almost 18% of its value in the first half of the year, while reserves fell more than U.S.$ 1.5 billion. In this context, the government decided to further tighten exchange controls in June, especially for imports. Importers would have to use their own U.S. Dollars to make payments in foreign currency, before accessing the FX Market, and such an access would be subject to approval by the Central Bank. In addition, access to the FX Market was limited to persons who had made foreign currency purchase transactions through debt instruments denominated in foreign currency (U.S. Dollar MEP and spot with liquidation) in the last 90 days, with a commitment to refrain from these transactions during the following 90 days after accessing the official market. On the other hand, the monetary entity relaxed exchange controls for SMEs and some key imports (medicines and fertilizers for the agricultural sector). In this way, the Central Bank was able to buy U.S.$ 672 million during June, although it returned to selling reserves in July after a modest easing of exchange controls.

Prior to the nationwide lockdown in February, the Central Bank extended the maturities of its main liquidity-absorbing instrument, LELIQs, from 7 to 28 days while pushing forward a progressive path of lower interest rates. The monetary policy rate fell from 55% at the end of 2019 to 36% in March, while the Badlar rate on private banks’ wholesale deposits fell from 40% to 29.3%. The financing of the fiscal deficit, increased by the pandemic aid package, led to a strong issuance of cash that conditioned the Central Bank’s monetary policy and, as a by-product of exchange controls, had an impact on the U.S. Dollar rate in the “blue” or parallel market. From April onwards, rates began to rise again, and in June the Central Bank raised the interest rate on time deposits to 30.02%, seeking to sustain the demand for Pesos and reduce the pressure on the exchange rate gap.

Amid efforts to contain the COVID-19 crisis, on May 22, 2020, Argentina defaulted for ninth time in its history its sovereign debt. Through negotiations that required the government to review and extend the swap proposal and the maturity of the offer several times, on August 4 an agreement was reached with holders of 93.5% of the total eligible debt (U.S.$65 billion issued under foreign law) which, by triggering collective action clauses, raised overall acceptance to 99%. Meanwhile, the EMBI country risk indicator, which had reached over 4,300 points in March, stood at around 2,800 points, amid growing expectations of an agreement. In parallel, the government carried out the restructuring of bonds issued under Argentinean law for a value of an equivalent of U.S.$ 41.7 billion with the same conditions offered to those issued under foreign law, achieving an acceptance of 99.4% of the eligible debt.

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As a result, a financial relief of almost U.S.$35 billion was achieved over the next decade through the reduction of interest rates and the lengthening of maturities for both interest and principal services, especially for the next three years. The EMBI country risk indicator, meanwhile, fell slightly and stabilized at around 2,000 points.

Despite the successful debt restructuring, problems on the foreign exchange front continued to drain the Central Bank’s reserves. In response, it decided to intervene the market by selling bonds denominated in U.S. Dollar that would come from the restructuring and further tightening restrictions on access to the official FX Market. As a result such measures, companies with monthly maturities of financial debt in excess of U.S.$1 million could only cover 40% of these maturities in the official FX Market and had to negotiate new terms for the remaining debt with an average maturity of up to two years. In addition, a 35% withholding on account of income tax and personal property tax will be applied to those who buy the permitted quota of U.S.$200 per month in the FX Market for personal savings. From the US$ 200 monthly quota, credit card payments and tourist expenses would now have to be deducted, while foreigners would no longer be able to access the foreign currency bond market to settle them abroad, among other restrictive measures.

These measures were taken in a context in which the Central Bank had had to triple the liquidation of reserves in the market from U.S.$568 million in July to U.S.$ 1,618 million in September. Export taxes on soybeans were temporarily reduced to encourage exporters to settle in more foreign exchange, but the pressure on the Central Bank’s reserves remained significant. The gap between the official exchange rate and the quotation of the currency in the MEP and spot markets, which had been very volatile since the beginning of August 2020, raised to around 80%. As for equities, the S&P Merval measured in Pesos contracted by more than 20% in a month and a half and 30% measured in U.S. Dollars, among other factors because it was interpreted that the latest measures would decisively affect private companies’ access to the FX Market.

However, the financial markets stabilized with the announcement of the government’s intention to cover the fiscal gap in November and December without resorting to temporary financial advances from the Central Bank, and successfully rolling over debt maturities in the domestic market. To this end, the Treasury issued new debt tied to the evolution of the U.S. Dollar and inflation and, through two swaps of U.S.$750 million each, allowed foreign investors to exchange Peso-denominated instruments for U.S. Dollar-denominated bonds. In parallel, the Central Bank continued to intervene in the futures market and sold bonds in conjunction with ANSES to provide liquidity to the bond markets used to buy foreign exchange.

With tighter controls on imports and relative tranquility in the FX Market, the Central Bank was able to buy back foreign exchange denominated reserves in early November. Net intervention in the month remained negative (U.S.$ 327 million), although well below October, September or August, when the Central Bank sold more than US$1 billion per month. Likewise, gross international reserves growed up to U.S.$39 billion in mid-November, although U.S. Dollar deposits grew by U.S.$23 million after two months of decreases of over U.S.$ 1 billion.

In December, the raise of the U.S. Dollar and the strengthening of the main emerging markets’ currencies, especially the Brazilian Real, contributed to the calmness in the local FX Market. The demand for Pesos began to rely to the seasonal nature of the end of the year, while U.S. Dollars deposits rose not only because of the relatively calm exchange rate, but also because they are exempt from paying personal property tax on cash holdings at the end of the year. The banks received more than U.S.$ 1.5 billion during the month and closed the year at around U.S.$ 19 billion (private at U.S.$ 16 billion). The Central Bank managed to buy U.S.$ 605 million in the FX Market during December while reserves increased by U.S.$ 757 million to end the year at U.S.$ 39.41 billion, almost U.S.$ 5.4 billion less than at the beginning of 2020. The devaluation of the Peso continued to accelerate so as not to delay the official rate for the U.S. Dollar and the gap with the rest of the exchange markets remained contained. The official exchange rate closed the year at Ps.84.145, 40.5% higher than at the end of 2019, while the U.S. Dollar rates at the MEP, spot and informal markets closed at Ps.139.99 (+93% year-on-year), Ps.140.33 (+88% year-on-year) and Ps.166 (+115% year-on-year), respectively.

December closed with a cumulative inflation of 36.14%. Although it was 17.7 p.p. lower than in 2019, the comparison is not homogeneous since 2020 was a very special year due to the impact of the COVID-19 pandemic and the measures taken to mitigate its consequences. January and February started with a monthly inflation around 2%, which accelerated to 3.3% in March. The official exchange rate rose 3.6% during the third month of the year and this increase, together with significant rises in regulated and seasonal prices, contributed to the acceleration of inflation in March. However, since the launch of the nationwide lockdown, the monthly inflation figures have been slowing down until the easing of restrictions in the middle of the year and abundant liquidity brought the monthly figures down to 3% in the third quarter. The end-of-year consumption, the announced increase in pensions, the rise in oil prices and the transfer to retail prices of the high wholesale inflation, overheated the number for the last month of the year to close at 4% at the general level, 4.9% for core inflation and 4.35% for food.

For its part, economic activity recovered fast after stopping the decrease in April with a 16% drop in the second quarter compared to the first, indicators show a rebound of over 12% in the third quarter.

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Regarding supply, the agriculture industry did not have a significant harvest. Tonnage of the six main crops fell by 9% and the agricultural production and forestry sector as a whole ended the 2020 year with a drop of about 7%. Industrial activity fell by 8%, a couple of percentage points less than the average. Meanwhile, the automotive industry production fell by 18.5%, with the particularity that in the month of April no units were produced during the nationwide lockdown.

Although the pandemic forced an almost total halt of production in April, from May and June onwards production started to recover in unusual circumstances as producers had to face cost overruns due to the transport of personnel, the absenteeism of employees considered at risk and the difficulties inherent to the pandemic situation.

The commercial sector also performed better than average, with a fall of around 6%. This is a result of fewer restrictions and/or the ability to solve the logistical problems caused by the sanitary measures by merchants of food, basic goods, and at certain point in the year, durable goods.

Construction had suffered a high volatile year. Although it fell by around 25% during 2020, in the first months it had fallen by 35%. In recent months there has been a significant recovery in the sector, primarily led by private investment. Lower construction costs in a market traditionally denominated in U.S. Dollars acted as a very effective incentive to boost private construction. Public works also raised in the last quarter of the year.

Regarding demand, investment plummeted by around 20% over the year, although it began to recover towards the end of the year due to private construction. For its part, consumption, which had fallen 2.2% in 2018 and 6.6% in 2019, fell by around 13.5% in 2020, deteriorating in almost all areas. In particular, retail sales closed the year with negative year-on-year records during all months according to data surveyed by the Argentine Chamber of Medium-sized Companies (CAME) and accumulated a drop of 21.3%. For its part, the automotive industry was severely punished and sales of new cars to the domestic market closed 2020 with an accumulated decrease of 16.1%, after plummeting 45.3% in 2019.

On fiscal matters, the government focused its efforts on providing economic assistance to the families and companies most affected by the COVID-19 pandemic, and the package of measures for this purpose amounted to almost 4 points of GDP between increased spending and tax exemptions. For the whole year, a primary deficit of Ps.1,749,957 million was recorded, an equivalent to 6.5% of GDP. Thus, the primary result showed a deterioration of 6.3 p.p. compared to the deficit recorded in 2019 (0.2% of GDP under the current methodology). This increase in the deficit occurred despite the fact that tax revenue grew by more than one point of GDP, from 23.4% to 24.7%, and the share of the national government’s revenue (after tax revenue distribution with the provinces) rose from 16% to 16.4% of GDP. Non-tax revenues fell from 2.4% of GDP to 1.6%.

Total revenues accumulated an increase of 23% year-on-year, well below average inflation for the year (42.7%). Tax revenues rose by 28.2%, led by personal property tax, which grew by more than 500%, following the increase in tax rates. In contrast, export taxes revenues fell by 3.6% in nominal terms, VAT revenues increased by only 21.7%, and Social Security resources by 25.2%.

Primary expenditure closed the year with a nominal increase of 63.5%, which implies a rise of 14.6% adjusted for inflation after four years of consecutive falls in real terms. It also increased 6 p.p. of GDP to 24.5%, although at this point the comparison is relative due to the pandemic situation and because the divisor of the account collapsed and would not be at an equilibrium value. It is clear that expenditure throughout the year has been strongly conditioned by the pandemic. Seasonally adjusted primary expenditure reached very high levels in the second quarter, before falling in the third quarter and returning to the first quarter levels on the fourth quarter of the year with the disappearance of the Emergency Family Income and the Emergency Assistance Program for Work and Production. Nevertheless, public expenditure in the last quarter of the year was much higher than in any of the quarters of the previous year.

Social Security expenditures grew by 67.1%, led by social spending programs which increased fivefold, while pensions and retirement averaged a 40% rise. Capital spending grew by 18.3%, while subsidies increased by 105.9%, well above inflation and as a counterpart to the tariff freeze in force throughout the year. Meanwhile, transfers to the provinces grew by more than 170% to compensate for the lower revenues resulting from the pandemic.

In 2020, the Treasury had to cover a fiscal deficit of 8.5 GDP points, equivalent to around Ps.2.3 trillion. The Treasury obtained net financing of Ps.386 billion, mainly as a result of the debt it managed to place during the second half of the year. More than 70% of maturities in Pesos were concentrated in the first half of the year. Meanwhile, the Central Bank’s monetary issuance to finance the Treasury rose to more than Ps.2 trillion between temporary advances and accounting profit transfers. In return, it sold foreign exchange at the FX Market for a total of Ps. 473 billion and absorbed funds from the financial system through the placement of short-term interest-bearing bonds and passive repos transactions that are renewed on a daily basis for an amount of Ps.1.6 trillion. The monetary base, grew by 30.3% compared to the end of 2019.

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In this scenario, net public debt closed the year at levels close to 53% of GDP, up from a year earlier (43.6%). Gross public debt totaled U.S.$333 billion at the end of 2020. In other words, almost 90% of GDP compared with 72.6% in 2019. While this rise is largely explained by the decrease in the level of activity affecting the denominator, the stock also grew in nominal terms by about U.S.$ 13 billion, equivalent to more than 3% of GDP.

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.

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 U.S. dollar and LELIQs 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 U.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. dollars 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 U.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.

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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 in UVA-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 the year-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 (for 7-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, 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 of non-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.

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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 exports pre-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 a year-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.

In order to adapt to the new economic and social reality, the Argentine government gradually shifted its monetary policy in the course of 2020, starting by reducing Central Bank’s assistance to the Treasury to a minimum and the placement of LELIQs, and then financing the fiscal deficit caused by the expenses originated in the pandemic with almost no limitations. The pressures on the MLC, the monetary imbalance and the insufficient demand for pesos to absorb the surplus liquidity led the Central Bank to intervene not only in the MLC by selling reserves but also to continue placing notes (such as LELIQs) in the financial system to avoid a monetary and exchange overflow.

The monetary base expanded in 2020 by Ps.574,879 million compared to the end of 2019. Assistance to the Treasury represented the main expansionary factor since transitory net advances were granted for Ps.407,720 million, and profits were distributed for Ps.1,606,982 million. As a contractionary factor, Ps.900,692 million were absorbed through LELIQs and Ps.710,187 million through passive repos, remunerated liabilities for which a total of Ps.721,559 billion were paid. The other strongly contractionary item was the sale of reserves to the private sector for Ps.312,175 million and to the public sector for Ps.161,011 million. As expected, the combination of a very expansive money supply in the context of an extraordinary situation and a sharp decrease in economic activity, resulted in significant but probable temporary increases in monetary aggregates relative to GDP. The monetary base went from 6.5% of GDP to 8.1% of GDP at the end of the year, as private M2 ranged from 8.4% to 11.8%.

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The weakness of monetization is not a phenomenon unknown to Argentina and is explained by recurring macroeconomic crises that in the past undermined the confidence of residents in the local currency. For this reason, the Argentine financial system continues to be one of those with the lowest levels of financial intermediation in Latin America, a condition that has deepened in the last two years. Thus, bank credit to the private sector in pesos and US dollars represented only 12.1% of GDP in 2020, while the regional average for the last 10 years was around 40%.

During 2020, deposits (private and public sector) denominated in pesos increased 88.8% in year-on-year terms, while those denominated in US dollars fell 14.2%. In a context of clear abnormality caused by the pandemic, deposits in pesos rose from 13.5% to 17.2% of GDP. In turn, the dollar segment fell again after their strong decline in 2019, falling from US$ 22,138 billion at the end of 2019, to US$ 18,984 million.

In 2020, total private deposits (pesos plus dollars measured in pesos) grew 64.5% year-on-year due to the combination of an average increase of 85.7% in pesos and 13.9% in US dollars (measured in pesos, favored exclusively by the depreciation of the exchange rate). The performance of the private sector segment in pesos was led by savings banks (+106%) and current accounts (+84%), in a scenario in which the liquidity preference dominated the behavior of economic agents. Term deposits, meanwhile, grew by a nominal rate of 66%, which was practically aligned with nominal GDP.

Private deposits in foreign currency registered their largest falls in the months of September and October, after the latest tightening of exchange controls. The fall in September reached US$539 million and that of October reached US$869 million. Throughout the year, the decline was US$2,359 million (closed at US$15,956 million).

The weight of the public sector in deposits increased slightly in 2020. Deposits in pesos increased 102.9% while the total (pesos plus dollars measured in pesos) increased 93%. At the end of 2020, public and private sector deposits (pesos plus dollars) reached Ps.7.5 trillion, of which 18.8% corresponded to the public sector when in 2019 they reached 16% of the total.

As regards credit in 2020, loans measured in both currencies (private and public sector) increased 27.4% year-on-year, totaling Ps.3,235,464 million, which was well below inflation. Credit in pesos (private and public sector) increased 46.9% year-on-year, and GDP grew by one point to 8.7%, driven mainly by corporate loans granted to endure the economic crisis sharpened by the pandemic (ATP Program and loans to SMEs at subsidized rates). Concerning credit in Us dollars (mostly pre-financing of exports to the private sector), it fell by US$5.4 billion to US$5.3 billion in the year.

Private credit denominated in pesos grew 49.2%, while private loans in dollars expressed in pesos fell 30.6%. Within the private sector category in pesos, commercial loans grew 78.8%, in line with the discounted notes credit lines, which rose 121.5% after the implementation of government financial aid to companies in the context of the pandemic. In turn, consumer loans grew 38.3%, just a few points below average inflation for the year, led by credit card purchases (+59.6%). The fall in real wages, and the fact that many families had little or no income for many weeks, caused families to incur debt via these means of payment and credit, the expiration of which was postponed for three months by several government regulations, including without limitation, the ability to pay interest in installments and with a reduction in the interest rate. Meanwhile, real guarantee loans grew just 7.8%, mainly affected by the mortgage stop (-0.1%), while pledges began to gain momentum towards the end of the year, growing a total of 29.3%.

The interannual growth differential between deposits and loans of the financial system in pesos (85.7% vs. 46.9%), was reflected in an increase in liquidity ratios and in the growing role that remunerated liabilities of the Central Bank in the hands of banks began to play in the profitability and capitalization of the financial system. Indeed, ample liquidity, measured as availabilities in pesos, integration of liquidity requirements and Central Bank instruments, reached 61.09% of deposits at the end of 2020. In the year-on-year comparison, ample liquidity increased 1.7%

In this context, interest rates showed some volatility, which was in line with pressures on the exchange rate. In December 2019, the monetary policy rate (LELIQ for 7 days) had closed at 55%. In February, the Central Bank extended the term of the LELIQS to 28 days and the rate closed at 40%. A week before the mandatory stay-at-home order was announced, the Central Bank lowered the policy rate to 38%, where it would remain until mid-October.

In order to take pressure off the foreign exchange market and Central Bank reserves, at the beginning of October, the Central Bank increased the rate of overnight repos from 19% to 24%. At the same time, through Communication “A” 7122, the Central Bank established that financial institutions must reduce their net position in LELIQS by 20% compared to their average position in September. By causing banks to disarm these positions with a remuneration of 3.2% per month and offering them the alternative of a short pass that now paid 2% per month, the weighted cost of sterilization fell slightly from 2.8% to 2.7% monthly. On the other hand, by shortening terms from 28 days to 1 day, the Central Bank became more exposed to the daily renewal of interbank repos, facing a greater relative number of short maturities than before

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A week later, the Monetary Authority decided to raise the passive repo rate by 3% to 27%, complementing the increase of five points from the previous week, and lowered the remuneration of the LELIQS from 38% to 37%. A week later, the minimum rates set for attracting term deposits in pesos increased by up to Ps.1 million from 33% to 34% per year, and decided to raise the overnight repo rate by 3% to a nominal 30% per year. In addition, the Central Bank announced that it would begin offering 7-day passive repos with an annual nominal rate of 33% and subsequently reduced the LELIQS rate for new tenders, from 37% to 36% annually. These rate signals were complemented by the announcement of a bill of tax relief for investments in pesos, which included assets in pesos indexed (with CER or UVA) and other assets in national currency that are used for productive investments.

A new round of rate increases at the end of October brought the repo rates to one and seven days to 31% and 34.5%, respectively. In mid-November, the last adjustment of the year was carried out, which increased the 28-day LELIQS rate by 2%, placing it again at 38% (its value at the beginning of October), and the rate of the passes to one and seven days at 32% and 36.5%.

The liquidity of the financial system according to the broad definition of the Central Bank reached 65% in 2020, 5% more than at the end of 2019. Net of LELIQS and public securities, the liquidity ratio reaches 39% of assets against 36% at the end of 2019. Part of this increase derives from the weakness of the demand for credit from the private sector that caused a decrease from 40 to 34% of assets including the assistance programs established by the government to address the impact of the mandatory shelter-in-place orders.

Starting in January 2020, financial entities reported all their accounts adjusted for inflation. The financial system as a whole earned 313.7 billion pesos in 2020, about 40% drop measured in constant currency. The ROE of the banking industry fell from 46.4% to 15.8%, while the ROA went from 5.4% to 2.3%. This decrease in the profitability of the sector is due to the combination of a lower financial margin that fell 17% in the first 11 months of the year in the context of increasing administrative expenses that went from representing 53% of the intermediation margin to more than 60%.

The morosity of the financial system reaches 4.1% of the total and 3.9% considering the private sector only. Among private banks the number is even lower, standing at 2.2%. Private banking has made allowances for more than 200% of its non-performing portfolio. The numbers are not comparable to previous years for two reasons. First, the morosity terms were softened by the Central Bank. Secondly, the compulsive credit card refinancings that occurred in April and September respectively kept potentially compromised borrowers from falling behind on payments. Likewise, the same situation occurred with borrowers of loans that are adjusted for UVA, which were not adjusted in 2020.

The financial system has a capitalization ratio of 21.4% (level 1 capital indicator), 75% in excess of the Basel standards requirements.

RESULTS OF OPERATIONS FOR YEARS 2020 - 2019

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 loans and other financing portfolio to the private sector has grown by 17% in 2020 in nominal value, keeping up with the evolution of the financial system. In real terms, the private sector loan portfolio decreased by 14% compared to 2019.

During 2020, we maintained a leading position in terms of personal loans, with Ps. 70,258.8 million, which represent a 15.14% of market share. As to its credit card products, in 2020 we maintained a 6.9% of market share, increasing 11% year over year.

Considering what is explained in Note 51.1.4 to our audited consolidated financial statements as of December 31, 2020 and 2019, the coverage indicator as of December 31, 2020, reached a 327.67% ratio towards the end of the fiscal period, higher than the coverage ratio at the end of 2019. The levels of delinquency have stayed in historically low value, the non-performing ratio was 1.13% over total portfolio as of December 31, 2020. The irregular portfolio showed a fall compared to the previous year as a result of the facilities given by the Central Bank, in the midst of the COVID-19 pandemic, in terms of debtor classification giving a more flexible treatment for the recognition of regulatory impairment of bank customers and the deferral of payment of bank obligations of all debtors and the mandatory refinancing of overdue debts.

While these measures helped the pandemic to have a low impact on the delinquency of banks’ portfolios, the negative results of the deterioration in the financial capacity of debtors are undeniable, so that an increase in the impairment of assets subject to credit risk is

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to be expected. Since statistical models do not adequately capture the effects of the pandemic on Expected Credit Losses, we have decided to make a special adjustment prospectively based on an estimate of the impairment of certain financial assets that show higher levels of vulnerability or symptoms of difficulties in the payment of obligations. As a result of the above, a significant increase in the coverage ratio is observed.

It is worth noting that during 2020, we have invested part of the liquidity excess on government securities, explaining the increase in such portfolio.

Our total deposits increased by 86% in 2020 in nominal value and increased by 37% in real terms compared to 2019. Regarding the composition of deposits, there was a larger growth in time deposits and to a lesser extent in demand deposits.

The Bank continues to be one of the three private entities with the highest volume of deposits and a market share of 6.4% of the financial system as a whole.

As of December 31, 2020 the Bank’s liquidity reached Ps. 440,518 million, registering an increase of 84% in real term year over year and achieving a 90.1% of liquidity ratio.

YEAR ENDED DECEMBER 31, 2020 COMPARED TO YEAR ENDED DECEMBER 31, 2019

Net income

The following table sets forth certain components of our statement of income for the years ended December 31, 2019 and 2020:

INCOME STATEMENT	Year Ended December 31,						Change December 31,
	2019 (1)			2020			2020 - 2019
	(in thousands of Pesos, except for number of shares, net income per share and dividends per share)
Interest Income		206,343,721			157,080,212			(49,263,509	)	(24	%)
Interest Expense		(87,343,660	)		(60,833,919	)		26,509,741		(30	%)
Net Interest Income		119,000,061			96,246,293			(22,753,768	)	(19	%)
Commissions income		26,467,679			24,742,767			(1,724,912	)	(7	%)
Commissions expense		(2,191,792	)		(2,047,292	)		144,500		(7	%)
Net commissions income		24,275,887			22,695,475			(1,580,412	)	(7	%)
Subtotal (Net Interest Income + Net Commissions Income)		143,275,948			118,941,768			(24,334,180	)	(17	%)
Net gain from measurement of financial instruments at fair value through profit or loss		10,799,758			13,978,694			3,178,936		29	%
Profit from sold or derecognized assets at amortized cost		37,325			1,292,836			1,255,511		3,364	%
Differences in quoted prices of gold and foreign currency		4,761,247			4,229,690			(531,557	)	(11	%)
Other operating income		10,450,998			5,369,762			(5,081,236	)	(49	%)
Credit loss expense on financial assets		(5,917,873	)		(7,861,600	)		(1,943,727	)	33	%
Net operating income before expenses, depreciation and amortization		163,407,403			135,951,150			(27,456,253	)	(17	%)
Employee benefits		(28,865,342	)		(26,598,602	)		2,266,740		(8	%)
Administrative expenses		(17,427,021	)		(14,539,871	)		2,887,150		(17	%)
Depreciation and amortization of fixed assets		(4,092,898	)		(4,402,387	)		(309,489	)	8	%
Other operating expenses		(30,088,399	)		(20,476,936	)		9,611,463		(32	%)
Operating Income after expenses, depreciation and amortization		82,933,743			69,933,354			(13,000,389	)	(16	%)
Income/(Loss) from associates and joint arrangements		1,223,124			(6,856	)		(1,229,980	)	(101	%)

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INCOME STATEMENT	Year Ended December 31,						Change December 31,
	2019 (1)			2020			2020—2019
	(in thousands of Pesos, except for number of shares, net income per share and dividends per share)
Loss on net monetary position		(38,333,403	)		(30,724,854	)		7,608,549		(20	%)
Income before tax on continuing operations		45,823,464			39,201,644			(6,621,820	)	(14	%)
Income tax on continuing operations		(17,618,151	)		(13,046,950	)		4,571,201		(26	%)
Net income/(loss) from continuing operations		28,205,313			26,154,694			(2,050,619	)	(7	%)
Net income/(loss) from continuing operations		28,205,313			26,154,694			(2,050,619	)	(7	%)
Net income/(loss) for the fiscal year attributable to controlling interest		28,205,071			26,154,332			(2,050,739	)	(7	%)
Net income for the fiscal year attributable to non-controlling interest		242			362			120		50	%

(1) Figures adjusted for inflation as of December 31. 2020. See “Presentation of certain financial and other information”

2020 and 2019

Our consolidated net income from continuing operations for fiscal year ended as of December 31, 2020 shows a decrease of Ps. 2,050.6 million as compared to fiscal year ended as of December 31, 2019. This decrease was primarily attributable to:

• A decrease in net interest income of Ps. 22,753.8 million or 19%.

• A decrease in other operating income of Ps. 5,081.2 million or 49%.

• An increase in credit loss expense on financial assets of Ps. 1,943.7 million or 33%

• A decrease in net commissions income of Ps. 1,580.4 million or 7%.

The aforementioned decrease in consolidated net income from continuing operations was partially offset by:

• A decrease in other operating expenses of Ps. 9,611.5 million or 32%.

• A decrease in loss on net monetary position of Ps. 7,608.5 million or 20%

• A decrease in employee benefits and administrative expenses of Ps. 5,153.9 million or 11%.

• A decrease in income tax of Ps. 4,571.2 million or 26%.

• An increase in net gain from measurement of financial instruments at fair value through profit or loss of Ps.3,178.9 million or 29%

Interest income

The components of our interest income for the years ended December 31, 2020 and 2019 were as follows:

INTEREST INCOME	Year Ended December 31,
	2019 (1)		2020
	(in thousands of Pesos)
Interest on Cash and bank deposits		354,796		128,169
Interest from government securities		88,034,176		62,717,894
Interest from debt securities		1,942,811		1,607,980
Interest on loans and other financing
To the financial sector		2,821,732		1,012,071
To the non-financial public sector		1,840,235		2,953,253
To the non-financial private sector
Interest on overdrafts		21,176,144		10,812,954
Interest on documents		7,594,077		4,758,585
Interest on mortgages loans		11,031,618		8,074,017
Interest on pledged loans		855,499		476,023
Interest on personal loans		40,829,605		32,690,320
Interest on credit cards		17,978,756		11,510,688
Interest on financial leases		247,431		57,036
Interest on other		7,164,630		13,213,833
Interest on Repos
From the Central Bank		552,927		6,971,713
Other financial institutions		3,919,284		95,676
Total Interest income		206,343,721		157,080,212

(1) Figures adjusted for inflation as of December 31, 2020. See “Presentation of certain financial and other information”.

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2020 and 2019

Our interest income decreased 24% or Ps. 49,263.5 million as compared to fiscal year ended December 31, 2019, due to lower interest from government securities, and debt securities and lower interest on loans. This decrease was partially offset by higher interest on repos.

Interest from government securities and debt securities decreased 29% or Ps. 25,651.1 million. Interest derived from government securities decreased by 29%, or Ps. 25,316.3 million, given the lower interest rate on LELIQs of the Central Bank. The average placements in instruments issued by the Central Bank increased approximately 22% in 2020. The nominal interest rates of these instruments decreased on average 25.7 percentage points in such year, from 65.4% in 2019 to 39.7% in 2020. The increase in volume did not offset the decline in interest rate.

Interest on repos increased 58% or Ps. 2,595.1 million as compared to fiscal year ended December 31, 2019, due to an increase of 329% in average volume and a 39.3 percentage points in nominal average interest rate.

Interest on loans and other financing decreased 23% or Ps. 25,980.9 million, however interest on other loans grew mostly by loans to SMEs at a 24%/35% interest rate, as part of the relief package given the Covid-19 pandemic.

The total decrease in interest on loans and other financing was a result of a decrease in average volume by 16% and a decrease in the nominal average interest rate by 3.2 percentages points.

Interest expenses

The components of our interest expenses for the years ended December 31, 2019 and 2020 were as follows:

INTEREST EXPENSE	Year Ended December 31,
	2019 (1)		2020
	(in thousands of Pesos)
From deposits
Interest on checking accounts		537,004		1,975,888
Interest on saving accounts		896,495		654,139
Interest on time deposits and investments accounts		79,268,075		53,900,325
Interest on financing received from Central Bank of Argentina and other financial institutions		359,809		100,834
For repo transactions
Other financial institutions		458,103		195,747
Interest on corporate bonds		3,250,457		1,547,872
Interest on subordinated corporate bonds		2,319,007		2,397,775
Interest on other financial liabilities		254,710		61,339
Total interest expense		87,343,660		60,833,919

(1) Figures adjusted for inflation as of December 31, 2020. See “Presentation of certain financial and other information”.

2020 and 2019

Interest expense decreased 30% or Ps. 26,509.7 million as compared to 2019, due to lower interest paid on time deposits portfolio.

Interest on deposits represented 93% of total interest expense and decreased by 30% or Ps. 24,171.2 million, as compared to fiscal year ended December 31, 2019. The decrease in interest on deposits was mainly due to a decrease in nominal interest rates during fiscal year 2020, from 22.3% on average in fiscal year ended December 31, 2019 to 16.7% on average in fiscal year ended

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December 31, 2020 for private sector deposits (approximately a decrease of 5.6 percentage points). Additionally, during 2020 the average volume of interest-bearing deposits from private sector decreased 14%, the peso deposits increased 3% and foreign currency deposits decreased 47%.

Net gain from measurement of financial instruments at fair value through profit or loss

2020 and 2019

Net gain from measurement of financial instruments at fair value increased by 29% or Ps. 3,178.9 million compared to 2019, primarily due to a gain from government securities of Ps.7,506.5 million due to:

(i) Federal government treasury bonds adjusted by CER (maturity 2021) by Ps. 4,374 million and National treasury bills at discount in pesos by Ps. 1.112 million

(ii) changes in business model related to certain investments by Ps.1,397 million. For more information see note 3.2 “Financial Instruments” to our audited consolidated financial statements as of December 31, 2020 and 2019.

In addition, in comparison with the previous year a lower gain from derivative instruments (forwards transactions in dollars) of Ps. 1,975.6 million and a lower gain from equity instruments at fair value through profit or loss of Ps. 2,006.9 million (gain from the revaluation of Prisma of Ps. 1,105 million, offset by its inflation adjustment of Ps.3,094 million).

Net Commissions income

The following table provides a breakdown of our commissions income by category for the years ended December 31, 2019 and 2020:

NET COMMISSIONS INCOME	Year Ended December 31,
	2019 (1)			2020
	(in thousands of pesos)
AFIP & Collection services		189,127			93,091
Fees charged on deposit accounts		10,519,782			9,228,198
Mutual funds & securities fees		371,863			544,485
ATM transactions fees		1,485,576			2,140,987
ANSES fees		59,922			52,971
Insurance fees		1,591,978			1,601,339
Corporate services fees		2,904,362			2,422,431
Financial agent fees (Provinces)		1,376,840			1,258,094
Debit card fees		1,347,977			1,479,260
Credit card fees		5,577,583			5,195,805
Credit related fees		1,042,669			726,106
Total commissions income		26,467,679			24,742,767
Total commissions expense		(2,191,792	)		(2,047,292	)
Net commissions income		24,275,887			22,695,475

(1) Figures adjusted for inflation as of December 31, 2020. See “Presentation of certain financial and other information”.

2020 and 2019

Net commission income decreased by 7%, or Ps. 1,580.4 million in 2020, mainly due to a decrease in total commissions income.

Total commissions income decreased by 7% or Ps. 1,724.9 million in 2020 compared to fiscal year ended December 31, 2019, primarily due to a 12% or Ps. 1,291.6 million decrease in fees charged on deposit accounts and a 17% or Ps. 481.9 million decrease in corporate service fees.

Total commissions expense decreased by 7% or Ps. 144.5 million compared to fiscal year ended December 31, 2019, due to a 44% or Ps. 209 million decrease in commissions for credit card and foreign trade.

Differences in quoted prices in gold and foreign currency

2020 and 2019

In fiscal year ended December 31, 2020, the differences in quoted prices of gold and foreign currency totaled Ps. 4,229.7 million representing a 11% or Ps. 531.6 million decrease compared to 2019, originated as the combination of different factors: i) higher results

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of translation of FX assets and liabilities to Pesos, due to the increase in the exchange rate, from an annual average of Ps. 48.2423 during fiscal year 2019 to an annual average Ps. 70.5941 in fiscal year 2020, and ii) 81% or Ps. 4,003.2 million decrease in result for foreign currency trading.

DIFFERENCES IN QUOTED PRICES OF GOLD AND FOREIGN CURRENCY	Year ended December 31,
	2019 (1)			2020
	(in thousands of Pesos)
Translation of FX assets and liabilities to Pesos		(193,842	)		3,277,757
Income from foreign currency exchange		4,955,089			951,933
Other Operating Income		4,761,247			4,229,690

(1) Figures adjusted for inflation as of December 31, 2020. See “Presentation of certain financial and other information”.

Credit loss expense on financial assets

2020 and 2019

Credit loss expense on financial assets increased 33% or Ps.1,943.7 million in 2020, basically due to the management adjustment made by the Bank based on an estimate of the impairment of certain financial assets showing greater vulnerability levels or signs of difficulties related to the payment of obligations in order to reflect factors not captured in the results produced by the ECL model to address the expected consequences of the COVID-19 pandemic. For further information please see note 51.1.4 “Adjustment for expected losses due to COVID-19 pandemic” to our audited consolidated financial statements as of December 31, 2020 and 2019.

Other operating income

The components of our other operating income for the years ended December 31, 2019 and 2020 were as follows:

OTHER OPERATING INCOME	Year ended December 31,
	2019 (1)		2020
	(in thousands of Pesos)
Credit and debit cards		300,083		122,917
Lease of safe deposit boxes		583,975		779,549
Other service-related fees		1,688,761		1,869,941
Other adjustments and interest from other receivables		1,071,546		898,606
Initial recognition of loans		163,172		—
Sale of property, plant and equipment		—		7,767
Others		6,643,461		1,690,982
Other Operating Income		10,450,998		5,369,762

(1) Figures adjusted for inflation as of December 31, 2020. See “Presentation of certain financial and other information”.

2020 and 2019

Other operating income contracted by 49% or Ps. 5,081.2 million, mainly due to 75% or Ps. 4,952.5 million decreased in Others related to the results of sale of the 51% equity interest in PRISMA Medios de Pagos S.A. of Ps. 2,300 million registered in the fiscal year ended 2019 and a decrease in its inflation adjustment Ps. 2,190 million.

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Employee benefits and administrative expenses

The components of our employee benefits and administrative expenses for the years ended December 31, 2019 and 2020 were as follows:

EMPLOYEE BENEFITS AND ADMINISTRATIVE EXPENSES	Year ended December 31,
	2019 (1)		2020
	(in thousands of Pesos)
Employee benefits		28,865,342		26,598,602
Remunerations		19,957,891		19,677,575
Social Security Contributions taxes		5,858,301		4,412,779
Compensation and bonuses to employees		2,381,904		1,950,014
Employee services		667,246		558,234
Administrative Expenses		17,427,021		14,539,871
Taxes		2,063,455		1,854,458
Maintenance, conservation, and repair expenses		2,335,918		2,270,241
Fees to directors and syndics		2,820,293		1,623,253
Security services		1,612,060		1,414,620
Electricity and communications		1,614,474		1,529,052
Other fees		1,377,867		888,329
Leases		306,688		90,887
Advertising and publicity		643,902		431,890
Representation, travel, and transportation expenses		269,521		128,300
Stationery and office supplies		139,146		91,311
Insurance		165,379		170,619
Hired administrative services		116,549		94,585
Other		3,961,769		3,952,326
Total Employee benefits and Administrative Expenses		46,292,363		41,138,473

(1) Figures adjusted for inflation as of December 31. 2020. See “Presentation of certain financial and other information”.

2020 and 2019

Employee benefits and administrative expenses decreased by 11%, or Ps. 5,153.9 million, in 2020.

Employee benefits declined 8% o Ps. 2,266.7 million, mainly due to a 25% or Ps. 1,445.2 million decrease in social security contribution (in the fiscal year ended in December 2019 the Bank charged a higher rate of social security contribution of Ps. 1,500 million) and a 18% or Ps. 431.9 million decrease in Compensation and bonuses.

Within administrative expenses fees to directors and syndic decreased by 42% or Ps. 1,197 million as compared to fiscal year 2019 and Other fees fell 36% or Ps.489.5 million.

Other operating expenses

The components of our other operating expenses for the years ended December 31, 2019 and 2020 were as follows:

OTHER OPERATING EXPENSES	Year ended December 31,
	2019 (1)		2020
	(in thousands of Pesos)
Turnover tax		13,929,404		11,255,405
Charges for other provisions		1,949,146		1,129,606
Deposit guarantee fund contributions		784,007		739,624
Donations		380,577		168,550
Insurance claims		81,133		63,090
Initial loan recognition		—		47,957
Punitive interests and other Central Bank’s penalties		580		170
Other		12,963,552		7,072,534
Other Operating Expenses		30,088,399		20,476,936

(1) Figures adjusted for inflation as of December 31. 2020. See “Presentation of certain financial and other information”.

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2020 and 2019

Other operating expenses decreased 32% or Ps. 9,611.5 million, mainly due to a decrease in Others which reduced 45% or Ps. 5,891 million and a decrease in turnover tax by 19% or Ps. 2,674 million. The decrease in Others is related to these concepts: i) Losses in the amount of Ps. 3,902 million due to reprofiling of short term debt (Lecaps, Lelink, Letes, Lecer Notes) occurred in fiscal year ended 2019 (for further information please see note 20 “Modifications of Financial Assets” to our audited consolidated financial statements as of December 31, 2020 and 2019) and ii) Losses in the approximate amount of Ps. 1,670 million related to Charges on social security contributions registered in fiscal year ended 2019.

Loss on net monetary position

2020 and 2019

The loss generated by the net monetary position in fiscal year 2020 was 20% or Ps. 7,608.5 million lower than that recorded in 2019, moving from Ps. 38,333.4 million loss in 2019 to Ps. 30,724.9 million loss in 2020, as a consequence of the movements of the net monetary position during the year (monetary liabilities rose more than monetary assets) and lower inflation rate in comparison with the previous year (from 53.83% in fiscal year 2019 to 36.14% in fiscal year 2020).

Income tax

2020 and 2019

Income tax decreased 26% or Ps. 4,571.2 million in fiscal year 2020 and the effective income tax rate was 38.4% for 2019 and 33.3% for 2020.

As of December 31, 2020 and 2019, all the conditions established by the income tax Law to practice the inflation adjustment are met.

This table shows the reconciliation between income tax and the amounts obtained by applying the current tax rate in Argentina to the income carrying amount:

	2019			2020
	(in thousands of Pesos)
Accounting Income before tax on continuing operations		45,823,464			39,201,644
Applicable income tax rate		30	%		30	%
Income tax on income carrying amount		13,747,039			11,760,493
Net permanent differences and other tax effects		(9,069,732	)		(8,117,904	)
Monetary effects		12,940,844			9,404,361
Total income tax		17,618,151			13,046,950

For further information please see note 28 “Income Tax” in our audited consolidated financial statements as of December 31, 2020 and 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, on May 26, 2020 the bank filed with the AFIP its annual income tax return considering the total effect of the inflation adjustment on income tax (see Note 28 “Income tax” section a) d) to our audited consolidated financial statements as of December 31, 2020 and 2019). As a result, the current income tax determined by the Bank for fiscal year 2019 amounted to Ps.7,002.1 million (not restated).

The same criterion has been applied to determine the annual provision for 2020, which generated an accrued income tax for Banco Macro SA for such fiscal year that amounted to Ps. 10,230.5 million (not restated).

RESULTS OF OPERATIONS FOR YEARS 2019 - 2018

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.

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Our loans and other financing portfolio to the private sector has grown by 22% in 2019 in nominal value, keeping up with the evolution of the financial system. In real terms, the private sector loan portfolio decreased by 20% compared to 2018.

During 2019, we maintained a leading position in terms of personal loans, which represent a 14% of market share. As to its credit card products, in 2019 we maintained a 7% of market share, increasing 43% in nominal value year over year.

The coverage indicator reached a 130.9% ratio towards the end of the fiscal period, higher than the coverage ratio at the end of 2018. The levels of delinquency have stayed in historically low value, however, the non-performing ratio was 1.7% over total portfolio as of December 31, 2019.

Our total deposits increased by 10% in 2019 in nominal value and decreased by 28% in real terms compared to 2018. Regarding the composition of deposits, there was a larger growth in demand deposits and a lower volume of time deposits, 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, 2019 the Bank’s liquidity reached Ps 239,003 million, registering an increase of 13% in nominal year over year and achieving a 66.8% 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 Form 20-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, 2019 COMPARED TO YEAR ENDED DECEMBER 31, 2018

Net income

The following table sets forth certain components of our statement of income for the years ended December 31, 2018 and 2019:

INCOME STATEMENT	Year Ended December 31,						Change December 31,
	2018 (1)			2019 (1)			2019 – 2018 (2)
	(in thousands of Pesos, except for number of shares, net income per share and dividends per share)
Interest Income		163,660,400			206,343,721			42,683,321		26	%
Interest Expense		(63,205,058	)		(87,343,660	)		(24,138,602	)	38	%
Net Interest Income		100,455,342			119,000,061			18,544,719		18	%
Commissions income		29,951,869			26,467,679			(3,484,190	)	(12	%)
Commissions expense		(1,947,749	)		(2,191,792	)		(244,043	)	13	%
Net Commissions income		28,004,120			24,275,887			(3,728,233	)	(13	%)
Subtotal (Net Interest Income + Net Commissions Income)		128,459,462			143,275,948			14,816,486		12	%
Net gain from measurement of financial instruments at fair value		2,641,829			10,799,758			8,157,929		309	%
(Loss) / Profit from sold or derecognized assets at amortized cost		(12,837	)		37,325			50,162		391	%
Differences in quoted prices of gold and foreign currency		(3,665,529	)		4,761,247			8,426,776		230	%
Other operating income		7,378,344			10,450,998			3,072,654		42	%
Credit loss expense on financial assets		(6,073,426	)		(5,917,873	)		155,553		(3	%)
Net operating income before expenses, depreciation and amortization		128,727,843			163,407,403			34,679,560		27	%
Employee benefits		(26,129,057	)		(28,865,342	)		(2,736,285	)	10	%
Administrative expenses		(17,326,119	)		(17,427,021	)		(100,902	)	1	%
Depreciation and amortization of fixed assets		(3,085,766	)		(4,092,898	)		(1,007,132	)	33	%
Other operating expenses		(25,885,979	)		(30,088,399	)		(4,202,420	)	16	%
Net operating income after expenses, depreciation and amortization		56,300,922			82,933,743			26,632,821		47	%
Income from associates & joint ventures		557,706			1,223,124			665,418		119	%
Loss on net monetary position		(38,523,196	)		(38,333,403	)		189,793		0	%
Income before tax on continuing operations		18,335,432			45,823,464			27,488,032		150	%

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INCOME STATEMENT	Year Ended December 31,						Change December 31,
	2018 (1)			2019 (1)			2019 – 2018 (2)
	(in thousands of Pesos, except for number of shares, net income per share and dividends per share)
Income tax on continuing operations		(19,835,151	)		(17,618,151	)		2,217,000		(11	%)
Net (loss)/income from continuing operations		(1,499,719	)		28,205,313			29,705,032		(1,981	%)
Net (loss)/income of the fiscal year		(1,499,719	)		28,205,313			29,705,032		n.m.
Net (loss)/income of the fiscal year attributable to controlling interest		(1,500,074	)		28,205,071			29,705,145		n.m.
Net (loss)/income of the fiscal year attributable to non-controlling interest		355			242			(113	)	(32	%)

(1) Figures stated in thousands of pesos adjusted for inflation as of December 31. 2020. See “Presentation of certain financial and other information”

(2) n.m. means not meaningful

2019 and 2018

Our consolidated net income from continuing operations for fiscal year ended as of December 31, 2019 shows an increase of Ps. 29,705.0 million as compared to fiscal year ended as of December 31, 2018. This increase was primarily attributable to a:

• An increase in net interest income of Ps. 18,544.7 million or 18%.

• An increase in net income from measurement of financial instruments at fair value of Ps. 8,157.9 million or 309%.

• An increase in differences in quoted prices of gold and foreign currency of Ps. 8,426.8 million, from a loss of Ps. 3,665.5 million in 2018 to a gain of Ps. 4,761.2 million in 2019.

• An increase in other operating income of Ps. 3,072.7 million or 42%.

The aforementioned profits increase in consolidated net income from continuing operations was partially offset by:

• A decrease in net commissions income of Ps. 3,728.2 million or 13%.

• An increase in total operating expenses of Ps. 8,046.7 million or 11%.

Interest income

The components of our interest income for the years ended December 31, 2019 and 2018 were as follows:

INTEREST INCOME	Year Ended December 31,
	2018 (1)		2019 (1)
	(in thousands of Pesos)
Interest on Cash and bank deposits		58,114		354,796
Interest from government securities		42,558,325		88,034,176
Interest from debt securities		473,775		1,942,811
Interest on loans and other financing
To the financial sector		2,991,408		2,821,732
To the non-financial sector		2,285,366		1,840,235
To the non-financial private sector
Interest on overdrafts		13,705,709		21,176,144
Interest on documents		8,394,619		7,594,077
Interest on mortgages loans		10,454,451		11,031,618
Interest on pledged loans		1,503,884		855,499
Interest on personal loans		52,942,020		40,829,605
Interest on credit cards		17,776,669		17,978,756
Interest on financial leases		413,127		247,431
Interest on other		9,160,791		7,164,630
Interest on Repos
From the Central Bank		67,162		552,927
Other financial institutions		874,980		3,919,284
Total Interest income		163,660,400		206,343,721

(1) Figures stated in thousands of Pesos adjusted for inflation as of December 31, 2020. See “Presentation of certain financial and other information”.

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2019 and 2018

Our interest income increased 26% or Ps. 42,683.3 million as compared to fiscal year ended December 31, 2018, mainly due to higher interest from government securities, from debt securities, interest on repos and interest on overdrafts.

Interest from government securities and debt securities increased 109% or Ps. 46,944.9 million. Interest derived from government securities increased by 107%, or Ps. 45,475.9 million, given the Central Bank’s policy and incentives for banks to invest in LELIQs. The average placements in instruments issued by the Central Bank increased approximately 32% in 2019. The nominal interest rates of these instruments increased on average more than 28.9 percentage points in such year.

Interest on repos increased 375% or Ps. 3,530.1 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 and other financing decreased 7%, or Ps. 8,088.3 million, mainly as a result of a 23% or Ps. 12,112.4 million decrease in interest on personal loans, and a 22% or Ps. 1,996.2 million decrease in interest on other loans. This decrease was partially offset by a 55% or Ps. 7,470,435 million increase in interest on overdraft.

The total decrease in interest on loans and other financing 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, 2018 and 2019 were as follows:

INTEREST EXPENSE	Year Ended December 31,
	2018 (1)		2019
	(in thousands of Pesos)
From deposits
Interest on checking accounts		1,395,176		537,004
Interest on saving accounts		863,077		896,495
Interest on time deposits and investments accounts		54,175,946		79,268,075
Interest on financing received from Central Bank of Argentina and other financial institutions		312,120		359,809
For repo transactions
Other financial institutions		457,876		458,103
Interest on corporate bonds		3,795,894		3,250,457
Interest on subordinated corporate bonds		2,083,761		2,319,007
Interest on other financial liabilities		121,208		254,710
Total interest expense		63,205,058		87,343,660

(1) Figures stated in thousands of Pesos adjusted for inflation as of December 31, 2020. See “Presentation of certain financial and other information”.

2019 and 2018

Interest expense increased 38% or Ps. 24,138.6 million as compared to 2018, mainly due to interest paid on time deposits portfolio.

Interest on deposits represented 92% of total interest expense and increased by 43% or Ps. 24,267.4 million, as compared to fiscal year ended December 31, 2018. The increase in interest on deposits was mainly due to an increase in nominal interest rates during fiscal year 2019, from 12.5% on average in fiscal year ended December 31, 2018 to 22.3% on average in fiscal year ended December 31, 2019 for private sector deposits (approximately an increase of 10 percentage points). Additionally, during 2019 average volume of interest bearing deposits decreased 7%, the peso deposits decreased 13% and foreign currency deposits increased 9%.

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Net gain from measurement of financial instruments at fair value

2019 and 2018

Net gain from measurement of financial instruments at fair value increased 309% or Ps. 8,157.9 million compared to 2018, primarily due to: i) A gain from investments instruments of Ps. 4,502 million (remaining equity interest of Prisma S.A. and its inflation adjustment of 2019); ii) A gain from instruments of derivatives (forwards transactions) of Ps. 1,529 million and iii) a gain from government securities (TC21 – BONCER 2021) of Ps. 1,424 million.

Net Commissions income

The following table provides a breakdown of our commissions income by category for the years ended December 31, 2018 and 2019:

NET COMMISSIONS INCOME	Year Ended December 31,
	2018 (1)			2019 (1)
	(in thousands of pesos)
AFIP & Collection services		172,483			189,127
Fees charged on deposit accounts		13,212,106			10,519,782
Mutual funds & securities fees		218,240			371,863
ATM transactions fees		1,221,804			1,485,576
ANSES fees		72,548			59,922
Insurance fees		1,766,846			1,591,978
Corporate services fees		2,560,360			2,904,362
Financial agent fees (Provinces)		1,382,135			1,376,840
Debit card fees		1,087,177			1,347,977
Credit card fees		6,890,602			5,577,583
Credit related fees		1,367,568			1,042,669
Total commissions income		29,951,869			26,467,679
Total commissions expense		(1,947,749	)		(2,191,792	)
Net commissions income		28,004,120			24,275,887

(1) Figures stated in thousands of pesos adjusted for inflation as of December 31. 2020. See “Presentation of certain financial and other information”.

2019 and 2018

Net commission income decreased by 13%, or Ps. 3,728.2 million in 2019, mainly due to a decrease in total commissions income.

Total commissions income decreased by 12% or Ps. 3,484.2 million in 2019 compared to fiscal year ended December 31, 2018, primarily due to a 20% or Ps. 2,692.3 million decrease in fees charged on deposit accounts, a 24% or Ps. 324.9 million decrease in credit related fees and a 19% or Ps. 1,313.0 million decrease in credit cards fees. These decreases were partially offset by a 22% or Ps. 2636.8 million increase in ATM transaction fees and a 13% or Ps. 263.8 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. 244.0 million compared to fiscal year ended December 31, 2018, due to a 29% or Ps. 239.1 million increase in commissions paid to ATM’s exchange.

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Differences in quoted prices in gold and foreign currency

2019 and 2018

In fiscal year ended December 31, 2019, the difference in quoted prices of gold and foreign currency totaled Ps. 4,761.2 million representing a 230% or Ps. 8,426.8 million increase compared to 2018, originated as the combination of different factors: i) the change of foreign exchange position, from a negative position (liability) in average in fiscal year 2018 to a positive position (asset) on average during fiscal year 2019, ii) the increase in the exchange rate, from an annual average of Ps. 28.0937 during fiscal year 2018 to an annual average Ps. 48.2423 in fiscal year 2019, and iii) 48% or Ps. 1,606.2 million increase in result of foreign currency trading.

DIFFERENCES IN QUOTED PRICES OF GOLD AND FOREIGN CURRENCY	Year ended December 31,
	2018 (1)			2019 (1)
	(in thousands of Pesos)
Translation of FX assets and liabilities to Pesos		(7,014,412	)		(193,842	)
Income from foreign currency exchange		3,348,883			4,955,089
Other Operating Income		(3,665,529	)		4,761,247

(1) Figures stated in thousands of Pesos adjusted for inflation as of December 31, 2020. See “Presentation of certain financial and other information”.

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 (1)
	(in thousands of Pesos)
Credit and debit cards		451,015		300,083
Lease of safe deposit boxes		561,726		583,975
Other service related fees		943,990		1,688,761
Sale of real estate and other non-financial assets		102,627		—
Other adjustments and interest from other receivables		555,120		1,071,546
Initial recognition of loans		165,547		163,172
Sale of property, plant and equipment		79,472		—
Others		4,518,847		6,643,461
Other Operating Income		7,378,344		10,450,998

(1) Figures stated in thousands of Pesos adjusted for inflation as of December 31, 2020. See “Presentation of certain financial and other information”.

2019 and 2018

Other operating income increased 42% or Ps. 3,072.7 million, mainly due to a 47% or Ps. 2,124.6 million increased in Others mainly related to the results of sale of the 51% 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 December 31, 2020 and 2019).

Employee benefits and administrative expenses

The components of our employee benefits and administrative expenses for the years ended December 31, 2018 and 2019 were as follows:

EMPLOYEE BENEFITS AND ADMINISTRATIVE EXPENSES	Year ended December 31,
	2018 (1)		2019 (1)
	(in thousands of Pesos)
Employee benefits		26,129,057		28,865,342
Remunerations		19,723,875		19,957,891
Social Security Contribution taxes		3,838,541		5,858,301
Compensation and bonuses to employees		1,913,289		2,381,904
Employee services		653,352		667,246

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EMPLOYEE BENEFITS AND ADMINISTRATIVE EXPENSES	Year ended December 31,
	2018 (1)		2019 (1)
	(in thousands of Pesos)
Administrative Expenses		17,326,119		17,427,021
Taxes		2,323,989		2,063,455
Maintenance, conservation and repair expenses		2,292,878		2,335,918
Fees to directors and syndics		1,821,591		2,820,293
Security services		1,812,195		1,612,060
Electricity and communications		1,490,093		1,614,474
Other fees		1,420,601		1,377,867
Leases		833,776		306,688
Advertising and publicity		759,994		643,902
Representation, travel and transportation expenses		292,574		269,521
Stationery and office supplies		149,333		139,146
Insurance		156,284		165,379
Hired administrative services		232,857		116,549
Other		3,739,954		3,961,769
Total Employee benefits and Administrative Expenses		43,455,176		46,292,363

(1) Figures stated in thousands of Pesos adjusted for inflation as of December 31. 2020. See “Presentation of certain financial and other information”.

2019 and 2018

Employee benefits and administrative expenses increased by 7%, or Ps. 2,837.2 million, in 2019, due to an increase in employee benefits and fees to directors and syndics.

Employee benefits rose 10% o Ps. 2,736,3 million, mainly due to a 53% or Ps. 2,019.8 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, 2020 and 2019) and a 24% or Ps. 468.6 million increase in Compensation and bonuses of (related to severance payments occurred in the last quarter 2019).

Fees to Directors and syndics increased 55% or Ps. 998.7 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 (1)
	(in thousands of Pesos)
Turnover tax		14,737,685		13,929,404
Charges for other provisions		2,713,343		1,949,146
Deposit guarantee fund contributions		775,917		784,007
Donations		222,916		380,577
Insurance claims		138,032		81,133
Punitive interests and other Central Bank’s penalties		249		580
Other		7,297,837		12,963,552
Other Operating Expenses		25,885,979		30,088,399

(1) Figures stated in thousands of Pesos adjusted for inflation as of December 31. 2020. See “Presentation of certain financial and other information”.

2019 and 2018

Other operating expenses increased 16% or Ps. 4,202.4 million mainly due to an increase in Others which rose 78% or Ps. 5,665.7 million. The increase in Others is related to these concepts: i) Losses in the amount of Ps. 3,902 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

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December 31, 2020 and 2019) and ii) losses in the approximate amount of Ps.1,670 million related to Charges on social security contributions. The increase in Others was offset by a 5% or Ps. 808.3 million and a 28% or Ps. 764.2 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 2019 was Ps. 189.8 million lower than that recorded in 2018, moving from Ps. 38,523.2 million loss in 2018 to Ps. 38,333.4 million loss in 2019, as a consequence of the movements of the net monetary position during the year and the evolution of the inflation rate in comparison with the previous year.

B. Liquidity and Capital Resources

Our main source of liquidity consists of deposits, which totaled Ps. 488,741.4 million as of December 31, 2020, Ps. 357,866.4 million as of December 31, 2019 and Ps. 498,349.7 million as of December 31, 2018. 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 15% of our total deposits as of December 31, 2020 were derived from the non-financial public sector, in particular as a consequence of the Bank’s role as financial agent of four provinces. This is an important source of low-cost funding.

Total deposits, which grew 37% in 2020 compared to 2019, represented 79% of our total liabilities as of December 31, 2020. 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, 2020, we had liquid assets up to Ps. 440,518 million, primarily comprised of cash and due from banks (Ps. 129,967 million), LELIQS (Ps. 128,676 million) and other securities (Ps. 130,981 million). During 2020, the liquidity ratio increased from 67% as of December 31, 2019 to 90% as of December 31, 2020. 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 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% Notes due 2022 (Series B), for a nominal amount of Ps.4,620.6 million, and on April 9, 2018 we issued our 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 October 17, 2018, the board of directors 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 amounts of purchases of those issuances as of those dates. As of the date of this annual report and after the dates indicated in the preceding paragraph, we have made purchases for a nominal value of Ps. 511.5 million, with an outstanding nominal value of Ps.2,377.7 million (portfolio holdings deducted).

On October 16, 2019 and on January 29, 2020, the board of directors decided to cancel Series C Notes for a nominal value of Ps. 750.5 million and 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 notes were paid, the maturity and effective payment date was April 9, 2021. On such date, we have cancelled the principal and interest for an amount of Ps. 2,636.7 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.

We believe that we have adequate working capital to meet our current and reasonably foreseeable needs. As of December 31, 2020, we had excess regulatory capital of Ps. 132,091 million. Our excess capital is aimed at supporting growth, and consequently, a higher leverage of our balance sheet.

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For further information regarding management and administration guidelines in relation to liquidity risk please note 51 “Capital Management, Corporate Governance Transparency and Risk Management” to our audited consolidated financial statements as of December 31, 2020 and 2019. Additionally, for further information regarding our restricted assets and trust agreements please see notes 43 “Restricted assets” and 44 “Trust activities” to our audited consolidated financial statements as of December 31, 2020 and 2019.

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,
	2018 (1)			2019 (1)			2020 (1)
	(in thousands of Pesos,  except ratios and percentages)
Calculation of excess capital:
Allocated to assets at risk		15,609,273			21,403,835			28,025,138
Market risk		212,280			591,252			1,555,663
Operational risk		4,615,577			7,562,571			11,776,741
Required minimum capital under Central Bank Rules		20,437,130			29,557,658			41,357,542
Ordinary capital Level 1 (Con1)		52,285,150			83,090,092			146,350,388
Deductible concepts COn1		(3,046,813	)		(10,637,093	)		(9,149,860	)
Additional capital Level 1 (CAn1)		120			—			—
Capital Level 2 (COn2)		16,874,710			26,113,428			36,248,170
Total capital under Central Bank Rules		66,113,167			98,566,427			173,448,698
Excess capital		45,676,037			69,008,769			132,091,156

(1) These amounts are not adjusted for inflation.

As of December 31, 2020, we had no material commitments for capital expenditures. We believe that our capital resources are sufficient for our present capital requirements on an individual and a consolidated basis.

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, 2018, 2019 and 2020.

	As of December 31,
	2018 (1)		2019 (1)		2020
	(in thousands of Pesos)
Deposits
From the non-financial government sector		40,444,381		23,906,675		73,565,424
From the financial sector		310,531		427,702		696,415
From the non-financial private sector and foreign residents Checking accounts		51,179,996		54,625,032		65,401,102
Savings accounts		143,868,956		123,517,591		138,844,482
Time deposits		253,621,943		144,401,841		181,767,558
Investment accounts (2)		314,461		3,306,240		22,084,251
Other (3)		8,609,450		7,681,361		6,382,131
Financing received from the Central Bank of Argentina and other financial entities
Central Bank		51,157		36,732		20,043
Banks and international institutions		5,442,645		2,554,904		358,595
Financing received from Argentine financial entities		784,880		465,815		540,465
Other Financial Liabilities		32,074,038		30,181,836		49,215,887
Unsubordinated Corporate Bonds		13,355,897		7,521,820		4,926,901

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	As of December 31,
	2018 (1)		2019(1)		2020
	(in thousands of Pesos)
Subordinated Corporate Bonds		32,018,221		33,098,040		34,300,292
Shareholders’ equity		127,560,957		144,392,831		151,545,811
Total funding		709,637,513		576,118,420		729,649,357

(1) Figures adjusted for inflation as of December 31, 2020. See “Presentation of certain financial and other information.”

(2) Time deposit payable at the option of the depositor.

(3) Includes, among others, expired time deposits and judicial deposits.

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 discussed 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, 2020 and 2019.

Fair Value of financial instruments

As described in Note 3 section “Statement of financial position - Disclosure” 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 inputs.

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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 are under the direction of the accounting and financial management.

At level 3, we mainly hold Equity instruments at fair value through profit or loss (which comprises Prisma Medios de Pago S.A.) 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 12 to our audited consolidated Financial Statements.

Impairment of financial assets

The expected credit losses (ECL) allowance is a forward-looking approach which is based on the credit losses expected to arise over the life of the financial asset (the lifetime expected credit loss), unless there has been no significant increase in credit risk since origination, in which case, the allowance is based on the 12 months expected credit loss. We are required to record an allowance for ECL for all loans and other financing, other debt financial assets not held at Fair Value through Profit or Loss (FVPL) and other financial assets, together with loan commitments and financial guarantee contracts. Inherent in any ECL model is the estimate of the probability that a financial assets will default (probability of default, or PD), the estimate of the loss the bank expects to experience upon a default, expressed as a percentage of financial asset amount (loss given default, or LGD) and the drawn exposure at the time of default (EAD). The Bank uses an expert credit judgment overlay to reflect factors not captured in the results produced by the ECL model, such as market or economic disruptive events, like the COVID-19 pandemic.

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 note 3.2.4. and note 51.1 to our audited consolidated Financial Statements.

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”.

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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 provide value to our shareholders will depend, among other factors, upon the economic growth of the Argentine economy and the related growth of the private sector lending. For information about the macroeconomic environment see Item 5.A. “Operating Results”. For information about the argentine financial system see “The Argentine Financial System”.

For 2021, we expect the Argentine economy to recover modestly, showing an increase in real terms, based on an improved global economic outlook, higher demand for exports and resumption of domestic economic activities. However, the risks to the economy remain on the downside, implementation of COVID19 vaccinations and no disruption of economic activities are important to sustain growth. Inflation to be higher than last year’s level, affected by the consequences of the worldwide COVID-19 pandemic. As many other affected countries, during 2020 the Argentine government decided to reduce nominal interest rates to fuel the economy and, in the first part of the year, it might have negative real interest rates.

In addition, we expect deposits and loans to grow above inflation levels while margins are expected to remain stable. Moreover, efficiency measured as expenses over net financial and fee income is expected to deteriorate.

The uncertainty resulting from the Argentine government’s debt restructuring process and the economic impact of COVID-19 is likely to result in cautious economic decision making by the Argentine government. For further information, please see “Risk Factors—Risk relating to Argentina—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.”

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.

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 our home 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. In 2020, 1.5 million customers used digital channels, showing a 42% growth over 2019 and an increase in the use of the Bank’s digital app of approximately 80%. Monetary transactions through the digital app grew by approximately 200%, with a significant increase in the placement of loans and transfers through this means.

We expect to provide access to credit with special terms and conditions to the sectors that have been most affected by the commercial slowdown.

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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.67 billion has been available for credit lines to MiPyMEs at a rate of 24%.

• Approximately Ps.16 billion has been available for credit lines to MiPyMEs at a rate of 35%.

• An special credit line to pay salaries called “Asistencia de emergencia al trabajo y la producción” (ATP) was made available to more than 1.900 clients for a total amount of approximately Ps. 1.7 billion, guaranteed by the “Fondo de Garantías Argentino” (FoGAr).

As of the date of this annual report, the Bank has granted more than Ps. 84.7 billion 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 were partially offset by maintaining LELIQs’ interest rates unchanged and increasing REPO rates. During 2020 in the midst of the COVID-19 pandemic, the cost of liabilities increased as the Central Bank introduced regulation setting floors on deposit interest rates, while non-interest-bearing deposits were growing below 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 (5.2x. of asset to equity ratio as of December 31, 2020). In addition, deposits represented 79% of total liabilities as of December 31, 2020, where transactional and time deposits represented 48% and 52%, 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, 2020 was 17.5% of total assets, mainly concentrated in short-term peso instruments and Government securities adjusted by CER.

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.

As per Communication “A” 6939, Communication “A” 7035” and Communication “A” 7181 of the Central Bank, the distribution of profit by financial institutions is suspended until June 30, 2021, and we cannot predict whether this suspension will be extended beyond this period.

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. These measures included the massive extension of unpaid maturities – both of individual and corporate clients - and the granting of loans with advantageous conditions to facilitate the payment of salaries and preserve jobs in the economic sectors most affected by the reduction in income. The application of these decisions brought defaults to a minimum, although there is a higher-than-normal implicit risk among customers who made use of these regulatory advantages.

The Central Bank has also been issuing guidelines to normalize debt payments, so that from April this year there will be no new rescheduling of massive maturities; instead, each bank will have to deal with situations of impossibility of payment in the way they deem appropriate in each case. This will also mean that banks’ accounts will begin to reflect losses due to uncollectibility in accordance with the behavior of their portfolio. The Bank acknowledges the circumstances described above and an increase in bad debt charges and a deterioration of its assets subject to credit risk is to be expected.

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Nevertheless, we expect a solid performance of the asset portfolio, given the prudent credit policies carried out by the Bank, with risk diversification in sectors and regions; almost no exposure in the most affected sectors (tourism, air transport, airports); retail lending oriented to the most solid companies in the market; large relative share of lending linked to agricultural primary production and agro-industry -two of the sectors less affected by the pandemic-; among other reasons.

With regard to consumer and housing loans, the Bank has adopted lending policies geared to low-risk or well-scored customers, with a high relative share of loans to retirees and public sector employees, whose income and ability to pay are more stable and whose assets are credited to the Bank.

The Bank expects credit losses to be limited especially to customers who had to use the now known refinancing and maturity rescheduling mechanisms and to a lesser extent to those who have received facilities at subsidized rates.

Since statistical models do not appropriately reflect the effects arising from the pandemic on expected credit losses, the Bank decided to make a management adjustment based on an estimate of the impairment of the above-mentioned financial assets, which show greater vulnerability levels or signs of difficulties related to the payment of obligations. This adjustment, which is reflected in the financial statements as of December 31, 2020, will let a large part of the uncollectible losses resulting from the crisis to be addressed during the current financial year. See note 51.1.4 to our audited consolidated financial statements as of December 31, 2020 and 2019.

Potential impact on assets

The Bank’s asset structure is mainly short-term, with 90% of total assets comprised of cash and liquid instruments as of December 31, 2020. Additionally, as of December 31, 2020, long-term loans such as mortgages represented only 10% 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 90% of employees at our central offices have remote access to our systems 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:

	As of December 31,
	2018 (1)		2019 (1)		2020
	(In millions of Pesos)
Financial System (Central Bank Rules)
Total loans		2,365,472		2,883,383		3,774,713
Total deposits		4,084,868		4,838,886		8,049,027
Banco Macro (Central Bank Rules)
Total loans		177,969		218,774		265,377
Total deposits		237,957		262,865		488,741

Source: Central Bank for Financial System.

(1) Figures detailed in the table above have not been adjusted for inflation nor restated for the changes in the general purchasing power of the Argentine pesos as established by IAS 29.

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Total loans in the financial system increased in nominal values by 31% in 2020, and amounted to Ps. 3,774,713 million as of December 31, 2020, driven by private sector loans. Our portfolio shows the same trend in nominal value that the financial system as a whole shows.

Total deposits in the financial system increased in nominal values by 66% in 2020, driven by private sector deposits and a significant increase of public sector deposits. Private sector deposits increased by 63% in 2020, amounting to Ps. 6,521,345 million as of December 31, 2020. Public sector deposits decreased by 90% in 2020, amounting to Ps. 1,431,303 million. Our portfolio shows the same trend in nominal value that the financial system as a whole shows.

Private sector loans

In 2020, loans to the private sector grew 33% in nominal values for the financial system as a whole. This trend was also reflected in the evolution of our portfolio. Our private sector loan portfolio increased also 21% in nominal value compared to the balance as of December 31, 2019, as shown in the following table:

	As of December 31,
	2018 (1)		2019 (1)		2020
	(In millions of Pesos)
Financial System (Central Bank Rules)
Private sector loans		2,254,468		2,721,098		3,608,325
Banco Macro (Central Bank Rules)
Private sector loans		174,805		214,423		260,095

Source: Central Bank for Financial System.

(1) Figures detailed in the table above have not been adjusted for inflation nor restated for the changes in the general purchasing power of the Argentine pesos as established by IAS 29.

Asset Quality

As of December 31, 2020, the non-performing credit portfolio level decreased to 4.1% of the total credit portfolio, whereas the coverage ratio level reached 137% across the financial system as a whole, based on Central Bank Rules. Since March 2020, the Central Bank has taken a series of measures to reduce the impact of the economic stagnation caused by the pandemic, among them the deferral of payment of bank obligations of all debtors - companies as well as individuals -, the mandatory refinancing of overdue debts and the more flexible treatment for the recognition of the regulatory impairment of bank customers, which helped overpass 2020 with a low impact on the delinquency of banks’ portfolios. As a result of these flexibilities, a fall in portfolio irregularity was observed with a consequent increase in the level of coverage.

The non-performance ratio of the portfolio remains low with respect to the values observed in other economies of the region and emerging economies. Regarding the coverage ratio, the provisioning levels of the financial system continue to be high.

Our figures evidence a tendency which is in line with the trend shown by the financial system, but with milder results, the ratio of non-performing portfolio reached a level of 0.8% while the coverage ratio amounted to 461%, as of December 31, 2020, with significant improvements in contrast with the year before.

The table below reflects our asset quality and that of the financial system as of December 31, 2018, 2019 and 2020:

	As of December 31
	2018			2019			2020
Financial System (Central Bank Rules)
Non-performing lending ratio (1)		3.0	%		5.7	%		4.1	%
Coverage ratio (2)		121	%		94	%		137	%
Banco Macro (Central Bank Rules)
Non-performing lending ratio (1)		1.9	%		2.1	%		0.8	%
Coverage ratio (2)		110	%		105	%		465	%

Source: Central Bank for Financial System.

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(1) Non-performing lending includes all lending 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 Rules” under the Central Bank loan classification system.

(2) Allowances for un-collectability risk as a percentage of non-performing credit portfolio.

Profitability

In 2020 the profitability of the financial system increased by 1%, achieving a total of Ps. 313,740 million as of December 31, 2020, representing a 2.3% return on assets and 15.8% on equity.

The table below reflects our profitability and that of the financial system as of December 31, 2018, 2019 and 2020:

	As of December 31,
	2018 (1)			2019 (1)			2020
Financial System (Central Bank Rules)
Total income (in millions of Pesos)		144,428			312,051			313,740
Return on average equity		36.1	%		46.4	%		15.8	%
Return on average assets		4.1	%		5.4	%		2.3	%
Banco Macro (Central Bank Rules)
Total income (in millions of Pesos)		15,730			40,800			30,269
Return on average equity		30.7	%		59.0	%		20.9	%
Return on average assets		5.8	%		10.4	%		4.3	%

Source: Central Bank for Financial System.

(1) Figures detailed in the table above have not been adjusted for inflation nor restated for the changes in the general purchasing power of the Argentine pesos as established by IAS 29.

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 and medium-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 involving off-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.

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These instruments are subject to varying degrees of credit and market risk. We monitor credit risk and market risk associated with on- and off-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 outstanding off-balance sheet items do not represent an unusual credit risk.

For additional information of transactions and financial instruments with off-balance sheet risk see note 10 “Contingent transactions” and note 48 “Off balance sheet transactions” to our audited consolidated financial statements as of December 31, 2020 and 2019.

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, 2020:

	Maturing
	Total		Less than 1 year		1-3 years		3-5 years		After 5 years
Contractual Obligations
Financing received from the Central Bank of Argentina and other financial entities		919,103		880,532		38,571		—		—
Issued Corporate Bonds		4,926,901		2,549,205		2,377,696		—		—
Subordinated Corporate Bonds		34,300,292		642,292		—		—		33,658,000
Other Financial Liabilities		48,040,360		48,023,237		17,123		—		—
Operating Leases		1,175,527		415,851		414,524		190,818		154,334
Total contractual obligations		89,362,183		52,511,117		2,847,914		190,818		33,812,334
Commercial commitments
Lines of credit		970,286		970,286		—		—		—
Guarantees		1,282,770		1,142,055		140,715		—		—
Standby letters of credit		436,984		436,984		—		—		—
Total commercial commitments		2,690,040		2,549,325		140,715		—		—

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 2 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 be re-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.

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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:

Name	Position	Age		Year First Appointed as Director		Year of Expiration of Term
Delfín Jorge Ezequiel Carballo	Chairman		68		2002		2020
Jorge Pablo Brito	Vice Chairman		41		2002		2021
Carlos Alberto Giovanelli	Director		64		2016		2021
Nelson Damián Pozzoli	Director		54		2016		2021
Fabián Alejandro de Paul (1)	Director		57		2016		2021
Guillermo Merediz (1)(2)	Director		44		2020		2021
Constanza Brito	Director		39		2007		2020
Mario Luis Vicens (1)	Director		69		2016		2020
Guillermo Eduardo Stanley	Director		73		2018		2020
Mariano Ignacio Elizondo (1)(2)	Director		48		2020		2020
Delfín Federico Ezequiel Carballo	Director		36		2015		2022
Ramiro Tosi (1)(2)	Director		45		2020		2022
Santiago Horacio Seeber	Director		44		2018		2021	(3)
Alan Whamond (1)	Alternate director		59		2019		2021
Juan Santiago Fraschina (1) (2)	Alternate Director		44		2020		2021

(1) Independent Director under CNV Rules

(2) Proposed by ANSES-FGS.

(3) Corresponds to the expiry of the original term as Alternate Director. The position of Director shall be held until the next General Shareholders’ Meeting, in accordance with the provisions of Article 14 of the Bank’s by-laws.

The following family relationships currently exist within our Board of Directors:

(i) Jorge Pablo Brito is the nephew of Delfín Jorge Ezequiel Carballo;

(ii) Constanza Brito is the niece of Delfín Jorge Ezequiel Carballo;

(iii) Jorge Pablo Brito and Constanza Brito are siblings;

(iv) Delfín Federico Ezequiel Carballo is the son of Delfín Jorge Ezequiel Carballo;

(v) Delfín Federico Ezequiel Carballo and Jorge Pablo Brito and Constanza Brito are cousins.

SENIOR MANAGEMENT

Our senior management oversees our day-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,

• asset laundering and terrorist financing prevention committee,

• senior recovery committee,

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• 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:

Name	Position	Age
Gustavo Alejandro Manriquez	Chief Executive Officer and General Manager	51
Jorge Francisco Scarinci	Chief Financial Officer and Finance Manager	50
Gerardo Adrián Álvarez	Human Resources and Administration Manager	51
Marcelo Agustín Devoto	Investment Banking Manager	45
Alberto Figueroa	Internal Audit Manager	60
Ana María Magdalena Marcet	Credit risk Manager	60
Juan Domingo Mazzon	Government Banking and Management Control Manager	47
Ernesto Eduardo Medina	Operations and Technology Manager	54
Brian Anthony	Commercial Banking Manager	47
Francisco Muro	Distribution and sales Manager	48
Adrián Mariano Scosceria	Corporate Banking Manager	55
Ernesto López	Legal Manager	48

Set forth below are brief biographical descriptions of members of our directors and our senior management:

Delfín Jorge Ezequiel Carballo was born on November 21, 1952. Mr. Carballo is the Chairman of our Board of Directors since November 30, 2020 and he was the vicechairman of our board since April 30, 2020 until November 30, 2020 and previously he had been the chairman of the Board of Directors since April 27, 2018 until April 30, 2020 and the vice chairman of our Board of Directors until April 27, 2018. He holds a law degree from Universidad Católica Argentina. He joined our board in June 1988. Mr. Carballo also serves as chairman of the Board of Directors of Santa Genoveva S.A. and as alternate director of BYMA S.A.

Jorge Pablo Brito was born on June 29, 1979. Mr. Brito is the Vice Chairman of our Board of Directors since November 30, 2020 and he was a member of our board since April 30, 2020 until November 30, 2020 and previously he had been the vice chairman of our board since April 27, 2018 until April 30, 2020. He has been a member of our Board of Directors since 2002 and our Chief Financial Officer since April 16, 2012 until November 8, 2017. He also serves as chairman of the Board of Directors of Macro Securities S.A., Inversora Juramento S.A. and Genneia S.A., and as director of Macro Bank Limited.

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 Havanna S.A, Desarrollo PI S.A., and Inverlat Investments S.A. He is also vice chairman of Impresora Contable S.A, Havanna Holding S.A., Aspro Servicios Petroleros S.A. and QSR S.A. and as incumbent director of New Arrecife S.A., and Desarrollo Epsilon S.A.

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 Aspro Servicios Petroleros S.A. He is also vice chairman of New Arrecife S.A,

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Inverlat Investments S.A. and Desarrollo Epsilon S.A and he is incumbent director of Macro Securities S.A., Impresora Contable S.A., QSR S.A., Desarrollo Pi S.A. and Cablevisión Holding S.A. Furthermore, he serves as alternate Director of Havanna S.A. and Havanna Holding S.A.

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).

Guillermo Merediz was born on December 12, 1976. He was appointed as director on April 30, 2020, as representative of the ANSES-FGS. Mr. Merediz holds a degree in economics from the Facultad Latinoamericana de Ciencias Sociales. Mr. Merediz was appointed on December, 2019, Secretary of PyMES at the Ministry of Production.

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 director of Visora Desarrollos Inmobiliarios S.A.

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 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).

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 Universidad Argentina de la Empresa (UADE).

Mariano Ignacio Elizondo was born on June 18, 1972. He was appointed as Director on May 27, 2020, as a representative of the ANSES-FGS. Mr. Elizondo holds a degree in accounting from the Universidad de Buenos Aires. He also holds a Master’s degree in Financial Assets Management from ESEADE. From 2004 through 2014 he has been the general manager of Ideas del Sur, the leading media production company of South America. Mr. Elizondo was later manager of a group of media companies. From 2017 to 2020 he was president of the Superliga Argentina de Fútbol.

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. He is vice chairman of Santa Genoveva S.A. and Argenpay S.A.U. Mr. Carballo also serves as incumbent director of Colbrey S.A., Milsbor Corporation S.A., Havanna S.A. and Havanna Holding S.A. and as alternate director of Genneia S.A.

Ramiro Tosi, was born on June 17, 1975. He was appointed as director on April 30, 2020, as representative of the ANSES-FGS. 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. Upon the decease of Mr. Jorge Horacio Brito, he was appointed as Director on November 30, 2020, until the next General Shareholders’ Meeting. He has been an alternate member of our Board of Directors since April 27, 2018 to November 30, 2020 and since April 16, 2012 to April 26, 2016. Mr. Seeber served in different positions in the Bank since November 2002. He also serves as chairman of the Board of Directors of LAB Real Estate S.A., as vice-chairman of Comercio Interior S.A. and Anglia S.A. and as director of Inversora Juramento S.A., Frigorífico Bermejo S.A., and MediaInvest S.A.

Alan Whamond was born on May 13, 1961. He has been a member of our Board of Directors since April 30, 2019. Mr. Whamond holds a degree in industrial engineer from Instituto Tecnológico de Buenos and a Master´s degree in Finance from Stanford University. In the financial industry, he worked as vice-president of Credit Suisse First Boston Corp. and as managing director of Pampa Management S.A. He also serves as director of the board of Directors of Cablevisión Holding S.A., Delmar Asesores S.A. and Naturgy Ban S.A and as administrator of Consultora Tecnopolítica SAS.

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Juan Santiago Fraschina was born on January 14, 1977. He was appointed as Alternate Director on May 27, 2020, as representative of the ANSES-FGS. Mr. Fraschina holds a degree in economics from the Universidad de Buenos Aires. From 2012 through 2014 he as Deputy Superintendent at the National Superintendency of Assurances. He also serves as director of Ternium S.A. and Pampa Energía S.A. and as alternate director of Telecom S.A., Edenor S.A. Transener S.A. and Edesa Holding S.A.

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 Committee. Mr. Manriquez holds a degree in Business Management from Universidad de Belgrano and a Master’s degree in Finance from Universidad del CEMA, as well as a Management degree and a Directive Development degree from IAE. Mr. Manriquez joined us in February 2015.

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 Alvarez was born on December 13, 1969. He is our Human Resources Manager since October 2020 and our Administration Manager since April 2010, and a member of the Ethics and Compliance Committee. Mr. Alvarez holds a law degree from the Instituto Universitario Policía Federal Argentina and a post-graduate degree in Money Laundering from Universidad Torcuato Di Tella. He has been with us since January 2006.

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 post-graduate degree in Finance from Universidad Torcuato Di Tella. He joined us in December 2000. He also serves as chairman of Macro Bank Limited, as vice president of Macro Securities S.A. and as director of Macro Fiducia S.A.

Alberto Figueroa was born on September 1, 1960. He is our Internal Audit Manager since October 2019 and a member of the Internal Audit Committee. Mr. Figueroa holds a degree in Public Accounting from Universidad de Buenos Aires. Mr. Figueroa joined us in March 2007 and was our Manager of Comprehensive Risk Management since March 2009 until October 2019.

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 Universidad de Buenos Aires and a Master’s degree in Bank Management from Universidad del CEMA. Mrs. Marcet joined us in December 1996.

Juan Domingo Mazzon was born on April 14, 1974. He is our Manager of Government Banking and Management Control since August 2019 and member of the Assets and Liabilities Committee and the Systems Committee. Mr. Juan Mazzon holds a degree in Public Accounting from Universidad Argentina de la Empresa (UADE) and holds an MBA from Vanderbilt University (USA). Mr. Mazzon joined us in October 2017.

Ernesto Eduardo Medina was born on January 9, 1967. He is our Operations and Technology Manager since August 2020 and has been our Human Resources Manager since October 2016. He is a member of the Systems Committee and the Risk Management Committee. Mr. Medina holds degrees in Public Accounting and Business Management from Universidad de Buenos Aires. He also has a degree in computer science from Universidad de Buenos Aires and a Psychology degree from Universidad de Ciencias Empresariales y Sociales. He holds two Master’s degree in Renewable Energies and Environment Management, both from Universidad de Cádiz and a Master’s degree in Clinical Neuropsychology from Universidad Europea Miguel Cervantes. Mr. Medina joined us in February 1989.

Brian Anthony was born on April 17, 1973. He is our Commercial banking manager since April 2021. Mr. Anthony has had several positions in the bank in the past, such as Distribution and Sales, Human Resources, Management Control and Strategic Planning. Mr. Anthony holds a degree in Business Management from Universidad CAECE.

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 Universidad de Buenos Aires and a Master’s degree from IAE (Universidad Austral). Mr. Muro joined us in August 2004. He also serves as director of Argenpay S.A.U.

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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 Committee. Mr. Scosceria holds a degree in Business Administration from Universidad Católica Argentina and a specialization in Administration and Management from Harvard University.

Ernesto López was born on October 5, 1972. He is our Legal Manager since December 2019 and a member of the Asset Laundering and Terrorist Financing Prevention Committee, the Senior Recovery Committee, the Ethics and Compliance Committee, the Senior Credit Committee and the Financial Services Users Protection Committee. Mr. López holds a Law degree from University of Buenos Aires. He also serves as director of Macro Fiducia S.A. and Argenpay S.A.U.

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 amount of compensation to all directors, alternate directors and members of supervisory committee for fiscal year 2020 was Ps. 1,623.3 million for 2020. The aggregate nominal amount of compensation paid by Banco Macro to its senior management during 2020 was Ps. 263.3 million, including salaries and bonuses. Neither we nor any of our subsidiaries have entered into any agreement that provides for any benefit or compensation to any director after the expiration of his term or upon his retirement.

C. Board Practices

Corporate Governance

As a listed company on the NYSE, we are required under the rules governing listed companies to:

(i) comply with SEC’s requirements concerning an audit committee,

(ii) submit an annual written affirmation to the NYSE and interim written affirmations, if applicable,

(iii) disclose any significant ways in which our corporate governance practices differ from those followed by domestic companies under the NYSE listing standards, and

(iv) our CEO must promptly notify the NYSE in writing after any executive officer becomes aware of any non-compliance with any of the applicable NYSE corporate governance rules.

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 website www.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 a pre-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

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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 of not-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, 2018. As of the date of this annual report, Mario Luis Vicens, Fabián Alejandro de Paul, Guillermo Merediz, Mariano Ignacio Elizondo, Ramiro Tosi and the alternate directors Alan Whamond and Juan Santiago Fraschina qualified as independent members of our Board of Directors under these criteria specified by the CNV.

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:

(i) is the owner, partner, director, administrator, manager or employee of the company or economically related entities;

(ii) is the spouse or relative (collateral until fourth grade), or relatives by affinity until second grade, of one of the owners, partners, directors, administrators or managers;

(iii) is a shareholder, debtor, creditor or guarantor of the company or economically related entities, representing a significant amount if compared with its own wealth or the company’s net equity;

(iv) possesses a significant amount of interest in the company or economically related entities (or if it has had such interest during the period to be audited);

(v) if the remuneration depends on or is contingent with the conclusions or results of its auditing work;

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(vi) if the remuneration agreed depends on the result of the operations of the company.

As of the date of this annual report, Alejandro Almarza, Carlos Javier Piazza, Enrique Alfredo Fila, Alejandro Carlos Piazza, Leonardo Pablo Cortigiani and Gustavo Macagno are qualified as independent members of our supervisory committee under these criteria.

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 Argentine sociedad 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:

(i) attending meetings of the Board of Directors, and shareholders meetings,

(ii) calling special shareholders’ meetings when deemed necessary and ordinary and special shareholders’ meetings when not called by the Board of Directors and

(iii) investigating written complaints of shareholders. In performing these functions, the supervisory committee does not control our operations or assess the merits of the decisions made by the Board of Directors.

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:

Name	Position	Age		Year of Appointment		Current Term Ends
Alejandro Almarza	Syndic		63		2020		April 2021
Carlos Javier Piazza	Syndic		62		2020		April 2021
Enrique Alfredo Fila (1)	Syndic		62		2020		April 2021
Alejandro Carlos Piazza	Alternate syndic		66		2020		April 2021
Leonardo Pablo Cortigiani	Alternate syndic		52		2020		April 2021
Gustavo Macagno (1)	Alternate syndic		67		2020		April 2021

(1) Appointed by ANSES—FGS, as instructed by the Sindicatura General de la Nación.

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 was born on January 16, 1958. Mr. 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., Argenpay SAU and Seguro de Depósitos S.A. and as alternate member of the supervisory committee of Banco de Valores S.A., Empresa de Energía Río Negor S.A. and Opción Seguros S.A. Mr. Almarza was admitted to the Accountants Professional Association of the City of Buenos Aires in 1983.

Carlos Javier Piazza was born on September 16, 1958. Mr. 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. Macro Securities S.A., Macro Fiducia S.A., Argenpay SAU and Banco de Valores S.A. Mr. Piazza was admitted to the Accountants Professional Association of the City of Buenos Aires in 1983.

Enrique Fila was born on April 5, 1959. Mr. Fila holds an accounting degree from Universidad Nacional de la Plata. Mr. Fila aso serves as member of the supervisory committee of Nación Seguros S.A., Nación Seguros de retiro S.A. and Nación Reaseguros S.A.

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Alejandro Carlos Piazza was born on July 7, 1954. Mr. 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 was born on July 21, 1968. Mr. 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.

Gustavo Macagno was born on November 22, 1953. Mr. Macagno holds an accounting degree. Mr. Macagno also serves as syndic of Tandanor S.A. and Ferrosur Roca and as alternate syndic of Distribuidora de Gas Cuyana S.A. and Corporación Antiguo Puerto Madero S.A.

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 of Rule 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:

(i) delivering an opinion regarding the board of director’s proposal of appointment of our external auditors and controlling their independent status,

(ii) supervising the correct performance of our internal control and accounting systems,

(iii) supervising the observance of the policies regarding information about our risk management and

(iv) delivering an opinion regarding transactions with related parties or transactions that may threaten any conflicts of interest.

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 Technology Manager and the Government Banking and Management Control Manager. The systems committee is responsible for the issuance of the systems and operations management policies. Furthermore, this committee verifies that the several management plans are in accordance with our business strategy and oversees the implementation of our strategic projects.

The main functions of the systems committee are to:

(i) oversee the proper functioning of Information Technology and Systems,

(ii) contribute to the improvement of the information technology and systems environment effectiveness;

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(iii) take notice of the Information Technology and Systems Plan;

(iv) periodically evaluate the Information Technology and Systems Plan and review its compliance;

(v) review the reports issued by environmentally related audits of Information Technology and Systems and oversee the implementation of corrective actions designed to stabilize or minimize any weaknesses observed; and

(vi) maintain timely communication with officials of the External Audit Management Systems Division of the Superintendence in relation with any problems identified in inspections and monitor actions undertaken to solve such problems.

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 Ps.155,000,000 and examines periodic reports related to our loan portfolio.

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 Manager and the Finance Manager. The committee is responsible for the financial strategy of the Bank. In addition, it carries on deep market analysis and establishes strategic policies related to our liquidity, market, interest rate and currency risks.

Asset Laundering and Terrorist Financing Prevention Committee. The Committee is made up of four directors, one of whom is a responsible officer designated as Compliance Officer, the Legal Manager and the senior officer responsible for the anti-laundering unit. The asset laundering and terrorist financing prevention committee is responsible for planning, coordinating and monitoring compliance with anti-money laundering policies approved by the Board of Directors and its powers include to:

(i) define policies for compliance with anti-money laundering corporate guidelines,

(ii) be a permanent forum for the discussion of money laundering and terrorist financing risks that affect the Bank,

(iii) promote the definition of strategies controls to prevent money laundering and terrorist financing and implement such controls,

(iv) be responsible for the continued update of the manual of procedures for the prevention of money laundering and terrorist financing, in accordance with regulatory changes and new Bank needs,

(v) monitor the implementation of a program designed to provide training and raise awareness regarding the prevention and control of money laundering and terrorist financing,

(vi) establish appropriate mechanisms for internal reporting of unusual or suspicious activities,

(vii) analyze any unusual or suspicious transactions to be reported to the relevant governmental agencies in compliance with applicable regulations, and subsequently inform to the Board of Directors,

(viii) provide support to the head of the asset laundering and terrorist financing prevention committee in the examination of unusual or suspicious transactions,

(ix) approve and follow-up on the work program submitted by the asset laundering and terrorist financing prevention committee for the relevant fiscal year, for which it will report to the Board of Directors and

(x) perform any other duties that may be imposed under applicable laws and regulations.

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 Risk Management Manager, the Finance Manager, the Credit Risk Manager, the Banking Operations Manager and the Technology Manager.

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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 Compliance Manager, the Human Resources Manager and the Legal Manager.

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 directors.

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 directors.

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 12^th floor, Ing. Butty 275, City of Buenos Aires (C1001AFA). Bruchou, Fernández Madero & Lombardi provides us legal advice in the creation of the Program and the issuance of negotiable obligations. Our tax advisor in Argentina is Estudio Della Roca-Piazza-Almarza, 15th floor, 432, 25 de Mayo St., City of Buenos Aires, Argentina.

Auditors

Banco Macro’s auditors for the last three fiscal years were:

Financial Statements as of	Auditor	Tax ID		Firm	Address		Enrollment
December 31, 2018	Norberto M. Nacuzzi		20-16579856-3	Pistrelli, Henry Martin y Asociados S.R.L. (member of Ernst & Young Global)		487 25 de Mayo	C.P.C.E.C.A.B.A. T°196 F°142
December 31, 2019	Carlos M. Szpunar		20-17802096-0	Pistrelli, Henry Martin y Asociados S.R.L. (member of Ernst & Young Global)		487 25 de Mayo	C.P.C.E.C.A.B.A. T°192 F°110
December 31, 2020	Carlos M. Szpunar		20-17802096-0	Pistrelli, Henry Martin y Asociados S.R.L. (member of Ernst & Young Global)		487 25 de Mayo	C.P.C.E.C.A.B.A. T°192 F°110

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Banco Macro’s alternate auditor was:

Auditor	Tax ID		Firm	Address		Enrollment
Pablo M. Moreno		20-16171094-7	Pistrelli, Henry Martin y Asociados S.R.L. (member of Ernst & Young Global)		487 25 de Mayo	C.P.C.E.C.A.B.A. T°164 F°235

All the auditing firm’s members are enrolled in the Professional Council in Economic Sciences of the City of Buenos (C.P.C.E.C.A.B.A.).

D. Employees

As of December 31, 2020, we had 8,561 employees, 38% of whom worked at our headquarters and the remaining 62% at our branches. Our employees are represented by a national bank union, which negotiates a collective bargaining agreement setting minimum wages for all of its members. We maintain good relations with our employees and have never experienced a work stoppage.

	As of December 31,
Employees	2018		2019		2020
Headquarters		3,550		3,338		3,202
Branches		5,478		5,430		5,359
Total (1)		9,028		8,768		8,561

(1) If workers were 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 in the calculation, the number of our employees would have been, 9,113 and 8,788 in 2018 and 2019, respectively. We do not account for such workers as employees, as we do not remunerate them for their services, which are paid directly by the Argentine province where they work.

E. Share Ownership

As of March 31, 2021, the persons who were members of Banco Macro S.A.’s Board of Directors and supervisory committee held as a group a total of 117,243,204 shares of our capital stock. This represented 18.34% of our outstanding capital stock and 20.00% of the voting rights as of such date. Other than Delfín Jorge E. Carballo, Delfín Federico E. Carballo, Jorge Pablo Brito and Leonardo Pablo Cortigiani, no member of the Board of Directors or the supervisory committee directly or beneficially owned shares of the Bank as of March 31, 2021. In addition, Alberto Figueroa, Ernesto López and Juan Domingo Mazzon, members of our senior management, owned less than one percent of Class B shares as of March 31, 2021.

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 March 31, 2021:

Shareholder Name	Number of Class A shares owned		Number of Class B shares owned		Percentage of Capital stock (%)			Percentage of Voting rights (%)
Delfín Jorge Ezequiel Carballo		4,900,397		106,824,523		17.47	%		19.19	%
Other members		—		5,518,284		0.86	%		0.81	%
Total		4,900,397		112,342,807		18.34	%		20.00	%

Item 7. Significant Shareholders and Related Party Transactions

A. Significant Shareholders

As of December 31, 2020, we had 639,413,408 outstanding shares of common stock, consisting of 11,235,670 Class A shares and 628,177,738 Class B shares. Each share of our common stock represents the same economic interests, except that holders of our Class A shares are entitled to five votes per share and holders of our Class B shares are entitled to one vote per share. Other than noted differences among holders of Class A shares and holders of Class B shares, the holders of these shares listed in the table below do not have different voting rights.

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The following table sets forth information regarding the ownership of our Class A and Class B shares as of December 31, 2020:

	Class A		Class B			Total		% of capital			% of votes
ANSES		0		184,120,650			184,120,650		28.80	%		26.90	%
Trust JHB (1)		5,995,496		104,473,881			110,469,377		17.28	%		19.65	%
Delfín Jorge Ezequiel Carballo		4,899,897		106,824,523			111,724,420		17.47	%		19.19	%
Other		340,277		232,758,684	(2)		233,098,961		36.45	%		34.26	%
Total		11,235,670		628,177,738			639,413,408		100.00	%		100.00	%

(1) Upon the death of Jorge Horacio Brito, his shares were transferred ad referendum of the Central Bank of Argentina to a Trust whose beneficiaries are his forced heirs.

(2) Includes The Bank of New York Mellon as depositary of our ADSs.

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 years:

Date	Capital Stock (Shares)		Event	Significant Shareholders
December 31, 2018		669,663,021		Jorge H. Brito 16.59%; Delfín Jorge Ezequiel Carballo 16.68%; ANSES (as manager of the Fondo de Garantía de Sustentabilidad) 27.49%
December 31, 2019		639,413,408	Decrease by 30,265,275 (1) Increase by 15,662 (2)	Jorge H. Brito 17.37%; Delfín Jorge Ezequiel Carballo 17.47%; ANSES (as manager of the Fondo de Garantía de Sustentabilidad) 28.80%
December 31, 2020		639,413,408		Trust JHB (3) 17.28%; Delfín Jorge Ezequiel Carballo 17.47%; ANSES (as manager of the Fondo de Garantía de Sustentabilidad) 28.80%

(1) Capital reduction as approved by the Shareholders’ Meeting held on April 30, 2019.

(2) Increase in share capital due to the merger of Banco Macro S.A. and Banco del Tucumán S.A. as approved by the Shareholders’ Meeting held on April 30, 2019.

(3) Upon the death of Jorge Horacio Brito, his shares were transferred ad referendum of the Central Bank of Argentina to a Trust whose beneficiaries are his forced heirs.

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, 2018, 2019 and 2020 an aggregate of Ps. 2,617.6 million, Ps. 4,510.7 million and Ps. 1,810.3 million, respectively, in financial assistance granted by us (including loans, leases and guarantees granted) was outstanding to related parties (not including main subsidiaries). All financial assistance to related parties (a) were made in the ordinary course of business; (b) were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons, and (c) did not involve more than the normal risk of collectability or present other unfavorable features.

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Likewise, as of December 31, 2018, 2019 and 2020, the total amount of deposits made by related parties (not including main subsidiaries) to us amounted Ps. 16,019.1 million, Ps. 19,615.4 million, and Ps. 4,441.2 million, respectively.

For further information regarding related party transactions see note 19 “Related parties” to our audited consolidated financial statements as of December 31, 2020 and 2019.

C. Interest of experts and counsel

Not applicable.

Item 8. Financial Information

A. Consolidated Statements and Other Financial Information

See Item 18 and our audited consolidated financial statements as of December 31, 2020 and 2019 included in this annual report.

Legal Proceedings

We are involved in normal collection proceedings and other legal proceedings in the ordinary course of business. Also, we are involved in some class actions, some of which have been settled and others appealed by the Bank. However, 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 49 “Tax and other claims” to our audited consolidated financial statements as of December 31, 2020 and 2019. In connection with such claims, our management and its tax and legal advisors believe there are no additional significant effects to those already recognized in the books that may result from the final outcome of such claims.

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” 5689 and 5940 of the Central Bank, as amended or supplemented from time to time. Our management and our legal advisors believe that no further significant accounting effects could arise from the effect of the mentioned situations.

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 considers 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 2020. All banks were prohibited by the Central Bank from paying dividends in respect of the results of 2001 and 2002.

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Based on financial statements for year ended December 31,	Payment Dates			Dividends per Share (in Pesos, not adjusted for inflation)			Aggregate Dividend Payment (in millions of Pesos, not adjusted for inflation)
2003		July 2004			0.10			60.9
2004		April 2005			0.05			30.4
2005		May 2006			0.10			68.4
2006		May 2007			0.15			102.6
2007		May 2008			0.25			171.0
2008		September 2009			0.25			149.9	(1)
2009		June 2010			0.35			208.1
2010		May 2011			0.85			505.3
2011		—			0.00			0.0
2012		—			0.00			0.0
2013		July 2014			1.02			596.3
2014		March 2016			0.39			227.7	(2)
2015		August 2016			1.10			643.0
2016		June 2017			1.20			701.5
2017		May 2018			5.00			3,348.3
2018		May 2019			10.00			6,394.0
2019			(3)			(3)			(3)
2020			(4)			(4)			(4)

(1) For fiscal year ended December 31, 2008, dividends paid in cash were Ps.148.3 million based on the outstanding number of shares on the payment dates.

(2) For the fiscal year ended December 31, 2014, we sought authorization from the Central Bank to distribute Ps.596.3 million (Ps.1.02 per share) and in February 2016 we received authorization to distribute Ps.227.70 million (Ps.0.3895 per share).

(3) The shareholder´s meeting held on April 30, 2020 resolved to approve a cash dividend for a total amount of Ps. 12,788.3 million subject to prior authorization of the Central Bank. In addition, the shareholder’s meeting held on October 21, 2020 resolved to approve a complementary dividend for a total amount of Ps. 3,791.7 million subject to prior authorization of the Central Bank. Pursuant to Communication “A” 7181 of the Central Bank, the distributions of profits are suspended until June 30, 2021.

(4) The Board of Directors´ meeting held on March 17, 2021, resolved to submit for discussion by the Shareholders’ Meeting the motion to distribute the amount of Ps.15.64 per share, which shall mean a total amount to be distributed of AR$ 10,000.4 million subject to prior authorization of the Central Bank.

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 “Item 4.B—Argentine Banking Regulation—Liquidity and Solvency Requirements—Requirements Applicable to Dividend Distribution.”

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 whose 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 dividends.

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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, 2014, 2015 and 2016, we sought authorization from the Central Bank to distribute dividends, which we paid in July 2014, March 2016, August 2016 and June 2017. As a result of certain regulatory modifications introduced by the Central Bank, dividend payments made for the years 2017 and 2018 did not require prior authorization. The dividend payment for the year 2019 is still pending authorization from the Central Bank.

On January 31, 2020, the Central Bank issued Communication “A” 6886, pursuant to which financial entities must obtain prior approval of the Central Bank in order to distribute dividends. The Superintendency shall take into account the effects of the enforcement of section 5.5 of the International Financial Reporting Standards 9 by Communication “A” 6430 and the restatement of the financial statements as provided by Communication “A” 6651, among others. The dividend payment for the year 2019 is still pending authorization from the Central Bank.

On March 19, 2020, in the midst of the COVID-19 crisis, the Central Bank issued Communication “A” 6939, as amended from time to time, by virtue of which the distribution of dividends by financial entities was temporarily suspended until June 30, 2021.

For more information, see Item 4.B.—Business Overview—Argentine Banking Regulation—Liquidity and Solvency Requirements—Requirements Applicable to Dividend Distribution.”

Additional regulatory and contractual restrictions exist which could affect the distribution of earnings and are included in note 50 “Restriction on dividends distribution” of our audited consolidated financial statements as of December 31, 2020 and 2019.

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 (For more information see note 50 “Restriction on dividends distribution” of our audited consolidated financial statements as of December 31, 2020”). 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:

(i) to comply with the legal reserve requirement,

(ii) to pay the accrued fees of the members of the Board of Directors and statutory supervisory committee;

(iii) to pay fixed dividends, which are applied first to pending and unpaid dividends and holders of preferred stock (if applicable);

(iv) for voluntary or contingent reserves, as may be resolved from time to time by our shareholders at the annual ordinary or special shareholders’ meeting; and

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(v) the remainder of the net income for the year may be distributed as dividends on common stock or as otherwise decided by our shareholders at the annual ordinary shareholders’ meeting.

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.

Item 9. The Offer and Listing

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 a sociedad anónima, or a stock corporation, for a 99-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 of Estatutos. 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 of Sociedades Anónimas.

As of December 31, 2020 our capital stock consisted of Ps.639,413,408, represented by 11,235,670 common, book-entry Class A shares, with a par value of one Peso each and the right to five votes per share, and 628,177,738 common, book-entry Class B shares, with a par value of one Peso each and the right to one vote per share.

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.

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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 a one-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 a spin-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 or spin-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 on pro-rata basis for the unsubscribed shares remaining at the end of a preemptive rights offering, known as accretion rights.

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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 rights may be offered to third parties.

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 or spin-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 our by-laws or other organizational documents regarding the rights of non-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:

(i) the right to participate in the company’s profits;

(ii) the right to be informed and receive information from the company through the syndics or supervisory committee, including the right to request information or reports (shareholders representing at least 2% of the capital stock of the company are entitled to request the syndic or the members of the supervisory committee information related to their functions and certain investigations);

(iii) the right to request a shareholders’ meeting (shareholders representing at least 5% of the capital stock of the company may request the call of a shareholders’ meeting);

(iv) the right to disapprove the performance of the members of the Board of Directors (the liability of the company’s directors and managers shall be extinguished if their performance is later approved by the shareholders at a shareholders’ meeting, or if they resign, provided that such liability is not incurred as a consequence of the violation of the applicable laws or the company’s bylaws and if it does not mediate opposition of at least 5% of the capital stock); and

(v) the right to judicially object those shareholders’ meetings resolutions violating the law or company’s regulations and a right to ask for a judicial or administrative intervention when the administrator or administrators of a company execute acts or neglect acts whose omission places the company in serious danger.

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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:

(i) the disposition of, or creation of any lien over, our assets as long as such decision has not been performed under the ordinary course of business;

(ii) the execution of administration or management agreements; and

(iii) whether to approve the payment of any agreement providing assets or services to us as long as such payment is material when measured against the volume of the ordinary course of business and our shareholders’ equity.

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 purposes non-voting preferred shares shall have voting rights), without application of multiple votes, is required at both the first and second meeting for:

(i) the transfer of our domicile outside Argentina,

(ii) a fundamental change of the corporate purpose set forth in our bylaws,

(iii) our anticipated dissolution,

(iv) the total or partial redemption of shares,

(v) our merger or spin-off, if we are not the surviving entity, or

(vi) the transformation of our corporate legal status, in which cases resolutions shall be adopted by the affirmative vote of the majority of shares with the right to vote.

Preferred shares will be entitled to one vote in these circumstances.

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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.

By means of CNV’s General Resolution No. 830/2020, dated April 3, 2020, publicly offered entities are allowed to hold remote shareholders and board of directors meetings, via electronic means, even if their respective bylaws do not provide for this, respecting the minimum requirements to ensure the integrity of the vote of each participant and the presence of all shareholders and members, respectively.

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 be re-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 be re-elected indefinitely.

Change in capital

Our by-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:

(a) the shares to be acquired shall be subscribed and paid-off;

(b) there shall be a resolution signed by the board of directors to such effect (duly reported to the supervisory committee and the audit committee);

(c) the acquisition shall be made using the net profits or free or voluntary reserves; and

(d) the total amount of shares acquired by the issuer, including previously acquired shares (and are held as treasury stock by the issuer), shall not exceed 10% of the capital stock or such lower percentage determined by the CNV.

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.”

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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 for Oferta Pública de Adquisición Obligatoria) in any of the scenarios set forth below:

a) acquisition of shares or share subscription rights or options granted by the company, corporate bonds convertible into shares or similar securities which, directly or indirectly, may give a right a controlling interest in the company;

b) execution of agreements by and among other holders of securities, which grant the necessary votes to control the company’s decisions or to appoint or revoke a majority of the members of the Supervisory Committee, as well as any other agreement which regulates the right to vote in the Board of Directors or in any of its delegate bodies. This scenario shall be applicable when the parties to the agreement have acquired the voting shares of the company, acting either individually or jointly, within the 12 months prior to the execution of the agreement; or when a new shareholder agrees to a joint control of the company with existing shareholders. Furthermore, this scenario shall not be applicable when the acquired interest is below 50% of a controlling subsidiary of a publicly traded company; or

c) indirectly or contingently, including the cases of mergers or other corporate reorganizations, involving a company that has direct or indirect shareholding with the right to vote in a publicly traded third party.

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:

(i) the higher price that the offeror, acting individually or jointly, may have payed or agreed to pay for the securities to be offered by virtue of the OPA during the 12 months prior to the beginning of the period during which the OPA must take place;

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(ii) the average price of the shares for the last six months before the “offer.”

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

In 2020, several banks of the argentine financial system constituted Play Digital S.A., a society that developed the fintech platform called “Modo”. Initially, the shareholders’ were Banco de Galicia y Buenos Aires SAU, Banco BBVA Argentina SA, Banco Santander Río SA and Banco Macro SA. Subsequently, other banks were accepted as shareholders together with the abovementioned, and at the date of this annual report there are 32 shareholder banks. Modo is an online wallet that allows its users to send and request money between contacts, integrate all their cards and bank accounts into a single software application and pay through Quick Response (QR) codes. At the date of this annual report, the Bank holds 9.9545% of the total shareholder equity of Play Digital S.A.

During the past two years we did not enter into or became party to another contract that is required to be disclosed under this item, other than the above-mentioned society.

D. Exchange Controls

On September 1, 2019, after the market disruptions caused by the results of the PASO elections, with the purpose 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 Argentine government issued Decree

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No. 609/2019 whereby foreign exchange controls were temporarily reinstated. The decree: (i) reinstated, originally until December 31, 2019, the exporters’ obligation to repatriate the proceeds from exports of goods and services in the terms and conditions set forth by the Central Bank’s implementing regulations and settle for Pesos through the FX Market; and (ii) authorized the Central Bank to (a) regulate access to the FX Market for the purchase of foreign currency and outward remittances; and (b) set forth regulations to avoid practices and transactions aimed to circumvent, through the use of securities and other instruments, the measures adopted through the decree. On the same date, the Central Bank issued Communication “A” 6770, which was subsequently amended and supplemented by further Central Bank communications.

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’s communications (the “FX Regulations”). Below is a description of the main exchange control measures implemented by the FX 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 in Pesos through the FX Market, the proceeds of their exports of goods cleared through customs as from September 2, 2019.

Although the FX Regulations maintain the obligation to repatriate export proceeds to Argentina through the FX Market, in accordance with section 2.6, exporters are authorized to avoid the settlement in 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 FX Market, 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 is tax-neutral.

Amounts collected in foreign currency for insurance claims related to the exported goods must also be repatriated and settled in Pesos in the FX Market, up to the amount of the insured exported goods.

Moreover, through section 8 of the FX Regulations, the Central Bank reinstated the export proceeds monitoring system, setting forth rules governing such monitoring process and exceptions thereof. Exporters will need to appoint a financial entity in charge of monitoring compliance with the aforementioned obligations.

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 FX 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) foreign pre-export financings and export advances settled in the FX Market, 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

Section 2.2 of the FX Regulations imposes to exporters the obligation to repatriate, and settle in the FX Market, the proceeds from exports of services within 5 business days following payment thereof.

Sale of non-financial non-produced assets

Pursuant to section 2.3 of the FX Regulations, the proceeds in foreign currency of the sale of non-financial non-produced assets must be repatriated and settled in Pesos in the FX Market within 5 business days following either the perception of funds in the country or abroad, or their accreditation in foreign accounts.

External financial indebtedness

Section 2.4 of the FX Regulations have reinstated the requirement to repatriate, and settle in Pesos through the FX Market, the proceeds of new financial indebtedness disbursed from and after September 1, 2019 as a condition for accessing the FX Market 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 FX Market. 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 FX Market to repay debt service.

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Subject to compliance with the aforementioned obligations, access to the FX Market is granted for the repayment of debt services at maturity or up to 3 business days in advance. In addition, as set forth by section 3.5 of the FX Regulations, access to the FX Market 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.

Moreover, section 3.11 of the FX Regulations authorizes (1) local borrowers under (A) foreign financial indebtedness with non-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 (1)(A) and (1)(B) above, to access the FX Market 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 FX Market 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 payment; (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 FX Market 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 FX Market 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 section 2.5 of the FX Regulations issued by the Central Bank, resident debt issuers are granted access to the FX Market 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 FX Market. However, the settlement of the proceeds from the issuance shall not be required for the future access to the FX Market for repayment of domestic issuances as provided in (ii) above, provided that certain conditions 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 FX Market, and the mechanism is tax neutral, among others).

Payments of local debt securities denominated in foreign currency among residents

In accordance with section 3.6 of the FX Regulations, access to the FX Market for the payment of foreign currency denominated obligations between Argentine residents executed from September 1, 2019 is subject to prior approval from the Central Bank. With regard to existing transactions as of such date, access is authorized; provided that the relevant transactions were entered into through public deeds or public registries. These prohibitions do not apply to loans in foreign currency granted by local financial entities, including payments of credit cards.

Access to the FX Market by security trusts for principal and interest payments.

Pursuant to section 3.7 of the FX Regulations, Argentine security trusts created to guarantee principal and interest payments by resident debtors may access the FX Market in order to make such payments at their scheduled maturity, to the extent that, pursuant to the current applicable regulations, the debtor would have had access to the FX Market to make such payments directly. Also, subject to certain conditions, a trustee may access the FX Market to guarantee certain capital payments and interest on financial debt abroad and anticipate access to it.

Specific Provisions Regarding Access to the Exchange Market

Residents are authorized to access the FX Market for the payment of import of goods in accordance with section 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. Also, the imports and import payments monitoring system (SEPAIMPO) has been reinstated, setting forth rules governing such monitoring process and exceptions thereof.

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Pursuant to the FX Regulations, the local importer must appoint a local financial entity to act as a monitoring bank, which will be responsible for verifying compliance with the applicable regulations, including, among others, the liquidation of import financing and the entry of imported goods.

Payment of services provided by non-residents

Pursuant to section 3.2 of the FX Regulations, residents may access the FX Market for payment of services provided by non-residents (except affiliates), as long as it is verified that the operation has been declared, if applicable, in the last presentation of the External Assets and Liabilities Reporting Regime.

Access to the FX Market for the prepayment of debts for services requires prior authorization by the Central Bank. Such approval will be also required to pay services rendered by foreign affiliates, provided, however, that the following transactions will be exempted:

(i) in the case of credit card issuers, remittances related to tourism and travel activities will be exempted, to the extent that they do not relate to transactions requiring the Central Bank’s prior approval as set forth in the FX Regulations;

(ii) collections of funds relating to services rendered by non-residents to residents, made by local agents in Argentina;

(iii) expenses paid by local institutions to offshore institutions in their ordinary course of business;

(iv) payments of reinsurance premiums abroad, provided that the transfer abroad is made in the name of a foreign beneficiary qualified by the Argentine Superintendence of Insurance;

(v) transfers made by travel assistance companies in connection with health-coverage related losses arising from services rendered abroad by third parties to their resident customers; and

(vi) payments under operating leases of vessels authorized by the Argentine Ministry of Transport and solely intended to provide services to another non-affiliated resident, provided that the amount payable abroad does not exceed the amount paid by the latter, net of commissions, reimbursement of expenses or other items that should be withheld by the resident who makes the payment abroad.

Repayment of principal and interest of imports of goods and services

Access to the FX 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 Regime.

Access to the FX Market for the prepayment of debts for imports of goods and services shall require prior authorization by the Central Bank.

Payments of principal and interest of foreign financial indebtedness

Section 7 of Communication “A” 7106 of the Central Bank establishes that debtors with scheduled principal payments maturing between October 15, 2020 and March 31, 2021 relating to (i) foreign financial indebtedness of the non-financial private sector with a creditor who is not a counterparty related to the debtor; (ii) foreign financial indebtedness on account of transactions of the debtor and/or (iii) issuances of debt securities publicly registered in Argentina, denominated in foreign currency, of private sector customers or of the financial entities themselves, had to submit a refinancing plan to the Central Bank in line with the following criteria (the “Refinancing Plan”):

(a) debtors were given access to the FX Market on the original maturity dates to make payments of net principal amounts not exceeding forty percent (40%) of the principal amounts due; and

(b) the balance of the principal amount shall have to be refinanced, at least, by means of a new foreign indebtedness with an average life of two (2) years.

Further, section 7 of Communication “A” 7106 of the Central Bank provides that, in addition to the refinancing granted by the original creditor, proceeds from new foreign financial indebtedness with other creditors shall also be computed, provided that the proceeds obtained therefrom be transferred and settled through the FX Market. In the case of issuances of debt securities publicly registered in Argentina and denominated in foreign currency, new issuances shall also be computed provided that certain conditions are met. In addition, Communication “A” 7106 established that the Refinancing Plan was to be submitted to the Central Bank before September 30, 2020 in respect of repayments maturing on or before December 31, 2020. In turn, for repayments maturing between January 1, 2021 and March 31, 2021, the Refinancing Plans had to be submitted no later than thirty (30) calendar days in advance of the due date

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for repayment of the principal to be refinanced. The abovementioned provisions shall not apply to: (i) indebtedness with international organizations or associated agencies thereof or secured by them; (ii) indebtedness granted to the debtor by official credit agencies or secured by them; and (iii) when the amount for which access to the FX Market is requested for repayment of principal under such indebtedness does not exceed the equivalent of US$ 1,000,000 (one million U.S. dollars) per calendar month, and US$ 2,000,000 (two million U.S. dollars) in the case of access to the foreign exchange market for the payment of principal as from April 1, 2021.

Additionally, by means of Communication “A” 7230, the Central Bank established that the provisions of item 7. of Communication “A” 7106 will be applicable to those debtors who have scheduled principal maturities between April 1, 2021 and December 31, 2021 for the indebtedness detailed therein. In such case, the refinancing plan must be submitted to the Central Bank before March 15, 2021 for principal maturities scheduled between April 1, 2021 and April 15, 2021. In the remaining cases, it must be submitted at least 30 calendar days prior to the maturity of the principal to be refinanced.

Lastly, it established that the presentation of the plan provided for in item 7. of Communication “A” 7106 shall not be necessary when the maturities correspond to: i) indebtedness originated as from 01.01.2020 and whose funds have been deposited and settled in the foreign exchange market; ii) indebtedness originated on or after 01.01.2020 and which constitute refinancing of principal maturities subsequent to that date, to the extent that the refinancing has made it possible to reach the parameters set forth in said point; and iii) the remaining portion of maturities already refinanced to the extent that the refinancing has made it possible to reach the parameters set forth in said item.

Through Communication “A” 7133 (amended by Communication “A” 7196), the Central Bank provided that:

(1) access to the FX Market up to 45 calendar days prior to the maturity date for the payment of principal of and interest on foreign financial debts or debt securities publicly registered in Argentina and denominated in foreign currency will be allowed if the prepayment is made by virtue of a debt refinancing process that complies with the provisions set forth in Communication “A” 7106 mentioned above and, additionally, when all of the following conditions are met: (a) the amount of interest paid does not exceed the amount of interest accrued on the refinanced indebtedness up to the date the refinancing was settled, and (b) the accumulated amount of the principal maturities of the new debt does not exceed the amount that the principal maturities of the refinanced debt would have accumulated;

(2) access to the FX Market prior to the maturity date for payment of interest on foreign financial debts or debt securities publicly registered in Argentina and denominated in foreign currency will be allowed if the prepayment is consummated as part of a process for the exchange of debt securities issued by the customer and all of the following conditions are met: (a) the amount paid before maturity corresponds to interest accrued as at the closing date of the exchange; (b) the average life of the new debt securities is longer than the remaining average life of the exchanged security; and (c) the accumulated amount of the principal maturities of the new securities does not exceed at any time the amount that the principal maturities of the exchanged securities would have accumulated; and

(3) pursuant to the provisions of section 7 of Communication “A” 7106 concerning scheduled principal repayments maturing between October 15, 2020 and March 31, 2021: (a) the Central Bank will consider the Refinancing Plan established therein completed when the debtor accesses the FX Market to pay off capital in an amount exceeding 40% of the principal amount that was then due, to the extent that the debtor settles currency on the FX Market as from October 9, 2020, in an amount equal to or greater than the excess over such 40%, on account of (i) foreign financial indebtedness, (ii) issuance of debt securities publicly registered abroad, (iii) issuance of debt securities publicly registered in Argentina and denominated in foreign currency that meet the conditions set forth in section 3.6.4 of Communication “A” 6844 of the Central Bank, and (b) in the case of debt securities publicly registered in Argentina or abroad, issued on or after October 9, 2020, with an average life of not less than two years, and the delivery of which to the creditors has allowed to reach the parameters provided in the proposed Refinancing Plan, the foreign currency settlement requirement was considered fulfilled for the purposes of being allowed access to the FX Market for the service of principal and interest thereon.

In line with the Central Bank, the CNV issued General Resolution No. 861 to facilitate the refinancing of debt through the capital markets. In this regard, the CNV provided that whenever the issuer intends to refinance debt through an exchange offer or new issues of debt securities, in both cases in exchange for or to be paid with debt securities previously issued by the company and placed privately and/or with preexisting credits against such company, the requirement of placement through public offering will be regarded as met if the new issue is underwritten in this way by the creditors of the company whose debt securities without public offering and/or preexisting credits represent a percentage that does not exceed thirty percent (30%) of the aggregate amount actually placed, and the remaining percentage is underwritten and paid in cash or in kind by tendering debt securities originally placed through public offering, or other debt securities publicly offered and listed and/or traded on markets authorized by the CNV, issued by the same company, by persons who are domiciled in Argentina or in countries that are not included in the list of non-cooperative jurisdictions for tax purposes, listed in section 24 of the Annex to Decree No. 862/2019 or anyone that may replace it in the future. Additionally, General Resolution No. 861provided for mandatory compliance with certain conditions to consider that the public offering requirement has been met.

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Payment of principal and interest on registered debt securities with foreign clearing

On February 4, 2021, the Central Bank issued Communication “A” 7218, which provides access to the FX Market to Argentine residents for the payment of principal and interest on notes registered with foreign clearing and central securities depository agencies issued as from February 5, 2021, which have been partially settled with foreign currency in Argentina, to the extent that all of the following conditions are met, (i) the borrower provides evidence of exports made prior to the issuance of the notes, or that the proceeds of the issuance of such notes were used for making payments abroad; provided that one of the two (2) conditions is met, access to the FX Market shall not require the prior approval of the Central Bank; (ii) the average life of the notes shall not be less than five (5) years; (iii) the first payment of principal under the notes shall not occur before three (3) years as from the issue date; (iv) the notes subscribed locally in Argentina and settled locally with foreign currency shall not exceed 25% of the aggregate amount of notes subscribed; and (v) all of the funds of the offering shall be settled through the FX Market prior to the borrower accessing the FX Market for the first time for paying interest and/or principal under the notes.

Prepayment of financing denominated in foreign currency granted by local financial institutions

The Central Bank’s prior approval shall be required to access the FX Market to prepay foreign currency financing granted by local financial institutions, unless they relate to payments of credit card purchases made in foreign currency.

Payment of dividends and corporate profits

In accordance with section 3.4 of the FX Regulations, access is granted to the FX Market to pay dividends to non-resident shareholders, subject to the following conditions:

• Maximum amounts: The total amount of transfers made through the FX Market for payment of dividends to non-resident shareholders may not exceed the 30% of the total value of the capital contributions made in the relevant local company that entered and settled through the FX Market as of January 17, 2020. The total amount paid to non-resident shareholders shall not exceed the corresponding amount denominated in Pesos determined by the shareholders’ meeting to be distributed as dividends.

• Minimum Period: Access to the 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 aforementioned 30% cap.

• 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 capital contributions must be provided or, if not available, evidence of filing of the process of registration of the capital contribution before the Public Registry 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. If applicable, the External Assets and Liabilities Reporting Regime shall have been complied with.

Access to the FX Market by other residents -excluding entities- for the formation of external assets and for derivatives transactions

Section 3.10 of the FX Regulations sets forth that access to the FX Market for the build-up of foreign assets and for derivatives transactions by local governments, mutual funds, other universalities established in Argentina, requires prior authorization by the Central Bank.

Derivatives transactions

Section 4.4 of the FX Regulations requires that derivatives transactions, including payment of premiums, constitution of collateral and settlement of futures, forwards, options and other derivatives, shall, as of September 11, 2019, be made in local currency (i.e., Pesos).

Likewise, access to the FX Market is granted for the payment of premiums and settlements, margins and other collateral in connection with interest rate hedge agreements for foreign debt declared and validated, if applicable, in the External Assets and Liabilities Reporting Regime, as long as such agreements do not cover higher risks than external liabilities of the recorded debtor’s interest rate risk being covered.

An entity authorized to operate in the FX Market must be designated by the debtor to track the operation and an affidavit must be provided in which the debtor undertakes to repatriate and settle the funds 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, in Pesos within the following five (5) business days.

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Additional Requirements Regarding Access to the Exchange Market

On May 28, 2020, the Central Bank issued Communication “A” 7030, as amended by Communications “A” 7042, 7052, 7068, 7079, 7094, 7151, 7193 and 7239 (“Communication 7030”), which established additional requirements on outflows made through the FX Market. Below is a brief description of such measures:

(i)    Additional requirements on outflows through the FX Market

In the case of certain outflows made through the FX Market (i.e., payments of imports and other purchases of goods abroad; payment of services rendered by non-residents; remittances of profits and dividends; payment of principal of and interest on external indebtedness; payments of interest on debts for the import of goods and services; payments of indebtedness in foreign currency owed by residents made through trusts organized in Argentina to secure the provision of services; payments under foreign currency-denominated debt securities publicly registered in Argentina and liabilities in foreign currency owed by residents; purchases of foreign currency by resident individuals for the purpose of forming external assets, providing family assistance and entering into derivative transactions (other than those made by individuals on account of the formation of external assets), purchase of foreign currency by individuals to be simultaneously used to purchase real estate in Argentina with a mortgage loan; purchase of foreign currency by other residents (excluding financial institutions) to form external assets and in connection with derivative transactions; other purchases of foreign currency by residents for specific uses and under interest rate hedge agreements in connection with liabilities incurred by residents that have been reported and validated under the External Assets and Liabilities Reporting Regime), the financial institution shall obtain the Central Bank’s prior approval before processing the transaction, unless it has obtained an affidavit executed by the legal entity or individual stating that, at the moment of accessing the local exchange market:

a) Holding foreign currency in Argentina and non-holding of available external liquid assets. The customer shall certify that all foreign currency in Argentina is available in accounts with financial institutions and that the customer had no external liquid assets available at the beginning of the day when access to the market was requested in an amount higher than the equivalent to US$ 100,000.

Communication 7030 provides a merely illustrative list of liquid external assets including, among others, holdings of foreign currency bills and coins, holdings of coined gold or gold bars for good delivery, demand deposits with financial institutions abroad and other investments that allow for immediate availability of foreign currency including, for example, investments in external government securities, funds held in investment accounts with investment managers abroad, crypto-currency, funds in payment service providers’ accounts, etc.

Available liquid external assets are not understood to include those funds deposited abroad that may not be used by the legal entity or individual as they are reserve or security funds set up in compliance with the requirements under borrowing agreements abroad or funds set up as collateral under derivative transactions consummated abroad.

If the legal entity or individual had liquid external assets available in an amount higher than the sum specified in the first paragraph, the financial institution may also accept an affidavit provided it is satisfied that such amount shall not be exceeded on the grounds that, either partially or totally, such assets:

i. were used during such day to make payments that would have required access to the local exchange market;

ii. were transferred to the legal entity or individual to a correspondent account of a local institution licensed to deal in foreign exchange;

iii. are funds deposited in bank accounts abroad from collections of exports of goods and/or services or advances, pre- or post-export financing of goods by non-residents, or from the disposal of non-financial non-produced assets in respect of which the term of 5 business days after collection has not yet expired; or

iv. are funds deposited in bank accounts abroad from financial indebtedness abroad and the amount thereof does not exceed the equivalent amount payable as principal and interest within the next 120 calendar days.

The affidavit filed by legal entities or individuals shall expressly indicate the value of their liquid external assets available as of the beginning of the day as well as the amounts allocated to each of the situations described in paragraphs i) through iv), as applicable.

b) New inflows and settlement of foreign currency from collections of loans granted to third parties and time deposits or sales of any asset, provided same were purchased and granted after May 28, 2020. Customers’ affidavits shall include a commitment to settle in the FX Market, within a term of five business days upon being made available, those funds received from abroad from the collection of loans granted to third parties, the collection of a time deposit or the sale of any asset, provided the asset had been purchased, the time deposit had been made or the loan had been granted after May 28, 2020.

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The filing of affidavits shall not be required for outflows through the FX Market in the following cases: (1) the exchange institution’s own transactions, acting as customer; (2) payment of financing in foreign currency granted by local financial institutions in connection with purchases in foreign currency using credit or shopping cards; and (3) payments abroad by credit card companies that are not financial institution in connection with the use of credit, shopping, debit or pre-paid cards issued in Argentina.

Additionally, Communication “B” 12082 of the Central Bank established that, prior to allowing any outflow of funds abroad, financial institutions are required to check the online system implemented by the Central Bank to verify if the customer that intends to access the FX Market is included in the list of CUITs (Tax Identification Numbers) showing inconsistent foreign exchange transactions.

(ii)    Payment of imports of goods by accessing the FX Market until June 30, 2021.

In addition to complying with the filing requirement as set forth in paragraph (i) above, item 2 of Communication 7030 sets forth that, for the purposes of accessing the FX Market to pay imports of goods or the principal amount of debts arising from the import of goods, legal entities and individuals shall obtain the Central Bank’s prior approval, unless any of the following situations occurs:

a) The entity has received an affidavit from the client stating that the total amount of payments associated with its imports of goods processed through the exchange market during 2020, including the payment whose course is being requested, does not exceed in more than US$ 1,000,000, the amount by which the importer would have access to the exchange market when computing the imports of goods that appear in his name in the system for tracking payments of imports of goods (SEPAIMPO) and that were made between January 1, 2020 and the day prior to accessing the FX Market, plus the amount of payments made under other exceptions, subtracting the amount pending to be entered into Argentina, related to payments of imports with pending customs registration made between September 1, 2019 and December 31, 2019, plus the amount of payments made through the FX Market as of July 6, 2020, corresponding to imports of goods entered by particular request or courier that have been shipped previously, have not arrived in the country before that date.

b) In the case of a deferred payment or at sight payment of imports corresponding to operations that have been shipped as of July 1, 2020 or that, having been shipped previously, did not have arrived in the country before that date.

c) It is a payment associated with an operation not included in section b) above, to the extent that it is destined to the cancellation of a commercial debt for imports of goods with an export credit agency or a foreign financial entity or that was guaranteed by either of such entities.

d) It is a payment made by: i) the public sector, ii) entities in which the Argentine State has a majority participation in the capital stock or in the making of major corporate decisions or iii) trusts constituted with contributions made by the national public sector.

e) It is an imports payment with pending customs entry registration, to be made by an entity in charge of the provision of critical drugs to be entered by private request by the beneficiary.

f) It is an imports payment with pending customs entry registration made for the purchase of COVID-19 detection kits or other products with tariff positions that are included in the list included in Decree No. 333/2020 as amended.

g) The financial entity has received an affidavit from the client stating that, including the advanced import payment which is being requested, plus the amounts included in a), do not exceed US$ 3,000,000 (three million US dollars) and that these payments are related to imports of products related to the provision of medication or other goods related to medical assistance and/or health care directed to the population or supplies that are necessary for their local preparation.

Prior to authorizing payments for imports of goods, the intervening financial entity must, in addition to requesting the client’s affidavit, verify that such statement is compatible with the existing data in the Central Bank from the online system implemented for this purpose.

The amount by which importers can access the FX Market under the conditions established within the framework of section 2 of Communication “A” 7030 will be increased by the equivalent of 50% of the amounts that, the importer settles through the FX Market as export advances or pre-financing of exports from abroad with a minimum term of 180 days, as of October 2, 2020.

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In the case of operations settled as of April 1, 2021, access to the FX Market will also be admitted for the remaining 50% to the extent that the additional part corresponds to advanced payments of capital goods, and that the financial entity has the documents justify the products paid correspond to tariff positions classified as BK (Capital Goods).

In the case of transactions settled on or after March 19, 2021, access to the foreign exchange market for the remaining 50% will also be allowed to the extent that it corresponds to prepayments of goods that qualify as inputs for the production of exportable goods, and the entity must have a sworn statement from the client regarding the type of goods involved and their quality as inputs in the production of goods to be exported.

(iii)    Access to the FX Market for payment of imports of goods while submission of import clearance is pending

Pursuant to Communication “A” 7138, to access the FX Market for the payment of imports of goods pending customs clearance, importers are required (in addition to the other requirements in force under the FX Regulations) to file a declaration through the Integral Import Monitoring System (Sistema Integral de Monitoreo de Importaciones or SIMI) showing the “SALIDA” status in connection with the imported goods to the extent that such declaration is required for the registration of the application for import of goods for consumption.

(iv)    Access to the FX Market for prepayment of imports

Communication “A” 7138 clarified that, effective as of November 2, 2020, payments for imports of goods pending customs clearance made between September 2, 2019 and October 31, 2019 will be considered in default if they (A) relate to (i) payments on demand upon presentation of shipping documents; (ii) payments of commercial debts abroad; and (iii) payment of commercial guarantees for imports of goods granted by local institutions, and (B) are not regularized, that is, the customer failed to furnish evidence to the institution in charge of monitoring such payment (up to the amount paid) of the existence of (i) import clearance in its name or in the name of a third party; (ii) the settlement on the FX Market of currency associated with the return of the payment made; (iii) other forms of regularization permitted under the FX Regulations; and/or (iv) the Central Bank’s acceptance of the total or partial regularization of the transaction.

Importers will not be allowed access to the FX Market to make new prepayments of imported goods until such defaulted transactions are not regularized.

(v)    Payments of principal under debts with related counterparties until June 30, 2021

The Central Bank’s prior approval is required to access the FX Market to make payments abroad of principal of financial debts when the creditor is a counterparty related to the debtor. This requirement is applicable until June 30, 2021, pursuant to Communication “A” 7239. Such requirement shall not apply to the local financial institutions’ own transactions.

Item 4 of Communication “A” 7123 of the Central Bank establishes that, for as long as the requirement to obtain prior approval to access the FX Market to pay, at maturity, principal of foreign financial indebtedness of the non-financial private sector when the creditor is a counterparty related to the debtor continues to be in place, such requirement will not be applicable if the funds have been entered and settle through the FX Market as of October 2, 2020 and the average life of the indebtedness is not less than 2 (two) years.

(vi)    Extension of the term for outflows through the FX Market in connection with the sale of securities to be settled in foreign currency or transfers to foreign depositaries

In the case of outflows through the FX Market, including by means of swap or arbitrage transactions, in addition to the requirements that apply to each particular case, financial institutions shall request the filing of an affidavit certifying that:

a) on the day when access to the market is requested and within the prior 90 calendar days no sales of securities have been made via settlement of foreign currency or transfers thereof to foreign depositaries; and

b) the customer filing the affidavit undertakes to refrain from selling securities to be settled in foreign currency or transferring same to foreign depositaries since the day access is requested and during a term of 90 calendar days.

The filing of the affidavit shall not be required in case of outflows through the FX Market in the following circumstances: 1) the financial institution’s own transactions, acting as customer; 2) payment of financing in foreign currency granted by local financial institutions, including payments for purchases made in foreign currency using credit or shopping cards; and 3) remittances abroad in the name of individuals who are the recipients of retirement and/or pension benefits paid by ANSES.

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Communication “A” 7193

Through Communication “A” 7193, the Central Bank modified Section 2 of Communication “A” 7030 as amended, that regulated the requirements to access the FX Market for the payment of imports, in accordance with what is already reflected in “—Payment of imports with access to the exchange market until June 30, 2021.”

Likewise, Communication “A” 7193 established that financial entities will be required to obtain the prior consent of the Central Bank to provide their clients with access to the FX Market for payments, with regards to payment operations included in Sections 3.1. to 3.11. and 4.4.2. of FX Regulations (including those that are specified through exchanges or arbitrations), to individuals or entities included by the AFIP in the database of “false” invoices or equivalent documents established by such Agency. This requirement will not be applicable to access the FX Market for the payment of financing in foreign currency granted by local financial entities, including payments in foreign currency made through credit or purchase cards.

Other Specific Provisions

Access to the FX Market for savings or investments purposes of individuals

Pursuant to section 3.8 of the FX Regulations, Argentine residents may access the FX Market for the purposes of external assets’ formation, family assistance or derivative operations (with some exceptions expressly set forth) for up to U$S 200 (through debits to local bank accounts) or U$S 100 (in cash) per person per month through all authorized exchange entities. If the access entails a transfer of the funds abroad, the destination account must be an account owned by the same person.

In all cases, the person shall be obligated to submit a sworn statement expressing that the funds shall not be used for the secondary purchase of securities within the following five (5) business days. In addition, 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 transfer to another depositary. This minimum holding period shall not apply if the sale of the securities is carried out in the same jurisdiction and the settlement of the transactions is made in the same foreign currency.

Effective as of September 16, 2020, the Central Bank ordered under Communication “A” 7106 that purchases in pesos made abroad with a debit card and amounts in foreign currency acquired by individuals in the FX Market as of September 1, 2020, for the payment of obligations between residents under section 3.6 of the FX Regulations, including payments for credit card purchases in foreign currency, will be deducted, as from the subsequent calendar month, from the US$ 200 monthly quota. If the amount of such purchases exceeds the quota available for the following month or such quota has been already absorbed by other purchases made since September 1, 2020, such deduction will be made from the quotas of the following months until completing the amount of those purchases.

In addition, pursuant to Communication “A” 7106 and effective as of September 16, 2020, in order to allow access to the FX Market for the formation of external assets, the relevant institution must be provided with a customer’s affidavit whereby the customer undertakes not to enter into securities transactions in Argentina to be settled in foreign currency as from the time the customer requests access to the FX Market and for 90 calendar days thereafter.

The relevant institution shall check the online system implemented by the Central Bank to verify whether the person has not reached the limits set for the applicable calendar month or has not exceeded them in the previous calendar month and is thus entitled to enter into the foreign exchange transaction, and shall request the customer to provide an affidavit stating that such person is not a beneficiary of any “Zero Interest-Rate Loans” contemplated in section 9 of Decree No. 332/2020, as amended, “Subsidized Loans for Companies” and/or “Zero Interest-Rate Loans for Independent Workers Engaged in Cultural Activities.”

In addition, for the purpose of entering into derivative transactions relating to the payment of premiums, creation of guarantees and payments of futures, forwards, options and other derivatives, to the extent they imply a payment in foreign currency, individuals shall be required to obtain the Central Bank’s prior approval.

Access to the local exchange market is also allowed for the payment of premiums, creation of guarantees and payment of interest rate hedge agreements under obligations by residents vis-à-vis foreign creditors that are reported and validated, as applicable, under the External Assets and Liabilities Reporting Regime, provided that it does not cover risks higher than the external liabilities actually incurred by the debtor at the interest rate of the risk being hedged through such transaction. The customer who accesses the local market using this mechanism shall designate an institution authorized to deal in the FX Market which shall follow up the transaction and shall sign an affidavit committing to enter and settle the funds payable to the local customer as a result of such transaction or as a result of the release of the collateral money, within 5 business days following the date such payment or release.

Moreover, any persons who received loans denominated in pesos directed to SMEs listed in items 2 and 3 of Communication “A” 7006 of the Central Bank shall request the Central Bank’s previous authorization to access the FX Market to enter into transactions for the purpose of forming external assets, providing family assistance and entering into derivative transactions or selling securities to be settled in foreign currency or transferring such securities to other depositaries. The applicable institution shall request customers willing to access the FX Market to provide evidence of the referred authorization from the Central Bank or an affidavit to the effect that they are not beneficiaries of any financing listed in items 2 or 3 of Communication “A” 7006 of the Central Bank.

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The Central Bank has also established that individuals benefitting from the provisions of item 4 of Communication “A” 6949, as supplemented, and section 2 of Decree No. 319/20 may not, until repaying in full the financed amount or while the benefit regarding the adjustment of the value of the installment continues, as applicable, (i) access the FX Market for the purpose of forming external assets, providing family assistance and entering into derivative transactions; and (ii) arrange for the sale in Argentina of securities with settlement in foreign currency or transfer them to foreign depositaries

Access to the FX Market by non-residents

In accordance with section 3.12 the FX Regulations, prior approval by the Central Bank will be required for access to the FX Market by non-residents for the purchase of foreign currency, except for the following operations: (a) international organizations and institutions that perform functions of official export credit agencies, (b) diplomatic representations and consular and diplomatic personnel accredited in the country for transfers made in the exercise of their functions, (c) representatives of courts, authorities or offices, special missions, commissions or bilateral bodies established by Treaties or International Agreements, in which the Argentine Republic is part, to the extent that transfers are made in the exercise of their functions, (d) foreign transfers in the name of individuals who are beneficiaries of retirement and/or pensions paid by the ANSES, for up to the amount paid by said agency in the calendar month and to the extent that the transfer is made to a bank account owned by the beneficiary in its registered country of residence, (e) purchase of foreign currency (in cash) by non-resident individuals for tourism and travel expenses, up to a maximum amount of U$S100 dollars, to the extent the financial entity can verify that the client has settled an amount equal or higher than the sum to be purchased within 90 days prior to the operation; and (f) transfers to offshore bank accounts by individuals that are beneficiaries of pensions granted by the National Government pursuant to Laws Nos. 24,043, 24,411 and 25,914, as supplemented.

Swap, arbitrage and securities transactions

Financial institutions may carry out currency swap and arbitrage transactions with their customers in the following cases:

(i) inflows of foreign currency from abroad, to the extent that they do not relate to transactions subject to the obligation to settle them in the FX Market. Financial institutions shall allow inflows of foreign currency from abroad to be credited into the accounts opened by the customer in foreign currency in connection with these transactions;

(ii) transfer of foreign currency abroad by individuals from their local accounts denominated in foreign currency to bank accounts held by such individuals abroad. Financial institutions shall require an affidavit from the customer stating that the customer has not sold any securities to be settled in foreign currency in the local market within the past 5 business days;

(iii) transfer of foreign currency abroad by local common depositaries of securities in connection with proceeds received in foreign currency on account of services of principal and interest on Argentine Treasury bonds, when such transaction forms part of the payment procedure at the request of the foreign common depositaries;

(iv) arbitrage transactions not originated in transfers from abroad may be made without any restrictions, to the extent that the funds are debited from an account in foreign currency held by the customer with a local financial institution. To the extent that the funds are not debited from an account denominated in foreign currency held by the customer, these transactions may be made by individuals, without the Central Bank’s prior approval, up to the amount allowed for the use of cash under items 3.8. and 3.12 of the FX Regulations;

(v) transfers of foreign currency abroad made by individuals from their local accounts denominated in foreign currency to offshore collection accounts up to an amount equivalent to US$ 500 in any calendar month, provided that the individual provides an affidavit stating that the transfer is made to assist in the maintenance of Argentine residents who were forced to remain abroad in compliance with the measures adopted in response to the COVID-19 pandemic; and

(vi) all other swap and arbitrage transactions may be made by customers without the Central Bank’s prior approval to the extent that they would be allowed without need of such approval in accordance with other exchange regulations. This also applies to local common depositaries of securities with respect to the proceeds received in foreign currency as payments of principal of and interest on foreign currency securities paid in Argentina.

If the transfer is made in the same currency as that in which the account is denominated, the financial institution shall credit or debit the same amount as that received from or sent abroad. When the financial institution charges a commission or fee for these transactions, it shall be instrumented under a specifically designated item.

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In addition, any person who has outstanding facilities in pesos under the scope of Communications “A” 6937, “A” 6993, “A” 7006, “A” 7082 of the Central Bank, as supplemented (i.e., credit facilities at subsidized interest rates) will be prevented from selling securities to be settled in foreign currency or transferring such securities to foreign depositaries, until such facilities have been fully repaid.

Use of export proceeds for the payment of new issuances of debt securities

Pursuant to Communication “A” 7196, as of January 7, 2021, proceeds in foreign currency from exports of goods and services may be used for the payment of principal and interest under new duly registered issuances of debt securities, to the extent that:

• such issuance corresponds to (i) an exchange of debt securities, or (ii) the refinancing of foreign financial indebtedness, concerning scheduled principal repayments maturing between March 31, 2021, and December 31, 2022; and

• considering the transaction as a whole, the average life of new indebtedness is at least 18 months longer than the principal and interest payments being refinanced which should occur before December 31, 2022.

Use of export proceeds for the payment of debts denominated in foreign currency

Communication “A” 7138 provides for cases in which proceeds in foreign currency from exports of goods and services may be used for the payment of certain debts denominated in foreign currency, indicating that, if the conditions set forth in item 1 of Communication “A” 7123 (as amended by Communications “A” 7138 and 7196) (relating to use of proceeds, the timing of entry and settlement of funds on the FX Market and the monitoring of the transaction by a local financial institution) are met, proceeds in foreign currency from exports of goods and services may be used for:

1. payments of principal and interest of financial debts abroad with an average life (considering services of both principal and interest) of not less than one year.

2. the repatriation of non-residents’ direct investments in companies that do not control local financial institutions, provided that such repatriation occurs after the date of completion and implementation of the investment project and at least one year after the inflow of the capital contribution through the FX Market.

In addition, Communication “A” 7138 provided for new transactions that may be paid out of foreign currency export proceeds:

a) new issuances of debt securities publicly registered in Argentina as of November 11, 2019 and denominated in foreign currency for which principal and interest are payable in Argentina in foreign currency (to the extent the proceeds have been obtained through the FX Market), with an average life of not less than one year considering maturities of both principal and interest,

b) new indebtedness or direct investment capital contributions, the proceeds of which have entered and settled, and have allowed to reach the parameters provided in the Refinancing Plan under item 7 of Communication “A” 7106;

c) new issuances of debt securities publicly registered in Argentina or abroad issued after October 9, 2020, with an average life of not less than two years, the delivery of which allowed the issuer to reach the parameters provided in its Refinancing Plan.

On April 7, 2021, the Executive Branch published Decree N° 234/2021 establishing a new investment promotion regime for exports (the “Promotion Regime”), aiming to, among others, increase exports of goods and promote sustainable economic development. In addition, specific rules regarding the Promotion Regime have been issued by the Central Bank through Communication “A” 7259 dated April 8, 2021. The application to the Promotion Regime can be carried out both by legal entities and individuals, either residents or non-residents. However, some exclusions may apply.

The beneficiaries of this Promotion Regime will be able to apply up to 20% of the foreign currency proceeds obtained from the exports related to the project to (i) payment of principal and interest of import of goods and services related debts, (ii) payment of principal and interest of foreign financial indebtedness, (ii) payment of dividends and (iii) repatriation of direct investments of non-residents. In addition, the benefit shall not exceed an annual maximum equivalent to 25% of the gross amount of foreign currency settled by such beneficiary through the FX Market to finance the development of the project, and will cease (i) upon the expiration of the term of use, (ii) in certain cases, when the beneficiary does no longer have the capacity to carry out the activity that is the reason of the investment project, as set forth in the applicable regime, or (iii) if the beneficiary defaults its obligations under this Promotion Regime without justification.

Nevertheless, some requirements may apply such as: (i) a minimum direct investment of U.S. dollars one hundred million calculated at the time of the project presentation; (ii) financial and/or portfolio investments, and the mere merge/acquisition of companies shall not be considered; (iii) certain commodities are excluded for the purposes of calculating the benefits of this Promotion Regime; (iv) the application of exports proceeds can be carried out only after a year has elapsed since the settlement of the proceeds through the FX Market; and (v) the beneficiaries must comply with the terms and conditions of the projects approved by regulators.

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Export proceeds to guarantee new indebtedness

Communication “A” 7196 allows for proceeds from exports of goods and services held in local or foreign financial institutions to guarantee payment of new indebtedness entered into pursuant to Communication “A” 7123 and has complied with the mandatory repatriation and settlement obligation, as from January 7, 2021. Funds in these accounts shall not exceed at any time 125% of the principal and interest to be paid in the current month and the following six calendar months, in accordance with the scheduled of payments as agreed upon with the creditors. Funds exceeding such amount must be repatriated and settled through the FX Market subject to the applicable foreign exchange rules.

In the event the financial agreement entered into requires the funds to be deposited for a period exceeding that which has been established for its mandatory settlement, the exporter may request this latter period be extended up until five business day after the former.

Access to the FX Market for the constitution of guarantees

Residents may access the FX Market for the constitution of guarantees in connection to new indebtedness entered into as of January 7, 2021, pursuant to the Communication “A” 7123 refinancing scheme, or in connection to local trusts created to guarantee principal and interest payments of such new indebtedness. Such guarantees are to be held in local financial institutions or, in the event of foreign indebtedness, in foreign financial institutions, in an amount equal to that established in the agreement, pursuant to the following conditions:

i.    concurrently to such access, foreign currency-denominated funds are being repatriated and settled through the FX Market and/or funds credited to the correspondent account of a local financial institutions, and

ii.    the guarantees shall not exceed at any time 125% of the principal and interest to be paid in the current month and the following six calendar months, in accordance with the scheduled of payments as agreed upon with the creditors.

Funds which are not applied to the payment of principal and interest or the conservation guarantee detailed herein must be settled through the FX Market within five business days from its maturity date.

Access to the FX Market for the payment of new issuances of debt securities

New duly registered issuances of foreign-denominated debt securities, issued as of January 7, 2021, intended to refinance pre-existing debt, when seeking access to the FX Market for the payment of principal and interest under such new indebtedness, shall be considered to have complied with the obligation to mandatory settle through foreign currency for an amount equivalent to the refinanced principal, the interest accrued up to the date the refinancing was settled and, to the extent that the new debt securities do not schedule principal maturities before 2023, the interest that would accrue until December 31, 2022 by the indebtedness which is refinanced in advance and/or by the deferment of the refinanced principal and/or by the interest which would accrue on the amounts so refinanced.

Special regime for financings under Plan Gas IV

On November 19, 2020, the Central Bank issued Communication “A” 7168 which provided for specific regulations applicable to transactions entered and settled through the FX Market as of November 16, 2020 intended for the financing of projects falling within the scope of the Plan Gas IV. In particular, Communication “A” 7168 provides that:

1) Institutions may grant access to the FX Market to remit funds abroad in the nature of dividends and profits to non-resident shareholders without the prior consent of the Central Bank provided the following conditions are met:

(i) the dividends and profits arise from audited and closed financial statements;

(ii) the total amount to be paid as dividends and profits to non-resident shareholders, including the payment then requested to be processed, does not exceed the amount in local currency payable to them as per the distribution approved by the shareholders’ meeting;

(iii) access occurs not earlier than two calendar years from the date of the settlement in the FX Market of the transaction that qualifies for inclusion in this point; and

(iv) the transaction is disclosed, if applicable, in the last filing due under the External Assets and Liabilities Reporting Regime.

2) Institutions may grant access to the FX Market, without the prior consent of the Central Bank, for the payment at maturity of principal and interest services on foreign indebtedness provided that such indebtedness has an average life of not less than two years and the remaining requirements for principal and interest payments on foreign financial indebtedness under the FX Regulations are met.

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3) Entities may grant access to the FX Market, without the prior consent of the Central Bank, for the repatriation of direct investments made by non-residents up to the amount of direct investment contributions settled on the FX Market as of November 16, 2020 as long as all of the following conditions are met:

(i) the institution has documentation that proves the effective inflow of the direct investment in the resident company;

(ii) access occurs not earlier than two years from the date of settlement on the FX Market of the transaction that qualifies for inclusion in this point;

(iii) in case of a capital reduction and/or return of irrevocable contributions made by the local company, the institution has documentation that proves that the relevant legal mechanisms have been complied with and has verified that the external liability in pesos generated as from the date of the non-acceptance of the irrevocable contribution or the capital reduction, as applicable, has been disclosed in the last filing due under the External Assets and Liabilities Reporting Regime.

In all cases, the institution shall have documentation that allows it to verify the genuineness of the transaction to be processed, that the funds were used to finance projects falling under the scope of such plan and the fulfilment of the other requirements set forth in the FX Regulations.

Local collections for exports of on-board supplies to foreign flagged means of transport (regimen de ranchos)

On February 5, 2021, the Central Bank issued Communication “A” 7217, establishing that, regarding local collections for exports of on-board (regimen de ranchos) supplies to foreign flagged means of transport, it shall be considered that the follow-up of the shipment permit is totally or partially complied with, for an amount equivalent to the amount paid locally in Pesos and/or in foreign currency to the exporter by a local agent that owns the foreign flagged means of transport, as long as the following conditions are met:

A) The documentation allows to verify that the delivery of the exported merchandise has taken place in the country, that the local agent of the company that owns the foreign flagged means of transport made the payment to the exporter locally and in which currency the payment was made.

B) An entity shall issue a certification stating that the company that owns the foreign flagged means of transport would have had access to the FX Market pursuant to Section 3.2.2. of the FX Regulations for the equivalent amount in foreign currency which is intended to be computed to the shipment permit.

The entity which states the precedent shall previously verify compliance with all the other requirements stablished in Section 3.2.2. of the FX Regulations except for provisions of Section 3.13. and the local agent of the company that owns the foreign flagged means of transport shall have filed an affidavit stating that it has not transferred or will transfer funds abroad for the proportional amount of the operations included in the certification.

C) In the event that the funds have been received in the country in foreign currency, a certification that the settlement of the funds through the FX Market has been made is needed.

The local agent of the company that owns the foreign flagged means of transport shall not have used this mechanism for an amount greater than US$250,000 in the calendar month.

Central Bank’s Reporting Systems

Advance information on foreign exchange transactions

The institutions authorized to deal in foreign exchange shall provide the Central Bank, at the end of each business day and two business days in advance, with information on transactions relative to outflows through the FX Market in daily amounts equal to or higher than the equivalent of US$ 50,000 (fifty thousand U.S. Dollars).

Customers of licensed institutions shall provide such institutions with information sufficiently in advance so that they may comply with the requirements under this reporting regime and, accordingly, to the extent any further requirements set forth in the exchange regulations are simultaneously satisfied, they may process the exchange transactions.

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Other foreign exchange regulations

Pursuant to General Resolution No. 836/20, the CNV provided that mutual investment funds in pesos shall invest at least 75% of their assets in financial instruments and marketable securities issued in Argentina exclusively in local currency. General Resolution No. 838/20 clarified that such requirement is not applicable to investments in assets issued or denominated in foreign currency that are made and paid in pesos and the interest and principal amounts whereof are exclusively paid in pesos.

Under Interpretation Criterion No. 17 (referring to General Resolution No. 836/2020), the CNV established that new investments in assets issued in foreign currency may be made only if the aggregate of the assets listed in section 78, Article XV, Chapter III, Title XVIII of the CNV Rules plus the rest of the assets issued in a currency other than pesos does not exceed 25% of the assets of the relevant mutual investment fund.

Pursuant to General Resolution No. 871/2020, sales transactions of securities to be settled in foreign currency and in a foreign jurisdiction will be carried out provided that a minimum holding period of three business days is observed to be counted as from the date such securities are credited with the relevant depositary. As regards to sales of securities to be settled in foreign currency and in a local jurisdiction, the minimum holding period will be two business days to be counted as from the date such securities are credited with the relevant depositary. These minimum holding periods shall not be applicable in the case of purchases of securities to be settled in foreign currency.

In addition, transfers of securities acquired from foreign depositaries to be settled in pesos will be processed subject to a minimum holding period of three business days counted as from the crediting thereof with the depositary, unless such crediting results from a primary placement of securities issued by the National Treasury or refers to shares and/or Argentine deposit certificates (CEDEARs) traded on markets regulated by the CNV. Settlement and clearing agents and trading agents must verify compliance with the aforementioned minimum holding period of the securities.

As regards incoming transfers, General Resolution No. 871/2020 provided that securities transferred by foreign depositaries and credited with a central depositary may not be allocated to the settlement of transactions in foreign currency and in a foreign jurisdiction until three business days after such crediting into sub-account/s in the local custodian. If such securities are allocated to the settlement of transactions in foreign currency and in local jurisdiction, the minimum holding period will be two business days after such crediting into sub-account/s in the local custodian.

In addition, in the price-time priority order matching segment, transactions for the purchase and sale of fixed-income securities denominated and payable in US dollars issued by Argentina under local laws by sub-accounts subject to section 6 of the FX Regulations and that are also regarded as qualified investors, the following requirements must be observed:

(i) for the aggregate of such securities, the nominal amount of securities purchased and to be settled in pesos may not exceed the nominal amount of securities sold and to be settled in pesos, on the same trading day and for each customer sub-account;

(ii) for the aggregate of such securities, the nominal amount of securities sold and to be settled in foreign currency and in local jurisdiction may not exceed the nominal amount of securities bought and to be settled in such currency and jurisdiction, on the same trading day and for each customer sub-account; and

(iii) for the aggregate of such securities, the nominal amount of securities sold and to be settled in foreign currency and in a foreign jurisdiction may not exceed the nominal amount of securities bought and to be settled in such currency and jurisdiction, on the same trading day and for each sub-account.

Foreign Exchange Criminal Regime

Any operation that does not comply with the provisions of the FX Regulations is subject to Law No. 19,359 of Foreign Exchange Criminal Regime.

Notwithstanding the above mentioned measures adopted by the current administration, the Central Bank and the federal government in the future may impose additional exchange controls that may further impact our ability to transfer funds abroad and may prevent or delay payments that our Argentine subsidiaries are required to make outside Argentina.

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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 “U.S. holders” (as defined below) that hold Class B shares or ADSs as “capital assets” (generally, property held for investment). This discussion is based on the U.S. Internal Revenue Code of 1986, as amended (the “Code”), final, temporary and proposed Treasury regulations, administrative pronouncements of the U.S. Internal Revenue Service (“IRS”) and judicial decisions, all as of the date hereof and all of which are subject to change (possibly on a retroactive basis) and to different interpretations. This discussion does not purport to address all U.S. federal income tax considerations that may be relevant to a particular U.S. holder (including consequences under the alternative minimum tax or the Medicare tax on net investment income) and you are urged to consult your own tax advisor regarding your specific tax situation. The discussion does not address the tax considerations that may be relevant to U.S. holders in special tax situations, such as:

• 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, or non-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.

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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 a non-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 a non-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

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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.

A non-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 as non-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 as mark-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 certain non-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 our non-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.

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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 No.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 General Resolution (AFIP) No.4227/2018 (published in the Official Gazette on April 12,2018), regulating, among others, the income tax applicable to income derived from financial transactions, obtained by Foreign Beneficiaries (as defined below). Decree No.1170/2018 (published in the Official Gazette on December 27, 2018) has regulated certain amendments introduced by the Tax Reform Law. Also, on December 6, 2019, Decree No.824/2019 was published in the Official Gazette, which approves a new ordered text of the Income Tax Law. On December 9, 2019, Decree No.862/2019 was published in the Official Gazette, which approves a new ordered text of the regulatory decree of the Income Tax Law, with certain modifications. It is important to point out that on December 23, 2019, Law N° 27,541 was published in the Official Gazette, which also introduces several modifications to the Argentine tax regime, such as the income tax applicable to income obtained by Argentine resident individuals and undivided estates located in Argentina derived from financial operations, among other aspects.

Law N° 27,541 has been regulated by the Decree No.99/2019 (published in the Official Gazette on December 28, 2019), General Resolution (AFIP) No.4659/2020 (published in the Official Gazette on January 7, 2020), General Resolution (AFIP) No.4664/2020 (published in the Official Gazette on January 15, 2020), Decree No. 116/2020 (published in the Official Gazette on January 30, 2020), General Resolution (AFIP) No. 4667/2020 (published in the Official Gazette on January 31, 2020), General Resolution (AFIP) No. 4673/2020 (published in the Official Gazette on February 7, 2020), General Resolution (AFIP) No. 4690/2020 (published in the Official Gazette on April 1, 2020), Decree No. 330/2020 (published in the Official Gazette on April 1, 2020), General Resolution (AFIP) No. 4691/2020 (published in the Official Gazette on April 2, 2020), General Resolution (AFIP) No. 4815/2020 (published in the Official Gazette on September 16, 2020), General Resolution (AFIP) No. 4816/2020 (published in the Official Gazette on September 16, 2020), General Resolution (AFIP) No. 4850/2020 (published in the Official Gazette on November 6, 2020), General Resolution (AFIP) No. 4855/2020 (published in the Official Gazette on November 10, 2020), General Resolution (AFIP) No. 4873/2020 (published in the Official Gazette on December 4, 2020), among others. Additionally, on August 26, 2020, on October 31, 2020 and on December 1, 2020, Law No. 27,562 and Decrees No. 833/2020 and 966/2020, were published in the Official Gazette, respectively, which extended the scope and validity of the moratorium established in Law No. 27,541.This summary includes the modifications under the mentioned regulations, nevertheless, please note it does not include all of the tax considerations that may be relevant to you or your situation, particularly if you are subject to special tax rules.

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 report will agree with this interpretation. In this regard, it is important to highlight that, notwithstanding the issuance of the above mentioned regulations 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 amendments introduced to the Income Tax Law by virtue of the Tax Reform Law, and Law N° 27,541, the taxation applicable on the distribution of dividends from Argentine Companies would be as follows:

(i) Dividends originated in profits obtained during fiscal years initiated after January 1, 2018 and up to December 31, 2020: dividends on Argentine shares paid to Argentine resident individuals and/or non-Argentine residents would be subject to a 7% income tax

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withholding on the amount of such dividends (“Dividend Tax”) (please note that according to Section 48 of Law N° 27,541, the application of the corporate 25% rate was suspended for one tax period; thus the 7% rate would also apply for dividend distributions involving profits obtained during fiscal years initiated after January 1, 2018 and up to December 31, 2020). However, if dividends are distributed to Argentine Entities (in general, entities organized or incorporated under Argentine law, certain traders and intermediaries, local branches of non-Argentine entities, sole proprietorships and individuals carrying on certain commercial activities in Argentina), no Dividend Tax should apply. Equalization Tax is not applicable. It is worth noting that the unclear statutory language under Law N° 27,541 with respect to the suspension provision led to different opinions in the market stating whether the 25% corporate income tax rate was suspended for one period (until January 1, 2021) or for two tax periods (until January 1, 2022). The Argentine tax authorities have unofficially stated (through the minutes of a meeting held on January 8, 2020 with professional associations) that the suspension period was limited to just one period (until January 1, 2021). However, by the time of drafting this document, no formal clarification nor specific rule was formally issued to clarify said understanding. Additionally, there is a bill subject to discussion by the National Congress that would modify the income tax rates from the period starting January 1, 2021 and until December 31, 2021, inclusive, changing the scales that would work as a base to apply the 35% corporate rate and the 7% rate for dividend distributions for an additional period.

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, 2021 onward: dividends on Argentine shares paid to Argentine individuals and non-Argentine residents would be subject to a 13% income tax withholding on the amount of such dividends (please see point (i) hereunder). In the case of non-Argentine residents, said 13% rate could be reduced pursuant to applicable treaties to avoid double taxation if certain conditions are met, as the case may be. However, if dividends are distributed to Argentine Entities, no Dividend Tax should apply. Equalization Tax is not applicable. As stated above, the unclear statutory language under Law N° 27,541 with respect to the suspension provision led to different opinions in the market stating whether the 25% corporate income tax rate was suspended for one period (until January 1, 2021) or for two tax periods (until January 1, 2022). The Argentine tax authorities have unofficially stated (through the minutes of a meeting held on January 8, 2020 with professional associations) that the suspension period was limited to just one period (until January 1, 2021). However, by the time of drafting this document, no formal clarification nor specific rule was formally issued to clarify said understanding. As stated above, as recently transpired, there is a bill subject to discussion by the National Congress to extend the provisions of Section 48 of Law No. 27,541 for fiscal years beginning on or after January 1, 2021 and until December 31, 2021, inclusive; thus resulting in the application of the 30% corporate rate and the 7% rate for dividend distribution for an additional period.

(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 for non-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 Income Tax Law provides a first in-first out rule pursuant to which distributed dividends correspond to the former accumulated profits of the distributing company.

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.

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Capital gains obtained by Argentine corporate entities (in general, entities organized or incorporated under Argentine law, certain traders and intermediaries, local branches of non-Argentine entities, sole proprietorships and individuals carrying on certain commercial activities in Argentina, among others) derived from the sale, exchange or other disposition of shares in Argentine entities are subject to income tax on the net income at the rate of 30% for fiscal years initiated after January 1, 2018 and up to December 31, 2020, and at the rate of 25% for tax periods initiated after January 1, 2021, and onwards (note that, according to Section 48 of Law N° 27,541, the reduction of the corporate rate provided for in the Tax Reform Law was suspended until tax periods commencing after January 1, 2021, inclusive). As stated above, the unclear statutory language under Law N° 27,541 with respect to the suspension provision led to different opinions in the market stating whether the 25% corporate income tax rate was suspended for one period (until January 1, 2021) or for two tax periods (until January 1, 2022). The Argentine tax authorities have unofficially stated (through the minutes of a meeting held on January 8, 2020 with professional associations) that the suspension period was limited to just one period (until January 1, 2021). However, by the time of drafting this document, no formal clarification nor specific rule was formally issued to clarify said understanding. Additionally, there is a bill subject to discussion by the National Congress that would modify the income tax rates from the period starting January 1, 2021 and until December 31, 2021, inclusive, changing the scales that would work as a base to apply the 35% corporate rate.

Losses arising from the sale of shares can only be offset against income derived from the same type of operations, for a five-year carryover period. 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 would not qualify for the exemption applicable to Argentine resident individuals since the referred conditions would not apply. If the exemption does not apply, the income derived by Argentine resident individuals and undivided estates located in Argentina from the sale, exchange or other disposition of ADSs (and shares, if applicable) is subject to income capital gains tax at a 15% rate on net income (calculated in Argentine currency). The acquisition cost may be updated pursuant to the IPC inflationary index rate to the extent the equity participation was acquired after January 1, 2018. Losses arising from the sale of non-exempt Argentine shares can only be offset by Argentine individuals and undivided estates located in Argentina against income derived from operations of the same source and type (understanding by “type” the different concepts of income included under each article of Chapter II, Title IV of the Income Tax Law), for a five-year carryover period.

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 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 are traded in stock markets authorized by the CNV, under segments that ensure priority of price-time and interference of offers; and/or 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. The exemption applies to the extent the Foreign Beneficiaries reside in a “cooperative jurisdiction” and, in accordance with Section 90 of the regulatory decree of the Income Tax Law, if their funds come from “cooperative jurisdictions” (as defined below).

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 regulatory decree of the Income Tax Law, their funds come from cooperative jurisdictions, are exempt from income tax on capital gains derived from the sale of ADSs to the extent the underlying shares are authorized for public offering by the CNV.

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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 for which the fair market value by the time the conversion takes place should be considered.

In case the exemption is not applicable and the Foreign Beneficiaries are resident in a cooperative jurisdiction and their funds were channeled through cooperative jurisdictions, the gain derived from the disposition of ADSs would be subject to Argentine income tax at a 15% rate on the net capital gain or at a 13.5% effective rate on the gross price.

For Foreign Beneficiaries resident in or whose funds come from jurisdictions considered as non-cooperative for purposes of fiscal transparency, the tax rate applicable to the sales of shares and/or ADSs is assessed at 35%. Pursuant to General Resolution AFIP No.4227/2018, the presumed net basis on which the 35% rate should apply in the case of sale or disposition of securities is assessed at 90%. General Resolution (AFIP) N°4227/2018 provides different payment mechanisms depending on the specific circumstances of the sale transaction. Pursuant to Section 252 of the regulatory decree of the Income Tax Law, in the cases included in the last paragraph of Section 98 of the Income Tax Law, (i.e. when the acquirer and the seller of the security involved are non-Argentine residents), the tax shall be paid by the foreign seller directly through the mechanism established for such purpose by the tax authorities, or (i) through an Argentine individual resident with sufficient mandate or (ii) by the foreign seller’s legal representative domiciled in Argentina

As a result of the enactment of Law N° 27,541, certain clarifications and definitions are still pending and expected to be issued shortly.

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 United Arab Emirates. The agreement signed with Qatar was approved by the National Congress on December 29, 2020 through Law No. 27,608 (published in the Official Gazette on January 15, 2021). Such agreement would apply from January 1, 2022, for taxes withheld at its source and with respect to other taxes it applies for tax years beginning on January 1, 2022. The treaties signed with China, Luxembourg, Turkey, Austria and Japan are still undergoing the respective ratification procedures. There is currently no tax treaty for the avoidance of double taxation in effect between Argentina and the United States. Holders are encouraged to consult a tax advisor as to the potential application of the provisions of a treaty in their specific circumstances.

Personal assets tax

For tax period 2019, onwards, Argentine entities, like us, have to pay the personal assets tax corresponding to Argentine and foreign resident individuals and foreign resident entities for the holding of company shares by December 31 of each year. Law N° 27,541 (published in the Official Gazette on December 23, 2019) changed the “domicile” criterion for the “residence” criterion as stipulated under income tax rules. Also, according to Section 13 of the Decree No. 99/2019 any reference to “domicile” criterion in relation to the personal assets tax should be understood as referring to “residence”. For tax period 2019, inclusive, and onwards the applicable tax rate is 0.50% and is levied on the proportional net worth value (“valor patrimonial proporcional”) by December 31st of each year, of the shares arising from the last balance sheet. Pursuant to the Personal Assets Tax Law, the Argentine company is entitled to seek reimbursement of such paid tax from the applicable Argentine resident individuals and/or foreign resident shareholders. The Argentine company may seek this reimbursement of Personal Assets Tax by setting off the applicable tax against any amount due to its shareholders or in any other way or, under certain circumstances, waive its right under Argentine law to seek reimbursement from the shareholders.

Holders are encouraged to consult a tax advisor as to the particular Argentine personal assets tax consequences derived from the holding of Class B shares and ADSs.

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.

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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 taxes or for the special contributions on cooperatives capital. The remaining amount is deductible for income tax purposes. If lower rates were applied, the available credit would be reduced to 20%.

TDC has certain exemptions. Debits and credits in special checking accounts (created under Communication “A” 3250 of the Argentine Central Bank) are exempted from this tax if the accounts are held by foreign legal entities and if they are exclusively used for financial investments in Argentina. For certain exemptions and/or tax rate reductions to apply, bank accounts must be registered with the Tax Authority (AFIP-DGI) in accordance with AFIP’s General Resolution No.3900/2016.

Pursuant to Law No. 27,432 (published in the Official Gazette on December 29, 2017), the TDC shall apply until December 31, 2022, inclusive. Whenever financial institutions governed by Law No. 21,526 make payments acting in their own name and behalf, the application of this tax is restricted to certain specific transactions. Such specific transactions include, among others, dividends or profits distributions.

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 was eliminated for tax periods beginning as of January 1, 2019.

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.

In addition, General Resolution (AFIP) N° 4815/2020 established on the operations subject to PAIS Tax and for the taxpayers defined in Article 36 of Law N° 27,541 that qualify as Argentine residents, in the terms of Article 116 and subsequent of the Income Tax Law, the application of a thirty-five percent (35%) collection on the amounts in Ps. that, for each case, are detailed in Article 39 of the Law 27,541.

Said collection will have the character of payment on account and will be computable in the annual income tax return or, where appropriate, the annual personal assets tax return, corresponding to the fiscal period in which they were incurred.

Additionally, this general resolution establishes a refund regime for those subjects to whom the established collection has been applied and who are not taxpayers of income tax or, where appropriate, personal assets tax.

Solidary and Extraordinary contribution to help moderate the effects caused by the Pandemic

On an emergency basis and for only one time, it was created an extraordinary, obligatory contribution which applies on the assets of certain individuals and undivided estates in existence at the date of entry into force of Law N° 27,605 (i.e. December 18, 2020) (the “Extraordinary Contribution”).

The taxpayers are:

a) Argentine resident individuals and undivided estates, for their assets located in the country and abroad. Also included are those individuals of Argentine nationality whose domicile or residence is in “non-cooperative jurisdictions” or “null or low tax jurisdictions” according to the terms of the Income Tax Law.

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b) Individuals and undivided estates residing abroad (except those mentioned in the previous point) for their assets located in the country.

The individual’s residence by December 31, 2019 according to Income Tax Law provisions shall be applicable for the purposes of this Extraordinary Contribution.

In both cases, these individuals will be exempted from this Extraordinary Contribution when the total value of their assets, included and valued according to the personal assets tax law terms, regardless of the treatment they have against such tax and without any non-taxable minimum threshold deduction, does not exceed Ps. 200,000,000, inclusive.

For those mentioned in point a), the taxable base of this Extraordinary Contribution will be determined considering the total value of their assets in the country and abroad, including contributions to trusts or foundations of private interest and other similar structures, participations in companies or other entities of any type without fiscal personality and direct or indirect participations in companies or other entities of any type, existing at the date of entry into force of this law.

The Extraordinary Contribution to be paid will be determined on the basis of a scale and rates varying from 2% to 5.25%, depending on (i) the total value of the assets and (ii) their location. The differential rate between assets located abroad and those located in the country shall be eliminated if part of these assets are repatriated within a certain period of time and to the extent those funds remain until December 31st, 2021 deposited in a bank account under the name of the holder or are affected, once this deposit is made, to one of the destinations established by General Resolution AFIP 4930.

The application, collection and inspection of this Extraordinary Contribution will be in charge of the AFIP. The provisions of the Argentine Fiscal Procedures Law (Law 11,683, text ordered in 1998 and its amendments) and the Criminal Tax Regime of Title IX of Law N° 27,430 and its amendments are supplementary applicable to the Extraordinary Contribution. Filing of the tax return and payment thereof shall be made until April 16, 2021, inclusive, as extended by General Resolution AFIP 4954. General Resolution AFIP 4930 also established a reporting regime that shall be complied with from March 22 until April 30, 2021 under which certain individuals are required to inform their existing assets by March 20, 2020 and, in certain cases, also their existing assets by December 18, 2020.

Law N° 27,605 was regulated by the Decree N° 42/2021 (published in the Official Gazette on January 29, 2021) and by General Resolution AFIP 4930.

Note that although the Extraordinary Contribution was conceived as a one-time tax on assets existing as of December 18, 2020, it is important to mention that in Argentina there are several taxes that have been created on an exceptional basis and for a limited time, and were later extended for additional periods (e.g, Tax on Credits and Debits on Bank Accounts).

Gross turnover tax

This tax is a provincial tax, which is also levied in the City of Buenos Aires, applicable to 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 Argentine 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 (the so-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 later, the Argentine Executive Branch, the representatives of the Provinces and the City of Buenos Aires signed three agreements to suspend the Fiscal Consensus (“Fiscal Consensus 2018, 2019 y 2020”). These agreements shall be effective only in connection with the jurisdictions that have their legislative branches approve them and such effectiveness shall not commence if such approval has not been granted.

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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 of Class B shares and ADSs 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 an Argentine provincial jurisdiction or the City of Buenos Aires or outside an Argentine provincial jurisdiction or the City of Buenos Aires but with effects in such jurisdiction.

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, later the Argentine Executive Branch, the representatives of the Provinces and the City of Buenos Aires signed Fiscal Consensus 2019 and 2020 to suspend the Fiscal Consensus and the Fiscal Consensus 2018. These agreements shall be effective only in connection with the jurisdictions that have their legislative branches approve them 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 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 federal inheritance or succession taxes applicable to the ownership, transfer or disposition of our Class B shares or ADSs. At the provincial level, the province of Buenos Aires imposes a tax on free transmission of assets, including inheritance, legacies, donations, etc. For tax period 2021, any gratuitous transfer of property lower than or equal to Ps.322,800 is exempt. This amount is increased to Ps.1,344,000 in the case of transfers among parents, sons, daughters and spouses. The amount to be taxed, which includes a fixed component and a variable component that is based on differential rates (which range from 1.6026% to 8.7840%), varies according to the property value to be transferred and the degree of kinship of the parties involved. Free transmission of Class B shares or ADSs could be subject to this tax. Holders of Class B shares and ADSs are encouraged to consult a tax advisor as to the particular tax consequences arising in the involved jurisdictions.

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.

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Incoming Funds Arising from Non-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 as non-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 published a list of the non-cooperative jurisdictions based on the criteria above. In this sense, according to Section 24 of the regulatory decree of the Income Tax Law, the following jurisdictions should be considered as “non-cooperative” under the disposition of Section 19 of the aforementioned law:

1. Bosnia and Herzegovina

2. Brecqhou

3. Burkina Faso

4. State of Eritrea

5. State of the Vatican City

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

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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, domains, jurisdictions, territories, associated states or special tax regimes in which the maximum corporate income tax rate is lower than 60% of the corporate income tax rate established in Section 73(a) of the Income Tax Law.

Pursuant to Section 25 of the regulatory decree of the Income Tax Law, for purposes of determining the taxation level referred to in Article 20 of the Income Tax Law, the aggregate corporate tax rate in each jurisdiction, regardless of the governmental level in which the taxes were levied must be considered. In turn, “special tax regime” is understood as any regulation or specific scheme that departs from the general corporate tax regime applicable in said country and results in an effective rate below that stated under the general regime. According to the legal presumption under Section 18.2 of Law No. 11,683, as amended, incoming funds from non-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.

• value added 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 a non-cooperative/low or nil tax jurisdiction or from a bank account opened outside of a non-cooperative or low or nil tax jurisdiction but owned by an entity located in a non-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.

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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 Form 6-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 at 1-800-SEC-0330 for further information on the public reference room. The SEC also maintains a website at http://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 in on- and off-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 option so-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

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The chart below, shows the maximum, minimum, average and closing values for the years 2019 and 2020 of the market risk requirements of foreign currency status and status in securities charged to the Trading portfolio:

	2019		2020		Variation 2020
	(in million Pesos)
Minimum		188.3		694.4		506.1
Maximum		778.3		1,555.7		777.4
Average		433.7		1,064.8		631.1
December 31,		591.3		1,555.7		964.4
Market risk for foreign exchange position	2019		2020		Variation 2020
	(in million Pesos)
Minimum		86.1		573.1		487.0
Maximum		496.1		974.2		478.1
Average		297.3		752.9		455.6
December 31,		496.1		974.2		478.1
Market risk for securities position	2019		2020		Variation 2020
	(in million Pesos)
Minimum		75.2		82.5		7.3
Maximum		352.0		581.4		229.4
Average		136.3		311.8		175.5
December 31,		95.1		581.4		486.3

Between 2019 and 2020, there was an increase in the average exposure and the year-end exposure. The increase in market risk year over year (Ps. 964.4 million or 163%) was mainly due to an increase in the market risk for securities by Ps. 486.3 million or 411%, as result of a significant increase in position and to a lesser extend to an increase in prices, and due to an increase in the market risk for exchange rates by Ps. 478.1 million or 96% as result of a significant increase the foreign exchange rates and an increase in foreign exchange position. The increase in market risk in average was 146% as compared with 2019.

Regarding market risk for securities position, we observed an increase of Ps.411.5 million per changes in position and Ps. 136.9 million per changes in prices. The position increase was due a higher liquidity during 2020 and it was observed by a higher volume in trading portfolio being the major discharges during the period the following: the Federal Government Treasury Bonds in pesos adjusted by CER (maturity 08-05-2021 and 03-25-2023), the Federal government treasury bonds at discount in pesos (maturity 01-29-2021 and 02-26-2021) and the Federal government treasury bonds in pesos BADLAR (maturity 08-05-2021). Additionally, taking into account the trend context of government debt renegotiation and the volatilities of debt securities prices, during 2020 our management reclassified from investment portfolio to trading portfolio the Federal Government Treasury Bonds adjusted by CER 2.5% — Maturity 07/22/2021.

Regarding the market risk for foreign exchange position, we observe an increase of Ps. 282.1 million for the price and of Ps. 196 million for the position. The foreign exchange rate for U.S. dollar against the Peso increased by 40% year-on-year and by 46% in average, increasing the value at risk of this portfolio. The average U.S. dollar exchange rate went from Ps. 48.2 per dollar in 2019 to Ps. 70.6 per U.S. dollar in 2020.

Sensitivity to interest rate

Sensitivity to interest rate arises in our normal course of business as the re-pricing characteristics of its interest-earning assets do not necessarily match those of its interest-bearing deposits and other borrowings. The re-pricing structure of assets and liabilities is matched when an equal amount of assets and liabilities re-price for any given period. Any excess of assets or liabilities over these matched items results in a gap or mismatch.

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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 changes in economic value of equity (DEVE) for last two years (in millions of Pesos):

	2019		2020
Minimum		1,415.9		1,618.7
Maximum		1,803.7		2,883.1
Average		1,676.0		2,527.9
December 31		1,803.7		2,818.6

For the year 2020, both on average and in the maximum and closing balances increased compared to the previous year. The increase observed in 2020 is due to a decline in interest rate curves, which increases the relative impact of disruptive shocks, generating an increase in capital requirements for interest rate risk. This applied from the second quarter of 2020 onwards for the rest of the year, impacting both the closing and average balance. In addition, it also influenced the increase in balances at nominal values due to the impact of inflation and depreciation during 2020.

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 51 “Capital Management, Corporate Governance Transparency and Risk Management” to our audited consolidated financial statements as of December 31, 2020 and 2019.

Item 12. Description of Securities Other Than Equity Securities

A- Not applicable

B- Not applicable

C- Not applicable

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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 provide fee-attracting services until its fees for those services are paid.

Persons depositing or withdrawing shares may be requested to pay:	For:
U.S.$5.00 (or less) per 100 ADSs (or portion thereof)	•   Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property •   Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates
A fee equivalent to the fee that would be payable if securities distributed had been shares and the shares had been deposited for issuance of ADSs	•   Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to ADS registered holders
U.S.$0.02 (or less) per ADS (or portion thereof)	•   Any cash distribution to ADS registered holders
Registration fees	•   Registration of transfer of shares on our stock registry to or from the name of the depositary or its nominee or the custodian, or its nominee when making deposits or withdrawals
Expenses of the depositary	•   Cable, telex and facsimile transmissions •   Conversion of foreign currencies into U.S. dollars
Taxes and other governmental charges the depositary or the custodian, have to pay on any ADS or share underlying an ADS	•   As necessary
Any charges incurred by the depositary or its agents, including the custodian, for servicing the deposited securities	•   As necessary

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 standard out-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 2020, we have received the agreed reimbursement from the Depositary.

PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies

None.

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds

None.

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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 Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as of December 31, 2020. There are, as described below, inherent limitations to the effectiveness of any system of disclosure controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

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 in Rule 13a-15(f) and 15d-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:

a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Bank;

b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of management and directors of the Bank; and

c) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Bank’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.

Our management assessed the effectiveness of the Bank’s internal control over financial reporting as of December 31, 2020. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (2013). Based on its assessment and those criteria, the Bank’s management concluded that, as of December 31, 2020 the Bank’s internal control over financial reporting was effective.

The effectiveness of the Bank’s internal control over financial reporting as of December 31, 2020, has been audited by Pistrelli, Henry Martin y Asociados S.R.L. (Member of Ernst & Young Global), an independent registered public accounting firm, as stated in their report which appears herein.

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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 Directors of

BANCO MACRO S.A. and its subsidiaries

Opinion on Internal Control over Financial Reporting

We have audited BANCO MACRO S.A. and its subsidiaries’ internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, BANCO MACRO S.A. and its subsidiaries (the Bank) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statement of financial position of BANCO MACRO S.A. and its subsidiaries as of December 31, 2020 and 2019, the related consolidated statements of income, other comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and our report dated April 29, 2021 expressed an unqualified opinion thereon.

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 Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Bank’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Bank 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 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.

/s/ Pistrelli, Henry Martin y Asociados S.R.L.

PISTRELLI, HENRY MARTIN Y ASOCIADOS S.R.L.

Member of Ernst & Young Global

City of Buenos Aires, Argentina

April 29, 2021

205

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting during 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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 Form 20-F for “audit committee financial experts.”

Item 16B. Code of Ethics

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 2020 we have updated the text of our code of ethics for our directors and senior management and published on our website at https://www.macro.com.ar/relaciones-inversores/en/corporate-governance/corporate-governance-policy.

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 2019 and 2020 are detailed below.

	2019 (not restated)		2020
	(in thousands of Pesos)
Audit Fees		92,951		109,321
Audit Related Fees		—		—
Tax Fees		—		—
All Other Fees		494		—
Total		93,445		109,312

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 statements and services.

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 advisory services.

All Other Fees

Fees disclosed in the table above under “All Other Fees” consisted of other fees paid for professional services.

206

Audit Committee’s Pre-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 other non-audit services. The Audit Committee has approved policies and procedures for pre-approving all non-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 2020 were attributed to work performed by persons other than the principal accountant’s full-time, permanent employees.

Item 16D. Exemptions from the Listing Standards for Audit Committees

Not applicable.

Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Not applicable.

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 Rule 10A-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 any non-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)).

207

The table below discloses any significant differences between the NYSE rules and our corporate governance practices pursuant to Argentine corporate governance rules.

Section	NYSE corporate governance rule for U.S. domestic issuers	Banco Macro Corporate Practices
303A.01-Independent Directors	Listed companies must have a majority of independent directors on their Boards of Directors.	Neither Argentine law nor our bylaws require us to have a majority of independent directors.
303A.02-Independence Tests	This section establishes general standards to determine directors’ independence. (a)   (i) No director qualifies as “independent” unless the board of directors affirmatively determines that the director has no material relationship with the listed company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the company). The board of directors is required to identify its independent directors. (ii) In addition, in affirmatively determining the independence of any director who will serve on the compensation committee of the listed company’s board of directors, the board of directors must consider all factors specifically relevant to determining whether a director has a relationship to the listed company which is material to that director’s ability to be independent from management in connection with the duties of a compensation committee member, including, but not limited to: (A)  the source of compensation of such director, including any consulting, advisory or other compensatory fee paid by the listed company to such director; and (B)  whether such director is affiliated with the listed company, a subsidiary of the listed company or an affiliate of a subsidiary of the listed company. (b)   In addition, a director is not independent if: A. the director is or has been within the last three years, an employee, or an immediate family member is, or has been within the last three years, an executive officer, of the listed company, its parent or a consolidated subsidiary. Employment as interim chairman or CEO or other executive officer shall not disqualify a director from being considered independent;	Pursuant to the CNV Rules, a director will be consider as “independent” if its main relation with the listed company is his / her position in the board of directors. He / she will be appointed taking into account his professional career, suitability, qualified knowledge, and criteria, economic and interest independence, considering also that he can perform his functions objectively and impartially. For the purposes of this definition, it shall be understood that a director does not meet the condition of independent, when one or more of the following circumstances apply to him / her: (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 a pre-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;
	B. the director has received, or has an immediate family member who has received, during any twelve-month period within the last three years, more than U.S.$120,000 in direct compensation from the listed company, its parent or a consolidated subsidiary, other than	(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

208

Section	NYSE corporate governance rule for U.S. domestic issuers	Banco Macro Corporate Practices
	director and committee fees and pension or other forms of deferred compensation for prior services (provided such compensation is not contingent in any way on continued service);	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;
	C. (i) the director is a current partner or employee of a firm that is the listed company’s internal or external auditor; (ii) the director has an immediate family member who is a current partner of such firm; (iii) the director has an immediate family member who is a current employee of such firm and personally works on the company’s audit; or (iv) the director or an immediate family member was within the last three years a partner or employee of such firm and personally worked on the company’s audit within that time;	(f) has been a director, manager, administrator or principal executive of not-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;
	D. the director, or an immediate family member is, or has been with the last three years, employed as an executive officer of another company where any of the listed company’s present executive officers at the same time serves or served on that company’s compensation committee; E.  the director is a current employee, or an immediate family member is a current executive officer, of a company that has made payments to, or received payments from the listed company its parent or a consolidated subsidiary for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of U.S.$1 million, or 2% of such other company’s consolidated gross revenues. A non-independent director will only be deemed independent upon the elapse of a three-year look-back period.	(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;
	“Immediate family member” includes a person’s spouse, parents, children, siblings, mothers and fathers-in law, sons and daughters-in-law, brothers and sisters-in-law and anyone (other than domestic employees) who share such person’s home.	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.

209

Section	NYSE corporate governance rule for U.S. domestic issuers	Banco Macro Corporate Practices
		In accordance with the provisions of the Central Bank in Communication “A” 5201 and amendments—“Guidelines for Corporate Governance in Financial Entities”, a director does not meet the status of independent if any of the following situations are met: (a)   a control relationship according to the guidelines established in point 2.2.1. of the rules on “Large exposures to credit risk”. (b)   performs executive functions or has performed the aforementioned during the last three years as from the day following the last one in which he/she has effectively exercised such position. In the case of public financial entities, this term will be one year.

210

Section	NYSE corporate governance rule for U.S. domestic issuers	Banco Macro Corporate Practices
		(c)   is a spouse or relative up to the second degree of consanguinity or first of affinity of those who are in the condition of the preceding points. In this regard, the following individuals and entities shall be considered “related” to the Bank: i) any entity or person other than from the non-financial public sector of the country, having direct or indirect control over the Bank. ii) any entity or person, other than from the non-financial public sector of the country, directly or indirectly controlled by an entity or person having direct or indirect control over the Bank. iii) any entity or person directly or indirectly controlled by the Bank, pursuant to the provisions of section 28, subsection a) of the Law on Banks and the regulations on “Services supplementary to the financial activity and permitted activities” and “Credit Grading.” iv) any Bank or entity engaged in the provision of supplementary services to the financial activity other than those contemplated in the preceding items, subject to consolidated supervision with the Bank. v) any entity other than those contemplated in the preceding items, having directors in common with the institution or entity, other than from the non-financial public sector of the country, having direct or indirect control over of with the Bank, to the extent such directors represent a simple majority of the members of the boards of each such entities or the Bank. To this end, it shall be considered “related” to the director who holds such office in another legal entity or his spouse or partner (by registered cohabiting union) or a relative up to the second degree of consanguinity or first degree of affinity or have exercised it. during the period referred to in item i) of section 1.2.2.2 of the aforementioned rule. vi) The parent company and the other branches thereof, in the case of local branches of financial entities abroad. vii) Exceptionally, any person who has a relationship with the financial institution or its direct or indirect controller, which may result in financial loss to the financial institution, as of the effective date of the resolution in which it determine the Board of the Central Bank, at the proposal of the Superintendent of Financial and Exchange Institutions.

211

Section	NYSE corporate governance rule for U.S. domestic issuers	Banco Macro Corporate Practices
		Likewise, control by one person or entity over another is defined as: i) holding or controlling, directly or indirectly, 25% or more of the total voting stock in the other entity. ii) having held, directly or indirectly, 50% or more of the total voting stock in the other entity, at the last election of directors or managers. iii) holding a direct or indirect interest in the other entity, even if its voting rights do not amount to 25%, sufficient to adopt resolutions in shareholders’ meetings or meetings of the board or a similar corporate body. iv) having direct or indirect controlling influence over the management and/or policies of the other entity, as of the effective date of the relevant resolution of the board of directors of the Central Bank of the Republic of Argentina, based on the recommendation of the Head of the Supervisory Board of Financial and Exchange Institutions (Superintendencia de Entidades Financieras y Cambiarias).
303A.03-Executive Sessions	Non-management directors of each listed company must meet at regularly scheduled executive sessions without management.	Neither Argentine law nor our by-laws require the holding of such meetings and we do not hold non-management directors’ meetings. Our by-laws provide, however, that the board shall meet as often as required in the best interest of the Bank and at least once a month.
303A.04-Nominating/Corporate Governance Committee	Listed companies must have a nominating/corporate governance committee composed entirely of independent directors, with a written charter that covers certain minimum specified duties and details about committee members and the committee structure.	Neither Argentine law nor our by-laws require a nominating/corporate governance committee, however, our by-laws provide for the possibility to create a nominating/corporate governance committee. As a result of a general recommendation issued by the Central Bank to all financial institutions, we have created a Corporate Governance and Appointments Committee. The Committee will be formed so that the independent Directors constitute the majority. It has been defined that this Committee is chaired by an independent director. This Committee has an approved charter establishing its functions and responsibilities. Directors are nominated and appointed by the shareholders, with no involvement of the Corporate Governance and Appointments Committee.

212

Section	NYSE corporate governance rule for U.S. domestic issuers	Banco Macro Corporate Practices
303A.05-Compensation Committee	Listed companies must have a compensation committee composed entirely of independent directors, with a written charter that covers certain minimum specified duties and details about committee members and the committee structure.	Neither Argentine law nor our by-laws require the establishment of a compensation committee. The compensation of our directors is determined at the annual ordinary shareholders’ meeting. Additionally, the audit committee must issue an opinion regarding the reasonableness of such compensation.
		However, as a result of a general recommendation issued by the Central Bank to all financial institutions, we have created a Personnel Incentives Committee. The Committee will be formed so that the independent Directors constitute the majority. This Committee has an approved charter establishing its functions and responsibilities, and shall meet at least bi-annually. This Committee is chaired by an independent director. The Committee’s main function is to control that the fixed and variable staff incentives – excluding directors- are consistent with the business culture, long term business plan, goals and business strategy of the Bank as well as with the applicable regulations governing the Bank. The Bank has a Compensation Policy that covers both fixed remuneration and variable remuneration, the latter in the framework of an evaluations process of targets and skills

213

Section	NYSE corporate governance rule for U.S. domestic issuers	Banco Macro Corporate Practices
303A.06/07- Audit Committee/Requirements	Listed companies must have an audit committee that satisfies the requirements of Rule 10A-3 under the Exchange Act. (a)   The audit committee must have a minimum of three members. All of its members shall be financially literate or must acquire such financial knowledge within a reasonable period of time after the appointment and at least one of its members shall have experience in accounting or financial management. In addition to meeting any requirement of Rule 10A-3 (b) (1), all audit committee members must satisfy the independence requirements set out in Section 303A.02. (b)   The audit committee must have a written charter that establishes the duties and responsibilities of its members, including, at a minimum, some of the duties and responsibilities required by Rule 10A-3 of the Exchange Act and the following responsibilities set forth in NYSE Sections 303A.07(b)(iii)(A)-H) of the NYSE Manual. A. at least annually, obtain and review a report by the independent auditor describing: the firm’s internal quality-control procedures; any material issues raised in the most recent internal quality-control review, or peer review, of the firm, or by any inquiry or investigation by governmental or professional	(a)   Argentine law requires that the audit committee be composed of three or more members from the Board of Directors (with a majority of independent directors), all of whom must be well-versed in business, financial or accounting matters. Our Audit Committee is composed by three directors and the Committee’s presidency is in charge of an independent Director. All the members of the Audit Committee, according to its designation on May 11, 2020, satisfy the independence requirements of Rule 10A-3. (b)   Neither Argentine law nor the CNV Rules contain provisions relating to an audit committee member’s simultaneous service on the audit committee of other public companies. (c)   The responsibilities of the audit committee, as provided for in the Capital Markets Law, as regulated by Decree No. 1023 and the CNV Rules regarding the functions of the Committee, are essentially the same as those provided for under Rule 10A-3 of the Exchange Act, including, without limitation, the following: i. issuing an opinion about the Board of Directors’ proposal for the appointment of the external auditors to be retained by the Bank, and ensuring that auditors are independent;

214

Section	NYSE corporate governance rule for U.S. domestic issuers	Banco Macro Corporate Practices
	authorities, within the preceding five years, with respect to one or more independent audits carried out by the firm, and any steps taken to deal with any such issues; and (to assess the auditor’s independence) all relationships between the independent auditor and the listed company; B. meet with management and the independent auditor to review and discuss the listed company’s annual audited financial statements and quarterly financial statements, including a review of the company’s specific disclosures under Operating and Financial Review and Prospects”; C. discuss the listed company’s earnings press releases, as well as financial information and earnings guidance provided to analysts and rating agencies; D. discuss risk assessment and risk management policies;	ii. overseeing the performance of the internal control systems and the administrative-accounting system as well as the reliability of the latter and of all financial information or other facts which could be submitted to the CNV and self-regulated entities in compliance with the applicable reporting regime; iii. supervising the enforcement of the Bank’s risk management information policies; iv. providing the market with full disclosure with respect to transactions that give rise to conflict of interests with the members of the Bank’s corporate bodies or controlling shareholders; v. issuing an opinion on the reasonableness of any proposal regarding the Directors’ and management fees and stock option plans proposed by the Board of Directors; vi. issuing an opinion on the compliance with applicable legal requirements and on the reasonableness of the terms of any issuance of stock or convertible securities in case of capital increase excluding or limiting pre-emptive rights;

215

Section	NYSE corporate governance rule for U.S. domestic issuers	Banco Macro Corporate Practices
	E.  hold separate regular meetings with management, the internal auditors (or other personnel responsible for the internal audit function) and the independent auditors; F.  review any issue or difficulty arising from the audit or management’s response with the independent auditor; G. set clear policies for the recruitment of employees or former employees of the independent auditors; and H. report regularly to the board of directors. (c)   Rule 303A.07(c) establishes that each listed company must have an internal audit function to provide management and the audit committee with ongoing advice on the company’s risk management processes and internal control systems	vii. assessing compliance with relevant rules of conduct; viii. Issuing a well-founded opinion on transactions with related parties as established in this Decree. Issue a well-founded opinion and inform the same to the self-regulated entities as determined by the CNV in the event of a conflict of interest or a potential conflict of interest. In addition, pursuant to the provisions of the CNV Rules, the audit committee is responsible for: •   reviewing external and internal auditors’ plans, evaluating their performance, and issuing an opinion on such regard upon the publication of the annual financial statements; •   analyzing the various services provided by the external auditors and their independence, as established in the Professional Technical Resolutions of the Federación Argentina De Consejos Profesionales De Ciencias Económicas and any other regulations of the applicable supervisory authorities;
	If a member of the audit committee is simultaneously a member of the audit committee of more than three public companies the board of directors shall determine whether such simultaneous service would prevent such members from effectively serving on the listed company’s audit committee, and disclose such determination in the order of business of the annual shareholders’ meeting of the listed company or in the company’s annual report on Form 10-K filed with the SEC.	•   reporting on invoiced fees, broken down as follows: 1) external audit and other related services aiming to ensure reliability (e.g. special analyses on the verification and assessment of internal controls, taxes, involvement in offering memorandums, certifications and special reports required by supervisory authorities, etc.); 2) special services other than those mentioned in item 1) above (e.g. design and implementation of information systems, legal, financial aspects, etc.). Said assessment shall be made by the audit committee including a verification of their respective independence policies to ensure compliance therewith.
303A.08-Shareholder Approval of Equity Compensation Plans-	Shareholders must be given the opportunity to vote on all equity compensation plans and material amendments thereto, except for employment inducement awards, certain grants, plans and amendments in the context of mergers and acquisitions, and certain specific types of plans.	We do not currently offer equity-based compensation to our directors, executive officers or employees; therefore, we have no policy on this matter.

216

Section	NYSE corporate governance rule for U.S. domestic issuers	Banco Macro Corporate Practices
303A.09-Corporate Governance Guidelines	Listed companies must adopt and disclose corporate governance guidelines. The corporate governance guidelines must address director qualification standards, director responsibilities, director access to management, director compensation, director orientation and continuing education, management succession, and annual performance evaluation of the board.	Neither Argentine law nor our by-laws require the adoption or disclosure of corporate governance guidelines. However, due to our size and the importance of our business we have implemented a Corporate Governance Code based on the recommended Code of Corporate Governance for listed companies issued by the CNV and the recommended corporate governance guidelines for financial institutions issued by the Central Bank.
303A.10-Code of Business Conduct and Ethics	Listed companies must adopt and disclose a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for the benefit of directors or executive officers. Each listed company may determine its own policies, which should address conflicts of interest, corporate opportunities, confidentiality, fair dealing, protection and proper use of listed company assets, compliance with laws, rules and regulations, and encouraging the reporting of any illegal or unethical behavior.	Neither Argentine law nor our by-laws require the adoption or disclosure of a code of business conduct and ethics. However, we have adopted a Code of Conduct applicable to all our employees. In addition, we have adopted a specific Code of Ethics applicable to our Directors and Senior Management. Regarding the ethical standards, we have implemented an Ethical Line or channel for reports that is managed by a third party who assures the confidentiality and anonymity.
303A.12-Certification Requirements	(a) The CEO of each listed company must certify to the NYSE, on an annual basis, that he or she is not aware of any breach by the company of NYSE corporate governance listing standards, qualifying the certification to the extent necessary. (b)   The CEO of each listed company must promptly notify the NYSE in writing upon any executive officer of the listed company becoming aware of any non-compliance with any applicable provisions of this Section 303A. (c)   Each listed company must submit an annual executed Written Affirmation to the NYSE. In addition, each listed company must submit an interim written affirmation as and when required and using the interim written affirmation form specified by the NYSE.	No comparable provisions exist under Argentine law. However, the Bank is in compliance with the certification requirements of Section 303A.12 (b) and (c) of the NYSE rules.

PART III

Item 17. Financial Statements

We have responded to Item 18 in lieu of responding to this Item.

Item 18. Financial Statements

See pages F-1 through F-106 of this annual report.

217

Item 19. Exhibits

EXHIBIT INDEX

Exhibit   Number	Description
1.1	Restated Bylaws of the Bank, as amended and restated on April 30, 2019, incorporated by reference to the Form 6-K filed by the Bank on July 24, 2019 (File No. 199-70013).
2.1	Deposit Agreement among the registrant, The Bank of New York, as depositary, and the holders from time to time of American depositary shares issued thereunder, including the form of American depositary receipts, incorporated by reference to the Registration Statement on Form F-1, as amended, filed by the Bank on March 20, 2006 (File No. 333-130901).
8.1*	List of subsidiaries of the Bank as of December 31, 2020.
12.1*	Certification by the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
12.2*	Certification by the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
13.1*	Certification by the Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
13.2*	Certification by the Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101. INS*	XBRL Instance Document.
101. SCH*	XBRL Taxonomy Extension Schema Document.
101. CAL*	XBRL Taxonomy Extension Calculation Linkbase Document.
101. LAB*	XBRL Taxonomy Extension Label Linkbase Document.
101. PRE*	XBRL Taxonomy Extension Presentation Linkbase Document.
101. DEF*	XBRL Taxonomy Extension Definition Linkbase Document.

* Filed herewith

218

SIGNATURE

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

BANCO MACRO S.A.
By:	/s/ Gustavo Alejandro Manriquez
Name:	Gustavo Alejandro Manriquez
Title:	Chief Executive Officer

Date: April 29, 2021.

219

CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2020 AND 2019, TOGETHER WITH THE REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of

BANCO MACRO S.A. and its subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated statements of financial position of BANCO MACRO S.A. (a bank organized under Argentine legislation) and its subsidiaries (the Bank) as of December 31, 2020 and 2019, and the related consolidated statements of income, other comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Bank as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.

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 the Bank as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated April 29, 2021 expressed an unqualified opinion thereon.

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 9,981,687 thousand pesos as disclosed in note 51.1., 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 portion of the lifetime 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. The Bank uses an expert credit judgment (ECJ) overlay to reflect factors not captured in the results produced by the ECL models, such as market or economic disruptive events, like the COVID 19 pandemic.

F-2

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 and the impacts of the COVID-19 pandemic. 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 ECJ to reflect factors not captured in the results produced by the ECL models, which involved judgment to reflect the impact of COVID-19 on the allowance for credit losses. 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, among 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 ECJ.

To test the allowance for credit losses, our audit procedures included, among 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 to test the mathematical accuracy of management’s models; evaluating whether the assumptions used were reflective of the credit quality and macroeconomic trends, testing the completeness and accuracy of data used in the measurement of the ECL and the ECJ overlays to the ECL used by the Bank by applying our knowledge of the industry and credit judgment to evaluate the Bank’s underlying considerations. We also assessed the adequacy of the allowance for credit loss financial statement disclosures.

/s/ Pistrelli, Henry Martin y Asociados S.R.L.

PISTRELLI, HENRY MARTIN Y ASOCIADOS S.R.L.

Member of Ernst & Young Global

We have served as the Bank’s auditor since 2003

City of Buenos Aires, Argentina

April 29, 2021

F-3

BANCO MACRO SA AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS OF DECEMBER 31, 2020 AND 2019

(Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2020, unless otherwise expressly stated)

Items	Notes		12/31/2020		12/31/2019
ASSETS
Cash and Deposits in Banks		12		129,967,486		137,066,430
Cash				25,422,664		26,563,255
Central Bank of Argentina				49,994,923		75,092,641
Other Local and Foreign Entities				54,544,637		35,405,434
Other				5,262		5,100
Debt Securities at fair value through profit or loss		3, 4 and 12		54,982,465		7,725,991
Derivative Financial Instruments		11 and 12		989,478		838,493
Repo transactions		7 and 12		39,421,705		1,481,096
Other financial assets		12, 18 and 51.1		18,886,290		8,391,566
Loans and other financing		9, 12, 51.1 and 51.2		257,421,195		300,731,589
Non-financial Public Sector				3,614,614		8,781,948
Other Financial Entities				1,824,600		5,380,555
Non-financial Private Sector and Foreign Residents				251,981,981		286,569,086
Other Debt Securities		3, 5, 12 and 51.1		209,118,933		87,828,945
Financial Assets delivered as guarantee		8, 12 and 43		14,292,358		14,530,739
Equity Instruments at fair value through profit or loss		6, 12 and 21		5,218,299		3,562,427
Investment in associates and joint arrangements		14		203,905		199,216
Property, plant and equipment		15		34,369,465		35,052,877
Intangible Assets		17		5,104,060		4,822,183
Deferred Income Tax Assets		28.c)		63,189		59,115
Other Non-financial Assets		18		2,232,053		1,477,587
Non-current assets held for sale				2,258,182		2,383,947
TOTAL ASSETS				774,529,063		606,152,201

F-4

BANCO MACRO SA AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS OF DECEMBER 31, 2020 AND 2019

(Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2020, unless otherwise expressly stated)

Items	Notes		12/31/2020			12/31/2019
LIABILITIES
Deposits		12 and 51.2		488,741,363			357,866,442
Non-financial Public Sector				73,565,424			23,906,675
Financial Sector				696,415			427,702
Non-financial Private Sector and Foreign Residents				414,479,524			333,532,065
Derivative Financial Instruments		11, 12 and 51.2		230			1,046,556
Repo Transactions		7, 12 and 51.2		618,572			1,364,825
Other Financial Liabilities		12, 24 and 51.2		49,215,887			30,181,836
Financing received from the Central Bank of Argentina and other financial institutions		12 and 51.2		919,103			3,057,451
Issued Corporate Bonds		12, 47 and 51.2		4,926,901			7,521,820
Current Income Tax Liabilities		28.c)		5,145,324			11,076,651
Subordinated Corporate Bonds		12, 47 and 51.2		34,300,292			33,098,040
Provisions		22		1,310,517			2,006,052
Deferred Income Tax Liabilities		28.c)		7,448,122			763,179
Other Non-financial Liabilities		24		30,356,941			13,776,518
TOTAL LIABILITIES				622,983,252			461,759,370
SHAREHOLDERS’ EQUITY
Capital Stock		40		639,413			639,413
Additional paid-in capital				12,429,781			12,429,781
Adjustments to Shareholders’ Equity				50,313,147			50,313,147
Earnings Reserved				151,705,736			116,665,886
Unappropriated Retained Earnings				(90,795,880	)		(63,980,663	)
Other Comprehensive Income				1,097,414			118,283
Net Income for the fiscal year				26,154,332			28,205,071
Net Shareholders’ Equity attributable to controlling interest				151,543,943			144,390,918
Net Shareholders’ Equity attributable to non-controlling interests				1,868			1,913
TOTAL SHAREHOLDERS’ EQUITY				151,545,811			144,392,831
TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES				774,529,063			606,152,201

The accompanying notes 1 to 54 to the consolidated financial statements are integral part of these consolidated financial statements.

F-5

BANCO MACRO SA AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME

FOR THE FISCAL YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018

(Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2020, unless otherwise expressly stated)

Items	Notes	12/31/2020			12/31/2019			12/31/2018
Interest income	29		157,080,212			206,343,721			163,660,400
Interest expense	30		(60,833,919	)		(87,343,660	)		(63,205,058	)
Net Interest income			96,246,293			119,000,061			100,455,342
Commissions income	31		24,742,767			26,467,679			29,951,869
Commissions expense	32		(2,047,292	)		(2,191,792	)		(1,947,749	)
Net Commissions income			22,695,475			24,275,887			28,004,120
Subtotal (Net Interest income +Net Commissions income)			118,941,768			143,275,948			128,459,462
Net gain from measurement of financial instruments at fair value	33		13,978,694			10,799,758			2,641,829
Profit/ (Loss) from sold or derecognized assets at amortized cost			1,292,836			37,325			(12,837	)
Differences in quoted prices of gold and foreign currency	34		4,229,690			4,761,247			(3,665,529	)
Other operating income	35		5,369,762			10,450,998			7,378,344
Credit loss expense on financial assets	9		(7,861,600	)		(5,917,873	)		(6,073,426	)
Net Operating Income before expenses, depreciation and amortization			135,951,150			163,407,403			128,727,843
Employee benefits	36		(26,598,602	)		(28,865,342	)		(26,129,057	)
Administrative expenses	37		(14,539,871	)		(17,427,021	)		(17,326,119	)
Depreciation and amortization of fixed assets	15, 16 and 17		(4,402,387	)		(4,092,898	)		(3,085,766	)
Other Operating Expenses	38		(20,476,936	)		(30,088,399	)		(25,885,979	)
Net Operating Income after expenses, depreciation and amortization			69,933,354			82,933,743			56,300,922
(Loss) / Income from associates and joint arrangements			(6,856	)		1,223,124			557,706
Loss on net monetary position			(30,724,854	)		(38,333,403	)		(38,523,196	)
Income before tax on continuing operations			39,201,644			45,823,464			18,335,432
Income tax on continuing operations	28.c)		(13,046,950	)		(17,618,151	)		(19,835,151	)
Net Income / (Loss) from continuing operations			26,154,694			28,205,313			(1,499,719	)
Net Income / (Loss) for the fiscal year			26,154,694			28,205,313			(1,499,719	)
Net Income / (Loss) for the fiscal year attributable to controlling interest			26,154,332			28,205,071			(1,500,074	)
Net Income for the fiscal year attributable to non-controlling interest			362			242			355
Basic earnings / (loss) per share	41		40.9037			44.1116			(2.2689	)

F-6

BANCO MACRO SA AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME

FOR THE FISCAL YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018

(Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2020, unless otherwise expressly stated)

Items	Notes		12/31/2020			12/31/2019			12/31/2018
Net Income / (Loss) for the fiscal year				26,154,694			28,205,313			(1,499,719	)
Items of Other Comprehensive Income that will be reclassified to profit or loss
Foreign currency translation differences in financial statements conversion				119,864			116,159			801,541
Foreign currency translation differences for the fiscal year				119,864			116,159			801,541
Profit or losses for financial instruments measured at fair value through other comprehensive income (FVOCI) (IFRS 9(4.1.2)(a))				859,267			88,591			(952,750	)
Profit or losses for the fiscal year from financial instruments at fair value through other comprehensive income (FVOCI)				(1,386,581	)		(10,234,927	)		(2,163,576	)
Reclassification to profit or loss				2,373,855			10,521,646			908,673
Income tax		28.c)		(128,007	)		(198,128	)		302,153
Total Other Comprehensive Income / (Loss) that will be reclassified to profit or loss				979,131			204,750			(151,209	)
Total Other Comprehensive Income / (Loss)				979,131			204,750			(151,209	)
Total Comprehensive Income / (Loss) for the fiscal year				27,133,825			28,410,063			(1,650,928	)
Total Comprehensive Income / (Loss) attributable to controlling interest				27,133,463			28,409,843			(1,651,270	)
Total Comprehensive Income attributable to non-controlling interest				362			220			342

The accompanying notes 1 to 54 to the consolidated financial statements are an integral part of these consolidated financial statements.

F-7

BANCO MACRO SA AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2020

(Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2020, unless otherwise expressly stated)

			Capital stock			Additional paid-in Capital				Other Comprehensive Income					Earnings Reserved
Changes	Notes		Outstanding shares		In treasury	Additional paid-in capital		Adjustments to Shareholders’ Equity (1)		Accumulative foreign currency translation difference in financial statements conversion		Other			Legal		Other			Unappropriated Retained Earnings			Total Controlling Interests			Total Non- Controlling Interests			Total Equity
Restated amount at the beginning of the fiscal year				639,413			12,429,781		50,313,147		785,443		(667,160	)		31,668,613		84,997,273			(35,775,592	)		144,390,918			1,913			144,392,831
Total comprehensive income for the fiscal year
- Net income for the fiscal year																					26,154,332			26,154,332			362			26,154,694
- Other comprehensive income for the fiscal year											119,864		859,267											979,131						979,131
Distribution of unappropriated retained earnings as approved by Shareholders’ Meeting held on April 30, 2020
Legal reserve																11,109,012					(11,109,012	)
Normative reserve																		43,911,276			(43,911,276	)
Cash dividends (2)		41 and 50																(19,980,438	)					(19,980,438	)					(19,980,438	)
Other changes																											(407	)		(407	)
Amount at the end of the fiscal year				639,413			12,429,781		50,313,147		905,307		192,107			42,777,625		108,928,111			(64,641,548	)		151,543,943			1,868			151,545,811

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, 2020, unless otherwise expressly stated)

			Capital stock						Additional paid-in Capital					Other Comprehensive Income					Earnings Reserved
Changes	Notes		Outstanding shares			In treasury			Additional paid-in capital		Adjustments to Shareholders’ Equity (1)			Accumulative foreign currency translation difference in financial statements conversion		Other			Legal		Other			Unappropriated Retained Earnings			Total Controlling Interests			Total Non- Controlling Interests			Total Equity
Restated amount at the beginning of the fiscal year				640,715			28,948			12,428,461		50,352,382			669,284		(755,773	)		25,080,317		62,874,646			(23,760,135	)		127,558,845			2,112			127,560,957
Total comprehensive income for the fiscal year
- Net income for the fiscal year																									28,205,071			28,205,071			242			28,205,313
- Other Comprehensive income for the fiscal year															116,159		88,613											204,772			(22	)		204,750
Distribution of unappropriated retained earnings as approved by Shareholders’ Meeting held on April 30, 2019
Legal reserve																				6,588,296					(6,588,296	)
Normative reserve																						7,279,036			(7,279,036	)
Cash dividends																						(11,580,876	)					(11,580,876	)					(11,580,876	)
Other (3)																						26,353,196			(26,353,196	)
Own shares in treasury		40		(1,317	)		1,317
Decrease of own shares in treasury		40					(30,265	)				(41,006	)									71,271
Other changes		40		15						1,320		1,771																3,106			(419	)		2,687
Amount at the end of the fiscal year				639,413						12,429,781		50,313,147			785,443		(667,160	)		31,668,613		84,997,273			(35,775,592	)		144,390,918			1,913			144,392,831

F-8

BANCO MACRO SA AND ITS SUBSIDIARIES

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, 2020, except otherwise indicated)

Changes		Capital stock					Additional paid-in Capital				Other Comprehensive Income						Earnings Reserved					Unappropriated Retained Earnings			Total Controlling Interests			Total Non- Controlling Interests			Total Equity
	Notes	Outstanding shares			In treasury		Additional paid-in capital		Adjustments to Shareholders’ Equity (1)		Accumulative foreign currency translation difference in financial statements conversion			Other			Legal		Other
Restated amount at the beginning of the fiscal year			669,663					12,428,461		50,352,382		(132,257	)		196,964			19,274,847		59,527,785			7,334,566			149,652,411			2,514			149,654,925
Impact of adoption of IFRS 9																							(43,150	)		(43,150	)					(43,150	)
Total comprehensive income for the fiscal year
- Net income for the fiscal year																							(1,500,074	)		(1,500,074	)		355			(1,499,719	)
- Other comprehensive income for the fiscal year												801,541			(952,737	)										(151,196	)		(13	)		(151,209	)
Distribution of unappropriated retained earnings as approved by Shareholders´ Meeting held on April 30, 2018
Legal reserve																		5,805,470					(5,805,470	)
Cash dividends																				(9,448,229	)					(9,448,229	)		(744	)		(9,448,973	)
Other (3)																				23,221,376			(23,221,376	)
Own shares in treasury	40		(28,948	)		28,948														(10,426,286	)					(10,426,286	)					(10,426,286	)
Other changes (4)																							(524,631	)		(524,631	)					(524,631	)
Balance at the end of the fiscal year			640,715			28,948		12,428,461		50,352,382		669,284			(755,773	)		25,080,317		62,874,646			(23,760,135	)		127,558,845			2,112			127,560,957

(1) Inflation adjustment of capital stock an additional paid-in capital.

(2) Includes a supplementary cash dividend approved by the Shareholders’ Meeting dated on October 21, 2020. See also notes 41 and 50.

(3) Related to earnings reserved for future distribution of earnings.

(4) Related to differences between the consideration paid and the adjustment of the non-controlling interests for the acquisition of Banco del Tucumán SA. See additionally note 2.4.

The accompanying notes 1 to 54 to the consolidated financial statements are an integral part of these consolidated financial statements.

F-9

BANCO MACRO SA AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE FISCAL YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018

(Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2020, unless otherwise expressly stated)

Items	Notes	12/31/2020			12/31/2019			12/31/2018
CASH FLOWS FROM OPERATING ACTIVITIES
Income for the fiscal year before Income Tax			39,201,644			45,823,464			18,335,432
Total monetary effect on the fiscal year			30,724,854			38,333,403			38,523,196
Adjustments to obtain cash flows from operating activities:
Depreciation and amortization of fixed assets			4,402,387			4,092,898			3,085,766
Credit loss expense on financial assets			7,861,600			5,917,873			6,073,426
Difference in quoted prices of foreign currency			(17,139,522	)		(35,090,773	)		(23,429,215	)
Other adjustments			29,568,965			56,294,449			22,996,041
Net increase / (decrease) from operating assets:
Debt Securities at fair value through profit and loss			(83,048,429	)		(2,207,037	)		(2,223,907	)
Derivative financial instruments			(150,985	)		(802,277	)		(10,774	)
Repo transactions			(37,940,609	)		(1,481,096	)		4,390,273
Loans and other financing
Non-financial public sector			5,167,334			(5,060,444	)		2,102,830
Other financial entities			3,555,955			6,401,564			(1,765,018	)
Non-financial private sector and foreign residents			26,690,456			67,849,926			28,671,521
Other debt securities			(15,465,966	)		(5,984,236	)		26,778,145
Financial assets delivered as guarantee			238,381			(381,301	)		9,469,577
Equity instruments at fair value through profit or loss			(1,655,872	)		(49,392	)		766,135
Other assets			(11,260,166	)		(1,541,014	)		2,623,310
Net increase / (decrease) from operating liabilities:
Deposits
Non-financial public sector			49,658,749			(16,537,706	)		584,255
Financial sector			268,713			117,171			58,955
Non-financial private sector and foreign residents			80,947,459			(124,062,741	)		52,035,873
Liabilities at fair value through profit or loss									(19,945	)
Derivative financial instruments			(1,046,326	)		1,043,689			(68,584	)
Repo transactions			(746,253	)		1,020,380			(7,967,572	)
Other liabilities			18,325,029			(1,406,904	)		(2,855,319	)
Payments for Income Tax			(8,348,230	)		(12,736,961	)		(18,728,432	)
TOTAL CASH FROM OPERATING ACTIVITIES (A)			119,809,168			19,552,935			159,425,969

F-10

BANCO MACRO SA AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE FISCAL YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018

(Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos as of December 31, 2020, unless otherwise expressly stated)

Items	Notes	12/31/2020			12/31/2019			12/31/2018
CASH FLOWS FROM INVESTING ACTIVITIES
Payments:
Acquisition of PPE, intangible assets and other assets			(3,676,079	)		(5,635,795	)		(5,270,162	)
TOTAL CASH USED IN INVESTING ACTIVITIES (B)			(3,676,079	)		(5,635,795	)		(5,270,162	)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments:
Dividends			(407	)		(11,581,304	)		(9,448,229	)
Acquisition or redemption of equity instruments						(406,710	)		(10,426,286	)
Non-subordinated corporate bonds	39		(2,114,046	)		(4,087,381	)		(6,037,821	)
Central Bank of Argentina	39		(9,701	)
Financing from local financial entities	39		(2,038,626	)		(3,208,872	)		(16,702	)
Subordinated Corporate Bonds	39		(2,246,089	)		(2,204,680	)		(1,841,738	)
Changes in equity instruments of subsidiaries that do not lead to the loss of control									(1,136,351	)
Other payments related to financing activities			(537,316	)		(321,154	)		(833,776	)
Proceeds:
Non-subordinated corporate bonds									9,049,322
Central Bank of Argentina						4,917			33,318
Financing from local financial entities	39		76			790			4,241,199
TOTAL CASH USED IN FINANCING ACTIVITIES (C)			(6,946,109	)		(21,804,394	)		(16,417,064	)
EFFECT OF EXCHANGE RATE FLUCTUATIONS (D)			29,175,803			52,181,858			43,623,571
MONETARY EFFECT ON CASH EQUIVALENTS (E)			(75,416,642	)		(117,211,723	)		(79,973,341	)
TOTAL CHANGES IN CASH FLOWS
NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS (A+B+C+D+E)			62,946,141			(72,917,119	)		101,388,973
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE FISCAL YEAR	39		200,658,604			273,575,723			172,186,750
CASH AND CASH EQUIVALENTS AT THE END OF THE FISCAL YEAR	39		263,604,745			200,658,604			273,575,723

The accompanying notes 1 to 54 to the consolidated financial statements are an integral part of these consolidated financial statements.

F-11

BANCO MACRO SA AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2020 AND 2019

(Figures stated in thousands of pesos in terms of purchasing power of Argentine pesos

as of December 31, 2020, unless otherwise expressly stated)

1. CORPORATE INFORMATION

Banco Macro SA (hereinafter, the Bank), is a stock corporation (sociedad anónima), organized in the Argentine Republic, with headquarters at Avenida Madero 1182, Autonomous City of Buenos Aires (CABA, for its acronym in Spanish). Its by-law expiry date is on March 8, 2066.

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 a non-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 payments online or offline, digital and virtual wallets and e-commerce in general. This subsidiary started to develop its principal activities during the fourth quarter of 2019. On November 18, 2020, it was registered in the “Payment services suppliers Registry that offers payment accounts” of the Central Bank of Argentina (BCRA, for its acronym in Spanish) under Nº 33678.

Additionally, on July 17, August 26, and October 15, 2020 the Bank made irrevocable capital contributions in advance of future share subscription to the company Play Digital SA of 16,250, 27,250 and 61,689, respectively. On July 23, August 26, and October 15, 2020, the Extraordinary Shareholders’ Meeting of Play Digital SA accepted the irrevocable capital contributions and gave its approval to the Bank to subscribe 16,250,000, 26,634,046 and 58,017,400 common, registered shares, with a face value of Ps. 1. On December 15, 2020, the Extraordinary Shareholders’ Meeting of Play Digital SA decided a new capital stock increase. Thus, on December 16, 2020 the Bank subscribed new 18,276,059 common, registered shares with a face value of Ps. 1 for an amount of 20,727. As a consequence, the Bank’s interest in Play Digital SA amounted to 9.9545%. Initially, the shareholders’ were Banco de Galicia y Buenos Aires SAU, Banco BBVA Argentina SA, Banco Santander Río SA and Banco Macro SA. Subsequently, other banks were accepted as shareholders together with the abovementioned. Moreover, on March 4, 2021 the Bank made a new irrevocable capital contribution in advance of future share subscription to such company for an amount of 19,505. The company’s purpose is to develop and market a payment solution linked to bank accounts held by financial system users in order to bring significant improvement to their payment experience.

These consolidated financial statements for the year ended December 31, 2020, were authorized for issue by the Management on April 29, 2021. Even when the Shareholders’ Meeting has the power to amend these consolidated financial statements after issuance, in Management opinion it will not happen.

2. OPERATIONS OF THE BANK

2.1. Agreement with the Misiones Provincial Government

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.

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BANCO MACRO SA AND ITS SUBSIDIARIES

On November 25, 1999, December 28, 2006 and October 1, 2018, extensions to such agreement were agreed upon, making it currently effective through December 31, 2029.

As of December 31, 2020 and 2019, the deposits held by the Misiones Provincial Government with the Bank amounted to 16,239,739 and 9,305,984 (including 808,570 and 942,301, related to court deposits), respectively.

2.2. Agreement with the Salta Provincial Government

The Bank and the Salta Provincial Government entered into a special-relationship agreement whereby the Bank was appointed, for a ten-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, 2020 and 2019, the deposits held by the Salta Provincial Government with the Bank amounted to 3,777,068 and 5,933,781 (including 1,240,932 and 1,235,163, related to court deposits), respectively.

2.3. Agreement with the Jujuy Provincial Government

The Bank and the Jujuy Provincial Government entered into a special-relationship agreement whereby the Bank was appointed, for a ten-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, 2020 and 2019, the deposits held by the Jujuy Provincial Government with the Bank amounted to 10,910,810 and 1,607,209 (including 1,168,418 and 874,074, related to court deposits), respectively.

2.4. Agreement with the Tucumán Provincial Government – Merger with Banco del Tucumán SA

The Bank acts as an exclusive financial agent and as revenue collection and obligation payment agent of the Tucumán Provincial Government, the Municipality of San Miguel de Tucumán and the Municipality of Yerba Buena. The services agreements with the Provincial and Municipalities Governments are effective through years 2031, 2023 and 2025, respectively.

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. On August 10, 2018, the province of Tucumán transferred to Banco Macro SA, 43,960 Class B common registered non-endorsable shares, with a face value of Ps. 100 each one and entitled to one vote, which is equivalent to 10% of its common stock and votes and the exchange ratio was agreed at 0.65258 ordinary shares of Banco Macro SA for each face value Ps.1 of common share of Banco del Tucumán SA. Therefore, the minority shareholders of Banco del Tucumán SA were entitled to receive at 0.65258 common shares of Banco Macro SA, for each face value Ps. 1 of ordinary shares they hold in Banco del Tucumán SA. Consequently, Banco Macro SA issued 15,662 Class B common, registered shares, with a face value of Ps. 1 each one and entitled to one vote (see additionally note 40).

During 2019, the merger with Banco del Tucuman SA by Banco Macro SA was performed and authorized by the Board of the BCRA through Resolution No. 179. 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 Banco del Tucumán SA. Additionally, since that date, the authorization of Banco del Tucumán SA to operate as a commercial bank was revoked and its buildings were incorporated to Banco Macro SA as branches.

F-13

BANCO MACRO SA AND ITS SUBSIDIARIES

As of December 31, 2020 and 2019, the deposits held by the Tucumán Provincial Government, the Municipality of San Miguel de Tucumán and the Municipality of Yerba Buena with the Bank amounted to 14,274,476 and 4,902,149 (including 3,536,735 and 3,342,313, related to court deposits), respectively.

Additionally, as of December 31, 2020 and 2019, the Bank granted loans to the Tucumán Provincial Government for an amount of 2,860,617 and 7,606,547, respectively.

3. BASIS FOR THE PREPARATION OF THESE FINANCIAL STATEMENTS AND APPLICABLE ACCOUNTING STANDARDS

Presentation basis

Applicable Accounting Standards

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

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

These consolidated financial statements are presented in thousands of Argentine pesos in terms of purchasing power as of December 31, 2020, except otherwise indicated, and are rounded up to the nearest amount in thousands of pesos, unless otherwise expressly stated (see section “Measuring unit” of this note).

Statement of financial position - Disclosure

The Bank presents its consolidated statements of financial position in order of liquidity based on the Bank’s intention and perceived ability to recover/settle the majority of assets/liabilities of the corresponding consolidated financial statement line item. An analysis regarding recovery or settlement within 12 months after the reporting date and more than 12 months after the reporting date is disclosed in note 25.

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 prepared on a historical cost basis, except for certain financial instruments which were valued at fair value through Other Comprehensive Income (OCI) or at Fair Value Through Profit or Loss. For further information see note 12. In addition, derivative instruments (term and forwards transactions) both assets and liabilities were valued at Fair Value through Profit or Loss.

Comparative information

The statement of financial position as of December 31, 2020 is presented comparatively with the immediately preceding fiscal year and the statements of income and other comprehensive income, the statement of changes in shareholders’ equity and the statement of cash flows for the fiscal year ended December 31, 2020, are presented comparatively with those as of December 31, 2019 and 2018.

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BANCO MACRO SA AND ITS SUBSIDIARIES

The figures related to comparative information have been restated to consider the changes in the general purchasing power of the functional currency and, as a result, are stated in terms of the measuring unit current at the end of the reporting period (see the section “Measuring unit”).

Measuring unit

These consolidated financial statements as of December 31, 2020 have been restated for the changes in the general purchasing power of the functional currency (Argentine pesos) of the Bank, as of that date, as established by IAS 29 “Financial Reporting in Hyperinflationary Economies”.

According to IFRS, 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, consisting 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 most used condition in practice, to test if a three-year cumulative inflation rate is around 100% or more. Due to miscellaneous macroeconomic factors, the three-year inflation rate exceeds that figures and the Argentine government goals and other available estimates also indicate that this trend will not be reversed in the short term.

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 36.14% and 53.83% for the fiscal years ended on December 31, 2020 and 2019, respectively.

Below is a description of the restating mechanism provided by IAS 29:

Description of the main aspects of the restatement process for statements of financial position:

(i) Monetary items (the ones that are already stated in terms of the current measuring unit) are not restated because they are already expressed in terms of the monetary unit current at the end of the reporting period. In an inflationary period, an entity holding monetary assets generates purchasing power loss and holding monetary liabilities generates purchasing power gain, provided that the assets and liabilities are not linked to an adjustment mechanism that offsets, in some extend such effects. The net gain or loss on a monetary basis is included in profit or loss for the period.

(ii) Assets and liabilities subject to adjustments based on specific agreements is adjusted in accordance with such agreements.

(iii) Non-monetary items stated at current cost at the end of the reporting period, are not restated for presentation purposes in the statement of financial position, but the adjustment process must be completed to determine, in terms of constant measurement unit, the income or loss produced by holding these non-monetary items.

(iv) Non-monetary items carried at historical cost or at current cost at some earlier date before the reporting date, are restated by an index that reflects the general level of price variation from the acquisition or revaluation date to the closing date, proceeding then to compare the restated amounts of those assets with their recoverable amounts. Income or loss for the period related to depreciation of property, plant and equipment and amortization of Intangible Assets and other non-monetary cost are determined over the new restated amounts.

(v) When an entity capitalizes borrowing cost in the non-monetary assets, the part of the borrowing cost that compensates for the inflation during the same period is not capitalized.

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BANCO MACRO SA AND ITS SUBSIDIARIES

(vi) The restatement of non-monetary assets in terms of a current measurement unit at the end of the reporting period, without an equivalent adjustment for tax purposes generates a taxable temporary difference and a deferred income tax liability is recognized and the contra account is recognized as profit or loss for the period. When, beyond the restatement, there is a revaluation of non-monetary assets, the deferred tax related to the restatement is recognized in profit or loss for the period and deferred tax related to the revaluation is recognized in other comprehensive income for the period.

Description of the main aspects of the restatement process for statements of income and other comprehensive income:

(i) Income and expenses are restated from the date the items were recorded, except for those income or loss items that reflect or include, in their determination, the consumption of assets measured at the currency purchasing power from a date prior to that which the consumption was recorded, which is restated using as a basis the acquisition date of the assets related to the item, except for income or losses arising from comparing the two measurements at currency purchasing power of different dates, for which it requires to identify the compared amounts, to restate them separately and to repeat the comparison, with the restated amounts.

(ii) The gain or loss for holding monetary assets and liabilities, is separately disclosed in the consolidated statement of income.

Description of the main aspects of the restatement process for the statements of changes in shareholders’ equity:

(i) All equity´s components are restated by applying a general price index, as mentioned before, from the beginning of the fiscal year and each variation of those components is restated from the contribution date or from the moment it was produced by any other way. The inflation adjustment related to “Capital stock” and “Additional paid-in capital” is accumulated in “Adjustment to Shareholders’ Equity”.

(ii) Other comprehensive income generated after the transition date are presented in terms of the measuring unit current at the end of the reporting period.

Description of the main aspects of the restatement process for the statement of cash flows:

(i) All items are restated in terms of the measuring unit current at the end of the reporting period.

(ii) The monetary gain or losses generated by cash and cash equivalents are separately disclosed in the statement of cash flows after the cash flow from operating investment activities and financing activities, in a separate and independent line, under the description “Total monetary effect on the fiscal year”.

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 of non-monetary assets and liabilities, equity and items in the consolidated statement of comprehensive income.

Basis for Consolidation

These consolidated financial statements include the financial statements of the Bank and its subsidiaries as of December 31, 2020.

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.

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BANCO MACRO SA AND ITS SUBSIDIARIES

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.

• 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, any non-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 method and applying the inflation adjustment above explained in section “Measuring unit” of this note:

• 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, 2020 and 2019.

• Figures related to the owners’ contributions (capital stock, additional paid-in capital 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, 2020, 2019 and 2018 were translated to pesos on a monthly basis, using the monthly average of the reference exchange rate of the BCRA.

• 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, non-controlling interests represent the portion of income and equity not directly or indirectly attributable to the Bank. In these consolidated financial statements they are disclosed as a separate line in the statement of financial position, the statement of income, the statement of other comprehensive income and the statement of changes in shareholders’ equity.

F-17

BANCO MACRO SA AND ITS SUBSIDIARIES

The Bank has consolidated into its financial statements the financial statements of the following companies:

Subsidiaries	Principal Place of Business	Country	Main Activity
Macro Securities SA (a) and (b)	Av. Eduardo Madero 1182 – CABA	Argentina	Stock exchange services
Macro Fiducia SA	Av. Leandro N. Alem 1110 – 1st floor. CABA	Argentina	Services
Macro Fondos SGFCISA	Av. Eduardo Madero 1182 – 24th floor, Office B – CABA	Argentina	Management and administration of mutual funds
Macro Bank Limited (c)	Caves Village, Building 8 Office 1 – West Bay St., Nassau	Bahamas	Banking entity
Argenpay SAU (d)	Av. Eduardo Madero 1182 – CABA	Argentina	Electronic payments services

(a) Consolidated with Macro Fondos SGFCI SA (80.90% equity interest and voting rights).

(b) The indirect interest of Banco Macro SA is held through Macro Fiducia SA.

(c) Consolidated with Sud Asesores (ROU) SA (100% voting rights – Equity interest 20,453).

(d) Consolidated with the Bank since May 2019, as the equity interest was acquired in such month.

The Bank’s equity interest and voting rights in the companies it consolidates is as follows:

• As of December 31, 2020:

Subsidiaries	Shares			Bank’s interest						Non-controlling interest
	Type	Number		Total capital stock			Voting rights			Total capital stock			Voting Rights
Macro Securities SA	Common		12,776,680		99.925	%		99.932	%		0.075	%		0.068	%
Macro Fiducia SA	Common		46,935,318		99.046	%		99.046	%		0.954	%		0.954	%
Macro Fondos SGFCISA	Common		327,183		99.939	%		100.00	%		0.061	%
Macro Bank Limited	Common		39,816,899		99.999	%		100.00	%		0.001	%
Argenpay SAU	Common		241,200,000		100.00	%		100.00	%

• As of December 31, 2019

Subsidiaries	Shares			Bank’s interest						Non-controlling interest
	Type	Number		Total capital stock			Voting rights			Total capital stock			Voting Rights
Macro Securities SA	Common		12,776,680		99.925	%		99.932	%		0.075	%		0.068	%
Macro Fiducia SA	Common		46,935,318		99.046	%		99.046	%		0.954	%		0.954	%
Macro Fondos SGFCISA	Common		327,183		99.939	%		100.00	%		0.061	%
Macro Bank Limited	Common		39,816,899		99.999	%		100.00	%		0.001	%
Argenpay SAU	Common		7,700,000		100.00	%		100.00	%

Total assets, liabilities and Shareholders’ equity of the Bank and its subsidiaries as of December 31, 2020 and 2019 are as follows:

As of 12/31/2020	Banco Macro SA		Macro Bank Limited		Macro Securities SA		Macro Fiducia SA		Argenpay SAU		Eliminations			Consolidated
Assets		754,592,917		7,561,808		19,266,913		88,400		351,736		(7,332,711	)		774,529,063
Liabilities		603,048,974		4,957,062		17,597,611		5,380		169,722		(2,795,497	)		622,983,252
Equity attributable to the owners of the Bank		151,543,943		2,604,746		1,592,455		83,020		182,014		(4,462,235	)		151,543,943
Equity attributable to non-controlling interests						76,847						(74,979	)		1,868

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BANCO MACRO SA AND ITS SUBSIDIARIES

As of 12/31/2019	Banco Macro SA		Macro Bank Limited		Macro Securities SA		Macro Fiducia SA		Argenpay SAU		Eliminations			Consolidated
Assets		601,950,983		4,681,429		5,478,637		87,150		10,506		(6,056,504	)		606,152,201
Liabilities		457,560,065		1,983,781		3,722,427		4,280		769		(1,511,952	)		461,759,370
Equity attributable to the owners of the Bank		144,390,918		2,697,648		1,660,662		82,870		9,737		(4,450,917	)		144,390,918
Equity attributable to non-controlling interests						95,548						(93,635	)		1,913

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, 2020.

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, 2020 and 2019:

3.1 Assets and liabilities denominated in foreign currency

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.

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”.

3.2 Financial Instruments

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 fair value at the initial recognition and the transaction price as gain or loss. When the fair value is based on a valuation technique that uses data from non-observable markets, the Bank shall recognize that deferred difference in profit or loss only to the extent that it arises from a change in a factor (including time) that market participants would take into account when pricing the asset or liability, or when the instrument is derecognized.

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, respectively (see note 7).

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.

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BANCO MACRO SA AND ITS SUBSIDIARIES

• 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 flows.

• 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 an instrument-by-instrument approach, but it should rather be determined on a higher level of aggregation and is based on observable factors such as:

• How the performance of the business model and the financial assets held within that business model are evaluated and reported to the Bank’s key management personnel.

• The risks that affect the performance of the business model (and the financial assets held within that business model) and, in particular, the way in which those risks are managed.

• The expected frequency, value, timing and reasons of sales are also important aspects.

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 the so-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 (the SPPI test)

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.

• Financial assets and liabilities at fair value through profit or loss

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’s Management has not designated, at the beginning, financial assets at fair value through profit or loss.

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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 consolidated statement of financial position. Changes in fair value are recognized under the item “Net gain from measurement of financial instruments at fair value” in the consolidated statement of income, as well as interest income or expenses and dividends pursuant to the contractual terms and conditions, or when the right to receive payment of the dividend is established.

The fair value estimation is explained on a detail basis in section “Accounting judgments, estimates and assumptions” of this note and the note 12 describes the valuation process of financial instruments at fair value.

• Financial assets at fair value through other comprehensive income (OCI)

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 determination that cash flows are solely payments of principal and interest on the principal amount outstanding.

Debt instruments at fair value through other comprehensive income are recognized in the consolidated statement of financial position at fair value. Profits and losses derived from changes in fair value are recognized in the consolidated statement of 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”, “Differences in quoted prices of gold and foreign currency” and “Credit loss expense on financial assets”, respectively.

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.

• Financial assets at amortized cost – Effective interest method

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 a loss allowance for expected credit losses (ECL).

Interest income and impairment are disclosed in the consolidated statement of income as “Interest income” and “Credit loss expense on financial assets”, respectively. Changes in the allowance for ECL 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 rate (hereinafter, EIR). For such purposes, interest is the consideration for the time value of money and for the credit risk associated with the amount of principal outstanding during a specific period of time.

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.

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3.2.1 Cash and deposits in banks

They were valued at their nominal value plus the relevant accrued interest, if applicable. Accrued interests were allocated in the consolidated statement of income as “Interest income”.

3.2.2 Repo transactions (purchase and sale of financial instruments)

These transactions were recognized in the consolidated 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 consolidated statement of income as “Interest income” and “Interest expense”.

3.2.3 Loans and other financing

They are non-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.

After initial recognition, loans and other financing were measured at amortized cost using the effective interest method, less a loss allowance for ECL. 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 EIR. Income from interest was allocated in the consolidated statement of income as “Interest income”.

3.2.4 Impairment of financial assets

3.2.4.1. Overview of the ECL principles

The Bank recognizes a loss allowance for ECL on loans, other financing and other debt instruments not measured at fair value through profit or loss along with loan commitments and financial guarantee contracts (not measured at fair value through profit or loss) and contract assets and accounts receivable on loans; hereinafter, the “financial instruments”. Equity instruments are not subject to impairment under IFRS 9.

The loss allowance for ECL is based on credit losses expected to arise during the life of a financial asset (lifetime ECL), unless there was no significant increase in credit risk since initial recognition, in which case the loss allowance is based on 12-month ECL. The Bank’s policies to determine whether credit risk increased significantly are included in note 51.1.1.1. “Definitions of significant increase in risk, impairment and default.”

12-month ECL is the portion of lifetime ECL that results from default events on a financial instrument that are possible within the 12 months after the reporting date.

Lifetime ECL and 12-month ECL are calculated on an individual or collective bases according to the nature of the portfolio of financial instruments. The Bank’s policy to group the financial assets measured on a collective basis are explained in note 51.1.1.1.1 “Customers analyzed on a collective basis” and 51.1.1.1.2 “Customers analyzed on an individual basis.”

The Bank adopted a policy to assess, at the end of each reporting period, whether there was a significant increase in the credit risk of a financial instrument since initial recognition considering the change in risk that the default may occur during the remainder life of a financial instrument. This is further explained in note 51.1.1.1. “Definitions of significant increase in risk, impairment and default.”

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According to the aforementioned process, the Bank groups its financial instruments into Stage 1, Stage 2 and Stage 3, also covering purchased or originated financial instruments that are credit impaired, as described below:

• Stage 1: When financial instruments are recognized for the first time, the Bank recognizes a loss allowance according to 12-month ECL. Stage 1-financial instruments also include credit lines in which credit risk improved within the parameters established by the Bank and the financial instrument was reclassified to another stage.

• Stage 2: When a financial instrument shows a significant increase in credit risk since initial recognition, the Bank books a loss allowance for lifetime ECL. Stage 2-financial instruments also include credit lines in which credit risk improved within the parameters established by the Bank and the financial instrument was reclassified to Stage 3.

• Stage 3: Financial instruments which credit value is impaired (as described in note 51.1.1.1. “Definitions of significant increase in risk, impairment and default.”) The Bank books a loss allowance for lifetime ECL.

• Purchased or originated financial instruments that are credit impaired: financial instruments that are credit impaired upon initial recognition. Purchased or originated financial instruments that are credit impaired are booked at fair value upon initial recognition and interest income is recognized subsequently at a credit-adjusted effective interest rate. The loss allowance of ECL is only recognized or reversed provided that there is a subsequent change in ECL. The Bank did not purchase or generate credit-impaired financial instruments.

The Bank reduces the carrying amount of the financial instruments which amount owed it does not expect to recover in part or in full. This is considered a (partial) derecognition of the financial instrument.

3.2.4.2 The calculation of ECL

The Bank calculates ECL based on a three probability-weighted scenario to measure the expected cash shortfalls, discounted at an approximation to the EIR. A cash shortfall is the difference between the cash flows that are due to an entity in accordance with the contract and the cash flows that the entity expects to receive.

The key parameters to calculating ECL are as follows:

• Probability of default (PD): It is an estimate of the probability of default during a certain time horizon. A default may occur only at a certain time during the period assessed if the credit line was not derecognized before and is still part of the portfolio. The concept of probability of default is explained in note 51.1.1.2. “The Bank’s internal rating and PD estimation process.”

• Exposure at default (EAD): It is an estimate of the exposure to a future default date considering the expected changes in exposure after reporting date, including the settlement of principal and interest, whether they are scheduled by the agreement or otherwise, the expected disbursements on committed credit lines and interest accrued on late payments. The exposure at default is explained in note 51.1.1.3. “Exposure at default (EAD).”

• Loss given default (LGD): It is an estimate of the loss arising in the event of default in a certain term. It is based on the difference between contractual cash flows and cash flows expected by the lender, including the performance of a guarantee or credit improvements related to the loan. In general, it is expressed as a percentage of the exposure at default. Further information of LGD is included in note 51.1.1.4. “Loss given default (LGD).”

When ECL are estimated, the Bank calculates these parameters for each one of the three scenarios (base case, intermediate and downside) weighed based on the estimated likelihood of occurrence and discounts the amount resulting from multiplying the aforementioned parameters by the effective interest rate determined upon initial recognition.

For credit cards and revolving lines of credit including both a loan and an unused loan commitment, ECL are calculated and disclosed with the loan. For loan commitments and financial guarantee contracts, ECL are recognized in “Provisions.”

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The method for calculating ECL is summarized below:

• Stage 1: 12-month ECL are calculated as a portion of lifetime ECL, accounting for the ECL of financial instruments from default within the 12 months subsequent to year-end. The Bank calculates the allocation of 12-month ECL based on the expectation of default within 12 months after year-end. These expected 12-month probabilities of default are applied to an EAD and multiplied by the expected LGD and discounted by an approximation to the original effective interest rate. This calculation is made for each of the three scenarios (base case, intermediate and downside), as explained above.

• Stage 2: When a financial instrument shows a significant increase in credit risk since initial recognition, the Bank books a loss allowance for lifetime ECL. The method is similar to the one explained above, including the use of different scenarios, but PD is estimated over the remainder life of the instrument. Expected cash shortfalls are discounted by an approximation to the original effective interest rate.

• Stage 3: For financial instruments considered credit-impaired, the Bank recognizes the ECL for the remainder life of these financial instruments. The method is similar to those used by Stage 2-financial instruments, with a PD set at 100%.

• Loan commitments and credit cards: Upon estimating the lifetime ECL for loan commitments, the Bank estimates the expected portion of the loan commitment that will decline during 12 months or expected lifetime. The ECL is based on the present value of expected falls in cash flows if the loan is withdrawn based on weighing the three probability scenarios. Expected cash flows are discounted at a rate similar to the original rate of each transaction.

• 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 statement of income and the ECL provision. To such end, the Bank estimates the ECL based on the present value of the payments expected to be disbursed to the guarantee holder should the debtor fail to pay the debt. Cash flows are discounted by the risk-adjusted interest rate relevant to the disclosure. The calculation is made weighing the three scenarios. The ECL related to financial guarantee contracts are recognized in “Provisions.”

3.2.4.3 Prospective information

To determine a loss allowance in the calculation of ECL, the impact of the main macroeconomic variables should be analyzed to adjust historical information to the current conditions and short-term prospects. To such end, different and probable macroeconomic scenarios (base case, intermediate and downside) should be weighed upon using relevant variables in assessing credit risk (such as GDP growth, interest rate and CPI).

The inputs and models used for calculating ECL may not always capture all market characteristics as of the date of these consolidated financial statements. Consequently, the Bank may consider certain qualitative temporary adjustments to ensure that they are taken into account if they are material. Further information is included in note 51.1.2 “Prospective information.”

3.2.4.4 Debt instruments measured at fair value through other comprehensive income

The ECL of the debt instruments measured at fair value through other comprehensive income does not reduce the carrying amount of these financial instruments in the statement of financial position, which remains at fair value. Instead, an amount equal to the correction of value from these assets measured at amortized cost is recognized in “Other comprehensive income” as a cumulative impairment amount with the related charge to income. Cumulative loss recognized in “Other comprehensive income” is reclassified to the statement of income when the assets are derecognized.

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3.2.4.5 Credit cards and other revolving credit lines

In the case of credit cards and other revolving lines of credit, the Bank does not limit its exposure to expected losses to the contractual notice period, but rather calculates ECL over a period that reflects the Bank’s expectations of customer behaviors, their unused credit commitments, the probability of default and the Bank’s future risk mitigation expectations, which may include reducing or settling the lines of credit. According to the Bank’s method, the period over which ECL are calculated for these products is three years.

The interest rate used to discount the ECL for credit cards is based on the average effective interest rate that is expected to be charged over the expected period of exposure to these lines of credit. This estimate considers that some of these lines of credit may be settled every month fully and consequently no interest would be charged.

3.2.4.6 Applications

Financial instruments are settled in part or in full after the first month in which the Bank has no reasonable expectations of recovering the financial instrument or part of the instrument. Should the amount to be settled be higher than the loss allowance for accumulated losses, the difference is considered an addition to the loss allowance that is then applied against the gross carrying amount. Any subsequent recovery is disclosed in the consolidated statement of income for the year of recovery in “Other operating income.”

3.2.4.7 Forborne and modified loans

The Bank considers a loan forborne when such modification is a result of the borrower’s present or expected financial difficulties. The renegotiation may include the extension of the payment terms and the agreement of new loan conditions. Once the conditions are renegotiated, the impairment is measured using the original effective interest rate as calculated before the conditions were amended. The Bank monitors forborne loans to ensure the continuity of future payments. Derecognition decisions and the classification between Stages 2 and 3 are determined on a case-by-case basis for the commercial portfolio and collectively for consumer portfolio. Should these procedures identify a loss related to a loan, it is disclosed and managed as an impaired Stage 3 forborne asset until it is collected or derecognized.

When the loan is renegotiated or modified but it is not derecognized, the Bank also considers whether the assets should be classified in Stage 3. Once an asset is classified as renegotiated, it will continue in Stage 2 until it is collected in full or impaired (Stage 3).

If the modifications are substantial, the loan is derecognized and a new loan with different conditions is recognized.

3.2.4.8 Valuation of collaterals

To mitigate the risks of its financial instruments, the Bank seeks to use, when possible, collaterals. Collateral comes in various forms, such as cash, securities, letters of credit/guarantees, real estate, receivables, other non-financial assets and credit enhancements, such as netting arrangements. Collateral, except for attached assets, is not recorded in the Bank’s statement of financial position. However, the fair value of collateral affects the calculation of ECL in certain products and customers assessed on an individual basis. The assessment is usually made at least at beginning date and it is reassessed on a regular basis.

Whenever possible, the Bank uses active market data to assess the financial instruments maintained as collateral. Other financial instruments that do not have readily determinable market values are valued using internal methods. Non-financial collateral, such as real estate, is valued based on data provided by third parties, such as mortgage brokers.

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3.2.4.9 Collateral repossessed

The Bank’s policy is to determine whether an attached asset can be best used internally or should be sold. Assets determined to be useful internally are transferred to their relevant asset category at the lower of their attached value or the carrying value of the original secured asset.

The 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 of sales for non-financial assets at attachment date according to the Bank’s policy.

During the normal course of business, the Bank does not include in its portfolio the properties and other attached assets but rather uses external agents to recover the funds, generally through auctions, to settle the outstanding payable. Any surplus fund is reimbursed to the customer/debtor. Hence, residential properties under attachment proceedings are not booked in the balance sheet.

3.2.5 Financial liabilities

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 consolidated statement of income as “Interest expense”.

Within other financial liabilities the Bank included guarantees granted and eventual liabilities, which must be disclosed in the notes to the financial statements, when the documents supporting such credit facilities are issued and are initially recognized at fair value of the commission received, in the statement of financial position. After initial recognition, the liability for each guarantee was recognized at the higher of the amortized commission and the best estimate of the disbursement required to settle any financial obligation arising as a result of the financial guarantee.

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.

3.2.6 Derivative financial instruments

Receivables and payables from forward transactions without delivery of underlying assets

It includes forward purchase, sale transactions of foreign currency without delivery of traded underlying asset and put options. Such transactions were measured at the fair value of the contracts and were performed by the Bank with intermediation purposes on its own account. The originated income was allocated in the consolidated statement of income as “Net gain from measurement of financial instruments at fair value”.

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.

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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 EIR and recognizes profit or loss from modification, as explained in section 3.2.4.7 “Forborne and modified loans”.

On the other hand, a financial liability is derecognized when the obligation specified in the relevant contract is discharged, 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 consolidated statement of income as “Other operating income”.

Reclassification of financial assets and liabilities – Changes in business model

During fiscal year 2020, the Bank’s management decided to update the objective related to certain investments, which are explained as follows:

• Federal Government Treasury Bonds adjusted by Cer 1% - Maturity 08/05/2021

Taking into account the trend context in the local market in which a high volatility was observed due to the government debt renegotiation and the international crisis generated by the pandemic of COVID-19, and a significant increase of Federal Government Bonds issuance was also observed, the Bank’s management concluded that there were higher possibilities to perform business and generate benefits by arbitraging bonds that the Bank holds in its portfolio. As a consequence, during July and August 2020, the Bank’s management reclassified from the amortized cost business model to the fair value through profit or loss (FVPL) business model. At the reclassification dates abovementioned, the amortized cost amounted to 2,603,590 and 5,116,512, respectively, while the fair value as of that dates amounted to 3,604,389 and 5,511,940, respectively, generating reclassification gains for an amount of 1,000,799 and 395,428, respectively.

• Federal Government Treasury Bonds adjusted by CER 2.5% – Maturity 07/22/2021

Taking into account the trend context of government debt renegotiation and the issuance of new domestic debts, the volatilities of debt securities prices that creates a scenario in which it is not clear that the cash flows of these holdings will be obtained through their negotiation, instead could be also generated by holding them to maturity. As a consequence during July and August 2020, the Bank’s management reclassified from FVPL business model to fair value through OCI (FVOCI) business model. At the reclassification dates, the reclassified investments amounted to 4,150,395 and 5,034,995, respectively. At the reclassification dates, the effective interest rates were 31.45% and 33.31%, respectively. As of December 31, 2020 the FV amounted to 4,214,500 and 5,057,400, respectively. The income recognized in the consolidated statement of income amounted to 718,356 and 676,818, respectively.

• National Treasury bills at discount in pesos maturity 01/29/2021 and National treasury bills at discount in pesos maturity 02/06/2021

Due to high nominal return expected for assets denominated in pesos, during December 2020, the Bank’s management decided to adjust its investment policy in order to sell these holdings in a short term, before their maturity. As a consequence, these holdings were reclassified from FVOCI business model to FVPL business model. At the reclassification date, the investment amounted to 22,625,105 and 13,629,800, respectively.

• Federal Government Treasury bonds in pesos adjusted by CER 2021.

Given a scenario with projections of increasing nominal returns and the short term duration of this investment measured at FVOCI, the Bank’s management considered with low probability and convenient to sell in the short term the entire holding, so it was considered opportune to reclassify at amortized cost business model 50% of this portfolio. At the reclassification date, the fair value amounted to 8,314,307, the amortized cost amounted to 8,287,135, recognizing an income of 27,172. As of December 31, 2020 the fair value of these investments amounted to 8,601,844, while the income that would have recognized in consolidated statement of other comprehensive income during the fiscal year amounted to 27,577.

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3.3 Leases

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.

3.3.1 The Bank as a lessee

The Bank applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets, which payments are recognized as rent expense on a straight-line basis. The Bank recognizes lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.

• Right-of-use assets

The Bank recognizes right-of-use assets at the commencement date of the lease. Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. The right of use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term. Right-of-use assets are subject to impairment, in line with the Bank’s policy as described in section 3.9 of this note.

• Lease liabilities

At the commencement date of the lease, the Bank recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Bank and payments of penalties for terminating a lease, if the lease term reflects the Bank exercising the option to terminate. Variable lease payments that do not depend on an index or a rate are recognized as expense in the period on which the event or condition that triggers the payment occurs.

In calculating the present value of lease payments, the Bank uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset.

3.3.2 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 consolidated 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 EIR method, which reflects a constant rate of return and is recognized in the consolidated statement of income as “Interest income”. Losses originated for impairment are included in the consolidated statement of income as “Credit loss expense on financial assets”.

3.4 Investment in associates and joint arrangements

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.

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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.

3.5 Property, plant and equipment

The Bank chose the cost model for all kinds of assets accounted for in this accounting item. These assets were carried at their cost less any accumulated depreciation and any accumulated impairment losses, if applicable. The historical cost of acquisition includes all expenses directly attributable to the acquisition of the assets. Maintenance and repair costs were accounted for in the consolidated statement of income as incurred. Any replacement and significant improvement of an item of property, plant and equipment is recognized as an asset only when it is likely to produce any future economic benefits exceeding the return originally assessed for such asset.

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 financial year-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.

3.6 Intangible Assets

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.

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 financial year-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,

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• 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.

3.7 Investment Property

The Bank included certain real properties that holds for undetermined future use, which were recognized pursuant to IAS 40 “Investment Property”.

For this kind of property, the Bank chose the cost model as described in note 3.5 Property, plant and equipment.

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 consolidated statement of income in the period of the retirement or disposal as “Other operating income”.

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.

3.8 Non-current Assets Held for Sale

The Bank reclassifies in this category non-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.

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 consolidated statement of income as “Other operating income”.

3.9 Impairment of Non-financial Assets

The Bank evaluates, at least at each fiscal year-end, whether there are any events or changes in the circumstances that may indicate the impairment of non-financial assets or whether there is any evidence that a non-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 of non-financial assets.

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BANCO MACRO SA AND ITS SUBSIDIARIES

3.10 Provisions

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 a pre-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.

3.11 Recognition of income and expenses

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 29 to 32 are disclosed the streams and amounts for the years ended in December 31, 2020, 2019 and 2018.

3.11.1 Revenue from interests income and interests expense

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.

3.11.2 Loan commissions

Commission charges and direct incremental costs related with the granting of financing facilities were deferred and recognized adjusting the EIR thereof.

3.11.3 Service commissions

The Bank earns service commissions from a diverse range of financial services it provides to its customers. Service commissions are recognized at an amount that reflects the consideration to which the Bank expects to be entitled in exchange for providing the services.

The performance obligation, as well as the timing of their satisfaction, are identified, and determined, at the inception date of the contract.

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.

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BANCO MACRO SA AND ITS SUBSIDIARIES

3.11.3.1 Service commissions where performance obligations are satisfied at a point in time

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.

3.11.3.2 Service commissions where performance obligations are satisfied over certain period of time

Performance obligations satisfied over time are where the customer simultaneously receives and consumes the benefits provided by the Bank’s performance as the Bank performs.

3.11.4 Non-financial revenue and expenses

These items are recognized according to the recognition criteria established in the conceptual Framework, for example the requirement that revenues and expenses should be accrued.

3.12 Customer Loyalty Program

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 detail in the section “Accounting judgments, estimates and assumptions” of this note.

3.13 Income Tax (see note 28)

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 consolidated 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.

• 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 separate financial statements of the Bank and of each of its subsidiaries and reflects the effects of temporary differences between the carrying amount of an asset or liability in the statement of financial position and its tax base. Assets and liabilities are measured using the tax rate that is expected to be applied to the taxable income in the years in which these differences are expected to be settled or recovered. The measurement of deferred tax liabilities and deferred tax assets reflects the tax consequences that will follow from the manner in which the Bank and its subsidiaries expect, at the end of the reporting period, to recover or settle the carrying amount of their assets and liabilities. Deferred tax assets and liabilities are measured by their nominal figures, without discount, the tax rates that are expected to be applied in the fiscal year in which the asset shall be realized or the liability shall be settled. Deferred tax assets are recognized when it is probable that taxable profit will be available against which the deductible temporary difference can be utilized.

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BANCO MACRO SA AND ITS SUBSIDIARIES

On December 29, 2017 the Argentine Executive Power passed and put into effect the Tax Reform Act which, among other things, established a reduction of the corporate rate of income tax applicable to corporate retained earnings and also impacts on the measurement of deferred tax assets and liabilities. This reduction in the corporate rate of income had to be implemented gradually over the next four years dropping from the 35% rate applicable for and including the fiscal year 2017, to a 25% rate in 2020. On December 23, 2019 was passed Law 27,541 (see notes 28.b and 52) which suspends, until fiscal years beginning on January 1, 2021 included, the reduction to 25% of the income tax rate and the withholding of 13% over income and dividends distribution.

3.14 Earnings / (Loss) per share

Basic earnings / (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 41.

3.15 Fiduciary activities and investment management

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 consolidated statement of income. See also notes 44, 45 and 48.

Accounting judgments, estimates and assumptions

The preparation of these consolidated financial statements requires the Bank’s Management to consider significant accounting judgments, estimates and assumptions that impact on the reported assets and liabilities, income, revenues and expenses, as well as the assessment and disclosure of contingent assets and liabilities, as of the end of the fiscal year. The Bank’s reported amounts are based on the best estimate regarding the probability of occurrence of different future events and, therefore, the uncertainties associated with the estimates and assumptions made by the Bank’s Management may drive in the future to final amounts that may differ from those estimates and may require material adjustments to the reported amounts of the affected assets and liabilities.

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 techniques (for additional information regarding fair value estimates see note 12).

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 taxes (for additional information regarding income tax see note 28).

In the normal course of business, the Bank is a party to lawsuits of various types. In note 49, are disclosed contingent liabilities with respect to existing or potential claims, lawsuits and other legal proceedings and record an accrual for litigation when it is probable that future costs will be incurred and these costs can be reasonably estimated.

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.

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BANCO MACRO SA AND ITS SUBSIDIARIES

Additionally, the measurement of impairment losses under IFRS 9 across all categories of financial instruments requires judgement, in particular, the estimation of the amount and timing of future cash flows and collateral values when determining impairment losses and the assessment of a significant increase in credit risk. These estimates are driven by a number of factors, changes in which can result in different levels of allowances (for additional information regarding impairment losses under IFRS 9 see notes 3.2.4 and 51.1.1).

New standards adopted in the fiscal year

For the fiscal year beginning on January 1, 2020, the following IFRS amendments are applicable and they did not have a material impact over these consolidated financial statements, as a whole.

1. Amendments to the Conceptual Framework for Financial Reporting:

The modification to the Conceptual Framework includes some new concepts, provides updated definitions and recognition criteria for assets and liabilities and clarifies some important concepts.

The changes to the Conceptual Framework may affect the application of IFRS in situations where no standard applies to a particular transaction or event.

This standard did not have a material impact on these consolidated financial statements since, currently, there are not material uncertainties about the application to a particular transaction or event.

2. IFRS 3 “Business Combination” – amendments in definition of a business:

These 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 did not have a material impact on these consolidated financial statements since, currently, there are not business combination transactions.

3. 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 did not have a material impact on these consolidated financial statements.

4. IFRS 16 “leases” – Amendment that provides accounting relief to lessees on lease modification accounting for rent concessions arising as a direct consequence of the COVID-19:

This amendment excepts lessees to assess lease arrangement, on an individual basis, whether a rent concession arising as a direct consequence of COVID-19 pandemic, is a lease modification and allows lessees to account the rent concession as if it was not a lease modification and charged it in the statement of income. This applies to rent concession related to COVID-19 that reduces lease payments due on or before June 30, 2021. This standard did not have a material impact on these consolidated financial statements (see note 53).

New pronouncements

The new and amended standards and interpretation 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 come effective.

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BANCO MACRO SA AND ITS SUBSIDIARIES

a) Amendments to IFRS 3 - Reference to the Conceptual: the amendments are intended to replace a reference to a previous version of the IASB’s Conceptual Framework with a reference to the current version issued in March 2018 without significantly changing its requirements. The amendments add an exception to the recognition principle of IFRS 3 to avoid the issue of potential ‘day 2’ gains or losses arising for liabilities and contingent liabilities that would be within the scope of IAS 37 “Provisions, Contingent Liabilities and Contingent Assets” or IFRIC 21 “Levies”, if incurred separately. The exception requires entities to apply the criteria in IAS 37 or IFRIC 21, respectively, instead of the Conceptual Framework, to determine whether a present obligation exists at the acquisition date. At the same time, the amendments add a new paragraph to IFRS 3 to clarify that contingent assets do not qualify for recognition at the acquisition date. This amendment is applicable as of January 1, 2022. The Bank does not expect this standard to have a material impact on the consolidated financial statements.

b) Amendments to IAS 16 - Property, Plant and Equipment (PP&E): proceeds before Intended Use. The amendment prohibits entities from deducting from the cost of an item of PP&E, any proceeds of the sale of items produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Instead, an entity recognizes the proceeds from selling such items, and the costs of producing those items, in profit or loss. This amendment is applicable as of January 1, 2022. The Bank does not expect this standard to have a material impact on the consolidated financial statements.

c) Amendments to IAS 37 - Onerous Contracts – Costs of Fulfilling a Contract: the IASB issued amendments to IAS 37 to specify which costs an entity needs to include when assessing whether a contract is onerous or loss-making. The amendments apply a ‘directly related cost approach’. The costs that relate directly to a contract to provide goods or services include both incremental costs and an allocation of costs directly related to contract. The impact of these amendments on Entities that previously applied the incremental cost approach, is that they will see provisions increase to reflect the inclusion of costs related directly to contract activities, whilst entities that previously recognized contract loss provisions using the guidance from the former standard, IAS 11 Construction Contracts, will be required to exclude the allocation of indirect overheads from their provisions. This amendment is applicable as of January 1, 2022. The Bank does not expect this standard to have a material impact on the consolidated financial statements.

d) Annual improvement cycle (2018-2020): the following is a summary of the amendments from the 2018-2020 annual improvements cycle:

• IFRS 1 First-time Adoption of International Financial Reporting – Subsidiary as a first-time adopter: the amendment permits a subsidiary that elects to apply paragraph D16(a) of IFRS 1 to measure cumulative translation differences using the amounts reported by the parent, based on the parent’s date of transition to IFRS. This amendment is also applied to an associate or joint venture that elects to apply paragraph D16(a) of IFRS 1. This amendment is applicable as of 1 January 2022.

• IFRS 9 Financial Instruments Fees in the ’10 per cent’ test for derecognition of financial liabilities: the amendment clarifies the fees that an entity includes when assessing whether the terms of a new or modified financial liability are substantially different from the terms of them original financial liability. These fees include only those paid or received between the borrower and the lender, including fees paid or received by either the borrower or lender on the other’s behalf.

• IFRS 16 “Leases” Illustrative examples - Lease incentives: the amendment removes the Example 13 accompanying IFRS 16 of payments from the lessor relating to leasehold improvements. This removes potential confusion regarding the treatment of lease incentives when applying IFRS 16.

The Bank does not expect this standard to have a material impact on the consolidated financial statements.

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BANCO MACRO SA AND ITS SUBSIDIARIES

4. DEBT SECURITIES AT FAIR VALUE THROUGH PROFIT OR LOSS

The following table shows holdings of debt securities at fair value through profit or loss as of December 31, 2020 and 2019 (see note 52):

	Holdings
	12/31/2020				12/31/2019
Name	Fair value level		Book amounts		Book amounts
DEBT SECURITIES AT FAIR VALUE THROUGH PROFIT OR LOSS
- Local
Government securities
Federal government treasury bonds at discount in pesos - Maturity: 01-29-2021		1		17,049,960
Federal government treasury bonds at discount in pesos - Maturity: 02-26-2021		1		11,273,975
Federal government treasury bonds in pesos adjusted by CER - Maturity: 07-22-2021		1		10,000,259		5,341,210
Federal government treasury bonds in pesos adjusted by CER - Maturity: 08-05-2021		1		7,747,857
Federal government treasury bonds in pesos BADLAR +100 PB - Maturity: 08-05-2021		1		5,971,755
Federal government treasury bonds in pesos adjusted by CER - Maturity: 03-25-2023		1		974,607
Federal government treasury bonds in pesos BADLAR +200 PBS - Maturity: 04-03-2022		1		533,627		3,296
Federal government treasury bonds in pesos - Private Badlar - Maturity: 11-09-2026		1		314,671
Federal government treasury bonds in pesos adjusted by CER - Maturity: 03-18-2022		1		307,664
Federal government treasury bonds in pesos adjusted by CER - Maturity: 03-25-2024		1		252,086
Other				177,554		1,203,612
Subtotal local government securities				54,604,015		6,548,118
Private securities
Debt Securities in Financial Trusts Surcos		3		249,107		143,368
Debt Securities in Financial Trusts Secubono		3		126,983		92,945
Securities of companies of publics service		3		2,354		2,371
Corporate bonds Aluar Aluminio Argentino SA Class 003 - Maturity: 07-30-2023		2		6
Debt Securities in Financial Trusts Consubond						482,369
Debt Securities in Financial Trusts Agrocap						129,091
Debt Securities in Financial Trusts Secubono Series 191 Class A - Maturity: 06-29-2020						114,820
Corporate Bonds Province of Buenos Aires Bank Class 009 -Maturity: 04-18-2021						68,246
Debt Securities in Financial Trusts Chubut Regalías Hidrocarburíferas - Maturity: 07-01-2020						41,105
Debt Securities in Financial Trusts Secubono Series 189A - Maturity: 03-30-2020						30,220
Other						73,338
Subtotal local private securities				378,450		1,177,873
TOTAL DEBT SECURITIES AT FAIR VALUE THROUGH PROFIT OR LOSS				54,982,465		7,725,991

5. OTHER DEBT SECURITIES

The following table shows holdings of other debt securities as of December 31, 2020 and 2019 (see note 52):

	Holdings
	12/31/2020			12/31/2019
Name	Fair value level	Book amounts		Book amounts
OTHER DEBT SECURITIES
Measured at fair value through other comprehensive income
- Local
Government securities
Federal government treasury bonds in pesos BADLAR + 100 PB - Maturity: 08-05-2021	1		19,275,639
Federal government treasury bonds in pesos adjusted by CER - Maturity: 07-22-2021	1		8,941,173
Federal government treasury bonds in pesos adjusted by CER - Maturity: 04-17-2021	1		8,601,842
Federal government treasury bonds in pesos adjusted by CER - Maturity: 08-05-2021	1		3,419,978
Federal government treasury bonds in pesos adjusted by CER - Maturity: 03-25-2023	1		1,039,269
Federal government treasury letters at variable rate in pesos - Maturity: 03-31-2021	1		986,265
Federal government treasury bonds linked to dollar - Maturity: 11-30-2021	1		900,540
Federal government treasury bonds in pesos adjusted by CER - Maturity: 03-25-2024	1		875,759
Bonds of the Argentine Republic in dollars Step Up - Maturity: 07-09-2030	1		417,330
Treasury bills of Province of Neuquén Series 1 Class 1 - Maturity: 04-07-2021	1		264,546
Other			66,269		640,268
Subtotal local government securities			44,788,610		640,268

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BANCO MACRO SA AND ITS SUBSIDIARIES

	Holdings
Name (contd.)	12/31/2020			12/31/2019
	Fair value level	Book amounts		Book amounts
Central Bank of Argentina Bills
Liquidity letters of Central Bank of Argentina in pesos - Maturity: 01-21-2021	2		21,218,562
Liquidity letters of Central Bank of Argentina in pesos - Maturity: 01-12-2021	1		19,732,940
Liquidity letters of Central Bank of Argentina in pesos - Maturity: 01-28-2021	2		18,420,266
Liquidity letters of Central Bank of Argentina in pesos - Maturity: 01-19-2021	1		17,642,322
Liquidity letters of Central Bank of Argentina in pesos - Maturity: 01-05-2021	1		15,109,347
Liquidity letters of Central Bank of Argentina in pesos - Maturity: 01-26-2021	1		13,603,450
Liquidity letters of Central Bank of Argentina in pesos - Maturity: 01-14-2021	2		12,025,981
Liquidity letters of Central Bank of Argentina in pesos - Maturity: 01-07-2021	2		10,922,852
Liquidity letters of Central Bank of Argentina in pesos - Maturity: 01-03-2020					20,124,827
Liquidity letters of Central Bank of Argentina in pesos - Maturity: 01-07-2020					15,394,929
Other					27,012,501
Subtotal Central Bank of Argentina Bills			128,675,720		62,532,257
- Foreign
Government securities
US Treasury Bill - Maturity: 01-14-2021	1		2,524,323
US Treasury Bill - Maturity: 01-19-2021	1		841,433
US Treasury Bill - Maturity: 01-21-2021	1		673,150
US Treasury Bill - Maturity: 01-28-2021	1		501,908
US Treasury Bill - Maturity: 01-07-2020					652,210
Subtotal foreign government securities			4,540,814		652,210
Total Other debt securities measured at fair value though other comprehensive income (1)			178,005,144		63,824,735
Measured at amortized cost
- Local
Government securities
Federal government bonds in pesos at 22% - Maturity: 05-21-2022	2		20,159,269
Federal government treasury bonds adjusted by CER - Maturity: 04-17-2021	1		8,573,109
Federal government treasury letters at variable rate in pesos - Maturity: 03-31-2021	1		1,583,139
Discount bonds denominated in pesos at 5.83% - Maturity: 12-31-2033	1		183,639		437,591
Federal government treasury bonds adjusted by CER - Maturity: 03-18-2022	1		55,692
Bonds Par denominated in Pesos - Maturity 12-31-2038	1		28,251		31,485
Federal government bonds in pesos - Fixed rate 26% - Maturity: 11-21-2020					10,855,842
National treasury bills coupon capitalized in pesos - Maturity: 02-26-2020					2,045,071
National treasury bills capitalized in pesos - Maturity: 05-13-2020					1,957,560
Federal government bonds in pesos at 22% - Maturity: 05-21-2022					1,663,894
Other					3,318,533
Subtotal local government Securities (2)			30,583,099		20,309,976
Private securities
Corporate Bonds YPF SA Class 046 - Maturity: 03-04-2021	2		97,853		80,217
Debt Securities in Financial Trusts Secubono Series 201 Class A - Maturity: 08-30-2021	3		78,659
Corporate Bonds YPF SA Class 043 - Maturity: 10-21-2023	2		74,269		100,337
Debt Securities in Financial Trusts Secubono Series 200 Class A - Maturity: 06-28-2021	3		71,025
Corporate Bonds Tecpetrol SA Class 003 - Maturity: 02-20-2021	2		49,563
Corporate Bonds Central Térmica Roca SA Class 004 - Maturity: 07-24-2022	2		36,863		35,559
Corporate Bonds Albanesi SA Class 003 - Maturity: 06-15-2021	2		30,897		38,446
Corporate Bonds Santander Río Bank S.A. Class 021 - Maturity: 01-26-2022	2		25,709
Corporate Bonds Generación Mediterránea SA Class 008 - Maturity: 08-29-2021	2		20,973		21,943
Corporate Bonds Rombo Compañía Financiera SA S041 - Maturity: 01-29-2021	2		17,000		69,082
Other			27,879		3,348,650
Subtotal local private Securities (2)			530,690		3,694,234
Total other debt securities measurement at amortized cost			31,113,789		24,004,210
TOTAL OTHER DEBT SECURITIES			209,118,933		87,828,945

(1) The gross carrying amount of these investments, their stages and the related allowance for ECL are disclosed in note 9.3.

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BANCO MACRO SA AND ITS SUBSIDIARIES

(2) The gross carrying amount of these investments, their stages and the related allowance for ECL are disclosed in note 9.2.

As of December 31, 2020 the unrealized gains and losses from government securities amounted to 445,822 and (68,438), respectively, and the unrealized losses related to Central Bank Bills amounted to (185,277). In addition, as of December 31, 2019, the unrealized gains and losses from government securities amounted to 31,644 and (618,033), respectively, and the unrealized losses related to Central Bank Bills amounted to (80,771). All the abovementioned amounts are net of income tax effects.

6. EQUITY INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

The following table shows holdings of equity instruments at fair value through profit or loss as of December 31, 2020 and 2019:

	Holdings
Name	12/31/2020			12/31/2019
	Fair value level	Book amounts		Book amounts
Equity Instruments
Measured at fair value through profit or loss
- Local
Prisma Medios de Pago SA	3		4,975,977		3,405,143
Mercado Abierto Electrónico SA	3		144,222		70,730
Matba Rofex SA	3		21,242		15,723
C.O.E.L.S.A	3		19,511		13,076
Argentina Clearing y Registro SA	3		14,731		14,217
Sedesa	3		11,682		9,492
Provincanje SA	3		6,243		3,315
AC Inversora SA	3		5,389
Mercado a Término Rosario SA	3		4,308		12,510
Proin SA	3		1,960		2,012
Other			1,407		1,751
Subtotal local			5,206,672		3,547,969
- Foreign
Banco Latinoamericano de Comercio Exterior SA	1		9,728		12,731
Sociedad de Telecomunicaciones Financieras Interbancarias Mundiales	3		1,899		1,727
Subtotal foreign			11,627		14,458
Total measured at fair value through profit or loss			5,218,299		3,562,427
TOTAL EQUITY INSTRUMENTS			5,218,299		3,562,427

7. REPO TRANSACTIONS

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 or re-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 in “Liabilities at fair value through profit or loss”.

F-38

BANCO MACRO SA AND ITS SUBSIDIARIES

As of December 31, 2020 and 2019 the Bank has agreed repurchase transactions of government and private securities for an amount of 618,572 and 1,364,825, respectively, and are recorded in “Repo Transactions”.

As of December 31, 2020 and 2019 the Bank has agreed reverse repurchase transactions of government and private securities for an amount of 39,421,705 and 1,481,096, respectively, and are recorded in “Repo Transactions”. Maturity of the agreed transactions as of December 2020 occurred during the month of January 2021.

As of December 31, 2020 and 2019, the securities delivered to guarantee the reverse repurchase transactions total 695,748 and 1,466,345, respectively, and are recorded in “Financial assets delivered as guarantee” (see note 8), while securities received guarantee repurchase transactions as of December 2020 and 2019 total 44,338,930 and 1,648,337 were recognized as an off balance sheet transaction.

Profits generated by the Bank as a result of its repurchase transactions arranged during the fiscal years ended on December 31, 2020, 2019 and 2018 total 7,067,389, 4,472,211 and 942,142, respectively, and were accounted for in “Interest income” in the consolidated statement of income. In addition, losses generated by the Bank as a result of its reverse repurchase transactions arranged during the fiscal years ended on December 31, 2020, 2019 and 2018 total 195,747, 458,103 and 457,876, respectively, and were recognized in “Interests expense” in the consolidated statement of income.

8. FINANCIAL ASSETS DELIVERED AS GUARANTEE

As of December 31, 2020 and 2019, the Bank delivered as guarantee the following financial assets:

	Carrying Amount
Description	12/31/2020		12/31/2019
For transactions with the BCRA		12,040,746		10,127,017
For guarantee deposits		1,555,864		2,937,377
For securities forward contracts		695,748		1,466,345
Total		14,292,358		14,530,739

The Bank’s Management considers there shall be no losses due to the restrictions on the above listed financial assets.

9. LOSS ALLOWANCE FOR EXPECTED CREDIT LOSSES ON CREDIT EXPOSURES NOT MEASURED AT FAIR VALUE THROUGH PROFIT OR LOSS

The Bank recognizes a loss allowance for expected credit losses on all credit exposures not measured at fair value through profit or loss, like debt instruments measured at amortized cost, debt instruments measured at fair value through other comprehensive income, loan commitments and financial guarantee contracts (not measured at fair value through profit or loss), contract assets and lease receivables.

Note 12 discloses financial instruments classified as “measures at amortized cost”, “measured at fair value through other comprehensive income” and “measured at fair value through profit or loss”. This classification is made pursuant to what was detailed in note 3.2.4. Additionally, in note 12 are also explained the information related to the valuation process.

Moreover, the Bank applies the impairment requirements for guarantees granted, undrawn commitments of credit cards and checking accounts, letter of credits, which are not recognized in the consolidated statement of financial position.

F-39

BANCO MACRO SA AND ITS SUBSIDIARIES

For the purpose of assessing the Bank’s credit risk exposure and identifying material credit risk concentration, disclosures regarding to credit risk of financial assets and items not recognized in the statement of financial position, are as follows:

9.1. Exposure to credit risk

	12/31/2020			12/31/2019
Loans and other financing		267,349,317			307,633,542
Collective assessment		193,056,864			173,435,436
Individual assessment		74,292,453			134,198,106
Less: Allowance for ECL		(9,928,122	)		(6,901,953	)
		257,421,195			300,731,589

The following table shows the credit quality and the debt balance to credit risk, based on the Bank’s credit risk rating system and the year-end stage classification, taking into account the several guidelines related to flexible conditions for credit established by the BCRA to moderate the pandemic effects generated by COVID-19 (see also note 51.1.4). The amounts are presented gross of the impairment allowances.

		12/31/2020 (*)
Internal rating grade	Range PD	Stage 1			Stage 2			Stage 3			Total			%
Performing			247,998,859			9,095,963						257,094,822			96.17	%
High grade	0.00%-3.50%		203,625,287			74,994						203,700,281			76.20	%
Standard grade	3.51%-7.00%		31,867,028			1,925,470						33,792,498			12.64	%
Sub-standard grade	7.01%-33.00%		12,506,544			7,095,499						19,602,043			7.33	%
Past due but not impaired	33.01%-99.99%		791,051			6,433,574						7,224,625			2.70	%
Impaired	100%								3,029,870			3,029,870			1.13	%
Total			248,789,910			15,529,537			3,029,870			267,349,317			100	%
			93.06	%		5.81	%		1.13	%		100	%

(*) See also note 51.1.4.

		12/31/2019
Internal rating grade	Range PD	Stage 1			Stage 2			Stage 3			Total			%
Performing			280,074,262			13,565,543						293,639,805			95.45	%
High grade	0.00%-3.50%		234,860,526			153,443						235,013,969			76.40	%
Standard grade	3.51%-7.00%		23,185,807			2,145,131						25,330,938			8.23	%
Sub-standard grade	7.01%-33.00%		22,027,929			11,266,969						33,294,898			10.82	%
Past due but not impaired	33.01%-99.99%		490,415			8,230,491						8,720,906			2.84	%
Impaired	100%								5,272,831			5,272,831			1.71	%
Total			280,564,677			21,796,034			5,272,831			307,633,542			100	%
			91.20	%		7.09	%		1.71	%		100	%

9.1.1 Loans on an individual assessment

The table below shows the credit quality and the debt balance to credit risk of commercial loans based by grade on the Bank’s internal credit rating system, PD range and year-end stage classification. The Bank’s internal credit rating systems and the evaluation and measurement approaches are explained in note 51.1 “Credit risk”.

		12/31/2020 (*)
Internal rating grade	Range PD	Stage 1			Stage 2			Stage 3			Total			%
Performing			67,960,595			2,781,608						70,742,203			95.22	%
High grade	0.00%-3.50%		64,283,220			812						64,284,032			86.53	%
Standard grade	3.51%-7.00%		2,742,148			1,454,671						4,196,819			5.65	%
Sub-standard grade	7.01%-33.00%		935,227			1,326,125						2,261,352			3.04	%
Past due but not impaired	33.01%-99.99%		372,660			1,614,916						1,987,576			2.68	%
Impaired	100%								1,562,674			1,562,674			2.10	%
Total			68,333,255			4,396,524			1,562,674			74,292,453			100	%
			91.98	%		5.92	%		2.10	%		100	%

(*) See also note 51.1.4.

F-40

BANCO MACRO SA AND ITS SUBSIDIARIES

		12/31/2019
Internal rating grade	Range PD	Stage 1			Stage 2			Stage 3			Total			%
Performing			128,020,746			2,895,846						130,916,592			97.55	%
High grade	0.00%-3.50%		121,115,116			10,720						121,125,836			90.26	%
Standard grade	3.51%-7.00%		25,878			1,184,255						1,210,133			0.90	%
Sub-standard grade	7.01%-33.00%		6,879,752			1,700,871						8,580,623			6.39	%
Past due but not impaired	33.01%-99.99%					1,389,063						1,389,063			1.04	%
Impaired	100%								1,892,451			1,892,451			1.41	%
Total			128,020,746			4,284,909			1,892,451			134,198,106			100	%
			95.40	%		3.19	%		1.41	%		100	%

An analysis of changes in the gross carrying amount and the corresponding ECL allowances in relation to commercial lending is, as follows:

	Stage									Total
	1			2			3
Gross Carrying amount as of January 1, 2020		128,020,746			4,284,909			1,892,451			134,198,106
Assets originated or purchased		62,435,429			2,414,823						64,850,252
Assets derecognized or repaid		(102,930,411	)		(926,908	)		(1,029,675	)		(104,886,994	)
Transfers to Stage 1		213,137			(213,137	)
Transfers to Stage 2		(378,924	)		378,924
Transfers to Stage 3		(1,541,904	)		(157,275	)		1,699,179
Amounts Written Off								(375,325	)		(375,325	)
Monetary effects		(17,484,818	)		(1,384,812	)		(623,956	)		(19,493,586	)
As of December 31, 2020		68,333,255			4,396,524			1,562,674			74,292,453

	Stage									Total
	1			2			3
Gross Carrying amount as of January 1, 2019		140,670,991			2,125,782			2,353,984			145,150,757
Assets originated or purchased		150,197,527			4,510,146						154,707,673
Assets derecognized or repaid		(110,364,709	)		(1,623,329	)		(1,733,006	)		(113,721,044	)
Transfers to Stage 1		536,346			(428,565	)		(107,781	)
Transfers to Stage 2		(1,249,433	)		1,249,433
Transfers to Stage 3		(2,569,451	)		(29,397	)		2,598,848
Amounts Written Off					(236	)		(123,425	)		(123,661	)
Monetary effects		(49,200,525	)		(1,518,925	)		(1,096,169	)		(51,815,619	)
As of December 31, 2019		128,020,746			4,284,909			1,892,451			134,198,106

	Stage
	1			2			3			Total
ECL as at January 1, 2020		436,430			456,028			1,303,904			2,196,362
Assets originated or purchased		1,463,380			421,574						1,884,954
Assets derecognized or repaid		(335,089	)		(26,302	)		(813,640	)		(1,175,031	)
Transfers to Stage 1		9,749			(9,749	)
Transfers to Stage 2		(1,181	)		1,181
Transfers to Stage 3		(929,211	)		(5,996	)		935,207
Amounts Written Off								(329,807	)		(329,807	)
Monetary effects		(31,439	)		(169,212	)		(313,035	)		(513,686	)
At December 31, 2020		612,639			667,524			782,629			2,062,792

F-41

BANCO MACRO SA AND ITS SUBSIDIARIES

	Stage
	1			2			3			Total
ECL as at January 1, 2019		559,907			120,738			896,211			1,576,856
Assets originated or purchased		2,089,381			586,750						2,676,131
Assets derecognized or repaid		(411,175	)		(87,985	)		(628,383	)		(1,127,543	)
Transfers to Stage 1		76,434			(13,892	)		(62,542	)
Transfers to Stage 2		(17,184	)		17,184
Transfers to Stage 3		(1,843,210	)		(1,035	)		1,844,245
Amounts Written Off					(5	)		(53,717	)		(53,722	)
Monetary effects		(17,723	)		(165,727	)		(691,910	)		(875,360	)
At December 31, 2019		436,430			456,028			1,303,904			2,196,362

9.1.2. Loans on a collective assessment

The table below shows the credit quality and the debt balance to credit risk of loans portfolio under collective assessment, by grade of credit risk classification based on the Bank’s internal credit rating system, PD range and year-end stage classification. The Bank’s internal credit rating systems and the evaluation and measurement approaches are explained in note 51.1 “Credit risk”.

		12/31/2020 (*)
Internal rating grade	Range PD	Stage 1			Stage 2			Stage 3			Total			%
Performing			180,038,264			6,314,355						186,352,619			96.53	%
High grade	0.00%-3.50%		139,342,067			74,182						139,416,249			72.22	%
Standard grade	3.51%-7.00%		29,124,880			470,799						29,595,679			15.33	%
Sub-standard grade	7.01%-33.00%		11,571,317			5,769,374						17,340,691			8.98	%
Past due but not impaired	33.01%-99.99%		418,391			4,818,658						5,237,049			2.71	%
Impaired	100%								1,467,196			1,467,196			0.76	%
Total			180,456,655			11,133,013			1,467,196			193,056,864			100	%
			93.47	%		5.77	%		0.76	%		100	%

(*) See also note 51.1.4.

		12/31/2019
Internal rating grade	Range PD	Stage 1			Stage 2			Stage 3			Total			%
Performing			152,053,516			10,669,697						162,723,213			93.82	%
High grade	0.00%-3.50%		113,745,410			142,723						113,888,133			65.66	%
Standard grade	3.51%-7.00%		23,159,929			960,876						24,120,805			13.91	%
Sub-standard grade	7.01%-33.00%		15,148,177			9,566,098						24,714,275			14.25	%
Past due but not impaired	33.01%-99.99%		490,415			6,841,428						7,331,843			4.23	%
Impaired	100%								3,380,380			3,380,380			1.95	%
Total			152,543,931			17,511,125			3,380,380			173,435,436			100	%
			87.95	%		10.10	%		1.95	%		100	%

An analysis of changes in the gross carrying amount and the corresponding ECL allowances in relation to consumer lending is, as follows:

	Stage									Total
	1			2			3
Gross Carrying amount as of January 1, 2020		152,543,931			17,511,125			3,380,380			173,435,436
Assets originated or purchased		122,636,191			6,987,337						129,623,528
Assets derecognized or repaid		(48,194,960	)		(7,286,602	)		(980,906	)		(56,462,468	)
Transfers to Stage 1		8,634,947			(8,338,341	)		(296,606	)
Transfers to Stage 2		(4,575,337	)		4,830,837			(255,500	)
Transfers to Stage 3		(1,104,828	)		(309,271	)		1,414,099
Amounts Written Off		(35,643	)		(284,523	)		(1,378,194	)		(1,698,360	)
Monetary effects		(49,447,646	)		(1,977,549	)		(416,077	)		(51,841,272	)
As of December 31, 2020		180,456,655			11,133,013			1,467,196			193,056,864

F-42

BANCO MACRO SA AND ITS SUBSIDIARIES

	Stage									Total
	1			2			3
Gross Carrying amount as of January 1, 2019		190,999,547			42,324,135			4,853,305			238,176,987
Assets originated or purchased		103,467,653			10,167,092						113,634,745
Assets derecognized or repaid		(71,378,819	)		(19,642,849	)		(1,649,885	)		(92,671,553	)
Transfers to Stage 1		14,992,526			(14,771,361	)		(221,165	)
Transfers to Stage 2		(8,171,761	)		8,759,526			(587,765	)
Transfers to Stage 3		(4,033,895	)		(951,529	)		4,985,424
Amounts Written Off		(323,899	)		(936,075	)		(2,198,639	)		(3,458,613	)
Monetary effects		(73,007,421	)		(7,437,814	)		(1,800,895	)		(82,246,130	)
As of December 31, 2019		152,543,931			17,511,125			3,380,380			173,435,436

	Stage
	1			2			3			Total
ECL as of January 1, 2020		1,561,990			1,480,048			1,663,553			4,705,591
Assets originated or purchased		4,381,186			1,785,657						6,166,843
Assets derecognized or repaid		362,221			(364,035	)		(538,553	)		(540,367	)
Transfers to Stage 1		766,661			(621,987	)		(144,674	)
Transfers to Stage 2		(75,871	)		188,316			(112,445	)
Transfers to Stage 3		(708,400	)		(48,396	)		756,796
Amounts Written Off		(1,676	)		(56,306	)		(702,095	)		(760,077	)
Monetary effects		(1,655,093	)		(4,471	)		(47,096	)		(1,706,660	)
As of December 31, 2020		4,631,018			2,358,826			875,486			7,865,330

	Stage
	1			2			3			Total
ECL as at January 1, 2019		1,621,844			2,602,099			2,302,058			6,526,001
Assets originated or purchased		2,472,513			881,811						3,354,324
Assets derecognized or repaid		19,972			(1,093,709	)		(917,811	)		(1,991,548	)
Transfers to Stage 1		733,257			(636,265	)		(96,992	)
Transfers to Stage 2		(115,770	)		330,095			(214,325	)
Transfers to Stage 3		(1,912,100	)		(100,707	)		2,012,807
Amounts Written Off		(9,225	)		(144,692	)		(1,106,555	)		(1,260,472	)
Monetary effects		(1,248,501	)		(358,584	)		(315,629	)		(1,922,714	)
As of December 31, 2019		1,561,990			1,480,048			1,663,553			4,705,591

Over the course of 2020 and 2019, the Bank generated from loan portfolio sales, profits for 36,947 and 69,935, respectively and losses for 27 and 1,446, respectively.

The contractual amount outstanding on loans and other financing that have been written off by the Bank as of December 31, 2020 and 2019 that were still subject to enforcement activity was 4,349,903 and 4,127,716, respectively.

9.2 Other debt securities at amortized cost

For local government securities, EAD is considered equal to the debt balance, because there is not available information of such instruments’ behavior when they defaulted. For PD and LGD parameters, they were calculated using Basel regulatory parameters.

For corporate bonds issued by the Bank’s customers, PD and LGD parameters calculated for loan exposures of those customers were used. The corporate bonds’ EAD is considered equal to the debt balance, because there is not available information of such instrument’s behavior when it defaulted.

For financial trusts at amortized cost, the criteria that was used in the calculation of ECL is based on credit risk ratings given by a credit rating agency for each types of debt securities that compose each financial trust. That is, the factor to be used will vary in relation to the holding debt securities class (A or B). It is assumed that the EAD is equal to the debt balance.

F-43

BANCO MACRO SA AND ITS SUBSIDIARIES

The table below shows the exposures gross of impairment allowances by stages:

	12/31/2020
	Stage 1			Stage 2	Stage 3	Total			%
Local government securities		30,587,228					30,587,228			98.29	%
Corporate bonds		365,341					365,341			1.17	%
Financial trust		166,692					166,692			0.54	%
Total		31,119,261					31,119,261
		100	%				100	%

	12/31/2019
	Stage 1			Stage 2			Stage 3	Total			%
Local government securities		11,374,373			8,996,667				20,371,040			84.64	%
Corporate bonds		2,198,423							2,198,423			9.13	%
Financial trust		1,498,448							1,498,448			6.23	%
Total		15,071,244			8,996,667				24,067,911
		62.62	%		37.38	%			100	%

During 2019 there were transfers between stages considering what is mentioned in Note 20.

The related ECL for local government securities as of December 31, 2020 and 2019 amounted to 4,129 and 61,064, respectively. The related ECL for corporate bonds as of December 31, 2020 and 2019 amounted to 1,234 and 2,088, respectively. The ECL related to financial trusts as of December 31, 2020 and 2019 amounted to 109 and 549, respectively. See also note 5.

9.3 Government securities at fair value through OCI

This group includes federal government securities, provincial or Central Bank instruments measured at fair value through OCI. For these assets, an individual assessment of the related parameters was performed.

As of December 31, 2020 and 2019 the gross carrying amount related to these securities amounted to 178,005,144 and 63,824,735, the related ECL amounted to 5,964 and 286, respectively, and they were classified in stage 1. During 2020 and 2019, there were no transfers between stages. A detail of these investments are disclosed in note 5.

9.4 Other financial assets

As of December 31, 2020 and 2019 the gross carrying amount related to these securities amounted to 18,905,219 and 8,405,598 and they were classified in stage 1. The ECL related to these types of instruments amounted to 18,929 and 14,032 as of December 31, 2020 and 2019, respectively, including the ECL related to the payments to be collected for transaction mentioned in note 21. During 2020 and 2019, there were no transfers between stages.

During the fiscal years ended on December 31, 2020, 2019 and 2018 losses for ECL related to loans and other financing, other debt securities measured at amortized cost and other financial assets amounted to 7,861,600, 5,917,873 and 6,073,426, respectively, and were recognized in the consolidated statements of income under the item “Credit loss expense on financial assets”.

10. CONTINGENT TRANSACTIONS

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. The Bank is also exposed to overdrafts and unused agreed credits on credit cards of the Bank. Since they imply a contingent obligation for the Bank, they expose the Bank to credit risks other than those recognized in statement of financial position and they are, therefore, an integral part of the total risk of the Bank.

F-44

BANCO MACRO SA AND ITS SUBSIDIARIES

As of December 31, 2020 and 2019, the Bank maintains the following maximum exposure to credit risk related to this kind of transactions:

	12/31/2020			12/31/2019
Undrawn commitments of credit cards and checking accounts		95,220,298			124,364,340
Guarantees granted		1,282,770			2,340,277
Letters of credit		888,664			607,827
Overdraft and unused agreed commitments		518,606			1,432,695
		97,910,338			128,745,139
Less: Allowance for ECL (1)		(23,200	)		(23,514	)
Total		97,887,138			128,721,625

(1) It includes high grade credit risk exposures in stage 1. During 2020 and 2019, there were no transfers between stages. See also note 22.

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 51.

11. DERIVATIVE FINANCIAL INSTRUMENTS

The Bank performs derivative transactions for trading purposes through Forwards and Futures. These are contractual agreements to buy or sell a specific financial instrument at a given price and a fixed date in the future. Forward contracts are customized contracts traded on an over-the-counter market. Futures contracts, in turn, correspond to transactions for standardized amounts, executed in a regulated market and subject to daily cash margin requirements. The main differences in risks associated with these types of contracts are the credit risk and the liquidity risk. In forward contracts there is counterparty risk since the Bank has credit exposure to counterparties of the agreements. The credit risk related to futures contracts is deemed very low because daily cash margin requirements help to guarantee these contracts are always fulfilled. In addition, forward contracts are generally settled in gross terms and, therefore, they are deemed to have higher settlement risk than futures contract that, unless they are chosen to be executed by delivery, are settled on a net base. Both types of contracts expose the Bank to market risk.

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 51.

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. The fair value of the derivative financial instruments recognized as assets or liabilities in the consolidated statement of financial position is presented as follows. Changes in fair values were accounted for in profit or loss, the breakdown of which is disclosed in note 33.

Derivative assets		12/31/2020				12/31/2019
	Underlying Notional Value	Notional Value		Fair Value		Notional Value		Fair Value
Transactions of foreign currency contract without delivery of underlying asset	US Dollars		1,580		7,232		73,920		69,003
Put options –US Dollars (see note 21)	Shares		8,910,878		687,572		8,910,878		538,643
Put options – Pesos (see note 21)	Shares		8,910,878		294,674		8,910,878		230,847
Total derivatives held for trading					989,478				838,493

Derivative liabilities		12/31/2020				12/31/2019
	Underlying Notional Value	Notional Value		Fair Value		Notional Value		Fair Value
Transactions of foreign currency contract without delivery of underlying asset	US Dollars		1,755		230		73,920		1,046,556
Total derivatives held for trading					230				1,046,556

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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.

12. FAIR VALUE QUANTITATIVE AND QUALITATIVE DISCLOSURES

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.

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BANCO MACRO SA AND ITS SUBSIDIARIES

The following tables show the hierarchy in the Bank’s financial asset and liability fair value measurement, as of December 31, 2020 and 2019:

CATEGORIES OF FINANCIAL ASSETS AND LIABILITIES

AS OF DECEMBER 31, 2020

Item	Amortized cost		Fair value with changes in other comprehensive income		Fair value with changes in P/L		Fair value hierarchy
							Level 1		Level 2		Level 3
FINANCIAL ASSETS
Cash and deposits in banks
Cash		25,422,664
Financial institutions and Correspondents		104,539,560
Other		5,262
Debt securities at fair value through profit or loss						54,982,465		54,604,015		6		378,444
Derivative instruments						989,478				7,232		982,246
Repo transactions
Central Bank of the Argentine Republic		39,421,705
Other financial assets		18,280,848				605,442		579,263				26,179
Loans and other financing
To the non-financial government Sector		3,614,614
Other financial institutions		1,824,600
To the non-financial private sector and foreign residents
Overdrafts		17,611,869
Documents		27,339,195
Mortgage loans		25,410,608
Pledge loans		3,325,554
Personal loans		70,258,760
Credit cards		64,266,490
Financial leases		118,562
Other (1)		43,650,943
Other debt securities		31,113,789		178,005,144				115,417,483		62,587,661
Financial assets delivered as guarantee		13,596,610		695,748				695,748
Equity Instruments at fair value through profit or loss						5,218,299		9,855				5,208,444
TOTAL FINANCIAL ASSETS		489,801,633		178,700,892		61,795,684		171,306,364		62,594,899		6,595,313
FINANCIAL LIABILITIES
Deposits
From the non-financial government sector		73,565,424
From the financial sector		696,415
From the non-financial private sector and foreign residents
Checking accounts		65,401,102
Savings accounts		138,844,482
Time deposits and Investment accounts		181,767,558
Other		28,466,382
Derivative instruments						230		230
Repo transactions
Other financial institutions		618,572
Other financial liabilities		49,215,887
Financing received from Central Bank and other financial entities		919,103
Issued corporate bonds		4,926,901
Subordinated corporate bonds		34,300,292
TOTAL FINANCIAL LIABILITIES		578,722,118				230		230

(1) Includes the total allowances to the non-financial private sector and foreign residents.

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BANCO MACRO SA AND ITS SUBSIDIARIES

CATEGORIES OF FINANCIAL ASSETS AND LIABILITIES

AS OF DECEMBER 31, 2019

Item	Amortized cost		Fair value with changes in other comprehensive income		Fair value with changes in P/L		Fair value hierarchy
							Level 1		Level 2		Level 3
FINANCIAL ASSETS
Cash and deposits in banks
Cash		26,563,255
Financial institutions and Correspondents		110,498,075
Other		5,100
Debt securities at fair value through profit or loss						7,725,991		6,543,684		72,681		1,109,626
Derivative instruments						838,493		43,012		25,991		769,490
Repo transactions
Other financial entities		1,481,096
Other financial assets		7,889,031				502,535		471,221				31,314
Loans and other financing
To the non-financial government Sector		8,781,948
Other financial institutions		5,380,555
To the non-financial private sector and foreign residents
Overdrafts		56,276,823
Documents		28,085,343
Mortgage loans		28,053,169
Pledge loans		5,536,821
Personal loans		77,326,738
Credit cards		57,392,877
Financial leases		312,495
Other (1)		33,584,820
Other debt securities		24,004,210		63,824,735				50,355,730		13,469,005
Financial assets delivered as guarantee		14,530,739
Equity Instruments at fair value through profit or loss						3,562,427		12,842				3,549,585
TOTAL FINANCIAL ASSETS		485,703,095		63,824,735		12,629,446		57,426,489		13,567,677		5,460,015
FINANCIAL LIABILITIES
Deposits
From the non-financial government sector		23,906,675
From the financial sector		427,702
From the non-financial private sector and foreign residents
Checking accounts		54,625,032
Savings accounts		123,517,591
Time deposits and Investment accounts		144,401,841
Other		10,987,601
Derivative instruments						1,046,556				1,046,556
Repo transactions
Other financial institutions		1,364,825
Other financial liabilities		30,181,836
Financing received from Central Bank and other financial entities		3,057,451
Issued corporate bonds		7,521,820
Subordinated corporate bonds		33,098,040
TOTAL FINANCIAL LIABILITIES		433,090,414				1,046,556				1,046,556

(1) Includes the total allowances to the non-financial private sector and foreign residents.

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BANCO MACRO SA AND ITS SUBSIDIARIES

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 and Mercado 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”.

Finally, the Bank has categorized as level 3 those assets and liabilities for which there are no identical or similar transactions in the market. For this approach, the Bank mainly used the cash flow discount model.

As of December 31, 2020 and 2019, the Bank has neither changed the techniques nor the assumptions used to estimate the fair value of the financial instruments.

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 categorized as level 3:

	As of December 31, 2020
Description	Debt securities			Other financial assets			Equity instruments at fair value through profit or loss			Derivative financial instruments
Amount at the beginning		1,109,626			31,314			3,549,583			769,490
Transfers to Level 3
Transfers from Level 3
Profit and loss (1)		207,791			9,472			2,609,737			417,029
Recognition and derecognition		(791,555	)		(6,506	)		17,111
Monetary effects		(147,418	)		(8,101	)		(967,987	)		(204,273	)
Amount at end of the fiscal year		378,444			26,179			5,208,444			982,246

	As of December 31, 2019
Description	Debt securities			Other financial assets			Equity instruments at fair value through profit or loss			Derivative financial instruments
Amount at the beginning		2,703,786			190,929			95,095
Transfers to Level 3
Transfers from Level 3
Profit and loss (1)		885,411			18,737			328,662
Recognition and derecognition		(1,706,169	)		(143,266	)		4,372,702			769,490
Monetary effects		(773,402	)		(35,086	)		(1,246,876	)
Amount at end of the fiscal year		1,109,626			31,314			3,549,583			769,490

(1) Profit and loss are recorded in “Net gain from measurement of financial instruments at fair value”.

Instruments measured as level 3 mainly include equity instruments at fair value through profit or loss which comprise Prisma Medios de Pago SA (see note 21). Its Fair Value was calculated on the basis of independent appraisers’ valuations, who relied on a future discounted cash flow method embracing an income approach.

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BANCO MACRO SA AND ITS SUBSIDIARIES

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 fair value was calculated by 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.

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 an income 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.

• Capital expenditures assumptions.

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 growth 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)

			2.00%		3.00%		4.00%
	97.5	%		370.9		391.8		416.5
WACC	100	%		366.2		386.8		411.1
	102.5	%		361.7		381.9		405.9

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 4,975,977, which is within a range of 4,652,478 and 5,357,416 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% 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.

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BANCO MACRO SA AND ITS SUBSIDIARIES

• Dividend yield.

• Underlying asset (that arises from making the relation between estimated Equity Value with the numbers of shares and the WACC (Weighted Average Cost of Capital).

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:

Sensibility - US$

Volatility

			10.0%		12.0%		15.0%
	95	%		1.08		1.16		1.26
EBITDA	100	%		1.26		1.31		1.42
	105	%		1.43		1.48		1.58

The scenario considered for the valuation considers EBITDA at 100% and volatility at 12%. 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 982,246, which is within the range of 944,755 and 1,072,222 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 main of debt securities of financial trusts for which the Bank uses an internal model.

	Fair value of				Range of inputs
	Level 3 Assets		Valuation	Significant unobservable	12/31/2020
	12/31/2020		Technique	inputs	Range of inputs
					Low		High		Unit
Debt Securities of Financial Trusts Provisional		376,090	Income approach (discounted cash flow)	Discount rate in pesos		43.84		47.60		%

	Fair value of				Range of inputs
	Level 3 Assets		Valuation	Significant unobservable	12/31/2019
	12/31/2019		Technique	inputs	Range of inputs
Debt Securities of Financial Trusts		259,482	Income approach (discounted cash flow)	Discount rate in pesos		48.50	74.06	%
Debt Securities of Financial Trusts Provisional		847,773	Income approach (discounted cash flow)	Discount rate in pesos		39.27	44.97	%

The table below describes the effect of changing the significant unobservable inputs to reasonable possible alternatives. Sensitivity data were calculated using a number of techniques including analyzing price dispersion of different price sources, adjusting model inputs to analyze changes within the fair value methodology.

	12/31/2020					12/31/2019
	Favorable changes		Unfavorable changes			Favorable changes		Unfavorable changes
Debt Securities of Financial Trusts							5,654		(5,000	)
Debt Securities of Financial Trusts Provisional		450		(439	)		1,083		(1,057	)

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BANCO MACRO SA AND ITS SUBSIDIARIES

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, 2020 and 2019, the Bank has not recognized any transfers between levels 1, 2 and 3 of the fair value hierarchy.

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 not recognized at their fair value in these consolidated financial statements:

• 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.

• Fixed and variable rate of financial instruments: the fair value of financial assets was recognized discounting future cash flows at current market rates, for each fiscal year, for financial instruments of similar characteristics. The estimated fair value of fixed-interest rate deposits and liabilities was assessed discounting future cash flows by using estimated interest rates for deposits or placings with similar maturities to those of the Bank’s portfolio.

• For public listed assets and liabilities, or those for which the prices are reported by certain renown pricing providers, the fair value was determined based on such prices.

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, 2020 and 2019:

	12/31/2020
	Carrying amount		Level 1		Level 2		Level 3		Fair Value
Financial assets
Cash and deposits in banks		129,967,486		129,967,486						129,967,486
Repo transactions		39,421,705		39,421,705						39,421,705
Other financial assets		18,280,848		18,280,848						18,280,848
Loans and other financing		257,421,195						239,959,333		239,959,333
Other debt securities		31,113,789		10,559,766		22,210,308		148,327		32,918,401
Financial assets delivered as guarantee		13,596,610		13,596,610						13,596,610
		489,801,633		211,826,415		22,210,308		240,107,660		474,144,383
Financial liabilities
Deposits		488,741,363		243,062,751				245,400,493		488,463,244
Repo transactions		618,572		618,572						618,572
Other financial liabilities		49,215,887		47,879,138		1,331,299				49,210,437
Financing received from the BCRA and other financial entities		919,103		323,872		585,643				909,515
Issued corporate bonds		4,926,901				4,120,798				4,120,798
Subordinated corporate bonds		34,300,292				29,103,736				29,103,736
		578,722,118		291,884,333		35,141,476		245,400,493		572,426,302

	12/31/2019
	Carrying amount		Level 1		Level 2		Level 3		Fair Value
Financial assets
Cash and deposits in banks		137,066,430		137,066,430						137,066,430
Repo transactions		1,481,096		1,481,096						1,481,096
Other financial assets		7,889,031		7,889,031						7,889,031
Loans and other financing		300,731,589		424,388				264,176,063		264,600,451
Other debt securities		24,004,210		2,127,361		22,652,005		1,660,974		26,440,340
Financial assets delivered as guarantee		14,530,739		13,064,394						13,064,394
		485,703,095		162,052,700		22,652,005		265,837,037		450,541,742

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BANCO MACRO SA AND ITS SUBSIDIARIES

	12/31/2019
	Carrying amount		Level 1		Level 2		Level 3		Fair Value
Financial liabilities
Deposits		357,866,442		200,293,229				157,881,650		358,174,879
Repo transactions		1,364,825		1,364,825						1,364,825
Other financial liabilities		30,181,836		28,680,171		1,489,374				30,169,545
Financing received from the BCRA and other financial entities		3,057,451		2,501,414		481,284				2,982,698
Issued corporate bonds		7,521,820				1,878,785		3,619,745		5,498,530
Subordinated corporate bonds		33,098,040				24,967,325				24,967,325
		433,090,414		232,839,639		28,816,768		161,501,395		423,157,802

13. LEASES

13.1 The bank as a lessee

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, 2020 and 2019, the carrying amount of assets recognized for the right-of-use assets identified in the lease contracts, depreciation expense for the fiscal year and the additions to right-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:

	2020			2019
At the beginning of the fiscal year		1,248,339			816,166
Additions		380,862			674,781
Accretion of interest (see note 38)		180,785			166,048
Difference in foreign currency		292,007			370,981
Payments		(561,773	)		(312,356	)
Monetary effects		(364,693	)		(467,281	)
At the end of the fiscal year (see note 24)		1,175,527			1,248,339

The short term leases were recognized as expense for an amount of 3,538 and 151,848 for the years ended December 31, 2020 and 2019, respectively.

The table below shows the maturity of the lease liabilities as of December 31, 2020 and 2019:

Lease liabilities	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		Total up to 12 months		Over 12 months and up to 24 months		Over 24 months		Total over 12 months
As of 12/31/2020		46,132		83,521		108,132		178,066		415,851		250,322		509,354		759,676
As of 12/31/2019		52,511		87,497		119,928		196,711		456,647		233,434		558,258		791,692

13.2 The Bank as a lessor

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:

	12/31/2020				12/31/2019
	Current value of minimum payments		Total gross investment		Current value of minimum payments		Total gross investment
Up to 1 year		80,408		102,282		214,710		263,150
From 1 to 5 years		38,154		59,291		97,785		129,338
		118,562		161,573		312,495		392,488

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BANCO MACRO SA AND ITS SUBSIDIARIES

Income for non-accrued interests amounted to 43,011 and 79,993, for the years ended December 31, 2020 and 2019, respectively.

14. INVESTMENTS IN ASSOCIATES AND JOINT ARRANGEMENTS

14.1 Associates entities

a) Macro Warrants SA

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, the Bank used accounting information of Macro Warrants SA as of September 30, 2020. Additionally, the Bank has considered, when applicable, the material transactions or events occurring between October 1, 2020, and December 31, 2020.

The following table presents the summarized financial information on the Bank’s investment in the associate:

Summarized statement of financial position	12/31/2020			12/31/2019
Total assets		58,950			42,826
Total liabilities		12,145			10,714
Shareholders’ equity		46,805			32,112
Proportional Bank’s interest		5	%		5	%
Investment carrying amount		2,340			1,606

As of December 31, 2020, 2019 and 2018, the investment carrying amount in the net income for the fiscal years amounted to 745, 889 and 346, respectively.

b) Play Digital SA

As explain in note 1, the Bank holds an investment in the associate Play Digital SA. The existence of significant influence is evidenced by the representation the Bank has in the Board of Directors of the associate.

The following table presents the summarized financial information on the Bank’s interest in the associate:

Summarized statement of financial position	12/31/2020
Total assets		659,866
Total liabilities		87,619
Shareholders’ equity		572,247
Proportional Bank’s interest		9.9545	%
Investment carrying amount		56,964

As of December 31, 2020, the investment carrying amount in the net income for the fiscal years amounted to 80,264 (loss).

14.2. Joint ventures

The Bank participates in the following joint ventures, implemented through Uniones Transitorias de Empresas (UTE, for its acronym in Spanish):

a) Banco Macro SA – Wordline Argentina SA Unión transitoria: on April 7, 1998, the Bank executed an agreement with Siemens Itron Services SA to organize an UTE controlled on a joint basis through a 50% interest, the purpose of which is to facilitate a data processing center for the tax administration, to modernize the systems and tax collection processes of the Province of Salta and manage and recover municipal taxes and fees.

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BANCO MACRO SA AND ITS SUBSIDIARIES

The following table presents the summarized financial information on the Bank’s investment in the UTE:

Summarized statement of financial position	12/31/2020			12/31/2019
Total assets		387,526			518,096
Total liabilities		98,397			126,028
Shareholders’ equity		289,129			392,068
Proportional Bank’s interest		50	%		50	%
Investment carrying amount		144,565			196,034

As of December 31, 2020, 2019 and 2018, the investment carrying amount in the net income for the fiscal years amounted to 74,202, 152,984 and 146,908, respectively.

b) Banco Macro SA – Gestiva SA Unión transitoria: on May 4, 2010 and August 15, 2012, the Bank executed with Gestiva SA the UTE agreement to form “Banco Macro SA – Gestiva SA – Unión Transitoria de Empresas”, under joint control, the purpose of which is to render the integral processing and management services of the tax system of the Province of Misiones, the management thereof and tax collection services. The Bank holds a 5% interest in this UTE.

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, 2020 and 2019, according to the above-mentioned, the remaining investment amounted to 36 and 1,576, respectively.

15. PROPERTY, PLANT AND EQUIPMENT

The changes in property, plant and equipment during the fiscal years ended on December 31, 2020 and 2019 are as follows:

	12/31/2020
Item	Original value at beginning of fiscal year		Total life estimated in years		Increases		Decreases		Depreciation for the fiscal year								Residual value at the end of the fiscal year
									Accumulated at the beginning		Decrease		For the fiscal year		At the end
Cost
Real property		29,821,961		50		678,094		25,227		1,890,000		12,096		617,806		2,495,710		27,979,118
Furniture and facilities		3,682,851		10		308,616		782		1,435,143		28		370,087		1,805,202		2,185,483
Machinery and equipment		4,861,732		5		630,516		106		2,584,279		45		871,640		3,455,874		2,036,268
Vehicles		837,976		5		80,942		62,807		684,402		58,325		75,190		701,267		154,844
Work in progress		1,189,216				465,125		815,824										838,517
Right of use real property		1,665,298		5		528,499		117,714		412,352		33,458		521,980		900,874		1,175,209
Other		2,667				28				2,648				21		2,669		26
Total property, plant and equipment (1)		42,061,701				2,691,820		1,022,460		7,008,824		103,952		2,456,724		9,361,596		34,369,465

	12/31/2019
Item	Original value at beginning of fiscal year		Total life estimated in years	Increases		Decreases		Depreciation for the fiscal year								Residual value at the end of the fiscal year
								Accumulated at the beginning		Decrease		For the fiscal year		At the end
Cost
Real property		27,620,633	50		2,352,622		151,294		1,474,810		118,384		533,574		1,890,000		27,931,961
Furniture and facilities		3,437,685	10		724,740		479,574		1,602,518		477,285		309,910		1,435,143		2,247,708
Machinery and equipment		7,645,815	5		860,294		3,644,377		5,283,492		3,640,537		941,324		2,584,279		2,277,453
Vehicles		830,915	5		133,984		126,923		666,680		65,487		83,209		684,402		153,574
Work in progress		2,046,200			1,979,389		2,836,373										1,189,216
Right of use real property			5		1,810,801		145,503				41,271		453,623		412,352		1,252,946
Other		2,465			202				2,423				225		2,648		19
Total property, plant and equipment (1)		41,583,713			7,862,032		7,384,044		9,029,923		4,342,964		2,321,865		7,008,824		35,052,877

(1) During fiscal years 2020 and 2019, this item observed transfers to and from property, plant and equipment and/or non-current assets held for sale.

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BANCO MACRO SA AND ITS SUBSIDIARIES

16. INVESTMENT PROPERTY

The changes in investment property (including in “Other non-financial assets” – see note 18) during the fiscal years ended on December 31, 2020 and 2019 are as follow:

	12/31/2020
Item	Original Value at beginning of fiscal year		Useful life estimated in years		Increases		Decreases		Depreciation for the fiscal year								Residual value at the end of the fiscal year (1)
									Accumulated at the beginning		Decrease		For the fiscal year		At the end
Cost
Rented properties		220,218		50		1				33,694				2,461		36,155		184,064
Other investment properties		838,983		50		70,201		62,302		38,833		9		11,946		50,770		796,112
Total investment properties (2)		1,059,201				70,202		62,302		72,527		9		14,407		86,925		980,176

	12/31/2019
Item	Original Value at beginning of fiscal year		Useful life estimated in years		Increases		Decreases		Depreciation for the fiscal year								Residual value at the end of the fiscal year
									Accumulated at the beginning		Decrease		For the fiscal year		At the end
Cost
Rented properties		220,215		50		4		1		31,233		1		2,462		33,694		186,524
Other investment properties		729,432		50		433,937		324,386		28,680				10,153		38,833		800,150
Total investment properties (3)		949,647				433,941		324,387		59,913		1		12,615		72,527		986,674

(1) The amounts disclosed do not differ significantly from the fair value.

(2) During the fiscal year 2020, this item observed transfers to and from property, plant and equipment.

(3) During the fiscal year 2019, this item observed transfers to and from property, plant and equipment and/or non-current assets held for sale.

17. INTANGIBLE ASSETS

The changes in intangible assets during the fiscal years ended on December 31, 2020 and 2019 are as follow:

	12/31/2020
Item	Original Value at beginning of fiscal year		Useful life estimated in years		Increases		Decreases		Depreciation for the fiscal year								Residual value at the end of the fiscal year
									Accumulated at the beginning		Decrease		For the fiscal year		At the end
Cost
Licenses		2,224,761		5		524,722				911,978		1		514,339		1,426,316		1,323,167
Other intangible assets		6,942,583		5		1,688,410		1,192		3,433,183		1,192		1,416,917		4,848,908		3,780,893
Total intangible assets		9,167,344				2,213,132		1,192		4,345,161		1,193		1,931,256		6,275,224		5,104,060

	12/31/2019
Item	Original Value at beginning of fiscal year		Useful life estimated in years		Increases		Decreases		Depreciation for the fiscal year								Residual value at the end of the fiscal year
									Accumulated at the beginning		Decrease		For the fiscal year		At the end
Cost
Licenses		2,707,929		5		695,936		1,179,104		1,669,510		1,171,274		413,742		911,978		1,312,783
Other intangible assets		8,251,282		5		1,618,269		2,926,968		4,848,643		2,760,136		1,344,676		3,433,183		3,509,400
Total intangible assets (1)		10,959,211				2,314,205		4,106,072		6,518,153		3,931,410		1,758,418		4,345,161		4,822,183

(1) During fiscal years 2019 there were transfers between lines of the item that produce differences between the amounts at the end of one fiscal year and the beginning of the other without implying modifications of the residual value at the end of the fiscal year.

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BANCO MACRO SA AND ITS SUBSIDIARIES

18. OTHER FINANCIAL AND NON-FINANCIAL ASSETS

The breakdown of the other financial and non-financial assets account in the statement of financial position is as follows:

Other financial assets	12/31/2020			12/31/2019
Receivables from spot sales of foreign currency pending settlement		8,440,351			18,301
Sundry debtors (see note 21)		7,390,700			6,396,792
Receivables from other spot sales pending settlement		1,722,085			1,241,411
Private securities		605,442			502,534
Receivables from spot sales of government securities pending settlement		553,943			8,752
Other		192,698			237,808
Subtotal		18,905,219			8,405,598
Allowances		(18,929	)		(14,032	)
		18,886,290			8,391,566

Other non-financial assets	12/31/2020		12/31/2019
Investment property (see note 16)		980,176		986,674
Tax advances		604,257		51,287
Advanced prepayments		466,204		320,313
Other		181,416		119,313
		2,232,053		1,477,587

Disclosures related to allowance for ECL are detailed in note 9 “Loss allowance for credit losses on credit exposures not measured at fair value through profit or loss”.

19. RELATED PARTIES

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.

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BANCO MACRO SA AND ITS SUBSIDIARIES

As of December 31, 2020 and 2019, amounts balances and profit or loss related to transactions generated with related parties are as follows:

	Information as of December 31, 2020
	Main subsidiaries (1)
	Macro Bank Limited		Macro Securities SA			Macro Fondos SGFCISA		Argenpay SAU		Associates			Key management personnel (2)			Other related parties			Total
ASSETS
Cash and deposit in banks		674																		674
Repo transaction				767,386																767,386
Other financial assets																	148			148
Loans and other financing (3)
Documents																	1,528			1,528
Overdraft														32,754			406,418			439,172
Credit Cards														45,318			11,003			56,321
Lease				1,034													5,223			6,257
Personal loans														11,651						11,651
Mortgage loans														84,173						84,173
Other loans				711,777													380,489			1,092,266
Guarantee granted																	831,701			831,701
Total Assets		674		1,480,197										173,896			1,636,510			3,291,277
LIABILITIES
Deposits		7		671,420			130,614		56,976		43,339			620,654			3,777,234			5,300,244
Other financial liabilities				15,615										162			11,813,748			11,829,525
Other non-financial liabilities																	11,423			11,423
Total Liabilities		7		687,035			130,614		56,976		43,339			620,816			15,602,405			17,141,192
INCOME / (LOSS)
Interest income				47,019										60,519			635,329			742,867
Interest expense				(627	)						(8,864	)		(893,465	)		(737,515	)		(1,640,471	)
Commissions income				10,737			307				89			155			61,586			72,874
Commissions expense														(135	)		(235	)		(370	)
Net income from measurement of financial instruments at fair value through profit or loss																	17,861			17,861
Other operating income		4							1								23			28
Credit loss expense on financial assets				(6,886	)															(6,886	)
Administrative expense																	(167,219	)		(167,219	)
Other operating expense																	(76,761	)		(76,761	)
Income / (loss)		4		50,243			307		1		(8,775	)		(832,926	)		(266,931	)		(1,058,077	)

(1) These transactions are eliminated during the consolidation process.

(2) Includes close family members of the key management personnel.

(3) The maximum financing amount for loans and other financing as of December 31, 2020 for Macro Securities SA, Key management personnel and other related parties amounted to 714,987, 997,346 and 4,673,348, respectively.

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BANCO MACRO SA AND ITS SUBSIDIARIES

	Information as of December 31, 2019
	Main subsidiaries (1)
	Macro Bank Limited		Macro Securities SA		Macro Fondos SGFCISA		Argenpay SAU		Associates			Key management personnel (2)			Other related parties			Total
ASSETS
Cash and deposit in banks		653																	653
Other financial assets				160,385												71			160,456
Loans and other financing (3)
Documents																749,363			749,363
Overdraft													905,896			1,447,407			2,353,303
Credit Cards													52,752			32,082			84,834
Lease				4,607												9,326			13,933
Mortgage loans													80,305						80,305
Other loans																455,560			455,560
Guarantee granted																777,992			777,992
Total Assets		653		164,992									1,038,953			3,471,801			4,676,399
LIABILIITES
Deposits		15		1,226,167		114,383		1,623		31,201			17,785,179			1,797,457			20,956,025
Other financial liabilities													124			793,437			793,561
Total Liabilities		15		1,226,167		114,383		1,623		31,201			17,785,303			2,590,894			21,749,586
INCOME / (LOSS)
Interest income				13,000									102,201			307,541			422,742
Interest expense										(4,865	)		(1,194,235	)		(339,661	)		(1,538,761	)
Commissions income				760		259				262			74			7,458			8,813
Net loss from measurement of financial instruments at fair value through profit or loss													(54,322	)		(283,860	)		(338,182	)
Other operating income		5														43			48
Administrative expense																(53,669	)		(53,669	)
Other operating expense																(139,868	)		(139,868	)
Income / (loss)		5		13,760		259				(4,603	)		(1,146,282	)		(502,016	)		(1,638,877	)

(1) These transactions are eliminated during the consolidation process.

(2) Includes close family members of the key management personnel.

(3) The maximum financing amount for loans and other financing as of December 31, 2019 for Macro Securities SA, Key management personnel and other related parties amounted to 7,063, 1,120,919 and 4,899,400, respectively.

	Information as of December 31, 2018
	Main subsidiaries (1)
	Macro Bank Limited	Macro Securities SA			Macro Fondos SGFCISA		Associates			Key management personnel (2)			Other related parties			Total
INCOME / LOSS
Interest income											6,186			164,245			170,432
Interest expense			(8,004	)				(473,888	)		(855,016	)		(52,576	)		(1,389,484	)
Commissions income			997			246		287			50			14,306			15,886
Administrative expenses														(24,584	)		(24,584	)
Other operating expenses								(3,187,035	) (3)					(65,810	)		(3,252,845	)
(Loss) / Income			(7,007	)		246		(3,660,636	)		(848,780	)		35,581			(4,480,595	)

(1) These transactions are eliminated during the consolidation process.

(2) Includes close members family of the key management personnel.

(3) These losses were mainly generated by debit and credit cards processing expenses billed by Prisma Medios de Pago SA.

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BANCO MACRO SA AND ITS SUBSIDIARIES

Transactions generated by the Bank with its related parties 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 remunerations received as salary and bonus by the key management personnel as of December 31, 2020, 2019 and 2018, totaled 323,793, 325,577 and 295,188, respectively.

In addition, fees received by the Directors as of December 31, 2020, 2019 and 2018 amounted to 1,704,130, 2,298,592 and 1,634,030, respectively.

Additionally, the composition of the Board of Directors and key management personnel of the Bank and its subsidiaries is as follows:

	12/31/2020		12/31/2019
Board of Directors		22		24
Senior managers of the key management personnel		11		10
	33		34

20. MODIFICATIONS OF FINANCIAL ASSETS

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 12,967,201. As a consequence, the new gross carrying amount amounted to 9,065,091 and generated a modification loss for 3,902,110 included in “Other operating expenses” (see additionally note 38) as of December 31, 2019. As of December 31, 2020 these securities are not in the Bank´s portfolio.

21. EQUITY INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS– PRISMA MEDIOS DE PAGO SA

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 for a total purchase price of (in thousands) USD 64,542 out of which the Bank received on the date hereof (in thousands) USD 38,311 and the payment of the balance for an amount of (in thousands) USD 26,231 shall be deferred for 5 years as follows: (i) 30% of such amount in Pesos adjusted by Unit of Purchasing Power (UVA, for its acronym in Spanish) at a 15% nominal annual rate; and (ii) 70% in US Dollars at a 10% nominal annual rate. The purchase price is guaranteed by the issuance of notes in favor of the Bank and pledges of the transferred shares.

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BANCO MACRO SA AND ITS SUBSIDIARIES

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.

Income generated in this sale was recorded in the item “other operating income”. The amounts receivable, in pesos and US dollars, are recorded in the item “Other financial assets”.

As of December 31, 2020 and 2019, 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 (see also notes 6 and 12).

In addition, sellers retained the usufruct (dividends) of the shares sold to be reported by Prisma Medios de Pago SA for the year ended December 31, 2018, which were collected on April 26, 2019, and have the possibility to execute a put for the non-sold shares of this transaction (49%) and the buyer has the obligation to buy them, on an specific term established on the agreement, according to specifics clauses. Besides, the proportion applicable to the buyer of the dividends to be reported for the following fiscal years –with the buyer’s commitment to voting in favor of the distribution of certain minimum percentages– will be used to create a guarantee trust to repay the deferred price amount through the concession by the buyer and Prisma Medios de Pago SA of a usufruct over the economic rights of the shares in favor of such trust.

The put option above mentioned, is recorded in “Derivatives financial instruments” and measured by valuations performed by independent experts (see also notes 11 and 12).

On February 22, 2021 the Bank collected cash dividends for an amount of 425,811 which 216,441 were applied to decrease the receivable generated by the financing granted to AI ZENITH (Netherlands) B.V, for the purchase of Prisma Medios de Pago SA´s shares.

22. PROVISIONS

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, 2020 and 2019 are as follow:

Item	Amounts at beginning of fiscal year				Decreases							12/31/2020
			Increases		Reversals		Charge off		Monetary effects
For administrative, disciplinary and criminal penalties		977								(259	)		718
Letters of credit, guarantees and other Commitments (1)		23,514		16,268				8,623		(7,959	)		23,200
Commercial claims in progress		1,142,840		200,844		8		349,776		(304,783	)		689,117
Labor lawsuits		241,424		107,345				52,998		(68,020	)		227,751
Pension funds - reimbursement		217,622		15,596				105,239		(39,128	)		88,851
Other		379,675		798,227				753,095		(143,927	)		280,880
Total provisions		2,006,052		1,138,280		8		1,269,731		(564,076	)		1,310,517

Item	Amounts at beginning of fiscal year				Decreases							12/31/2019
			Increases		Reversals		Charge off		Monetary effects
For administrative, disciplinary and criminal penalties		1,503								(526	)		977
Letters of credit, guarantees and other Commitments (1)		22,472		10,981						(9,939	)		23,514
Commercial claims in progress		1,196,640		423,531				19,742		(457,589	)		1,142,840
Labor lawsuits		230,566		179,678				61,518		(107,302	)		241,424
Pension funds – reimbursement		260,269		163,619		36,725		75,717		(93,824	)		217,622
Other		501,385		1,032,083				995,708		(158,085	)		379,675
Total provisions		2,212,835		1,809,892		36,725		1,152,685		(827,265	)		2,006,052

(1) These amounts correspond to the ECL calculated for contingent transactions mentioned in note 10.

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BANCO MACRO SA AND ITS SUBSIDIARIES

The expected terms to settle these obligations are as follows:

	12/31/2020						12/31/2019
	Within 12 months		Beyond 12 Months		12/31/2020
For administrative, disciplinary and criminal penalties		718				718		977
Letters of credits, guarantees and other Commitments (1)		23,200				23,200		23,514
Commercial claims in progress		434,658		254,459		689,117		1,142,840
Labor lawsuits		47,239		180,512		227,751		241,424
Pension funds - reimbursement		32,005		56,846		88,851		217,622
Other		250,179		30,701		280,880		379,675
	787,999		522,518		1,310,517		2,006,052

(1) These amounts correspond to the ECL calculated for contingent transactions are mentioned in note 10.

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.

23. EMPLOYEE BENEFITS PAYABLE

The table below presents the amounts of employee benefits payable as of December 31, 2020 and 2019:

Short-term employee benefits	12/31/2020		12/31/2019
Salaries, bonuses and payroll taxes payables		2,625,872		3,161,201
Vacation accrual		2,283,907		1,833,005
Total short-term employee benefits		4,909,779		4,994,206

The Bank has not long-term employee benefits or post-employment benefits as of December 31, 2020 and 2019.

24. OTHER FINANCIAL AND NON-FINANCIAL LIABILITIES

The breakdown of the other financial and non-financial liabilities account in the statement of financial position is as follows:

Other financial liabilities	12/31/2020		12/31/2019
Credit and debit card settlement - due to merchants		17,203,560		18,351,431
Amounts payable for other spot purchases pending settlement		15,506,806		3,477,137
Amounts payable for spot purchases of foreign currency pending settlement		8,449,971		31,488
Payment orders pending settlement foreign exchange		3,073,105		2,789,684
Collections and other transactions on account and behalf others		1,413,544		2,141,311
Finance leases liabilities (see note 13.1)		1,175,527		1,248,339
Amounts payable for spot purchases of government securities pending settlement		420,552		18,612
Other		1,972,822		2,123,834
		49,215,887		30,181,836

Other non-financial liabilities	12/31/2020		12/31/2019
Dividends payable (see note 50)		16,579,990
Salaries, bonuses and payroll taxes payables		4,909,779		4,994,206
Withholdings		4,136,489		3,139,511
Taxes payables		1,788,389		2,580,254
Miscellaneous payables		1,426,724		1,304,518
Fees payables		503,649		667,312
Retirement pension payment orders pending settlement		409,534		452,047
Other		602,387		638,670
		30,356,941		13,776,518

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25. ANALYSIS OF FINANCIAL ASSETS TO BE RECOVERED AND FINANCIAL LIABILITIES TO BE SETTLED

The following tables show the analysis of financial assets and liabilities the Bank expects to recover and settle as of December 31, 2020 and 2019:

12/31/2020	Without due date		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		Total up to 12 months		Over 12 months and up to 24 months		Over 24 months		Total over 12 months
Assets
Cash and deposits in banks		129,967,486
Debt securities at fair value through profit or loss		2,354		17,427,585		11,276,647		90,670		23,731,690		52,526,592		858,296		1,595,223		2,453,519
Derivative financial instruments						6,125						6,125				983,353		983,353
Repo transactions				39,421,705								39,421,705
Other financial assets		2,030,643		12,354,670		45,334		269,908				12,669,912				4,185,735		4,185,735
Loans and other financing		635,920		88,969,209		23,935,771		32,049,129		33,186,725		178,140,834		27,819,753		50,824,688		78,644,441
Other debt securities				133,258,646		2,792,253		17,532,000		32,632,409		186,215,308		20,302,997		2,600,628		22,903,625
Financial assets delivered as guarantee		13,596,610		695,748								695,748
Equity instruments at fair value through profit or loss		5,218,299
Total assets		151,451,312		292,127,563		38,056,130		49,941,707		89,550,824		469,676,224		48,981,046		60,189,627		109,170,673
Liabilities
Deposits		238,381,658		199,611,251		43,211,475		5,106,431		2,409,127		250,338,284		20,547		874		21,421
Derivative financial instruments				42		188						230
Repo transactions				618,572								618,572
Other financial liabilities				47,873,434		131,538		122,638		311,478		48,439,088		262,771		514,028		776,799
Financing received from the BCRA and other financial institutions				419,058		194,054		195,387		72,033		880,532		33,469		5,102		38,571
Issued corporate bonds				169,927				2,379,278				2,549,205		2,377,696				2,377,696
Subordinated corporate bonds								642,292				642,292				33,658,000		33,658,000
Total liabilities		238,381,658		248,692,284		43,537,255		8,446,026		2,792,638		303,468,203		2,694,483		34,178,004		36,872,487

12/31/2019	Without due date		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		Total up to 12 months		Over 12 months and up to 24 months		Over 24 months		Total over 12 months
Assets
Cash and deposits in banks		137,066,430
Debt securities at fair value through profit or loss				680,755		712,263		283,096		62,438		1,738,552		5,446,344		541,095		5,987,439
Derivative financial instruments				69,003								69,003				769,490		769,490
Repo transactions				1,481,096								1,481,096
Other financial assets		3,787,812		2,581,155		2,949		387,485				2,971,589				1,632,165		1,632,165
Loans and other financing		3,978,589		124,683,513		29,740,732		20,333,701		22,627,214		197,385,160		36,406,782		62,961,058		99,367,840
Other debt securities				63,462,778		4,497,743		4,922,940		13,620,806		86,504,267		355,003		969,675		1,324,678
Financial assets delivered as guarantee		13,064,394		1,466,345								1,466,345
Equity instruments at fair value through profit or loss		3,562,427
Total assets		161,459,652		194,424,645		34,953,687		25,927,222		36,310,458		291,616,012		42,208,129		66,873,483		109,081,612

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12/31/2019	Without due date		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		Total up to 12 months		Over 12 months and up to 24 months		Over 24 months		Total over 12 months
Liabilities
Deposits		194,334,201		123,518,528		34,293,022		4,374,131		1,276,135		163,461,816		56,294		14,131		70,425
Derivative instruments				399,076		464,440		183,040				1,046,556
Repo transactions				1,364,825								1,364,825
Other financial liabilities				28,681,380		129,844		140,734		221,818		29,173,776		425,976		582,084		1,008,060
Financing received from the BCRA and other financial institutions				1,398,972		1,111,838		185,384		107,985		2,804,179		200,761		52,511		253,272
Issued corporate bonds				257,208				83,306				340,514		3,313,662		3,867,644		7,181,306
Subordinated corporate bonds								481,479				481,479				32,616,561		32,616,561
Total liabilities		194,334,201		155,619,989		35,999,144		5,448,074		1,605,938		198,673,145		3,996,693		37,132,931		41,129,624

26. FOREIGN CURRENCY AMOUNTS

			12/31/2020								12/31/2019
	Total parent company and local branches		Total per currency
Items			US dollar		Euro		Real		Other		Total
ASSETS
Cash and deposits in banks		105,720,560		105,194,576		332,411		19,495		174,078		96,598,721
Debt securities at fair value through profit or loss		5,957		5,957								336,603
Derivative instruments		687,572		687,572								538,643
Other financial assets		4,977,237		4,977,237								5,105,215
Loans and other financing		23,343,858		23,343,858								53,059,132
To the non-financial government sector
Other financial institutions		21,234		21,234								827,986
From the non-financial private sector and foreign Residents		23,322,624		23,322,624								52,231,146
Other debt securities		5,890,302		5,890,302								1,178,318
Financial assets delivered as guarantee		1,822,376		1,816,203		6,173						3,937,454
Equity Instruments at fair value through profit or loss		11,627		11,627								14,458
TOTAL ASSETS		142,459,489		141,927,332		338,584		19,495		174,078		160,768,544
LIABILITIES
Deposits		77,100,334		77,100,275		59						108,479,516
Non-financial government sector		4,198,481		4,198,481								5,432,420
Financial sector		573,892		573,892								313,018
Non-financial private sector and foreign residents		72,327,961		72,327,902		59						102,734,078
Other financial liabilities		18,449,094		18,348,283		90,618				10,193		7,144,736
Financing from Central Bank and other financial Institutions		469,614		469,614								2,784,926
Subordinated corporate bonds		34,300,292		34,300,292								33,098,040
Other non-financial liabilities		20,313		20,313								33,981
TOTAL LIABILITIES		130,339,647		130,238,777		90,677				10,193		151,541,199

27. DISCLOSURES BY OPERATING SEGMENT

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.

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28. INCOME TAX

a) Inflation adjustment on income tax

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.

i) Such adjustment will be applicable in the fiscal year in which the variation of the IPC will be higher than 100% for the thirty-six months before the end of the tax period.

ii) Regarding to the first, second and third fiscal year after its effective date, this procedure will be applicable if the variation of the abovementioned index, calculated from the beginning until the end of each of those fiscal years exceeds 55%, 30% and 15% for the first, second and third fiscal year of application, respectively.

iii) The positive or negative inflation adjustment, as the case may be, corresponding to the first, second and third fiscal years beginning on January 1, 2018, shall be allocated one third in the fiscal year for which the adjustment is calculated and the remaining two thirds in equal parts in the following two immediate fiscal years.

iv) The positive or negative inflation adjustment, corresponding to the first and second fiscal years beginning on January 1, 2019, shall be allocated one sixth to the fiscal year in which the adjustment is determined and the remaining five sixth in the following immediate fiscal years.

v) For fiscal years beginning on January 1, 2021, 100% of the adjustment may be deducted in the year in which it will be determined.

As of December 31, 2020 and 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).

b) Income tax rate

The Law No. 27541 (see note 52) suspends, up to fiscal years beginning on January 1, 2021 included, the income tax rate reduction that had established the Law 27430, setting up for the suspended period a rate of 30%.

c) The main items of deferred income tax

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:

	12/31/2020		12/31/2019
Deferred tax assets
Loans and other financing		1,708,157		393,633
Provisions and employee benefits		591,113		529,485
Allowances for contingencies		365,174		594,761
Inflation adjustment (section d) of this note)		112,133		7,404,561
Leases		106,147		82,349
Other		161,767		407,933
Total deferred tax assets		3,044,491		9,412,722
Deferred tax liabilities
Property, plant and equipment and other non-financial assets		6,851,232		7,104,570
Intangible assets		1,377,624		1,320,956
Investments in other companies		1,283,901		889,262
Profit or loss for forward sale		511,718		317,513
Other		404,949		484,485
Total deferred tax liabilities		10,429,424		10,116,786
Net deferred tax liabilities		7,384,933		704,064

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In the consolidated financial statements, tax assets (current and deferred) of an entity of the Group shall not be offset with the tax liabilities (current and deferred) of other entity of the Group because they correspond to income tax applicable to different taxable subjects and also they are not legally entitled before the tax authority to pay or receive only one amount to settle the net position.

Changes in net deferred tax assets and liabilities as of December 31, 2020 and 2019 are summarized as follows:

	12/31/2020			12/31/2019
Net deferred tax liabilities at beginning of year		704,064			4,903,673
(Loss) / Profit for deferred taxes recognized in the statement of income		(6,680,869	)		4,252,350	(*)
Other tax effects					(52,741	)
Net deferred tax liabilities at fiscal year end		7,384,933			704,064

(*) Includes the effect as explained in points a) and d) of this note. The entire changes in the deferred income tax is recorded in the statement of income and there is not impact in the statement of other comprehensive income.

The income tax recognized in the consolidated statement of income and in the consolidated 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:

	12/31/2020		12/31/2019			12/31/2018
Current income tax expense (see section d) of this note)		4,401,927		17,920,438			14,994,896	(*)
Loss / (Profit) for deferred taxes recognized in the statement of income		6,680,869		(4,252,350	)		887,187
Other tax effects				52,741			90,972
Monetary effects		1,964,154		3,897,322			3,862,096
Income tax loss recorded in the statement of income		13,046,950		17,618,151			19,835,151
Income tax loss / (profit) recorded in other comprehensive income		128,007		198,128			(302,153	)
	13,174,957		17,816,279			19,532,998

(*) The current income tax expense for the fiscal year 2020 includes the effects for the criterion adopted as described in point d) of this note.

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:

	12/31/2020			12/31/2019			12/31/2018
Accounting Income before tax on continuing operations		39,201,644			45,823,464			18,335,432
Applicable income tax rate		30	%		30	%		30	%
Income tax on income carrying amount		11,760,493			13,747,039			5,500,630
Net permanent differences and other tax effects		(8,117,904	)		(9,069,732	)		297,930
Monetary effects		9,404,361			12,940,844			14,036,591
Total income tax		13,046,950			17,618,151			19,835,151

As of December 31, 2020, 2019 and 2018, the effective income tax rate is 33.3%, 38.4% and 108.2%, respectively.

d) 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, on May 26, 2020, the Bank filed with the Administración Federal de Ingresos Públicos (AFIP, for its acronym in Spanish) 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 Banco Macro SA for fiscal year 2019 amounted to 7,002,124 (not restated). The same criterion has been applied to determine the annual provision for 2020, which generated an accrued income tax for Banco Macro SA for such fiscal year that amounted to 10,230,500 (not restated).

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In addition, on October 24, 2019 Banco Macro SA filed to AFIP-DGI two requests for the recovery of payments established by the first paragraph of section 81 Law 11683, in order to obtain the return of the amounts of 4,782,766 and 5,015,451 (not restated), paid to the tax authority as income tax for the fiscal years 2013 to 2017 and 2018, respectively, due to the impossibility to apply the inflation adjustment method established by the Income Tax Law (before the amendments include by Laws 27430 and 27468, for the fiscal years 2013 to 2017, and as per 2019 and amendments, for the fiscal year 2018), plus the related compensatory interest (files SIGEA Nº 19144-14224/2019 and 19144-14222/2019). As the regulatory authority has not resolved the abovementioned claims, on August 7, 2020 the Bank filed, under the terms of the second paragraph of section 81 Law 11683, the requests for the recovery of payment to the Federal Civil and Commercial Court of Appeal which are in process at Court Nº 8 and 2, respectively (Files 11285/2020 and 11296/2020).

29. INTEREST INCOME

Description	12/31/2020		12/31/2019		12/31/2018
Interest and adjustment for the application of the effective interest rate of financial assets measured at amortized cost
For cash and bank deposits		128,169		354,796		58,114
For government securities		6,429,385		9,805,996		1,824,372
For debt securities		1,607,980		1,942,811		473,775
For loans and other financing
Financial sector		1,012,071		2,821,732		2,991,408
Non-financial public sector		2,953,253		1,840,235		2,285,366
Non-financial private sector
Overdrafts		10,812,954		21,176,144		13,705,709
Documents		4,758,585		7,594,077		8,394,619
Mortgage loans		8,074,017		11,031,618		10,454,451
Pledge loans		476,023		855,499		1,503,884
Personal loans		32,690,320		40,829,605		52,942,020
Credit cards		11,510,688		17,978,756		17,776,669
Leases		57,036		247,431		413,127
Other		13,213,833		7,164,630		9,160,791
For repo transactions
Central Bank of Argentina		6,971,713		552,927		67,162
Other financial institutions		95,676		3,919,284		874,980
Subtotal Interest and adjustment for the application of the effective interest rate of financial assets measured at amortized cost		100,791,703		128,115,541		122,926,447
Interest and adjustment for the application of the effective interest rate of financial assets measured at fair value through OCI
From debt government securities		56,288,509		78,228,180		40,733,953
Subtotal Interest and adjustment for the application of the effective interest rate of financial assets measured at fair value through OCI		56,288,509		78,228,180		40,733,953
		157,080,212		206,343,721		163,660,400

30. INTEREST EXPENSE

Description	12/31/2020		12/31/2019		12/31/2018
For deposits
Non-financial private sector
Checking accounts		1,975,888		537,004		1,395,176
Saving accounts		654,139		896,495		863,077
Time deposits and investments accounts		53,900,325		79,268,075		54,175,946
For Financing received from Central Bank of Argentina and other financial institutions		100,834		359,809		312,120
For repo transactions
Other financial institutions		195,747		458,103		457,876
For other financial liabilities		61,339		254,710		121,208
Issued corporate bonds		1,547,872		3,250,457		3,795,894
For subordinated corporate bonds		2,397,775		2,319,007		2,083,761
		60,833,919		87,343,660		63,205,058

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31. COMMISSIONS INCOME

Description	12/31/2020		12/31/2019		12/31/2018
Performance obligations satisfied at a point in time
Commissions related to obligations		12,993,348		15,155,762		17,940,508
Commissions related to credit cards		8,410,516		8,075,227		8,885,346
Commissions related to insurance		1,601,339		1,591,978		1,766,846
Commissions related to securities value		544,485		371,863		218,240
Commissions related to trading and foreign exchange transactions		536,763		620,678		567,002
Commissions related to loans and other financing		183,726		217,173		185,144
Commissions related to financial guarantees granted		1,159		5,408		857
Performance obligations satisfied over certain time period
Commissions related to credit cards		427,955		361,896		320,505
Commissions related to trading and foreign exchange transactions		41,900		46,232		41,922
Commissions related to obligations		843		3,873		11,491
Commissions related to loans and other financing		732		14,562		11,986
Commissions related to financial guarantees granted		1		3,027		2,022
		24,742,767		26,467,679		29,951,869

32. COMMISSIONS EXPENSE

Description	12/31/2020		12/31/2019		12/31/2018
Commissions related to debt securities						606
Commissions related to trading and foreign exchange transactions		117,519		209,142		102,926
Commissions paid ATM exchange		1,263,086		1,057,785		818,625
Checkbooks commissions and compensating cameras		404,450		453,612		449,593
Commissions credit cards and foreign trade		262,237		471,253		575,999
		2,047,292		2,191,792		1,947,749

33. NET GAIN FROM MEASUREMENT OF FINANCIAL INSTRUMENTS AT FAIR VALUE

Description	12/31/2020		12/31/2019			12/31/2018
Gain from government securities		10,076,885		2,570,385			1,145,974
Gain from private securities		847,819		1,133,530			682,391
Gain from derivative financial instruments
Forward transactions		75,950		2,051,535			522,385
Put options		417,029		769,490
Gain from other financial assets		2,658		246,356			524,281
Gain from equity instruments at fair value through profit or loss		2,523,585		4,530,493			27,976
Gain / (Loss) from sales or derecognition of financial assets at fair value		34,768		(502,031	)		(261,178	)
		13,978,694		10,799,758			2,641,829

34. DIFFERENCES IN QUOTED PRICES OF GOLD AND FOREIGN CURRENCY

Description	12/31/2020		12/31/2019			12/31/2018
Translation of foreign currency assets and liabilities into pesos		3,277,757		(193,842	)		(7,014,412	)
Income from foreign currency exchange		951,933		4,955,089			3,348,883
		4,229,690		4,761,247			(3,665,529	)

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35. OTHER OPERATING INCOME

Description	12/31/2020		12/31/2019		12/31/2018
Services		2,873,053		2,740,048		3,371,630
Adjustments and interest from other receivables		722,473		855,246		552,913
Derecognition or substantial modification of financial liabilities		228,983		556,936		1,473,234
Adjustments from other receivables with CER clauses		176,133		216,298
Sale of property, plant and equipment		7,767				79,472
Sale of non-current assets held for sale (1)				4,490,457
Initial recognition of loans				163,172		165,547
Sale of investment property and other non-financial assets						102,627
Other		1,361,353		1,428,841		1,632,921
		5,369,762		10,450,998		7,378,344

(1) Mainly related to the sale of Prisma Medios de Pago SA, which was classified as non-current assets held for sale when it was sold. See also note 21.

36. EMPLOYEE BENEFITS

Description	12/31/2020		12/31/2019		12/31/2018
Remunerations		19,677,575		19,957,891		19,723,875
Payroll taxes		4,412,779		5,858,301		3,838,541
Compensations and bonuses to employees		1,950,014		2,381,904		1,913,289
Employee services		558,234		667,246		653,352
		26,598,602		28,865,342		26,129,057

37. ADMINISTRATIVE EXPENSES

Description	12/31/2020		12/31/2019		12/31/2018
Maintenance, conservation and repair expenses		2,270,241		2,335,918		2,292,878
Armored truck, documentation and events		2,043,964		2,306,997		2,123,678
Taxes		1,854,458		2,063,455		2,323,989
Fees to directors and syndics		1,623,253		2,820,293		1,821,591
Electricity and communications		1,529,052		1,614,474		1,490,093
Security services		1,414,620		1,612,060		1,812,195
Software		1,067,755		1,112,284		1,057,475
Other fees		888,329		1,377,867		1,420,601
Advertising and publicity		431,890		643,902		759,994
Insurance		170,619		165,379		156,284
Representation, travel and transportation expenses		128,300		269,521		292,574
Stationery and office supplies		91,311		139,146		149,333
Leases		90,887		306,688		833,776
Hired administrative services		3,266		5,921		46,518
Other		931,926		653,116		745,140
		14,539,871		17,427,021		17,326,119

38. OTHER OPERATING EXPENSES

Description	12/31/2020		12/31/2019		12/31/2018
Turnover tax		11,255,405		13,929,404		14,737,685
For credit cards		4,553,624		4,990,875		5,039,235
Charges for other provisions		1,129,606		1,949,146		2,713,343

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Description (contd.)	12/31/2020		12/31/2019		12/31/2018
Deposit guarantee fund contributions		739,624		784,007		775,917
Taxes		539,793		1,673,874		4,214
Interest on lease liabilities (see note 13.1)		180,785		166,048
Donations		168,550		380,577		222,916
Loss from sale or impairment of investments in properties and non-financial assets		132,382		155,959
Insurance claims		63,090		81,133		138,032
Cost of onerous contracts		7,366
Modification of financial assets (see note 20)				3,902,110
Loss from sale or impairment of property, plant and equipment				61,890
Other		1,706,711		2,013,376		2,254,637
		20,476,936		30,088,399		25,885,979

39. ADDITIONAL DISCLOSURES IN THE STATEMENT OF CASH FLOWS

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:

• Operating activities: the normal revenue-producing activities of the Bank as well as other activities that cannot qualify as investing or financing activities.

• Investing activities: the acquisition, sale and disposal by other means of long-term assets and other investments not included in cash and cash equivalents.

• Financing activities: activities that result in changes in the size and composition of the shareholders’ equity and liabilities of the Bank and that are not part of the operating or investing activities.

The table below presents the reconciliation between the item “Cash and cash equivalents” in the consolidated statement of cash flows and the relevant accounting items of the statement of financial position:

	12/31/2020		12/31/2019		12/31/2018
Cash and deposits in banks		129,967,486		137,066,430		156,581,272
Other debt securities		133,216,534		63,184,467		116,598,543
Loans and other financing		420,725		407,707		395,908
		263,604,745		200,658,604		273,575,723

The following table shows additional information on operational cash flows interest:

	12/31/2020			12/31/2019			12/31/2018
Interest paid		(37,603,924	)		(98,212,186	)		(49,046,442	)
Interest collected		154,361,748			194,953,457			155,601,438

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The following table shows further information of changes in liabilities arising from financing activities for the year ended December 31, 2020 (lease liabilities changes are disclosed in note 13):

	Financing received from the Central Bank of Argentina and other financial entities			Issued Corporate Bonds			Subordinated Corporate Bonds
Opening balance		3,057,451			7,521,820			33,098,040
Cash flow items
Proceeds		76
Payments		(2,048,327	)		(2,114,046	)		(2,246,089	)
Non-cash flow items
Movement in accrued interest		55,388			1,547,872			2,397,775
Derecognition or substantial modification of financial liabilities					(209,458	)		29,427
Difference in quoted prices of foreign currency		308,697						11,435,578
Monetary effects		(454,182	)		(1,819,287	)		(10,414,439	)
Ending balance		919,103			4,926,901			34,300,292

40. CAPITAL STOCK

The Bank’s subscribed and paid-in capital as of December 31, 2020, amounted to 639,413. Since January 1, 2019, the Bank’s capital stock has changed as follows:

SHARES					CAPITAL STOCK
Class	Number of shares			Votes per share	Issued and outstanding			In treasury			Paid-in
Registered Class A shares of common stock		11,235,670		5		11,236						11,236
Registered Class B shares of common stock		658,427,351		1		629,479			28,948	(1)		658,427
Total as of January1, 2019		669,663,021				640,715			28,948			669,663
Own shares acquired (1)						(1,317	)		1,317
Capital stock decrease (2)		(30,265,275	)						(30,265	)		(30,265	)
Capital stock increase (3)		15,662				15						15
Total 2019		639,413,408				639,413						639,413
As of December 31, 2020 and 2019:
Registered Class A shares of common stock		11,235,670		5		11,236						11,236
Registered Class B shares of common stock		628,177,738		1		628,177						628,177
Total 2020 and 2019		639,413,408				639,413						639,413

(1) Related to the repurchase of the Bank’s own shares under the programs established by the Bank’s Board of Directors on August 8, 2018, October 17, 2018 and December 20, 2018 with the purpose of reducing share price fluctuations, minimizing possible temporary imbalances between market supply and demand.

The Program dated on August 8, 2018, established, that the maximum amount of the investment amounted to 5,000,000 and the maximum numbers of shares to be acquired were equivalent to 5% of the capital stock. At the end of this program the Bank had acquired 21,463,005 common, registered, Class B shares with a face value of Ps. 1 each one entitled with one vote for an amount of 7,747,151 (nominal value: 3,113,925).

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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 2,206,503 (nominal value: 995,786).

The Program dated on December 20, 2018, established that the maximum amount of the investment amounted to 900,000 and the maximum numbers of shares to be acquired were equivalent to 1% of the capital stock. At the end of this program the Bank had acquired 2,028,251 common, registered, Class B shares with a face value of Ps. 1 each one entitled with one vote for an amount of 624,507 (nominal value: 298,196) of which, as of December 31, 2018 were settled 711,386 common shares for an amount of 205,979 (nominal value: 98,353), and in January 2019 were settled 1,316,865 common shares for an amount of 418,528 (nominal value: 199,843).

(2) Related to capital stock decrease approved by the Shareholders’ Meeting of Banco Macro SA held on April 30, 2019 for an amount of 30,265, equivalent to 30,265,275 common, registered, Class B shares with a face value of Ps. 1 each one entitled with one vote, equivalent to all the own shares acquired as mentioned in section (1). On August 14, 2019 the Bank was notified that the capital stock decrease was registered at the Public Registry of Commerce.

(3) Related to the capital stock increase through the issuance of 15,662 common, registered, Class B shares with a face value of Ps. 1 each one entitled with one vote, approved by Shareholders’ Meeting mentioned in (2), due to the merger effects between Banco Macro SA and Banco del Tucumán SA (see additionally note 2.4). On October 29, 2019 the Bank was notified that the capital stock increase was registered at the Public Registry of Commerce.

41. EARNINGS / (LOSS) PER SHARE. DIVIDENDS

Basic earnings / (loss) per share were calculated by dividing net profit attributable to common shareholders of the Bank by the weighted average number of common shares outstanding during the fiscal year.

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 fiscal year 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 fiscal year. Note 40 provides a breakdown of the changes in the Bank’s capital stock.

The following table reflects the income / (loss) and shares data used in the basic earnings / (loss) per share:

	12/31/2020		12/31/2019		12/31/2018
Net Income / (Loss) attributable to controlling interest		26,154,332		28,205,071		(1,500,074	)
PLUS: Potential diluted earnings per common share
Net Income /(Loss) attributable to controlling interest adjusted as per diluted earnings		26,154,332		28,205,071		(1,500,074	)
Weighted average of outstanding common shares for the fiscal year		639,413		639,402		661,141
Weighted average of outstanding common shares for the fiscal year adjusted as per dilution effect		639,413		639,402		661,141
Basic earnings / (loss) per share		40.9037		44.1116		(2.2689	)

Dividends paid and proposed

Cash dividends paid during the fiscal years 2019 and 2018 to the shareholders of the Bank amounted to 6,393,978 (not restated) and 3,348,315 (not restated), respectively, which considering the number of shares outstanding to the date of effective payment that represents 10 and 5 pesos per share (not restated), respectively.

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The Shareholders’ Meeting held on April 30, 2020, resolved to distribute cash dividends for 12,788,268 (not restated), which considering the number of shares outstanding at the date of such resolution, represented 20 pesos per share (not restated). According to Communiqué “A” 7035, the Central Bank extended the suspension of payment on earning distributions up to December 31, 2020. Afterwards, through Communiqué “A” 7181, such suspension was extended up to June 30, 2021. As a consequence, the Shareholders’ Meeting held on October 21, 2020, resolved to distribute a supplementary cash dividend which will be calculated by multiplying the dividend of Ps. 20 per share already approved by the Shareholders’ Meeting held on April, 30 2020, by the coefficient obtained after dividing the most recent CPI published by the INDEC and informed by such entity to the date on which the BCRA issues its authorization for the payment, by the CPI for the month of April 2020. The aggregate amount to be distributed for this purpose may not exceed the amount of 3,791,722 (not restated). For further information see note 50.

Finally, the Board of Directors’ meeting held on March 17, 2021, resolved to submit for discussion by the Shareholders’ Meeting the motion to distribute the amount of 15.64 pesos per share, which shall mean a total amount to be distributed of 10,000,426 subject to prior authorization of the BCRA.

42. DEPOSIT GUARANTEE INSURANCE

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 8.4180% interest in the capital stock of Sedesa according to the percentages disclosed by BCRA Communiqué “B” 12152 on April 14, 2021.

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 1,500 which must meet the requirements provided for in Presidential Decree 540/1995 and other requirements that the regulatory authority may from time to time determine. On the other hand, the BCRA provided for the exclusion of the guarantee system, among others, of any deposits made by other financial entities, deposits made by persons related to the Bank and securities deposits.

43. RESTRICTED ASSETS

As of December 31, 2020 and 2019, the following Bank’s assets are restricted:

Item	12/31/2020		12/31/2019
Debt securities at fair value through profit or loss and other debt securities
•  Discount bonds in pesos regulated by Argentine legislation, maturing 2033 used as security in favor of Sedesa (1).		146,459		131,191
•  Federal Government Treasury Bonds in pesos adjusted by CER 1%, maturing 2021 as of December 31, 2020 and Discount bonds in pesos regulated by Argentine legislation, maturing 2033 as of December 31, 2019, securing the sectorial Credit Program of the Province of San Juan. Production investment financing fund.		61,180		205,446
•  Federal Government Treasury Bonds in pesos adjusted by CER 1%, maturing 2021 as of December 31, 2020 and Discount bonds in pesos regulated by Argentine legislation, maturing 2033, as of securing the regional economies Competitiveness Program – IDB loan No. 3174/OC-AR.		39,368		159,736
•  Discount bonds in pesos regulated by Argentine legislation, maturing 2033 for minimum statutory guarantee account required for Agents to act in the new categories contemplated under Resolution No. 622/2013, as amended, of the CNV		32,926		29,493
•  National Treasury bills at discount in pesos maturity 01-29-2021, securing the transaction of MAE Futuro Garantizado CPC2		19,600

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Item (contd.)	12/31/2020		12/31/2019
•  Federal Government Treasury Bonds in pesos adjusted by CER 1%, maturing 2021 for the contribution to the Guarantee Fund II in BYMA according to section 45 Law 26831 and supplementary regulations established by CNV standards (NT 2013, as amended)		3,192
•  Discount bonds in pesos regulated by Argentine legislation, maturing 2033 securing a IDB loan of Province of San Juan No. 2763/OC-AR.				4,676
Subtotal debt securities at fair value through profit or loss and other debt securities		302,725		530,542
Other financial assets
•  Mutual fund shares for minimum statutory guarantee account required for Agents to act in the new categories contemplated under Resolution No. 622/13, as amended, of the CNV		103,252		91,623
•  Sundry debtors – Other		11,459		4,695
•  Sundry debtors – attachment within the scope of the claim filed by the DGR against the City of Buenos Aires for differences on turnover tax		827		1,126
Subtotal Other financial assets		115,538		97,444
Loans and other financing – non-financial private sector and foreign residents
•  Interests derived from contributions made as contributing partner (2)		260,000
Subtotal loans and other financing		260,000
Financial assets delivered as a guarantee
•  Special guarantee checking accounts opened in the BCRA for transactions related to the electronic clearing houses and similar entities.		12,040,746		10,127,017
•  Guarantee deposits related to credit and debit card transactions		1,317,869		1,098,129
•  For securities forward contracts		695,748		1,466,345
•  Other guarantee deposits		237,995		1,839,248
Subtotal Financial assets delivered as a guarantee		14,292,358		14,530,739
Other non-financial assets
•  Real property related to a call option sold		216,420		436,648
Subtotal Other non-financial assets		216,420		436,648
Total		15,187,041		15,595,373

(1) As replacement for the preferred shares of former Nuevo Banco Bisel SA to secure to Sedesa the price payment and the fulfillment of all the obligations assumed in the purchase and sale agreement dated May 28, 2007, maturing on August 11, 2021.

(2) As of December 31, 2020 it is related to the risk fund Fintech SGR and Garantizar SGR. In order to keep tax benefits related to these contributions, they must be maintained between two and three years from the date they were made.

Moreover, on November 9, 2020 the Bank paid 12,638 for a call option which gives right to increase up to 24.99% the Bank’s interest in the capital stock of Fintech SGR.

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44. TRUST ACTIVITIES

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:

44.1. Financial trusts for investment purposes

Debt securities include mainly prepayments towards the placement price of provisional trust securities of the financial trusts under public and private offerings (Red Surcos and Secubono). The assets managed for these trusts are mainly related to securitizations of consumer loans. Trust securities are placed once the public offering is authorized by the CNV. Upon expiry of the placement period, once all trust securities have been placed on the market, the Bank recovers the disbursements made, plus an agreed-upon compensation. If after making the best efforts, such trust securities cannot be placed, the Bank will retain the definitive trust securities.

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 (Secubono) and certificates of participation (Arfintech).    

As of December 31, 2020 and 2019, debt securities and certificates of participation in financial trusts for investment purposes, total 568,961 and 2,637,016, respectively.

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.

44.2. Trusts created using financial assets transferred by the Bank (securitization)

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, 2020 and 2019, considering the latest available accounting information as of the date of these consolidated financial statements, the assets managed through Macro Fiducia SA (subsidiary) of this type of trusts amounted to 6,641 and 12,462, respectively.

44.3. Trusts guaranteeing loans granted by the Bank

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 non-compliance.

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 non-compliance or delays by debtor in the obligations assumed with the beneficiary, the trustee shall not execute the guarantee and all excess amounts as to the value of the obligations are reimbursed by the trustee to the debtor.

As of December 31, 2020 and 2019, considering the latest available accounting information as of the date of these consolidated financial statements, the assets managed by the Bank amounted to 2,061,643 and 1,397,282, respectively.

44.4. Trusts in which the Bank acts as trustee (management)

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.

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Trusts usually manage funds derived from the activities performed by trustors, for the following main purposes:

• Guaranteeing, in favor of the beneficiary the existence of the resources required to finance and/or pay certain obligations, such as the payment of amortization installments regarding work or service certificates, and the payment of invoices and fees stipulated in the related agreements.

• Promoting the production development of the private economic sector at a provincial level.

• Being a party to public work concession agreements granting road exploitation, management, keeping and maintenance.

As of December 31, 2020 and 2019, considering the latest available accounting information as of these consolidated financial statements, the assets managed by the Bank amounted to 9,286,164 and 8,609,425, respectively.

45. MUTUAL FUNDS DEPOSITARY FUNCTION

As of December 31, 2020 Banco Macro SA, in its capacity as depositary company, holds in custody the shares in mutual funds subscribed by third parties and assets from the following mutual funds:

Fund	Number of shares		Equity
Pionero Acciones		9,756,071		327,566
Pionero Argentina Bicentenario		343,298,122		836,673
Pionero Empresas FCI Abierto Pymes		261,731,584		1,475,402
Pionero FF		38,872,932		621,204
Pionero Gestión		996,810,463		1,081,486
Pionero Pesos		710,991,706		6,230,480
Pionero Pesos Plus		5,815,110,750		30,594,852
Pionero Renta		16,676,404		838,913
Pionero Renta Ahorro		97,409,727		1,882,603
Pionero Renta Ahorro Plus		961,427,834		4,326,701
Pionero Renta Estratégico		751,241,010		2,065,990
Pionero Renta Mixta I		20,336,414		92,278
Pionero Ahorro Dólares		3,624,907		286,176
Pionero Renta Fija Dólares		3,108,507		191,867
Argenfunds Abierto Pymes		2,273,411,547		4,638,247
Argenfunds Ahorro Pesos		65,544,394		605,472
Argenfunds Liquidez		5,556,185,412		8,941,739
Argenfunds Renta Argentina		8,911,464		33,916
Argenfunds Renta Balanceada		257,312,382		1,046,268
Argenfunds Renta Dinámica		8,522		25
Argenfunds Renta Fija		198,066,516		3,045,372
Argenfunds Renta Flexible		440,119,193		1,418,107
Argenfunds Renta Global		8,983,257		33,192
Argenfunds Renta Mixta		43,881		28
Argenfunds Renta Pesos		199,849,796		1,334,857
Argenfunds Renta Total		833,924,833		860,190
Argenfunds Renta Variable		276,458,840		5,261
Argenfunds Retorno Absoluto		574,667,044		1,088,368
Argenfunds Renta Capital		23,013,791		1,991,021
Argenfunds Renta Crecimiento		23,949,324		1,911,422
Argenfunds Renta Mixta Plus		353,432		23,928

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46. ACCOUNTING ITEMS THAT IDENTIFY THE COMPLIANCE WITH MINIMUM CASH REQUIREMENTS

The items recognized by the Bank to constitute the minimum cash requirement effective for December 2020 are listed below, indicating the amounts as of month-end of the related items:

Description	Banco Macro SA
Cash and deposits in banks
Amounts in BCRA accounts		49,994,923
Other debt securities
Liquidity letters of Central Bank of Argentina		47,216,670
Government securities computable for the minimum cash requirements		17,725,006
Financial assets delivered as guarantee
Special guarantee accounts with the BCRA		12,040,746
Total		126,977,345

47. CORPORATE BONDS ISSUANCE

The corporate bond liabilities recorded by Banco Macro SA in these consolidated financial statements amount to:

Corporate Bonds	Original value			Residual face value as of 12/31/2020		12/31/2020		12/31/2019
Subordinated Resettable – Class A		USD400,000,000	(a.1)		USD400,000,000		34,300,292		33,098,040
Non-subordinated – Class B		Ps.4,620,570,000	(a.2)		Ps.2,889,191,000		2,430,823		3,950,950
Non-subordinated – Class C		Ps.3,207,500,000	(a.3)		Ps.2,413,000,000		2,496,078		3,570,870
Total							39,227,193		40,619,860

a.1) On April 26, 2016, the general regular shareholders’ meeting approved the creation of a Global Program for the Issuance of Medium-Term Debt Securities, in accordance with the provisions of Law No. 23576, as amended and further applicable regulations, up to a maximum amount outstanding at any time during the term of the program of USD 1,000,000,000 (one billion US dollars), or an equal amount in other currencies, under which it is possible to issue simple corporate bonds, not convertible into shares in one or more classes. Also, on April 28, 2017, the General and Special Shareholder’ Meeting resolved to extend the maximum amount of the abovementioned Global Program up to USD 1,500,000,000 (one thousand five hundred millions US dollars).

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.

a.2) On May 8, 2017, under the Global Program mentioned on item a.1), Banco Macro SA issued non-subordinated simple corporate bonds Class B not convertible into shares, at a fixed rate of 17.50%, fully amortizable upon maturity (May 8, 2022) for a face value of pesos 4,620,570,000 equivalent to USD 300,000,000 (three hundred million US dollars), under the terms and conditions set forth in the price supplement dated April 21, 2017. Interest is paid semiannually on November 8 and May 8 of every year, beginning on November 8, 2017.

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.

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 pesos 501,861,000, respectively, equivalent to the amount of purchases made as those dates.

As of the date of issuance of these consolidated financial statements the Bank made purchases of this issuance for a face value of pesos 511,495,000, with a remaining outstanding face value of pesos 2,377,696,000.

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a.3) On April 9, 2018, under the Global Program mention on item a.1), Banco Macro SA issued non-subordinated simple corporate bonds Class C, for a face value of pesos 3,207,500,000, at an annual variable rate equivalent to the sum of (i) Badlar private rate applicable for the related accrued period; plus (ii) applicable margin of 3.5% p.a., fully amortizable upon maturity (April 9, 2021). Interest will be paid quarterly for the periods due on July 9, October 9, January 9 and April 9 of every year, beginning on July 9, 2018.

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.

In addition, on October 16, 2019 and January 29, 2020, the Board of Directors decided to pay off these corporate bonds for a face value of pesos 750,500,000 and pesos 44,000,000, respectively.

As of the date of issuance of these consolidated financial statements, the corporate bonds were paid, the maturity and effective payment date was April 9, 2021. On such date, the Bank has cancelled the total principal and interest.

The Shareholder´s Meeting held on April 27, 2018, resolved to increase the maximum amount of the Global Program for the Issuance of Corporate Bonds for a face value from USD 1,500,000,000 to USD 2,500,000,000 or an equal amount in other currencies, as determinated by the Board of Directors in due time. During the meeting held on April 10, 2019 the Board of Directors decided to use the maximum amount of the Global Program for the Issuance of Corporate Bonds approved on April 27, 2018, i.e., U$S 1,000,000,000 (one billon US dollars) or an equal amount in other currencies or value units, for the issuance of Corporate Bonds under CNV frequent issuers system.

48. OFF BALANCE SHEET TRANSACTIONS

In addition to note 10, the Bank maintains different off balance sheet transactions, pursuant to the BCRA standards. Below are the amounts of the main off Balance sheet transactions as of December 31, 2020 and 2019:

Item	12/31/2020		12/31/2019
Custody of government and private securities and other assets held by third parties		184,427,915		110,822,511
Preferred and other collaterals received from customers (1)		84,474,882		75,613,250
Outstanding checks not yet paid		7,536,159		10,919,866
Checks already deposited and pending clearance		3,818,869		4,107,423
Written-off credits		4,349,903		4,127,716

(1) Related to collaterals used to secure loans transactions and other financing, under the applicable rules in force in this matter.

49. TAX AND OTHER CLAIMS

49.1. Tax claims

The AFIP and tax authorities of the relevant jurisdictions have reviewed the tax returns filed by the Bank related to income tax, minimum presumed income tax and other taxes (mainly turnover tax). As a result, there are claims pending at court and/or administrative levels, either subject to discussion or appeal. The most significant claims are summarized below:

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 irregular six-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).

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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 above-mentioned proceedings other than those disclosed in these consolidated financial statements.

49.2. Other claims

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.

Moreover, the Bank is also subject to three class actions initiated by consumers’ associations for the same purpose, all of them currently pending with Commercial Court No. 7 in and for the City of Buenos Aires, Clerk’s Office No. 13: a) Adecua v, Banco Macro on ordinary proceedings, File No. 20495/2007; b) Damnificados Financieros Asociación Civil Para Su Defensa et al v, Banco Macro on summary proceedings, File No. 37729/2007; c) Unión de Usuarios y Consumidores v. Nuevo Banco Bisel on ordinary proceedings, File No. 44704/2008. Regarding the actions mentioned in a) and b), on February 1, 2021, an agreement was reached and filed for court-approval effects. On such agreement, the Bank assumed to reimburse to its clients and former clients under the agreement, the 75% (seventy five percent) of the difference between the premium collected for life insurance over the debt balance of several products, and the amount that results for applying 2.45 per thousand on the assured amounts for the period between May 2, 2004, and July 31, 2011, both included, plus interest at the current rate of Banco de la Nación Argentina until the final approval of the agreement. On March 16, 2021, the agreement was approved by the Court. On April 8, 2021, the Bank completed the first stage of the approved agreement, while the rest of it will be fulfilled during the next 8 months.

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, in other case the Bank was challenged 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 was 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 plus VAT and interest. Although this court decision was appealed, the Entity understands that there is a low probability that a favorable ruling shall be obtained from the trial court, as the Entity became aware of that the Court of Appeals approved related actions against other two banks, an agreement was reached and filed for court-approval 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 Nación Argentina. On August 26, 2020, the agreement was approved by the judge. On October 28, 2020, the first stage of the agreement was fulfilled while the second stage will be fulfilled in the next 12 months.

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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.

50. RESTRICTION ON DIVIDENDS DISTRIBUTION

a) According to BCRA regulations, 20% of Banco Macro SA income (calculated in accordance with BCRA standards), without including other comprehensive income, for the year plus/less prior-year adjustments and less accumulated losses as for the prior year-end, if any, should be allocated to the legal retained earnings.

In accordance with the BCRA accounting framework, the IAS 29 is applied since fiscal year 2020. Considering that, for regulatory purposes, there is no statutory computable earnings to allocate legal retain earnings. Therefore, the upcoming Shareholders’ Meeting shall not increase the legal earnings.

b) Through BCRA rules related to Earnings distribution of financial entities, the BCRA establishes the general procedure to distribute earnings. According to that procedure, earnings may only be distributed if certain circumstances are met, such as no records of financial assistance from the BCRA due to illiquidity or shortages in payments of minimum capital or minimum cash requirement deficiencies and not being subject to the provisions of sections 34 and 35 bis of the Financial Entities Law (sections dealing with tax payment and restructuring agreements and reorganization of the Bank), among other conditions listed in the abovementioned communiqué that must be met. In addition, as established by BCRA Communiqué “A” 6768, the earnings distribution approved by the Shareholders’ Meeting of the Bank could only be formalized once the Superintendence of Financial and Foreign Exchange Institutions assesses the potential effects of the application of IFRS according to Communiqué “A” 6430 (section 5.5 IFRS 9 “Impairment”), the reduction of the lower loss allowances and a higher computable equity (RPC, for its acronym in Spanish) as a consequence of the application of Communiqué “A” 6946 section 2, as amended, for payroll financing to microenterprises and the restatement of financial statements according to Communiqué “A” 6651 in accordance with accounting standards established by Communiqué “A” 6847 and the guidelines to apply the restatement procedures established by Communiqué “A” 6849.

In addition, profits may only be distributed to the extent that the financial institution has positive results, after deducting, on a non-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 Superintendence 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 was created a special reserve, and its balance as of December 31, 2020 was 7,279,036 (nominal value: 3,475,669).

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.

The Bank must verify that, after completion of the earning 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).

As of December 31, 2020, the related adjustments (not restated) to be made on unappropriated retained earnings are as follows:

i. Debit amounts of the accounting items recognized in “Other comprehensive income” amounted to 5,691,362.

ii. The positive net difference between the amortized cost and the fair value amounted to 35.

iii. Profit originated for the first-time application of IFRS, included as a special reserve 7,279,036.

In addition, through Communiqué “A” 7181, the BCRA established the suspension of earning distribution of financial entities up to June 30, 2021.

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c) Pursuant to CNV General Resolution No. 622, the Shareholders’ Meeting in charge of analyzing the annual financial statements will be required to decide on the application of the Bank’s retained earnings, such as the actual distribution of dividends, the capitalization thereof through the delivery of bonus shares, the creation of earnings reserves additional to the Legal earnings retained or a combination of any of these applications.

In compliance with the abovementioned the General regular Shareholders’ Meeting held on April 30, 2020, approved cash dividends distribution (the Dividend) for 12,788,268 (not restated), that represents 20 pesos per action at the General regular Shareholders date, and delegated into the Board of Directors to establish the effective date that the cash dividends will be available to the shareholders, according to their holdings. The abovementioned cash dividends distribution is pending resolution for the BCRA, considering, in addition, what was established by Communiqué “A” 7181 abovementioned.

On October 21, 2020, the Extraordinary Shareholders Meeting was celebrated and it resolved to approve a supplementary cash dividend (the Supplementary Dividend) in order to increase the dividend amount decided by General regular Shareholders’ Meeting held on April 30, 2020. The Supplementary Dividend will be calculated by multiplying the dividend by the coefficient obtained after dividing the most recent CPI published by INDEC and informed by such entity to the date on which BCRA issues its authorization for the payment of the Dividend and the Supplementary Dividend, by the CPI for the month of April 2020. The difference arising between the amounts obtained after the above described calculation and the Dividend shall determine the amount of the Supplementary Dividend. The aggregate amount to be distributed as Supplementary Dividend may not exceed the amount of 3,791,722, which will be derecognized from voluntary reserve for future distributions of earnings.

Additionally, as mentioned in note 41, the Board of Directors’ meeting held on March 17, 2021, resolved to submit for discussion by the Shareholders’ Meeting the motion to distribute cash dividends.

51. CAPITAL MANAGEMENT, CORPORATE GOVERNANCE TRANSPARENCY POLICY AND RISK MANAGEMENT

As financial institution, the activities of Banco Macro SA are governed by the Financial Entities Law No. 21,526, as supplementary, and the regulations issued by the BCRA. Moreover, the Bank adheres 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) and, thus, it is subject to the regulations issued by the CNV.

Through General Resolution No. 797/17, 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 annually requires the issuance of a report in which financial institutions have to explain how the recommendations are implemented or 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

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As of December 31, 2020, the Bank’s shareholders are:

FULL NAME/ CORPORATE NAME	Participating Interest		Voting Interest
Trust “Trust JHB” (1)		17.28		19.65
Carballo Delfín Jorge Ezequiel		17.47		19.19
ANSES FGS Law No. 26425		28.80		26.90
Grouped shareholders (Local Stock Exchanges)		9.72		9.28
Grouped shareholders (Foreign stock exchanges)		26.73		24.98

(1) As of the date of issuance of these consolidated financial statements and due to the passing of Mr. Jorge Horacio Brito on November 20, 2020 and as a testamentary disposition, his shares were transferred, ad referendum of BCRA, to a management trust named “Trust JHB”, which the beneficiaries are his forced heirs.

• 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. 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 CREFI 2-Creation, Operation and Expansion –XV- Financial Entities Authorities.

Name	Position
Delfín Jorge Ezequiel Carballo	Chairman
Jorge Pablo Brito	Vice chairman
Carlos Alberto Giovanelli	Director
Nelson Damián Pozzoli	Director
Fabian Alejandro de Paul (*)	Director
Constanza Brito	Director
Guillermo Stanley	Director
Mario Luis Vicens (*)	Director
Delfín Federico Ezequiel Carballo	Director
Santiago Horacio Seeber	Director
Ramiro Tosi (*) (**)	Director
Mariano Ignacio Elizondo (*) (**)	Director
Guillermo Merediz (*) (**)	Director
Juan Santiago Fraschina (*) (**)	Alternate director
Alan Whamond (*)	Alternate director

(*) Independent directors

(**) Designated by Anses-Fgs

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, forming the senior manager, as well as officers of four staff areas reporting directly to the Board. Members are detailed below:

Gustavo Alejandro Manríquez	CEO
Gerardo Adrián Álvarez	Human resources and administration manager
Alberto Figueroa	Internal audit manager
Ernesto López	Legal manager
Ana María Magdalena Marcet	Credit risk manager
Juan Domingo Mazzón	Government and Management control manager

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Ernesto Eduardo Medina	Operations and system manager
Brian Anthony	Commercial banking manager
Francisco Muro	Distribution and sales manager
Jorge Francisco Scarinci	CFO
Agustín Devoto	Investment banking manager
Adrián Mariano Scosceria	Corporate banking manager

• Committees

The corporate by-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.
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 derecognitions.
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 of assets and terrorism financing	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.

• 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.

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• 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.

• Ethical line

According with ethical behavior standards, it was implemented for the Bank and its subsidiaries, Macro Securities SA, Macro Fondos SGFCI SA, 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

As of the date of issuance of these consolidated financial statements, the Bank has 463 branches throughout the entire country.

Subsidiaries

The Bank carries out certain transactions through its subsidiaries, which are identified in note 3 to these consolidated financial statements.

Business lines

The Bank’s business lines and transactions with trusts are mentioned in notes 1 and 44, 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.

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• Role of financial agent

The Bank acts as financial agent in the Provinces of Misiones, Salta, Jujuy and Tucumán and the Municipalities of San Miguel de Tucumán 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.

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. 27401 (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 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.

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 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.

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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.

• 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) additionally, some guidelines are disclosed in other notes to these 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.

Integral 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. The Bank has appointed a Risk Manager who reports directly to the Board of Directors.

Its duties include 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.

The risk management process includes the establishment of the exposure limits for each risk by the Board of Directors, a follow-up on the exposure to each limit by the persons in charge, the preparation of regular reports for the Risk Management Committee, a follow-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.

Risk Management

The Risk Management area is 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.

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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 the day-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.

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.

• 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.

• 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.

• 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.

• 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 to credit risk, liquidity risk, market risk, interest rate risk, foreign currency exchange rate 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 2020, together with the integration thereof (computable equity) as of the end of such month:

Description	12/31/2020
Minimum capital requirements		41,357,542
Computable equity		173,448,698
Capital surplus		132,091,156

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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

Credit risk is that which that the Bank will incur a loss because its customers or counterparties fail to discharge their contractual obligations.

The Bank manages and controls credit risk by setting limits on the amount of risk it is willing to accept and by establishing indicators for monitoring.

The Board approves the credit and risk assessment policy to provide a framework to generate businesses to achieve a proper relationship between the risk assumed and profitability. The Bank has procedure manuals detailing the related guidelines, compliance with effective regulations and limits set. The goals are:

• Achieving an adequate portfolio segmentation per type of customer and economic sector.

• Enhancing the use of tools to analyze and assess risk that best adjust to the customer’s profile.

• Establishing consistent guidelines to grant 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.

• Establishing limits to individual powers to grant credits according to their amount, tending to the existence of specific committees, which, according to their scope of influence, will define the levels of assistance.

• Enhancing the quality of the risk assumed, with proper guarantees according to the term of the loan and the level of risk involved.

• Monitoring on an ongoing basis the loan portfolio and customer level of compliance.

Credit risk management involves the existence of a structure with the characteristics needed to attain the organizational goals during the stages of the credit cycle: admission, follow-up, monitoring and recovery.

The risk assessment process is differentiated based on whether customers belong to Corporate Banking or Retail Banking.

To assess Corporate Banking customers, the Bank has different methods involving different responsibility levels that become increasingly complex according to the size of the transactions in terms of assistance types and amounts, weighed by terms and hedges with guarantees.

When transactions in amount the instances of authorization by delegated powers or through the decentralized risk analysis, ratings are approved in the Credit Committees. The powers vested on the different decision-making bodies are continuously reviewed to adjust them to the Bank’s volume of transactions and thus improve credit rating.

The risk analysis of assistance addressed in the Credit Committees is carried out at the Corporate Risk Management Department by specialized risk analysts that prepare separate risk reports per customer or group of companies, which are provided to Committee members to support the credit decisions made.

Risk reports include, at least, information regarding the use of loans and their source of repayment, the debtor’s historical and current behavior and the group of companies to which it belongs; the debtor’s repayment capacity based on cash flows; the guarantees that will cover the transactions, the ownership status, the enforcement possibilities and their sensibility to the changes in the economy; the market in which the debtor operates and the debtor’s position, and the debtor’s equity, economic and financial position and possibility of accessing loans.

The Committees’ resolutions include the terms and conditions applicable to the assistance in terms of the amount, currency, terms, guarantees and follow-up provisions, among others. The decisions are based on the debtor’s cash flows and payment capacity and only to a secondary extent on debtor’s equity and risk mitigating factors.

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Credit risk assessment for Retail Banking customers, assessment systems are based mainly on a qualification score related to a probability of default and certain maximum indebtedness and installment/income relationship rules.

There are specific rules regarding the debtor’s file integration to duly document the data entered into the assessment systems. Credit risk officers also define a credit power system based on the margins to be approved and, if applicable, the exceptions admitted.

The Bank adopts processes to detect interrelated debtor groups with correlated risk (group of companies) and to group risk exposures with the same debtor or counterparty in different lines of credit.

Before the transactions are settled, a series of controls are implemented to reduce related credit and operating risks and classify transactions within the technical relationships regulatory framework.

The Bank implements a formal, robust and well-defined process to manage nonperforming loans. These procedures are differentiated based on the type of portfolio and delinquency status.

To mitigate credit risk, guarantees are requested on agreed financing. A particular area of the Credit Risk Management Department manages all guarantees received by the Bank and assesses and updates regularly the appraisal value and effective term to monitor the quality of risk mitigators.

Credit risk allowances of the loan portfolio

The Bank’s policy concerning credit risk allowances is grounded on the calculation of ECL based on analytical models (statistical models related to loan portfolio management) pursuant to IFRS 9. According to the guidelines in section 5.5 on Impairment (including the principles and methods to recognize ECL due to significant increases in risk and the subsequent impairment of financial assets for ECL), the Bank recognizes the impairment of its financial assets.

The loss allowance for ECL is based on credit losses expected to arise during the life of an asset (lifetime ECL), unless there was no significant increase in credit risk since initial recognition, in which case the loss allowance is based on 12-month ECL (see also note 3.2.4).

The following chart shows the distribution of loan loss allowances according to the type of financial instrument as of December 31, 2020, and 2019:

	12/31/2020		12/31/2019
Loans and other financing		9,928,122		6,901,953
Loans commitment		23,200		23,514
Other financial assets		18,929		14,032
Other debt securities at amortized cost		5,472		63,701
Other debt securities at fair value through OCI		5,964		286
		9,981,687		7,003,486

The Credit Risk Management manages credit risk, which consists of identifying, assessing, following up, controlling and mitigating this risk across credit cycle stages.

The Credit Risk Management Office designs and develops ECL models. It reports to the Credit Risk Management, which is also in charge of designing and calculating rating and scoring models to quantify credit risk and the measures to calculate PD, EAD and LGD, as well as other models to calculate the impact of the prospective view.

The Administration and Credit Operation Management, through the Credit Review area, analyze the entire portfolio under individual assessment and classify customers in different credit risk stages. Together with the Corporate Risk and Credit Recovery Management Departments (that contribute their view from a standpoint of risk assessment and recovery management), they calculate ECL for corporate customers in stage 3.

The definitions and assessment of ECL are regularly presented to the Risk Management Committee, which approves the model methodologies, adjustments and validation.

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51.1.1 Assessment of credit risk impairment

51.1.1.1 Definitions of significant increase in risk, impairment and default

The Bank recognizes the impairment of its financial assets according to point 5.5. of IFRS 9. To such end, the Bank calculates the ECL of financial instruments over a three stage risk model based on the changes in credit quality detected since the initial recognition, as summarized below:

• Stage 1: includes financial instruments which credit risks have not increased significantly since initial recognition;

• Stage 2: includes financial instruments which credit risk increased significantly but it is not yet considered credit-impaired, and

• Stage 3: comprises credit-impaired financial instruments.

The Bank measures ECL according to the following definitions:

• For financial instruments included in Stage 1, the Bank measures ECL as the portion of lifetime ECL that result from potential default events within the next 12 months.

• For financial instruments included in Stages 2 and 3, the Bank measures lifetime ECL.

• To calculate ECL, prospective information is considered according to IFRS 9.

Staging by PD comparison:

The significant increase in credit risk is assessed by comparing PD at origin with the PD at observation date adjusted prospectively. The Bank considers that there is a significant increase in credit risk when there is more than one level of variation in the customers’ risk category, except for certain low-risk customers (reduced PD) in which the variation required is more than two risk categories to recognize a significant increase.

Moreover, through regular reviews, the Bank monitors the effectiveness of the criteria used to identify a significant increase in credit risk.

Customer segmentation:

The criterion to assess whether a financial instrument is impaired will depend on the analysis to which such customer is exposed. Losses are estimated both on a collective and individual basis:

51.1.1.1.1 Customers analyzed on a collective basis

To estimate ECL on a collective basis, disclosures are grouped based on customer segments showing similar risk characteristics relevant to analyze their repayment capacity or future recovery cash flows.

The segments identified are grouped into two major categories:

i) Low risk: characterized by the employment stability of the customers comprising such segment and the contractual security regarding credit recovery.

• Public salary plan: federal, provincial or municipal employees who have their salaries deposited at Banco Macro. High job stability. The Bank contractually ensures the collection of financial commitments due and payable upon payroll crediting.

• Private salary plan: Private employees with which the Bank has effective payroll crediting agreements. The Bank contractually ensures the collection of financial commitments due and payable upon payroll crediting.

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• Retirees: Beneficiaries of federal or provincial retirements or pensions that are deposited their funds at Banco Macro. They are entitled to life pension, so their revenues are very stable. The Bank ensures that credits are recovered through a third party (ANSES [Argentine social security administration] or the related pension fund), which transfers them directly to the bank accounts held by each retiree.

ii) Not low risk: Each segment is characterized by having large volumes of cases with atomized debt amounts. Massive credit rating tool based on statistical models are used for origination and risk management.

• Open market: Individuals involved in different types of activities (payroll employees, self-employed workers or small taxpayers) who request consumption or housing financing. It is a segment in which the changes in the economic cycle have a greater impact on its financial capacity.

• SMEs of a comparable portfolio with payables up to 72,640: Customers that engage in commercial, industrial or service activities, that request financial aid involving relatively low amounts mainly used for commercial purposes and potentially for consumption in the case of natural persons.

• Agricultural companies of comparable portfolios with payables up to 72,640: customers engaged in activities related to agricultural production or companies providing services for such sector that mainly request limited financial aid to conduct their commercial activities or possibly for consumption in the case of natural persons. Their financial requirements and business cycles are inherent in the productive approach taken.

• Microenterprises: customers engaged in commercial activities that request financial aid for working capital or capital goods for low amounts, and also for consumption in the case of natural persons. The segment also includes low-revenue customers who require low financial aid amounts.

Under the collective analysis, the Bank determined the following criteria to define the inclusion in the different impairment stages:

For low-risk customers:

• Stage 1:

• no arrears or less than 5 days in arrears

• Over 4 days in arrears with no significant increase in risk by PD comparison

• Stage 2:

• Over 30 days in arrears

• Over 4 days in arrears with no significant increase in risk by PD comparison

• Stage 3:

• In arrears over 90 days in some financial instruments.

For no low-risk customers:

• Stage 1:

• no arrears or less than 31 days

• With no significant increase in risk by PD comparison.

• Stage 2:

• In arrears over 30 days in some financial instruments.

• Less than 31 days in arrears with a significant increase in risk by PD comparison

• Stage 3:

• In arrears over 90 days in some financial instruments.

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51.1.1.1.2. Customers analyzed on an individual basis

The aim of the individual assessment is the ECL estimate for customers with significant risk or customers which require a specific treatment, or do not have consistent characteristics with other portfolio segments for which the statistic information is insufficient to predict future behavior.

The following customers and financial assets are included in this analysis:

• Corporate companies

• Large and SMEs

• SMEs and agricultural companies with a commercial portfolio according to BCRA definition

• Financial institutions

• Government sector

• Government and private securities

Every month the Credit Review area analyzes the entire portfolio on an individual basis to classify customers focusing on those who were in Stages 2 and 3 in the previous month, and those who were in Stage 1 and suffered a significant risk increase. To make such assessment, some objective data were defined to analyze whether there is an increase in credit risk to determine whether it should be reclassified to Stage 2 due to the existence of a significant increase in risk; be reclassified to Stage 3 when a default is produced or detected, or remain in Stage 1. These events mainly comprise:

• Significant delays in the main credit lines granted

• Legal actions by the Bank for the aid granted

• Request for reorganization or bankruptcy proceedings

• Past-due loans with outstanding principal

• Volume of bounced checks

Moreover, through regular reviews, this sector monitors the effectiveness of the criteria used to identify a significant increase in credit risk to confirm the following:

• The criteria can identify significant increases in credit risk before default.

• The average time between the identification of the significant risk increase and the default is reasonable.

• Exposures are not transferred directly from the measurement of 12-month ECL to impaired financial instruments.

The staging proposal is supplemented with the expert opinion of the Corporate Risk and Credit Recovery areas.

Below is a description of the characteristics of the customers analyzed on an individual basis for each stage:

Stage 1:

The customers which individual assessment reflects the following conditions are considered Stage 1 customers:

• The financial instruments did not experience significant risk increases.

• The customer’s cash flow analysis shows that it has the ability to meet all its financial obligations adequately.

• The customer has financial liquidity with a low level and a proper structure of indebtedness with respect to its profit-generating capacity, and has a high ability to settle payables (principal and interest) in the agreed-upon conditions.

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• Cash flows are not subject to drastic changes in the event of major variations in the behavior of own and sector variables.

• It regularly pays its obligations, even when it suffers minor and insignificant delays.

• The customers previously included in Stages 2 or 3 who improved their credit risk indicators and meet the parameters defined for Stage 1.

Stage 2:

This stage includes the customers that, based on the individual analysis of their payment capacity, suffer a significant risk increase that is 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:

• It has profitability, liquidity and solvency indicators that tend to weaken, or some of the indications of impairment.

• There is a significant increase in payables without a consistent rise in revenues.

• There is a major decline in operating margins, or existence of operating loss.

• There are adverse changes in the regulatory, technological or economic context that exert a negative effect on future financial flows.

• There is a drastic decline in demand or negative changes in the business plans.

• There are significant changes in the value of the guarantees received

• The arrears in payment to the Bank are due to current operating circumstances or for an extraordinary nature which prompt resolution is expected.

• This stage also includes the customers that, having been included in phase 3, improved their credit risk indicators and are no longer at default, but which status prevents them from being reclassified to Stage 1.

Stage 3:

It includes the customers that, after an individual analysis, experience some of the following situations:

• Incur in significant delays related to the major credit lines granted, and this has not been agreed upon with the Bank.

• Have been subject to complaints filed the Bank for the recovery of the assistance granted.

• Filed for insolvency proceedings or went into bankruptcy

• Refinance their payables systematically and have still not settled over 5% of the refinanced principal.

• Cash flows analysis shows that it is highly unlikely that the customer may meet all its financial obligations in the agreed-upon conditions

This analysis is used as input by the Credit Risk Management Office to estimate the allowances for customers in Stages 1 and 2.

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Therefore, the Credit Review area calculates the allowances related to Stage 3 customers based on the Bank’s judgmental evidence and estimates monthly the expected cash flows to be received for each transaction discounting them to their effective interest rate. The allowance for loan losses is the difference between the accounting payable and the present value of expected cash flows. For this task, the Credit review area requires that the Recovery Management estimate the cash flows to be collected and when it will occur, considering the level of progress in collection negotiations, as well as cash flows from a potential sale of the collateral received or other credit enhancement that are an integral part of the contractual terms.

51.1.1.2 The Bank’s internal rating and PD estimation process

The PD represents the probability that a debtor may fail to fulfill its financial obligation, either during the next 12 months (Stage 1) or during the remainder life of the financial asset (Stages 2 and 3).

PD is assessed per customer in alignment with the Bank’s risk management model.

For the individual analysis portfolio, the rating model developed by the Bank to identify PD-related risks and concentrations according to the Bank’s commercial strategies is based on a behavior module that considers the behavior scores of the commercial portfolio segments and contemplates internal behavior variables and external supplier variables.

For the collective analysis portfolio per risk level, the Bank developed a 12-month PD based on a dual matrix that combine internal behavior market scores and generic Bureau Scores, increasing segregation when considering the internal behavior and the financial entities. Lifetime PDs were also developed for each group of assets defined as homogeneous risk to calculate the financial asset amount classified in Stage 2.

The proposals to implement PD models are submitted for approval to the Risk Management Committee. The methods, variables, development population, observation windows and results that support the preparation of these models are tested and adjusted at least once a year.

The following table discloses the risk levels score and rating arising from the Bank’s models:

	12/31/2020						12/31/2019
Category	Weighted PD			% Gross Carrying Amount			Weighted PD			% Gross Carrying Amount
Performing		2.32	%		96.17	%		2.60	%		95.45	%
High grade		1.13	%		76.20	%		1.25	%		76.40	%
Standard grade		4.79	%		12.64	%		4.83	%		8.23	%
Sub-standard grade		12.48	%		7.33	%		11.64	%		10.82	%
Past due but not impaired		33.24	%		2.70	%		32.13	%		2.84	%
Impaired		100.00	%		1.13	%		100.00	%		1.71	%
Total					100.00	%					100.00	%

51.1.1.3 Exposure at default (EAD)

EAD is based on the amounts that the Bank expects to be owed at default during the next 12 month (Stage 1) or during the instruments remaining lifetime (Stages 2 and 3).

The EAD model uses the same information sources than PD model. Segmentation is also used in the PD structure.

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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.

51.1.1.4 Loss given default (LGD)

LGD is the estimated loss in the case of default. It is based on the difference between all contractual cash flows and the cash flows expected by the lender (i.e., all cash shortfalls), considering the proceeds from the realization of collateral.

It is the supplement to the unit of the recovery rate; that is, the proportion not collected by the Bank with respect to the EAD. Consequently, the amount at default is compared with the present value of the amounts recovered after the date of default.

LGD varies based on the type of counterparty, aging, type of claim and the existence of guarantees securing credits. It is expressed as a percentage of the loss for EAD.

To calculate LGD, the Bank differentiates per product. The Bank bases its estimates on the historical information observed regarding the recoveries over on default transactions discounted at the effective interest rate of such agreements and measured upon default.

Once the recovery rates are obtained, this behavior is projected through the triangle method to estimate the periods with less maturity. Finally, the weighted average of the loss for each portfolio is determined.

As PD, LGD are revised by the macroeconomic models used for the prospective view.

51.1.2 Prospective information

The calculation of ECL for risk impairment includes and is revised prospectively with respect to the portfolio behavior. To such end, the Bank examines the macroeconomics variables which have an impact in PD and LGD and designed models that capture such impact for the commercial portfolio, comparable commercial portfolio and consumer portfolio.

The main economic variables generating expected losses used to calculate ECL for each economic scenario are as follows:

• Changes in GDP

• Interest rates (BADLAR published by the BCRA)

• Index (CPI)

As established in IFRS 9, impact is calculated based on the different behavior scenarios of the variables; to such end, a 36-month estimate on the variables used for the models is requested from a well-known economic consulting firm. This estimate is prepared for three alternative macroeconomic scenarios, to which a likelihood of occurrence is assigned.

Finally, the Bank calculates ECL by applying the alternative scenarios on a weighted basis, which are updated on a quarterly basis according to the financial statements filed each calendar quarter.

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The following table shows the estimated values for macroeconomic variables used in the models for each scenario (base case, intermediate, downside), with the assigned probability of occurrence to each scenario:

Key Drivers	ECL Scenario	Assigned Probabilities			2020			2021			2022
					%			%			%
GDP growth %	Base case		65	%		5.96	%		2.16	%		3.04	%
	Intermediate		30	%		2.66	%		(1.52	)%		1.04	%
	Downside		5	%		(1.80	)%		(2.48	)%		1.00	%
Central Bank base rates %	Base case		65	%		37.00	%		28.05	%		23.44	%
	Intermediate		30	%		45.00	%		35.00	%		30.00	%
	Downside		5	%		80.00	%		100.00	%		120.00	%
CPI %	Base case		65	%		56.98	%		39.96	%		35.01	%
	Intermediate		30	%		68.00	%		65.00	%		49.99	%
	Downside		5	%		100.03	%		130.01	%		150.03	%

The measures issued by the Argentine government and the BCRA on maturity deferrals or mandatory debt rescheduling gave rise to a considerable reduction in the nonperforming portfolio indicator, a variable dependent on the prospective probability of the default models used by the Bank. Therefore, as of December 31, 2020, to make an adequate estimate of the expected losses adjusted by the macroeconomic context, the Bank applied the probability of default models on the nonperforming portfolio projected as of such date by those models based on the information available prior to the abovementioned measures, instead of using indicators which do not show the actual loan portfolio situation.

51.1.3 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 amortized cost of loans modified during 2020 and the associated net modification amounted to 944,374 and 82,267, respectively. The Bank does not consider loans using the mandatory extensions and payment facilities provide by BCRA as part of such modified loans. The amortized cost of loans modified during 2019 and the associated net modification amounted to 3,138,057 and 58,741, respectively. Moreover, certain debt securities were modified during 2019. The information related to this modification is disclosed in note 20.

51.1.4 Adjustment for expected losses due to COVID-19 pandemic

The pandemic and its direct consequences, (firstly, the preventive lockdown, then the social distancing) had a high impact on the Argentine economy and, therefore, on the behavior of financial system debtors.

The Argentine government, the BCRA and other tax and regulatory agencies adopted a series of measures to reduce the impact of the generated economic stagnation which includes the extending tax and social security due dates, offering financial aid to the most vulnerable sectors, deferring payment of all bank debtor’s obligations, mandatory refinancing of past due payables, a more flexible treatment for recognizing the impairment of the banking customer portfolio, and banning dismissals and suspensions, among others. Even though, all of them contributed to having the 2020 with low impact on bank portfolio delinquency, the negative results of the impairment in the debtors’ financial capacity are undeniable, thus an increase in the impairment of assets subject to credit risk is expected.

Since statistical models do not appropriately reflect the effects arising from the pandemic on expected credit losses, the Bank decided to make a special adjustment prospectively based on an estimate of the impairment of certain financial assets showing greater vulnerability levels or signs of difficulties related to the payment of obligations.

The ECL adjustment for Covid-19 is recalculated on a monthly basis with the objective to capture new information about subject customers and reset the estimated amounts at the reporting date, or adjust the calculation criteria in order to make more accurate estimations. With the same frequency is submitted for approval to the Bank’s highest authorities, and is presented to the Internal Risk Management Committee for its ratification and treatment.

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As to commercial loans, as of December 31, 2020, the Bank estimated an additional credit risk impairment loss for 445,386, over beneficiaries of credit facilities at reduced rates for payroll payments during the social lockdown and who are part of the economy sectors which are expected to experience the pandemic’s most significant adverse effects, both in terms of a drop in revenues and the subsequent recovery term. The same criterion was used in connection with the companies which are part of the sectors that chose to reschedule the due dates of their payables using the general and extraordinary flexible conditions established by the BCRA for paying financial obligations. The estimated charge amounted to 150,654.

As regards loans granted to individuals, the adjustment affected the financing to employees on payroll private company, self-employed workers and microentrepreneurs. These sectors were considered to be the most affected by dismissals, suspensions and loss in salary purchasing power, fall in sales and a reduction in activity levels resulting from compulsory lockdown. In these segments, an impairment in customer risk was estimated in the cases in which they opted to defer the settlement of their payables to the Bank (amounts owed in connection with credit cards and personal loans) by making use of the mandatory extensions and payment facilities provided by the BCRA in connection with outstanding financial payables during the pandemic. The adjustment made in connection with consumer loans amounted to 3,083,342 as of December 31, 2020. This adjustment plus the recorded amount for commercial loans amounted to 3,679,382.

Portfolio quality

The table below shows the analysis by aging of performing loans in arrears (in days):

12/31/2020
Portfolio Type	Delinquent, performing (in days)
	0 to 31			From 32 to 90			From 91 to 180			From 181 to 360			Over 360
Commercial loans		99.5	%		0.5	%		0.0	%		0.0	%		0.0	%
Comparable loans		99.8	%		0.2	%		0.0	%		0.0	%		0.0	%
Consumer loans		99.5	%		0.5	%		0.0	%		0.0	%		0.0	%
Total		99.6	%		0.4	%		0.0	%		0.0	%		0.0	%

12/31/2019
Portfolio Type	Delinquent, performing (in days)
	0 to 31			From 32 to 90			From 91 to 180			From 181 to 360			Over 360
Commercial loans		99.2	%		0.8	%		0.0	%		0.0	%		0.0	%
Comparable loans		99.9	%		0.1	%		0.0	%		0.0	%		0.0	%
Consumer loans		100.0	%		0.0	%		0.0	%		0.0	%		0.0	%
Total		99.6	%		0.4	%		0.0	%		0.0	%		0.0	%

The following table shows the loans and other financing portfolio under credit risk by industry sector, classified by risk stage and identifying the expected loss calculated under individual or collective basis:

	1				2				3		12/31/2020
	Collective		Individual		Collective		Individual
Loans and other financing		180,456,655		68,333,255		11,133,013		4,396,524		3,029,870		267,349,317
Non-financial public sector		13,230		3,601,297		175				103		3,614,805
Other financial entities		23		1,839,235								1,839,258
Non-financial private sector		180,443,402		62,892,723		11,132,838		4,396,524		3,029,767		261,895,254
Individuals		114,240,780		881,453		6,217,494				685,859		122,025,586
Manufacturing Industry		10,262,036		14,025,285		679,770		1,526,516		498,780		26,992,387
Agricultural and cattle industry		14,415,093		6,741,231		966,605		2,759,232		435,379		25,317,540
Services		22,280,971		11,185,975		1,815,627		110,206		107,590		35,500,369
Commercial activities		13,244,682		9,222,944		1,001,929		570		301,854		23,771,979
Exploration of mines and quarries		653,112		14,544,611		35,095				873,558		16,106,376
Financial intermediation		1,038,512		3,731,946		32,755				5,648		4,808,861
Construction activities		3,055,656		1,444,030		291,532				114,440		4,905,658
Electricity supply and gas		155,514		1,115,248		8,092				179		1,279,033
Public administration		1,037,333				82,856				6,207		1,126,396
Water supply and public sanitation		59,713				1083				273		61,069

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	1				2				3		12/31/2019
	Collective		Individual		Collective		Individual
Loans and other financing		152,543,931		128,020,746		17,511,125		4,284,909		5,272,831		307,633,542
Non-financial public sector		8,573		8,773,060		221				94		8,781,948
Other financial entities		246		5,417,881								5,418,127
Non-financial private sector		152,535,112		113,829,805		17,510,904		4,284,909		5,272,737		293,433,467
Individuals		117,874,202		511,834		9,172,222				1,980,256		129,538,514
Manufacturing Industry		4,722,054		46,359,585		1,244,104		843,873		1,624,661		54,794,277
Agricultural and cattle industry		7,696,443		11,045,886		2,857,436		3,165,627		554,555		25,319,947
Services		13,205,385		13,175,749		2,069,526		72,040		346,332		28,869,032
Commercial activities		5,248,612		13,123,381		1,420,453		199,317		567,853		20,559,616
Exploration of mines and quarries		229,146		20,069,007		66,215				11,854		20,376,222
Financial intermediation		930,240		3,840,710		83,338				18,248		4,872,536
Construction activities		1,385,661		2,241,773		456,169		4,052		152,667		4,240,322
Electricity supply and gas		100,044		3,435,177		9,827				1,483		3,546,531
Public administration		1,103,771		26,703		128,161				14,720		1,273,355
Water supply and public sanitation		39,554				3,453				108		43,115

Collateral and other credit improvements

The following tables show the amounts of guarantees received for the entire portfolio and for the portfolio in Stage 3 as of December 31, 2020.

Class of financial instrument	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
Loans and other financing		267,349,317		797,460		6,546,693		23,996,519		4,124,485		1,667,100		47,062,080		84,194,337		183,154,980		9,928,122
Loans commitment		97,910,338		1,305										279,240		280,545		97,629,793		23,200
Other financial assets		18,905,219																18,905,219		18,929
Other debt Securities at amortized cost		31,119,261																31,119,261		5,472
Other debt securities at fair value through OCI		178,005,144																178,005,144		5,964
Total		593,289,279		798,765		6,546,693		23,996,519		4,124,485		1,667,100		47,341,320		84,474,882		508,814,397		9,981,687

Class of financial instrument	Maximum exposure to credit risk		Fair value collateral										Total collateral		Net exposure		Associated ECL
			Deferred payment checks		Mortgage on real property		Pledges on vehicles and machinery		Pledges on personal property		Other
Loans and other financing		3,029,870		1,064		709,038		935,558		65,485		270,083		1,981,228		1,048,642		1,658,115
Total		3,029,870		1,064		709,038		935,558		65,485		270,083		1,981,228		1,048,642		1,658,115

The following tables show the amounts of guarantees received for the entire portfolio and for the portfolio in Stage 3 as of December 31, 2019.

			Fair value of collateral
Class of financial instrument	Maximum exposure to credit risk		Pledges on time deposits		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		307,633,542		513,103		3,665,050		29,919,411		5,490,143		1,465,710		33,654,626		74,708,043		232,925,499		6,901,953
Loans commitment		128,745,139		2,787										902,420		905,207		127,839,932		23,514
Other financial assets		8,405,598																8,405,598		14,032
Other debt Securities at amortized cost		24,067,911																24,067,911		63,701
Other debt securities at fair value through OCI		63,824,735																63,824,735		286
Total		532,676,925		515,890		3,665,050		29,919,411		5,490,143		1,465,710		34,557,046		75,613,250		457,063,675		7,003,486

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Class of financial instrument	Maximum exposure to credit risk		Fair value collateral										Total collateral		Net exposure		Associated ECL
			Deferred payment checks		Mortgage on real property		Pledges on vehicles and machinery		Pledges on personal property		Other
Loans and other financing		5,272,831		3,086		735,440		167,028		11,805		955,458		1,872,817		3,400,014		2,967,457
TOTAL		5,272,831		3,086		735,440		167,028		11,805		955,458		1,872,817		3,400,014		2,967,457

51.2. Liquidity Risk

The liquidity risk is defined as the possibility that the Bank may not be able to comply with expected and unexpected current and future cash flows effectively, as well as guarantees, without affecting daily transactions or its financial position.

In addition, the 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, the Bank has been established a policy which the main aspects 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:

• Seeks the proper diversification of financing sources to enable the constant availability of funds and fulfill institutional obligations within a market variability environment.

• Gives priority to attracting retail deposits to have an atomized deposit portfolio and lower risks in relation to material withdrawals concentrated in a few depositors.

• Does not depend excessively on obtaining repo transactions and interfinancial loans as a permanent funding source.

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.

In the event of a liquidity crisis, the Bank has a contingency plan with different actions, like as follows:

• Financing through call banking and repo agreements with the BCRA.

• Spot sale of securities government portfolio.

• Limit credit assistance to private sector.

• Increase deposit rates in order to capture deposits.

The following table shows the liquidity ratios during the fiscal years 2020 and 2019, which arise from dividing net liquid assets, made up of cash and cash equivalents, by total deposits.

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	2020			2019
December, 31		86.39	%		57.75	%
average		81.57	%		61.24	%
Max		87.13	%		70.13	%
Min		71.49	%		51.73	%

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, 2020 and 2019:

			Remaining terms to maturity as of December 31, 2020
Item	Matured		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
Non-financial government sector				240,063		709,789		722,124		1,302,701		2,240,210		475,185		5,690,072
Financial sector				73,164		366,107		542,488		336,233		1,005,712				2,323,704
Non-financial private sector and foreign residents		1,309,651		94,565,908		30,753,008		41,943,648		49,509,992		47,067,374		76,591,919		341,741,500
Total		1,309,651		94,879,135		31,828,904		43,208,260		51,148,926		50,313,296		77,067,104		349,755,276

			Remaining terms to maturity as of December 31, 2019
Item	Matured		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
Non-financial government sector				3,722,842		880,926		1,040,537		2,501,141		4,121,934		2,751,211		15,018,591
Financial sector				2,498,632		3,004,100		642,334		859,600		1,215,730		7,443		8,227,839
Non-financial private sector and foreign residents		4,936,146		123,475,851		36,775,492		33,009,946		41,228,086		59,457,916		91,735,995		390,619,432
Total		4,936,146		129,697,325		40,660,518		34,692,817		44,588,827		64,795,580		94,494,649		413,865,862

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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, 2020 and 2019:

	Remaining terms to maturity as of December 31, 2020
Item	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
Deposits		439,899,936		45,047,684		5,581,716		3,025,417		34,807		2,187		493,591,747
From the non-financial government sector		67,873,301		5,558,974		901,974		2,128						74,336,377
From the financial sector		696,415												696,415
From the non-financial private sector and foreign residents		371,330,220		39,488,710		4,679,742		3,023,289		34,807		2,187		418,558,955
Derivative instruments		42		188										230
Repo transactions		620,389												620,389
Other financial institutions		620,389												620,389
Other Financial Liabilities		47,876,408		133,674		125,844		317,199		264,590		514,354		49,232,069
Financing received from the Central Bank of Argentina and other financial institutions		419,441		199,471		204,074		80,703		40,093		5,724		949,506
Issued corporate bonds		209,346				2,762,098		208,048		2,585,744				5,765,236
Subordinated corporate bonds						1,135,957		1,135,958		2,498,433		43,651,732		48,422,080
Total		489,025,562		45,381,017		9,809,689		4,767,325		5,423,667		44,173,997		598,581,257

	Remaining terms to maturity as of December 31, 2019
Item	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
Deposits		319,128,393		35,554,356		4,728,311		1,398,959		72,883		30,866		360,913,768
From the non-financial government sector		22,974,090		1,059,457		58,210		2,832						24,094,589
From the financial sector		427,702												427,702
From the non-financial private sector and foreign residents		295,726,601		34,494,899		4,670,101		1,396,127		72,883		30,866		336,391,477
Derivative instruments		399,076		464,440		183,040								1,046,556
Repo transactions		1,364,962												1,364,962
Other financial institutions		1,364,962												1,364,962
Other Financial Liabilities		28,687,673		133,406		141,649		227,982		442,189		585,057		30,217,956
Financing received from the Central Bank of Argentina and other financial institutions		1,403,744		1,130,058		205,002		133,670		230,972		62,376		3,165,822
Issued corporate bonds		436,031				701,097		1,006,731		4,579,987		4,206,065		10,929,911
Subordinated corporate bonds						1,100,808		1,100,810		2,201,618		44,722,198		49,125,434
Total		351,419,879		37,282,260		7,059,907		3,868,152		7,527,649		49,606,562		456,764,409

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51.3 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 Montecarlo 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.

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.

The method consists in creating return or price scenarios concerning an asset through the generation of random numbers. This is based on the selection of a stochastic model describing the performance of prices for each asset with the resulting specification of certain parameters required for calculation purposes. The model used is the geometric Brownian motion.

Once all “n” potential scenarios are obtained for valued positions, the 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 obtain the value at risk according to the 99% percentage 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.

51.4 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 the Shareholders’ equity and 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.

The Bank monitors of the net present value of its assets, liabilities and off balance sheet items, upon certain disturbance scenarios and interest rate stress through Montecarlo simulation techniques.

For this purpose, the maximum potential loss is determined considering a temporal line of three months and 99% confidence level interval.

The Equity Value Model (EVM) is determined as the net sum of cash flows (interest and principal losses) that the Bank can generate, discounted at market interest rate curve. If the market interest rate curve used for the discount is affected, the effect of such variation impacts directly on the value of the Bank. Generally speaking, reports related to EVM seek to analyze the Bank’s long-term solvency.

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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, 2020 and 2019, the Bank’s economic capital by type of risk is as follows:

Economic capital (EC – in millions)	12/31/2020		12/31/2019
Interest rate risk		6,621		8,723
Currency Exchange rate risk		1,727		2,486
Price risk		5,198		192

51.5 Foreign Currency Exchange Rate Risk

The Bank is exposed to fluctuations in foreign currencies 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 expressed 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 affect the Bank’s consolidated statement of income.

The Bank’s open position, stated in Argentine pesos by currency, is disclosed in note 26 to these consolidated financial statements.

51.6 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.

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.

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 “Manual for the Operational Risk Management” approved by the Board of Directors, which define the main concepts, roles and responsibilities of the Board of Directors, the Operational Risk Committee, the Operational Risk and Technology Management and all the areas involved in this risk management.

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.

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g) Information systems to measure risks: The Comprehensive Risk Management Department generates and sends, on a regular basis, reports to the Board of Directors, the Risk Management Committee and the Senior Management. With such reports the Risk Management Department communicates the results of the follow-up of the management of the main risks to which the Bank is exposed. Each report contains information on risk measurement, evolution, trends, principal exposures, control of main limits and the capital level required for each type of risk.

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 and follow-up, the Bank will need to allocate less amount of capital.

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.

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.

52. CHANGES IN THE ARGENTINE MACROECONOMIC ENVIRONMENT OF THE FINANCIAL AND CAPITAL MARKETS

The international and local macroeconomic context generates certain degree of uncertainty regarding its future progress as a result of the financial assets and foreign exchange market volatility, certain political events and the level of economic growth, among other issues, and additionally, for the effects mentioned in note 53.

Specifically, in Argentina, as a step prior to general presidential elections, the open primary elections (PASO, for its acronym in Spanish) 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 thus, the country risk and the value of the US dollar also skyrocketed. These situations remain as of the date of issuance of these consolidated financial statements.

Among other measures introduced by the PEN after the PASO, DNU No. 596/2019 was issued on August 28, 2019, whereby it established, with certain exceptions, a first reprofiling in the maturities of short-term Government securities (Letes, Lecaps, Lelinks and Lecer) 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.

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On December 23, 2019, “Social Solidarity and Productive Reactivation” Law No. 27541 was published in the Official Bulletin, which established several changes and empowered the PEN to complete the formalities and acts needed to recover and secure the sustainability of the government debt as already mentioned, among other issues.

On January 20, 2020, the PEN voluntarily swapped Lecaps for about 60% of the stock for the new Lebads, and after that, on February 11, 2020, through Presidential Decree No. 141/2020 it was decided, with certain exceptions, to delay up to September 30, 2020, the charge for the principal amortization of Federal Government bonds of dual currency (AF20, as its acronym in Spanish).

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.

On April 6, 2020, the payment of all public debt issued under Argentine legislation was deferred through Decree No. 346/2020 until December 31, 2020. Subsequently, several swaps and restructuring of other debt instruments under Argentine legislation were made.

On August 31, 2020, the Argentine Ministry of Economy issued a resolution stating that Argentina and creditor group representatives had reached an agreement over 99.01% of the principal of the Argentina’s debt restructuring proposal under foreign legislation. The restructuring mainly includes a reduction in interest and the establishment of a grace period before payments is resumed. In addition, on August 8, 2020, Law No. 27556 established a voluntary swap of government securities stated in US dollars and issued under Argentine laws for an initial 90-day term was published, extending such term for eligible securities not entered into the initial swap up to July 28, 2021 through the Ministry of Economy Resolution 540/2020.

Finally, the authorities of the Argentine Ministry of Economy are undergoing negotiations with the International Monetary Fund with the objective to renegotiate the term conditions for the financing granted, from such organization, to Argentine Republic.

Related to tax regulation, through the abovementioned 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.

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. Subsequently, in September 2020 was established that for the acquisition of foreign currency for hoarding purposes, besides the 30% of PAIS tax, an additional 35% have to be paid as income tax withholding. Additionally, since the end of 2019, 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, began to widen around 55% as of the date of issuance of these consolidated financial statements.

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.

53. EFFECTS OF THE CORONAVIRUS (COVID-19) OUTBREAK

In early March 2020, the World Health Organization recognized Coronavirus (Covid-19) as a pandemic. This emergency situation over public health was worldwide expanded and several countries have taken different measures to contain the effects. This situation and the measures adopted have materially affected the international economy activity with different impacts on several countries and business lines.

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Particularly in the Argentine Republic, on March 19, 2020, through Decree No. 297/2020, the Government established the “social, preventive and compulsory isolation” which, after several extends and amendments, which as of the date of issuance of these consolidated financial statements, is still effective in some urban agglomerations and some communes of the Argentinian provinces, while in other cities it was making flexible into “social, preventive and compulsory distancing”.

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 financial institutions, 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, 2021.

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, by 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 profit or loss 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 significant 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.

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