Grupo Supervielle Reports 1Q23 Results

Grupo Supervielle S.A. (NYSE: SUPV; BYMA: SUPV), (“Supervielle” or the “Company”) a universal financial services group headquartered in Argentina with a nationwide presence, today reported results for the three-months period ended March 31, 2023.

Starting 1Q20, the Company began reporting results applying Hyperinflation Accounting, in accordance with IFRS rule IAS 29 (“IAS 29”) as established by the Central Bank.

In 3Q22 IUDU adopted IFRS 9 for the fiscal year beginning on January 1, 2022, and the IFRS 9 transition date was scheduled for January 1, 2021. For comparative purposes, and according to IAS 8, changes in accounting policies were applied retrospectively, therefore reported figures and applicable ratios have been restated.

Management Commentary

Commenting on first quarter 2023 results, Patricio Supervielle, Grupo Supervielle’s Chairman & CEO, noted: “We started the year delivering ROE of 2% in real terms in the quarter, despite the increasingly challenging macroeconomic and political environment and on track to return to profitability.

Our initiatives to optimize operations and streamline our network have achieved significant cost savings when compared with the same period of the prior year. Key among those were personnel expenses, which declined nearly 12% year-on-year in real terms.

Reflecting our focus on profitability, NIM increased to 21.9% from 19.2% in the year-ago quarter driven mainly by the good performance from our short-term central bank and government securities portfolio, on the back of higher interest rates. This more than offset a contraction in the credit portfolio as we benefitted from our flexibility in managing assets and liabilities.

Lower loan volumes together with accelerated inflation which increased pressure on individuals´ disposable income, drove a 60 basis points sequential increase in the NPL ratio to 4.1% - a situation we anticipated and increased provisions in the prior quarter. In the current context, we have implemented stricter credit scoring. Consequently, we are prioritizing cross selling of our existing client portfolio, particularly insurance, investment products and personal loans to payroll customers. On the corporate front, we are focused on lending and transactional services to our key target segments that include SMEs and Middle-Market companies.

As we build the bank of the future, we continue to execute our transformation strategy centered on accelerating time to market, product market fit and apply machine learning to enhance our customer experience. To this end, we were the first bank in Argentina to launch a unique feature in our App which offers access to invest in money market funds 24/5 to protect transactional funds against inflation.

On the sustainability front, we are pleased to have recently published our first integrated report, as compared to standalone reports in prior years. Overall, we continue to progress on meeting our ESG targets through 2024. Among key initiatives, we reduced our carbon footprint by 29% last year and increased the number of customers assessed under our Environmental and Social Risk Policy. We are also proud to maintain our position in the BYMA Sustainability Index for the fifth consecutive year.

As we look to the remainder of the year, we face higher macroeconomic uncertainty, heightened regulatory risk and volatility in a presidential electoral year. Despite this, we are confident in our capabilities to weather the current business conditions. Our capital base with a Tier 1 ratio at 14.7% remains hedged against inflation, which coupled with high liquidity and flexibility strengthens the foundation of our business for long-term success,” concluded Mr. Supervielle.

First quarter 2023 Highlights

Attributable Net Income of AR$557.5 million in 1Q23, compared to net losses of AR$545.2 million in 1Q22 and AR$963.6 million in 4Q22. YoY, Net Income performance reflects the result of cost savings initiatives implemented in 2022 to optimize operations and streamline the branch network. Nevertheless, Net Income remained impacted by several factors, including: i) low credit demand from the private sector which remains at historical lows, compounded by inflation of 22% in the quarter; and ii) regulatory minimum interest rates on time deposits.

ROAE was 2.0% in 1Q23 compared with negative 1.8% in 1Q22 and negative 3.4% in 4Q22.

ROAA was 0.3% in 1Q23 compared to negative 0.2% in 1Q22 and negative 0.5% in 4Q22.

Profit before income tax of AR$1.7 billion in 1Q23 compared to losses of AR$408.8 million in 1Q22 and AR$5.9 billion in 4Q22. 4Q22 included one-time charges from the IUDU merger and severance payments.

YoY performance is explained by: i) higher results on the short-term investment portfolio on the back of higher interest rates, ii) declines in wages and social security charges, administrative expenses as well as severance payments; iii) a decrease of 32.1%, or AR$1.4 billion, in loan loss provisions mainly due to the decrease of the loan portfolio while early delinquency in consumer finance customers had been provisioned in previous quarter; iv) a 6.1% decrease in the loss from exposure to inflation mainly due to the 26% decrease in net monetary assets excluding income tax credits while inflation increased to 104.3% YoY; and v) higher revenues from the brokerage and asset management businesses on increased activity and assets under management. These were partially offset by; i) higher cost of funds reflecting interest rate increases set by the Central Bank throughout 2022 and in 1Q23; ii) weak credit demand as loan portfolio increased below 104.3% inflation; and iii) a 20.2% or AR$935 million increase in turnover tax due to higher yields on the Central Bank securities and repo transactions.

Net Financial Income of AR$32.5 billion in 1Q23 decreasing 0.7% QoQ and 1.1% YoY.

Net Interest Margin (NIM) reached 21.9% compared to 19.2% in 1Q22 and 21.6% in 4Q22.

The total NPL ratio was 4.1% in 1Q23 increasing 60 bps increase from 3.5% in 4Q22. Of this, 40-bps is explained by the decrease in real terms of the loan portfolio in the quarter. The remainder impact (20 bps) reflects higher 90-days delinquency levels in both open market and in former consumer finance customers.

Loan loss provisions (LLPs) totaled AR$2.9 billion in 1Q23, decreasing 32.1% YoY and 25.4% QoQ.

Net loan loss provisions, equivalent to loan loss provisions net of recovered charged-off loans and reversed allowances, amounted to AR$2.4 billion in 1Q23 compared to AR$3.6 billion in 4Q22 and AR$3.2 billion in 1Q22.

The Coverage ratio was 115.9% as of March 31, 2023, 135.5% as of December 31, 2022, and 141.3% as of March 31, 2022.

Efficiency ratio was 71.8% in 1Q23, compared to 74.1% in 1Q22 and 91.9% in 4Q22.

Loans to deposits ratio of 44.9% as of March 31, 2023, compared to 48.9% as of March 31, 2022, and 44.5% as of December 31, 2022.

Total Deposits of AR$576.6 billion expanded 5.3% QoQ and 68.9% YoY in nominal terms. In real terms, total deposits decreased 13.5% QoQ and 17.3% YoY. The leverage ratio (Assets to Shareholder´s Equity) decreased 80 bps sequentially to 6.7x from 7.5x as of December 31, 2022, and March 31, 2022, reflecting asset and liability management.

Loans increased 55.2% YoY and 6.5% QoQ in nominal terms to AR$259.1 billion. In real terms, gross loans decreased 12.6% QoQ and 24.0% YoY impacted by weak credit demand driven by inflation of 22% QoQ and 104% YoY, high nominal interest rates as a result of inflation, and weak economic activity.

Total Assets were down 16.1% YoY and 10.4% QoQ, to AR$761.1 billion as of March 31, 2023. The YoY and QoQ performance mainly reflect lower balances of securities issued by the Central Bank, Repo transactions with the Central Bank and Government securities mainly due to asset & liability management to maximize NIM and profitability, while inflation of 104.3% YoY and 21.7% QoQ impacted loans.

Common Equity Tier 1 Ratio was 14.7% as of March 31, 2023, increasing 170 bps from 4Q22 and 90 bps from March 31, 2022. Tier 1 Capital Ratio reflects that the expansion in Risk weighted assets and deductions were more than offset by the inflation adjustment of capital. The loan portfolio grew below inflation in the quarter.

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