Delivering improved profitability with ROE at 18.5% in 3Q23, and 12.9% in 9M23
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 and nine-months period ended September 30, 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.
Management Commentary
Commenting on third quarter 2023 results, Patricio Supervielle, Grupo Supervielle's Chairman & CEO, noted: "We are pleased to report another quarter with improved profitability and ROAE reaching 18.5% in real terms. We accomplished this as we continue executing our strategic plan while navigating an increasingly complex macroeconomic and political environment.
NIM, at 29%, remained high in the quarter, supported principally by a 17% sequential increase in net financial income driven by higher volumes. This trend continued into October underpinned by our solid asset and liability management capabilities. Notably, fee income increased 14% sequentially in real terms driven by a solid performance across our businesses.
The NPL ratio improved further, reaching a historic low of 1.7%, reflecting a mix-shift in the loan book as we significantly reduced our exposure to consumer loans and tightened overall credit scoring standards over the past quarters. We maintained our focus on loans to payroll, and middle-market customers prioritizing asset quality in the current macro environment.
On an accumulated basis, we delivered solid results, with ROE in real terms improving to 13% from negative 5% in the year-ago period. Higher profitability was mainly driven by a 16% increase in Net financial income while loan loss provisions contracted 32%, reflecting a healthier loan mix. Our successful initiatives, aimed at driving higher operating leverage, contributed to an 8% decline in personnel and administrative expenses. In turn, this contributed to a sustained improvement in the efficiency ratio to 61% from 76% in 9M22, while we also maintained our focus on further enhancing the customer experience.
With an optimized branch network and enhanced digital capabilities, we are serving more clients, more efficiently, while also increasing cross-selling to our existing customer base. Noteworthy, this quarter we reached our goal of originating 50% of our personal loans digitally. Moreover, the number of retail clients investing in our money market funds 24/7 through our App, a unique service among banks, expanded by 10x to 100,000 year-on-year and AUM multiplied by 6x in nominal terms, as customers continue to use this platform to protect transactional funds against inflation. As the sole bank and first mover, we believe we can maintain a strong competitive position going forward.
The successful advancement of our strategic priorities for the corporate segment is also yielding new clients and a recovery in market share. This is evident in the 40% sequential increase in corporate loans in nominal terms and above inflation. On this front, we continued to add digital functionalities and completed our digital offering of working capital financing products. This has enabled us to gain share of wallet and increase market share in foreign trade financing and sight deposit balances, while continuously improving NPS in related segments in a multi-year program.
Lastly, IOL, our online broker, continued to drive fee growth, demonstrating our ability to acquire and retain customers, with monthly active users increasing by 4x to 210,000, new accounts by over 7x, and transactions by 4x year-on-year.
Looking ahead, president-elect Javier Milei has committed to introducing major reforms to eliminate the fiscal deficit, deregulate capital flows, and move Argentina into an open market economy with a sustainable economic model. This is good news since it addresses long-standing structural imbalances in our economy. In the short run, we expect this adjustment to impact economic activity and inflation. At Supervielle, we are prepared to navigate these near-term challenges with 100% of our capital hedged against inflation and look forward to leveraging our agility to rebound strongly when the economy begins to stabilize and grow again supported by a strong 16.9% Tier 1 capital ratio," concluded Mr. Supervielle.
Third quarter 2023 Highlights
Attributable Net Income of AR$9.5 billion in 3Q23, compared to a net loss of AR$1.3 billion in 3Q22 and a net gain of AR$8.4 million in 2Q23.
In 9M23, Attributable Net Income was AR$18.9 billion compared to a loss of AR$7.3 billion in 9M22.
The YoY swing in Net Income reflects the successful execution of the Company's strategic plan implemented in 2022 and 2023 to optimize operations, enhance digital capabilities and increase customers' principality.
ROAE increased to 18.5% in 3Q23 from negative 2.7% in 3Q22 and positive 17.6% in 2Q23. 9M23 ROAE reached 12.9% compared to negative 4.8% in 9M22.
ROAA was 2.9% in 3Q23 compared to negative 0.4% in 3Q22 and positive 2.7% in 2Q23. 9M23 ROAA was 1.9% compared to negative 0.7% in 9M22.
Profit before income tax increased to AR$15.2 billion in 3Q23 compared to AR$1.4 billion in 3Q22 and AR$12.2 billion in 2Q23.
YoY performance is explained by: i) higher yield and volume on the investment portfolio and to a lesser extent higher yield on loan portfolio while weak credit demand continued to impact volumes, ii) higher fees driven by solid performance across businesses, particularly IOL and asset management, and iii) a 7.7%, or AR$3.5 billion, decrease in expenses, reflecting the optimization of operations. These were partially offset by: i) a 96.5%, or AR$9.7 billion, increase in the loss from exposure to inflation reflecting a 47.6%, or AR$23.2 billion, increase in Net Monetary Assets excluding income tax credits, while inflation reached 138% YoY, and ii) a 24.5%, or AR$885 million, increase in Net Loan loss provisions as the Company updated its forward-looking model taking into account an increasingly challenging macro environment for the coming months.
Profit before income tax reached AR$30.2 billion in 9M23 compared to a loss of AR$5.6 billion in 9M22.
Net Financial Income reached AR$76.2 billion in 3Q23 increasing 29.8% YoY and 16.7% QoQ. The QoQ performance is explained by a higher yield on larger investment portfolio volumes and higher interest earned on loans together with larger commercial loan portfolio volumes. Adjusted Net Financial Income (calculated as Net Financial Income + Result from exposure to inflation) was AR$56.4 billion in 3Q23, increasing 15.9% YoY and 2.2% QoQ. 9M23 Net Financial Income amounted to AR$195.8 billion, increasing 16.3% from AR$168.3 billion in 9M22. Adjusted Net Financial Income was AR$157.0 billion in 9M23, increasing 12.4% YoY.
Net Interest Margin (NIM) reached 29.2% compared to 22.0% in 3Q22 and 26.6% in 2Q23. The YoY and QoQ performance reflect higher interest rates together with larger investment portfolio volumes which more than offset lower NIM in the AR$ loan portfolio.
The total NPL ratio was 1.7% in 3Q23 improving 80 bps from 2.5% in 2Q23. The sequential decline is mainly explained by: i) the corporate loan portfolio growth in 3Q23, and ii) the sale of delinquent retail loans, mainly open market and former consumer finance customers. The NPL also reflects a mix-shift in loan portfolio and stringent credit scoring in past quarters.
Loan loss provisions (LLPs) totaled AR$4.3 billion in 3Q23, decreasing 18.6% YoY and 9.0% QoQ. Net loan loss provisions, equivalent to loan loss provisions net of recovered charged-off loans and reversed allowances, amounted to AR$4.5 billion in 3Q23 compared to AR$3.6 billion in 2Q23 and AR$3.6 billion in 3Q22. During the quarter the Company updated its forward-looking model taking into account the more challenging macroeconomic context resulting in an increase in the Net loan loss provisions. In 9M23, LLPs reached AR$14.0 billion decreasing 32.2% from AR$20.7 billion in 9M22. LLPs, net amounted to AR$12.8 billion decreasing 21.5% from AR$16.3 billion in 9M22. The loan portfolio continued to reflect a healthier loan mix.
The Coverage ratio increased to 182.8% as of September 30, 2023, from 147.9% as of June 30, 2023, and 141.3% as of September 30, 2022.
Efficiency ratio improved to 51.7% in 3Q23, compared to 73.1% in 3Q22 and 62.5% in 2Q23. The QoQ performance was explained by a 13.0% increase in Revenues mainly reflecting higher margin, together with a 6.5% decline in total expenses. In 9M23, the efficiency ratio improved to 60.9%, from 76.1% in 9M22, driven by higher margin and cost cuts.
Loans to deposits ratio was 39.6% as of September 30, 2023, compared to 49.8% as of September 30, 2022, and 37.0% as of June 30, 2023. AR$ loans to AR$ deposits ratio was 41.0% as of September 30, 2023, compared to 50.4% as of September 30, 2022, and 37.3% as of June 30, 2023.
Total Deposits reached AR$969.0 billion increasing 126.4% YoY and 20.2% QoQ in nominal terms compared to an industry growth of 125.7% YoY and 26.5% QoQ. In real terms, total deposits decreased 5.0% YoY and 10.8% QoQ, while average deposits decreased 3.5% YoY and increased 4.1% QoQ, reflecting assets and liability management. The leverage ratio (Assets to shareholder´s equity) declined 70 bps to 6.2x from 6.9x as of September 30, 2022 and 90 bps from 7.1x as of June 30, 2023.
Total Assets were down 3.7% YoY and 7.3% QoQ to AR$1,291 billion as of September 30, 2023. The QoQ, performance reflects: i) effective asset & liability management with securities issued by the Central Bank & Repo and Government securities decreasing 13.7%, or AR$ 81.5 billion, and 31.4%, or AR$ 35.5 billion, respectively, while average volumes of securities issued by the Central Bank & Repo and Government securities increased 13.5%, or AR$ 68.8 billion, and 7.7%, or AR$ 9.9 billion, respectively, and ii) weak retail credit demand while corporate loans increased 3% in the quarter with an inflation of 34.8%. Average AR$ Assets increased 3.1% QoQ mainly due to a 12.3% increase in the average balance of the investment portfolio. YoY, Average AR$ Assets decreased 6.0% reflecting weak credit demand in a context of high inflation.
Common Equity Tier 1 Ratio as of September 30, 2023, was 16.9% increasing 270 and 120 bps when compared to September 30, 2022 and June 30, 2023, respectively.
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