Too early to gauge full impact of economy woes - Banco Macro

Argentina's No. 1 domestic commercial bank is tweaking its forecasts for this year amid forex turbulence, rising interest rates and stubborn inflation.

Banco Macro said, however, it was still too early to get an accurate outlook.

"Honestly, it's not very easy to understand," said Banco Macro CFO Jorge Scarinci during a Q1 results call.

"We were forecasting real GDP growth of 2.5-2.6% for this year, but it's going to be lower. At the moment we don't know by how much. We want to see how long the current level of interest rates will be maintained by the central bank."

Monetary authorities hiked their policy rate to 40% recently as part of efforts to support the peso, which has been impacted by factors such as a strengthening dollar and capital outflows. The country is also seeking a multibillion-dollar credit line from the IMF.

Inflation is not converging to the government's target of 15% for 2018. In April, monthly inflation was 2.7%, bringing the 12-month figure to 25.5%. GDP growth was originally expected to come in at around 3.0% this year. The government has said it will undershoot growth and inflation targets.

LOANS, DEPOSITS, LOAN QUALITY

Scarinci said the bank – which saw net income rise 76% year-on-year in the quarter to 3.56bn pesos (US$146mn) – will see a deceleration in loan growth.

"Loan growth we were forecasting for this year, in the low to mid 40% range, is also going to be fine-tuned downwards a little bit. But it is still too early to say by how much."

At the end of March, Macro's loan portfolio stood at 141bn pesos, up 53% from 12 months earlier. Deposit growth was slower: 30% to 149.5bn pesos.

Deposit growth this year is forecast to come at around 25-30%.

Scarinci said loan quality was relatively stable, that there had been no noticeable changes in deposit outflows over the past few weeks, and that the bank was confident about accessing funding to help support loan growth.

"Depending on market conditions, we could be raising more funds locally or abroad. But, honestly, we are not concerned in terms of funding that could prevent us from continuing growing," he said.

Scarinci said an acceleration in inflation could have a 20-30 basis point impact on the bank's net interest margin.

MORTGAGE LENDING

Demand for mortgage loans has been booming in Argentina. However, Macro said demand had slowed over the past few months on the back of higher interest rates and inflation.

He added that if inflation falls, demand will increase.

"Once inflation cools down below 20% we will see a rebound in demand," he said.

M&A

Argentina's banks are among the most profitable in Latin America and the sector is seen as having much growth potential, partly because rates of financial intermediation are low.

Banco Macro has its M&A radar permanently switched on. The main target that has been cited is Banco Patagonia, which has a strong presence in Buenos Aires, where Macro wants to grow.

But during the call, Scarinci said a Patagonia deal was off the table. "That deal is completely dead," he said.

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Patagonia's controller, Brazilian state-run giant Banco do Brasil, has said it would sell a portion of its 59% stake through a public share offering.

"We have no plans to sell Patagonia's control, our intention is to sell a portion of our shares, keeping our controlling stake. We are happy with the performance of the bank," Banco do Brasil CEO Paulo Caffarelli said this month.

Caffarelli added that Argentina's forex woes could delay any potential share sale.