Operator: Good morning, and welcome to Banco Macro's Second Quarter 26 Earnings Conference Call.
Nicolas Torres: Thank you all for joining us today. Banco Macro's second quarter earnings release was distributed yesterday and it is available on our Investor Relations website. For this quarter's call, are also introducing an earnings call presentation which will accompany today's-- The presentation will be available on our website following the call. Please note that this call may include forward looking statements and please refer to our SEC filings for further information. All figures discussed today are in Argentine pesos and have been restated in terms of the measuring unit current at the end of the reporting period. In accordance with Central Bank regulations. With that, let me briefly introduce today's speakers. So we have with us today Juan Martin Parma, chief executive officer of Banco Macro. Jorge Francisco Scarinci, Chief Financial Officer of Banco Macro; myself, Nicolas Torres, Investor Relations from Banco Macro. I will then briefly comment on the second quarter 26 macro context before moving on to the bank's second quarter 26 financial performance. Economic activity moderated after the first quarter with April and May economic activity averaging 0.8% below the first quarter of 26. Agriculture and mining offset weakness in manufacturing and commerce. Inflation declined throughout the quarter from 2.6% in April to 1.9% in June. When rates tomorrow declined from 26.3% at the end of March, to 22.7 at the end of June. The exchange rate, the peso depreciated 7.3% during the quarter remaining stable throughout April and May before weakening in June. On credit, growth remained muted. Finally, systemic quality remained under pressure. System NPLs increased from 7.2% in March to 7.7% in May, which is the latest available data. With household delinquency at 12.8%, versus 3.5% for corporates, coverage declined from 19.1% to 86.3%. Turning to our main figures. Starting on the left, second quarter net income totaled 2.8 billion, increasing 39% quarter on quarter and 4% year on year. The improvement was mainly driven by higher results from financial instruments at fair value through P&L and lower loan loss provisions and a smaller loss from the net monetary position. Net operating income before administrative expenses reached COP 1.29 trillion, down 2% quarter on quarter and up 1% year on year. Operating income after administrative expenses was MXN 603.8 million, down 1% quarter on quarter and up 1% year on year. Moving to the left hand side, adjusted net income reached ARS 221 million, in plan and adjusted annualized ROE of 14.3%. This excludes ARS 14.2 billion in after tax restructuring expenses, in line with restructuring impact. that we saw in the first quarter. On efficiency, our efficiency ratio was 33.9% stable year on year we continue to execute on the balanced efficiency transformation. Finally, our reported NPL ratio was 6.25% as of June 2026. This remained below the 7.7% reported for the system as of May 2026. When our coverage ratio stood at 95.4% above the market's 86.3% of May. Before moving on to the detailed financial performance, let's review the main highlights of the quarter. First, we reversed our double digit net income growth with net income up 39% quarter on quarter to 206.8 billion. This result represents an annual ROE of 13.4% adjusted ROE is still at 14.3% up 4.4 percentage points from the last quarter. Second, margins remained stable. Net interest income remained stable, while deposits continued to represent 76% of liabilities. The average cost of interest bearing liabilities fell below 20%. Third, we continue executing on efficiency including another 18 branch closures during the quarter. The after tax restructuring charges remained almost unchanged quarter over quarter at ARS 14 billion. Fourth, asset quality continued to outperform the system with NPLs 6.25% below the system 7.7% and moreover, coverage stood at 95.4% above system 86.3%. Fifth, lending growth remained challenging. Total lending increased 3% quarter on quarter supported by commercial growth, while on a yearly basis total financing decreased 5%. Our private sector loan market share remained stable at 8.2%. And 6, our balance sheet remained strong with a Tier 1 ratio of 28% and ample liquidity. Both fundamental for future growth and strategic opportunities. Now let's turn to the quarter over quarter P&L operations breakdown. Net income increased ARS 57 billion quarter on quarter due to higher income from government securities for value through profit or loss, lower loan loss provisions and lower loss from the net monetary position. Net interest income decreased 1% or 7.4 billion quarter on quarter as lower funding costs mostly offset lower loan yields and average lending volumes. Income from securities decreased 18% to 30.5 million quarter on quarter, in the first quarter of 26, a 71 million pesos 1-off result from the sale of bonds was recorded. Net fee income decreased 2% to ARS 4.6 million in the quarter as higher mutual funds and securities fees were offset by lower and debit card fees as well as lower covered services fees. Loan loss provisions decreased 24% or ARS 60.7 billion in the quarter, mainly reflecting lower commercial delinquency. While keeping coverage at an adequate level. Personnel and administrative expenses increased 26.6 million led by personnel and marketing and logistic costs by achieving a structural efficiency. The other major positive driver of the quarter was the result from the net monetary position. That loss was 102.1 billion pesos smaller than the first quarter. Reflecting the decline in domestic inflation. Finally, income tax and other items contributed ARS 7 billion to the quarter on quarter value efficiency. Lower other operating expenses more than offset the higher income tax rates. Tax rate registered in the quarter. All of these factors explained the increase in reported ROE from 10% in the first quarter to 13.4% in the second quarter. Slide 8 shows the impact of the restructuring program on reported profitability. Reported net income was ARS 206.8 million during the quarter, we recorded ARS 14.2 million of tax restructuring charges. Related mainly due to early retirement plans and certain severance provisions. Excluding these charges, adjusted net income would have reached ARS 221 million to plan, an adjusted annualized ROE of 14.3% and adjusted ROE of 3.5%. These expenses are part of the efficiency program we have been implementing to create a more agile operating model and a lower structural cost base. Moving to our second quarter 26 assets and liabilities performance. You can see the evolution of our balance sheet mix and pricing of both assets and liabilities. On the asset side, loans increased 3% at quarter end represent 45% of total assets. Government securities make up 25% of our assets. Asset yield declined 280 basis points quarter on quarter from 44% to 41% in the second quarter. The 27 basis points decline in average lending rate while the average volume levels decreased 3%. On the liability side, deposits continue to represent 76% of total liabilities. Total deposits reached 14.7 trillion pesos, down 1% quarter on quarter and up 4% year on year. Funding costs declined 550 basis points quarter on quarter from 24% to 19% due to a 310 basis points decline in the average rate paid on deposits while the average volume of deposits decreased 3%. Funding costs declined faster than the asset yield driven by lower private sector peso rates. Turning to Slide 10, the gross credit portfolio shown on the left, we have seen growth and 212.6 billion pesos, increasing 3% quarter on quarter. Commercial lending was the main driver of the increase, while consumer lending grew more moderately represented 71% of the gross portfolio at quarter end. Compared with 29% for commercial notes. Loans and other financing reached COP 11.7 trillion with private sector financing up 3% quarter on quarter, including 2% growth in peso lending and 1% growth in U. S. Dollar lending. While our private sector loan market share remains stable at 8.2%. On the right hand side, net interest income reached ARS 1.03 trillion, stable compared with the first quarter and 11% above the second quarter of last year. Net interest margin, including FX, declined from 25% to 24%, mainly due to our lower FX contribution. Excluding FX, net interest margin increased 30 basis points from 23.8% in the first quarter to 23.5% in the second quarter. Moving on to asset quality, the left hand chart shows our reported NPL ratio increasing from 5.4% in the first quarter of 26 to 6.5% in the second quarter. As we explained last quarter, the reported NPL ratio is affected by mandatory prudential classification. That take into account a customer's behavior across the financial system. Our Stage 3 loans ratio increased 30 basis points from 3.8% to 4.1%. Our coverage ratio stood at 95.4% This remained above the 86.3% level from system as of May 2026. It is important to mention that coverage on Stage 3 loans reached 148.8% in the second quarter. The right-hand chart shows different trends by segments. Commercial NPLs improved to 0.9% from 1.3% in the first quarter and remained well below the systems average 3.5%. Consumers NPLs increased to 8.4% from 6.9% last quarter, but also remained below the 12.8% reported for the system. Turning to the efficiency operating expenses shown on the left, reached ARS 58.7 billion in the second quarter. Employee benefits increased 7% quarter-on-quarter and administrative expenses increased 8%. As a result, the fees interest rates increased from 32% to 34%. The chart on the right shows the continuous streamlining of our operating model. We ended the quarter with 402 branches 18 fewer than March and 89 fewer than 1 a year ago. Headcount declined to 8.18 thousand employees, down 1% quarter-on-quarter and 8% year-on-year. These actions are part of the restructuring program with the objective of increasing efficiency and agility by preserving the reach and service capabilities of our franchise. Slide 13 shows the capital and liquidity and remaining key strengths. On the left, our Tier 1 capital ratios stood at 28% compared with an 11.5% requirement. On the right the ratio of liquid assets to total deposits increased to 79%, while liquid assets remained equivalent to 74% of our total deposits. Our capital and liquidity positions therefore continue to provide significant capacities to support growth and evaluate strategic opportunities. Before opening the call for questions, I would like to spend a few minutes on our long-term transformation. So I would now let's welcome Juan Martin Parma, Our CEO, to comment on strategy.
Juan Martin Parma: Good morning, everyone. Pleased to be here with you. I am going to cover quickly a couple of slides of our trajectory to 2030, basically the execution of our strategic plan that we presented back in December last year. So as a recap, our purpose is to be the leading bank for a thriving Argentina recognized for excellence in customer service and value proposition. With 4 strategic pillars, and 4 enablers. The 4 strategic pillars are simplicity, which means providing customers with simple, intuitive, and increasingly digital day to day banking experiences so that takes us to the next phase, which is once customers find us simple to operate, they will give us their primacy. As we know, primary customers are 8 to 9x more profitable than nonprimary ones. So it is critical to move to the second pillar which is moving customers from nonprimary to primary. The third 1 is development. That has to do with helping and supporting our customers to develop into the future with wealth management, with long term lending, with insurance to protect their wealth. And their families and their lives. So we multiply the value of our customers with more cross sell with future looking value propositions. And finally, what has to do with how we service our customers, which has to do with the application of data technology, Internet, artificial intelligence, in our distribution models. While keeping the human touch. that is digital plus human. And, of course, as enablers, we have data and AI, our talent efficiency to fund our investment in strategic areas. We need to reduce our physical structure and our less value-adding expenses to fund our investment into the growth areas. And finally, risk management to make our results sustainable into the future. The good thing is that this is our first year of the execution of the 5 year plan. And it is under execution. We are moving ahead with the transformation of the bank following this 4 strategic pillars. For example, and this is just an example; this is not exhaustive. it is just some examples of the things that the bank has deployed across this second quarter of the year. With a pillar of simplicity, for example, with almost completed the deployment of the new retail banking app with unified all onboarding digital onboarding processes for retail customers. We have launched extended hours to operate during the weekend and through the weekends for commercial customers. And much more on primacy. We have launched a first mover loyalty program. We are the first bank in using loyalty programs as the ones that airlines or some well advanced fintechs and digital banks use globally. The first bank in Argentina to do this. This will help this will create a platform for us to move at scale customers from non-primary to primary. We are moving also with a relationship pricing facility to be sure that we price each customer according to their profitability potential, their risk, and their loyalty. We are moving ahead with 1 of the initiatives of the strategic plan that will help primacy with commercial customers, is the launch of our acquiring platform. On development, many things here as well. Our wealth management app is live. Insurance was an area that we had underdeveloped in the bank, and we have launched auto insurance across the network, which will be a driver of future fee income growth. And we are preparing for the launch of Banco Macro's private bank proposition. And hiring, but also preparing our talent with a cutting edge innovative wealth private banking academy for our people. Finally, on digital plus human, another breakthrough of the quarter is that we launched the first conversational banking WhatsApp channel. In the in the industry. You can customers can 6 million customers can operate the bank intuitively using day to day language. Sending us audios, sending us images, sending us text, in day to day language, and our AI agent can respond No other bank is doing this at this scale. In Argentina, so this is also giving us a competitive differentiation using and making the use of AI in banking in Argentina real. We continue with the transformation of the physical network, reducing our number of branches, but also modernizing and investing in the wealth centers, in the commercial centers, what we call hubs So we are reducing square footage. We are reducing numbers of branches but at the same time, investing in these customer service centers to service the segments that are most profitable for the bank. So this is basically what is going on. there is much more under execution. We expect to continue bringing to these calls quarter by quarter the progress that we are making on our way to 2030. Of course, there are some variables in the macroeconomic context and the political context that are not in our control. We will continue navigating the situation in this pre-electoral year but we remain confident of the future of Argentina, and that is why we will continue building doing our job in building the bank of the future. for a thriving Argentina.
Nicolas Torres: Thank you, JMP. Thank you, Juan. This concludes our prepared remarks. At this time, we would like to take the questions you may have.
Operator: Operator, please open the line for Q and A. Okay. At this time, we are going to open it up for questions and answers. If you would like to ask a question, please press the Q and A button at the bottom of the screen. Or to ask a question audio, click on raise hand. We will then receive a request to activate your microphone. 1 moment please for the first question. Our first question comes from Yuri Fernandes with JPMorgan.
Yuri Fernandes: Hi, all. Good morning and for the opportunity of asking questions. I have a follow-up on asset quality, and thank you for the slide, presenting some of the metrics. It is clear that was this model update, right, that drove some, adjustments here. But still, there was an ongoing worsening and a drop in your coverage ratio, right? So if you can give us just some outlook on how do you see cost of risk, How do you see NPLs evolving for the second half? And regarding the coverage, if this should be, like, the minimum? Because I know macro still has a good level when we compare to some peers. But the delta, narrowed now, right, this quarter. If you can also give us a message regarding the coverage ratio. Thank you.
Jorge Francisco Scarinci: Hi, Yuri. This is Jorge Francisco Scarinci. Thanks for your question. Yes. In terms of asset quality, I think across the board, second quarter for in the Argentine market was about a quarter in terms of quality deterioration in NPLs. Basically, what we saw at some point is that the deterioration on the portfolio continue maybe at maybe lower pace than the 1 that we saw in the first quarter. There were some also pickup in the rhythm of deterioration on the company's portfolio. I would say that in terms of NPLs, and I would pull that, it is very important to make the difference between our own-risk customers and the 1 on the contagion of our own customers with being non recurrent in other banks or digital wallets here. So it is very important to highlight there the difference. Between the 4.1 in our own risk and the 6.3 with the contagious effect. Also, posted similar on coverage ratios, looking at stage 3, the coverage ratio is almost 149%. That is something that we are cautiously looking at. it is, of course, looking very healthy. In terms of the 95.4 that is coming down from the 109.8% total coverage compared to the previous quarter. That is something that we were questioning because we were kind of the only bank being above the 100% level before the rest of the system was going downwards, So we did the same, but always keeping an eye on the stage 3 coverage ratio that is very important for us. So that being said, I would say that for the end of the year, we think that cost of risk that was down in this quarter compared to the previous 1, we are thinking to be between 6.5-7% cost of risk by the end of 26. And NPLs to be ranging between 5.5-6%. Those are in terms of NPLs, I am talking about the total portfolio, not stage 3. Stage 3, of course, we are looking to be below 4% by far by the end of 26. And in terms of coverage ratio, Yuri, again, we for the moment, we are not seeing the total coverage ratio going below 90. We have to see what is going on in the industry going forward, but that is something that we that number, we have it as not a barrier, but a kind of a target. But of course, the important 1 is the Stage 3 that for sure is going to continue well above the 100% level by the end of the year. No. Super clear, Jorge. Thank you for the numbers. And if I may, a second 1, just on growth. I think last week, there was a measure to flexibilize a little bit the dollar lending. Right? I think there is a cap on 15% of your deposits. I know macro you were already lending in dollars with your own resources. How you see this measure Jorge? And also the loan outlook, do we see an acceleration from here? How are you seeing overall? You know, I guess your former guidance of 15 to 20 on real growth may be a little bit challenging. So I do not know if you with this new measure, maybe we can see, you know, better dynamism for growth in Argentina. Thank you. Yeah. We what we are seeing is something that says related to what Juan commented before. We are starting the beginning of the pre-electoral year, and of course, this government has been very precise and making a lot of focus on maintaining inflation under control. What we are seeing is that is having an impact on what we are seeing nowadays in the domestic interest rates that have increased a little bit compared to what happened in the second quarter. So that is why our forecast for loan growth is being reduced to a level of around 5% in real terms and maybe slightly downwards. So this make a range between 2 and 5 in real terms for the whole portfolio. And here, we are assuming that the peso loans will grow until the end of the year in a similar rate than the monthly inflation figure, in terms of the dollar-denominated loans, we are also assuming that they will grow at 2% to 2.5% a month. And also, we are assuming that it is going to be a slight devaluation of the peso between June and December of around 12-13% So if you do the math there, you can get to the level of the between 2-5% in real terms that we are talking to. In relation to the new regulation, new measure that the central bank announced where banks can now lend up to 15% of domestic sorry, of U.S. dollar deposits to those companies that are not generating U. S. Dollars we think that is something that will bring some growth to the portfolio for the moment we are not expecting a boom or a huge increase in the near term. But this is something that maybe could have more impact in 2027. But we see this measure as a positive for the system. And, of course, for the country. No. Super clear. Thank you very much. You are welcome.
Operator: Our next question comes from Giuliano Jara with Goldman Sachs.
Giuliano: Hi, everyone. Good morning, and thank you for taking my questions. I just have 2 follow ups. I think 1 is on your asset quality. I just was wondering if you could share some more color on how your write offs in your, recovery trends are going and how you expect it to trend going forward? And the second 1 is on loan growth. This year, you have an election year. And I think loan growth this year should be a little bit more muted. So how do you think, and if you could share already some broad expectations for loan growth next year would be super great. Thank you.
Jorge Francisco Scarinci: Hi, Giuliano. In terms of your first question, write off policy is what the debtor, the client reach category 5, and it is a provision 100%. We do a write off there. That is something that we has been covering out this policy for many years, and we continue with the same 1. And that is going to be the policy going forward. In terms of recoveries, for the moment, we are seeing some little recoveries on the loans that have been written off. Sorry, We think that recoveries are going to be slightly bigger in 2027. When we think that the cycle is going to enter into a more positive phase. In terms of your second question, honestly, I think it is a bit early to make a guidance for loan growth for 2027. Honestly, we would like to see how we finish 2026, but also the macroeconomic variables in 2027. For the moment, we are we are having very preliminary data from the economists that we work with. And so let me give me at least 1 more quarter to give the 2027 guidance for loan growth.
Operator: Our next question comes from Ernesto Gabilondo with Bank of America.
Ernesto: Thank you. Hi. Good morning, Juan, Jorge, and Nicolas. Thanks for the opportunity to ask questions. My first question will be on the political side. We have started to see some kind of surveys or initial polls ahead of the presidential election. I think it is too soon, but we are starting to see them. So can you provide us what are you seeing on your side How is the business sentiment? How is the consumer confidence ahead of the election? And for my second question is on your earnings expectations and ROE evolution. Throughout the rest of the year Your recurring ROE the adjusted ROE, is already at a double digit So how should we think about the evolution of this ROE that in the second quarter, the adjusted 1 was at 14%. How should we think for the second half and for the full year? Thank you.
Juan Martin Parma: Maybe I can take the first question on the political side. As you can imagine, we try to avoid making forward looking statements or predictions in terms of politics. Having said that, is clear, as Jorge mentioned, that this is a pre-electoral year. And that as the election year approaches unless there is a super clear winner coming through the polls that creates a bit more chances of volatility. The government has been the central bank has been preparing for that from a fiscal standpoint, from an FX standpoint, from an FX reserve standpoint, which I think is welcome, preparing for what will likely happen, which is that we will see some more volatility. However, I must say that comparing this pre-electoral year with other pre-electoral years in the past, The good sign is that U.S. dollar deposits remain at record highs. Which is a good sense of confidence from the public. But it is what it is. it is a pre-electoral year, and we will have some more volatility as usual. But, again, that said, we believe that the government is preparing well for that and much better than in previous years.
Jorge Francisco Scarinci: Thanks, Juan. And Ernesto, in terms of ROE, yes, we are increasing our ROE guidance for 2026. The previous level for the adjusted ROE was in the area of 8%. Now we are moving up this guidance to the area of 12% for the average for 2026. Basically, there was a good first half in terms of margins. Margins remain much better than expected. We believe that going forward, it will maintain this trend. So that is where we are increasing the ROE or the adjusted ROE target from 8% to the area of 12%. Perfect. Now super helpful. Thank you very much, Juan and Jorge. You are welcome. Welcome.
Operator: Our next question comes from Brian Flores with Citi.
Brian Flores: Hi, team. Good morning. Thank you for the opportunity. I wanted to ask you 2 things. The first 1 is looking at your 2030 strategic plans. Just wanted to check which levers should drive the ROE to your midterm target. And first, obviously, if you can disclose it where do you see the bank in terms of real ROE, And then what could drive it? I am asking this because as Jorge was mentioning, it seems that NIMS should structurally come down, right, maybe to be compensated with higher volumes. And you are running at an efficiency ratio that seems historically good, for you, but also you will need to be investing into this new I would say, customer acquisition strategies. Right? So just wanted to check-in your view, what levels of ROE are you looking for on a sustainable basis, and then what are the key levers that will get you there And then my second question is more of a sentiment 1. And maybe this is something that we on the sell side, we are scratching our heads with, and maybe you obviously, can help us here. Maybe we can scratch our heads together. But we are wondering here, you are revising upwards ROE and I think the industry as a whole is turning around in terms of unit economics. However, valuation seems to be coming down in a very, I would say, sharp way, right? So clearly, the market is worried about something. Just wanted to check with you in your view, if it could be the level of growth that as you were mentioning in your own guidance is coming down and maybe the perspectives have shifted? Or is it you think maybe on the political side as the rest of us are seeing in terms of big uncertainties in 2027 and forward. Right? I know it is a tough question, but any insights here, I think it is great. Thank you.
Jorge Francisco Scarinci: Hi, Brian. Let's start with the last part with the last question in terms of the ROE. And the valuations. Of course, our view from a corporate perspective we are increasing ROE from the 8% adjusted level that we mentioned before to the area of 12%. And it is pretty clear that the first half was much better than what we had expected, and we think that the trend at some point will be maintained in the coming 2 quarters. I agree with you that valuations or stock prices not only for the banking sector, but for the whole Argentine universe are down when you look at it on a year to date basis. And I think that is basically, at some point, not only let's say, local risk, but at some point, I think that the international scenario is becoming a bit more scary. Let's put it in that way. When you look at US 10 year or 30 year interest rates, they are up. When you look at the U.S. financial fiscal deficit, this is huge. The amount of the debt is very high. So at some point, I think that investors are trying to move into more safe assets. You are seeing now the gold prices are going up. So I think that at some point, it is not only local risk. I think that the world markets are a bit volatile and trying to find the best place to allocate assets. it is related to that according to our view. In terms of the first part of your question, in terms of your 2030 strategy, I will let Juan to comment on that.
Juan Martin Parma: Yeah. Sure. I will add to it. Previous comments that Jorge made on valuations. That adding to the global turmoil it is also the fact, as we mentioned before, that we are navigating a pre-electoral year. So part of what you are seeing in the evaluations, not only of banks, but in general of Argentinian assets has to do with that So we do not see this as a as a long term concern. But something that should be cleared out once we pass next year elections and the political outlook becomes more clear for the next 4 year term. In terms of the levers to achieve long term ROE, you are right. If we believe that the central scenario is 1 where Argentina continues its stabilization process, and inflation continues going down and rates continue going down. There will be a trade off with, on 1 hand, margins continue compressing and on the other hand, the financial system expanding where volumes should long-term more than compensate for the reduction in margins. But short-term, is the opposite. Typically, margins compress before the volume comes. So that is the transition that we see for the next 5 years in Argentina in this central scenario. Margins are compressing as inflation rates go down, and volumes as we harvest the opportunity of moving loans-to-GDP, which today stand at 11% to regional averages of 30%, 40%, 50%. that is the macro context for the industry. In our case, the levers are capturing that growth and above, so growing market share growing volumes, growing scale. But also moving harvesting that from not only acquiring new customers, but also moving primary customers up to their primary customers or 30%. We expect to end our strategic planning period with 50%, and thus significant driver of profitability, efficiency and market share. The other lever is fee income, which is really important. And as Argentina starts reducing poverty and increasing its middle class and its affluent class, capturing fee revenue from insurance from wealth management will be crucial. And thus not subject to margin compression. And that is why you saw us talking about development, about insurance, about wealth management, about private banking and everything that we are planting to be prepared to lead in harvesting that opportunity. And third lever is efficiency. You mentioned how we will fund our investments in these growth areas while maintaining our efficiency. Well, the good news is that we still have a big physical network We still have opportunities to recycle costs from nonproductive costs to more value adding investments. And that is what we have been doing. This is not just the plan. This is real. As Jorge mentioned, we have been reducing significantly our branches network and our FTE, and that is what we are using to fund growth initiatives while keeping our efficiency ratio in good levels.
Jorge Francisco Scarinci: No. Super clear, Jorge and Juan. I may just follow-up on the level that you envision in 2030 as the sustainable levels of ROE, you have a specific target in mind? Yes. I mean, going forward and, of course, sustainable implies I mean, with Argentina inflation going to single digits and at some point, if we continue like this, we assume that in 2028, Argentina will leave aside the inflation accounting. So the ROE we report in 2030 It should be nominal. So we are it is expecting to be in the area of about 20% ROE by 2030. Super clear. Thank you. You are welcome.
Operator: Our next question comes from Pedro Le Duc with Itau BBA.
Pedro Leduc: Hello, everybody. Thank you for the call and taking my question. Can we explore a little bit more on that part. I know it will come out to efficiency, but you have been doing a lot of changes, you know, in the footprint. But also modernizing the tech and consumer facing stack. And I am trying to square it out when I am modeling it forward as well. Thinking less about efficiency because top line moves a lot, but more on maybe on real terms just to see where we are with the balance of savings and investments that you are doing? Thank you.
Jorge Francisco Scarinci: Hi, Pedro. Yes. I mean, as Juan was commenting before, the idea in terms of branches by the end of the year, we should be in the area of 370 branches. And employees below 8 thousand employees. At the same time, of course, as Juan was also commenting, we are investing in technology in different sectors of the bank in order to modernize systems and so on. So I would say that going forward, we are going to see maybe nominally speaking, maybe similar levels of expenses, In the middle, you will have, of course, a decline in remunerations of employees because we are going to have less employees, but we are going to see an increase in software expenses, But, of course, going forward, the idea is to dilute this nominal level of expenses within a higher volume of net interest and fee income. So the idea going forward is to work there in both sides of the equation Expenses and the generation of interest and fee income. that is useful. Thank you. You are welcome.
Operator: Our next question comes from Mario Estrella with Itau.
Mario: Hey, guys. Morning. Just, just 1 question on margins. So we saw this quarter that what we what we saw is that funding costs actually went down, But all of that was upset by lower asset yields. So what we have seen during you know, at the beginning of the third quarter is that a little bit more volatility in the in the local LIBOR rates. So I was wondering, I mean, if the evolution of the margin the rest of the year can be a little bit more challenging given that you know, that cost of fund can kind of like reverse. The same time that is reduced, you know, keep on having the pressure that we saw in the second quarter. So what is the danger here for the evolution of margin? In the remainder of the year? And for the and for the guidance for that matter.
Jorge Francisco Scarinci: Hi, Mario. I commented this before. I think that the margins the net interest margin that we saw in the first half of the year were slightly wider than the 1 that we had expected. We believe that going forward, this level of margins would be maintained. I mean, at the beginning of the year, we were expecting to have net interest margin in the area of 20% as a guidance. Now after the first half, I will have to say that we should be above the 20% net interest margin guidance. So the idea is to relatively maintain the margins in the couple of the next quarters. Yeah. That perfect. And just to confirm what you mentioned about loan growth, the guidance, it was I believe, was between 15-20%. Do you do you mind do you maintain that guidance? Or No, no. I mean, that guidance was 2 quarters ago. Now the new 1 is between 2 and 5 in real terms, and I explained the evolution of the peso and dollar loans before. Yeah. Yeah. That was that was pretty clear. I was trying to confirm that. Okay. Thank you. Thanks so much.
Operator: Welcome, Our next question comes from Camila Villaça Azevedo with UBS.
Camila Villaça Azevedo: Hi, everyone. Thanks for taking my question. I have 2 questions from my end, 2 follow ups. So first on growth, I just wanted to get your sense on recent performance of the last month and August starting August. And, also, sorry, in the second quarter by economic sector or customer segments and which would be the main drivers behind growth that you are mainly expected? By sector as well? And also, how are you seeing retail demand currently? So the in terms of demand, I just wanted to-- yes. that is another follow-up in terms of we are seeing the higher spreads. Right? So given these higher spreads, how are you seeing demand, and how should we expect demand to evolve in the second half of this year? Thank you.
Jorge Francisco Scarinci: Hi, Camila. In terms of growth, what we are seeing or what we will be seeing in the 2 coming quarters is that commercial lending should be outpacing consumer lending. At some point, the consumer growth is slightly below inflation, and commercial lending is global inflation levels, monthly speaking. And we expect that this will continue at least in the next 2 quarters. I mean, the sectors where we are seeing demand are the ones that are the winners within this economic model, which are basically mining oil, gas, agribusiness, We expect to see some pickup maybe in construction in the next couple of quarters. And we assume that massive consumption sectors and automobile are kind of losers within this economic model, so we are not seeing big demand coming from that. So that is the idea. And within your high level of the margins, I think that is something to keep an eye on also is that when you look at the net interest margin, we are including interest rates there, but also income coming from the more bond portfolio on FX. So at some point, if you want to dig in that number, you will see at some point that intermediation rates should narrow a little bit. On the other hand, you will have a income from bonds and on FX compensating that decline on the intermediation spread. So that is why we are forecasting some stability in the net interest margin. Yeah. that is super clear. Thank you very much. Welcome.
Operator: Our next question comes from Pedro Offenhenden with Latin Securities.
Pedro Offenhenden: Hello, Juan, Jorge, Nicolas. Thank you for taking the call. I wanted to ask when you look at the NPLs and loan trends are you seeing any meaningful difference in credit behavior between the interior of the country and the city or province of Buenos Aires. Either in terms of credit demand or delinquency trends.
Jorge Francisco Scarinci: Hi, Pedro. Well, I mean, because our footprint is more in the interior and less exposure in Buenos Aires, I think that is important to look at those banks with more presence in BA to see the trend. I think that is when you look into our numbers and when you look at our own risk, that is the Stage 3, they are behaving much better than what we could be seeing in terms of the Buenos Aires clients. But I would say that this is not only a geographic reason, but also is because Banco Macro on its own has a more I would say, let's say, cautious, strict, deep insight on the on the credit policy. So that is also helping not only the geographic location of the customers. Okay. Thank you, Jorge. You are welcome.
Operator: The next question comes from Federico Cavalli with EdCap.
Federico: Hello, everyone. I want to ask regarding your restructuring plan. If we should expect these expenses to continue in the second half of the year and in 2027? And you guided ROE for in 12% for the year. How these expenses will impact ROE and what is your reported ROE guidance for the year?
Jorge Francisco Scarinci: Hi, I mean, yes. The restructuring will continue as we were commenting before. In order of closing additional branches and some reduction on FTEs. What we are going to see along 2026 you will see, of course, the impact on the total cost of layoffs And, of course, in 2027, we are going to see all the savings on this less FTE number and lower number of branches. Included the adjusted ROE that we forecast of 12% area that we were commenting. I would say that the reported ROE should be ranging in the area of between 9% and 10% for the full year. But, again, we look at the adjusted 1 because it is allowing us to see the impact on, let's say, the clean p and l without the 1 time charges. Okay. Thank you very much. Welcome.
Operator: The next question comes from Guido Labarta with Goldman Sachs.
Guido: Hi. Good morning. Jorge, Juan, and Nicolas, thanks for the call. Thank you for my question. Just to follow up a little. Just to understand, how do you see the health of the consumer? Right? Because, I mean, we are still seeing, like, NPLs rising, like, you know, there is, like, a bit of a recovery, but unemployment's still somewhat high. Just like on the capacity for consumers to repay these loans, are like, are you are you just writing off these loans? Are you able to work with some of these consumers? Just to think about your ability to accelerate consumer loan growth maybe going into next year just given where the economy is and where the health of the consumer is? If you can color on that would be very helpful. Thank you.
Jorge Francisco Scarinci: Hi, Guido. How are you? I think that the consumption sentiment for the moment is a bit sluggish. We think that going forward, if we see inflation cooling down, that will be the main driver to see that we are wages recovery. And at some point, we could see 2027 recovery on consumption demand. The rest of the year, again, we are seeing these loans maybe grow in similar levels than inflation. We are not seeing the pickup in 2026 at least on this consumer launch.
Operator: The only thing that I would have, Jorge, is-- and it is similar to your question.
Juan Martin Parma: Is that even in this context, until real wages start to improve. And lending capacity from consumers starts to increase, what we are doing internally is recycling our portfolio with better quality even in this more, if you wish, restrictive scenario for consumers. For personal loans, for example, 50% of the portfolio is already originated from vintages from around May last year forward, which is when we introduced the first restrictions in our credit policy and became more stringent So my point is the improvement in NPLs at this point not only depends on the external macroeconomic conditions to improve. But also depends on our own actions And that is why we are confident, as Jorge explained before, that we are stabilizing the NPLs when we see the month by month performance from May to June and already June to July. And that will continue going forward. Because we already are seeing these new vintages with much better quality starting to impact the books. And that is separate or irrespective of potential improvements in consumer purchasing power from your salaries recovery. Okay. that is perfect. Thank you very much. Welcome, Guido.
Operator: The next question comes from Lisandro Lovera with 1.62 thousand. Sir, you can open a microphone. Yes. Can you hear me? Yes. Yes.
Lisandro: Okay. Congratulations on the results. And, well, we saw a 1% decrease in deposits And a sharply lowering loan guidance So can you provide a pointer regarding deposits guidance for the full year. Is it updated? Thanks.
Jorge Francisco Scarinci: Hey, Yes. I think we are an also reducing a little bit the deposit growth for the year to put it in the 10% real area. Basically, again, we are seeing maybe peso deposits not growing or similar level than inflation. On the other hand, we are seeing dollar deposits maybe picking or moving upwards slightly above the rhythm of the peso denominated deposits. Okay. Perfect. Thanks. Welcome.
Operator: The next question comes from Ignacio Snyhovsky with Invertir en Bolsa.
Ignacio: Hi. Good evening. Thank you for taking my questions. The first the first question is regarding, stage 3 loans. Asset quality, particular. Do you have some kind of system wide figures to compare that 4.1 that you reported in the second quarter And the next question is regarding the excess capital and this probably long term attractive valuation that banks are trading. If you see any potential acquisition at this moment or in the in the following month? Thank you very much.
Jorge Francisco Scarinci: Hi, Ignacio. How are you? We do not have many comparisons on the state 3 in the system. We are trying to find out that all the data that we can use to compare our 4.1 We assume that we are on the top banks on this ratio But, honestly, we do not have a market comparison for that for the stage 3. In terms of your second question, yeah, I mean, the excess capital that we have, this is something that we constantly mention that is going to be used not only for M&A, but also for organic growth. In terms of m and a, we are always looking at the markets, and there are always opportunities Of course, not all those opportunities are suitable for Banco Macro's growth and return appetites. We analyze all what we can. And idea is to continue, and, of course, we think that the consolidation process in the banking sector in Argentina is not finished. So going forward, something would happen and, of course, we will be on alert there. And that is the our vision in terms of the target for the excess capital. Okay. Thank you very much.
Operator: The next question comes from text forwith Carlos Gomez-Lopez. With HSBC. Could you explain the reasons for the increase in risk weighted assets in the quarter in particular in operational risks, Is your methodology now different from those of the other banks? And under the new models, what is the level of capital you consider adequate and how much surplus that you can invest or return to shareholders? The other question from him is, how much longer do you expect to continue your restructuring program? Is our footprint 400 base sheets now adequate? Thank you.
Jorge Francisco Scarinci: In terms of the first question, there was a new methodology that we implemented in terms of operational risk and that is basically impacted on the level of excess capital even though that the 28% ratio of Tier 1 is the highest among Argentine banks. 2.7 billion of excess capital is very wide. The idea is to make the best use of that excess capital going forward. In terms of the second question, I mean, we should be going slightly below the 400 branches, as I mentioned before, in the area of 370 by the end of 26.
Operator: Next question comes from Agustin Isidoro with BBVA. Is the Is the loans book breakdown in terms of interest and rates fixed versus, floating, and materially? Yes.
Jorge Francisco Scarinci: Agustin, You will have all that information in the balance sheet that we publish to the CNV and the stock exchange, they are very detailed breakdown on all that information.
Operator: The next question comes from Arturo Berner with Delphos. Do you sense the Argentina is feeling more comfortable holding pesos?
Jorge Francisco Scarinci: I mean, for the moment, I think that pesos are being used for transactional purposes. US dollars are used for savings. And, of course, if we continue in this trend of reducing the inflation of the country and, of course, maintaining fiscal surplus, working on institutionality and more developed growth measures. Little by little, Argentines are going to incline and hold more pesos. That is what we are seeing for the moment.
Operator: The next question comes from a private investor. called Stefan Zwenger. How do you see the further development of your commercial lending as you showed some pickup in the current quarter? Also, if you may, do you plan to deploy some capital for share buybacks as the share price has suffered lately and is getting close to a level where you did some buybacks in last October? Thanks. Well, according to the first part of your question, yes, as I mentioned, or we mentioned before, we are seeing the commercial portfolio performing slightly better than the consumer portfolio for the coming 2 quarters.
Jorge Francisco Scarinci: And in terms of the second part of the question, I mean, always, share buyback programs are on the table. it is something that the board of directors analyzes depending on market conditions, but that is something that we have used in the past. And, again, always on the table. it is the board of directors. Decision when to implement it.
Operator: The next question comes from Adriano Martin with Cygnus Capital LLP. Can you touch quickly on the capital consumption during the quarter? Obviously, 28% is still very high, but interesting how that fell so much, with capital being so lax. Yes.
Jorge Francisco Scarinci: Sorry, Adriano. I mean, we explained that the consumption was because we implemented a new methodology in terms of operating and operational risk and that slightly impact on the ratio that went from 32% to 28%. But, again, it is the highest among Argentine banks. The excess capital is the widest. And the idea is to continue as far as we can paying current dividends on yearly basis and using that for organic and inorganic growth.
Operator: There are no more questions at this time. Concludes the questions and answers section. I will now turn over to Mr. Nicolas Torres for final considerations.
Nicolas Torres: Thank you, Juan Jorge, and thank you all for your interest in Banco Macro. And from joining us today. Appreciate your time and your questions. We look forward to speaking with you again. Have a good day.
Operator: This concludes today's presentation. You may now disconnect.