The number of outstanding shares of each of the issuer’s classes of capital or common stock as of December 31, 20162019 was:
Title of class | Number of shares outstanding | |
Class B ordinary shares, nominal value Ps.1.00 per share | 394,984,134 | |
| Class A ordinary shares, nominal 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 ☐o No ☒x
If this report is an annual or transitionaltransition 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 ☐o No ☒x
Indicate by check mark whether the registrantregistrant: (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:
days. Yes ☒x No ☐o
Indicate by check mark whether the registrant has submitted electronically, and posted on its Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
Not applicable.
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated | ☐ | Accelerated | ☒ |
| Non-accelerated Filer |
| Emerging Growth Company |
|
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†standards† provided pursuant to Section 13(a) of the Exchange Act. ☐o
†The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
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 by the International Accounting Standards Board |
| Other ☐ |
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:
follow. Item 17 ☐o Item 18 ☐x
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 ☐o No x☒
Page
i
ii
Table of ContentsINTRODUCTION
CERTAIN DEFINED TERMS AND CONVENTIONSCertain Defined Terms and Conventions
In this annual report, we use the terms “we,” “us,” “our” and the “group”“Group” to refer to Grupo Supervielle S.A. and its consolidated subsidiaries, including Banco Supervielle S.A., unless otherwise indicated. References to “Grupo Supervielle” mean Grupo Supervielle S.A. References to the “Bank” mean Banco Supervielle S.A. and its consolidated subsidiaries. References to “Tarjeta” mean Tarjeta Automática S.A. References to “Cordial Microfinanzas” mean Cordial Microfinanzas S.A. References to “SAM” mean Supervielle Asset Management Sociedad Gerente de FCI S.A. References to “Adval” mean Adval S.A. References to “Sofital” mean Sofital S.A.F.e I.I. References to “CCF” mean Cordial Compañía Financiera S.A. References to “Supervielle Seguros” mean Supervielle Seguros S.A. References to “Espacio Cordial” or “Cordial Servicios” mean Espacio Cordial Servicios S.A. References to “Viñas del Monte”“InvertirOnline” mean Viñas del MonteInvertirOnline S.A.U. and InvertirOnline.com Argentina S.A.U. References to “MILA” mean Micro Lending S.A.U. References to “Supervielle Productores Asesores de Seguros” mean Supervielle Productores Asesores de Seguros S.A. References to “Supervielle Agente de Negociacion” mean Supervielle Agente de Negociación S.A.
References to “Class A shares” refer to shares of our Class A common stock, with a par value of Ps.1.00 per share, references to “Class B shares” refer to shares of our Class B common stock, all with a par value of Ps.1.00 per share, and references to “ADSs” are to American depositary shares, each representing five Class B shares, except where the context requires otherwise.shares.
The term “Argentina” refers to the Republic of Argentina. The terms “Argentine government” or the “government” refers to the federal government of Argentina, the term “Central Bank” refers to theBanco Central de la República Argentina, or the Argentine Central Bank, and the term “CNV” refers to the ArgentineComisión Nacional de Valores, or the Argentine securities and capital markets regulator. “U.S. GAAP”The term “ByMA” refers to generally accepted accounting principles in the United States of America (“United States” or “U.S.”),exchange Bolsas y Mercados Argentinos S.A. The term “MAE” refers to the exchange Mercado Abierto Electrónico S.A. The term “Argentine Capital Markets Law” refers to Law No. 26,831, as amended and supplemented. The term “Argentine Negotiable Obligations Law” refers to Law No. 23,576, as amended and supplemented. The term “AGCL” refers to Argentine General Corporations Law No. 19,550, as amended and supplemented. The term “Argentine Productive Financing Law” refers to Law No. 27,440.
“Argentine GAAP” refers to generally accepted accounting principles in Argentina and “Argentine Banking GAAP” refers to the accounting rules 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 “CPI” refers to the consumer price index and the term “WPI” refers to the wholesale price index.
The term “customers” refers to individuals or entities that have at least one of our products without any requirement of customer activity during any time period. The term “active customer” refers to customers that had activity in the previous 90 days.
Unless the context otherwise requires, the term “financial institutions” refers to institutions regulated by the Central Bank. The term “Argentine banks” refers to banks that operate in Argentina. The term “Argentine private banks” refers to banks that are not controlled or owned by the Argentine federal government or any Argentine provincial, municipality or city government. The term “private domestically-owned banks” refers
For information up to private banks that are controlled by Argentine shareholders. TheDecember 31, 2017, the term “small businesses” refers to individuals and businesses with annual sales of up to Ps.40.0 million. Themillion, the term “SMEs” refers to individuals and businesses with annual sales over Ps.40.0 million and below Ps.200.0 million, the term “middle-market companies” refers to companies with annual sales over Ps. 40.0Ps.200.0 million and below Ps. 200.0 million. ThePs.1.0 billion and the term “Middle-Market Companies”“large corporates” refers to companies with annual sales over Ps. 200.0Ps.1.0 billion. For information since January 1, 2018, the term “small businesses” refers to individuals and businesses with annual sales up to Ps.70.0 million, the term “SMEs” refers to individuals and businesses with annual sales over Ps.70.0 million and below Ps. 1.0 billion. ThePs.550.0 million, the term “Large Corporates”“middle-market companies” refers to companies with annual sales over Ps. 1.0 billion. ThePs.550.0 million and below Ps.2.0 billion and the term “ROAE”“large corporates” refers to return on average shareholders’ equity. ROAE is frequently used by financial institutions as a benchmarkcompanies with annual sales over Ps.2.0 billion. For information since January 1, 2019, the term “small businesses” refers to measure profitability comparedindividuals and businesses with annual sales up to peers but not as a benchmarkPs.100 million, the term “SMEs” refers to determine returns for investors, which is affected by multiple factors that ROAE does not consider.individuals and businesses with annual sales over Ps.100 million and below Ps.700 million, the term “middle-market companies” refers to companies with annual sales over Ps.700 million and below Ps.2.5 billion and the term “large corporates” refers to companies with annual sales over Ps.2.5 billion.
iii
PRESENTATION of FINANCIAL and Other Information
PRESENTATION OF FINANCIAL AND OTHER INFORMATION
Financial Statements
We maintainThis annual report contains our financial books and records in Pesos and prepare our consolidated financial statements in Argentina in conformity with Argentine Banking GAAP, as these are the rules and regulations applied by the Bank, our main subsidiary. Argentine Banking GAAP differs in certain significant respects from U.S. GAAP and from Argentine GAAP. Ouraudited consolidated financial statements as of December, 31, 20162019 and 2015 and for each of the three years ended December 31, 2016, 2015 and 2014 have been audited, as stated in the report appearing herein, and are included in this annual report and referred to as our “audited consolidated financial statements.” Note 35 to our audited consolidated financial statements provides a description of the principal differences between Argentine Banking GAAP and U.S. GAAP, as they relate to us, and a reconciliation to U.S. GAAP of net income and shareholders’ equity as of December 31, 2016 and 2015,2018, and for the years ended December 31, 2016, 20152019, 2018 and 2014. 2017 (our “audited consolidated financial statements”), which have been audited by Price Waterhouse & Co. S.R.L., Buenos Aires, Argentina, a member firm of PricewaterhouseCoopers, an independent registered public accounting firm (“Price Waterhouse & Co.”), whose report is included herein.
We have prepared our audited consolidated financial statements under IFRS for the first time for our financial year ended December 31, 2018, with a transition date of January 1, 2017.
“Financial Reporting in Hyperinflationary Economies” (IAS 29) requires that the financial statements of an entity whose functional currency is one of a hyperinflationary economy be measured in terms of the current unit of measurement at the closing date of the reporting period, regardless of whether they are based on the historical cost method or the current cost method. This requirement also includes the comparative information in financial statements. Our audited consolidated financial statements are stated in the measurement unit current as of December 31, 2019.
In order to conclude on whether an economy is categorized as highly inflationary, IAS 29 outlines a series of factors to be considered, including the existence of an accumulated inflation rate in three years that is approximate or exceed 100%. As of July 1, 2018, Argentina reported a cumulative three-year inflation rate higher than 100% and therefore financial information published as from that date should be adjusted for inflation in accordance with IAS 29. Therefore, we have applied IAS 29 to our audited consolidated financial statements.
Effective January 1, 2019, we adopted IFRS 16 “Leases” using the simplified retrospective approach, so that the cumulative impact of the adoption was recognized in retained earnings at the beginning of the year starting on January 1, 2019, and the comparative figures were consequently not modified. Accordingly, certain comparisons between periods may be affected. See Note 10 to our audited consolidated financial statements and “Operating and Financial Review and Prospects—New Accounting Standards” for a more comprehensive discussion of the effects of the adoption by the Group of this and other new standards.
We are subject to the provisions of Article 2 – Section I – Chapter I of Title IV: Periodical Reporting Requirements of the rules issued by the CNV according to General Resolution No. 622/2013, as amended and supplemented (the “CNV Rules”) and we are required to present our financial statements in accordance with the valuation and disclosure criteria set forth by the Argentine Central Bank. The Argentine Central Bank, through Communications “A” 5541, as amended, set forth a convergence plan towards the application of IFRS as issued by the IASB and the interpretations issued by the IFRIC, for entities under its supervision, effective for fiscal years beginning on or after January 1, 2018. The convergence plan had two exceptions to the application of IFRS: (i) item 5.5 (Impairment) of IFRS 9 “Financial Instruments”, and (ii) IAS 29 “Financial Reporting in Hyperinflationary Economies”, both of which were waived until January 1, 2020, at which time entities will be required to apply the provisions of IFRS in full. We presented our local financial statements under these rules on February 21, 2020.
Our consolidated financial statements contained in this annual report differ in certain material respects from our financial statements as of December 31, 2019 and 2018 and for the years ended December 31, 2019, 2018 and 2017 prepared in accordance with Argentine Banking GAAP and filed with theCNV.
Unless otherwise indicated, all financial information of our company included in this annual report is stated on a consolidated basis under IFRS and in Argentine Pesos subject to inflation accounting adjustment, except for certainregulatory capital information, statistical information for years 2015 and 2016, information about the Argentine financial sector, and national statistical data, which is expressed following Argentine Banking GAAP. Our audited consolidatedGAAP in nominal historic Peso amounts (i.e., not adjusted for inflation).
iv
Overview of IAS 29
Pursuant to IAS 29, the financial statements of an entity whose functional currency is that of a highly inflationary economy, as mentioned above, should be reported measured in terms of the measuring unit current as of the date of the financial statements. All the amounts included in the statement of financial position which are not stated in terms of the measuring unit current as of the date of the financial statements should be restated adjusted applying the general price index. All items in the statement of income should be stated in terms of the measuring unit current as of the date of the financial statements, applying the changes in the general price index occurred from the date on which the revenues and expenses were originally recognized in the financial statements.
Adjustment for inflation in the initial balances has been calculated considering the indexes based on the price indexes published by the National Institute of Statistics and Census (Instituto Nacional de Estadística y Censos or “INDEC”, per its initials in Spanish).
iThe principal inflation adjustment procedures are the following:
| · | Monetary assets and liabilities that are recorded in the current currency as of the financial position’s closing date are not restated because they are already stated in terms of the currency unit current as of the date of the financial statements. |
| · | Non-monetary assets and liabilities are recorded at cost as of the financial position date, and equity components are restated applying the relevant adjustment ratios. |
| · | All items in the consolidated income statement are restated applying the relevant conversion factors, as described in Note 1.1(b) to our consolidated financial statements contained in this annual report. |
| · | The effect of inflation in the Group’s net monetary position is included in the consolidated income statement, in the item “Results from exposure to changes in the purchasing power of money.” |
| · | Comparative figures have been adjusted for inflation following the procedure explained in the previous bullets. |
| · | Upon initially applying inflation adjustment, the equity accounts were restated as follows: |
| o | Capital stock was restated as from the date of subscription or the date of the most recent inflation adjustment for accounting purposes, whichever is later. |
| o | The resulting amount was included in the “Results from exposure to changes in the purchasing power of money” account. |
| o | Consolidated Statement of Comprehensive Income were restated as from each accounting allocation. |
| o | The legal reserve and other reserves in the statement of income were not restated as of the initial application date. |
v
Table of ContentsCertain Financial Data
The term “ROAE” refers to return on average shareholders’ equity, calculated based on daily averages. The term “ROAA” refers to return on average assets, calculated based on daily averages. ROAE and ROAA are frequently used by financial institutions as benchmarks to measure profitability compared to peers but not as benchmarks to determine returns for investors, which is affected by multiple factors that ROAE and ROAA do not consider.
December 31, 2016 have been approved by our ordinary and extraordinary shareholders’ meeting held on April 27, 2017.
Currencies and Rounding
The terms “U.S. dollar” and “U.S. dollars” and the symbol “US$“U.S.$” 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.
We have translated certain of the Peso amounts contained in this annual report into U.S. dollars for convenience purposes only. Unless otherwise indicated, the rate used to translate such amounts as of December 31, 20162019 was Ps.15.85Ps.59.895 to US$U.S.$1.00, which was the reference exchange rate reported by the Central Bank for U.S. dollars.dollars as of December 30, 2019. The Federal Reserve Bank of New York does not report a noon buying rate for Pesos. The U.S. dollar equivalent information presented in this annual report is provided solely for the convenience of investors and should not be construed as implying that the Peso amounts represent, or could have been or could be converted into, U.S. dollars at such rates or at any other rate. See “Exchange Rates” for more detailed information regardingThe reference exchange rate reported by the translationCentral Bank was Ps.66.635 per U.S.$1.00 as of Pesos into U.S. dollars.
April 28, 2020.
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 Share and Other Information
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 derived from the Central Bank’s publications and other 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.
In January 2007, the Instituto Nacional de Estadísticas y Censos (the National Statistics and Census Institute, or “INDEC”),INDEC, which is the only institution in Argentina with the statutory authority to produce official nationwide statistics, modified the methodology used to calculate certain of its indices. On January 8, 2016, the Macri administration issued Decree No. 55/2016 declaring a state of administrative emergency with respect to the national statistical system and the INDEC until December 31, 2016. During this state of emergency, the INDEC suspended the publication of certain statistical data until it completed a reorganization of its technical and administrative structure capable of producing sufficient and reliable statistical information. Following the implementation of certain methodological reforms and the adjustment of macroeconomic statistics on the basis of these reforms, on June 15, 2016, the INDEC published the INDEC Report including revised GDP data for the years 2004 through 2015. As of the date of this annual report, the INDEC has resumed publishing certain revised data, including GDP, foreign trade, poverty and balance of payment statistics. As of the date of this annual report, the Argentine government has not renewed the state of administrative emergency declared by means of the Decree No. 55/2016.
vi
Forward-Looking Statements
FORWARD-LOOKING STATEMENTS
This annual report contains estimates and forward-looking statements, principally in “Item 3.D Risk Factors”, “Item 5.A Operating Results”, and “Item 4.B Business overviewOverview.” We have based these forward-looking statements largely on our current beliefs, expectations and projections about future courses of action, 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 others:
| (i) | the ongoing COVID-19 pandemic and government measures to contain the virus, which are disrupting economic activity globally and in Argentina; |
| (ii) | changes in general economic, financial, business, political, legal, social or other conditions in Argentina, including the performance of the newFernández administration, or elsewhere in Latin America or changes in either developed or emerging markets; |
| (iii) | the effects of the Argentine government’s ongoing restructuring of the country’s sovereign debt; |
| (iv) | fluctuations in the exchange rate of the Peso and inflation; |
| (v) | changes in interest rates and the cost of deposits, which may, among other things, affect margins; |
| (vi) | unanticipated increases in financing or other costs or the inability to obtain additional debt or equity financing on attractive terms, which may limit our ability to fund existing operations and to finance new activities; |
| (vii) | changes in capital markets in general that may affect policies or attitudes toward lending to or investing in Argentina or Argentine companies, including expected or unexpected volatility in domestic and international financial markets; |
| (viii) | changes in government regulation, including tax and banking regulations; |
| (ix) | adverse legal or regulatory disputes or proceedings; |
| (x) | credit and other risks of lending, such as increases in defaults by borrowers; |
| (xi) | exposure to Argentine government liabilities and fluctuations and declines in the value of Argentine public debt; |
| (xii) | increased competition in the banking, financial services, credit card services, asset management and related industries; |
| (xiii) | a loss of market share by any of our main businesses; |
| (xiv) | increase in the allowances for loan losses; |
| (xv) | technological changes or an inability to implement new technologies, changes in consumer spending and saving habits; |
| (xvi) | ability to implement our business strategy; and |
| (xvii) | other factors discussed under “Item 3.D Risk Factors” in this annual report. |
vii
(i) changes in general economic, financial, business, political, legal, social or other conditions in Argentina or elsewhere in Latin America or changes in either developed or emerging markets;
(ii) changes in capital markets in general that may affect policies or attitudes toward lending to or investing in Argentina or Argentine companies, including expected or unexpected turbulence or volatility in domestic and international financial markets;
(iii) changes in regional, national and international business and economic conditions, including inflation;
(iv) changes in interest rates and the cost of deposits, which may, among other things, affect margins;
(v) unanticipated increases in financing or other costs or the inability to obtain additional debt or equity financing on attractive terms, which may limit our ability to fund existing operations and to finance new activities;
(vi) changes in government regulation, including tax and banking regulations;
(vii) adverse legal or regulatory disputes or proceedings;
(viii) the interpretation by judicial courts of the new Argentine Civil and Commercial Code;
(ix) credit and other risks of lending, such as increases in defaults by borrowers;
(x) fluctuations and declines in the value of Argentine public debt;
(xi) increased competition in the banking, financial services, credit card services, asset management and related industries;
(xii) a loss of market share by any of our main businesses;
(xiii) increase in the allowances for loan losses;
(xiv) technological changes or an inability to implement new technologies, changes in consumer spending and saving habits;
(xv) ability to implement our business strategy;
(xvi) fluctuations in the exchange rate of the Peso; and
(xvii) other factors discussed under “Item 3.D Risk Factors” in this annual report.
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 regulation and the effects of competition. Forward-looking statements speak only as of the date they were made, and we do not undertake any
obligation to update publicly or to revise any forward-looking statements after we distribute this annual report because of new information, future events or other factors, except as required by applicable law. In light of the risks and uncertainties described above, the forward-looking events and circumstances discussed in this annual report might not occur and do not constitute guarantees of future performance. Because of these uncertainties, you should not make any investment decisions based on these estimates and forward-looking statements.
ivviii
Part I
PART I
Item 1.Identity of Directors, Senior Management and Advisors
| Item 1 | Identity of Directors, Senior Management and Advisors |
Not applicable.
Item 2.Offer Statistics and Expected Timetable
| Item 2 | Offer Statistics and Expected Timetable |
Not applicable.
Item 3.A.Selected Financial Data
| Item 3 | Key Information |
| Item 3.A | Selected Financial Data |
The following tables present selected consolidated financial data for us for each of the periods indicated. You should be read this information in conjunction with our audited consolidated financial statements and related notes beginning on page F-1, the “Presentation of Financial and Other Information” section and the information under “discussion in Item 5 “Item 5.A Operating Results”Results” included elsewhere in this annual report.
Our audited consolidated financial statements do not include any effect of inflation other than the adjustments to non-monetary assets through February 28, 2003.
The selected consolidated statement of income data for the years ended December 31, 2019, 2018 and 2017 and the selected consolidated statement of financial position data as of December 31, 20162019 and 2015 and for the three years ended December 31, 2016 has2018 have been derived from our audited consolidated financial statements included in this annual report.report which have been audited by Price Waterhouse & Co., member firm of PricewaterhouseCoopers an independent registered public accounting firm. The selected consolidated statement of financial position data as of December 31, 2014, 2013 and 2012 and for the years ended December 31, 2013 and 2012 has2017 have been derived from our audited consolidated financial statements which are notthat arenot included in this annual report.
Our audited consolidated financial statements as of December 31, 2016were prepared and 2015 andpresented in accordance with IFRS. We applied IFRS for the three yearsfirst time for the year ended December 31, 2016 have been audited by Price Waterhouse & Co. S.R.L., member firm2018, with a transition date of the PricewaterhouseCoopers network, independent accountants, whose audit report is included elsewhere in this annual report.January 1, 2017.
We maintain our financial books and records in Pesos and prepare and publish our auditedOur consolidated financial statements are presented in ArgentinaArgentine Pesos which is our functional currency.
IAS 29 establishes the conditions under which an entity shall restate its financial statements if it is located in conformity with Argentine Banking GAAPan economic environment considered hyperinflationary. This standard requires that the financial statements of an entity that reports in the currency of a highly inflationary economy shall be stated in terms of the measuring unit current at the closing date of the latest reporting period, regardless of whether they are based on a historical cost approach or a current cost approach. To this end, in general terms, the inflation rate must be computed in the non-monetary items as these arefrom the rules and regulations applied byacquisition date or the Bank, our main subsidiary, which differ in certain significant respects from U.S. GAAP, and from Argentine GAAP. Note 35 to our auditedrevaluation date, as applicable. These requirements also comprise the comparative information of the financial statements. Accordingly, the following selected consolidated financial statements provides a description ofdata is stated in the principal differences between Argentine Banking GAAP and U.S. GAAP,measuring unit current as they relate to us, and a reconciliation to U.S. GAAP of net income and shareholders’ equity as ofat December 31, 2016 and 2015 and for the years ended December 31, 2016, 2015 and 2014.
2019.
Solely for convenience of the reader, we have translated certain Peso amounts as of and for the year ended December 31, 2016 have been translated2019 into U.S. dollars. The rate used to translate such amounts as of December 31, 2016 was Ps.15.85 to US$1.00, which wasdollars at the reference exchange rate reported by the Central Bank foras of December 31, 2019 which was Ps.59.895 to U.S. dollars.$1.00. U.S. dollar equivalent information should not be construed to imply that the Peso amounts represent, or could have been or could be converted into, U.S. dollars at such rates or any other rate.
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| Grupo Supervielle S.A. |
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| 2016 |
| 2015 |
| 2014 |
| 2013 |
| 2012 |
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| (in thousands of Pesos or U.S. dollars, as indicated, except for ratios) |
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Consolidated Income Statement Data |
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Argentine Banking GAAP: |
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Financial income(1) |
| U.S.$ | 681,037 |
| Ps. | 10,794,579 |
| Ps. | 6,741,744 |
| Ps. | 4,751,352 |
| Ps. | 3,045,380 |
| Ps. | 2,210,340 |
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Financial expenses(2) |
| (307,032 | ) | (4,866,525 | ) | (3,386,050 | ) | (2,464,526 | ) | (1,303,916 | ) | (818,335 | ) | ||||||
Gross financial margin |
| 374,005 |
| 5,928,054 |
| 3,355,694 |
| 2,286,826 |
| 1,741,464 |
| 1,392,005 |
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Loan loss provisions |
| (66,727 | ) | (1,057,637 | ) | (543,844 | ) | (356,509 | ) | (350,535 | ) | (209,798 | ) | ||||||
Services fee income |
| 222,553 |
| 3,527,516 |
| 2,835,708 |
| 2,162,820 |
| 1,765,659 |
| 1,289,651 |
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Services fee expenses |
| (68,180 | ) | (1,080,660 | ) | (778,492 | ) | (610,341 | ) | (421,587 | ) | (254,674 | ) | ||||||
Income from insurance activities |
| 38,242 |
| 606,143 |
| 175,947 |
| 8,513 |
| — |
| — |
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Administrative expenses |
| (382,347 | ) | (6,060,281 | ) | (4,261,402 | ) | (3,013,842 | ) | (2,287,201 | ) | (1,807,734 | ) | ||||||
Income from financial transactions |
| 117,546 |
| 1,863,135 |
| 783,611 |
| 477,467 |
| 447,800 |
| 409,450 |
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Miscellaneous income |
| 27,122 |
| 429,884 |
| 367,165 |
| 190,005 |
| 129,245 |
| 72,517 |
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Miscellaneous losses |
| (28,955 | ) | (458,946 | ) | (213,427 | ) | (91,761 | ) | (95,734 | ) | (71,086 | ) | ||||||
Non-controlling interests result |
| (1,398 | ) | (22,166 | ) | (16,079 | ) | (13,707 | ) | (10,556 | ) | (9,566 | ) | ||||||
Income before income tax |
| 114,314 |
| 1,811,907 |
| 921,270 |
| 562,004 |
| 470,755 |
| 401,315 |
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Income tax |
| (31,583 | ) | (500,603 | ) | (247,161 | ) | (199,084 | ) | (97,765 | ) | (75,110 | ) | ||||||
Net income for the fiscal period |
| 82,731 |
| 1,311,304 |
| 674,109 |
| 362,920 |
| 372,990 |
| 326,205 |
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U.S. GAAP: |
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Net income |
| 64,135 |
| 1,016,560 |
| 630,876 |
| 290,767 |
| 382,896 |
| N/A |
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| 2016 |
| 2016 |
| 2015 |
| 2014 |
| 2013 |
| 2012 |
| ||||||
|
| (in thousands of Pesos or U.S. dollars, as indicated except for ratios and operating data) |
| ||||||||||||||||
Consolidated Balance Sheet Data |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Argentine Banking GAAP: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Cash and due from banks |
| U.S.$ | 515,207 |
| Ps. | 8,166,132 |
| Ps. | 6,808,591 |
| Ps. | 3,649,084 |
| Ps. | 2,662,592 |
| Ps. | 2,177,218 |
|
Government and corporate securities |
| 148,897 |
| 2,360,044 |
| 931,881 |
| 1,008,080 |
| 483,990 |
| 229,777 |
| ||||||
Loans: |
| 2,201,645 |
| 34,896,509 |
| 20,148,261 |
| 14,596,580 |
| 11,292,289 |
| 7,374,673 |
| ||||||
to the non-financial public sector |
| 272 |
| 4,306 |
| 8,778 |
| 12,666 |
| 15,699 |
| 18,183 |
| ||||||
to the financial sector |
| 29,868 |
| 473,414 |
| 181,734 |
| 3,514 |
| 36,029 |
| 63,200 |
| ||||||
To the non-financial private sector and foreign residents: |
|
|
|
|
|
|
|
|
|
| �� |
|
| ||||||
Overdrafts |
| 196,218 |
| 3,110,097 |
| 1,634,870 |
| 993,284 |
| 679,085 |
| 488,229 |
| ||||||
Promissory Notes(3) |
| 594,729 |
| 9,426,568 |
| 5,984,777 |
| 5,583,705 |
| 4,472,631 |
| 3,181,314 |
| ||||||
Mortgage loans |
| 4,925 |
| 78,057 |
| 50,032 |
| 69,554 |
| 83,660 |
| 36,247 |
| ||||||
Automobile and other secured loans |
| 4,106 |
| 65,076 |
| 104,469 |
| 168,603 |
| 225,901 |
| 219,948 |
| ||||||
Personal loans |
| 625,656 |
| 9,916,776 |
| 6,018,601 |
| 3,631,840 |
| 2,970,622 |
| 1,509,756 |
| ||||||
Credit card loans |
| 421,356 |
| 6,678,578 |
| 5,677,922 |
| 3,688,328 |
| 2,410,111 |
| 1,719,422 |
| ||||||
Other |
| 353,015 |
| 5,595,356 |
| 953,574 |
| 793,192 |
| 684,219 |
| 379,876 |
| ||||||
Accrued Interest, adjustments and exchange rate differences receivable |
| 48,830 |
| 773,961 |
| 428,600 |
| 357,844 |
| 257,689 |
| 155,074 |
| ||||||
Documented interest |
| (20,492 | ) | (324,795 | ) | (277,488 | ) | (287,605 | ) | (200,345 | ) | (110,365 | ) | ||||||
Other unapplied charges |
| (110 | ) | (1,738 | ) | (295 | ) | (1,322 | ) | (1,012 | ) | (753 | ) | ||||||
|
| Grupo Supervielle S.A. |
| ||||||||||||||||
|
| As of |
| ||||||||||||||||
|
| 2016 |
| 2016 |
| 2015 |
| 2014 |
| 2013 |
| 2012 |
| ||||||
|
| (in thousands of Pesos or U.S. dollars, as indicated except for ratios and operating data) |
| ||||||||||||||||
Allowances |
| (56,728 | ) | (899,147 | ) | (617,313 | ) | (417,023 | ) | (342,000 | ) | (285,458 | ) | ||||||
Other receivables from financial transactions |
| 238,025 |
| 3,772,736 |
| 2,461,813 |
| 2,263,612 |
| 1,742,721 |
| 1,737,001 |
| ||||||
Receivables from financial leases |
| 96,393 |
| 1,527,855 |
| 1,074,977 |
| 583,846 |
| 511,880 |
| 594,338 |
| ||||||
Other assets |
| 156,639 |
| 2,482,766 |
| 1,620,294 |
| 1,139,992 |
| 724,659 |
| 578,562 |
| ||||||
Total assets |
| 3,356,806 |
| 53,206,042 |
| 33,045,817 |
| 23,241,194 |
| 17,418,131 |
| 12,691,569 |
| ||||||
Average Assets(4) |
| 2,616,207 |
| 41,467,412 |
| 26,961,165 |
| 20,066,019 |
| 14,645,841 |
| 11,139,240 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Liabilities and shareholders’ equity |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Deposits: |
| U.S.$ | 2,264,821 |
| Ps. | 35,897,864 |
| Ps. | 23,716,577 |
| Ps. | 16,892,730 |
| Ps. | 12,819,178 |
| Ps. | 9,301,705 |
|
Non-financial public sector |
| 163,232 |
| 2,587,253 |
| 1,182,559 |
| 1,441,506 |
| 1,018,547 |
| 701,964 |
| ||||||
Financial sector |
| 588 |
| 9,326 |
| 250,981 |
| 150,817 |
| 100,973 |
| 65,302 |
| ||||||
Non-financial private sector and foreign residents |
| 2,101,001 |
| 33,301,285 |
| 22,283,037 |
| 15,300,407 |
| 11,699,658 |
| 8,534,439 |
| ||||||
Checking accounts |
| 275,164 |
| 4,361,405 |
| 3,042,376 |
| 2,622,055 |
| 2,034,593 |
| 1,602,976 |
| ||||||
Savings accounts |
| 833,172 |
| 13,205,937 |
| 7,753,696 |
| 5,352,593 |
| 3,640,102 |
| 2,567,532 |
| ||||||
Time deposits |
| 736,730 |
| 11,677,322 |
| 10,034,025 |
| 6,651,006 |
| 5,426,409 |
| 3,978,430 |
| ||||||
Investment accounts |
| 23,659 |
| 375,000 |
| 664,900 |
| 75,750 |
| 144,100 |
| 40,655 |
| ||||||
Other |
| 232,276 |
| 3,681,621 |
| 788,040 |
| 599,003 |
| 454,454 |
| 344,846 |
| ||||||
Other liabilities from financial transactions and other miscellaneous liabilities |
| 648,145 |
| 10,273,230 |
| 6,884,700 |
| 4,586,728 |
| 3,204,585 |
| 2,370,379 |
| ||||||
Non-controlling interests |
| 6,523 |
| 103,397 |
| 70,830 |
| 54,750 |
| 41,960 |
| 31,395 |
| ||||||
Total liabilities |
| 2,919,489 |
| 46,274,491 |
| 30,672,107 |
| 21,534,208 |
| 16,065,723 |
| 11,703,479 |
| ||||||
Average Liabilities(4) |
| 2,301,606 |
| 36,480,913 |
| 24,866,415 |
| 18,464,430 |
| 14,433,187 |
| 10,279,628 |
| ||||||
Shareholders’ equity |
| 437,316 |
| 6,931,551 |
| 2,373,710 |
| 1,706,986 |
| 1,352,408 |
| 988,091 |
| ||||||
Total liabilities and shareholders’ equity |
| 3,356,806 |
| 53,206,042 |
| 33,045,817 |
| 23,241,194 |
| 17,418,131 |
| 12,691,569 |
| ||||||
Average shareholders’ equity(4) |
| 314,602 |
| 4,986,499 |
| 2,094,750 |
| 1,601,589 |
| 1,212,654 |
| 859,612 |
| ||||||
U.S. GAAP: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total assets |
| 3,439,273 |
| 54,513,169 |
| 35,122,426 |
| 26,166,663 |
| 19,531,312 |
| N/A |
| ||||||
Total liabilities |
| 3,040,073 |
| 48,185,769 |
| 32,858,882 |
| 24,626,175 |
| 18,247,809 |
| N/A |
| ||||||
Total shareholders’ equity |
| 399,200 |
| 6,327,400 |
| 2,263,544 |
| 1,540,488 |
| 1,283,503 |
| N/A |
| ||||||
(1) Includes gains related to non-deliverable forward (“NDF”) hedging transactions, which totaled Ps.0 million, Ps.228.2 million, Ps.0, Ps.86.9 million, Ps.3.4 million, and Ps.0Our consolidated financial statements contained in this annual report differ in certain material respects from our financial statements as of December 31, 2016, 2015, 2014, 20132019 and 2012, respectively.
(2) Includes expenses related to NDF hedging transactions, which totaled Ps. 39.0 million, Ps.0, Ps.96.2 million, Ps.0, Ps.02018 and Ps.6.5 million as offor the years ended December 31, 2016, 2015, 2014, 20132019, 2018 and 2012, respectively.
(3) Consists of unsecured checks2017 prepared in accordance with Argentine Banking GAAP and accounts receivable deriving from factoring transactions, and unsecured corporate loans which totaled Ps. 3,102.8 million, Ps.2,399.3 million, Ps.1,547.5 million, Ps.979.9 million and Ps.663.7 million as of December 31, 2016, 2015, 2014, 2013 and 2012, respectively.filed with theCNV.
(4) Calculated on a daily basis.
|
| Grupo Supervielle S.A. |
| ||||||||
|
| Year ended |
| ||||||||
|
| 2016 |
| 2015 |
| 2014 |
| 2013 |
| 2012 |
|
Selected Consolidated Ratios: |
|
|
|
|
|
|
|
|
|
|
|
Argentine Banking GAAP: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin(1) |
| 20.6 | % | 18.1 | % | 17.4 | % | 16.4 | % | 17.3 | % |
Net financial margin(2) |
| 19.2 | % | 16.4 | % | 15.1 | % | 15.8 | % | 16.1 | % |
Net fee income ratio(3) |
| 34.0 | % | 40.0 | % | 40.6 | % | 43.6 | % | 42.6 | % |
Efficiency ratio(4) |
| 67.5 | % | 76.2 | % | 78.3 | % | 74.1 | % | 74.5 | % |
Fee income as a percentage of administrative expense |
| 50.4 | % | 52.4 | % | 51.8 | % | 58.8 | % | 57.3 | % |
Return on average equity(5) |
| 26.3 | % | 32.2 | % | 22.7 | % | 30.8 | % | 37.9 | % |
Return on average assets(6) |
| 3.2 | % | 2.5 | % | 1.8 | % | 2.5 | % | 2.9 | % |
Basic earnings per share (in Pesos)(7) |
| 4.10 |
| 4.42 |
| 2.92 |
| 3.00 |
| 2.61 |
|
Diluted earnings per share (in Pesos) |
| 4.10 |
| 4.42 |
| 2.92 |
| 3.00 |
| 2.61 |
|
Basic earnings per share (in US$) |
| 0.26 |
| 0.34 |
| 0.34 |
| 0.46 |
| 0.53 |
|
Diluted earnings per share (in US$) |
| 0.26 |
| 0.34 |
| 0.34 |
| 0.46 |
| 0.53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity |
|
|
|
|
|
|
|
|
|
|
|
Loans as a percentage of total deposits(8) |
| 104.0 | % | 92.2 | % | 92.4 | % | 94.8 | % | 88.8 | % |
Loans as a percentage of total assets(8) |
| 70.2 | % | 66.1 | % | 67.1 | % | 69.8 | % | 65.1 | % |
Liquid assets as a percentage of total deposits(9) |
| 27.0 | % | 32.6 | % | 26.5 | % | 24.5 | % | 25.9 | % |
|
|
|
|
|
|
|
|
|
|
|
|
Capital |
|
|
|
|
|
|
|
|
|
|
|
Total equity as a percentage of total assets |
| 13.0 | % | 7.2 | % | 7.3 | % | 7.8 | % | 7.8 | % |
Average equity as a percentage of average assets |
| 12.0 | % | 7.8 | % | 8.0 | % | 8.3 | % | 7.7 | % |
Total liabilities as a multiple of total shareholders’ equity |
| 6.7 |
| 12.9 |
| 12.6 |
| 11.9 |
| 11.8 |
|
Tangible equity ratio(10) |
| 12.6 | % | 6.5 | % | 6.5 | % | 6.7 | % | 6.4 | % |
Regulatory capital/ Risk weighted assets(11) |
| 12.5 | % | 8.7 | % | 8.9 | % | 9.0 | % | N/A |
|
Tier 1 Capital / Risk weighted assets(12) |
| 10.9 | % | 6.7 | % | 6.9 | % | 6.7 | % | 7.2 | % |
Tier 1 Pro forma(13) |
| 12.3 | % | 6.7 | % | 6.9 | % | 6.7 | % | 7.2 | % |
LCR Pro forma(14) |
| 128.0 | % | 113.1 | % | 71.0 | % | N/A |
| N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Quality |
|
|
|
|
|
|
|
|
|
|
|
Non-performing loans as a percentage of total loans(15) |
| 2.8 | % | 3.2 | % | 3.0 | % | 3.0 | % | 4.2 | % |
Allowances as a percentage of total loans |
| 2.4 | % | 2.9 | % | 2.7 | % | 2.9 | % | 3.5 | % |
Allowances as a percentage of non-performing loans(15) |
| 87.1 | % | 89.7 | % | 88.9 | % | 94.0 | % | 84.7 | % |
|
|
|
|
|
|
|
|
|
|
|
|
Other Data |
|
|
|
|
|
|
|
|
|
|
|
Dividends paid to the common shares (Ps.million) |
| 65.5 |
| 19.2 |
| 2.7 |
| 4.5 |
| 5.5 |
|
Dividends paid to the preferred shares (Ps.million) |
| — |
| 6.0 |
| 4.7 |
| 3.9 |
| 3.2 |
|
Dividends per common share (Ps.) |
| 0.2 |
| 0.1 |
| 0.0 |
| 0.0 |
| 0.0 |
|
Dividends per preferred share (Ps.) |
| — |
| 1.9 |
| 2.9 |
| 2.4 |
| 2.0 |
|
Employees |
| 4,982 |
| 4,843 |
| 4,579 |
| 4,570 |
| 4,584 |
|
Branches and sales points |
| 320 |
| 325 |
| 322 |
| 353 |
| 357 |
|
ATMs and self-service terminals |
| 661 |
| 649 |
| 632 |
| 588 |
| 532 |
|
| Grupo Supervielle S.A. | ||||||||||||
| For the year endedDecember 31, | ||||||||||||
| 2019 | 2018 | 2017 | ||||||||||
| U.S.$. | Ps. | Ps. | Ps. | |||||||||
| (in thousands of Pesos or U.S. dollars, as indicated) | ||||||||||||
| Consolidated Income Statement Data IFRS: | ||||||||||||
| Interest income | 747,885 | 44,794,595 | 46,790,036 | 34,250,524 | ||||||||
| Interest expenses | (582,911 | ) | (34,913,451 | ) | (26,787,390 | ) | (12,782,957 | ) | ||||
| Net interest income | 164,974 | 9,881,144 | 20,002,646 | 21,467,567 | ||||||||
| Net income from financial instruments (NIFFI) at fair value through profit or loss | 349,962 | 20,960,966 | 9,707,395 | 5,454,354 | ||||||||
| Exchange rate difference on gold and foreign currency | (5,411 | ) | (324,070 | ) | 1,733,237 | 604,734 | ||||||
| NIFFI and Exchange Rate Differences | 344,551 | 20,636,896 | 11,440,632 | 6,059,088 | ||||||||
| Net Financial Income | 509,525 | 30,518,040 | 31,443,278 | 27,526,655 | ||||||||
| Service fee income | 143,578 | 8,599,607 | 9,118,706 | 9,327,965 | ||||||||
| Service fee expenses | (37,465 | ) | (2,243,970 | ) | (2,181,620 | ) | (1,877,412 | ) | ||||
| Income from insurance activities | 23,263 | 1,393,356 | 1,305,522 | 1,383,709 | ||||||||
| Net Service Fee Income | 129,376 | 7,748,993 | 8,242,608 | 8,834,262 | ||||||||
| Subtotal | 638,901 | 38,267,033 | 39,685,886 | 36,360,917 | ||||||||
| Result from exposure to changes in the purchasing power of money | (89,483 | ) | (5,359,565 | ) | (9,253,021 | ) | (3,986,190 | ) | ||||
| Other operating income | 46,002 | 2,755,267 | 3,805,134 | 2,827,476 | ||||||||
| Loan loss provisions | (129,174 | ) | (7,736,868 | ) | (7,967,031 | ) | (6,204,348 | ) | ||||
| Net Operating Income | 466,246 | 27,925,867 | 26,270,968 | 28,997,855 | ||||||||
| Personnel expenses | 236,485 | 14,164,289 | 13,504,300 | 13,439,165 | ||||||||
| Administration expenses | 126,447 | 7,573,543 | 8,615,396 | 7,566,294 | ||||||||
| Depreciations and impairment of non-financial assets | 30,298 | 1,814,671 | 665,154 | 956,819 | ||||||||
| Other operating expenses | 106,157 | 6,358,291 | 6,633,161 | 6,394,542 | ||||||||
| Income / (loss) before taxes | (33,141 | ) | (1,984,927 | ) | (3,147,043 | ) | 641,035 | |||||
| Income tax | (2,817 | ) | (168,695 | ) | (1,555,074 | ) | (1,802,869 | ) | ||||
| Net loss for the year | (35,958 | ) | (2,153,622 | ) | (4,702,117 | ) | (1,161,834 | ) | ||||
| Net loss for the year attributable to owners of the parent company | (35,924 | ) | (2,151,600 | ) | (4,658,050 | ) | (1,160,465 | ) | ||||
| Net loss for the year attributable to non-controlling interest | (34 | ) | (2,022 | ) | (44,067 | ) | (1,369 | ) | ||||
| Other Comprehensive Income | (798 | ) | (47,833 | ) | 371,617 | 72,120 | ||||||
| Other comprehensive income attributable to parent company | (796 | ) | (47,701 | ) | 371,231 | 72,100 | ||||||
| Other comprehensive income attributable to non-controlling interest | (2 | ) | (132 | ) | 386 | 20 | ||||||
| Comprehensive Loss | (36,756 | ) | (2,201,455 | ) | (4,330,500 | ) | (1,089,714 | ) | ||||
| Comprehensive loss for the year attributable to owners of the parent company | (36,720 | ) | (2,199,301 | ) | (4,286,819 | ) | (1,088,365 | ) | ||||
| Comprehensive loss for the year attributable to non-controlling interest | (36 | ) | (2,154 | ) | (43,681 | ) | (1,349 | ) | ||||
| Grupo Supervielle S.A. | ||||||||||||
| As of December 31, | ||||||||||||
| 2019 | 2018 | 2017 | ||||||||||
| U.S.$. | Ps. | Ps. | Ps. | |||||||||
| (in thousands of Pesos or U.S. dollars, as indicated) | ||||||||||||
| ASSETS | ||||||||||||
| Cash and due from banks | 440,823 | 26,403,099 | 51,822,372 | 25,205,322 | ||||||||
| Cash | 146,107 | 8,751,111 | 7,368,112 | 6,902,384 | ||||||||
| Financial institutions and correspondents | 294,716 | 17,651,988 | 44,454,260 | 18,302,938 | ||||||||
| Argentine Central Bank | 265,922 | 15,927,336 | 42,132,824 | 16,011,978 | ||||||||
| Other local financial institutions | 28,295 | 1,694,742 | 2,305,439 | 2,177,115 | ||||||||
| Others | 499 | 29,910 | 15,997 | 113,845 | ||||||||
| Debt Securities at fair value through profit or loss | 9,492 | 568,501 | 23,247,329 | 25,902,184 | ||||||||
| Derivatives | 4,301 | 257,587 | 24,496 | 61,133 | ||||||||
| Repo transactions | — | — | — | 7,608,341 | ||||||||
| Other financial assets | 35,009 | 2,096,866 | 2,612,157 | 3,674,743 | ||||||||
| Loans and other financing | 1,469,405 | 88,010,011 | 118,771,635 | 134,001,359 | ||||||||
| To the non-financial public sector | 482 | 28,872 | 50,460 | 74,060 | ||||||||
| To the financial sector | 1,077 | 64,522 | 613,101 | 902,009 | ||||||||
| To the non-financial private sector and foreign residents | 1,467,846 | 87,916,617 | 118,108,074 | 133,025,290 | ||||||||
| Other debt securities | 174,615 | 10,458,556 | 6,631,861 | 815,144 | ||||||||
| Financial assets in guarantee | 89,051 | 5,333,704 | 3,087,750 | 2,955,457 | ||||||||
| Current income tax assets | 1,711 | 102,458 | 910,777 | 277,603 | ||||||||
| Inventories | 742 | 44,455 | 107,557 | 240,449 | ||||||||
| Investments in equity instruments | 243 | 14,579 | 16,005 | 105,961 | ||||||||
| Property, plant and equipment | 66,818 | 4,002,078 | 3,359,290 | 3,169,795 | ||||||||
| Investment property | 67,697 | 4,054,737 | 635,877 | 441,610 | ||||||||
| Intangible assets | 73,003 | 4,372,514 | 4,170,146 | 706,737 | ||||||||
| Deferred income tax assets | 27,902 | 1,671,195 | 1,264,222 | 1,779,810 | ||||||||
| Non-current assets held for sale | — | — | 4,307 | — | ||||||||
| Other non-financial assets | 21,610 | 1,294,351 | 1,367,029 | 1,082,140 | ||||||||
| TOTAL ASSETS | 2,482,422 | 148,684,691 | 218,032,810 | 208,027,788 | ||||||||
| LIABILITIES | ||||||||||||
| Deposits | 1,486,070 | 89,008,177 | 145,996,201 | 128,119,290 | ||||||||
| Non-financial public sector | 91,329 | 5,470,177 | 17,083,822 | 14,017,493 | ||||||||
| Financial sector | 469 | 28,098 | 38,821 | 35,663 | ||||||||
| Non-financial private sector and foreign residents | 1,394,272 | 83,509,902 | 128,873,558 | 114,066,134 | ||||||||
| Liabilities at fair value through profit or loss | 3,165 | 189,554 | 412,403 | — | ||||||||
| Derivatives | — | — | 144,944 | — | ||||||||
| Repo transactions | 5,340 | 319,817 | — | — | ||||||||
| Other financial liabilities | 152,192 | 9,115,565 | 6,564,396 | 8,883,137 | ||||||||
| Financing received from the Argentine Central Bank and other financial institutions | 150,557 | 9,017,597 | 12,357,106 | 8,008,155 | ||||||||
| Unsubordinated negotiable Obligations | 101,619 | 6,086,475 | 14,317,445 | 19,507,851 | ||||||||
| Current income tax liabilities | — | — | 1,217,233 | 1,873,619 | ||||||||
| Subordinated negotiable obligations | 35,393 | 2,119,888 | 2,128,759 | 1,557,801 | ||||||||
| Provisions | 11,303 | 677,018 | 133,703 | 182,071 | ||||||||
| Deferred income tax liabilities | 8,453 | 506,291 | 343,586 | 45,854 | ||||||||
| Other non-financial liabilities | 137,055 | 8,208,914 | 8,314,639 | 8,634,696 | ||||||||
| TOTAL LIABILITIES | 2,091,147 | 125,249,296 | 191,930,415 | 176,812,474 | ||||||||
| SHAREHOLDERS’ EQUITY | 391,275 | 23,435,395 | 26,102,395 | 31,215,314 | ||||||||
| Shareholders’ equity attributable to owners of the parent company | 390,947 | 23,415,797 | 26,080,725 | 30,873,343 | ||||||||
| Shareholders’ equity attributable to non-controlling interests | 328 | 19,598 | 21,670 | 341,971 | ||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | 2,482,422 | 148,684,691 | 218,032,810 | 208,027,788 |
| Grupo Supervielle S.A. | |||||||||
| As of and for the year ended December 31, | |||||||||
| 2019 | 2018 | 2017 | |||||||
| SELECTED RATIOS | |||||||||
| Return on average equity(1) | (9.2% | ) | (16.2% | ) | (4.7% | ) | |||
| Return on average assets(2) | (1.1% | ) | (1.9% | ) | (0.6% | ) | |||
| Net Interest Margin(3) | 21.0% | 17.0% | 18.4% | ||||||
| Net Fee Income Ratio(4) | 28.6% | 28.6% | 31.4% | ||||||
| Efficiency Ratio(5) | 62.7% | 61.8% | 66.3% | ||||||
| Cost/assets(6) | 10.9% | 9.5% | 11.2% | ||||||
| Basic earnings per share (in Pesos)(7) | (4.7 | ) | (10.2 | ) | (2.5 | ) | |||
| Diluted earnings per share (in Pesos) | n/a | n/a | n/a | ||||||
| Basic earnings per share (in U.S.$.)(8) | (0.1 | ) | (4.7 | ) | (0.0 | ) | |||
| Diluted earnings per share (in U.S.$.)(8) | n/a | n/a | n/a | ||||||
| Liquidity and Capital | |||||||||
| Loans to Total Deposits(9) | 106.5% | 86.6% | 110.1% | ||||||
| Total Equity / Total Assets | 15.7% | 12.0% | 14.8% | ||||||
| Pro forma Consolidated Capital / Risk weighted assets(10) | 12.1% | 14.0% | 19.6% | ||||||
| Pro forma Consolidated Tier1 Capital / Risk weighted assets(10) | 11.3% | 12.9% | 17.2% | ||||||
| LCR Pro forma(10) | 150.3% | 173.4% | 113.9% | ||||||
| Risk Weighted Assets/Assets(10) | 87.2% | 73.0% | 81.7% | ||||||
| Asset Quality | |||||||||
| Non-performing loans as a percentage of Total Loans | 7.4% | 4.1% | 3.1% | ||||||
| Allowances as apercentageof Total Loans | 7.1% | 6.0% | 5.0% | ||||||
| Cost of risk(11) | 7.5% | 5.4% | 5.0% | ||||||
| Cost of risk, net(12) | 7.1% | 5.1% | 4.7% | ||||||
| Coverage Ratio(13) | 96.0% | 147.2% | 162.3% | ||||||
| Other Data | |||||||||
| Dividends paid to ordinary shares (Ps.million) | 426.0 | 466.1 | 505.1 | ||||||
| Dividends per ordinary share (Ps.) | 0.9 | 0.7 | 1.1 | ||||||
| Employees | 5,019 | 5,253 | 5,236 | ||||||
| Branch and sales points | 316 | 317 | 326 | ||||||
| ATMs, self service terminals and cash dispensers with biometric identification | 955 | 920 | 704 | ||||||
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| Attributable Comprehensive Income divided by average assets, calculated on a daily basis and measured in local |
| (3) | Net interest income + Net income from financial instruments at fair value through profit or loss + Exchange rate differences on gold and foreign currency, divided by average interest-earning assets. Since 2019, the Net Interest Margin ratio (“NIM”) also includes the exchange rate differences and net gains or losses from currency derivatives representing more accurately our financial margin and spreads. This ratio coincides with the net financial margin ratio published in previous years (now renamed as NIM). |
| (4) | Net services fee income + Income from insurance activities divided by the sum of Net interest income + Net income from financial instruments at fair value through profit or loss + Exchange rate differences on gold and foreign currency, net Services fee income, Income from insurance activities, etc. |
| (5) | Personnel, Administrative expenses and Depreciation & Amortization divided by the sum of Net interest income + Net income from financial instruments at fair value through profit or loss + Exchange rate differences on gold and foreign currency, net Services fee income, Income from insurance activities and Other net operating income. |
| (6) | Administration expenses divided by average assets, calculated on a daily basis. |
| (7) | Basic earnings per share (in Pesos) are based upon the weighted average of Grupo Supervielle’s outstanding shares, which were |
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| (8) | Peso amounts have been translated into U.S. dollars at the | |
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| (9) | Loans and | |
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| (10) | For the calculation of these line items, see “Item 4.B – Business Overview – Banking Regulation and | |
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| (11) | Loan loss provisions divided by average loans, calculated on a daily basis. |
| (12) | Loan loss provisions including recovered loan loss provisions divided by average loans, calculated on a daily basis. |
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Exchange Rates
From April 1, 1991 until the end of 2001, Law No. 23,928 (the “Convertibility Law”) established a regime under which the Central Bank was obliged to sell U.S. dollars at a fixed rate of one Peso per U.S. dollar. On January 6, 2002, the Argentine Congress enacted Law No. 25,561 (as amended and supplemented, the “Public Emergency Law”), formally ending the regime of the Convertibility Law, abandoning over ten years of U.S. dollar-Peso parity and eliminating the requirement that the Central Bank’s reserves in gold, foreign currency and foreign currency denominated debt be at all times equivalent to 100% of the monetary base.
The Public Emergency Law, which has been extended on an annual basis and is in effect until December 31, 2017, granted the Argentine government the power to set the exchange rate between the Peso and foreign currencies and to issue regulations related to the foreign exchange market. The state of emergency on social matters was further extended until December 31, 2019. Following a brief period during which the Argentine government established a temporary dual exchange rate system, pursuant to the Public Emergency Law, the Peso has been allowed to float freely against other currencies since February 2002, although the Central Bank has the power to intervene by buying and selling foreign currency for its own account, a practice in which it engages on a regular basis.
From 2011 to 2015, the Argentine government has increased controls on exchange rates and the transfer of funds into and out of Argentina. With the tightening of exchange controls beginning in late 2011, in particular with the introduction of measures that allowed limited access to foreign currency by private companies and individuals (such as requiring an authorization of AFIP to access the foreign currency exchange market), the implied exchange rate, as reflected in the quotations for Argentine securities that trade in foreign markets, compared to the corresponding quotations in the local market, increased significantly over the official exchange rate. Most foreign exchange restrictions were lifted in December 2015, May 2016 and August 2016, reestablishing Argentine residents’ rights to purchase and remit outside of Argentina foreign currency with no maximum amount and without specific allocation or the need to obtain prior approval. As a result, since December 2015 the substantial spread between the official exchange rate and the implicit exchange rate derived from securities transactions has substantially decreased.
After several years of moderate variations in the nominal exchange rate, in 2012 the Peso lost approximately 14% of its value with respect to the U.S. dollar. This was followed in 2013 and 2014 by a devaluation of the Peso with respect to the U.S. dollar that exceeded 30%, including a loss of approximately 24% in January 2014. In 2015, the Peso lost approximately 52% of its value with respect to the U.S. dollar, including a 10% devaluation from January 1, 2015 to September 30, 2015 and a 38% devaluation during the last quarter of the year 2015, mainly concentrated after December 16, 2015. During 2016, the Peso lost approximately 21.9% of its value against the U.S. dollar.
The following table sets forth the annual high, low, average and period-end exchange rates for the periods indicated, expressed in Pesos per U.S. dollar and not adjusted for inflation. There can be no assurance that the Peso will not depreciate or appreciate again in the future. The Federal Reserve Bank of New York does not report a noon buying rate for Pesos.
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| Exchange Rates |
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| High(1) |
| Low(1) |
| Average(1)(2) |
| Period-end(1)(3) |
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2012 |
| 4.9173 |
| 4.3048 |
| 4.5515 |
| 4.9173 |
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2013 |
| 6.5180 |
| 4.9228 |
| 5.4789 |
| 6.5180 |
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2014 |
| 8.5555 |
| 6.5430 |
| 8.1188 |
| 8.5520 |
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2015 |
| 13.7633 |
| 8.5537 |
| 9.2689 |
| 13.0050 |
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2016 |
| 16.0392 |
| 13.0692 |
| 14.7794 |
| 15.8502 |
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October 2016 |
| 15.2250 |
| 15.1152 |
| 15.1810 |
| 15.1745 |
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November 2016 |
| 15.8442 |
| 15.0183 |
| 15.3399 |
| 15.8442 |
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December 2016 |
| 16.0392 |
| 15.5225 |
| 15.8296 |
| 15.8502 |
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January 2017 |
| 16.0533 |
| 15.8083 |
| 15.9065 |
| 15.9117 |
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February 2017 |
| 15.8350 |
| 15.3675 |
| 15.5983 |
| 15.4550 |
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March 2017 |
| 15.6687 |
| 15.3818 |
| 15.5237 |
| 15.3818 |
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April 2017 (through April 28) |
| 15.4532 |
| 15.1742 |
| 15.3600 |
| 15.4268 |
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(1) Reference exchange rate published by the Central Bank.
(2) Based on daily averages.
(3) The exchange rate used in our audited consolidated financial statements.
Item 3.BCapitalization and indebtedness
| Item 3.B | Capitalization and indebtedness |
Not applicable.
Item 3.CReasons for the offer and use of proceeds
| Item 3.C | Reasons for the offer and use of proceeds |
Not applicable.
| Item 3.D | Risk Factors |
You should carefully consider the risks described below, as well as the other information in this annual report. Our business, results of operations, financial condition or prospects could be materially and adversely affected if any of these risks occurs. In general, investors take more risk when they invest in the securities of issuers in emerging markets such as Argentina than when they invest in the securities of issuers in the United States and other more developed markets. The risks described below are those known to us and that as of the date of this annual report believe may materially affect us.
Risks Relating to Argentina
Substantially all of our operations, property and customers are located in Argentina. As a result, the quality of our assets, our financial condition and the results of our operations are dependent upon the macroeconomic, regulatory, social and political conditions prevailing in Argentina from time to time. These conditions include growth rates, inflation rates, exchange rates, taxes, foreign exchange controls, changes to interest rates, changes to government policies, social instability, and other political, economic or international developments either taking place in, or otherwise affecting, Argentina.
The ongoing COVID-19 pandemic and government measures to contain the virus are adversely affecting our business and results of operations, and, as conditions are evolving rapidly, we cannot accurately predict the ultimate impact on the Group.
In December 2019, a novel strain of coronavirus (SARS-COV-2) causing a severe acute respiratory syndrome (“COVID-19”) was reported to have surfaced in Wuhan, China. COVID-19 has since spread across the world, including Argentina, and on March 11, 2020, the World Health Organization declared COVID-19 a pandemic. By late April, around 4,000 cases had been confirmed in Argentina. In response, countries have adopted extraordinary measures to contain the spread of the virus, including imposing travel restrictions and closing borders, requiring closures of non-essential businesses, instructing residents to practice social distancing, issuing stay at home orders, implementing quarantines and similar actions. The ongoing pandemic and these extraordinary government measures are disrupting global economic activity and resulting in significant volatility in global financial markets. According to the IMF, the global economy has recently entered into a recession.
| 5 |
The Argentine government has adopted multiple measures in response to the COVID-19 pandemic, including a nationwide mandatory lockdown that began on March 19, 2020 and has been extended several times, most recently through May 10, 2020. The government has also required the mandatory shutdown of businesses not considered essential, including initially the closure of bank branches.
At the same time, in order to mitigate the economic impact of the COVID-19 pandemic and mandatory lockdown and shutdown of non-essential businesses, the Argentine government has adopted social aid, monetary and fiscal measures. We cannot assure you whether these measures will be sufficient to prevent a severe economic downturn in Argentina, particularly if current conditions are prolonged and if Argentina’s main trading partners are concurrently facing an economic recession. However, the Argentine government may have more limited resources at this time to support the country’s economy; the pandemic has struck at a time when Argentina is struggling to pull out of a two year recession and the government is seeking to restructure the country’s large sovereign debt.
Some of the measures adopted by the Argentine government may adversely affect financial institutions, such as our Group. These temporary measures include (i) postponement of loan payments without punitive interests, (ii) prohibiting banks to charge fees for ATM transactions, (iii) freezing mortgage payments and suspending foreclosures, (iv) the automatic refinancing of credit card payments and reduction of the maximum interest rates that can be charged on credit cards, (v) imposing a minimum interest rate to be paid on time deposits under Ps.1 million made by individuals, and (vi) forbidding bank account closures. Additionally, some of the government measures are aimed at encouraging bank lending, such as (i) 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, (ii) lowering of reserve requirements on loans to households and SMEs, and (iii) the easing of bank loan classification rules (providing an additional 60 days of non-payment before a loan is required to be classified as non-performing). Moreover, banks may not distribute dividends until at least June 30, 2020 or carry out employees’ layoffs until at least May 30, 2020. For more information on regulations in connection with the COVID-19 pandemic and their impact on our Group, see “Item 4.B.—Business Overview—Argentine Banking Regulations – Government Measures in Response to the Ongoing COVID-19 Pandemic” and “Item 5.A Operating Results – The Ongoing COVID-19 Pandemic.” Although these measures may help attenuate the economic impact on the Argentine economy overall, they may have a negative impact on our business and results of operations.
The ongoing COVID-19 pandemic and government measures taken to contain the spread of the virus are adversely affecting our business and results of operations. Our branches were required to remain closed during the second half of March 2020, and were subsequently only gradually allowed to open with limited operations. As of the date of this annual report, banks are permitted to open to provide limited services to clients, in each case with prior appointment, provided that certain health and safety requirements set forth by the Central Bank are complied with. Additionally, we have transitioned a significant part of our workforce to work remotely, which may exacerbate certain risks to our business, including an increased reliance on information technology resources, increased risk of phishing and other cybersecurity attacks, and increased risk of unauthorized dissemination of sensitive personal information. Moreover, we face various risks arising from the economic impact of the pandemic and government measures which are difficult to predict accurately at this time, such as (i) a higher risk of impairment of our assets, (ii) lower revenues as a consequence of the temporary restrictions on charging certain fees to customers, and as a result of lower interest rates on loans promoted by the Central Bank, (iii) a possible significant increase in loan defaults and credit losses, with a consequent increase in loan loss provisions, and (iv) a decrease in credit demand and in our business activity in general, particularly new retail lending.
We are continuing to monitor the impact of the ongoing COVID-19 pandemic on the Group. The ultimate impact of the pandemic on our business, results of operations and financial condition remains highly uncertain and will depend on future developments outside of our control, including the intensity and duration of the pandemic and the government measures taken in order to contain the virus or mitigate the economic impact. To the extent the COVID-19 pandemic adversely affects our business, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section.
6
Economic and political instability in Argentina may adversely and materially affect our business, results of operations and financial condition.
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. As a consequence, our business and operations have been, and could be in the future be, affected from time to time to varying degrees by economic and political developments and other material events affecting the Argentine economy, such as: inflation; price controls; foreign exchange controls; fluctuations in foreign currency exchange rates and interest rates; governmental policies regarding spending and investment, national, provincial or municipal tax increases and other initiatives increasing government involvement with economic activity; civil unrest and local security concerns. You should make your own investigation into Argentina’s economy and its prevailing conditions before making an investment in us.
During 2001 and 2002, Argentina went through a period of severe political, economic and social crisis. Among other consequences, the crisis resulted in Argentina defaulting on its foreign debt obligations, introducing
emergency measures and numerous changes in economic policies that affected utilities, financial institutions, and many other sectors of the economy. Argentina also suffered a significant real devaluation of the Peso, which in turn caused numerous Argentine private sector debtors with foreign currency exposure to default on their outstanding debt. Following that crisis, Argentina substantially increased its real GDP, growing 9.2% in 2005, 8.4% in 2006 and 8.0% in 2007. During 2008 and 2009, however,In the Argentine economy suffered a slowdown attributed to local and external factors, including an extended drought affecting agricultural activities, and the effects of the global economic crisis. Real GDP growth recovered in 2010 and 2011, with GDP increasing to 9.5% and 8.4%, respectively. However, GDP growth slowed to 0.8% in 2012 and then grew by 2.3% in 2013.
According to the revised calculation of the 2004 GDP published by INDEC on June 24, 2016, GDP increased 8.9% in 2005, 8.0% in 2006, 9.0% in 2007, 4.1% in 2008 and decreased 5.9% in 2009. In 2010 and 2011,past three years, GDP grew 10.1% and 6.0%, respectively and decreased 1.0%2.7% in 2012. GDP grew 2.4% in 2013,2017, but it contracted 2.5% in 2014, grew 2.6%2018 and 2.2% in 2015. GDP decreased 2.3% in 2016, according to preliminary estimates published by the INDEC on March 21, 2017.
Since 2007, the INDEC experienced a process of institutional and methodological reforms that gave rise to controversy with respect to the reliability of the information that it produces including inflation, GDP and unemployment data. Reports published by the International Monetary Fund (“IMF”) stated that its staff used alternative measures of inflation for macroeconomic surveillance, including data produced by private sources, which have shown inflation rates considerably higher than those published by the INDEC since 2007. The IMF also censured Argentina for failing to make sufficient progress, as required under the Articles of Agreement of the IMF, in adopting remedial measures to address the quality of official data, including inflation and GDP data. In February 2014, the INDEC released a new inflation index, known as the National Urban Consumer Price Index (Índice de Precios al Consumidor Nacional Urbano) that measures prices on goods across the country and replaces the previous index that only measured inflation in the urban sprawl of the City of Buenos Aires. Even though the new methodology brought inflation statistics closer to those estimated by private sources, there are still differences between official inflation data and private estimates. See “If the current levels of inflation continue, the Argentine economy and our financial position and business could be adversely affected.”
Presidential and Congressional elections in Argentina took place on October 25, 2015, and a runoff election (ballotage) between the two leading Presidential candidates was held on November 22, 2015, which resulted in Mr. Mauricio Macri being elected President of Argentina. The Macri administration assumed office on December 10, 2015.
Since assuming office, the Macri administration has implemented several significant economic and policy reforms, including on, foreign exchange, the INDEC, financial policy, foreign currency-denominated bonds, foreign trade reforms, amendment to the Capital Markets Law, Tax Amnesty Law, correction of monetary imbalances, retiree program, fiscal policy, national electricity state of emergency and reforms, tariff increases, increase in minimum income. See “Item 4 Information of the Company—Recent Political and Economic Developments in Argentina.”
On January 2016, following the resignation of Mr. Alfonso Prat Gay as Minister of Treasury and Public Finance as of December 31, 2016, the Ministry of Treasury and Public Finances was split into the Ministry of Treasury and the Ministry of Public Finances, conducted by Mr. Nicolás Dujovne and Mr. Luis Caputo, respectively.
As of the date of this annual report, the impact these measures had and the impact any future measures by the Macri administration will have on the Argentine economy as a whole and the financial sector in particular cannot be predicted. We believe that the effect of the planned liberalization of the economy will be positive for our business by stimulating economic activity. However, it is not possible to predict such effect with certainty. Such liberalization could also be disruptive to the economy and fail to benefit or harm our business.
In addition, mid-term legislative elections will take place in Argentina. The results of the elections are uncertain as of the date of this annual report.
Additionally, political parties opposed to the Macri administration retained a majority of the seats in the Argentine Congress in the last election. Consequently, the Macri administration needs to seek political support from the opposition to implement its economic proposals, which causes further uncertainty in the ability of the Macri
administration to pass any measure it may expect to implement. Any change of majorities in the Argentine Congress may cause significant changes with respect to the measures adopted by the Macri administration and therefore, may have an adverse effect over the Argentine economy.
The inability of the Macri administration to properly implement measures as a result of the absence of sufficient political support may adversely affect the Argentine economy and financial condition, and in turn, our business, financial condition and results of operations.
Inflation, any decline in GDP and/or other future economic, social and political developments in Argentina, over which we have no control, may adversely affect our financial condition or results of operations.
Argentina’s economy has undergone a significant slowdown, and any further decline in Argentina’s rate of economic growth could adversely affect our business, financial condition and results of operations.
After recovering significantly from the 2001-2002 crisis, the pace of growth of Argentina’s economy diminished, suggesting uncertainty as to whether the growth experienced between 2003 and 2011 was sustainable. Economic growth was initially fueled by a significant devaluation of the Peso, the availability of excess production capacity resulting from a long period of deep recession, and high commodity prices. In spite of the growth following the 2001-2002 crisis, the Argentine economy has suffered a sustained erosion of direct investment and capital investment. The global economic crisis of 2008 led to a sudden economic decline in Argentina during 2009, accompanied by inflationary pressures, depreciation of the Peso and a drop in consumer and investor confidence.
Economic conditions in Argentina from 2012 to 2015 included increased inflation, continued demand for wage increases, a rising fiscal deficit and limitations on Argentina’s ability to service its restructured debt in accordance with its terms due to its ongoing litigation with holdout creditors. In addition, beginning in the second half of 2011, an increase in local demand for foreign currency caused the Argentine government to strengthen its foreign exchange controls. However, as of December 2015, the Argentine government reestablished and later increased the monthly caps for the acquisition of foreign currency for non-specific purposes (atesoramiento), which were finally eliminated throught the issuance of Communication “A” 6037 of the Central Bank on August 9, 2016. During 2013, 2014, 2015 and 2016, the government imposed price controls on certain goods and services to control inflation. These price controls will remain in effect until May 6, 2017, but as of the date of this annual report, there is uncertainty regarding what other specific actions will be taken to control inflation.
2019.
A decline in international demand for Argentine products, a lack of stability and competitiveness of the Peso against other currencies, a decline in the confidence among consumers and foreign and domestic investors, a higherhigh rate of inflation and future political uncertainties, among other factors, may affect the development of the Argentine economy, which could lead to reduced demand for our services and adversely affect our business, financial condition and results of operations.
The primary elections (Elecciones Primarias, Abiertas y Simultáneas y Obligatorias - “PASO”, per its acronym in Spanish), which define which political parties and which candidates of the different political parties may run in the general elections, took place in August 11, 2019. In these elections, theFrente de Todos coalition (a political coalition composed of, among others, the Justicialist Party and the Renovating Front, which was at the time part of the opposition and included former president Fernandez de Kirchner as a candidate to the vice-presidency) obtained 47.78% of the votes, whileJuntos por el Cambio coalition (then president Mr. Mauricio Marcri’s coalition), obtained 31.79% of the votes.
After the results of the primary elections, the Peso devalued almost 30% and the share price of Argentine listed companies dropped approximately 38% on average. In turn, the emerging market bond index (EMBI) peaked to one of the highest levels in Argentine history, above 2000 points on August 28, 2019. As of April 28, 2020 the EMBI was 3,995 points. As a consequence of the aforementioned effects, in order to control the currency outflow and restrict exchange rate fluctuations, the Central Bank re-implemented exchange controls, in hopes 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.
Presidential and Congressional elections in Argentina took place on October 27, 2019, which resulted in Mr. Alberto Fernández being elected President of Argentina, having earned 48.1% of the votes. The Fernández administration assumed office on December 10, 2019. As of such date, the Argentine Congress was composed as follows:Frente de Todoscommanded a majority in the Senate with 41 seats, with the first minority beingJuntos por el Cambio with 28 seats; while in the House of RepresentativesJuntos por el Cambio commanded the first minority with 119 seats and the second minority belongs to the Frente de Todos with 116 seats.
The political uncertainty in Argentina about the measures that the new Fernández administration could take with respect to the economy, including with respect to the crisis resulting from the ongoing COVID-19 pandemic, could generate volatility in the price of the Argentine companies’ securities or even a decrease in their prices, in particular companies in the financial sector like us.
7
We can offer no assurances as to the policies that may be implemented by the new Fernández Argentine administration, or that political developments in Argentina will not adversely affect the Argentine economy and our financial condition and results of operations. In addition, we cannot assure you that future economic, regulatory, social and political developments in Argentina will not impair our business, financial condition or results of operations, or cause the market value of our shares to decline.
If the current levels of inflation continue or increase, the Argentine economy and our financial position and business could be adversely affected.
Argentina has confronted inflationary pressures since 2007. According to INDEC data, the CPI grew 9.5% in 2011, 10.8% in 2012, 10.9% in 2013, 24.0% in 2014 and 11.9% in the ten-month period ended October 31, 2015. The INDEC did not publish the CPI for the period between November 2015 and April 2016, and resumed publishing inflation rates using its new methodology for calculating CPI starting in June 2016, reporting increases of 4.2%, 3.1%, 2.0%, 0.2%, 1.1%, 2.4%, 1.6% and 1.2% during the months of May, June, July, August, September, October, November and December 2016, respectively.
According to unrevised INDEC data, the WPI increased 14.6% in 2010, 12.7% in 2011, 13.1% in 2012, 14.8% in 2013, 28.3% in 2014 and 10.6% in the ten-month period ended October 31, 2015. The INDEC did not publish the WPI for the last two months of 2015, and resumed publishing WPI data in May 2016, reporting that the WPI grew 34.5% in 2016.
The Argentine government declared a state of administrative emergency of the national statistical system and the INDEC —the official agency in charge of the system- until December 31, 2016 through Decree No. 55/2016, which was not renewed. During the implementation of rearrangement measures of its technical and administrative structure, the INDEC used official CPI figures and other statistics published by the Province of San Luis and the City of Buenos Aires. Despite the INDEC reforms, there is uncertainty as to (i) whether the official data will be sufficiently corrected, (ii) in what timeframe such data will be corrected and (iii) what effects these reforms will have on the Argentine economy. The Macri administration has released an alternative CPI index based on data from the City of Buenos Aires and the Province of San Luis and is currently working on a new inflation index. According to the available public information based on data from the City of Buenos Aires, CPI grew 26.6% in 2013, 38.0% in 2014, 26.9% in 2015, and 41.0% in 2016, while according to the data of the Province of San Luis, CPI grew 31.9% in 2013, 39.0% in 2014, 31.6% in 2015, and 31.4% in 2016.
On June 15, 2016, the INDEC resumed publishing inflation rates -which was previously suspended due to the state of administrative emergency on the national statistical system-. The INDEC reported an increase of 4.2% in CPI for May 2016, while the CPI measured by the Argentine Congress reported an increase of 3.5%. Based on the most recent information published by the INDEC, the CPI for the months of July, August, September, October, November and December 2016 registered variations of 2.0%, 0.2%, 1.1%, 2.4%, 1.6% and 1.2%, respectively, compared to the respective prior month.
According to INDEC’s CPI, inflation was 16.9% for the period from May to December 2016. According to the INDEC, in January 2017 and February 2017, inflation was 1.3% and 2.5%, respectively. In the past, the Argentine government implemented programs to control inflation and monitor prices for essential goods and services, including attempts to freeze the prices of certain supermarket products, and price support arrangements agreed between the Argentine government and private sector companies in several industries and markets.
Additionally, the INDEC published revised GDP data for the years 2005 through 2015, registering differences of up to 20 points between the original information reported by the prior administration and the revised information.
In the past, inflation has materially undermined the Argentine economy and the Argentine government’sArgentina’s ability to generatecreate conditions that fostered economicwould permit growth. In addition, high inflation or a high level of volatility with respect toHigh inflation may materiallyalso undermine Argentina’s competitiveness abroad and adversely affect the business volume of the financial system and prevent the growth of intermediation activity levels. This resultlead to a decline in private consumption which, in turn, could adversely affect the level of economic activity and employment.
High inflation rates also affect Argentina’s foreign competitiveness, realemployment levels, salaries employment, consumption 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.
The INDEC reported a cumulative variation of the CPI of 24.8% for 2017, 47.6% for 2018 and 53.8% for 2019.
There can be no assurances that inflation rates will not continue to escalate in the future or that the measures adopted or that may be adopted by the new Fernández administration to control inflation will be effective or successful. Inflation remains a challenge for Argentina. 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.
A high level of uncertainty with regard to these economic variables, and a general lack of stability in terms of inflation, could lead to shortened contractual terms and affect the ability to plan and make decisions. This may have a negative impact on economic activity and on the income of consumers and their purchasing power, all of which could materially and adversely affect our financial position, results of operations and business. Recently, the Argentine government’s adjustments to electricity and gass tariffs, as well as the increase in the gasoline price have impacted prices, creating additional inflationary pressures.
Inflation remains a challenge for Argentina given its persistent nature in recent years. The Macri administration has announced its intention to reduce the primary fiscal deficit as a percentage of GDP over time and also reduce the Argentine government’s reliance on Central Bank financing. If, despite the measures adopted by the Macri administration, these measures fail to address Argentina’s structural inflationary imbalances, the current levels of inflation may continue and have an adverse effect on Argentina’s economy and financial condition.
Inflation rates could escalate in the future. There is uncertainty regarding the effects of the measures adopted by the Argentine government to control inflation, as well as the effects of the measures that it may adopt in the future with the same purpose. See “Government intervention in the Argentine economy could adversely affect our results of operations or financial condition.”
The intervention of the Central Bank in the foreign exchange market may have a negative impact on its international reserves and a material adverse effect on the Argentine economy and, in turn, our financial position and business.
From time to time, the Central Bank may intervene in the foreign exchange market in order to maintain the currency exchange rate. Purchases of Pesos by the Central Bank could cause a decrease in the international reserves of the Central Bank. A significant decrease in the Central Bank’s international reserves may have an adverse impact on Argentina’s ability to withstand external shocks to the economy.
The level of international reserves deposited with 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 ability of the Argentine government to intervene in the foreign exchange market. Nevertheless, the level of international reserves increased 52% in 2016.
Since Argentina adopted a managed floating exchange rate regime in 2002, the Peso’s value has varied over time. After several years of variations in the nominal exchange rate, in 2012, there was a devaluation of approximately 14% of the Peso against the U.S. dollar. This was followed by a further devaluation of the Peso against the U.S. dollar that exceeded 30% in 2013 and 2014, including a loss of approximately 24% in January 2014. In 2015, there was a further devaluation of approximately 52% of the Peso against the U.S. dollar, including a 10% devaluation from January 1, 2015 to September 30, 2015 and a 38% devaluation in the last quarter of 2015, which was mainly experienced after December 16, 2015, as a result of a significant economic reform implemented by the new administration. Since the devaluation of the Peso in December 2015, the Central Bank has allowed the Peso to float with limited intervention intended to ensure the orderly operation of the foreign exchange market.
The Argentine government’s ability to obtain financing from international markets is limited, which may impair its ability to implement reforms and foster economic growth, which in turn may negatively impact our financial condition or cash flows.
In 2005 and 2010, Argentina conducted exchange offers to restructure part of its sovereign debt that had been in default since the end of 2001. As a result of these exchange offers, Argentina restructured over 92% of its eligible defaulted debt. However,litigation initiated by bondholders thatdid not accept Argentina’s settlement offers continued in several jurisdictions and limited the country’s access to international capital markets.In April 2016, the Argentine government settled U.S.$4.2 billion outstanding principal amount of untendered debt.
In 2018, due to Argentina’s limitation of access to international markets, the Argentine government and the IMF entered into a “stand-by” credit facility agreement for an amount of U.S.$57.1 billion with a 36-month maturity. As of the date of this annual report, litigationArgentina has received disbursements under the agreement for U.S.$46.1 billion. Notwithstanding the foregoing, thenew Fernández administration has publicly announced that they will refrain from requesting additional disbursements under the agreement, and instead vowed to renegotiate its terms and conditions in good faith.
Thenew Fernández administration has initiated negotiations with creditors in order to restructurethe country’s current Peso and U.S. dollar-denominated public debt. In this context, on February 5, 2020, the Argentine Congress passed Law N° 27,544, by bondholders that have not acceptedvirtue of which the sustainability ofthe sovereign debt is declared a national priority, authorizing the Ministry of Economy to renegotiate new terms and conditions with Argentina’s settlement offer continuescreditors within certain parameters.
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Additionally, in several jurisdictions. Although the size of the claims involved has decreased significantly, the amountmidst of debt which has not been reestrucutred is approximately US$8.8 billion as of September 30, 2016.
The vacatur of the pari passu injunctions removed a material obstacle forrestructuring negotiations, on April 5, 2020 the Argentine government issued Decree No. 346/2020, through which the repayment of Argentine law-governed dollar-denominated notes was postponed.
On April 21, 2020, the Argentine government launched an exchange offer with the aim of refinancing its external indebtedness in a manner which does not compromise the development and potential growth of Argentina in the next years. For more information on this offer, see “Item 5.A—Operating Results—The Argentine Economy and Financial System—Argentina’s Sovereign Debt Restructuring”. As of the date of this annual report,the exchange offer is still open and there is uncertainty as to accesswhether the Argentine government will be able to capital markets, evidenced bysuccessfully carry out the successful bonds issuances byexchangeofferand restructure its foreign financial indebtedness, under the proposed terms or at all.
If the Argentine government in April 2016 and January 2017 for U.S.$16.5 billion and U.S.$7 billion, respectively. However, future transactions may be affected asis not able to successfully renegotiate the terms ofthe sovereign debt, or if the negotiations with creditors are prolonged beyond May 22, 2020, or if significant litigation with holdout bondholders continuesresults from such negotiations,the country’s. This ability to access international credit markets may be adversely affected.Additionally, the pressure from creditors may result in turn could affectrestructured terms that are not sustainable for Argentina, or the IMF may impose strict austerity measures as a condition to restructuring its debt. As a result, the Argentine government’s government may not have theability or the financial resources necessary to implement certain expected reforms and foster economic growth, which, mayin turn, could have a material adverse effect on the country’s economy and, consequently, our business and results of operations. Furthermore, Argentina’s inability to obtain credit in international markets could have a direct impact on our own ability to gain access to international credit markets in order to finance our operations and growth.
The credibility of several Argentine economic indices has been called into question,growth, which has led to a lack of confidence in the Argentine economy, which in turn could adversely affect our business, financial condition and results of operations.
Under the previous administration, the INDEC, the Argentine government’s principal statistical agency, underwent institutional and methodological reforms that gave rise to controversy regarding the reliability of the information that it produced, including inflation, GDP, unemployment and poverty data. Reports published by the IMF stated that its staff uses alternative measures of inflation for macroeconomic surveillance, including data produced by private sources, which have shown inflation rates considerably higher than those published by the INDEC between 2007 and 2015. The IMF also censured Argentina for failing to make sufficient progress, as required under the
Articles of Agreement of the IMF, in adopting remedial measures to address the quality of official data, including inflation and GDP data.
On January 8, 2016, based on its determination that the INDEC had failed to produce reliable statistical information, particularly with respect to CPI, GDP and foreign trade data, poverty and unemployment rates, the Macri administration declared a state of administrative emergency for the national statistical system and the INDEC until December 31, 2016. The INDEC suspended the publication of certain statistical data until it completes a reorganization of its technical and administrative structure to recover its ability to produce sufficient and reliable statistical information. During this reorganization period, which is expected to last approximately six months, the INDEC publishes official CPI figures published by the City of Buenos Aires and the Province of San Luis for reference.
Certain revised foreign trade, balance of payment and GDP data for the years 2011 through 2015 and the CPI for May through December 2016 were released by the INDEC after the state of administrative emergency declared on January 8, 2016. On November 9, 2016, the IMF Executive Board lifted its censure on Argentina, noting that Argentina has resumed the publication of data in a manner consistent with its obligations under the Articles of Agreement of the IMF.
The Argentine government’s announced reforms seeking to produce official data that meets international standards. In order to be effective, such reforms require, however, that data be collected on a timely basis and other implementation steps that the Argentine government does not control. If these reforms cannot be successfully implemented, such failure may adversely affect the Argentine economy, in particular by undermining expectations that its performance will improve. In addition, uncertainty with respect to the success of the measures taken to implement the expected changes may impair measures taken by the Central Bank to tackle inflation, which, in turn, could have a negative impact on Argentina’s economyoperations and financial condition.
Fluctuations in the value of the Peso could adversely affect the Argentine economy, and consequently our results of operations or financial condition.
Fluctuations in the value of the Peso may also adversely affect the Argentine economy, our financial condition and results of operations. Since January 2002,In 2017, 2018 and 2019, the Peso has significantly fluctuated in value. lost approximately 18.4%, 101% and 58% of its value against the U.S. dollar, respectively.The devaluation of the Peso in real terms in 2002 hadcan have a negative impact on the ability of certain Argentine businesses to honor their foreign currency-denominatedcurrency denominated debt, and also it initially ledlead to a very high inflation and significantlysignificant reduced real wages. The devaluation hascan also negatively impactedimpact businesses whose success is dependent on domestic market demand, and adversely affectedaffect the Argentine government’s ability to honor its foreign debt obligations. If the Peso significantly devalues in real terms, all of the negative effects on the Argentine economy related to such devaluation could also have adverse consequences for our business.obligations. A substantial increase in the value of the Peso against the U.S. dollar also represents risks for the Argentine economy since it may lead to a deterioration of the country’s current account balance and the balance of payments. After several yearspayments which may have a negative effect on GDP growth and employment, and reduce the revenues of moderate variationsthe Argentine public sector by reducing tax revenues in real terms, due to its current heavy dependence on export taxes.
As of April 28, 2020, the nominal exchange rate in 2012was Ps.66.635 per dollar.
As a result of the Peso lost approximately 14.4% of its value with respect to the U.S. dollar. This was followed in 2013 and 2014 by a devaluationgreater volatility of the Peso, with respectthe former administration announced several measures to the U.S. dollar that exceeded 32.5% in 2013restore market’s confidence and 31.2% in 2014, including a loss of approximately 24% in January 2014. In 2015,stabilize the Peso lost approximately 52% of its value with respect to the U.S. dollar, including a 10% devaluation from January 1, 2015 to September 30, 2015 a 38% devaluation during the last quarter of the year, mainly concentrated after December 16, 2015. The Peso lost approximately 21.9% of its value against the U.S. dollar in 2016. However, in the first three months of 2017, the Peso revaluated approximately 3.0% of its value against the U.S. dollar. We are unable to predict the future value of the Peso against the U.S. dollar.
In addition, the administration of former President Cristina Fernández de Kirchner adopted numerous measures to directly or indirectly control foreign trade and the foreign exchange market. From 2011 until President Macri assumed office,Argentine Peso. Among them, during 2018, the Argentine government adopted increasing stringentnegotiated two agreements with the IMF, increased the interest rates and the Central Bank decided to intervene in the exchange market in order to stabilize the value of the Peso. During 2019, based on a new agreement with the IMF, the government established a new regime for a stricter control of the local monetary base, which would remain in place until December 2019, in an attempt to reduce the amount of Pesos available in the market and reduce the demand for foreign currency. Complementing these measures,in September 2019, foreign currency controls were reinstated in Argentina. As a consequence of the reimposition of exchange controls, somethe spread between the official exchange rate and other exchange rates resulting implicitly from certain common capital market operations (“dolar MEP” or “contado con liquidación”) has broadened significantly, reaching a value of which have been eliminated or relaxedapproximately 50% above the official exchange rate. The success of any measures taken by the Macri administration.
Any foreign exchange regulationArgentine government to be issuedrestore market’s confidence and any consequent modificationstabilize the value of the exchange rate betweenArgentine Peso is uncertain and the continued depreciation of the Peso and the U.S. dollar may prevent or limit us from offsetting the risk derived from our exposure to the U.S.
dollar. Accordingly, we cannot predict the impact of these changescould have a significant adverse effect on our financial condition and results of operations.
During its financial crisis in 2001 and 2002, Argentina experienced social and political turmoil, including civil unrest, riots, looting, nationwide protests, strikes and street demonstrations. During such crisis, the Argentine government adopted several measures to curb social unrest, including the devaluation of the Peso and a forced restructuring of financial liabilities with the banking system. Future policies of the Argentine government may include expropriation, nationalization, forced renegotiation or modification of existing contracts, suspension of the enforcement of creditors’ rights, new foreign exchange controls, changes in taxation and/or export duties and changes in laws and policies affecting foreign trade and investment. The implementation of any such future policies or significant protests resulting therefrom could destabilize the country and adversely and materially affect the Argentine economy and, in turn, our business, financial condition and results of operations.
The maintenance or implementation in the future of new exchange controls, restrictions on transfers abroad and capital inflow restrictions could limit the availability of international credit and could threaten the financial system, which may adversely affect the Argentine economy and, as a result, our business.
In 2001 and 2002, following a run on the financial system triggered by the public’s lack of confidence in the continuity of the convertibility regime that resulted in massive capital outflows, the Argentine government imposed exchange controls and transfer restrictions, substantially limiting the ability of companies to retain foreign currency or make payments abroad. Although several of such exchange controls and transfer restrictions were subsequently suspended or terminated, in June 2005 the Argentinefederal government issued a decree that established new restrictive controls on capital inflows, into Argentina, which resulted in a decrease in the availability of international credit for Argentine companies, including a requirement that, for certain funds remitted into Argentina, an amount equal to 30.0% of the funds must be deposited into an account with a local financial institution as a U.S. dollar deposit for a one-year period without any accrual of interest, benefit or other use as collateral for any transaction.
In addition, fromcompanies. From 2011 until President Macri assumed office,2015, the Argentine government increased controls on the sale of foreign currency and the acquisition of foreign assets by local residents, limiting the possibility of transferring funds abroad. Together with regulations established in 2012 that subjected certain foreign exchange transactions to prior approval by Argentine authorities or the Central Bank, the measures taken by the previous
After former Macri’s administration significantly curtailed access to the MULC by individuals and private sector entities. In response, 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. Notwithstanding the measures recently adopted by the Macri administration eliminatingeliminated a significant portion of the foreign exchange restrictions, that developed underon September 1, 2019 it temporarily reinstated exchange restrictions, followed by new exchange restrictions imposed by the Kirchner administration,new Fernandez’s administration. 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 debt abroad, the payment of dividends in foreign currency abroad, payments of imports of goods and services, and the futureobligation to repatriate and settle for Pesos the Argentine government or the Central Bank could otherwise reintroduceproceeds from exports of goods and services, among others. For more information on foreign exchange controls and impose restrictions, on capital transfers. Suchsee “Item 10.D—Exchange Controls.”
Exchange control measures may negatively affect Argentina’s international competitiveness, discouraging foreign investments and lending by foreign investors or increasing foreign capital outflow which could have an adverse effect on economic activity in Argentina, and which in turn could adversely affect our business and results of operations and the market value of our shares and the ADSs.operations.
In addition, the Argentine government or the Central Bank may reinstate certain restrictions on the transfers of funds abroad, impairing our ability to make dividend payments to holders of the ADSs, which may adversely affect the market value of the ADSs. As of the date of this annual report, however, the transfer of funds abroad to pay dividends is permitted to the extent such dividend payments are made in connection with audited financial statements approved by a shareholders’ meeting.
Fluctuations in the value of the Peso and the intervention of the Central Bank in the foreign exchange market may have a material adverse effect on the Argentine economy, which in turn could adversely affect our business, financial condition and results of operations.
Fluctuations in the value of the Peso may also adversely affect the Argentine economies. The devaluation of the Peso may have a negative impact on the Argentine government’s revenues (measured in U.S. dollars), fuel inflation and significantly reduce real wages. Since Argentina adopted a managed floating exchange rate regime in 2002, the Peso’s value has varied over time. After several years of fluctuations in the nominal exchange rate, the Peso lost approximately 14% of its value against the U.S. dollar in 2012. Despite increased Central Bank intervention and
measures to limit Argentine residents’ access to foreign currency, the Peso devalued by 32.6% and 31.3% against the U.S. dollar in 2013 and 2014, respectively. In December 2015, the Macri administration eliminated a significant portion of the foreign exchange restrictions and the Central Bank returned to a free-float policy with interventions designed to enhance the operation of the foreign exchange market. Immediately after a significant portion of the foreign exchange controls were lifted, the Peso devalued by approximately 40%, as the Peso-U.S. dollar exchange rate reached Ps. 13.76 to U.S. $1.00 on December 17, 2015. The Peso has since floated freely with limited intervention by the Central Bank. In 2016, the Peso devalued by approximately 21%, with the Peso-U.S. dollar exchange rate reaching Ps. 15.85 to U.S. $1.00 on December 30, 2016.
From time to time, the Central Bank may intervene in the foreign exchange market to influence exchange rates. Purchases of Pesos by the Central Bank could cause a decrease in the international reserves of the Central Bank. A significant decrease in the Central Bank’s international reserves may have an adverse impact on Argentina’s ability to withstand external shocks to the economy.
Argentina’s ability to obtain financing from international markets is limited, which may impair its ability to implement reforms and foster economic growth.
In 2005 and 2010, Argentina conducted exchange offers to restructure part of its sovereign debt that had been in default since the end of 2001. As a result of these exchange offers, Argentina restructured over 92% of its eligible defaulted debt. In April 2016, the Argentine government settled U.S.$4.2 billion outstanding principal amount of debt held by creditors who had not participated in the 2005 and 2010 restructurings.
As of the date of this annual report, litigation initiated by bondholders that have not accepted Argentina’s settlement offer continues in several jurisdictions, although the size of the claims involved has decreased significantly.
The Argentine economy canmay be adversely affected by economic developments in other markets and by more general “contagion” effects, which could have a material adverse effect on Argentina’s economic growth, and consequently, could adversely affect our business, financial condition and results of operations.
Argentina’s economy is vulnerable to external shocks that could be caused by adverse developments affecting its principal trading partners. A significant decline in the economic growth of any of Argentina’s major trading partners (including Brazil, which is currently undergoing a recession, the European Union, China and the United States), including as a result of the ongoing COVID-19 pandemic, could have a material adverse impact on Argentina’s balance of trade and adversely affect Argentina’s economic growth. In 2016, there were declinesaddition, Argentina may be affected by economic and market conditions in exports of 4.5% with Chile, 14.3% with MERCOSUR (Brazil) while thereother markets worldwide, as was an increasethe case in exports of 15.6% with NAFTA (USA and Canada)2008/2009, each as comparedwhen the globalfinancial crisis led to asignificant economiccontraction in Argentina in 2009.
Since 2015, the same period in 2015. Declining demand for Argentine exports could have a material adverse effect on Argentina’s economic growth.
In 2015 and 2016, the Brazilian economy, of Brazil, Argentina’s largest export market and the principal source of imports, is currently experiencinghas experienced heightened negative pressure due to the uncertainties stemming from the ongoing political crisis, including the impeachment of Brazil’s president, which resulted in the Senate of Brazil removing Ms. Dilma Rousseff from office for the rest of her term on August 31, 2016. Mr. Michel Temer, who previously held office as vice president of Brazil, subsequently took office until the end of the presidential period. The Brazilianperiod and in October 2018, Mr. Jair Bolsonaro was elected president. Mr. Bolsonaro has liberal, conservative and nationalist tendencies and assumed office on January 1, 2019. Given that Brazil is the largest economy contracted by 3.8% during 2015, mainly duein Latin America, the measures taken to clean up its economy can have a 8.3% decreasegreat impact in industrial production and an increase in inflation and unemployment. Additionally, the Brazilian currency devalued against the U.S. dollar by approximately 49.1% from January 2015 to February 2016, the steepest depreciation in over a decade, in its attempt to increase exports. Although the Brazilian currency appreciated by approximately 17.2% between March 1, 2016, and September 1, 2016, aregion. A further deterioration ofin economic conditions in Brazil may reduce the demand for Argentine exports to the neighboring country and, increase demand for Brazilian imports. While the impact of Brazil’s downturn on Argentina or our operations cannot be predicted, we cannot exclude the possibility that the Brazilian political and economic crisisif this occurs, it could have furthera negative impacteffect on the Argentine economy and potentially on our operations.
In addition, financial and securities markets in Argentina have been influenced by economic and market conditions in other markets worldwide. Although economic conditions vary from country to country, investors’ perceptions of events occurring in other countries have in the past substantially affected, and may continue to substantially affect, capital flows into, and investments in securities from issuers in, other countries, including Argentina. International
investors’ reactions to events occurring in one market sometimes demonstrate a “contagion” effect in which an entire region or class of investment is disfavored by international investors.
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The Argentine financial system and securities markets could be also adversely affected by events in developed countries’ economies, such as the United States and Europe. On June 23, 2016, the United Kingdom voted in favor of the United Kingdom exiting the European Union (“Brexit”). As ofThe United Kingdom formally left the date of this annual report, it is uncertain how Brexit may impact the relationship betweenEuropean Union on January 31, 2020. Even when the United Kingdom and the European Union, as the commercial terms under which the effective withdrawal of the United Kingdomagreed its departure from the European Union, will occur (currentlynegotiations on the terms and conditions are expected forto continue during the transition period, which is dueto expire on December 2018) remain subject to negotiation.31, 2020. The effects of the Brexit vote and the perceptions as to the impact of the withdrawal of the United Kingdom from the European Union may adversely affect business activity and economic and market conditions in the United Kingdom, the Eurozone and globally, and could contribute to instability in global financial and foreign exchange markets. In addition, Brexit could lead to additional political, legal and economic instability in the European Union.
Union and have a negative impact on the commercial exchange of Argentina could be adversely affected by negative economic or financial developments in other countries, which in turn may have an adverse effect on our financial condition and results of operations. In addition, a slowdown in economic activity in Argentina would sustantially affect our business.
with that region.
On November 8, 2016, Mr. Donald J. Trump was elected president of the United States and recently took office on January 20, 2017. The results of the presidential election haveStates. His presidency has created significant uncertainty about the future relationships between the United States and other countries, including with respect to the trade policies, treaties, government regulations and tariffs that could apply to trade between the United States and other nations. These developments,We cannot predict how Mr. Trump’s protectionist measures will evolve or how they may affect Argentina, nor will the perceptioneffect that the same or any of themother measure taken by the Trump administration could occur, may have a material adverse effectcause on global economic conditions and the stability of global financial markets. Moreover, the next presidential elections in the United States are expected to take place in November 2020, and we cannot predict the outcome of such elections.
In July 2019, the Common Market of the South (“MERCOSUR”) signed a strategic partnership agreement with the European Union (the “EU”), which is expected to enter into force in 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.
Changes in social, political, regulatory and economic conditions in the United States ofother countries or regions, or in the laws and policies governing foreign trade, could create uncertainty in the international markets and could have a negative impact on emerging market economies, including the Argentine economy. Also, if these countries fall into a recession, the Argentine economy would be impacted by a decline in its exports, particularly of its main agricultural commodities. All of these factors could have a negative impact on Argentina’s economy and, in in turn, our business, financial condition and results of operations.
Furthermore, the financial markets have also been affected by the oil production crisis in March 2020 arising from the OPEC’s failure to reduce production. For more information, see in this section “Sustained declines in the international prices for oil could have an adverse material effect on the Argentine and the global economy.” Any of these factors could depress economic activity and restrict our access to suppliers and could have a material adverse effect on our business, financial condition and results of operations.
Government measures, as well as pressure from labor unions, could require salary increases or added benefits, all of which could increase the group’scompany’s operating costs.
In the past, the Argentine government has passed laws and regulations forcing privately owned companies to maintain certain wage levels and provide added benefits tofor their employees. Additionally, both public and private employers have been subject to strong pressure from theirthe workforce or theand trade unions representing them to grant salary increases and certain worker benefits.
Labor relations in Argentina are governed by specific legislation, such as Laborlabor Law No. 20,744 and Collective Bargaining Law No. 14,250, which, among other things, dictate how salary and other labor negotiations are to be conducted. Every industrial or commercial activity is regulated by a specific collective bargaining agreement that groups companies together companies according to industry sectors and by trade unions. While the process of negotiation process is standardized, each chamber of industrial or commercial activity separately negotiates the increases of salaries and labor benefits with the relevant trade union of such commercial or industrial activity. In the banking activity, salaries are established on an annual basis through negotiations between the chambers that represent the banks and the banking employees’ trade union. The National Labor Ministry mediates between the parties and ultimately approves the annual salary increase to be applied in the banking activity. Parties are bound by the final decision once it is approved by the labor authority and must observe the established salary increases for all employees that are represented by the banking union and to whom the collective bargaining agreement applies.
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In addition, each company is entitled, regardless of union-negotiated mandatory salary increases, to give its employees an additional merit increase or a variable compensation scheme.
Argentine employers, both in the public and private sectors, have experienced significant pressure from their employees and labor organizations to increase wages and to provide additional employee benefits. Due to the high levels of inflation, employees and labor organizations are demanding significant wage increases. In August 2012,2018, the Argentine government established a 25%National Labor Ministry resolved to increase in minimum monthly salary to Ps.2,875, effective as of February 2013. The Argentine government increased the minimum salary to Ps.3,300Ps.12,500 in August 2013,four stages: an increase (i) to Ps.3,600 in January 2014, to Ps.4,400Ps.10,700 in September 2014,2018, (ii) to Ps.5,588Ps.11,300 in August 2015December 2018, (iii) to Ps.11,900 in March 2019, and to Ps.6,06012,500 in January 2016. June 2019.
Due to high levels of inflation, employers in both the public and private sectors are experiencing significant pressure from unions and their employees to further increase salaries. The INDEC published new data for the Salary Index (Índice de Salarios), an index that shows the evolutions of private and public sector salaries. The Salary Index showed anThrough Decree No. 610/2019, a staggered increase of approximately 20.1%the minimum salary was approved as follows: (i) Ps.14,125 as of August 1, 2019; (ii) Ps.15,625 as of September 1, 2019; and (iii) Ps.16,875 as of October 1, 2019. In addition, the Argentine government has arranged various measures to mitigate the impact of inflation and exchange rate fluctuation in registeredwages. Moreover due to high levels of inflation, both public and private sector salariesemployers continue to experience significant pressure to further increase salaries. In December 2019, the Argentine government issued Decree No. 34/2019, which established that in case of dismissals without cause during six (6) months after the publication in the official gazette of such Decree, employees have the right to collect double indemnification. This Decree was enacted due to the economical emergency and of 17.4% in public sector salaries for the period between November 2015 and June 2016.
During the first months of 2017, some labor unions have agreed with the government salary increases of around 20% in order to recognize the lossincrease of the purchase power causedunemployment, and its aim was to dissuade employers to dismiss personnel. This measure was further reinforced through Decree No. 329/2020, issued amid the COVID-19 pandemic crisis, by virtue of which dismissals without cause or with cause under the inflation levelsargument of force majeure or lack of/reduction of work not imputable to the employer for 60 business days (this last cause also applies for temporary suspensions). Also, in 2016. AsJanuary 2020, the Argentine government issued Decree No. 14/2020 which established a general increase for all employees of the datePs.3,000 in January 2020, and an additional amount of this annual report, negotiations with unions of other industries, suchPs.1,000 in February 2020 (total Ps.4,000 as the teachers’ union, are still on process.
from February 2020).
In the future, the Argentine government could take new measures requiring salary increases or additional benefits for workers, and the labor force and labor unions may apply pressure for such measures. Any such increase in wage or worker benefit could result in added costs and reduced results of operations for Argentine companies, including us. Such added costs could adversely affect our business, financial condition, results of operations and our ability to make payments under the notes.
Government intervention in the Argentine economy could adversely affect our results of operations or financial condition.
The two termsArgentine government exercises substantial control over the economy and may increase its level of President Fernández de Kirchner’s administration increased its direct state intervention in certain areas of the Argentine economy, including through the implementationregulation of expropriationmarket conditions and nationalization measures, price controls and exchange controls.prices.
InBy way of example, in 2008, the Fernández de Kirchner administration absorbed and replaced the former private pension system for a public “pay as you go” pension system. As a result, all resources administered by the private pension funds, including significant equity interests in a wide range of listed companies, were transferred to a separate fund (Fondo de Garantía de Sustentabilidad, or “FGS”) to be administered by the National Social Security Administration (Administración Nacional de la Seguridad Social, or “ANSES”), per its acronym in Spanish). The dissolution of the private pension funds and the transfer of their financial assets to the FGS have had important repercussions on the financing of private sector companies. Debt and equity instruments which previously could be placed with pension fund administrators are now entirely subject to the discretion of the ANSES. Since it acquired equity interests in privately owned companies through the process of replacing the pension system, the ANSES is entitled to designate government representatives to the boards of directors of those entities. Pursuant to Decree No. 1,278/12, issued by the Executive Branch on July 25, 2012, the ANSES’s representatives must report directly to the Ministry of Public Finance are subject to a mandatory information-sharing regime, under which, among other obligations, they must immediately inform the Ministry of Public Finance of the agenda for each boardBoard of directors’Directors’ meetings and provide related documentation.
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InAlso, in April 2012, the Fernández de Kirchner administration decreed the removal of directors and senior officers of YPF S.A. (“YPF”), the country’s largest oil and gas company, which was controlled by the Spanish group Repsol, and submitted a bill to the Argentine Congress to expropriate shares held by Repsol representing 51% of the shares of YPF. The Argentine Congress approved the bill in May 2012 through the passage of Law No. 26,741, which declared the production, industrialization, transportation and marketing of hydrocarbons to be activities of public interest and fundamental policies of Argentina, and empowered the Argentine government to adopt any measures necessary to achieve self-sufficiency in hydrocarbon supply. In February 2014, the Argentine government and Repsol announced that they had reached an agreement on the terms of the compensation payable to Repsol for the expropriation of the YPF shares. Such compensation totaled US$U.S.$5 billion payable by delivery of Argentine sovereign bonds with various maturities. The agreement, which was ratified by Law No. 26,932, settled the claim filed by Repsol before the International Centre for Settlement of Investment Disputes (“ICSID”).
Law No. 26,991 (the “Supply Law”) became effective on September 28, 2014. The Supply Law applies to all economic processes linked to goods, facilities and services which, either directly or indirectly, satisfy basic needs of the population (“Basic Needs Goods”) and grants broad delegations of powers to its enforcing agency to become involved in such processes. It also empowers the enforcing agency to order the sale, production, distribution and/or delivery of Basic Needs Goods throughout the country in case of a shortage of supply.
In February 2015, the Fernández de Kirchner administration sent a bill to Congress in order to revoke certain train concessions, return the national rail network to state control and provide powers to review all concessions currently in force. The bill was enacted on May 20, 2015 as Law No. 27,132.
In September 2015, the Argentine government, through Resolution No. 646/2015 issued by the CNV, modified the valuation criteria applicable to securities traded outside of Argentina that comprise asset management portfolios. The resolution established that such securities must be valued at the currency in which they were issued to the extent such currency is the currency in which payments are made. The purchaser exchange rate applicable to financial transfers set by the Central Bank must be used to make such valuation. Resolution No. 646/2015 led to an accounting change in the valuation of mutual funds.
Actions takenHistorically, actions carried out by the Argentine government concerning the economy, including decisions with respect toregarding interest rates, taxes, price controls, salarywage increases, provision of additional employeeincreased benefits foreignfor workers, exchange controls and potential changes in the market of foreign exchange market,currency, have had and could continue to have a materialsubstantial adverse effect on Argentina’s economic growth. In turn, these actions can affect our financial condition and results of our operations. Moreover, any additional Argentine government policy established in response to or to preempt social unrest could adversely and materially affect the economy, and therefore our business.
It is widely reported by private economists that expropriations, price controls, exchange controls and other direct involvement by the Argentine government in the economy have had an adverse impact on the level of investment in Argentina, the access of Argentine companies to the international capital markets and Argentina’s commercial and diplomatic relations with other countries. If the level of government intervention in the economy continues or increases, the Argentine economy and, in turn, our business, results of operations and financial condition could be adversely affected.
We cannot assurethatmeasures implementedin connection with the Law of Solidarity and Productive Reactivation No. 27,541 willnot adversely impact our operations, financial condition and results of operations.
On December 20, 2019, the Argentine Congress enacted Law of Solidarity and Productive Reactivation No. 27,541 , declaring public emergency in economic, financial, fiscal, administrative, social and energetic matters, among others, thus delegating in the Executive Branch the ability to ensure the sustainability of public indebtedness, regulate the energetic tariffs through an integral review of the current tariff regime and the intervention of supervisory entities, among others.
From a tax standpoint, the main measures are the following:
| · | Tax amnesty for MiPyMEs (i.e., micro, small and medium businesses). |
| · | Increase in personal assets tax rate and delegation of power in the Executive Branch to increase tax rates on foreign financial assets. |
| · | Changes to the formula of inflation adjustment in income tax. |
| · | Creation of the tax for a solidary and inclusive Argentina (Impuesto para una Argentina Inclusiva y Solidariaor “PAIS,” per its Spanish acronym) for a 5-fiscal-period term on the purchase of foreign currency for saving purposes and on the payment of goods and services purchased abroad through credit cards. This tax rate oscillates between 8% and 30%, depending on the operation. |
| · | Suspension of the pension and retirement adjustment mechanism for a 180-day period. |
There is uncertainty as to the impact that Law N° 27,541 and/or any of its regulatory orders issued or that may be issued might have on our business, financial condition and results of operations. We can offer no assurances as to the measures that may be implemented by the current Argentine administration in relation to the public emergency and the general conditions of Argentine economy will not adversely affect our financial condition and results of operations.
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High public expenditure could result in long lasting adverse consequences for the Argentine economy,which in turn could adversely affect our business, financial condition and results of operations.
During the last years of the Fernández de Kirchner administration, theThe Argentine government substantially increasedhas high public expenditure, resortingexpenditures, and has in the past resorted to the Central Bank and to the ANSES to source part of its funding requirements. According to recent public information available, in 2016, Argentina’s fiscal deficit increased by 62% year over year. In light of increasingly tight public finances, the Fernández de Kirchner administration adopted certain measures to finance its public expenditures such as revising its subsidy policies (particularly those related to energy, electricity and gas, water and public transportation) and implementing an expansionary monetary policy. These policies have led to high inflation and, therefore, adversely affected, and could further adversely affect, consumer purchasing power and economic activity.
However, since assuming office, the Macri administration has taken steps to anchor the fiscal accounts, reducing the primary fiscal deficit by approximately 1.8% of GDP in December 2015 through a series of tax and other measures, and reported a primary fiscal deficit of 4.6% of GDP in 2016, mostly due to taxes collected under the Tax Amnesty Law program in the last two months of 2016.
As of the date of this annual report, although the Macri administration is currently reviewing certain public sector contracts as well as the elimination of public service subsidies, there is uncertainty as to what additional actions the Macri administration will take with respect to public expenditure and its financing. For 2017, the government pursuespursued a fiscal deficit target of 4.2% of GDP. The Macri administration’s ultimate aim is to achieve a balanced primary budget by 2019, reachingGDP, while achieving a primary fiscal deficit of 2.2%3.9% of GDP, below such target. In 2018, the Argentine government updated the fiscal targets in order to achieve fiscal balance. The government’s goal for 2018 regarding the primary fiscal deficit was 2.7% of GDP. The fiscal result for 2018 showed a primary fiscal deficit of 2.4% of GDP, which represented a decrease of 1.4% with respect to 2017 and an over-compliance of 0.3% of GDP target with respect to the target tax rate of 1.1%. Although the objective of the GDP. former Macri administration was to achieve a primary fiscal deficit equivalent to 1.3% of GDP in 2019, in the context of the negotiations with the IMF, the fiscal deficit target was adjusted to 0% of GDP for 2019 and a surplus of 1% for 2020. The fiscal result for 2019 showed a primary fiscal deficit of 0.4%.However, the new Fernández administrationhas indicated that will seek to foster economic growth, which may require additional public spending.Additionally, the economicimpact of the COVID-19 pandemicand the nationwide lockdown may also require the Argentine government to increase public spending.
If the MacrinewFernández administration were to seek to finance its deficit by increasing the exposure of local financial institutions to the public sector, our liquidity and assets quality could be affected, and as a consequence, impact negatively on clients’ confidence.
A continuingcontinuous decline in international prices for Argentina’s main commodity exports could have an adverse effect on Argentina’s economic growth, which could adversely affect our business, financial condition and results of operations.
Argentina’s financial recovery from the 2001-2002 crisis occurred in a context of price increases for Argentina’s commodity exports. High commodity prices contributed to the increase in Argentine exports since the third quarter of 2002 and to high government tax revenues from export withholdings. Consequently, the Argentine economy has remained relatively dependent on the price of its main agricultural products, primarily soy. This dependence has rendered the Argentine economy to be more vulnerable to commodity prices fluctuations. International commodities prices decreased during 2015 but have partially recovered during the first five months of 2016.
A continuingcontinuous decline in the international prices of Argentina’s main commodity exports could have a negative impact on the levels of government revenues and the government’s ability to service its sovereign debt, and could either generate recessionary or inflationary pressures, depending on the government’s reaction. Either of these results would adversely impact Argentina’s economy and, therefore, our business, results of operations and financial condition. As of the date of this annual report, the Macri administration has eliminated export taxes on many agricultural products and reduced the export taxes on soy from 35% to 30%. While the measure was intended to encourage exports, reductions in export taxes in the future, unless replaced with other sources of revenues, may negatively impact on the Republic’s public finances.
The Macri administration has begun to implement significant measures to solve the current energy sector crisis, but the eventual outcome of such measures is unknown, and could affect our business, financial condition and results of operations.
Economic policies since the 2001-2002 crisis have had an adverse effect on Argentina’s energy sector. The failure to reverse the freeze on electricity and natural gas tariffs imposed during the 2001-2002 economic crisis created a disincentive for investments in the energy sector. Instead, the Argentine government sought to encourage investment by subsidizing energy consumption. This policy proved ineffective and operated to further discourage investment in the energy sector and caused production of oil and gas and electricity generation, transmission and distribution to stagnate while consumption continued to rise. To address energy shortages starting in 2011, the Argentine government engaged in increasing imports of energy, with adverse implications for the trade balance and the international reserves of the Central Bank.
In response to the growing energy crisis, the Macri administration declared a state of emergency with respect to the national electricity system, which will be in effect until December 31, 2017. The state of emergency allows the Argentine government to take actions designed to stabilize the supply of electricity. In this context, subsidy policies were reexamined and new electricity tariffs went into effect on February 1, 2016 with varying increases depending on geographical location and consumption levels. Additionally, the Ministry of Energy and Mining issued Resolution No. 6/16 increasing the electricity tariff as of February 1, 2016. This Resolution was later complemented by Resolution No. 7/16 which, among other things, determined the requirements needed to be fulfilled in order to apply for a social tariff (“tarifa social”) which exempts its beneficiaries from paying the electricity tariff up to a total consumption of 150Kwh per month and establishes a special price scheme for those beneficiaries who exceed this amount.
Additionally, the Macri administration announced the elimination of a portion of subsidies to natural gas and adjustment to natural gas rates. As a result, average electricity and gas prices have already increased and could increase further. However, certain of the government’s initiatives relating to the energy and gas sectors were challenged in the Argentine courts and resulted in judicial injunctions or rulings against the government’s policies, which were later lifted.
The Macri administration has taken steps and announced measures to address the energy sector crisis while taking into consideration the implications of these price increases for the poorest segments of society, approving subsidized tariffs for qualifying users. A failure to address the negative effects on energy generation, transportation and distribution in Argentina with respect to both the residential and industrial supply, resulting in part from the pricing policies of the prior administrations, could weaken confidence in and adversely affect the Argentine economy and financial condition, lead to social unrest and political instability, and adversely affect our results of operations. There can be no assurance that the measures adopted by the Macri administration to address the energy crisis will not
continue to be challenged in the local courts and/or will be sufficient to restore production of energy in Argentina within the short or medium term.
Failure to adequately address actual and perceived risks of institutional deterioration and corruption may adversely affect Argentina’s economy and financial condition, which in turn could adversely affect our business, financial condition and results of operations.
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 20152019 Corruption Perceptions Index survey of 167180 countries, Argentina was ranked 107,66, improving from the same position that it heldprevious survey in 2014.2018. In the World Bank’s Doing Business 20162020 report, Argentina ranked 121126 out of 189190 countries, updown from 124119 in 2015.2019.
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, theformer Macri administration has announced several measures aimed at strengthening Argentina’s institutions and reducing corruption. These measures include the reduction of criminal sentences in exchange for cooperation with the Governmentgovernment in corruption investigations, increased access to public information, the seizing of assets from corrupt officials, increasing the powers of the Anticorruption Office (Oficina Anticorrupción) and the passing of a new public ethics law, among others. The current Argentine government’sadministration’s ability and determination to implement these initiatives taken by the former administration is uncertain, as it would require, among other things, the involvement of the judicial branch, which is independent, as well as legislative support from opposition partiessupport.
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In addition, certain senior executive officers and directors of companies operating in the Argentine energy, infrastructure, oil and gas and other sectors, are currently facing judicial investigations in Argentina relating to payments allegedly made to government officials.
These investigations may have an adverse impact on the ability of the companies involved and their affiliates to access financing, on their ability to participate in significant projects and ultimately on their financial condition and results of operations.
However, we do not consider potential losses that could arise from our exposure to the individuals and the companies involved in the investigations to be material.
We cannot predict for how long the corruption investigations will continue, or the effects on the different sectors in the Argentine economy.
Sustained declines in the international prices for oil could have an adverse material effect on the Argentine and the global economy.
Between March 5 and March 30, 2020, the price of Brent crude oil dropped by 50%, falling to the lowest price since the beginning of the century. On April 20, 2020, U.S. oil futures with expiration in May 2020 even reached negative values. Similarly, the price of U.S. West Texas Intermediate crude dropped below U.S.$20 a barrel, almost a two-decade low. Mainly, this sharp decline in price was explained by the failure to agree to cut production between the members of the Organization of the Petroleum Exporting Countries and Russia, and the drop in oil demand caused by the COVID-19 pandemic.
A decline in oil prices could harmthe Argentine government’srevenues, availability of foreign currency and the government’s ability to service its sovereign debt, and affect Argentina’s growth prospects and, therefore, our business, financial condition and results of operations.
Moreover, the recent crude price crash couldalso affect the economic and financial sustainability of companies exploring and drilling oil and gas at the Vaca Muerta formation, the fourth biggest resource of non-conventional oil in the world.
We cannot anticipatefor how long thecurrent volatility in oil prices will continue, nor the consequences it might havefor the Argentine and the global economies.
Risks Relating to the Argentine Financial System
The stability of the Argentine financial system depends upon the ability of financial institutions, including the Bank, to retain the confidence of depositors.
The measures implemented by the Argentine government in late 2001 and early 2002, in particular the restrictions imposed on depositors to withdraw money freely from banks and thepesification and restructuring of their deposits, resulted in losses for many depositors and undermined their confidence in the Argentine financial system.
Although the financial system hashad seen a recovery in the amount of deposits since then, this trend may not continue andended after the PASO results of August 2019 which affected the U.S. dollar-denominated deposit base of the Argentine financial system, including the U.S. dollar-denominated deposit base of our main subsidiary, the Bank, could be negativelyBank. This U.S. dollar-denominated deposit base drop has affected in the future by adverse economic, social and political events. Furthermore, the Argentine financial system since its growth strongly depends on deposit levels, due to the small size of its capital markets and the absence of foreign investments during the previous years. Recently, numerous local financial entities, such as the Bank, have accessed the global financial markets for funding through the placement of debt securities, on satisfactory terms, but this trend may not last and there is uncertainty as to whether the current availability of funds from the international markets will continue in coming years.
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Although liquidity levels are currently reasonable, no assurances can be given that these levels will not be reduced in the future due to adverse economic conditions that could negatively affect the Bank’s business.
If, in the future, depositor confidence further weakens and the deposit base contracts,continues to contract, such loss of confidence and contraction of deposits will have a substantial negative impact on the ability of financial institutions, including the Bank, to operate as financial intermediaries. If the Bank is not able to act as a financial intermediary and otherwise conduct its business as usual, the results of its operations could be adversely affected or limited, affecting its ability to distribute dividends to us, which in turn could affect our results of operations and financial condition.
The growth and profitability of Argentina’s financial system partially depend on the development of long-term funding.
In recent years the Argentine financial system grew significantly in nominal terms. Loans to the private sector grew by approximately 31.5% in 2012, 30.8% in 2013, 20.3% in 2014, 37.1% in 2015 and 31.4% in 2016, for the
financial system as a whole. In spite of the recovery of credit activity, the long-term private sector loans market (pledge loans and mortgage loans) did not grow as a consequence of high levels of inflation.
Since most term deposits (more than 95%) are short-term deposits with a term of less than three months, a substantial portion of the loans have very short maturity, and there is a small portion of medium- and/or long-term credit lines.
The uncertainty about the level ofability to reduce inflation in the future and whether the Macri administration will be able to continue the declining trend observed in last months and meet the inflation targets announces, is a principal obstacle preventing a faster recovery of Argentina’s private sector long-term lending and thus the financial system size. This uncertainty has had, and may continue to have, a significant impact 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.
If longer-term financial intermediation activity does not grow, the ability of financial institutions, including us, to generate profits will be negatively affected.
Our asset quality and that of other financial institutions may deteriorate if the Argentine private sector does not fully recover.
As a result ofArgentina’s current macroeconomic environment, including the economic recession since 2018, high interest rates,high inflation and depreciation of the Peso, the capacity of many Argentine private sector debtors to repay their loans has deteriorated significantly, materially affecting the asset quality of financial institutions, including the Bankand CCF. Additionally, due to the ongoing COVID-19 pandemic and thegovernment measures taken to contain the spread of the virus, since mid-March 2020 economy activity has been disrupted. The new Fernández administration has recently taken fiscal, monetary and social measures to address the effects of the current macroeconomic environment;however, these measures may notbe sufficient to offset thesignificant impacts of Argentina’s economicrecession and the COVID-19 pandemic. Consequently, the quality of the Bank’sand CCF’s assets may further deteriorate, if customersare not able to repay their loans,thereby also increasing loan loss provisions.In such event our results of operations and financial conditionwould be adversely affected.
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Increased competition and consolidation in the banking and financial industry could adversely affect our operations.
We expect competition in the banking and financial sector to continue to increase. Such increased competition in the banking and financial sector could reduce prices and margins and the volume of operations and our market share. Therefore, our results of operations could be adversely affected.
Enforcement of creditors’ rights in Argentina may be limited, costly and lengthy.
In order to protect debtors affected by the economic crisis in 2001-2002, the Argentine government adopted measures in the beginning of 2002 that suspended proceedings to enforce creditors’ rights upon debtor default, including mortgage foreclosures and bankruptcy petitions.Recently, in order to mitigate theeconomic impact resulting from the ongoing COVID-19 pandemic and government measures taken to contain the spread of the virus, the new Fernández administrationhas, among other things, suspended mortgage foreclosures until September 30, 2020. For more information on regulations in connection with the COVID-19pandemic, see “Item 4.B.—Business Overview—Argentine Banking Regulations – Government Measures in Response to the Ongoing COVID-19 Pandemic.”
Although such measures have been rescinded, in the future they could be reinstated, or the government could take other measures that limit creditors’ rights. Any such measures, limitingand any other measures which may limit the ability of creditors, including us, to bring legal actions to recover unpaid loans or restricting creditors’ rights generally could have a material adverse effect on the financial system and on our business.
The Consumer Protection Law and the Credit Card Law may limit some of the rights afforded to us and our subsidiaries.
Argentine Consumer Protection Law No. 24,240, as supplemented or amended (the “Consumer Protection Law”) establishes a number of rules and principles for the protection of consumers. Although the Consumer Protection Law does not contain specific provisions for its enforcement in relation to financial activities, it contains general provisions that might be used as grounds to uphold such enforcement, as it has been previously interpreted in various legal precedents. Moreover, the new Argentine Civil and Commercial Code has captured the principles of the Consumer Protection Law and established their application to banking agreements. Additionally, Law No. 25,065 (as amended 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.
The application of both the Consumer Protection Law and the Credit Card Law by administrative authorities and courts at the federal, provincial and municipal levels has increased. Moreover, administrative and judicial authorities have issued various rules and regulations aimed at strengthening consumer protection. In this context, the Central Bank issued Communication “A” 5460, as supplemented and amended, granting broad protection to financial services customers, limiting fees and charges that financial institutions may validly collect from their clients.
In addition, the Argentine Supreme Court of Argentina issued theAcordada 32/2014, creating the Public Registry of Collective Proceedings for the purpose of registering collective proceedings (such as class actions) filed with national and
federal courts. In the event that we or our subsidiaries are found to be liable for violations of any of the provisions of the Consumer Protection Law or the Credit Card Law, the potential penalties could limit some of our rights or our subsidiaries’ rights. For example, reducing our or their ability to collect payments due from services and financing provided us and adversely affect our or their financial results of operations.
On September 18, 2014, a new pre-judicial service of dispute resolution was created by Law No. 26,993, in order for consumers and providers to resolve any dispute within the course of 30 days, including fines for companies that do not attend to the hearings.
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. A change in applicable law or the existence of court decisions that lower the cap on interest rates and fees that clients and merchants may be charged would reduce the Bank’s and CCF’s revenues and therefore negatively affect our consolidated results.
Class actions against financial institutions for an indeterminate amount may adversely affect the profitability of the financial system and of the Bank, specifically.
Certain public and private organizations have initiated class actions against financial institutions in Argentina, including the Bank. See “Item 8.A Consolidated Statements and Other Financial Information—Legal ProceedingsInformation.” 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 is limited. Nonetheless, Argentine courts have admitted class actions in certain cases, including various lawsuits against financial entities related to “collective interests” such as alleged overcharging on products, interest rates and advice in the sale of public securities. Recently, some of these lawsuits have been settled by the parties out of court. These settlements have typically involved an undertaking by the financial institution to adjust the fees and charges. 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.
In the future, court and administrative decisions may increase the degree of protection afforded to our debtors and other customers, or be favorable to the claims brought by consumer groups or associations. This could affect the ability of financial institutions, including us, to freely determine charges, fees or expenses for their services and products, therefore affecting their business and results of operations.
We operate in a highly regulated environment, and our operations are subject to regulations adopted, and measures taken, by several regulatory agencies.
Financial institutions are subject to significant regulation relating to functions that historically have been determined by the Central Bank and other regulatory authorities. The Central Bank may penalize our main subsidiary, the Bank, as well as our subsidiary CCF, in case of any breach of applicable regulations. Similarly, the CNV, which authorizes our securities offerings and regulates the public markets in Argentina, has the authority to impose sanctions on us and our Board of Directors for breaches of corporate governance. In addition, pursuant to Law No. 26,831, the CNV may appoint supervisors with veto powers over resolutions of our Board of Directors and may temporarily remove our Board of Directors, when, as determined by the CNV, minority shareholders’ or bondholders’ interests or rights have been infringed upon.
The Financial Information Unit (Unidad de Información Financiera or “UIF”) regulates matters relating to anti-money laundering and has the ability to monitor compliance with any such regulations by financial institutions and, eventually, impose sanctions. Any such regulatory agencies could initiate proceedings against us, our shareholders or directors and, accordingly, impose sanctions on us or any of our subsidiaries.
In addition to regulations specific to ourOur industry we areis the subject toof a wide range of federal, provincial and municipal regulations and supervision generally applicable to businesses operating in Argentina,tight regulatory framework, including laws and regulations pertaining to labor, social security, public health, consumer protection,measures that have affected the environment, competition and price controls.
Specifically, a series of new regulations were enacted from the beginning of 2012 until President Macri assumed office, incorporating new requirements and restrictions for financial institutions, including: (i) mandatory credit lines for productive purposes, with a maximum interest rate established by regulation; (ii) rules limiting the reference interest rate for personal loans and car loans granted to retail customers that are not considered a micro, small or medium size company; (iii) a prior authorization requirement with respect to the introduction of new fees for new products and/or services offered and to increase existing fees; (iv) rules limiting minimum rates applicable to term deposits made by individuals; and (v) rules limiting the abilityprofitability of financial institutions to receive remuneration or profits from any insurance product that customers are obligated to purchase as a condition for accessing financial services. However, on December 17, 2015,and limit the limits imposed on interest rates applicable to transactions referred to in items (ii) and (iv) were eliminated and financial entities andpossibility of covering their customers may now freely agree upon such interest rates.positions against currency fluctuations. See “Item“Item 4.B Business overview—Argentine Banking Regulation—Interest Rate and Fee Regulations.Regulation.”
In 2012, the Central Bank increased the capital requirements for financial institutions following the Basel II standard as well as several other measures related to Basel III compliance including with respect to capital, leverage and liquidity. In addition, since January 2016, pursuant to Communication “A” 5827 issued by the Central Bank, there are additional capital margin requirements, composed of a capital conservation margin and a countercyclical margin. Pursuant to these regulations, the capital conservation margin is 2.5% of the amount of risk weighted assets, or RWA, and in the case of entities considered by the Central Bank to be systemically important, or D-SIB, the margin will be increased to 3.5% of the amount of RWA. The countercyclical margin must be within a range of 0% to 2.5% of RWA. Pursuant to Communication “A” 5938, as amended by Communication “A” 6013, the applicable countercyclical margin is currently 0%. See “Item 4.B Business overview—Argentine Banking Regulation—Minimum Capital Requirements.”
In July 2016, by means of Communication “A” 6013, the Central Bank eliminated the requirement to maintain a certain regulatory capital threshold after the distribution of dividends by financial institutions.
The Central Bank has also imposed restrictions on the positive foreign currency net global position of financial institutions, which have been modified several times, to prevent the Central Bank’s foreign currency reserves from further decreasing. As of the date of this annual report, the positive foreign currency net global position, calculated by using monthly averages of daily balances, may not exceed 25% of the lesser of the financial institution’s RPC computed for the relevant preceding month or the financial institution’s own liquid assets. This restriction was recently increased to the current 25%, from 10% as it has been reduced by the previous administration. For a more detailed description of changes, see “Item 4.B Business overview—Argentine Banking Regulation—Foreign Currency Net Global Position.”
The absence of a stable regulatory framework orand the imposition of measures that may affectaffects the profitability of financial institutions and limit the capacity to hedgepossibility of covering their positions against currency fluctuations could resultresults in significant limitsimportant limitations with respect to the decisions of financial institutions’ decisions, suchinstitutions, as is the Bank and CCF, regarding asset allocation.case of us, in relation to the allocation of the asset. In turn, this situation could cause uncertainty and negativelymay adversely affect our future financial activities and resultsour result of operations. In addition, existingOn the other hand, current or future legislationlaws and regulation couldregulations may require material expendituressubstantial expenses or otherwise have a materialan adverse effect on our consolidated operations.
In addition, pursuant to Communication “A” 5785, sanctions imposed by the Central Bank, the UIF, the CNV and/or the National Superintendency of Insurance on financial institutions and/or their authorities, may result in the revocation of their licenses to operate as financial institutions. Such revocation may occur when, in the opinion of the Board of Directors of the Central Bank, there was a material change in the conditions deemed necessary to maintain such license, including those relating to the suitability, experience, moral character or integrity of (i) the members of a financial institution’s board of directors (directors, counselors or equivalent authorities), (ii) its shareholders, (iii) the members of its supervisory committee and (iv) others, such as its managers.
Even though the Macri administration has taken steps towards increasing the flexibility of the regulatory framework of the financial entities, including the elimination of several restrictions adopted by the previous government as described above, thereThere can be no assurances that new and tighter regulations maywill not be implemented in the future, which could cause uncertainty and could negatively affect our future financial activities and results of operations. Also, the imposition of measures that may affect the profitability of financial institutions and limit the capacity to hedge
against currency fluctuations could result in significant limits to financial institutions’ decisions, such as the Bank and CCF, regarding asset allocation. In addition, existing or future legislation and regulation could require material expenditures or otherwise have a material adverse effect on our consolidated operations.
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Exposure to multiple provincial and municipal legislation and regulations could adversely affect our business or results of operations.
Argentina has a federal system of government with 23 provinces and one autonomous city (Citythe Autonomous City of Buenos Aires),Aires, each of which, under the Argentine national constitution, has full power to enact legislation concerning taxes and other matters. Likewise, within each province, municipal governments have broad powers to regulate such matters. Due to the fact that our branches are located in multiple provinces, we are also subject to multiple provincial and municipal legislation and regulations. Although we have not experienced any material adverse effects from this, futureFuture developments in provincial and municipal legislation concerning taxes, provincial regulations or other matters may adversely affect our business or results of operations.
Future governmental measures or regulations may adversely affect the economy and the operations of financial institutions.
The Argentine government has historically exercised significant influence over the economy, and financial institutions, in particular, have operated in a highly regulated environment. Laws and regulations currently governing the economy or the banking sector may continue to change in the future, and any changes may adversely affect our business, financial condition and results of operations.
SeveralIn the past, several different bills to amend the Argentine Financial Institutions Law No. 21,526 (the “FIL”) have been put forth for review by the Argentine Congress, seeking to amend different aspects of the FIL, including the qualification of financial services as a public service, an increase in governmental regulations affecting the activities of financial entities and initiatives to make financial services more widely available. A thorough amendment of the FIL would have a substantial effect on the banking system as a whole. If any such a bill iswere passed, or any other amendment to the FIL isbe made, the subsequent changes in banking regulations may have adverse effects on financial institutions in general, and on our business, financial conditions and results of operations.
The amendmentasset quality of financial institutions, including the Bank, our main subsidiary, may be affected by exposure to public sector debt and short term securities issued by the Central Bank’s CharterBank.
Argentine financial institutions usually hold public sector debt issued by the national, provincial and the Convertibility Law may adversely affect the Argentine economy.
On March 22, 2012, the Argentine Congress passed Law No. 26,739, which amended the charter ofmunicipal governments and securities – generally short term – issued by the Central Bank as part of their portfolios. As of December 31, 2019, the financial institutions’ exposure to the public sector represented 8.4% of total assets and the Convertibility Law. This new law amended the objectivestheir holdings of short term securities issued by the Central Bank (as established in its charter) and removed certain provisions previously in force. Pursuantrepresented 5.6% of total assets. As of December 31, 2019, our exposure to the termspublic sector amounted to Ps.4.0 billion, representing 2.7% of the new law,our total assets as of that date and our exposure to short term securities issued by the Central Bank will focusamounted to Ps.7.2 billion or 4.9% of our total assets as of such date.
By virtue of Executive Decrees 596/2019 and 609/2019, the Executive Branch resolved to restructure the maturity schedule ofshort-term public sector debt securities(“Letes”, “Lecaps”, “Lelink” and “Lecer”), extending the maturity date to February 2020. Afterwards, through Decree No. 49/2019, the Argentine government further extended the maturity date of certain “Letes” to August 31, 2020. In addition, on promoting monetaryFebruary, 2020, the Secretary of the Treasury and the Secretary of Finance issued Joint Resolution 6/2020, by which certain “Lecaps” and “Letes” which had already been reprofiled pursuant to Executive Decrees No. 596/2019 and 609/2019 were subsequently exchanged by peso-denominated treasury bills (“Lebads”) maturing on September 18, 2020. On April 5, 2020 the Argentine government also issued Decree No. 346/2020, by which the repayment of Argentine law-governed U.S. dollar-denominated notes was postponed. Our holdings of “Letes” and “Lecaps” were affected as a result of theaforementioned restructuring measures of Argentine law-governed sector public debt adopted by the Argentine goverment.
In addition to the public sector debt restructuring process described in the aforementioned paragraph, the Argentine government has alsolaunched an exchange offer with the aim of refinancing its foreign law-denominated external indebtedness. For more information on this offer, see “Item 5.A—Operating Results—The Argentine Economy and Financial System—Argentina’s Sovereign Debt Restructuring”.
To some extent, the value of the assets held by Argentine financial stabilityinstitutions, as well as development with social equity. In addition,their income generation capacity, is dependent on the conceptpublic sector’s creditworthiness, which is in turn dependent on the Argentine and the provincial government’s ability to promote sustainable long-term economic growth, generate tax revenues and control public spending. Should the public sector fail to fulfill its commitments in due time and proper form, this could have a negative adverse effect on our business, financial situation and results of “freely available reserves” was eliminated, grantingoperations. Moreover, failure by the Argentine government access to additional reserves to pay debt. Further, this new law provides thatsuccessfully carry out the Central Bankrestructuring of its foreign financial indebtedness may set the interest rate and terms of loans granted by financial institutions.
Regarding the reserves, if the Argentine government were to utilize such Central Bank’s reserves to make payments on its public debt or finance public spending, this may result in increased inflation, which would hinder economic growth. In addition, a decrease in the Central Bank’s reserves could adverselyfurther affect the Argentine financial system’s capacitypublic sector’s creditworthiness and negatively affect the Bank’s exposure to withstandpublic sector debt and overcome the effects of an economic crisis (either domestic or international), negatively affecting economic growth and, in turn, our consolidated results and results of operations.therefore its asset quality.
Risks Relating to Our Business
Due to our exposure to middle and lower-middle-income individuals and SMEs, the quality of our consolidated loan portfolio is more susceptible to economic downturns and recessions.
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Our consolidated loan portfolio is concentrated inexposed to the segments of SMEs and middle and lower-middle-income individuals, and SMEs, which are more vulnerable to economic recessions than large corporations and higher income individuals.
The quality of our portfolio of loans to individualsSMEs and to SMEsindividuals is therefore dependent to a large extent on domestic and international economic conditions. Consequently, we may experience higher levels of past due amounts, which could result in higher provisions for loan losses. See “Item 4.D Property, plants and equipment—Selected Statistical Informationequipment.”
The loan portfolio of ourthe retail segment, which includes individuals and businessescompanies with annual sales of up to Ps.40Ps.100 million, depending on the businesscommercial activity, and our consumer finance portfolio, represented approximately 52%43% of ourthe consolidated loan portfolio (net of allowances)provisions) as of December 31, 2016.2019. If the economy in Argentina experiences a significant downturn, this could materially and adversely affect the liquidity, businesses and financial condition of our customers, which may in turn cause us to experience higher levels of past due loans, thereby resulting in higher provisions for loan losses and subsequent write-offs. This may materially and adversely affect the credit quality of our loan portfolio, our asset quality, our results of operations and our financial condition.
We may continue to seek potential acquisitions, but we may not be able to complete such acquisitions or successfully integrate businesses that we acquire.
In the past, in addition to organic growth, we have significantly expanded our business through acquisitions. We expect to continue considering acquisition opportunities that we believe may add value and are compatible with our business strategy.
In this respect, we may not be able to continue to identify opportunities or consummate acquisitions leading to economically favorable results or that any future acquisition will, if required, be authorized by the Central Bank, which would limit our ability to implement an important component of our growth strategy. In addition, in the event that an acquisition opportunity is identified and authorized, successful integration of the acquired business entails significant risks, including compatibility of operations and systems, unexpected contingencies, employee retention, compliance, customer retention, and delays in the integration process.
Changes in market conditions and any associated risks, including interest rate and currency exchange volatility, could materially and adversely affect our consolidated 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 variations in market conditions, including interest rate and currency exchange volatility, is inherent in the products and instruments associated with our operations, including loans, deposits, long-term debt and short-term borrowings.
In particular, our results of operations depend to a great extent on our net interestfinancial income. Net interestfinancial income represented 66.0%87.5% of our net financial income plus net services fee incomeoperating revenue in 2019 and income from insurance activitites85.2% in 2016, 60.0% in 2015 and 59.4% in 2014.2018. Changes in market interest rates could affect the interest rates earned on our interest-earning assets differently from the interest rates paid on our interest-bearing liabilities, leading to a reduction in our net interestfinancial income or a decrease in customer demand for our loan or deposit products. In addition, increases in interest rates could result in higher debt service obligations for our customers, which could, in turn, result in higher levels of delinquent loans or discourage customers from borrowing. Interest rates are highly sensitive to many factors beyond our control, including the minimum reserve policies of the Central Bank, regulation of the financial sector in Argentina, domestic and international economic and political conditions and other factors.
Any changes in interest rates and currency exchange rates could adversely affect our business, our future financial performance and the price of our securities.
Reduced spreads between interest rates on loans and those on deposits, without corresponding increases in lending volumes, could adversely affect the Bank’s and CCF’s profitability.
Historically, the Argentine financial system witnessed a decrease in spreads between the interest rates on loans and deposits as a result of a decline in inflation or an increase inincreased competition in the banking sector.sector and the Argentine government’s tightening of monetary policy in response to inflation concerns. The interest rate spreads of the Bank and CCF follow the same trend. If inflation declines, and/orreduces, competition continues or increases
and interest rate spreads decrease, without corresponding increases in lending volumes,the volume of loans such decrease could adversely affect our consolidated results of operations and financial condition.
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We are a holding company and we conduct our business through our subsidiaries. Our ability to invest in our business developments will depend on our subsidiaries’ ability to pay dividends to us.
As a holding company, we conduct our operations through our subsidiaries, the largest of which is the Bank. Consequently, we do not operate or hold substantial assets, except for equity investments in our subsidiaries.subsidiaries and temporary liquidity. Except for such assets, our ability to invest in our business developments and to repay obligations is subject to the funds generated by our subsidiaries and their ability to pay cash dividends. In the absence of such funds, we may have to resort to financing options at unappealing prices, rates and conditions. Additionally, such financing could be unavailable when we may need it.
Each of our subsidiaries is a separate legal entity and due to legal or contractual restrictions, as well as to their financial condition and operating requirements, they may not be able to distribute dividends to us. Our ability to develop our business, meet our payment obligations and pay dividends to our shareholders could be limited by restrictions preventing our subsidiaries from paying us dividends. Investors should take such restrictions into account when analyzing our investment developments and our ability to cancel our obligations.
Our estimates and established reserves for credit risk and potential credit losses may prove to be insufficient, which may materially and adversely affect our asset quality and our financial condition and results of operations.
A number of our products expose us to credit risk, including retail loans, consumer finance 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.
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 asset quality and our financial condition and results of operations may be materially and adversely affected.
The Bank’s revenues from its business with senior citizens could decrease or cease to grow if the Bank’s agreement with ANSES is terminated or not renewed.
Since 1996, the Bank has acted as one of the paying agents of social security payments to senior citizens on behalf of the government pursuant to an agreement with ANSES. In December 2014, pursuant to Resolution No. 648/14, ANSES renewed its agreement with the agreement for each paying agent was extended by ANSESagents for a six-year period. In December 2016,2019, the Bank made payments on behalf of ANSES to approximately 1,089,000988,000 senior citizens and beneficiaries. Offering this service to senior citizens allows usthe Bank ready access to a pool of potential consumers of financial services. The Bank derives an important part of its revenues (32%(26% as of December 31, 2016)2019) from the sale of financial services to these customers.senior citizens in our service branches. The Bank’s agreement with ANSES provides that it will continue in effect as long as the parties continue performing their obligations for a six-year term. ANSES has the right to terminate the agreement with 90 days prior notice.
The termination of the agreement with ANSES, a decision by ANSES not to renew the agreement in December 2020, or ANSES’s failure to add new senior citizens to the payment service could have a negative effect on the Bank’sour business and results of operations.
Since deposits are one of our main sources of funds, a sudden shortage of the term of our deposits could cause an increase in costs of funding, affect our liquidity rationsratios and have an adverse effect on our revenues.
Deposits are one of our primary sources of funding, representing 77.6%71.3% of our total liabilities as of December 31, 2016.2019. A significant portion of our assets has longer maturities, resulting in a mismatch between the maturities of liabilities and the maturities of assets. If a substantial number of our depositors withdraw their sight deposits or do not roll over their time deposits upon maturity, our liquidity position, results of operations and financial condition may be materially and adversely affected.In the event of a sudden or unexpected shortage of funds in the banking system, money markets in which we operate may not be able to maintain levels of funding without incurring high funding costs or the liquidation of certain assets. If this were to happen, we may be unable to fund our liquidity needs at competitive costs and our results of operations and financial condition may be materially adversely affected.
Because our main subsidiary, the Bank, as well as CCF, are financial institutions, any insolvency proceeding against them would be subject to the powersintervention of and intervention by the Central Bank, which may limit the remedies otherwise available and extend the duration of the proceedings.
any insolvency proceeding.
Under Argentine law, the liquidation and commencement of bankruptcy or liquidation proceedings against financial institutions, until their banking license has been revokedthe revocation by the Central Bank of their banking license, may only be commenced by the Central Bank. If the Bank and/or CCF are unable to pay their debts as they come due, the Central Bank would intervene and revoke their respective banking and “compañía financiera” respective licenses, and file a bankruptcy petition before a commercial court. If the Central Bank intervenes, the reorganization proceeding could take longer and it is likely that the shareholders’ remedies would be restricted. During any such process, the Central Bank would have to consider its interests as a regulator and, as a result, could prioritize the claims of other creditors and third parties against the Bank and/or CCF. As a result of any such intervention, shareholders may realize substantially less on the claims than they would in a regular bankruptcy proceeding in Argentina, the United States or any other country.
The special rules that govern the priority of different stakeholders of financial institutions in Argentina, which give priority to depositors with respect to most other creditors, may negatively affect shareholders in case of judicial liquidation or bankruptcy of our main subsidiary, the Bank.
The FIL, as amended by Law No. 24,485 and by Law No. 25,089, provides that in case of judicial liquidation or bankruptcy of a financial institution, all depositors, irrespective of the type, amount or currency of their deposits, will have general and absolute preferential rights with respect to all other creditors, except for certain labor credits and credits secured with pledge or mortgage, to be paid with all of the funds deriving from the liquidation of such financial institution’s assets. Any such funds would be applied in the following order of priority: (a) deposits of up to Ps.450,000 per entity, or its equivalent in foreign currency (the priority benefits one depositor per deposit), (b) deposits over Ps.450,000 and (c) loans granted to the financial institution directly related to international commerce. As a result of these rules, shareholders may realize substantially less on the claims than they would in a regular bankruptcy proceeding in Argentina, the United States or any other country.
Our controlling shareholder has the ability to direct our business, and potential conflicts of interest could arise.
Our controlling shareholder, Julio Patricio Supervielle, directly or beneficially owned as of April 27, 2017, 126,738,18828, 2020, 61,738,188 Class A shares and 69,003,03098,684,713 Class B shares. Virtually all decisions made by shareholders will continue to be directed by our controlling shareholder. He may, without the concurrence 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 redemption of shares, effect a related party transaction and determine the timing and amounts of dividends, if any. According to our bylaws, a two-thirds vote by our Class A shares is required, regardless of the percentage of our total capital they represent, in order for us to duly resolve a merger with another company, a voluntary dissolution, our relocation abroad, and the fundamental change in our corporate purpose. Mr. Supervielle’s interests may conflict with your interests as a holder of Class B shares or ADSs, and he may take actions that might be desirable to him but not to other shareholders.
CCF use loan securitization as an additional source of its funding and its capacity to successfully securitize its assets on favorable terms affects its funding ability.
For the year ended December 31, 2016, the Bank and CCF securitized an aggregate of Ps.1,581.9 million of loans originated by them. During the years ended December 31, 2014 and 2015, the Bank and CCF securitized an aggregate of Ps.3,513.2 million and Ps.2,376.7 million, respectively, of loans originated by them. Before our Initial Public Offering (“IPO”), loan securitization was part of both the Bank’s and CCF’s funding strategy, although since our IPO we have reduced substantially the securitizations made by the Bank and continued to do so mainly at CCF. CCF’s ability to securitize their loans successfully and on terms acceptable to them depends on the applicable regulations and largely on capital market conditions prevailing in Argentina. Although securitizations markets have remained open in the past years, CCF has no control over capital market conditions, which can be volatile and unpredictable If CCF is not able to continue securitizing part of its loans in the future, whether as a result of deterioration in capital markets conditions or otherwise, it would likely be compelled to seek alternatives for funding which may include short-term or more expensive funding sources or reduce its loan origination, that could adversely affect our consolidated financial conditions and results of operations.
A decline in the performance of the loans that the Bank and CCF have securitized may adversely affect the amount of income they receive in connection with the securitization of their loan portfolio.
As of December 31, 2016, the Bank and CCF jointly held Ps.100.6 million, and Ps.530.6 million in senior bonds, and participation certificates, respectively, issued by various financial trusts in connection with the securitization of their loan portfolio. In each case, the subordinated bonds and participation certificates are subordinated to the senior indebtedness of the related financial trust. If collections with respect to such securitized loans decrease, the amount of the payments that the Bank and CCF will receive in connection with the subordinated bonds and participation certificates that they hold will decline, as the subordinated bonds and participation certificates absorb the losses in the securitized loans. Such decline could result in a material adverse effect on our consolidated financial condition and results of operations.
Early termination of CCF’s business agreement with Walmart could have an adverse effect on our revenue.
In April 2000, CCF (formerlyGE Compañía Financiera) and Walmart entered into a commercial agreement pursuant to which CCF became the sole provider of financial services for Walmart’s customers in Argentina. The agreement was renewed in 2005, in 2010 and in December 2014. Such agreement is key to CCF’s overall performance,performance. This agreement expires in August 2020 and, while it contains an option fora renewal is currently being negotiated, it may not be renewed on the same terms or at all. In addition, the agreement is subject under certain conditions to voluntary termination by Walmart Argentina. The decision by Walmart Argentina not to renew or to terminate the agreement could negatively affect our expected benefit from this alliance and could result in a material adverse effect on CCF’s financial condition and results of operations.
Differences in the accounting standards between Argentina and certain countries with highly developed capital markets, such as the United States, may make it difficult to compare our audited consolidated financial statements and reported earnings with companies in other countries and the United States.
Except as otherwise described herein, we prepare our audited consolidated financial statements in accordance with the Central Bank regulations, which differ in certain significant respects from U.S. GAAP and from Argentine GAAP. As a result, except for our net income and our shareholders’ equity as of and for the years ended December 31, 2016 and 2015 which have been reconciled with U.S. GAAP, our audited consolidated financial statements are not directly comparable to those of banks in the United States. Implementation of IFRS in Argentina is expected to take place for the fiscal years beginning on January 1, 2018.
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 ATM and SST network. We have 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.
In addition, contingency plans in place may not be sufficient to cover liabilities associated with any such events, and therefore, applicablewe do not have insurance coverage mayto cover cyber risks and breaches. Our operational systems and networks have been, and will continue to be, deemed inadequate, preventing us from receiving full compensation for the losses sustained as a resultsubject to an increasing risk of such a disruption.
continually evolving cybersecurity or other technological risks.
Although we intend to continue to implement security technology devices and establish operational procedures to prevent such damage, it is possible that not all of our systems are entirely free from vulnerability and these security measures will not 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 properproperly functioning and improvement of 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.
We are susceptible to fraud, unauthorized transactions and operational errors.
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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Our policies and procedures may not be able to detect money laundering and other illegal or improper activities fully or on a timely basis, which could expose us to fines and other liabilities.
We are required to comply with applicable anti-money laundering laws, anti-terrorism financing laws and other regulations. These laws and regulations require us, among other things, to adopt and enforce “know your customer” policies and procedures and to report suspicious or large transactions to the applicable regulatory authorities. While we have adopted policies and procedures aimed at detecting and preventing the use of banking networks for money laundering activities and by terrorists and terrorist-related organizations and individuals generally, such policies and
procedures may not completely eliminate instances where they may be used by other parties to engage in money laundering and other illegal or improper activities. If we fail to fully comply with applicable laws and regulations, the relevant government authorities to which they report have the power and authority to impose fines and other penalties. In addition, our businesses and reputation could suffer if customers use our financial institutions for money laundering or illegal or improper purposes. As of the date of this annual report, we have not been subject to fines or other penalties, and we have not suffered business or reputational harm, as a result of any money laundering activities in the past.
You may not be able to effect service of process within the United States upon the us, our directors and officers and certain advisors.
All of our directors and all our officers and certain advisors named herein reside in Argentina or elsewhere outside the United States. As a result, you may not be able to effect service of process within the United States upon such persons.
Risks Relating to Our Class B Shares and the ADSs
Holders of our Class B shares and the ADSs may not receive any dividends.
We are a holding company and our ability to pay dividends depends on the cash flow and distributable income of our operating subsidiaries, particularly the Bank. We and our subsidiaries are subject to contractual, legal and regulatory requirements affecting our ability to pay dividends.
In particular, dividend distribution by the Bank is subject to prior approvalthe requirements established by the rules of the Central Bank, as amended from time to time. Pursuant to such regulations, dividend distributions shall be admitted as long as none of the following circumstances apply (i) the financial institution is subject to a liquidation procedure or the mandatory transfer of assets ordered by the Central Bank in accordance with section 34 or 35 bis of the FIL; (ii) the financial institution is receiving financial assistance from the Central Bank; (iii) the financial institution is not in compliance with its reporting obligations to the Central Bank; (iv) the financial institution is not in compliance with minimum capital requirements (both on an individual and consolidated basis and excluding any individual franchise granted by the Superintendency) and with minimum cash reserves (on average), whether in Pesos, foreign currency or securities issued by the public sector; (v) if the average minimum cash reserve is lower than the amount of cash required by the latest reported position or the pro forma position after making the dividend payment; and/or (vi) if the financial institution did not comply with the applicable Additional Capital Margins (as defined below). Financial institutions that comply with all of the above mentioned conditions may distribute dividends up to an amount equal to: (i) the positive balance of the account “unappropriated earnings” (resultados no asignados) at the end of the fiscal year, plus (ii) voluntary reserves for future payments of dividends, minus (iii) voluntary reserves and mandatory statutory reserves registered as of that date and other items, such as (a) 100% of the debit balance of each of the items recorded under “Other accumulated comprehensive income”, (b) the result from the revaluation of property, plant, equipment and intangible assets and investment properties, (c) the net positive balance of the book-value and the market-value of certain public debt securities and Central Bank notes that the financial institution owns that are not marked to market, (d) unrecorded adjustments of asset value informed by the Superintendency of Financial and Exchange Entities (Superintendencia de Entidades Financieras y Cambiarias, or “Superintendency”). The Superintendency will review or mentioned by external auditors on their report, and (e) individual exemptions for asset valuation granted by the ability of aSuperintendency.
In addition, financial institution toentities may not distribute dividends upon request for approval. The Superintendency may authorizeprofits with the distribution of dividends if during the month preceding the request, the following requirements were met: the financial institution (i) is not subject to a liquidation procedure; (ii) is not receiving financial assistanceprofit arising from the Central Bank; (iii) is in compliance with its reporting obligations withapplication of IFRS for the Central Bank; (iv) is in compliance with minimum capitalfirst time, and cash requirements, among others; and (v) the financial institution is not subjectmust set up a special reserve that can only be canceled for capitalization or to absorb any significant fines — exceeding 25% of the last RPC informed by such financial institution — , debarment, suspension, revocation or prohibition imposed in the last five years by the Central Bank, the UIF, the CNV, and/or the National Superintendency of Insurance (Superintendencia de Seguros de la Nación), except when such financial institution has implemented corrective measures that are satisfactory to the Superintendency (such corrective measures would also be brought to the attention of the regulatory body that originally imposed the sanction). The Superintendency also takes into consideration information that it receives
from, and/or sanctions imposed by, equivalent foreign agencies or authorities. When weighing the significance of the sanctions, the Superintendency takes into account the type of sanctions, the underlying reason for such sanctions and the amount of sanctions imposed on the financial institution. Additionally, the Superintendency factors in the degree of participation in the events leading up to the sanction, the economic effects of the violation, the degree of damage caused to third parties, the economic benefit that the sanctioned party receivednegative balances from the violation, the sanctioned party’s operating volume, its liability and the title or function that such party holds.item “Unassigned Results.” See “Item 4.B Business overview—Argentine Banking Regulation—Liquidity and Solvency Requirements—Requirements Applicable to Dividend Distribution.”
Additionally, situations such as noncompliance with minimum capital requirements or non-payment of principal or interest under the Bank’s outstanding Tier 2 Notes could result in the Bank’s inability to distribute dividends to its shareholders.
In 2015 and 2016, we received the following dividend payments in cash from our subsidiaries: (i) Ps. 61.3 million in 2016 and Ps. 21.9 million in 2015 from SAM, (ii) Ps. 7.0 million in 2015 from Tarjeta Automatica, (iii) Ps. 42.3 million in 2016 from Espacio Cordial, (iv) Ps. 76.8 million in 2016 and Ps. 4.8 million in 2015 from Supervielle Seguros, and (v) Ps. 6.5 million in 2016 from Sofital. We did not receive dividend payments from the Bank or our other subsidiaries during 2015 and 2016.
Although distribution of dividends to us by the Bank has been authorized by the Central Bank in the past, it is possible that in the future the Central Bank may not continue to grantlimit the Bank the authorizationBank’s ability to distribute dividends approved by its shareholders at the annual ordinary shareholders’ meeting without its prior consent, or such authorization may not be for the full amount of distributable dividends.
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ChangesFurthermore, on March 19, 2020, in the Argentine tax laws may adversely affectmidst of the resultscoronavirus’ outbreak crisis, the Central Bank issued Communication “A” 6939, by virtue of our operations and the tax treatment of our Class B shares and/or the ADSs.
On September 23, 2013, Law No. 26,893, which amended the Income Tax Law, was enacted. According to the amendments, the distribution of dividends by an Argentine corporationfinancial entities was subjecttemporarily suspended until June 30, 2020. We cannot assure this measure will not be extended after this period nor the extent to income tax at a rate of 10.0%, unless such dividends were distributed to Argentine corporate entities (the “Dividend Tax”).
However, the Dividend Tax was recently repealed by Law No. 27,260, enacted on June 29, 2016, and currently no income tax withholding is applicable on the distribution of dividends in respect of both Argentine and non Argentine resident shareholders, except when dividends distributed are greater than the income determined according to the application of the Income Tax Law, accumulated at the fiscal year immediately preceding the year on which the distribution is made. In such case,measure may affect the excess is subjectBank’s ability to a rate of 35%, for both Argentine and non-Argentine resident shareholders. See “Item 10.E Taxation—Material Argentine Tax Considerations.”pay dividends to us.
In addition, the amended Income Tax Law establishes that the sale, exchange or other transfer of shares and other securities is subject to a capital gain tax at a rate of 15% for Argentine resident individuals and foreign beneficiaries. There is an exemption for Argentine resident individuals if certain requirements are met; however, there is no such exemption for non-Argentine residents.The income tax treatment of income derived from the sale of ADSs, dividends or exchanges of shares from the ADS facility may not be uniform under the revised Argentine Income Tax Law. The possibly varying treatment of source income could impact both Argentine resident holders as well as non-Argentine resident holders. In addition, should a sale of ADSs be deemed to give rise to Argentine source income, as of the date of this annual report no regulations have been issued regarding the mechanism for paying the Argentine capital gains tax when the sale exclusively involves non-Argentine parties. However, as of the date of this annual report, no administrative or judicial rulings have clarified the ambiguity in the law.
Therefore, holders of our Class B shares or the ADSs, are encouraged to consult their tax advisors as to the particular Argentine income tax consequences of owning our Class B Shares or the ADSs. See “Item 10.E Taxation—Material Argentine Tax Considerations.”
Restrictions on transfers of foreign exchange and the repatriation of capital from Argentina may impair your ability to receive dividends and distributions on, and the proceeds offor any sale of, the Class B shares underlying the ADSs.
Since the beginning of December 2001 until President Macri assumed office, the Argentine government implemented monetary and foreign exchange control measures that included restrictions on the withdrawal of funds deposited with banks and on the transfer of funds abroad, including dividends, without prior approval by the Central Bank, most of which were eliminated by the Macri administration.
Although the transfer of funds abroad by local companiesExchange controls currently in order to pay annual dividends only to foreign shareholders and the depositary for the benefit of the ADS holders based on approved audited financial statements no longer requires Central Bank approval, other exchange controlsplace could impair or prevent the conversion of anticipated dividends, distributions, or the proceeds from any sale of Class B shares, as the case may be, from Pesos into U.S. dollars and the remittance of the U.S. dollars abroad. In particular, with respect to the proceeds ofdividends and distributions on any sale of Class B shares underlying the ADSs, as of the date of this annual report, the conversion from Pesos into U.S. dollars and the remittance of such U.S. dollars abroad is not subject to prior Central Bank approval, providedwhich may not be granted. Access to the foreign beneficiaryfree exchange market (“MLC,” as per its Spanish acronym) to pay dividends to non-resident shareholders is either a natural or legal person residing in or incorporated and established in jurisdictions, territories or associated states that are considered “cooperators forgranted subject to the purposes of fiscal transparency.” If such requirement is not met, prior Central Bank approval will be required.following conditions:
| · | Maximum amounts: the total amount of transfers made through the MLC 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 MLC as of January 17, 2020. The total amount paid to non-resident shareholders shall not exceed the corresponding amount denominated in Argentine Pesos determined by the shareholders’ meeting to be distributed as dividends. |
| · | Minimum Period: access to the MLC 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 MLC for this purpose, evidence of the definitive capitalization of capital contributions must be provided or, in lack thereof, 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 set forth by Communication “A” 6401 of the Central Bank (the “External Assets and Liabilities Reporting Regime”) shall have been complied with. |
The Argentine government could reinstate restrictive measures in the future. In such a case, the depositary for the ADSs may be prevented from converting Pesos it receives in Argentina for the account of the ADS holders. If this conversion is not possible, the deposit agreement allows the depositary to distribute the foreign currency only to those ADS holders to whom it is possible to do so. If the exchange rate fluctuates significantly during a time when the depositary cannot convert or reinvest the foreign currency, you may lose some or all of the value of the dividend distribution. Also, if payments cannot be made in U.S. dollars abroad, the repatriation of any funds collected by foreign investors in Pesos in Argentina may also be subject to restriction. Moreover, available mechanisms to receive dividends in U.S. dollars may involve a significantly higher implicit exchange rate. See “Item 10.D Exchange Controls—Other Regulations—Sale of Foreign Currency to Non-residents.”
We are traded on more than one market and this may result in price variations; in addition, investors may not be able to easily move shares for trading between such markets.
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In addition to the trading of our ADSs in the United States and countries other than Argentina, our Class B shares are traded in Argentina. Trading in the ADSs or our Class B shares on these markets will take place in different currencies (U.S. dollars on the New York Stock Exchange (“NYSE”) and pesosPesos on the Mercado de Valores de Buenos Aires (“MERVAL”))BYMA), and at different times (resulting from different time zones, different trading days and different public holidays in the United States and Argentina). The trading prices of these securities on these two markets may differ due to these and other factors. Any decrease in the price of our Class B shares on the MERVALByMA 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.
Under Argentine Corporate Law, shareholder rights may be fewer or less well defined than in other jurisdictions.
Our corporate affairs are governed by our bylaws and by the Argentine Corporate Law,AGCL, which differ from the legal principles that would apply if we were incorporated in a jurisdiction in the United States (such as Delaware or New York), or in other jurisdictions outside Argentina. Thus, your rights or the rights of holders of our Class B shares under the Argentine Corporate LawAGCL to protect your or their interests relative to actions by our Board of Directors may be fewer and less well defined than under the laws of those other jurisdictions. Although insider trading and price manipulation are illegal under Argentine law, the Argentine securities markets may not be as highly regulated or supervised as the U.S. securities markets or markets in some of the other jurisdictions. In addition, rules and policies against self-dealing and regarding the preservation of shareholder interests may be less well defined and
enforced in Argentina than in the United States, or other jurisdictions outside Argentina, putting holders of our Class B shares and the ADSs at a potential disadvantage.
Holders of our Class B shares and the ADSs located in the United States may not be able to exercise preemptive rights.
Under the Argentine Corporate Law,AGCL, if we issue new shares as part of a capital increase, our shareholders may have the right to subscribe to a proportional number of shares to maintain their existing ownership percentage. Rights to subscribe for shares in these circumstances are known as preemptive rights.rights, pursuant to the AGCL. In addition, shareholders are entitled to the right to subscribe for the unsubscribed shares remaining at the end of a preemptive rights offering on apro rata basis, which are known as accretion rights. Upon the occurrence of any future increase in our capital stock, United States holders of Class B shares or ADSs will not be able to exercise the preemptive and related accretion rights for such Class B shares or ADSs unless a registration statement under 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 may not file such a registration statement, or an exemption from registration may not 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 and accretion 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.
Non-Argentine companies that own our Class B shares directly and not as ADSs may not be able to exercise their rights as shareholders unless they are registered in Argentina.
Under Argentine law, foreign companies that own shares in an Argentine corporation are required to register with the Inspección General de Justicia (Superintendency of Legal Entities, or the “IGJ”), in order to exercise certain shareholder rights, including voting rights. If you own Class B shares directly (rather than ADSs) and you are a non-Argentine company and you are not registered with the IGJ, your ability to exercise your rights as a holder of our Class B shares may be limited.
Your voting rights with respect to the ADSs are limited by the terms of the deposit agreement.
Holders may exercise voting rights with respect to the Class B shares underlying ADSs only in accordance with the provisions of the deposit agreement. There are no provisions under Argentine law or under our bylaws that limit ADS holders’ ability to exercise their voting rights through the depositary with respect to the underlying Class B shares, except if the depositary is a foreign entity and it is not registered with the IGJ, and in this case, the depositary is registered with the IGJ. However, there are practical limitations upon the ability of ADS holders to exercise their voting rights due to the additional procedural steps involved in communicating with such holders. For example, Argentine Capital Markets Law No. 26,831 requires us to notify our shareholders by publications in certain official and private newspapers of at least 20 and no more than 45 days in advance of any shareholders’ meeting. ADS holders will not receive any notice of a shareholders’ meeting directly from us. In accordance with the deposit agreement, we will provide the notice to the depositary, which will in turn, if we so request, as soon as practicable thereafter provide to each ADS holder:
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· the notice of such meeting;
· voting instruction forms; and
· a statement as to the manner in which instructions may be given by holders.
| · | the notice of such meeting; |
| · | voting instruction forms; and |
| · | a statement as to the manner in which instructions may be given by holders. |
To exercise their voting rights, ADS holders must then provide instructions to the depositary how to vote the shares underlying ADSs. Because of the additional procedural step involving the depositary, the process for exercising voting rights will take longer for ADS holders than for holders of Class B shares.
Except as described in this annual report, holders will not be able to exercise voting rights attaching to the ADSs.
The relative volatility and illiquidity of the Argentine securities markets may substantially limit your ability to sell Class B shares underlying the ADSs at the price and time you desire.
Investing in securities that trade in emerging markets, such as Argentina, often involves greater risk than investing in securities of issuers in the United States. The Argentine securities market is substantially smaller, less liquid, more concentrated and can be more volatile than major securities markets in the United States, and is not as highly regulated or supervised as some of these other markets. There is also significantly greater concentration in the Argentine securities market than in major securities markets in the United States. As of December 31, 2016,2019, the ten largest Argentine companies in terms of market capitalization represented approximately 90%66% of the aggregate market capitalization of the MERVAL.ByMA. Accordingly, although you are entitled to withdraw the Class B shares underlying the ADSs from the depositary at any time, your ability to sell such shares at a price and time at which you wish to do so may be substantially limited. Furthermore, if capitalexchange controls are imposed by the Central Bank these could have the effect of further impairing the liquidity of the MERVALByMA by making it unattractive for non-Argentines to buy shares in the secondary market in Argentina. See “Item 10.D Exchange Controls.”
Substantial sales of our Class B shares or the ADSs could cause the price of the Class B shares or of the ADSs to decrease.
We have shareholders that own a substantial amount of our Class B shares or ADSs. If such shareholders decide to sell a substantial amount of our Class B shares or the ADSs, or if the market perceives they intend to sell a substantial amount of our Class B shares or the ADSs, the market price of our Class B shares or the ADSs could drop significantly.
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 Argentine Corporate Lawthe AGCL or our bylaws may be held jointly and severally liable for damages to us or to other third parties, including other shareholders.
| Item 4 | Information of the Company |
| Item 4.A | History and development of the Company |
Item 4.Information of the Company
Recent Political and Economic Developments in Argentina
Presidential and congressional elections in Argentina took place in October and November 2015, resulting in Mr. Mauricio Macri being elected President of Argentina. The Macri Administration assumed office on December 10, 2015. Since assuming office, the Macri Administration has announced and executed several significant economic and policy reforms and transactions, including:
·INDEC reforms. Following the 2015 Presidential elections, the Macri administration appointed Mr. Jorge Todesca, previously a director of a private consulting firm, as head of the INDEC. On January 8, 2016, through Decree No. 55/2016, and based on its determination that the INDEC had failed to produce reliable statistical information, particularly, with respect to CPI, GDP, poverty and foreing trade data; the Macri administration declared a state of administrative emergency on the national statistical system and on the official agency in charge of the system, the INDEC, until December 31, 2016. Following the declared emergency, the INDEC ceased publishing statistical data until a rearrangement of its technical and administrative structure was finalized.
The INDEC implemented certain methodological reforms and adjusted certain macroeconomic statistics on the basis of these reforms. During the implementation of these reforms, however, the INDEC used official CPI figures and other statistics published by the Province of San Luis and the City of Buenos Aires. On June 29, 2016, the INDEC published the INDEC Report including revised GDP data for the years 2004 through 2015. On November 9, 2016, the IMF Executive Board lifted its censure on Argentina, noting that
Argentina had resumed the publication of data in a manner consistent with its obligations under Articles of Agreement of the IMF.
As of the date of this annual report, the INDEC has published certain revised data, including the CPI for May, June, July, August, September, October, November and December 2016, and January and February 2017, and foreign trade and balance of payment statistics. According to INDEC’s CPI, inflation was 16.9% for the period from May to December 2016.
·Foreign exchange reforms. The Macri administration eliminated a significant portion of foreign exchange restrictions, including certain currency controls, that were imposed under the Kirchner administration. As a result of the elimination of these restrictions, on December 17, 2015, the Peso depreciated against the U.S. dollar. Immediately after the foreign exchange controls were lifted on December 17, 2015, the dismantling of the multiple exchange regime resulted in the official Peso exchange rate (available only for certain types of transactions) adjusting in value by 40.1%, as the Peso-U.S. dollar exchange rate reached Ps. 13.76 to U.S.$1.00 on December 17, 2015. The Central Bank has since allowed the Peso to float with limited intervention intended to ensure the orderly operation of the foreign exchange market. On April 28, 2017, the exchange rate was Ps.15.4268 to U.S.$1.00.
Furthermore, on August 9, 2016, through the issuance of Communication “A” 6037, the Central Bank substantially changed the existing legal framework and eliminated certain restrictions limiting the access to the MULC (as defined below). See “The implementation in the future of new exchange controls, restrictions on transfers abroad and capital inflow restrictions could limit the availability of international credit and could threaten the financial system, which may adversely affect the Argentine economy and, as a result, our business” and “Item 10.D Exchange Controls” for a summary of the foreign exchange regulations currently in effect.
·Financial policy. Soon after taking office, the Macri administration sought to settle the outstanding claims with the holders of untendered debt, and the Minister of the Treasury designed a debt restructuring and cancellation program with the aim of reducing the amount of outstanding untendered debt. In February 2016, Argentina entered into agreements in principle to settle outstanding claims with certain holders of untendered debt and put forward a proposal to other holders of untendered debt, including those with pending claims in U.S. courts, subject to two conditions: obtaining approval by the Argentine Congress and lifting the pari passu injunctions.
On March 2, 2016, the respective District Court agreed to vacate the pari passu injunctions, subject to two conditions: (i) the repealing of all legislative obstacles to settlement with holders of untendered debt, and (ii) full payment to holders of pari passu injunctions with whom the Argentine government had entered into agreements in principle on or before February 29, 2016, in accordance with the specific terms of such agreements. On April 13, 2016, the District Court’s order was affirmed by the Second Circuit Court of Appeals. On March 31, 2016, the Argentine Congress repealed the legislative obstacles to the settlement and approved the Settlement Proposal. Argentina closed the April 2016 Transaction on April 22, 2016 and applied U.S.$9.3 billion of the net proceeds to satisfy settlement payments on agreements of holders of approximately U.S.$4.2 billion principal amount of untendered debt. Upon confirmation that the conditions set forth in its March 2, 2016 Order had been satisfied, the District Court ordered the vacatur of all pari passu injunctions.
Since April 2016, Argentina has continued settling claims with holders of untendered debt consistent with the terms of its February 2016 settlement proposal. As of December 31, 2016, the outstanding principal amount of untendered debt that was not subject to a settlement agreement totaled approximately U.S.$ 1.51 billion.
On December 22, 2016, in a case involving certain creditors that had not responded to the February 2016 settlement proposal and alleged a continued violation of the pari passu clause, the District Court found that no continued pari passu violation existed although the plaintiffs’ bonds remained unpaid while Argentina was paying its consenting creditors as well as the newly issued bonds. In its ruling, the District Court also
found that -under New York law- claims relating to untendered debt governed by New York law become time-barred after six years.
·Foreign Currency-Denominated Bonds. Since the April 2016 Transaction, Argentina has issued foreign currency-denominated bonds in aggregate amounts of U.S.$9.75 billion and €2.5 billion under foreign law and reopened securities issued under local law for a total of U.S.$1.9 billion. In addition, Argentina accessed the domestic US-dollar market by issuing Treasury bonds (LETES), of which U.S.$9.7 billion were outstanding as of February 20, 2017.
·Foreign trade reforms. The Kirchner and Fernández de Kirchner administrations imposed export duties and other restrictions on several sectors, particularly the agricultural sector. The Macri administration eliminated export duties on wheat, corn, beef, mining, oil and regional products, and reduced the duty on soybean exports by 5%, from 35% to 30%. A 5% export duty on most industrial exports was also eliminated. On February 17, 2017, the Macri administrarion eliminated import duties on computers, computers parts and complements (such as printers and digitizers) from 35% to 0%. With respect to payments for imports of goods and services to be performed abroad, the Macri administration eliminated the restrictions on access to the MULC. In addition, importers were offered short-term debt securities issued by the Republic to be used to repay outstanding commercial debt for the import of goods.
·Amendment to the Capital Markets Law. In November 2016, the Argentine government submitted a bill to Congress with comprehensive amendments to the current Capital Markets Law No. 26,831, and other related laws. Furthermore, the bill provides for the amendment of certain tax provisions and regulations relating to derivatives, as well as for the promotion of a financial inclusion program. The main proposed amendments, which are generally intended to increase flexibility and legal certainty while mitigating systemic risk and avoiding conflict of interests, include:
(i) amendments affecting the power and functions of the National Securities Commission (Comisión Nacional de Valores, or the “CNV”), including its power to appoint observers with veto powers and to remove a company’s board of directors without the prior intervention of a competent court;
(ii) the reestablishment of the jurisdiction of the commercial courts (as opposed to courts with jurisdiction over administrative matters) to hear appeals relating to resolutions and fines imposed by the CNV;
(iii) a modification of the criteria to determine, among other things, the price and launch of mandatory tender offers triggered by a change in control; and
(iv) amendments relating to the sanctions and other powers of the CNV and other amendments relating to the regulation of certain financial products and activities.
·Tax Amnesty Law. In July 2016, the Fiscal Sincerity Regime (Régimen de Sinceramiento Fiscal) was introduced through Law No. 27,260 (the “Tax Amnesty Law”) to promote the voluntary declaration of assets by Argentine residents. The Tax Amnesty Law allowed Argentine tax residents holding undeclared funds or assets located in Argentina or abroad to (i) declare such property until March 31, 2017 without facing prosecution for tax evasion or being required to pay outstanding tax liabilities on the assets, if they could provide evidence that the assets were held by certain specified cut-off dates, and (ii) keep the declared property outside Argentina and not repatriate it to Argentina.
In the case of undeclared cash funds that were not deposited in local bank accounts, such amounts had to be declared and deposited before October 31, 2016 in special accounts opened at Argentine financial entities.
Depending on the amount declared, how soon it was declared, the election to subscribe for certain investment securities and the payment method used, those who took advantage of the law would pay a special tax of between 0% and 15% on the total amount declared. Alternatively, they could invest an equivalent amount in Argentine government bonds or a fund that will finance, among other things, public infrastructure projects and small to medium-sized businesses in general. The special tax rate was set as follows: (i) undeclared assets
below Ps. 305,000: 0%, (ii) undeclared assets between Ps. 305,000 and Ps. 800,000: 5% on the value of the assets, (iii) undeclared assets (except property) in excess of Ps. 800,000, (a) if declared before December 31, 2016: 10% on the value of the assets, and (b) if declared after December 31, 2016 and until March 31, 2017: 15% on the value of assets.
Taxpayers could elect to subscribe for certain investment securities and reduce the tax rates payable upon disclosure of previously undisclosed assets.
On April 4, 2017, the Minister of Treasury and the head of the Argentine Tax Autority (Administración Federal de Ingresos Públicos or “AFIP”) jointly announced that, through March 31, 2017, which was the end of the Tax Amnesty Law implementation, a total amount of US$116.8 billion had been reported, which allowed the AFIP to collect approximately US$9.5 billion in relevant taxes, a portion of which would be used to fulfill the payments under the Historical Reparations Program for Retirees and Pensioners (as described below).
·Correction of monetary imbalances. The Macri administration announced the adoption of an inflation targeting regime in parallel with the floating exchange rate regime and set inflation targets for the next four years. The Central Bank has increased sterilization efforts to reduce excess monetary imbalances and raised Peso interest rates to offset inflationary pressure. Inflation from December 2015 to December 2016, as measured by the City of Buenos Aires, stood at 41.0%. Inflation from May to December 2016, as measured by the INDEC, stood at 16.9%. In January 2017, the Central Bank used the 7-day repo reference rate as the anchor of its inflation targeting regime. Short term notes issued by the Central Bank (LEBACs) would be used to manage liquidity.
·Retiree Programs. On June 29, 2016, the Argentine Congress passed a bill approving the Law of Historical Reparations Program for Retirees and Pensioners (Ley de Reparación Histórica a los Jubilados), which took effect upon its publication in the official gazette. This program is designed to conform government social security policies to Supreme Court of Argentina rulings. The main aspects of the program include (i) payments to more than two million retirees and the retroactive compensation of more than 300,000 retirees and (ii) the creation of a universal pension (pensión universal) for the elderly, which guarantees an income for all individuals over 65 years of age who are otherwise ineligible for retirement. The Historical Reparations Program for Retirees and Pensioners will give retroactive compensation to retirees in an aggregate amount of more than Ps. 47.0 billion and will involve expenses of up to Ps. 75.0 billion to cover all potential beneficiaries.
·Fiscal policy. The Macri administration took steps to anchor the fiscal accounts, reducing the primary fiscal deficit by approximately 1.8% of GDP in December 2015 through a series of tax and other measures, and reported a primary fiscal deficit of 4.6% of GDP in 2016, mostly due to taxes collected under the Tax Amnesty Law program in the last two months of 2016. For 2017, the Macri administration set quarterly primary fiscal deficit targets that lead to an annual fiscal deficit target of 4.2% of GDP mainly through the gradual elimination of energy and transport subsidies. The Macri administration’s ultimate aim is to achieve a balanced primary budget by 2019, reaching a primary fiscal deficit of 2.2% of the GDP.
·National electricity state of emergency and reforms. Following years of very limited investment in the energy sector, as well as the continued freeze on electricity and natural gas tariffs since the 2001-2002 economic crisis, Argentina began to experience energy shortages in 2011. In response to the growing energy crisis, the Macri administration declared a state of emergency with respect to the national electricity system, which will remain in effect until December 31, 2017.
The state of emergency allows the Argentine government to take actions designed to ensure the supply of electricity to the country, such as instructing the Federal Ministry of Energy and Mining (Ministerio de Energía y Minería de la Nación) to design and implement, with the cooperation of all federal public entities, a coordinated program to guarantee the quality and security of the electricity system. In addition, through Resolution No. 6/2016 of the Federal Ministry of Energy and Mining and Resolution No. 1/2016 of the National Electricity Regulatory Agency (the Ente Nacional Regulador de la Electricidad or “ENRE”), the Macri administration eliminated a portion of energy subsidies currently in effect and a substantial increase in electricity rates.
As a result, average electricity prices have increased and could increase further. By correcting tariffs, modifying the regulatory framework and reducing the Argentine government’s role as an active market participant, the Macri administration sought to correct distortions in the energy sector and stimulate investment. However, certain of the Argentine government’s initiatives were challenged before the Argentine courts and resulted in judicial injunctions or rulings limiting the Argentine government’s initiatives.
During 2016, lower court injunctions suspended in certain provinces and cities end-user electricity tariff increases implemented as of February 1, 2016, and instructed the Federal Ministry of Energy and Mining and the ENRE to conduct a non-binding public hearing prior to sanctioning any such increases. On October 28, 2016, a non-binding public hearing was conducted by the Federal Ministry of Energy and Mining and ENRE to present tariff proposals submitted by distribution companies covering the greater Buenos Aires area (approximately 15 million inhabitants) for the 2017-2021 period in the framework of the Integral Tariff Review (as defined below). On December 14, 2016, eight non-binding public hearings (in Buenos Aires, Mendoza, Neuquén, Mar del Plata, Formosa, Santiago del Estero and Puerto Madryn) were conducted by the Federal Ministry of Energy and Mining and ENRE to present tariff proposals for electricity transmission at the national and regional level and the seasonal reference prices of capacity and energy in the wholesale electricity market, as well as a proposal to reduce subsidies for the 2017-2021 period.
·Tariff increases. With the aim of encouraging companies to invest and improve the services they offer and enabling the government to assist those in need, the Macri administration has begun updating the tariffs for electricity, transportation, gas and water services (the “Integral Tariff Review”). Each of the announced tariff increases contemplates a social tariff (tarifa social), which is designed to provide support to vulnerable groups, including beneficiaries of social programs, retirees and pensioners that receive up to two minimum pensions, workers that receive up to two minimum salaries, individuals with disabilities, individuals registered in the Monotributo Social program, domestic workers and individuals receiving unemployment insurance. Subsequent modifications to these announced tariff increases were made, including a 20% discount on the regular distribution price for 400 designated energy-intensive companies that purchase electricity directly from distributors.
On August 18, 2016, the Supreme Court of Argentina in “Centro de Estudios para la Promoción de la Igualdad y la Solidaridad v/ Federal Ministry of Energy and Mining,” affirmed lower court injunctions suspending end-user natural gas tariff increases sanctioned as of April 1, 2016, and instructed the Federal Ministry of Energy and Mining and ENARGAS to conduct a non-binding public hearing prior to sanctioning any such increases. On September 16, 2016, a non-binding public hearing was conducted by the Federal Ministry of Energy and Mining and ENARGAS to submit (i) transitional tariffs for transportation and distribution of natural gas at the national level in the framework of the Integral Tariff Review for the period 2017-2021, (ii) a new set of gas prices at the Point of Entry to the Transportation System (PIST) and (iii) a proposal to reduce subsidies for the period 2016-2022. Between October 2 and 7, 2016, public hearings were also conducted at the national level with regard to tariff proposals for gas transportation and distribution throughout the country for the period 2017-2021 in the framework of the Integral Tariff Review.
On October 6 and 7, 2016, after conducting non-binding public hearings, the Federal Ministry of Energy and Mining and the Ente Nacional Regulador del Gas (“ENARGAS”) published a new end-user gas tariff scheme. The scheme establishes a two tariff schedule for private residences, establishing lower tariffs for units that decreased consumption compared to the same period in the previous year by at least 15%.
On October 11, 2016, the Federal Ministry of Energy and Mining (a) expanded the amount of eligible beneficiaries of social tariffs to include retirees and pensioners that receive pensions equal to up to two minimum salaries, certain war veterans and medically dependent customers, and (b) decreed that institutions that perform activities of public interest would be entitled to residential rates.
The year-on-year increase in the price of energy in the wholesale electricity market for end-users, which excludes transportation and distribution costs and accounts for approximately 45% of the tariff to end-users in the City of Buenos Aires, totaled 233% (from Ps.96/MWh to Ps.320/MWh on average), while the increase in the price of natural gas for end-users was 68% (from Ps.37/MMBtu to Ps.62/MMBtu on average).
·Increase in Minimum Income. In December 2016, the Argentine Congress approved an increase in the minimum income threshold in connection with income tax by approximately 23%, from Ps. 25,000 to Ps. 30,670 (net income) for married workers with two children and from Ps. 18,880 to Ps. 23,185 (net income) for single workers. The minimum income threshold will be subject to automatic adjustment going forward, by reference to increases in the average wages paid to public sector employees. The Argentine Congress also passed modifications to the income tax brackets to take into account the impact of inflation in recent years.
Item 4.AHistory and development of the Company
We are a financial group with a long-standing presence in the Argentine financial system and a leading competitive position in certain attractive market segments. We are controlled by Julio Patricio Supervielle. We trace our history back almostmore than 130 years, when the Supervielle family, predecessors of our controlling shareholder, first entered the Argentine financial services industry in 1887. Below is a brief history of our company, including the participation of the Supervielle family.
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Supervielle y Cía. Banqueros
The predecessors of our controlling shareholder emigrated from France in the second half of the 19th century and established L.B. Supervielle y Cía. Banque Francaise (later Banco de Montevideo S.A.) in Montevideo, Uruguay. In 1887, they established Supervielle y Cía. Banqueros (a subsidiary of L.B. Supervielle y Cía. Banque Francaise) in Buenos Aires. Supervielle y Cía. Banqueros offered demand deposits, time deposits, savings accounts, securities trading orders, purchases and sales of foreign currency and drafts and letters of credit payable in European financial centers. Luis Bernardo Supervielle managed the bank until his death in 1901, whereupon the bank’s management transferred to his son, Luis Supervielle, and subsequently to Esteban Barón, son-in-law of Luis Bernardo Supervielle, who in 1905 became president of Supervielle y Cía. Banqueros. Mr. Barón managed the bank from 1905 until 1930, and subsequently served on the board of the bank as an Honorary Presidenthonorary president until 1964. Mr. Barón’s son, Andrés Barón, joined the bank in 1925 and took over its general management in 1930, also becoming chairman of the board of the bank in 1940. He carried out these functions until 1964, and then served on the board of the bank as an Honorary President.
honorary president.
On December 30, 1940, Banco Supervielle de Buenos Aires S.A., a bank controlled by the Barón and Supervielle families, acquired the assets and liabilities of Supervielle y Cía. Banqueros and listed its shares on the Buenos Aires Stock Exchange. Esteban Barón and his son, Andrés Barón Supervielle, continued to manage the operations of this bank until 1964.
In 1964, Société Générale (Paris) acquired a majority of the capital stock of Banco Supervielle de Buenos Aires S.A. from the Baron and Supervielle families, transforming it into a universal bank with 60 branches and a significant presence in the corporate market. Following the acquisition of control by Société Générale, the Supervielle family had no role in the management of Banco Supervielle. In 1997, Banco Supervielle de Buenos Aires S.A. created Société Générale Asset Management Sociedad Gerente de FCI S.A. OnIn March 20, 2000, the name Banco Supervielle de Buenos Aires S.A. was changed to Banco Société Générale S.A.
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Banco Banex S.A.
In 1969, Jules Henri Supervielle, the father of Julio Patricio Supervielle, our controlling shareholder, and cousin of the Supervielle family members who had owned and managed Banco Supervielle de Buenos Aires S.A. until 1964, founded Exprinter de Finanzas S.A., which became Exprinter Banco S.A. in 1991. Exprinter Banco S.A. acquired 100% of the capital stock of Banco San Luis S.A. in 1996 pursuant to a public bidding process organized by its owner, the Province of San Luis. On July 25, 1996, the Province of San Luis entered into a financial agency agreement with Banco San Luis S.A. (the “Contrato de Vinculación”), pursuant to which the Province designated Banco San Luis as its financial agent. The acquisition of Banco San Luis S.A. by Exprinter Banco S.A. was part of a strategic plan aimed at growing in the interior of the country and penetrating the middle and lower-middle-income individual consumer and the SMEs segments. In 1998, Exprinter Banco S.A. and Banco San Luis S.A. merged to create Banco San Luis S.A.-BancoS.A. Banco Comercial Minorista, and was later renamed Banco Banex S.A. In December 2006, the government of the Province of San Luis extended the term of this financial agency agreement until 2021. On January 17, 2017, the Province of San Luis notified us of its decision to exercise its right to terminate the agreement, as of February 28, 2017. Since February 2017, the Bank has continued to provide financial services to the government of the Province of San Luis and its employees despite the termination of the financial agency agreement. In January 2019, the government of the Province of San Luis released the terms and conditions of the auction to be held by the Province for the new financial agency agreement. On December 6, 2019, the provincial government issued the Decree No. 8,589 that resolved to close the auction process without awarding the financial agency agreement to any financial institution. Supervielle is continuing to render services as financial agent until the Province of San Luis names a new financial agent.
Creation of Holding Company
Grupo Supervielle was incorporated in the City of Buenos Aires on October 8,in 1979, under the name Inversiones y Participaciones S.A., acquiringchanging the name to Grupo Supervielle S.A. in November 2008.
Acquisition of Banco Société Générale S.A. by Banco Banex S.A.
OnIn March 3, 2005, the Central Bank approved the purchase by Banco Banex S.A. of a majority stake in Banco Société Générale S.A., Supervielle Asset Management Sociedad Gerente de FCI S.A. and Sofital S.A.F.e I.I. Upon consummation of this acquisition, Banco Société Générale S.A.’s corporate name was changed to Banco Supervielle S.A. At the time of the purchase, the total assets of Banco Banex S.A. were 61.34%61.3% of the total assets of Banco Societé Générale S.A.
Merger of Banco Banex S.A. and Banco Supervielle S.A.
OnIn July 1, 2007, with the prior approval of the Central Bank, Banco Banex S.A. merged into the Bank.
Acquisition of Banco Regional de Cuyo S.A.
OnIn September 19, 2008, the Bank finalized the acquisition of 99.94% of the capital stock of Banco Regional de Cuyo S.A. On September 30, 2010, the Central Bank approved the merger ofThe Banco Regional de Cuyo S.A. merged with and into the Bank. The merger was completed onBank in November 1, 2010.
Acquisition of Tarjeta Automática S.A. and Cordial Microfinanzas S.A.
In December 2007, we acquired 51% of Tarjeta’s capital stock. The remaining 49% was held by Acalar S.A., an Argentinesociedad anónima 100%wholly owned by the Coqueugniot family (Gabriel A. Coqueugniot, Cecilia B. Coqueugniot, Mónica I. Coqueugniot, and Diana I. Coqueugniot), in equal parts. Following several stock transfers that took place in 2009 and 2010, Tarjeta’s capital stock is, as of the date of this annual report, held 87.5% by Grupo Supervielle, 10.0% by the Bank, and 2.5% by CCF.
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In 2007, Julio Patricio Supervielle and Grupo Supervielle created Cordial Microfinanzas. In November 2009, the Bank acquired from Julio Patricio Supervielle and Grupo Supervielle a total of 12.50% of Cordial Microfinanzas’s capital stock. On December 12, 2014, we acquired Julio Patricio Supervielle’s remaining 6.33% share of Cordial Microfinanzas’s capital stock.
On March 20, 2017, Grupo Supervielle and the Bank accepted an offer from Ciudad Microempresas to purchase their shares of Cordial Microfinanzas. Ciudad Microempresas is a company owned by Corporación Buenos Aires Sur and Banco de la Ciudad de Buenos Aires. The decision to sell Cordial Microfinanzas was based on our need to focus our resources in designated strategic segments, and Cordial Microfinanzas was not relevant within our total portfolio, as it represented only 0.4% of it.
After the compliance of all required conditions as contained in the offer, Grupo Supervielle and the Bank transferred on March 31, 2017 all their shares of Cordial Microfinanzas to Ciudad Microempresas as detailed below:
(i) Grupo Supervielle S.A.: 12,219,472 shares, as of such date represented 87.5% of total capital stock of Cordial Microfinanzas; and
(ii) Banco Supervielle S.A.: 1,745,632 shares, as of such date represented 12.5% of total capital stock of Cordial Microfinanzas.
Acquisition of Cordial Compañía Financiera S.A. (formerly known as “GE Compañía Financiera S.A.”)
OnIn July 6, 2010, Grupo Supervielle and the Bank agreed to acquired 100% of GECordial Compañía Financiera S.A. (“GECordial Compañía Financiera”), a financial services company that specialized in credit cards, personal loans and the distribution of certain third-party insurance products. The transaction was approved by the Central Bank on June 29, 2011. OnIn August 1, 2011, the purchase was completed through a stock transfer in which 5% and 95% of the total shares were transferred to Grupo Supervielle and the Bank, respectively.
Through a strategic alliance with Walmart Argentina, Cordial Compañía Financiera has exclusive rights to promote and sell financial and credit products in Walmart Argentina stores nationwide through August 2020.
2020 (with a renewal currently being negotiated).
We acquired GECordial Compañía Financiera to further our strategy of increasing our market share in the Argentine banking and financial services industry through the strategic purchase of financial services companies and financial institutions.
OnIn August 1, 2011, the shareholders of GECordial Compañía Financiera approved the name change from GE Cordial Compañía Financiera S.A. to Cordial Compañía Financiera. On August 29, 2011, the IGJ authorized the name change.Financiera S.A.
Creation of Espacio Cordial Servicios S.A.
For business strategy purposes and with the intention of furthering our goods and services business plan, onIn October 2, 2012, the Board of Directors created a new entity called ECM S.A., which was later renamed Espacio Cordial Servicios S.A.
Espacio Cordial was created to sell insurance plans and coverage, tourism packages, health insurance and health services, tourism packages, electric appliances and furniture insurance mechanisms and plans and alarm systems. Espacio Cordial deals with insurance services that can be delegated or assigned to third parties byparty insurance companies, such as Supervielle Seguros, in accordance with laws and regulations as of the date of this annual report.Seguros.
Acquisition of Supervielle Seguros S.A. (formerly known as Aseguradores de Créditos del Mercosur S.A.)
OnIn February 5, 2013, we and Sofital accepted an offer for the acquisition of 100% of the purchase shares of Aseguradores de Créditos del Mercosur S.A., which onin October 30, 2013 was renamed Supervielle Seguros S.A.
On May 14, 2013, the National Superintendency of Insurance (Superintendencia de Seguros de la Nación) approved the transfer of the company’s shares. As a result, on In June 6, 2013, 95% of the shares of Aseguradores de Créditos del Mercosur S.A. were transferred to us and the remaining 5% of the shares were transferred to Sofital.
Sale of Adval S.A.
OnIn May 30, 2014, Grupo Supervielle S.A. and Sofital S.A. entered into an agreement for the sale of 100% of the shares of Adval S.A. to CAT Technologies S.A. The purchase price is scheduled to bewas paid in installments due between July 2014 and July 2019. Under this agreement, as of December 31, 2015, Grupo Supervielle and Sofital held credits with CAT Technologies S.A. of Ps.2.3 million and Ps.0.1 million, respectively.
Successful IPO in May 2016
Initial Public Offering (IPO)
OnSince May 19, 2016, the ordinary Class B shares of Grupo Supervielle completed its IPO and since then, it has beenS.A. are listed on ByMA, and its American Depositary Shares (“ADSs”), representing five ordinary Class B shares, are listed in the Buenos Aires Stock ExchangeNYSE under the ticker “SUPV”. At the time, Grupo Supervielle made an initial public offer of its Class B shares in Argentina and on the NYSE. A sizable part of Grupo Supervielle’s shares were placed on the local market andits ADSs in the international market, mainly inmarkets for an aggregate amount of U.S.$323 million. Through the United States, but also in the United Kingdom and other countries, such as Chile and Brazil. As a result of the offer,offering, Grupo Supervielle placed US$253 million146,625,087 ordinary Class B shares, of which 137,095,955 were placed internationally in the primary offer.form of ADSs In the offering, 114,807,087 were newly issued ordinary Class B shares while 31,818,000 were sold pursuant to a secondary offering.
Sale of Cordial Microfinanzas S.A.
On March 20, 2017, Grupo Supervielle and the Bank accepted an offer from Ciudad Microempresas S.A. to purchase theirGrupo Supervielle’s and the Bank’s shares of Cordial Microfinanzas.Microfinanzas S.A. Ciudad Microempresas S.A. is a company owned by Corporación Buenos Aires Sur and Banco de la Ciudad de Buenos Aires. Grupo Supervielle and the Bank transferred on March 31, 2017 all their shares of Cordial Microfinanzas S.A. to Ciudad Microempresas
The decision to sell Cordial Microfinanzas S.A. was based on our need to focus our resources in designated strategic segments.
After the compliance of all required conditions as contained in the offer, Grupo Supervielle and the Bank transferred on March 31, 2017 all their shares of Cordial Microfinanzas to Ciudad Microempresas as detailed below:
(i) Grupo Supervielle S.A.: 12,219,472 shares, which represented 87.5% of total capital stock of Cordial Microfinanzas; and
(ii) Banco Supervielle S.A.: 1,745,632 shares, which represented 12.5% of total capital stock of Cordial Microfinanzas.
As of December 31, 2016, Cordial Microfinanzas S.A. operated through 5five branches, had a total loan portfolio of Ps. 192Ps.192 million, and held assets representing 0.39%0.4% of the total assets of Grupo Supervielle. Its contribution to the net income of Grupo Supervielle in 2016 was 0.78%0.8%.
Cordial Microfinanzas S.A. was created in 2007 by Grupo Supervielle to service the microfinance market in Argentina and with the objective of providing technical and financial assistance to micro-entrepreneurs to meet the needs related to their productive, commercial and service activities, thereby contributing to the development of their
entrepreneurial capacity. This sale comes
Capitalization of an in-kind contribution and resulting capital stock increase
At the ordinary and extraordinary shareholders’ meeting of Grupo Supervielle held on April 27, 2017, the shareholders of Grupo Supervielle approved the capitalization of an in-kind contribution of 7,672,412 shares of common stock of Sofital S.A.F. e I.I. made by Mr. Julio Patricio Supervielle and an increase of the capital stock of Grupo Supervielle through the issuance of up to 8,032,032 new Class B shares. In connection with the capital increase, a total of 7,494,710 new Class B shares were subscribed as follows: on July 18, 2017, 4,321,208 were issued to Mr. Julio Patricio Supervielle in return for the in-kind contribution, representing 57.7% of the total capital increase, and 3,173,502 Class B shares were issued to existing shareholders of Grupo Supervielle who exercised their preemptive and accretion rights with respect to the capital increase, representing 42.3% of the total capital increase.
Sale of shares of Viñas del Monte S.A.
On May 26, 2017, Grupo Supervielle, Sofital S.A.F. e I.I. and Mr. Julio Patricio Supervielle completed the transfer of their shareholdings in Viñas del Monte S.A., which were sold for an aggregate amount of U.S.$1,500,000 to Ramón Francisco Federico and Guillermo Héctor Federico.
Successful completion of capital increase
In September 2017, Grupo Supervielle made an increase of capital stock through an offer of Class B shares. Simultaneously with the offer, Grupo Supervielle made an offer of preemptive and accretive rights of Class B shares to existing shareholders. As a result of the needoffer, Grupo Supervielle issued a total of 85,449,997 new Class B shares for a total of U.S.$344.0 million.
Creation of Adquisición y Desarrollo S.A.
On December 18, 2017, our Board of Directors approved the creation of Adquisición y Desarrollo S.A. to focussell credit and non-credit product and services through new indirect channels. As of the date of this annual report, Adquisición y Desarrollo S.A. registration process with the IGJ is dormant.
Creation of Fideicomiso Financiero Fintech Supervielle I
On February 16, 2018, the Board of Directors approved the creation of Fideicomiso Financiero Fintech Supervielle I to invest in financial technology (fintech) and insurance technology (insurtech) start up projects for an amount up to U.S.$3 million.
Acquisition of Micro Lending S.A.U.
On April 6, 2018, Grupo Supervielle’s resourcesSupervielle approved an offer to acquire 100% of the share capital of Micro Lending S.A.U. (“MILA”). MILA specializes in designated strategic segments.car financing, particularly for used cars. On May 2, 2018, Grupo Supervielle closed the acquisition of MILA for a total price of U.S.$20 million, subject to final adjustments.
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Acquisition of the capital stock of InvertirOnline S.A.U. and InvertirOnline.com Argentina S.A.U.
On May 24, 2018, we acquired the capital stock of the online trading platform InvertirOnline (“InvertirOnline”), through the purchase of both InvertirOnline S.A.U. and InvertirOnline.com Argentina S.A.U.
Conversion of Class A shares
On April 24, 2019, and as per the request of Mr. Julio Patricio Supervielle, the Board of Directors of Grupo Supervielle authorized the conversion of 65,000,000 Class A shares, with a par value of Ps.1.00each and entitled to five votes per share, held by Mr. Supervielle, into Class B shares, with a par value of Ps.1.00 each and entitled to one vote per share, in the the terms of article 6 (b) our bylaws. On May 9, 2019, the aforementioned conversion was approved by the CNV.
Creation of Bolsillo Digital S.A.U.
On June 12, 2019, Bolsillo Digital S.A.U. was created with the exclusive purpose of providing design, programming and developing services for software, mobile phone applications, web pages and/or any other digital medium, commercializing products and services related to the management and processing of payments made by and in favor of third parties and developing and operating platforms and tools of payment methods of any type and in any of its forms. We are the sole shareholder of Bolsillo Digital S.A.U.
Acquisition of deautos.com by Espacio Cordial de Servicios S.A.
On June 18, 2019, Espacio Cordial de Servicios S.A. acquired deautos.com, a platform of new and pre-owned cars and one of the leading sites in its category with more than 10 years in the market.
Through this acquisition, the Consumer Division of Grupo Supervielle seeks to continue enhancing the customer experience through digital transformation, widening the offering of consumer products and increasing cross selling to drive higher efficiency and profitability.
The acquisition of deautos.com platform will allow us to create an innovative and disruptive business model in the online car market powered by Mila’s relationship with agencies and dealers, provide a new car digital platform experience for users, integrating and simplifying the financial offer, insurance and services of the Company.
Creation of Supervielle Productores Asesores de Seguros S.A. (formerly known as Supervielle Broker de Seguros S.A.)
On December 21, 2018, Supervielle Broker de Seguros S.A. was created, which has the exclusive purpose of carrying out the insurance intermediation activity, promoting the contracts of life insurance, wealth and pension insurance premiums, and advising customers and potential customers. Grupo Supervielle owns all of its share capital directly and indirectly. Supervielle Productores Asesores de Seguros S.A began operating in the second half of 2019.
Acquisition of Futuros del Sur S.A. (in the process of being renamed Supervielle Agente de Negociacion S.A.U.)
On December 18, 2019, Supervielle acquired 100% of the share ownership of brokerage firm Futuros del Sur S.A., seeking to broaden the investment and financial services it provides to institutional and corporate customers and also drive efficient and profitable cross selling. Futuros del Sur S.A. is in the process of being renamed Supervielle Agente de Negociación S.A.U.
Executive officesOffices
Our principal executive offices are located at Bartolomé Mitre 434, 5th floor, Buenos Aires, Argentina. Our general telephone number is +54-11-4340-3100. Our website is http://www.gruposupervielle.com. Information contained or accessible through our website is not incorporated by reference in, and should not be considered part of, this annual report.
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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 agent for service of process in the United States is CT Corporation System, located at 111 Eighth Avenue, New York, New York, 10011.
| Item 4.B | Business Overview |
Overview
We own the fourtheighth largest Argentine private domestically-owned bank in terms of assets.loans. We maintain a strong geographic presence in the City of Buenos Aires and the Greater Buenos Aires metropolitan area, which is Argentina’s most commercially significant and highly populated area, and we are leaders in terms of our banking network in some of Argentina’s most dynamic regions, including Mendoza and San Luis. The Bank, which consolidated with CCF, is our main asset, comprising 96.4% of our total assets, and has a history of strong growth. Between the 2014 and 2016 period, our loan portfolio grew at a CAGR of 38.2%, as compared to 30.7% for the Argentine private financial system (excluding public banks). As of December 31, 2016,2019, we served over two1.8 million active customers, and our assets totaled Ps.53.2Ps.146.5 billion (approximately US$3.4U.$.S.2.4 billion), in addition to Ps.10.0Ps.16.8 billion (approximately US$629U.$.S. 281 million) of assets managed by SAM.SAM and Ps.12.5 billion (U.$.S.209 million) of assets managed by InvertirOnline. As of December 31, 2016,2019, the Bank and CCF accounted for 87.6%91.1% and 8.8%5.3% of our total assets, respectively.
As of December 31, 20162019 and 2015,2018, according to calculations performed based on Central Bank and other third partythird-party information, our share for the following products or segments was as follows:
| · | Personal loans (advanced by the Argentine private financial system): our market share as of December 31, 2019 was 7.0%, compared to a 7.3% market share as of December 31, 2018; |
| · | Leasing (made by the Argentine private banks): a 19.9% market share as of December 31, 2019, compared to a market share of 17.6% as of December 31, 2018; |
| · | Our factoring market share of the Argentine private financial system as of December 31, 2019 was 9.5%, compared to a 7.4% market share as of December 31, 2018; and |
| · | MasterCard credit cards with a 9.3% market share as of December 31, 2019, compared to a 8.6% market share as of December 31, 2018; |
· According toBased on the Central Bank, our market share of personal loans advancedlatest information published by the Argentine private financial system as of December 31, 2016 was 7.0%, compared to a 5.7% market share as of December 31, 2015.
· Leasing: a 12.7% private banks market share, and a private banks market share greater than 13.1% when taking into account our securitized leasing portfolio as of December 31, 2016, compared to a market share of 9.6% and greater than 11.0%, respectively, as of December 31, 2015.
· Mastercard credit cards for which billing statements were issued: a 9.2% market share as of December 31, 2016, compared to a 10.0% market share as of December 31, 2015.
· Factoring market share of the Argentine financial system as of December 31, 2016, was 6.9% compared to a 5.2% market share as of December 31, 2015.
· We managed 12.3% as of December 31, 2016, and 12.9% December 31, 2015,ANSES, we made 13.7% of all social security payments to senior citizens in Argentina.Argentina in June 2019, compared to 14.0% in December 2018.
AsWe have a leading position in both the Provinces of the June 30, 2016, according to the latest available information:
· Deposits among private banks in the Mendoza and San Luis, regions:in which we have 198,000 and 192,000 active customers, respectively. According to calculations based on Central Bank information, as of December 31, 2019 in these Provinces we had a 55.8% and 18.5% market share respectively; and
· Totalof loans among private banks in the Mendozaof 21.2% and San Luis regions:49.6%, respectively, and a 48.9% and 22.6% market share of deposits among private banks of 7.1% and 62.8% respectively.
We offer diverse financial products and services that are specifically tailored to cover the different needs of our customers through a multi-brand and multi-channel platform. We have developed a multi-brand business model to differentiate the financial products and services we offer to a wide spectrum of individuals, small businesses, SMEs, Middle-Market Companiesmiddle-market companies and Large Corporateslarge corporates in Argentina. Our current infrastructure supports our multi-channel distribution strategy with a strategic national footprint through 320316 access points which include 176185 bank branches, (78 of which are branches fully dedicated to serve senior citizens (the “Senior Citizens’ dedicated branches”), 1713 banking payment and collection centers, 6679 CCF sales points of sale located in Walmart supermarkets, 61Tarjeta’s 34 consumer financingfinance sales points, 5 Mila customer support offices, a network of 393 car dealers, 536 ATMs, 217 self-service terminals and 202 cash dispensers with biometric identification.
We complement our existing physical network by offering solutions through our different digital channels such as our Online Banking platforms for Business and for Individuals, the Supervielle Mobile and the specific apps and solutions developed for different business segments such as the app for retirees, the Walmart app, and chatbots. We also offer products and services through InvertirOnline.com, our online broker with more than 51,800 active customers located countrywide.
As of December 31, 2019, the Bank’s loan portfolio to branches ratio, which we calculate by dividing the total amount of loans outstanding at the end of the period by the number of branches at the end of such period, was Ps.443.4 million, compared to Ps.393.0 million as of December 31, 2018. Based on the Peso amounts of the loan portfolios reported by the following Argentine private banks in their respective financial statements as of December 31, 2019, the loan portfolio to branches ratio of (i) Banco Macro S.A. was Ps.476.1 million, (ii) Banco de Galicia y Buenos Aires S.A. was Ps.934.5 million and other points(iii) BBVA Banco Francés S.A. was Ps.740.5 million. The loan portfolio to branches ratio as of sale, 494 ATMsDecember 31, 2018 of (i) Banco Macro S.A. was Ps.379.2 million, (ii) Banco de Galicia y Buenos Aires S.A. was Ps.739.4 million and 167 self-service terminals. In February and March 2017, the Central Bank approved our request to convert the remaining 32 senior citizen service centers we had, into full bank branches.
(iii) BBVA Banco Francés S.A. was Ps.711.1 million.
Building on our banking sector expertise, we identify cross-selling opportunities and offer targeted products to our customers at each point of contact, including by acting as the exclusive on-site provider of financial services to Walmart Argentina customers at 66 of the 107 supermarkets of Walmart Argentina located in 21 provinces.
contact.
As of December 31, 20162019 and 2015,2018 on a consolidated basis, we had:
In our ·Over two million customers, including· approximately 1.8 million retail customers of the Bank and approximately 0.4 million active retail customers (including 1.4 million active retail customers of the Bank and approximately 0.4 million active consumer finance customers of our other subsidiaries), 22,012 small businesses and 4,981 SMEs, middle-market companies and large corporates as of December 31, 2019, compared to approximately 1.8 million active retail customers (including 1.4 million active retail customers of the Bank and approximately 0.4 million active consumer finance customers of our other subsidiaries), 21,905 small businesses and 4,934 SMEs, middle-market companies and large corporates as of December 31, 2018;· Ps.148.7 billion in total assets as of December 31, 2019, compared to Ps.218.0 billion in total assets as of December 31, 2018; · Ps.92.2 billion in loans as of December 31, 2019, compared to Ps.123.4 billion in loans as of December 31, 2018; · Ps.89.0 billion in deposits, including Ps.5.5 billion from the non-financial public sector, Ps.29.1 million from the financial sector and Ps.83.5 billion from the non-financial private sector as of December 31, 2019 compared to Ps.146.0 billion in deposits, including Ps.17.1 billion from the non-financial public sector, Ps.38.8 million from the financial sector and Ps.128.9 billion from the non-financial private sector as of December 31, 2018; · Ps.23.4 billion in attributable shareholders’ equity as of December 31, 2019 compared to Ps.26.1 billion in attributable shareholders’ equity as of December 31, 2018; and · 5,019 employees as of December 31, 2019, compared to 5,253 employees as of December 31, 2018. other subsidiaries, 16,078 small businesses and 4,587 SMEs, Middle-Market Companies and Large Corporatescross-selling segments we had as of December 31, 2016, compared to over two million customers, including 1.7 million retail customers of the Bank and approximately 0.4 million retail customers of our other subsidiaries, 14,774 small businesses and 4,492 SMEs, Middle-Market Companies and Large Corporates as of December 31, 2015;
| · | Ps.16,809 million (approximately U.S.$281 million) in assets under management through Supervielle Asset Management Sociedad Gerente de FCI S.A.; |
| · | Ps.12,520 million (approximately U.S.$209 million ) in assets under management through InvertirOnline; |
·Ps. 53.2 billion in total assets as of December 31, 2016, compared to Ps.33.0 billion in total assets as of December 31, 2015;
·Ps. 35.3 billion in loans to the private sector and Ps.1.5 billion in financial leases as of December 31, 2016, compared to Ps.20.6 billion in loans to the private sector and Ps.1.1 billion in financial leases as of December 31, 2015;
·Ps. 631.2 million in senior bonds and participation certificates in financial trusts (which held Ps.1.5 billion in personal loans and financial leases) created in connection with our securitization transactions as of December 31, 2016, compared to Ps.1.4 billion in senior and subordinated bonds and participation certificates in financial trusts (which held Ps.2.8 billion in personal loans and financial leases) created in connection with our securitization transactions as of December 31, 2015;
·Ps. 35.9 billion in deposits, including Ps.33.3 billion from the private sector, Ps. 9.3 million from the financial sector and Ps.2.6 billion from the non-financial public sector as of December 31, 2016, compared to Ps.23.7 billion in deposits, including Ps.22.3 billion from the private sector, Ps.251.0 million from the financial sector and Ps.1.2 billion from the non-financial public sector as of December 31, 2015;
·Ps.6.9 billion in shareholders’ equity as of December 31, 2016, compared to Ps.2.4 billion in shareholders’ equity as of December 31, 2015; and
·4,982 employees as of December 31, 2016, compared to 4,843 employees as of December 31, 2015.
| · | Ps.1,781.2 million in gross written premiums (approximately U.S.$30.2 million) calculated as of December 31, 2019, through Supervielle Seguros S.A. for the year ended December 31, 2019; and |
| · | Ps.630.4 million in net revenue (approximately U.S.$10.5 million), through Espacio Cordial Servicios S.A., our retail non-financial products and services, for the year ended December 31, 2019. |
We have developed a segmentation strategy of our customer base to target the specific needs of each category of customers. Our business model has allowed us to deliver sustained levels
The following charts set forth the breakdown of growthour loan portfolio by segment, and profitability, that accelerated sinceof the specific customer categories in our IPOcorporate banking and capital raise executed in May 2016.retail segments as of December 31, 2019.
| (1) | As of December 31, 2019, the term “small businesses” refers to individuals and businesses with annual sales up to Ps.100 million, the term “SMEs” refers to individuals and businesses with annual sales over Ps.100 million and below Ps.700 million, the term “middle-market companies” refers to companies with annual sales over Ps.700 million and below Ps.2.5 billion and the term “large corporates” refers to companies with annual sales over Ps.2.5 billion. |
The following charts set forth the breakdown of our deposits by type of account and customer category as of December 31, 2019.
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Between 20142017 and 2016,2019, according to financial information made publicly available by the Central Bank and expressed following the Argentine Banking GAAP -nominal historic Peso amounts (i.e.,not adjusted for inflation)- and not including expected loss provisioning, our loan portfolio grew at a CAGR of 38.2%33.6%, as compared to 30.7%31.7% for the Argentine private financial system (excluding public banks). Our ROAE was 37.9%19.1%, 30.8%, 22.7%, 32.2%16.5% and 26.3%22.6% for the
fiscal years ended December 31, 2012, 2013, 2014, 20152017, 2018 and 2016,2019, compared to an average ROAE of 24.4%25.0%, 26.5%, 29.6%, 28.9%33.5% and 27.5%53.4% for the Argentine private financial system over the same periods. We achieved net interest margins of 17.3%20.1%, 16.4%, 17.4%, 18.1%19.4% and 20.6%21.6% for the fiscal years ended December 31, 2012, 2013, 2014, 20152017, 2018 and 2016,2019, which compares favorably to averages for Argentine private financial system of 12.4%13.4%, 12.5%, 14.3%, 19.8%15.3% and 14.9%21.2% for the fiscal years ended December 31, 2011, 2012, 2013, 2014, 20152017, 2018 and 2016,2019, respectively. As of December 31, 2016,2019, we accounted for 4.8%5.0% of all loans and leasing held by Argentine private financial sector (excluding public banks) and 3.4%3.2% of all deposits maintained with suchthe Argentine private financial sector, compared to 3.8% and 3.3%, respectively, in 2012.sector.
Our technology-based sales model enhances our ability to offer customers efficient, high quality service. The Bank has made significant investments in its ATMs, self-service terminals, and self-service terminalcash dispensers with biometric identification network, more than doublingmultiplying by three the network from 2010 to 2016.2019. We were the first bank in Argentina to use biometrics technology as part of our distribution channels. We also have technology scoring systems that allow for an efficient credit-related decision-making process.
Changes in Management
SegmentsIn late 2018, we started to implement changes intended to continue integrating the management of our operations, looking for more agility and flexibility. In February 2019, the CEO of Grupo Supervielle was also appointed CEO of Banco Supervielle, and subsequently, in April 2019, Mr. Alejandro Stengel (already member of our Board of Directors) was appointed as CCO in Banco Supervielle, reporting to the CEO. In addition, certain business areas of Banco Supervielle were redefined, such as the Personal and Business Banking area, Corporate Banking and Products and Communication area, reporting to the COO. Since May 2019, the new area of Personal and Business Banking started to implement a strategic view, focused on individual customers and SMEs, which demand and value close and digital service models. This focus was a transition to January 1, 2020, when the new Personal and Business Banking Division received our SMEs portfolio from the Corporate Banking Division.
The following areas also report to the COO: Technology, Operations and Central Services, Customer Experience and Business Intelligence, and Processes.
The COO also leads the Bank’s digital transformation, ensuring its adequate implementation organization-wide. Digital transformation involves the use of new working methodologies, new technologies and a strong cultural change within the organization. Agile methodologies are implemented in response to current needs, where the willingness to change and the prompt delivery of value are a competitive advantage. Under this methodology, independent and highly efficient work teams are formed with short turnaround times.
Business Segments
We conduct our operations through the following business segments:
| · | Retail Banking; |
| · | Corporate Banking; |
| · | Treasury; |
| · | Consumer Finance; |
| · | Insurance; and |
| · | Asset Management and Other Services. |
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Until December 31, 2019, we offered services to SMEs through our Corporate Banking segment. On January 1, 2020, our Retail Banking segment was named Personal and Business Banking and our SMEs portfolio was transferred to the Personal and Business Banking segment.
Retail Banking: The Bank offers wide range of financial products and services designed to meet the needs of individuals and entrepreneurs and small businesses: personal loans, mortgage loans, unsecured loans, loans with special facilities for project and work capital financing, leasing, bank guarantee for tenants, salary advances, car loans, domestic and international factoring, international guarantees and letters of credit, payroll payment plan (planes sueldo), credit cards, debit cards, savings accounts, time deposits, checking accounts, and financial services and investments such as mutual funds, insurance and guarantees, and senior citizens benefit payments. As part of the organizational changes, since January 1, 2020, SMEs portfolio has been included under the Personal and Business Banking segment.
Corporate Banking: The Bank, through its Corporate Banking segment, works with middle-market companies and large corporates. The customer service model is formed in turn by three commercial managements: AMBA Corporate Banking Management, Interior Corporate Banking Management and Mutual Guarantee Societies Division. The Bank believes that its proximity to its corporate banking customers gives it a competitive advantage. Until December 31, 2019, SMEs portfolio was included under the Corporate Banking segment.
Treasury: It is primarily responsible for the allocation of the Bank’s liquidity according to the needs of the Retail Banking segment, the Corporate Banking segment and its own needs. The Treasury segment implements the Bank’s financial risk management policies, manages the Bank’s trading desks, distributes treasury products such as debt securities, and develops businesses with wholesale financial and non-financial clients. Below is a description of the services offered under this segment:
Consumer Finance: Through CCF and Tarjeta Automática, Supervielle offers credit card services and loans to the middle and lower-middle-income sectors. Product offerings also include consumer loans, credit cards and insurance products through an exclusive agreement with Walmart Argentina, as well as with other agreements with retailers such as Hiper Tehuelche and through Tarjeta Automática branch network. Moreover, through Espacio Cordial, which is reported in the Consumer Finance segment since 2018, Supervielle offers non-financial products and services. Since the MILA acquisition, the new portfolio of used car loans and its respective results are also recorded under Consumer Finance segment.
Insurance: Through Supervielle Seguros, Grupo Supervielle offers insurance products, primarily personal accidents insurance, protected bag insurance, life insurance and integral insurance policies for entreprenuers and SMEs. In 2018 the company incorporated the marketing of special multiple peril policies focused on the entrepreneurs and SMEs segment. Supervielle Seguros is continuously offering new products to the different customer segments of Grupo Supervielle companies: high net worth individuals (Identité), senior citizens, entrepreneurs and SMEs, customers of the Consumer Financing and Corporate Banking segments.
Asset Management and Other Services: Grupo Supervielle offers a variety of other services to its customers, including mutual fund products through Supervielle Asset Management. Since its acquisition in May 2018, Supervielle also offers products and services through InvertirOnline S.A.U. Also since the MILA acquisition, the MILA portfolio outstanding at the moment of the acquisition and its respective results are recorded under Asset Management and Others segment, while the new portfolio of used car loans and its respective results are recorded under Consumer Finance segment.
For more information on our operating segments, see Note 3 to our consolidated financial statements included in this annual report.
· Retail Banking
· Corporate Banking
· Treasury
· Consumer Finance
· Insurance
· Asset Management & Other Services
Products and Services
We offer our products and services in Argentina’s main regions and cities through our main operating subsidiaries, which include:
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| · | Banco Supervielle S.A,. a universal commercial banking institution; |
| · | Cordial Compañía Financiera S.A., a consumer financing company; |
| · | Tarjeta Automática S.A., consumer financing company and distribution network; |
| · | Supervielle Seguros S.A., an insurance company; |
| · | Supervielle Asset Management Sociedad Gerente de FCI S.A., an asset management company; |
| · | Espacio Cordial de Servicios S.A., a retail company selling non-financial products and services; |
| · | InvertirOnline S.A.U. and InvertirOnline.com Argentina S.A.U., an online broker; |
| · | Micro Lending S.A.U., a company specialized in car financing; |
| · | Supervielle Productores Asesores de Seguros S.A., an insurance brokerage Company; and |
| · | Futuros del Sur S.A. (in the process of being renamed Supervielle Agente de Negociación S.A.U.). |
Organizational structure
The following diagram illustrates our organizational structure as of the date of this annual report. Percentages indicate the ownership interest held.
The following information is related to our subsidiaries as of the date of this annual report:
Subsidiary | Jurisdiction of | Name under which the |
| Banco Supervielle S.A. | Argentina | Supervielle |
| Cordial Compañía Financiera S.A. | Argentina | Walmart Servicios Financieros Servicios Financieros Hipertehuelche Pesos Ya |
| Tarjeta Automática S.A. | Argentina | Carta Automática Pesos Ya |
| Supervielle Seguros S.A. | Argentina | Supervielle Seguros |
| Supervielle Asset Management S.A. Sociedad Gerente de Fondos Comunes de Inversión S.A. | Argentina | Supervielle Asset Management |
| Espacio Cordial de Servicios S.A. | Argentina | Cordial |
| Sofital S.A.F. e I.I. | Argentina | N/A |
| Micro Lending S.A.U. | Argentina | MILA |
| InvertirOnline S.A.U. | Argentina | InvertirOnline |
| InvertirOnline.com Argentina S.A.U. | Argentina | InvertirOnline |
| Supervielle Productores Asesores de Seguros S.A. | Argentina | N/A |
| Futuros del Sur S.A. (in the process of being renamed Supervielle Agente de Negociación S.A.U.) | Argentina | N/A |
| Bolsillo Digital S.A.U. | Argentina | N/A |
· Banco Supervielle S.A., a universal commercial banking institution,
· Cordial Compañía Financiera S.A., a consumer financing company,
· Tarjeta Automática S.A., consumer financing company and distribution network,
· Supervielle Seguros S.A., an insurance company,
· Supervielle Asset Management Sociedad Gerente de FCI S.A., an asset management company, and
· Espacio Cordial Servicios S.A., a retail company selling non-financial products and services.
Our Competitive Strengths
We have achieved a strong competitive position in our core products (personal loans, factoring, leasing and social security payments to senior citizens), as well as an importanta strong presence in certain geographical regions in Argentina.
We have developed a leading position in the Argentine market in a number of attractive products to different customer segments.
segments.
We are leaders in the Argentine market in the following areas:
Individual Customers.We maintain leading positions in attractive retail banking and consumer financing segments, offering a variety of products, from·Retail Customers. · personal loans and credit cards to social security payment services to senior citizens. As of December 31, 2016, we had approximately 1.8 million retail customers, accounting for Ps.26.0 billion (approximately US$1.6 billion) in deposits. As of December 31, 2016, the Bank and CCF’s personal loans and credit cards to social security payment services to senior citizens. As of December 31, 2019, we had approximately 1.8 million retail customers, accounting for Ps.59.6 billion (approximately U.S.$995 million) in deposits. As of December 31, 2019, loans to retail customers of the Bank and of CCF represented 7.0% of the Argentine financial private system market for personal loans, which ranked fifth out of 65 private financial institutions in Argentina. Based on information published by ANSES, as of June 30, 2019, the Bank made 13.7% of all monthly social security payments to senior citizens (who collect their payments on a monthly basis). Additionally, we have a leading position as issuer of Mastercard credit cards and the exclusive on-site provider of financial services to Walmart Argentina customers, with a contract extended through August 2020 (and a renewal currently being negotiated).· Corporate Customers. We are also a leading provider of specially tailored financial services and products to the corporate sector, with a particular focus on SMEs and middle-market companies. As of December 31, 2019, we had a 19.9% market share in leasing, ranking second out of 50 private banks in Argentina, according to our estimates based on Central Bank information. As of December 31, 2019, we had a 9.5% market share in factoring in terms of Argentine private banks. · Capital Markets. We have a leading position in Argentine capital markets, which we have developed as part of our funding strategy. Since our IPO and after the expansion of our capital base, we have reduced securitization of our originated assets, and intend to take advantage of our capital markets capabilities and expertise to serve corporate customers in connection with capital markets transactions. In 2019, however, the macroeconomic conditions were volatile and affected by high inflation, high interest rates, uncertainty and an increased country risk index, which made it difficult for companies to issue debt instruments. However, we continued participating in the debt market in the issuance of certain third party corporate bonds and financial trusts. Additionally, during 2019, the area provided advice to different companies on valuations and mergers and acquisitions.
Leading position in certain geographical regions in Argentina. being one of the Argentine private banks market for personal loans, which ranked fourth out of 65 private financial institutionsmost active players in Argentina. In December 2016, the Bank managed 12.3% of all monthly social security payments to senior citizens (who collect their payments on a monthly basis), ranking first among Argentine private banks. Additionally, we are the largest private issuer of MasterCard credit cardsCuyo region and with billing statements and the exclusive on-site provider of financial services to Walmart Argentina customers, with a contract extended through August 2020, renewable at expiration.
·Corporate Customers. We are also a leading provider of specially tailored financial services and products to the corporate sector, with a particular focus on SMEs and Middle-Market Companies. As of December 31, 2016, we had a 12.7% market share in leasing, which ranked fourth out of 50, according to our estimates based on Central Bank information. In 2016, our leasing market share was 13.1% when taking into account the securitized leasing portfolio. As of December 31, 2016, we had a 6.9% market share in factoring in terms of Argentine financial system.
·Capital Markets. We have a leading position in the Argentine capital market, whichterms of our banking network
| · | Mendoza: We have a leading position in the Province of Mendoza, where as of December 31, 2019 we had 198,000 customers and a market share of loans and deposits among private banks of 21.2% and 7.1%, respectively. In terms of banking network we have 27 branches out of a total of 180 bank branches in the province and 7 collection centers. |
| · | San Luis: We have a leading position in the Province of San Luis, where as of December 31, 2019 we had 192,000 customers and a market share of loans and deposits among private banks of 49.6% and 62.8%, respectively. In terms of banking network we have 24 branches out of a total of 50 bank branches in the province and 6 collection centers. |
Solid sources of funding
We have developedtraditionally had access to diversified, competitive and stable sources of funding. Our low cost demand deposit base comprises 49% of our funding base as part of the Bank’sDecember 31, 2019 (33% savings accounts, and CCF’s funding strategy. In 2016, we had a 20.6% share in bank asset securitization and a 4.7% share in the overall Argentine asset securitization market16% checking accounts) while our franchise allowed us also to capture interest bearing deposits according to our own estimates basedtreasury management liquidity needs.
We occasionally use medium-term debt securities and securitization operations of consumer loans among our funding strategies. Additionally, our consolidated pro forma Tier I ratio was 11.4% as of December 31, 2019 and we have maintained at the holding company level, excess liquidity for future capital injections to our subsidiaries in order to fund our growth strategy.
Creation of value for shareholders through the implementation of prudent financial risk management policies and the primary focus on the intermediation activities.
Along the years, we have generated value and strong growth, while managing financial risks under policies designed to protect our capital and liquidity. In the past, in addition to our organic growth, we have successfully acquired and integrated strategic businesses. We have consistently limited our exposure to the non-financial public sector and limited term, currency and other mismatches in our assets and liabilities. We strategically decide to have high proportion of loans over total assets to derive our net income primarily from financial intermediation activities rather than from trading or financial investments, which has resulted in more stable sources of income and reduced the exposure of our earnings to market volatility. Since mid 2018, following the sudden changes in the macroeconomic conditions, and the consequent decline in credit demand, cash minimum reserve requirements were extraordinarily increased (some of such reserves being allowed to be set up in Central Bank and CNV information. In 2016,short term securities). Therefore,, we had Ps. 3.1 billion (approximately US$199 million)opportunistically increased our holdings in securitization and bond issuances forCentral Bank short term securities applying our subsidiaries, and Ps.1.6 billion (approximately US$98 million) in securitization and bond issuances for third parties. Sinceexcess liquidity, decreasing our IPO and after the expansionproportion of our capital base, we have reduced securitization of our originated assets, and intend to leverage our capital markets capabilities and expertise to serve corporate customers in connection with capital markets transactions.loans over total assets.
Access to multiple customer segments through differentiated brands and channels positions us to capture future growth in the Argentine financial system.
We target a broad spectrum of socioeconomic segments and companies of varying sizes using a multi-brand model to offer a wide range of financial services. The Bank offers customized financial products and services to corporate clients in SMEs and middle-market companies, as well as to high net worth and middle-income individuals and to middle and lower-middle-income senior citizens. CCF and Tarjeta focus their products and services on the middle and lower-middle-income segments of the urban population. Our multi-brand model allows us to access segments of the population that are underserved and we believe offer growth opportunities.opportunities once the macroeconomic conditions in Argentina stabilize.
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We consistently seek to leverage the strong cross-selling potential of our multi-brand and multi-channel business model and our stable pool of overalmost two million customers.
Through our multi-brand and multi-channel approach, we are able to cross-sell and create synergies across our segments. Bancassurance specifically allows us to cross-sell value added insurance products in compliance with the regulations of the National Superintendency of Insurance (Superintendencia de Seguros de la Nación) and of the Central Bank, as applicable. Additionally, our 127 consumer finance points of saleWe offer an attractive platform for cross-selling certain credit cards and loans.loans through 113 consumer finance points of sale as of December 31, 2019 (compared to 114 consumer finance points of sale as of December 31, 2018). We cross-sell non-financial services and products such as insurance products and plans, tourism packages, health insurance and health services, electric appliances and furniture, and alarm systems through Espacio Cordial and our senior citizens’ dedicatedcitizens branches.
We believe our investment in developing a strategic national footprint positions us to capture strongprofitable growth and benefit from economies of scale.scale, once credit demand resumes.
Through the Bank, wewe have a focused presence in Argentina’s major regions and cities where the GDP per-capita is above US$12,000, and throughcities. Through our consumer finance business, we have presence in all the provinces of Argentina. WeThrough our current infrastructure, we serve our customers through 320316 access points including 176 bank branches, 13 banking payment and sales and collection centers, 79 consumer finance, branches and access points within Walmart stores, 494Tarjeta’s 34 consumer finance sales points through other retailers, 5 MILA customer support offices, a network of 393 car dealers and 536 ATMs, 167 self-service217 self service terminals and 202 cash dispensers with biometric identification, our call center and home banking and mobile services. The Bank has an important presence in the City of Buenos Aires and the Greater Buenos Aires metropolitan area (where approximately 15.620.3 million or 39%46% of Argentina’s population resides), through 109113 branches and 1 collection center, and CCF has 2227 sales points within Walmart locations.locations in the City of Buenos Aires and Greater Buenos Aires. The Bank is also one of the most active players in the Cuyo region, which includes the Province of Mendoza, San Juan and San Luis where it operates through 50 branchesand seventeen52 branches, 1 mobile branch and 13 collection centers. We haveThe Bank has approximately 264,000198,000 active customers in Mendoza and approximately 196,000192,000 in San Luis. CCF has seveneight sales points in the Cuyo region. Through Tarjeta, distribution platform weWe offer consumer finance services through our Tarjeta distribution platform mainly in the Patagonia region, where we rely on 1520 branches and 3814 sales and collection centers.
We complement our existing physical network by offering solutions through our different digital channels such as our Online Banking platforms for Business and for Individuals, the Supervielle Mobile and the specific apps and solutions developed for different business segments such as the app for retirees, the Walmart app, and chatbots. We also offer products and services through InvertirOnline.com, our online broker with more than 51,800 active customers located countrywide.
Given the strength of our network in commercially significant and high-incomehigh income regions in Argentina, we believe we are well positioned to benefit from economies of scale by leveraging our existing network and growing our revenues without significant investments in additional expansion of our platform.
Our funding base is robust.
We have access to diversified, competitive and stable sources of funding. Our low-cost demand deposit base comprises 39% of our funding base (26% of savings accounts and 12.3% of checking accounts as of December 31, 2016). Furthermore, we use medium term bonds and securitization of consumer finance loans among our funding strategies.
Creation of shareholder value under prudent financial risk management policies and main focus in intermediation activities.
We have generated value and strong growth for our shareholders, while managing financial risks under policies designed to protect our capital and liquidity. In addition to our organic growth, we have successfully acquired and integrated strategic businesses. We have consistently limited our exposure to the non-financial public sector and limited term, currency and other mismatches in our assets and liabilities. We have a high proportion of loans over total assets, and derive our net income primarily from financial intermediation activities rather than from trading or financial investments, which has resulted in more stable sources of income and reduced the exposure of our earnings to market volatility.
Long-standing presence in Argentina’s financial sector, committed controlling shareholder and experienced Board of Directors and management team.
Through our main subsidiary, the Bank, we trace our origins to the banking house Supervielle y Cía. Banqueros, established in 1887. Our long-standing presence in Argentina’s financial sector has allowed us to establish strong long-term relationships with our customer base, build a reputation for personalized customer service and establish the Supervielle brand as a recognized household name in the Argentine banking industry for both individuals and corporations, as well as in the securitization and corporate bond segments of the local capital markets. Our controlling shareholder has a strong commitment to the Argentine financial system. Julio Patricio Supervielle is the Chairman of the Board of Directors and our CEO and has led Grupo Supervielle for near 15over 18 years. During his tenure, we have experienced growth in terms of net worth, assets, deposits and our network, and we have successfully completed some of our most significant acquisitions. We rely on a Board of Directors whose members collectively have extensive experience in retail and commercial banking, a deep understanding of local business sectors and strong capabilities in risk management, finance, capital markets, M&A and corporate governance. In addition, our stable senior management team is comprised of seasoned officials and experts in their fields that foster a business culture of high performance.
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Our Vision and Strategy
We seek to become the premier bank for individuals and companies in Argentina and to provide a superior banking experience to our customers at all times. In order to achieve our objective of providing best in class customer service, we strive to continuously innovate and optimize our policies and processes by leveraging our long-standing reputation, effective customer segmentation, multi-brand strategy, extensive distribution network and strong digital footprint.
We believe that our success is based on our people. We have developed a strong culture based on shared values: leadership, innovation, simplicity, efficiency, commitment and respect.
The Argentine market is one of the least developedpenetrated financial systems in Latin America, with a fragmented, competitive landscape. We believe that the Argentine market offershas significant underused financial infrastructure, in the form of checking and savings accounts, but also good mobile and internet penetration levels. This situation presents a number of growth opportunities whichopportunities. We believe we are positioned to capture these growth opportunities given our focus on a distinguisheddifferentiated customer experience, our product offering, ourofferings, extensive distribution network and our leading technology.
We aimEven though we ran into external headwinds during 2019, we remained focused on executing our strategy to increasestrengthen our market share of the overall Argentine financial services market by delivering tailored value propositions in each ofbrand and improve operating performance. The following items are the key business segments in which we operate: Retail Banking, Corporate Banking, Treasury, Consumer Financing, Insurance and Asset Management and Other Services. We intend to focus on entrepreneurs and small businesses and SMEs, which we believe is a dynamic and underserved sector of the economy. Here, we believe the key factors we should continue to focus on as partcomponents of our strategy for this sector are agile time to cash, credit scoring methodology, strong processes and customizedstrategy:
1. Digital transformation
2. Enhance value proposition for particular sub-segments, including transportation, real estate, education, professional servicesour target segments
3. Increase customer acquisition and franchises.cross selling
4. Streamline operations
We follow a holistic approach5. Develop new products and businesses to mortgage underwriting as we seek to become one of the market leaders in this segment. This includes alliances with real estate developers, a competitive value proposition and an exclusive agreement with the portal Zona Prop.
expand our franchise
The key components of our strategy are as follows:described below:
Transform our company into a modern, leading edge, cost efficient player and position our business to serve consumer’s evolving needs and aspirations
We have made significant progress on digital transformation. Increasingly, customers want and expect to engage with us anytime from anywhere. Our digital strategy is aimed at responding to that demand. We have a three-pronged approach:
| · | Transformation of core businesses (banking, consumer finance and insurance) to enhance customer experience, agility and efficiencies. For example, we recently launched a groundbreaking senior citizens app which addresses their transactional needs and launched a 100% digital onboarding platform for new customer acquisition. |
| · | Development of digital attackers to broaden access to financial services. This includes Invertir Online, our online broker, and a new digital brand to be launched in the coming months which will refocus our strategy in the consumer finance business and allow acquisition of multisegment clients with full digital financial services. |
| · | Development of a new system by building traffic from financial services into new platforms enhancing and deepening customer engagement. |
Increase our market presence inamong attractive customers through an effective segmentation strategy and strengthened value proposition
We continue to strengthen and improve the customer segments andexperience. We are working hard to give customers new ways to connect with us. Additionally, we are consistently adding new products and strengthenservices which increase our value proposition through an effectiveto customers. A few to mention include: insurance products for entrepreneurs and small businesses, online FX purchases within InvertirOnline which has enabled us to almost triple our customer segmentation strategybase for this subsidiary, and the refocusing and re-profiling of the car sales platform deautos.com. These are just a few examples of the initiatives that we believe will enable us to grow our customer base as well as drive cross-selling opportunities.
We seek to increase revenues from each of our target customer segments through cross-selling strategies and as described below:enabled by customer relationship management:
Middle and lower-middle-income population: This segment has one of the lowest banking penetration rates in Latin America and represents an important opportunity to attract new customers. Our exclusive agreements with Walmart Argentina and Hipertehuelche stores position us to reach this segment with a powerful value proposition, particularly consumer finance loans and credit cards. This customer base also offers opportunities for cross-selling of other banking products. Additionally, we continuously analyze opportunities for new product launches to serve this segment as well as opportunities to forge new alliances with other retailers.
High net worth customers:customers: We successfully launched the Identité brand in 2014 with an attractive value proposition designed to capture and monetize the high net worth customer segment. That value proposition includes a wide range of components like premium credit cards, loyalty programs and exclusive events for customers. To reach high net worth individuals, the bank leverages three key assets: a premium, differentiated brand, a highly trained workforce and an excellent branch network in high income neighborhoods.
Senior citizens:citizens: We intend to maintain our leadership position in the senior citizen segment, providing unique services and benefits catered to its specific needs. Leveraging our network of specialized service centersbranches we seek to expand our credit card and personal loan business, finance travel packages and consumer goods and services, and distribute insurance products, including life, burial, health, personal accident insurance and home insurance. This segment is adopting technology rapidly, which we anticipate will increase efficiency of service delivery.
Middle and lower-middle-income population: This segment has one of the lowest banking penetration rates in Latin America and represents an important opportunity to attract new customers. CCF’s exclusivity agreements with Walmart Argentina and Hipertehuelche Supermarkets position us to reach this segment with a powerful value proposition, particularly consumer finance loans and credit cards. This customer base also offers opportunities for cross-selling of other banking products. Additionally, we continuously analyze opportunities for new product launches to serve this segment, as well as opportunities to forge new alliances with other retailers.
Entrepreneurs and Small Businesses:Businesses: We aim to continue to expandat continuing expanding our market share within our customer base of entrepreneurs and small businesses. We intend to leverage our branch network as a primary means of attracting business and focus on building our customized cash management services.
SMEs and Middle-Market Companies: Our aim is to become the premier bank for SMEs and Middle-Market Companies by deploying outstanding transactional and cash management services. We intend to developcontinue developing strategic partnerships with key industry players to provide financial services through direct lending or factoring transactions to their critical providers and suppliers along their value chains. We willintend to target specific opportunities and customers
in the agroindustry sector, energy, and infrastructure and construction sectors and in some additionalother specific segments.sectors. With respect to the agroindusrialagri-industrial sector, we strive to deepen our existing relationships with leading industry players, providing financing to their customer base. In San Luis, Mendoza, and Tucumán, where we have a well-established distribution base, we intend to continue to targettargeting clients and value chainchains related to itstheir main regional economies. With respect to the wine industry, we seek to continue to developdeveloping partnerships with premium wine producers and key industry suppliers. With respect to the energy and infrastructure sectors, we target SMEs and Middle-Market Companiesmiddle-market companies along the supply chains of oil and gas (exploration and production),and renewable energies projects and medium and large construction companies.energy projects.
LargeMiddle markets and large corporate customers: We intend to offer a full range of products and services, including financial advice,advisory, transactional services, treasury management, short, medium and long term financing to the middle market and large corporate customers thanthat we have historically targeted. We aim to achieve this goal through quick decision-making with respect to our credit evaluation process, personal attention, increasing transactional services (such as check maintenance, payroll management, payments to suppliers and tax payment services) and building upon our cash management products, payroll management and other products that translate into higher balances of immediately available deposits. As we follow a customized approach across the value chain, suppliers and clients of our Largelarge corporate customers will be another source of SMEs clientsclient origination for the bank.
Leverage our proximity to customers through our extensive distribution network of branches service centers and sales points to provide a superior customer experience
We have a direct presence in Argentina’s major regions and cities. The Bank has a particularly important presence in the Greater Buenos Aires metropolitan area and the Cuyo region, which includes the provinces of Mendoza, San Juan and San Luis. Given the geographical concentration of our network in commercially significant and high-income regions in Argentina, we believe we are well positioned to benefit from economies of scale by growing our revenues without significant investments in additional platform expansion.
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We intend tomay selectively expand the bank’sBank’s network of branches, emphasizing services for high net worth and upper-middle-incomeupper-middle income individuals, and small businesses and SMEs, focusing inwith a focus on the City of Buenos Aires and the greaterGreater Buenos Aires metropolitan area.
We intend to grow the number of hub and spoke sales units specialized in leasing, foreign trade financing and cash management services.
We will build upon our leadership position in retail and corporate banking services in the provincesProvinces of Mendoza and San Luis.Luis. We plan to continue our partnerships with premium retail stores and shopping outlets to obtain differentiated discounts and benefits for our retail customers, relying on our existing network, which is the largest in the Cuyo region.
We aim to increase our access to non-banking customers, by developing partnerships with key medium-sized retailers across the country to provide banking services along the lines of our existing alliance with Walmart Argentina.
We plan to continue to expand our dedicated sales force with a focus on new entrepreneurs, small businesses and payroll services, to drive revenues and cross-selling ratios.cross-selling.
We intend to seek new strategic partnerships in the agribusiness sector to provide financial services to leading national and international players catered to their customer base. We plan to broaden our offering of commodity warrants and livestock leasing, leveraging our strong market leadership in San Luis and Córdoba, in the north of Argentina.rdoba.
Continue capitalizing on synergies by developing new businesses to increase our share of wallet
Our nearly two million customers provide a base from which to expand our share of wallet and increase customer loyalty. The Bancassurance business allows us to cross-sell historically profitable and low-claims products to our existing customer base. We have access through our distribution networks and aim to further develop our Bancassurance
bancassurance distribution model by expanding the variety of insurance products offered by Supervielle Seguros. Espacio Cordial allows us to reach our clients with a wide variety of non-financial products and services, including travel and home appliance financing and health services. Moreover, as mentioned above, we are developing digital attackers to broaden access to financial services. This includes Invertir Online, our online broker, and a new digital brand to be launched in the coming months which will refocus our strategy in the consumer finance business and allow acquisition of multisegment clients with full digital financial services. We are also developing a new system by building traffic from financial services into new platforms enhancing and deepening customer engagement.
Grow our balance sheetstatement of financial position while maintaining our conservative risk management policies
Over the past 15 years we have differentiated ourselves from our competition by systematically securitizing assets, becoming the leader in Argentine capital markets in this segment. Since our IPO and after the expansion of our capital base, we have reduced securitization of our originated assets relative to our total assets, and we have been growinggrew systematically above industry growth levels.levels until the loan demand slowdown and the sudden macroeconomic backdrop.
Our conservative financial policies based on a diversified deposit base, low portfolio concentration, short term high liquidity and low interest rate, term and currency mismatches have allowed us along the years to build a strong franchise in retail and corporate banking. Since the IPO, we increased our deposits following the pace of loan growth, and we will continue to cross-sell to retail and consumer customers and attract cash management deposits from corporate clients. We also intend to continue to access long-term funding from the international capital markets as the Bank did in February 2017 through the issuance of a Peso denominated 3.5 years floating rate note for the equivalent amount of U.S.$300 million.
ImproveContinue to improve our efficiency by focusing on innovation and technology
We will seek to increase commercial productivity by optimizing sales time using onlineredesigning processes with two goals: (i) making life simpler for our clients and mobile banking, salesenhancing customer experience and collection centers, streamlining risk assessmentsatisfaction, and CRM technology. We also plan(ii) extending processes automation to continue working with world-class business intelligence tools to increase sales productivity and to improve relationships with clients through better predictive sales actions and communications.achieve greater efficiency.
Our strong culture of innovation supports our constantly keeping abreast of customer needs and global trends, creating and efficiently implementing solutions focused on local customer preferences.
We intend to expand our digital banking channel and online banking platform.channels. Our goal is to offer an outstanding digital experience to our clients. We intend to continue to increaseincreasing the number of active online users and to migratemigrating our services to digital channels, which we expect will allow us to increase low-cost distribution and convert service centers into full bank branches. We also intend to continue launching mobile banking applications, which will enable “one click” payment and “one click” loan functionalities, with anytime and everywhere financial services and provide alerts and messages to customers in order to achieve cost efficiencies through low-cost social network advertising.
We have significantly improved the digital experience of our factoring product line, cash management and payroll services.
We expect the future of financial services and introduced “iFactus,”to be marked by a transformation towards a digital business model. The challenge for organizations is to optimize the first portal providing electronic factoringtechnological innovation of traditional banking to attract new consumers of financial services, and “e-Factoring,” an electronic platform which allows for check scanning and electronic delivery towith the aim of creating the bank of tomorrow, today.
As a further step towards the acceleration of Supervielle’s digital transformation, during 2018 we hired a top management consulting firm to boost our approach. The core idea relies on simple and modular propositions for immediate deposit, custody or discounting, with deferred physical delivery.
In 2016, we created the Digital Innovation Unit. Ongoing technological evolution has given riseselected customer episodes. Those value propositions will seek to a digital revolution which has a deep impactdesign in the financial system. Changes infollowing years an agile operating model and methodology (“Agile”) for each relevant customer preferences indicate profound changesprofile as a way of working for customer-centric change based on digital adaptable and radically lower cost IT and Operations environment. As a counterpart, our funding, growth and efficiency targets will be benefited. Therefore, during 2019, the Agile methodology began to be implemented as a work tool, which generated significant benefits in the Banking industry in the future. With thisbusiness development, leading to better results. Interaction and communication gave members a comprehensive view the Digital Innovation Unit aims at establishing a deep and dynamic research process for the creation of value for new generations and profiles of users. The Digital Innovation Unit participates in the development of new tools (products or services) generated internally and/or with the participation in the so-called FINTECH companies.
In this context, the following services for the Bank’s clients were generated in 2016:
Chat Banking. Our clients can make enquiries about their bank accounts or cards through Facebook Messenger, without having to leave the Bank’s Home Banking website. This simplifies the communication between the Bank and its clients.
App Supervielle Cheques. The creation of a mobile app that allows the clients to discount or deposit checks with a simple photo, without the need to be present in a branch of the Bank. This improvesneeds and restrictions so as to establish clear targets, design the clients’ experience as they can avail themselvesbest actions and favor the speed of funds without waitingimplementation of required changes. The service model continued changing, striking a balance between maximum contact efficiency (through autonomous management channels and without having to leave their job places.
Additionally, Banca Digital evolves as a business opportunitypersonalized services) and service levels required by each customer profile and each strategic segment of Banco Supervielle within the aforementioned digital revolution, and we intend to continue leveraging on the concepts of creativity and innovation with respect to mobile banking. The launch of Supervielle MóvilSupervielle. Agile teams developed projects for the IOS and Android platforms has afforded over 90% growth in the number of users. We recently added functions such as Purchase and Sale of foreign currency and making a Time Deposit at a preferential rate.
Over 160,000 users to opt for Home Banking when making transactions. Today, customers are able to check the holdings of Bonds and Shares, create a Todo Pago virtual wallet or purchase a household appliance from Tienda Supervielle from their homes. We intend to continue to meet the needs of theour different segments expanding the spectrum of transactions available.and products.
In addition, the Walmart Tarjeta App and the Carta App were launched for the clients of CCF. For Grupo Supervielle’s Consumer portfolio (CCF), apps were developed for the clients of Tarjetas Walmart and Tarjetas Carta Automática. Thus, clients can quickly access information about their Consumption, Balances and Due Dates.
With respect to the implementation of biometric identification technology in the financial system, we continue to invest in the upgrade of the existing system to be compatible with new regulatory requirements. Currently, the Bank’s senior citizens can interact with a totally renewed fleet of over 240 biometric terminals, with touch technology and a friendly design.
We also intend to increase our offering of transactional services, such as factoring operations, foreign trade and cash management services (check maintenance, payroll management, payments to suppliers and tax payments).
Segment Reporting during 2019
The following table sets forth the breakdown of our net revenue and net income by segment for the periods indicated.
| As of December 31, 2019 | ||||||||||||
| Segment | Net Revenue | Percentage | Net (Loss) / Income | Percentage | ||||||||
| (in thousands of Pesos) | ||||||||||||
| Retail Banking | 14,258,024 | 41.6% | (1,463,278 | ) | 60.3% | |||||||
| Corporate Banking | 13,749,864 | 40.1% | (1,157,277 | ) | 47.7% | |||||||
| Treasury | 771,834 | 2.3% | 1,359,906 | (56.0% | ) | |||||||
| Consumer Financing | 3,047,064 | 8.9% | (1,088,408 | ) | 44.8% | |||||||
| Insurance | 1,589,658 | 4.6% | 22,377 | (0.9% | ) | |||||||
| Asset Management and Other Services | 872,600 | 2.5% | (101,689 | ) | (4.2% | ) | ||||||
| Total Allocated to Segments | 34,289,044 | 100.00% | (2,428,369 | ) | 100.00% | |||||||
| Adjustments(1) | 374,965 | 274,747 | ||||||||||
| Total Consolidated | 34,664,009 | (2,153,622 | ) | |||||||||
| (1) | Includes financial expenses incurred by Grupo Supervielle at the holding level in connection with its funding arrangements the net interest income received from the investment of liquidity at the holding company, as well as transactions between segments. |
|
| For the year ended |
| ||||||
Segment |
| Net Revenue |
| Percentage |
| Net Income |
| Percentage |
|
|
| (in thousands of Pesos) |
| ||||||
Retail Banking |
| 5,183,741 |
| 58.0 | % | 362,562 |
| 27.7 | % |
Corporate Banking |
| 1,123,685 |
| 12.6 | % | 337,174 |
| 25.8 | % |
Treasury |
| 534,402 |
| 6.0 | % | 162,902 |
| 12.5 | % |
Consumer Financing |
| 1,238,605 |
| 13.9 | % | 67,682 |
| 5.2 | % |
Insurance |
| 528,199 |
| 5.9 | % | 252,402 |
| 19.3 | % |
Asset Management & Other Services |
| 330,229 |
| 3.7 | % | 124,773 |
| 9.5 | % |
Total Allocated to Segments |
| 8,938,861 |
| 100 | % | 1,307,495 |
| 100 | % |
Adjustments(1) |
| 42,192 |
|
|
| 3,809 |
|
|
|
Total Consolidated |
| 8,981,053 |
|
|
| 1,311,304 |
|
|
|
(1) Includes financial expenses incurred by Grupo Supervielle at the holding level in connection with its funding arrangements the net interest income received from the investment of liquity at the holding company, as well as transactions between segments.
The following graphs set forth the breakdown of our net revenue and net income by segment before adjustments as of December 31, 2016.
The following table sets forth the breakdown of our assets by segment as of December 31, 2016.2019.
| As of December 31, 2019 | ||||||||||||||||||||||||
| Retail Banking | Corporate Banking | Bank Treasury | Consumer Finance | Insurance | Asset Management and Other Services | Adjustments | Consolidated Total | |||||||||||||||||
| (in thousands of Pesos) | ||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||
| Cash and due from banks | 7,691,602 | 1,022,915 | 16,870,526 | 321,145 | 3,385 | 2,420,972 | (1,927,446 | ) | 26,403,099 | |||||||||||||||
| Debt Securities at fair value through profit or loss | — | — | 312,306 | 92,762 | — | 163,433 | — | 568,501 | ||||||||||||||||
| Loans and other financings | 36,757,453 | 43,426,550 | 3,720,408 | 5,036,973 | 453,978 | 30,746 | (1,416,097 | ) | 88,010,011 | |||||||||||||||
| Other assets | 2,525,566 | 1,335,130 | 17,533,288 | 2,975,202 | 1,091,343 | 538,602 | 7,703,949 | 33,703,080 | ||||||||||||||||
| Total Assets | 46,974,621 | 45,784,595 | 38,436,528 | 8,426,082 | 1,548,706 | 3,153,753 | 4,360,406 | 148,684,691 | ||||||||||||||||
|
| As of |
| ||||||||||||||
|
| Retail |
| Corporate |
| Bank |
| Consumer |
| Insurance |
| Asset |
| Adjustments(1) |
| Consolidated |
|
|
| (thousands of pesos) |
| ||||||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
| 1,718,821 |
| 161,375 |
| 6,208,483 |
| 78,394 |
| 3,807 |
| 6,800 |
| (11,548 | ) | 8,166,132 |
|
Government and corporate securities |
| — |
| — |
| 2,247,370 |
| 8,594 |
| 104,080 |
| — |
| — |
| 2,360,044 |
|
Loans |
| 13,869,169 |
| 16,958,277 |
| 1,352,717 |
| 4,403,552 |
| — |
| 193,915 |
| (1,521,121 | ) | 34,896,509 |
|
Other receivables from financial transactions |
| 174,633 |
| 317,461 |
| 1,639,240 |
| 439,471 |
| 284,796 |
| 179,115 |
| 738,020 |
| 3,772,736 |
|
Receivables from financial leasing |
| 266,305 |
| 1,261,942 |
| 7 |
| — |
| — |
| — |
| (399 | ) | 1,527,855 |
|
Other assets |
| 252,895 |
| 50,482 |
| 169,732 |
| 564,484 |
| 68,992 |
| 121,706 |
| 1,254,475 |
| 2,482,766 |
|
Total Assets |
| 16,281,823 |
| 18,749,537 |
| 11,617,549 |
| 5,134,495 |
| 461,675 |
| 501,536 |
| 459,427 |
| 53,206,042 |
|
(1)Includes elimination of inter-segment loans and assets not directly allocated to a single segment, such as unlisted equity investments, miscellaneous receivables, premises and equipment, miscellaneous assets and intangible assets.
|
| As of |
| ||||||||||||||
|
| Retail |
| Corporate |
| Bank |
| Consumer |
| Insurance |
| Asset Mgmt |
| Adjustments(1) |
| Consolidated |
|
|
| (thousands of pesos) |
| ||||||||||||||
Securitized Portfolio |
| 819,250 |
| 46,410 |
| — |
| 547,867 |
| — |
| — |
| — |
| 1,413,427 |
|
Loan portfolio on Balance |
| 14,135,474 |
| 18,220,219 |
| 1,352,724 |
| 4,043,552 |
| — |
| 193,915 |
| (1,521,520 | ) | 36,424,364 |
|
Total Assets |
| 14,954,724 |
| 18,266,629 |
| 1,352,724 |
| 4,591,419 |
| — |
| 193,915 |
| (1,521,520 | ) | 37,837,791 |
|
| (1) | Includes elimination of inter-segment loans and assets not directly allocated to a single segment, such as unlisted equity investments, miscellaneous receivables, premises and equipment, miscellaneous assets and intangible assets. |
The following table sets forth the breakdown of our active customers in 2019 and 2018.
| Active Customers | ||||||
| As of December 31, | ||||||
| 2019 | 2018 | |||||
| Retail Banking | 1,402,562 | 1,403,460 | ||||
| Corporate Banking | 4,981 | 4,934 | ||||
| Consumer Financing | 357,900 | 397,440 | ||||
InvertirOnline | 51,829 | 16,994 | ||||
| MILA | 14,268 | 18,988 | ||||
| Total | 1,831,540 | 1,841,816 | ||||
Retail Banking
Retail Banking segment.The BankBank’s Retail Banking segment offers its retail customers a wide range of bankingfinancial products includingand services designed to meet the needs of individuals and entrepreneurs and small businesses: personal loans, short termmortgage loans, unsecured loans, loans with special facilities for project and work capital financing, leasing, bank guarantee for tenants, salary advances, securedpledge loans, domestic and international factoring, international guarantees and letters of credit, payroll services through Plan Sueldo,payment plan (planes sueldo), credit cards, debit cards, savings accounts, time deposits, and checking accounts, as well as financingand financial services and investments such as mutual funds, insurance coverage,and guarantees, and benefits payments to senior citizens benefit payments. Until December 31, 2019, we offered services to SMEs through our Corporate Banking segment. On January 1, 2020 our SMEs portfolio was effectively transferred to the Retail Banking segment, which has been renamed as our Personal and pensioners, among others.Business Banking segment.
To promote digital transformation, focus was placed on development and strengthening of autonomous management channels, with special emphasis on digital contact channels. Face to face automatic platforms continued expanding, supported by biometric assistance, marking the beginning of a radical change in the daily operations of customers. Digital platforms were strongly boosted thanks to developments focused on increasing their capabilities, both in assistance and in credit supply and product marketing, seeking a greater agility in operations and an improvement in the customer’s perception in respect of the Bank.
With the aim of accelerating digital transformation, during 2019, we started implementing the Agile methodology as a work tool, which generated significant benefits in the business development, leading to better results. Interaction and communication gave members a comprehensive view of the needs and restrictions so as to establish clear targets, design the best actions and favor the speed of implementation of required changes.
The service model continued changing, striking a balance between maximum contact efficiency (through autonomous management channels and personalized services) and service levels required by each customer profile and each strategic segment of Banco Supervielle.
Based on the assessment of their distinctive features, their needs and specific requirements, the Bank’s customers are grouped in four strategic groups which are further described below: (i) SMEs customers, composed of natural persons engaged in commercial activities, small one-person ventures and small and medium sized companies with a billing lower than Ps.700 million per year, (ii) Identité customers, which gathers natural personas belonging to serial ACB1 segments, (iii) personal customers, which includes individual customers with no commercial activities (not included in the Identité segment), and (iv) senior citizens customers, which includes senior citizens who are paid their pension benefits through the Bank.
| · | Personal customers. Agile teams developed projects focused on the generation of open market and wage salary payment plan customers. In addition, work was done on the readjustment of processes for customers of the segment to have a better experience in their relationship with the Bank and more focused on the agility of digital operations. Moreover, campaigns were launched to encourage digitalization, and value propositions and benefits were communicated digitally to customers for the development of self-management channels, through the placement of products transactions and other customer transactions. |
46
| · | Identité customers (High Net Worth Customers). We offer our high net worth customers exclusive services such as priority access to our branches with minimal waiting time, concierge services, exclusive back offices for conducting banking activities, dedicated customer service representatives at the call center, a remote investment center and dedicated locations at our branches. |
In 2019, this segment established three strategic pillars for business development: funding, customer base growth and profitability.
Products and services are tailored to the needsAs part of the different segments with whichprofitability strategy, tools were used to strengthem the bank works, focused on continuous improvement of customers’ experience. Two of our more strategic segmentsidea that we are the small companies,
groupedfirst-choice bank in Emprendedores & Pymes (Entrepreneurs & SMEs),new customers, so that they are offered benefits and bonuses taking into account the use they make of bank products, such as transactional accounts or fixed term deposits.
As regards the service model of the segment, focus was on digitalization, increasing its penetration by 3% and exceeding 75% of the high net worth customer base. In addition, work was done on automatization within the first 60 days with a view to leading customers which we refer to as our Identité segment. Additionally,use digital channels and achieve an early activation of their products.
| · | SMEs customers. The Bank considers small businesses to be fundamental drivers for strengthening productivity in the Argentine economy. For this reason, the Bank redefined its approach to the small business segment in order to develop the necessary tools and services to help small businesses grow and to respond to their needs with convenient and simple solutions. Until December 31, 2019, we served SMEs through our Corporate Banking segment. Since January 1, 2020 this portfolio was transferred to the Personal and Business Banking segment. |
| o | Specific Subsegments. Customized Value Proposition. The proposals launched between 2017 (Franchise and Transportation) and 2018 (Health) consolidated in 2019 as Franchises, Transportation and Health subsegments. The number of customers increased by 49.9% in Franchises, 38.2% in Transportation and 28.8% in Health, as compared to December 2018. During 2020, Supervielle intends to continue launching to the market special proposals for different sectors/industries which gather over 50% of the SMEs in the country. |
| o | Franchises. The Bank has introduced innovative loan models including franchise system options to support the growth of entrepreneurship in Argentina through a professional system. The Bank finances up to 40% of the initial investment (capped at Ps.800,000 for new franchisees), offering preferential rates and a five month grace period on principal payments. Through the agreement with mutual guarantees companies, maximum financing caps may be increased according to each brand’s performance. |
| o | Transportation. The Bank has developed products for the cargo transportation segment activities and the value chain that enhances the growth of entrepreneurs and SMEs in general. For example, one of the attributes deemed key for a value proposition for this segment is the prompt response for the approval of loans for expansion of their truck fleet. The Bank has implemented single-day approvals of preferential rate financing for secured loans and leasing for the purchase of trucks and/or semitrailers. This allows SMEs to face new business opportunities and plan their activities more accurately. Despite the economic conditions and the increase in interest rates during 2019, the pace of origination of new customers was 36%, which implies growth above the average growth in the SMEs segment in 2019. |
| o | Health. In November 2019, a new value proposition was presented, intended to cater for the needs of health and diagnostic centers, outpatient doctors’ offices, laboratories and pharmaceutical companies and wholesalers. Focus groups were held with sector companies and customers. This value proposition is characterized by promptness in loan granting and agreements with vendors. As regards to credit, requests for amounts lower than Ps.10 million were answered within 24 hours and requests for amounts above Ps.10 million were answered within 72 hours. The subsegment consolidated in 2019 achieving a growth pace exceeding that of the sector prior to the creation of the value proposition. |
| · | Senior Citizens customers.Since 1996, the Bank has acted as one of the paying agents of social security payments to senior citizens on behalf of the government pursuant to an agreement with ANSES. The Bank facilitates ANSES payments to close to 950 thousand beneficiaries per month, including senior citizens and pensioners, and we believe it is the private bank with the largest presence in this segment.The Bank’s agreement with ANSES provides that it will continue in effect as long as the parties continue performing their obligations for a six-year term. ANSES has the right to terminate the agreement with 90 days prior notice. |
In 2019, the Bank continued offering products and services are offered to meetaddressing the needs of senior citizens.citizens, while further improving its value proposition and service model. Based on the knowledge of the customers’ life cycle and their distinctive characteristics, we promoted the redesign of the commercial management model with focus on the penetration in high net worth customers and the implementation of specific policies to obtain the greatest risk/benefit ratio in low income segments.
The service model continued moving forward throughCaja Rápida (Cash dispenser with biometric identification) in its Service Centers, reaching a 100% coverage of the network and focusing on communication of this system to and adoption by senior citizens, with clear benefits in terms of waiting times and agility.
In line with the efforts to improve our service level, a new queue management system was implemented. This system allows a better experience, management and control of transactions and of the customer segment.
The innovation milestone for the segment was the launching of “Supervielle Jubilados", an app offering our customers a new proof of life method required to receive their monthly payment, adapted to new technologies. The platform includes facial recognition which identifies the customer and certifies that they are alive through a photograph. The idea is to make it easier for senior citizens who are Bank customers to provide their proof of life on a monthly basis, without the need to go to the bank and to do so any time anywhere. This is an advantage too for those customers’ agents or relatives as they may download such app in their cell phones.
Digital Banking – Business: In 2019, the Digital Banking - Business sector continued focusing on improving existing capabilities and developing and incorporating new capabilities within the new digital asset, Online Banking Business, and also within the Mobile Banking - Business module.
The creation of a newcheque app which is simple and quick and is intended to radically improve the digital experience and to align the user experience to the remaining digital assets of the Group is worthy of mention. In addition, the new technology used for its creation enables scalability and improves efficiency by creating new capabilities.
During 2019, these milestones allowed the net promoter score (“NPS”) of digital channels of companies to go from 12.9 to 29.2, a significant 16.3 point growth.
48
All business digital assets incorporated tools which allow the online transaction monitoring and the verification of the adequate functioning of tools in real time.
Digital Banking – Individuals: The Digital Banking – Individuals sector continued working strongly on digital adoption focused on the evolution of platforms in terms of utility, particularly in the generation and improvement of capabilities both in the Online Banking platform and in Supervielle Mobile; and in the access of customers to digital operations, promoting specific actions and implementing highly attractive campaigns.
E-channels: In 2019 the self-management model continued being enhanced with deployment and strengthening of theCaja Rápida channel (cash dispenser with biometric identification), with at least two terminals per branch dedicated to payment of pensions. Likewise, improvements were made to increasing usability, adoption and speed in customers’ operations
Customers’ attention centers:The Contact Center manages queries and complaints by and sales to customers by phone, e-mail and social media. Work continued on the improvement of the automatic banking sector so as to make customer online time and experience more agile, to improve answer quality and to increase sales. The Investment Center that operates since September 2017 within the telephone banking management is formed by a team of experts on capital markets who provide advice on and manage the transactions of customers in all Bank segments. In line with the Bank’s strategy, the area favors the unification of management platforms, achieving agility, a larger number of products and better investment alternatives, securing a greater penetration in terms of managed funds and an increase in high net worth customer generation.
The service model is customized to strategic segments while the operations model fosters a commercial and personal approach to customers, an enhanced approach. The bank has also developed a service model integrating new technologies and digital platforms to accelerate processes and improve customers’ experience, tailored to each profile.
As of December 31, 2016,Total deposits from the Retail Banking segment had Ps.15.0 billion of outstanding loans(now, Personal and financial leases (including securitized loan portfolio), and contributed with Ps.5.2 billion to our consolidated net revenues (58.0% of our net revenues before adjustments) and with Ps.362.6 million to our net income (27.7% of total segments’ net income before adjustments).
We conduct our Retail Banking operations through the Bank.
Our Retail Banking services are focused on the customer segments discussed below.
· Entrepreneurs and Small Businesses. The Bank considers small businesses to be fundamental drivers for strengthening of productivity in the Argentine economy. For this reason, the Bank redefined its approach to the small business segment in order to develop the necessary tools and services to help small businesses grow and to respond to their needs with convenient and simple solutions. We service small businesses through our Retail Banking segment and SMEs and Middle-Market Companies through our Corporate Banking segment.
In 2016, the branch service model for clients of this segment was consolidated. As a result, 65% of the branches, which concentrate 80% of the clients, have an officer dedicated exclusively to the segment. Officers are one of the differentiating pillars when it comes to providing agility and advice, and therefore, a training and updating plan was developed for products, business models and credit assessment with more than 107 hours of training involving 70 people.
In 2016, the “Ideando” program, which focuses on training, was reinforced. Over 550 SMEs clients from Buenos Aires, San Luis and Mendoza took part in workshops, talks, events and training given by referents of the segment and renowned entrepreneurs.
Retail Banking, in turn, participated as a sponsor at various events, including the Exhibition of Economy and Finance and TED.
· High Net Worth Customers. We offer our high net worth customers exclusive services such as priority access to our branches with minimal waiting time, concierge services, exclusive back offices for conducting banking activities, dedicated customer service representatives at the call center, a remote investment center and dedicated locations at our branches.
During 2016, the Bank continued to develop the high net worth segment. The benefits proposal of the segment continued to be among the most attractive on the market. “Todos los Dias” (Every Day) had discounts by line of business and a wide variety of discounts at supermarkets and shopping malls countrywide, where the clients of this segment had added benefits compared to the general portfolio.
Additionally, the high net worth segment continued its strategic focusing on the customers’ needs, mainly on traveling, gourmet cuisine and trends, with differential and exclusive benefits that reflect the segment’s particular level of satisfaction.
· Senior Citizens. The Bank facilitates ANSES payments to more than 1 million beneficiaries per month, including retirees, pensioners and social plans, and it believes it is the private bank with the largest presence in this segment.
In 2016, it continued to offer products and services in keeping with the needs of retirees and pensioners while deepening improvements in value, including the launch of new products offering packages and discounts in pharmacies and supermarkets.
In order to intensify the diversity in offered products, through the current agreement with the related company “Cordial Servicios,” we expanded technology products and services, as well as health and household products, among others.
The Bank continued to offer automated services for its senior citizen customers through biometric terminals that identify the beneficiaries and can be used to print senior citizens’ payment records, which are necessary to later receive ANSES benefits through checkout lines or ATMs. In 2016, the Bank focused its efforts to adapt the biometric identification system to ANSES Resolution 648/2014.
·Persons. Throughout 2016, the Bank, aligned with its strategy to offer products focused on the needs of its customers, continued to develop its value proposal and service model for mid- and low-income customers.
The proposal of benefits was focused on increasing the main pillars with customers and covering their expectations according to their income, with a preference for those whose salaries are deposited in the Bank.
With respect to customer service, the strategy used was to sub-segment clients in order to optimize the different service channels.
In 2016, the increase in the penetration of products over the portfolio of clients of the segment was significant, which generates greater customer loyalty.
Through our Retail Banking segment, we offer retail customers a wide range of products as described below.
Packages of banking services. As of December 31, 2016, the Bank maintained more than 2.1 million savings accounts and more than 71,000 checking accounts. In 2016, the Bank serviced more than 670,000 product bundles for senior citizens, more than 159,000 Plan Sueldo (“Payroll”) accounts and more than 42,000 product bundles for high net worth customers. During 2016, banking by customers was promoted by offering free savings accounts with their corresponding debit cards, allowing each customer of the financial system to be able to make transactions with them. We also promoted the digitalization of the Bank’s clients through the provision of accounts statements through home banking. In accordance with the needs of the senior citizen segment, a new product offering was launched: Paquetes Active, Liberté and Liberté Gold. In addition, the Visa Debit product was made available to the Entrepreneurs and SMEs segment.
Investments. The Bank is focused on increasing digital operations. In 2016, the Bank reached 65% of placement in time deposits and 88% in mutual funds through the different digital channels. Available channels for the operation of time deposits was improved in 2016, and automatic and mobile phone banking were launched, providing customers with increased flexibility. The products offered were also extended through the Unidad de Valor Adquisitivo (“UVA”) time deposits, following changes to local economic policies. In 2016, focused on the needs of each customer segment, we continued to promote different investment alternatives, doubling the portfolio of mutual funds in Retail Banking.
Insurance. The Bank has continued to grow in the insurance business. In 2016, new policies were acquired through its channels, ending the year with a stock of approximately 600,000 current polices. Focused on the growth of the business, the Bank added sales of products such as Bolso Protegido (Protected Bag) and Accidentes Personales and Seguros de Vida (Personal Accidents and Life Insurance). We have also worked on developing specific products for the Identité segment and continue to work to incorporate new coverage for the other customer segments.
Foreign Exchange Services. In 2016, following the lifting of exchange controls by the BCRA, the Bank substantially increased operations with its retail clients. The progress in digital development allowed the incorporation of the mobile platform as a medium for the purchase or sale of dollars or euros, adding such features to the Home Banking,
through which customers can operate in extended hours from 8 a.m. to 8 p.m. With respect to international transfers, the new regulations issued throughout the year have aided us in the development of streamlined processes that can be effected from almost any of our service centers.
Loans. We offer personal loans, short-term advances and salary advances to payroll customers. In 2016, the offer of Personal Loans was redesigned in accordance with the needs of each segment. In addition, special lines were developed to attract and retain clients of strategic segments. Campaigns of “Solo por Hoy” (Just for Today) were held, in which special loans were offered to select customers. In 2016, the UVA Mortgage Loans were launched. The Bank believes it offers the largest amount of such loans in the financial system and is the only bank granting such loans for a second home. Likewise, the Bank joined the Pro.Cre.ar Program, providing its clients with a comprehensive range of products.
Credit Cards. As of December 31, 2016, the Bank maintained approximately 657,000 Visa and MasterCard accounts. Over the course of 2016, the Bank added more than 50,000 new credit card customers. In 2016, improvements were made to the technology of the products, mainly in the MasterCard brand. The functionality of Contactless was added, with the Bank being 1 out of the 3 banks that implemented the above-mentioned solution in Argentina. An international agreement with MasterCard WorldWide was also reached, with the Bank being the lead member. Focusing on operational improvements, our origination processes were reorganized, allowing the sale of credit card products through various channels, whether by sales forces or external marketers, thereby accessing additional customers. The “Estás ahorrando todos los días” benefits program was continued, in which each day of the week there is an exclusive benefit per line of business. Financing in travel agencies and airlines and supermarkets also continued, and special agreements with Mercado Libre were closed. Numerous Happy Days were carried out as well as specific promotions on special dates such as holidays. During 2016, we added the AERIS program, a rewards program for those clients holding corporate and business cards, with accumulation of miles according to their respective segments.
Total deposits from the Retail Banking segmentsegment) as of December 31, 20162019 amounted to Ps.26.0Ps.59.6 billion (US$1.6 billion), a 64.6% increase from the Ps.15.8 billion recorded as of December 31, 2015.(approximately U.S.$994.6 million). Retail branch deposits in Pesos and Senior Citizenssenior citizens deposits continued to represent a high portion of total deposits. In 2016,2019, retail branch deposits in Pesos plus Senior Citizensenior citizen deposits represented 60%55% of total deposits compareddeposits.
Corporate Banking
The Bank, through its corporate banking segment, works with middle-market companies and large corporates with annual billing exceeding Ps. 700 million in 2019. Until December 31, 2019, SMEs customers were included under the Corporate Banking segment. The customer service model is formed in turn by three commercial managements:
| (1) | AMBA Corporate Banking which deals with companies operating in the city of Buenos Aires, Greater Buenos Aires, Rosario and Mar del Plata. |
| (2) | Provinces Corporate Banking which deals with the commercial relations in the Provinces of Mendoza, Córdoba, Tucumán, San Juan and Neuquén. |
| (3) | Mutual Guarantee Companies “MGC” Division which operates at the headquarters in the City of Buenos Aires. |
The Bank believes that its proximity to 54% in 2015.its corporate banking customers gives it a competitive advantage.
In 2016, we continued to remodel our branches as partAs of December 31, 2019, the corporate banking segment had Ps.36.8 billion of outstanding loans and other financings, and contributed almost 40% of our rebranding process, which has been aimed at improvingnet operating revenues before adjustments.
The customer experience and creating a more convenient and customer-friendly environment. Among the branches rebranded were: Lomas de Zamora, Lomas de San Isidro, Plaza San Martín, La Punta and Microcentroservice model is based on regionalization. Services to large companies in the city of Buenos Aires. Customer service was unified by segment and commercial processes under the ONE name, which allows further strengthening of the model of relational banking and personalized service. Focused on enhancing the clients’ experiences, we implemented the Net Promoter Store (“NPS”) methodology, with the referents of each branch highly involved in the process. Additionally, a synergy project was launched between sales forces channels and branches to strengthen management within the Entrepreneurs & SMEs segment.
With respect to our network of service centers, we launched a new service model, seeking to improve and streamline the quality of customer service in the senior citizens segment, providing automatic solutions to queries, benefit payments and life certificates. In this sense, the biometric system allows for queries such as those related with collection dates, generation of PINs and the printing of the most recent salary balances. In addition, an indoor ATMs implementation plan was initiated, which optimizes the customer service flow and reduces waiting times.
Corporate Banking
The Bank, through its Corporate Banking segment, generally works with SME’s with annual sales over Ps. 40 million and below Ps. 200 million Middle-Market Companies with annual sales over Ps. 200.0 million and below Ps. 1.0 billion and Large Corporates companies with annual sales over Ps.1.0 billion. The Bank concentrates its Corporate Banking efforts on the City of Buenos Aires and the provinces of Buenos Aires, Córdoba, Santa Fe, Mendoza, San Juan, San Luis and Tucumán and also has an important Corporate Banking presence in the Cuyo region. The Bank also offers services in the rest of the regional economies in Argentina where the volume and profitability justify operations. Services to SMEs and Middle-Market Companies in the City of Buenos Aires and the outlying areasits vicinities are provided through regional branches located in the areas with the
highest population density andmost densely populated industrial and commercial activity. We believe that our proximity to our corporateareas. Communication, assistance, negotiation and operational management are centralized in banking customers gives us a competitive advantage.nodes.
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AsIn 2019, the synergy strengthened among the teams of December 31, 2016, the Corporate Banking segment had Ps.1.1 billiondifferent areas, focusing on improvement of outstanding loansexisting processes and financial leases (including securitized loan portfolio), and contributed with Ps.1.1 billionthe acquisition of new technologies intended to our consolidated net revenues (12.6% of our net revenues before adjustments) and with Ps.337.2 million to our net income (25.8% of total segments’ net income before adjustments).significantly improve customer service quality.
The main financialguidelines on which the management focused were:
| · | Development of comprehensive proposals seeking to become the first-choice bank in terms of reciprocity and cross-selling |
| · | Protection of business profitability improving effectiveness, productivity and efficiency of commercial and operational areas |
| · | Generation of work sessions with other areas seeking to improve existing processes, increasing synergies and strengthening results |
Wines Division. During 2019, the Wine Division continues consolidating its position as a leader in the wine industry, remaining the only Argentine bank among the top 20 to have an expert team to deal with the sector.
The Bank’s target market consists of wine estates with high added value products, that focus mainly on the export market. However, Banco Supervielle continued supporting all industry players in the entire value chain of wine production, from leading grape producers to major wine estates as well as suppliers of wine manufacturing and transactionalbottling supplies.
This broad based strategy also allows us to develop our Retail Banking products and services that our Corporate Banking segment offers are factoring, leasing, employee payroll services (through which we offer solutions to meet our customers’ working capital needs), foreign trade and cash management and transaction services. In addition, our Corporate Banking segment also offers checking account short-term advances, factoring, secured and unsecured loans, with these customers
Sociedad de Garantía Recíproca (Mutual Guarantee Agents(SGR)-guaranteed or “SGRs”, per its Spanish acronym). In 2019, the Bank maintained a sector leadership, operating with approximately 78% of the SGRs authorized in the country (33 out of 47 authorized SGRs and Guarantee Funds). The Bank is recognized as the bank of the SGRs by theCámara Argentina de Sociedades y Fondos de Garantías and the Ministry of Production/Sepyme, the authority that supervises SGRs.
The Bank also remained a leader in terms of development and innovation for being the first private Bank to offer a Business Credit Card with guaranteed purchase limit backed by a MGC and for operating withcheque discounts in the Securities Market directly and through Invertir Online, a subsidiary of Grupo Supervielle.
Also during 2019, by decision of the Ministry of Production, the Bank renewed the agreement entered into for receipt of guarantees issued by theFondo de Garantía Argentina, being the first private bank in the country to develop these operations basically oriented to loans for SMEs.
Together with some MGCs, financing facilities were developed for SMEs, members of the value chain, entrepreneurs and franchises.
Oil & Gas Project
The Bank considers that the oil and gas sector has a high growth potential. Therefore, in 2018, the Bank decided to lay the bases for the development of a project in this sector. Subsequently, in April 2018, a new branch was opened in the city of Neuquén in addition to the existing customer service model. This allows for a close contact with the value chain of large operators and an improved competitiveness through the incorporation of new wage payment plans of individuals with high purchasing power residing in the area.
During 2019 the Bank’s Oil & Gas Division organized strategic events with sector companies seeking to position the brand.
In addition, several financing agreements were entered into with operators’ suppliers, such as YPF, whereby the Bank could develop a commercial relationship with SMEs that are suppliers of the oil industry.
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However, 2019 has been a complex year for the sector due to macroeconomic conditions: it was hard for sector companies to access markets to obtain financing for their projects in an industry highly dependent on intensive capital investments.
As long as the sector activity stabilizes, the Bank expects to strengthen the actions on value chains of large operators, taking advantage of the experience gained with the new customers obtained due to the focus placed during 2018 and 2019.
Products and Communication
The Products and Communication department is formed by five teams focused on products and by the Marketing and Communications team.
All of them are based in the City of Buenos Aires and provide cross-functional services to all of the Bank’s commercial channels and make available their products to all customers, whether they are individuals or legal entities.
Teams focused on products include the Assets Management, Liabilities and Insurance, International Commerce (Comercio Exterior, or “Comex”), Leasing and Transactional Banking areas.
The Assets Management area offers personal, corporate, secured and unsecured loans, checking account agreements, factoring and/or guarantees issued, among other products, at fixed, variable or UVA adjusted rate.
The Liabilities and Insurance area is responsible for products such as fixed time deposits, accounts, safe deposit boxes and insurances and other marketed in the commercial network.
The Comex area not only manages customer financing through export prefinancing, import financing and international collections and payments which include import letters of credit (“ILC”), export letters of credit (“ELC”), international factoring, collections and transfers, but is also responsible, together with the Finance area, for the negotiation of commercial and financial facilities with correspondent banks.
The Leasing area structures and markets Leasing, Sale & Lease Back products, pledge loans supplierto companies denominated in U.S. dollars, Pesos and at fixed or variable rate, on property in general, mainly oriented to transportation (trucks, cars, etc.) as well as industrial equipment and hardware in general.
Transactional Banking team deals with collection and payment services check custody services, armored transportation services, collections services, corporate credit cards, pension services, deposit accounts (including time depositsto human and short-term deposits)legal persons, cash management,e-cheques, among others.
The Comex, Leasing and mutual guarantee society services.Transactional Banking areas have highly skilled officers providing advice and generating new businesses with Finance, Corporate Banking and Individuals and Business customers.
In addition, the Transactional Banking area comprises thePlan Sueldo area and its sales force, as well as the Means of Payment Management, mainly through the Debit and Credit Card products oriented to individuals or companies.
The following sets forth additional information on the main products and services offered by the different banking segments:
| · | Loans. The bank offers offers personal, corporate, secured and unsecured loans, overdraft, factoring and/or guarantees issued, among other products, at fixed, variable or UVA adjusted rate . |
The Bank decided to provide dynamic personal loans supported by efficient processes and an agile management which have allowed improvements in the delivery times of credit ratings to enhance the tools and sales channels and expand placement, in addition to the launching of new financing facilities and the developments carried out to increase supply through digital platforms, which led to a better user experience and a more assertive segmentation of our Corporate Banking segment:customers.
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Leasing. During 2016, we continued offering livestock leasingRegarding commercial loans-, special facilities were developed to companies insuit the agricultural sector, an exclusive productneeds of the Bank. Asdifferent corporate segments together with sales in digital and face-to-face channels, enhancing the placement of December 31, 2016, we had a 12.7% market share in leasing in terms of private banks in Argentina, which we believe would increase to more than 13.1% if we were to consider our securitized leasing portfolio.factoring, checking account and loan agreements.
Factoring (check discounting, invoices and work certificates). We participateThe Bank participates in the check discounting market by offering three categories of products: (i) with recourse, where the customer who discounts the check with usthe Bank assumes the insolvency risk, (ii) first loss, where the customer assumes part of the insolvency risk, and (iii) non-recourse, where the bankBank assumes all insolvency risk. Corporate Banking factoring transactions represented 16.8% of the Bank’s loan portfolio as of December 31, 2016, and the Bank’s estimatedThe share of the factoring market of Argentine financial system as of December 31, 20162019 was approximately 6.9%9.5%, according to the most recent publicly available information published by the Central Bank.
During 2019 a communication and management strategy was designed to align the Bank with the highest standards in order to obtain a greater market share in the different regions where it does business, which resulted in the Bank’s participation in different credit and financing programs as well as in supply of subsidized credit facilities for development and investment. To such end, the Bank participated in development programs and entered into agreements with financial institutions intended to foster production activities.
With the aim of generating a better customer experience, the Bank fully reviewed the management process of credit products. As a result, it launched an agile cell focused on factoring, to analyze current processes, detect points of improvement in internal and external processes and obtain significant benefits both for the Bank and for the customers.
As regards customers, a more fluid communication was achieved with the real time viewing of the status, agility in credit product management and a significant reduction in times from the first contact to loan disbursement.
These improvements had a positive impact on the performance of financial loans during the year but could not avoid the effect of the fall in the demand of loans derived from recession and high real interest rates in Argentina in 2019.
| · | Means of Payment: During 2019, we continued working on the transition from magnetic band debit cards to chip technology, which we had started in 2018, ensuring a better operation and the reduction of skimming fraud. The Bank thus managed to improve its position in the industry regarding the implementation of this technology in debit cards. |
As of December 31, 2019, the Bank maintained approximately 740,000 Visa and MasterCard accounts.
In 2016, E-Factoring continued to be promoted, which allows, by meansconnection with the digital transformation proposal, focus was maintained on the use of installed readers, imagescontactless technology for all debit cards of the checks to be receivedIndividuals and cashed or deposited, streamlining their processingIdentité segments and reducing time and cost.
Foreign Trade. 2016 was characterized by a simplification in the credit cards for Mastercard International and Gold products and for all Visa products, such as International and Signature. The main goal is to offer an innovative product to make payments in a quick, comfortable and safe way, enhancing customer experience. In addition, migration continued from physical to digital credit card account statements, through email delivery. In the same line, Telephone Banking was created as a new channel for password resetting, in addition to Online Banking and Supervielle Mobile.
In 2019, a smart platform was implemented, through a multi-collection project, for collection of fees intended to improve the collection percentage of product packages in all of the Bank’s segments
| · | Leasing. The Bank’s leasing area meets the leasing needs of all commercial banking areas of the Bank, through lease agreements of machinery, equipment and truck manufacturers and dealers, in a variety of industries and segments. While leasing remains a very attractive instrument for companies to finance investments related to business growth and operating efficiency, the rise in interest rates and the contraction of the economy in 2018 and 2019 caused a significant fall in the volume of contracts executed. As of December 31, 2019, we had a 19.9% market share in leasing in terms of private banks in Argentina. |
| · | Foreign Trade. The Bank is an active participant in foreign trade financing and offers personalized advice regarding technical, commercial and regulatory matters related to foreign trade. The Bank has a trained staff that allows it to advise customers on foreign trade, foreign exchange transactions, international transfers, credit assistance in connection with products offered, and operating issues. |
During the first three quarters of 2019 simplification of exchange regulations applicabletransactions related to foreign trade continued, following the trend of the last two years. However, due to the market uncertainty following the PASO elections, the Executive passed Decree 609/2019 authorizing the Central Bank to issue new temporary and urgent exchange provisions to further regulate the exchange scheme and thus strengthen the normal operation of economy, contribute to a prudent administration of the exchange market, reduce volatility of financial variables and soften the impact of financial flow fluctuation on the real economy.
The set of exchange regulations then issued by a significant growththe Central Bank restored documentary control and verification of terms for import payments and export collections, limited the purchase of foreign exchange for natural and legal persons as well as exchange transactions among related financing operations. Within this framework, financing operations in dollars was significantly increased.companies.
ThroughIn March 2019, the Bank wewas once again invited by Banco de Inversión y Comercio Exterior to participate with a US$12 MM facility in the Argentina Exporta program, a project designed by the Ministry of Production and Labor together with FONDEAR, which allowed for the reduction of interest rates in the granting of export prefinancing facilities to SMEs customers for up to US$200 thousand per customer, at a maximum annual nominal rate of 4.5% and for a maximum term of 180 days.
As regards foreign exchange settlements and transaction processing, the Bank grew by 10.4% in terms of number of processed transactions and 27% in terms of settled volumes during 2019.
By mid-August 2019 the digital offer to legal persons for purchase and sale of U.S. dollars through the Bank’s digital platform was completed.
In addition, and in line with the objective of improving the customer comprehensive experience, the Bank was GPI certified. GPI (Global Payment Innovation) is an initiative developed by SWIFT which is an absolute innovation in the international collections and payments system at global level. Thus, the Bank become the first Argentine bank to be Application Programming Interface (APIS) certified and the fourth in the market to implement GPI. Payments are active participants in foreign trade financing and offer personalized advice regarding technical, commercial and regulatory matters relatednow forwarded immediately within the business banking hours of the receiving entity. On the other hand, thanks to foreign trade. its new system, users may track their transactions until they are received by the final beneficiary.
The Bank draws on a trained staff to advise customers on foreign trade, foreign exchange transactions, international transfers, credit assistance in connection with products offered, and operating issues.
In 2013, the Bank rolled out its “e-comex” product from home banking in order to improve the quality of its foreign trade financing products. E-comex allows corporate customers to manage their foreign trade payments and collections electronically. In 2016, the e-Comex channel continued to be consolidated, whereby importer and/or exporter clients can check their ongoing transactions and manage their collections and/or payments through Home Banking of Corporate Banking. Such operations managed online reached as high as 61% of total operations in December.
In order to provide international factoring services, in November 2007, the Bank joined Factors Chain International (“FCI”), an international network of leading factoring companies whose common goal is to facilitate international trade through factoring and related financial services. The Bank maintained its leading position asremains the only bank in
the Argentine financial system to operate”international factoring” as a member ofoperate in the International Factoring market, through FCI network, the most extensive and prestigious chain of factoring companies.(formerly called Factor Chain International).
| · | Plan Sueldo: During 2019 the Bank implemented a deep restructuring of product operation, aimed at attaining high efficiency standards both in onboarding and in the customer cross selling and subsequent profitability. |
Finally, we beganIn line with digital transformation, new agile services were developed to participate assupport the admission processes of new agreements. Thus, agreement admissions were generated, with mass generation of online banking Business accounts, and packages and new bonus rules were offered, which were a sponsor withsignificant incentive for customer early profitability.
In such regard, a specific application was developed for mass onboarding reaching a milestone in online payroll processing.
In addition to the Argentine Ministry of Foreign Affairs in a strategic positioning programactions based on the adopted digital path, new and better generation proposals were developed for five selected sectors of activity (electrical and electronic machinery, dairy industry, knowledge industry, machinery for the oil industry and medical laboratories), where the Bank participates jointly with IAE-Universidad Austral, INTI and Argentina’s Banco Nación.
Cash Management and Transaction Services. Through the Bank, we offer a range of products and services designed to assist in the corporate administration process, including payments to suppliers, electronic banking, payments and collections, cash management and armored transportation. Supplier payment services ensure timely payment, optimizetarget companies. With the use of customers’ fundsopportunity maps, a greater efficiency was obtained in contact with companies, incorporating new tools for generation of quality agreements and simplify our customers’ administrative tasks. The various payment options are designed to meet each company’s needslead generation and include short term advances based on deferred payment checks, with their respective statementscustomer retention campaigns were launched.
All the actions taken inured in a greater efficiency in contact customer and tax payment receipts, as well as transferslead generation and payments against revolvingin a greater efficiency in customer relations and credit facilities. Additionally, the Bank offers a convenient integrated check issuance, delivery and discounting service. Under various collection agreements entered into with service providers and public sector agencies, the Bank offers a comprehensive invoice and tax collection service using tellers, as well as a range of electronic payment options. Moreover, in the event that a company is paid for its products or services by credit card or voucher, the Bank serves as a payor bank for the major brands in the market, which enables credit card or voucher payments to be credited to the company’s account with the Bank.offer.
| · | Cash Management and Transaction Services. The Bank offers a range of products and services designed to assist in the corporate administration process, including payments to suppliers, electronic banking, payments and collections, cash management and armored transportation. Supplier payment services ensure timely payment, optimize the use of customers’ funds and simplify our customers’ administrative tasks. The various payment options are designed to meet each company’s needs and include short-term advances based on deferred payment checks, with their respective statements and tax payment receipts, as well as transfers and payments against revolving credit facilities. Additionally, the Bank offers a convenient integrated check issuance, delivery and discounting service. Under various collection agreements entered into with service providers and public sector agencies, the Bank offers a comprehensive invoice and tax collection service using tellers, as well as a range of electronic payment options. Moreover, in the event that a company is paid for its products or services by credit card or voucher, the Bank serves as a payor bank for the major brands in the market, which enables credit card or voucher payments to be credited to the company’s account with us. |
As members of the Red Interbanking (a network comprised of Argentina’s major financial institutions), the Bank offers an electronic communications system which enables itsour customers to optimize their banking transactions. The Bank’s corporate customers can connect to the service from their personal computers at any time and review their accounts at any member bank, send us messages, to the Bank, transfer funds, make electronic wage payments, supplier payments and tax payments, and display market data. The Bank offers different electronic products for each segment of its corporate clientele, for example, Datanet Plus, Datanet Manager and InterPYME. Datanet Plus and Manager target SMEs,, Middle-Market Companies middle-market companies and Large Corporateslarge corporates and InterPYME is a product designed for small businesses. The Bank processes online transfers, allowing debit and credit transactions to be settled automatically and to be reflected in the relevant accounts in real time.
The Bank offers corporate electronic home banking services, which allows customers to access their bank accounts and information regarding the Bank’sour primary products and services online without having to leave their homes.offices. People and businesses can access their account balance information and monitor account activity, factoring transactions, payments, deferred checks in custody and the status of checks written through the supplier payments service. Customers can also check the status of payments to leasing transactions and foreign trade transactions, request checkbooks, carry out account transfers, pay paychecks, suppliers and corporate credit card bills, access electronic payment services for foreign trade services and discount checks remotely through the e-factoringe-Factoring service with the electronic platform.
Mutual Guarantee Societies (“MGSs”). We are a key player among MGSs. During 2016,2019, the Bank worked with 25 outfocused on the strengthening of the 34 authorized MGSs in the system.supply, especially on strategic products, collections, direct payment, payments to suppliers, remote cheque scanners ande-cheque. The loan stock as of December 31, 2016 reached a total of Ps.368.0 million, a 144.5% increase as comparedprimary objective was to December 31, 2015.
Wines Division. During 2016,provide agile and simple solutions to customer treasury management, seeking to generate high value positive experiences. To such end, the Bank consolidated its position as the leading bank in the wine sector in Argentina. We strengthened our focus on exporting wineries, increasing dollar financing to its customers. As of December 2016, the stock of loans granted to wineries in that currency exceeded US$30 million.
In 2016, the Bank became the second bank to assist the wine sector (after Banco Nación) and the first private bank when taking into account total loans to wineries. The Bank believes it is the leading bank in terms of number of customers, with over 160 operating wineries, in addition to the main suppliers of all sectors in the industry. The Bank’s customers range from the most important grape producers to the companies that supply them with all the necessary instruments for the elaboration and fractionation of wines. In 2017, products are expected to continue to be launched to further penetrate the value chain.
The Bank intends to deepen its focusfocused on the wine sectorincrease of collection and payment capabilities and on the training and communication to this end, plans to have an exclusive space for wineriesincrease the service level in Mendoza, while incorporating personnel that provides specialized service for this division.internal operations.
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| · | Packages of banking services. As of December 31, 2019, the Bank maintained almost 3.2 million savings accounts and more than 140,000 checking accounts. In 2019, the Bank serviced more than 860,000 product bundles for senior citizens, more than 420,000Plan Sueldo accounts and more than 72,000 product bundles for high net worth customers. |
Treasury
The Treasury segment is primarily responsible for the allocation of the Bank’s liquidity according to the needs of the RetailPersonal and Business Banking segment, the Corporate Bankingbanking segment and its own needs. The Treasury segment implements the Bank’s financial risk management policies, manages the Bank’s trading desks, distributes treasury products such as debt securities, and develops businesses with wholesale financial and non-financial clients. In 2016, this segment contributed Ps.534.4 million to our consolidated net revenues (6.0% of total segments’ net revenues) and Ps.162.9 million of net income (12.5% of total segments’ net income). Below is a description of the services offered under this segment:
Trading Desk and Institutional Sales
Treasury. The Bank’s trading desks trade financial assets on a proprietary and third-party basis, sell financial products, and implement the Asset and Liability Management Committee (“ALCO”) decisions, within the board’s policies, regarding the Bank’s liquidity and financial risk management policies. The Bank’s trading operations include money market instruments, which include institutional investor deposits, public debt instruments, Central Bank debt notes, foreign exchange, stocks, futures, swaps and repos. Trades develop within the limits of a comprehensive risk map which sets limits on counterparty risk and on long and short positions for each asset class, depending on volatility, traders’ seniority level, and other factors. The risk map also determines stop-loss policies. In 2016, Banco Supervielle managed to grow in volume in all products operated, including foreign currency, public and private securities, stocks and derivatives. The Bank managed to position itself as one of the benchmarks of the market among institutional investors in all types of operations. This shows
Correspondent Banking
During 2019, commercial relationships were maintained with foreign banks both as to financing of foreign trade transactions and to guarantees and letters of credit.
A syndicated loan was entered into in August 2019 and subsequently disbursed in September 2019 through the FMO, the Dutch Development Bank, and Proparco, a great presencesubsidiary of the French Development Agency, for US$80 million, with a 3-year term, intended to strengthen the Bank’s support to SMEs.
Capital Markets and Structuring
The Bank’s Capital Markets and Structuring department objective is to originate and structure financing products for the Argentine corporate capital markets. The idea is to provide financial advice services which allow both its customers and Grupo Supervielle and its subsidiaries to optimize their financial resources and capital structure in order to maximize the profitability of their operations.
The sector is mainly focused on the structuring of financial trusts and syndicated credit facilities, in the Argentine marketorganization and placement of negotiable obligations and in terms of financial products.equity capital markets transactions and mergers and acquisitions, with a view to providing a comprehensive advice on each product, generating long term relationships with customers and investors.
Correspondent Banking. The 2016 year wasIn 2019, the economic conditions were volatile and characterized by a substantial increasehigh inflation, high interest rates, uncertainty and an increased country risk index which made it difficult for companies to issue financial instruments. However, the Bank continued participating in the volume of available foreign credit lines, as well as debt market, specifically providing services to YPF Energía reductionEléctrica S.A. in the costreopening of such lines. In this context, new lines of correspondence were opened and existing ones were expanded. Likewise, the terms offered by foreign correspondent banks were lengthened.
With respect to our strategy of maintaining a close relationship with multilateral credit agencies, we are analyzing financing offers we have been received for 5 to 7 year terms, and in one case a letter of intent has already been signed, to obtain financing with a 5-year term.
As part of its program to expand relations with foreign entities, taking advantage of the FELABAN 2016 meeting in Buenos Aires, the Bank organized a welcome reception to promote international factoring with the Secretary General and Directors of FCI.
Capital Markets. The Bank’s capital markets department is responsible for structuring and placing debt and securitization instruments, primarily financial trusts, both for third parties and for all our subsidiaries. The Bank is one of the leading entities in the Argentine capital markets, with a 6.4% market share in Argentina in the year ended December 31, 2016.
During 2016, we organized and placed Financial Trusts for Grupo Supervielle’s companies (Banco Supervielle, CCF and Cordial Microfinanzas, which was still our subsidiary at that time) for Ps.1,651 million in 7 issues andClass I negotiable obligations for Ps.1,495US$25 million, YPF S.A. in 7 issues. Also in 2016, we organized or placed third-party financial trusts for Ps.1,432 million in 8 issuesthe issuance of Class II, III and IV negotiable obligations for Ps.127Ps.1,683 million, Ps.1,157 million and US$19 million, respectively, and the Bank itself in 2 issues.the issuance of its Class F negotiable obligations for Ps.3,000 million. As regards the financial trust market, the Bank acted as arranger and dealer of the trusts Unicred Cheques Series 6 and 7 and CCF Créditos Series 20, 21 and 22. Additionally, during 2019, the Capital Markets and Structuring area provided advice to different companies on valuations and mergers and acquisitions.
Public Sector and Intermediaries. In 2016, the Bank continued as financial agent of the Province of San Luis. It also offers payroll services in several municipalities of the Province of Mendoza, including Mendoza Capital, Godoy Cruz, Las Heras, Luján de Cuyo, Guaymallén, San Martín and Malargüe.
The Bank won the tender of financial agent in the department of Godoy Cruz and renewed the contracts of Mendoza Capital and San Martin. Lastly, the Bank continues to be financial agent of the Municipality of Lujan de Cuyo and payment agent in the municipalities of the Buenos Aires and the Province of Cordoba.
On January 17, 2017, the Province of San Luis notified the Bank of its decision to terminate, effective as of February 28, 2017, the Financial Agency Agreement. The Financial Agency Agreement had been renewed twice and was due to expire in 2021.
The Bank has maintained a presence in the Province of San Luis since 1996. After acquiringfor more than 20 years. In 1996 the Bank acquired Banco de San Luis in 1996, the Bankand was appointed as exclusive paying agent for the government of the Province of San Luis to provide financial agency and tax collection services to the Province of San Luis and serve as payor bank tofor provincial government employees. This financial agent contract was renewed twice and was due to expire on 2021.
On January 17, 2017, the Province of San Luis notified the Bank of its decision to terminate, effective as of February 28, 2017, the financial agency agreement. Since February 2017, the Bank has continued to provide financial services to the Provincial government of the Province of San Luis and its employees despite the termination of the financial agency agreement.
On June 7, 2018, the Province ratified an agreement signed with the Bank for a term of 12 months formalizing its role as exclusive paying agent which the Bank has continued to provide since the termination of the financial agency agreement with the Province in February 2017.
In January 2019, the government of the Province of San Luis released the terms and conditions of the auction to be held by the Province for the new financial agency agreement. Only two proposals were presented on March 15, 2019. On December 6, 2019, the provincial government issued the Decree No. 8,589 that resolved to close the auction process without awarding the financial agency agreement. The Bank is continuing to render services as financial agent until the Province of San Luis names a new financial agent.
Also, on May 23, 2018, the Municipality of the city of San Luis appointed the Bank as financial agent for a term of 2 years with automatic renewal for 2 additional years, commencing with the first payroll payment on June 29, 2018. With the appointment by the City of San Luis, the Bank became financial agent for all the municipalities in the Province.
As of the date of this annual report, the Bank continues to provide financial services to the government of the Province of San Luis and its employees.
The Bank has a private sector business franchise in the Province of San Luis as well and provides full banking services to individual consumers and smallSMEs and medium-sizedmiddle-market companies. Further, the Bank provides its corporate customers in the Province of San Luis with a wide range of financial services and has a primary focus on infrastructure and construction projects.
As of December 31, 2016, 2019, the Bank’s exposure in the Province of San Luis was as follows:
As of December 31, 2016
Ps. (in millions)
| As of December 31, 2019 | |||||
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| Loans | ||||||
| Banco Supervielle Total Loan Portfolio |
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Payroll loan to the Province of San Luis employees |
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Payroll loans to the Province of San Luis employees / |
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Loans to the provincial government | — | |||||
Deposits | ||||||
Consolidated Total Deposits |
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Deposits made by the Province of San Luis |
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Deposits made by the Province of San Luis / Consolidated Total Deposits | 1.9% |
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Net Revenue | ||||||
| Related Net Revenue / |
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Operating Data | ||||||
Employees |
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Branches |
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Senior Citizen Service Center | 3 | |||||
ATM’s & Self Service Terminals |
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Of ourthe Bank’s approximately 194,000192,000 active customers in San Luis, we offerit offers payroll services to about 21,00030,000 employees that were covered by the services provided under the Financial Agency Agreement.
The Bank continues to provide financial services to the provincial government of the Province of San Luis and its employees in spite of the termination of the Financial Agency Agreement. The government of the Province of San Luis has indicated that it will invite banks, including the Bank, to participate in the selection of a new financial agent. The Bank expects to continue acting as financial agent for the Province of San Luis until a new financial agent is selected. As of the date of this annual report, the Province of San Luis has not yet released the terms and conditions of the auction to be held by the Province of San Luis for the new financial agency agreement.
IfIn addition to the services rendered in San Luis, the Bank is not appointed as financial agent and is replacedworks with the public sector in such a role by another entity, it could have a negative impact on the Bank’s businessmunicipalities in the Provinceprovinces of Mendoza, San Luis, including onJuan, Cordoba, and Buenos Aires. It also works with some national universities.
Consumer Financing
The Consumer Financing business of Grupo Supervielle is developed through its subsidiaries CCF and Tarjeta Automática S.A, Mila and Espacio Cordial de Servicios. Mila and Espacio Cordial were annexed to this segment in 2018.
Through CCF and Tarjeta Automática, the recovery rate ofBank offers credit card services and loans to Provincial government employees who are customers, and may require the closing of some branches.
Consumer Financing
Through CCF, we offer private label credit cards, consumer credit for goods and cash loans to middle and lower-middle-income underserved banking segmentssectors. Product offerings also include consumer loans, credit cards and insurance products through an exclusive agreement with Walmart Argentina, as well as with other agreements with retailers such as Hiper Tehuelche and through Tarjeta Automática branch network. Moreover, through Espacio Cordial, Supervielle offers non-financial products and services. Since the MILA acquisition, the new portfolio of used car loans and its respective results are recorded under Consumer Financing Segment.
Consumer Financing business model is based on providing financing solutions to specific target groups, mainlymiddle and lower-middle income population, focusing its operationswith focus on two key tenets:core pillars:
| (i) | Accessibility: flexible customer centric proposals. |
| (ii) | Diversification: tailored products to meet customers’ needs in every stage of their life with distinct value propositions for each stage. |
(i) Accessibility: flexible proposals focused on the client and adapted to the multichannel concept.
(ii) Diversification: products that satisfy the needs of customers at each stage of their lives with personalized offerings and differential value proposals depending on the different clusters to which they belong.
The Consumer Financing segment’s loan portfolio totaled approximately Ps.4.6Ps.5.0 billion (US$289.7(approximately U.S.$84 million) at December 31, 2016 (the securitized loan portfolio).
For the year ended December 31, 2016, Consumer Financing contributed Ps.1.2 billion to our consolidated net revenues (13.9% of our net segments’ revenues) and Ps.67.7 million of net income (5.2% of total segments’ net income).
Asas of December 31, 2016, CCF2019.
The multichannel concept allows the Bank to be present countrywide through 116 branches of its 3 main marketing channels:
| · | Walmart financial services |
| · | Tarjeta Automática |
| · | “Tu Crédito Hipertehuelche” |
During the second half of 2018 the Group’s strategy had total assetsto adapt to face the adverse scenario resulting from the challenging macroeconomic context and its negative impact on the business. Managers have a robust experience in the financial system which allowed for a strategic business reshaping for 2019 and the quick implementation of Ps.4.9 billion, net shareholders’ equity of Ps.654.9 million and a a personal loan portfolio and credit card loan on balance of Ps.4.0 billion (including the securitized loan portfolio, the total loan portfolio and credit card loans amounted Ps. 4.6 billion) and approximately 379,000 active credit card issued.
As of December 31, 2016, CCF offered the following products:measures:
| · | New strategic pillars were established: enhance the customer experience through digital transformation, expand the consumer product offer and increase cross selling to drive a greater efficiency and profitability. |
| · | The application assessment process was reengineered and more adjustments were made on credit policies, with a view to limiting the loan offer to segments more exposed to macroeconomic uncertainty. |
| · | Changes were implemented in collection strategies and teams so as to support non-performing customers, implementing statistical tools to set priorities in collection management, through data enrichment processes and improvement of allocation and control tools of collection agencies. These changes led to the stabilization of early NPL indicators and non-performing portfolio. |
| · | Product cross selling increased. |
| · | The structure was tailored to the new situation and expenses were cut. |
| · | Focus was placed on the portfolio quality, reducing exposure. |
While the placement of financial products decelerated during 2019 as a result of the macroeconomic context, the following products continued to be marketed:.
Open Credit Cards. CardCCF’s credit card: it is a financial tool through which its clients can makethat may be used for purchases in the networkstores of businesses that acceptmerchants accepting MasterCard and obtainfor cash advances, pursuant to limitations set forthwithin the limits determined by CCF. Marketing for the CCF credit card is carried outentity, which may be obtained in permanent marketing spacesthe Permanent Promotion Booths located in Walmart Argentina stores, Hipertehuelche and Tarjeta’s branches. CCF has exclusive rights to promote and sell financial and credit products in Walmart Argentina stores nationwide through August 2020.
Tarjeta Automática stores.
Private Label Credit Cards. CCF’s private label credit cards are credit cards that may only be used in Pesos and at the business through which they were issued. These private label credit cards aim to increase customer loyalty and generate incremental sales for the business. As of the date of this annual report, Walmart Argentina is the only business that offers a private label credit card.
Insurance and other non-financial products. CCF offers personal accident insurance, protected bag insurance for personal property contained in a bag, backpack, wallet, fanny pack or other bag that is either lost or stolen, health insurance, unemployment insurance, total Protection, household assistance, extended warranty, protected technology, and home on behalf of the insurance companies with which CCF has an agreement.
Personal Loans. CCF offers: fixed rate cash loans to individuals at a fixed interest rate. In 2016, CCF granted more than 106,000 personal loans, amounting to Ps.2.4 billion inusing the balance of personal loans.
french amortization system
Consumer Loans. LoansCCF offers: Credit lines of credit for the purchase of specificcertain products, the transaction is completed upon delivery of the purchased products.
Car Loans: In order to be positioned as the company with the largest financing products offer, CCF reached an agreement with MILA (a subsidiary of Grupo Supervielle specialized in the marketing of car loans) to offer car loans through car dealers using MILA channels. Thus, CCF contributes to Grupo Supervielle’s strategy to become a player in the car financing market. As this new product is backed by a security interest, the impairment of non-performing loans is reduced.
Insurance: a wide array of personal accidents, protected bag, unemployment, total protection and pets insurance policies.
New products under development: borrowing products: CVU, remunerated account, fixed term deposits, among others.
Walmart Financial Services. The agreement as exclusive provider of Walmart financial services to Walmart’s customers in its stores is in force until August 2020, in accordance withpursuant to the third consecutive renewal of the contractthis agreement executed in December 2014 for a2014. This is the fourth consecutive year. In 2016,period in which this agreement has been in effect, and a renewal is currently being negotiated.
Due to the deterioration of the purchasing power of the consumer segment in 2019, CCF continuedfocused on improving and adapting the credit card’s value proposition to focus on increasing its share as a means of payment in Walmart’s sales, achieving a market share of 7.3% in 2016, as compared to 6.8% in 2015.the new scheme.
Insurance
Insurance
We offer insurance services by leveraging our access to our approximately 2.2 million clients through our other business segments.
In 2016, our insurance operations throughThrough Supervielle Seguros, contributed Ps.528.2 millionGrupo Supervielle offers insurance products, primarily personal accidents insurance, protected bag insurance, life insurance and integral insurance policies for entrepreneurs and SMEs. In 2019 Supervielle Seguros started marketing new products focused on the marketing of the special multiple peril insurance to our consolidatedthe entrepreneurs and SMEs segment. Supervielle Seguros is continuously offering new products to the different customer segments of Grupo Supervielle such as: high net, revenues (5.9%worth individuals (Identité), senior citizens, entrepreneurs and SMEs, customers of our net segments’ revenues)the consumer financing and Ps. 252.4 million of net income (19.3% of our segments’ net income).medium and large companies segments. Additionally, different marketing channels are being developed to reach more customers.
Supervielle Seguros began issuing its policies in October 2014 starting with a few non-credit related insurance products, such as “protected bag”bag insurance and “personal accident”personal accident insurance.
By the end of year 2015, Supervielle Seguros began issuing credit-related policies. Supervielle Seguros’s business substantially grew since then, partly because of the growth of the loans and credit card portfolio balances and partly because of the migration of some of the portfolio previously booked in a third party insurance company.
InIn March 2016, the Central Bank issued a new resolution, effective as of September 1, 2016, which prohibits financial institutions from charging individuals any fee and/or charge associated with credit related insurance
policies. This resolution also specifies that financial institutions must purchase life insurance and total and permanent disability insurance for debit balances for their clients. As a result, since September 1, 2016 Banco Superviellethe Bank and CCF assume these risks by self-insuring and no longer contract new credit related insurances.
During 2019, the company started a digital transformation process, which includes a customer focused end-to-end digital process. In addition, the digital innovation permits the exploration of new businesses, processes and technologies to establish the vision of an insurer of the future, focused on efficiency and customer experience. The transformation comprises the use of new work methodologies, new technologies and a cultural change within the Group.
In 2016, 2019, Supervielle Seguros consolidated its offers in the following products:
Protected Bag Insurance. Protected bag insurance is insurance for personal property contained in a bag, backpack, wallet, fanny pack or other bag that is either lost or stolen. Protected bag insurance can cover items such as cellular phones, makeup, planners, lost documents, keys and locks. In addition, protected bag insurance may cover a certain amount of charges from fraudulent credit card use as a result of a lost or stolen bag.
Personal Accident Insurance. Personal accident insurance covers policy holders in the event that they suffer an accident, subject to certain exclusions.
Life insurance. Insurance.Supervielle Seguros markets its life insurance products to the Bank’s senior citizen customers and sells its products through its own sales force that works within the Bank’s service center network. The basic life insurance product includes coverage for death, and customers can add varying degrees of coverage for accidents, serious and terminal illnesses and transplants.
Life insuranceInsurance and totalTotal and permanent disability insurancePermanent Disability Insurance for debit balancesDebit Balances. In the third quarter of 2015, Supervielle Seguros began to offer an insurance product that covers debit balances in the event of death or total and permanent disability. However, as mentioned above, since September 1, 2016, Banco Supervielle and CCF assume these risks by self-insuring and no longer contract new credit related insurances.
Home Insurance. Home insurance coverage includes fire insurance (building and content), theft of content, theft and damage of appliances, glass breakage, civil liability, personal accident coverage for domestic staff and home assistance service in cases of emergencies.
Technology Insurance. Technology insurance covers theft or accidental damage as a result of theft of electronic equipment (includes notebooks, cell phones, tablets, smartphones, cameras and GPSs). In case of theft or accidental damage as a result of theft, the cost of the stolen property or the cost of repair will be compensated up to the maximum insured amount (once the repair invoice is provided).
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ATM Insurance. ATM insurance covers robbery at ATMs, death at the time of the assault and reimbursement of the costs of stolen documentation.
Protected Content. Protected content insurance covers theft and accidental damage of the personal effects that are inside a vehicle.
Broken Bones. The broken bones insurance covers death as result of an accident up to the amount of the insured capital. A certain amount will be paid in the event of quadriplegia or paraplegia, according to the respective insurance plan and once such condition has been verified by a medical audit. This insurance also covers the simple breakage of bones produced as an immediate consequence of an accident.
Integral insurance product for entrepreneurs and SME:Integral insurance product for entrepreneurs and SMEs completes the offer of services for our priority segment entrepreneurs and SMEs, with the particularity that is fully processed by Supervielle Seguros.
Supervielle Seguros has experienced a trend of growth inreported gross written premiums reporting Ps.145.5of Ps.404.9 million in the first quarter of 2016, Ps.191.52019, Ps.407.6 million in the second quarter of 2016, Ps.225.62019, Ps.530.0 million in the third quarter of 20162019 and Ps.199.0Ps.438.7 million in the fourth quarter of 2016.
2019.
The following table sets forth the breakdown of Supervielle Seguros’s gross written premiums per quarter as of December 31, 2016.
2019.
Gross written premumspremiums by product
(Ps. in millions of Pesos)
| % Change | |||||||||||||||||||||
| 4th quarter 2019 | 3rd quarter 2019 | 2nd quarter 2019 | 1st quarter 2019 | 4th quarter 2018 | 4th quarter 2019 vs. 3rd quarter 2019 | 4th quarter 2019 vs. 4th quarter 2018 | |||||||||||||||
| Life insurance and total permanent disability insurance for debit balances | 0.9 | 2.8 | 6.8 | 6.8 | 13.1 | 33.2% | 7.0% | ||||||||||||||
| Personal Accident Insurance | 25.8 | 27.3 | 27.2 | 28.6 | 29.7 | 94.4% | 86.9% | ||||||||||||||
| Protected Bag Insurance | 55.0 | 62.4 | 57.7 | 59.3 | 61.2 | 88.1% | 90.0% | ||||||||||||||
| Broken Bones | 15.2 | 17.7 | 15.9 | 15.3 | 15.6 | 85.8% | 97.3% | ||||||||||||||
| Others | 8.5 | 13.3 | 7.8 | 11.4 | 10.4 | 63.9% | 81.9% | ||||||||||||||
| Home Insurance | 56.1 | 88.6 | 63.5 | 56.8 | 57.6 | 63.4% | 97.4% | ||||||||||||||
| Technology Insurance | 20.2 | 34.0 | 19.6 | 19.0 | 17.4 | 59.5% | 116.0% | ||||||||||||||
| ATM Insurance | 24.1 | 15.1 | 14.2 | 16.1 | 12.2 | 159.9% | 197.9% | ||||||||||||||
| Mortgage Insurance | 27.4 | 28.2 | 36.5 | 30.4 | 41.0 | 97.3% | 66.8% | ||||||||||||||
| Life Insurance | 205.4 | 240.7 | 158.5 | 161.1 | 172.8 | 85.3% | 118.9% | ||||||||||||||
| Total | 438.7 | 530.0 | 407.6 | 404.9 | 430.9 | 82.8% | 101.8% | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| % Change |
| ||
|
| 4th |
| 3rd |
| 2nd |
| 1st |
| 4th |
| 4th quarter |
| 4th quarter |
|
Life insurance and total permanent disability insurance for debit balances |
| 103.4 |
| 136.6 |
| 109.2 |
| 78.1 |
| 15.1 |
| (24.3 | )% | 584.9 | % |
Personal Accident Insurance |
| 13.2 |
| 12.6 |
| 12.0 |
| 10.0 |
| 9.3 |
| 5.0 | % | 42.4 | % |
Protected Bag Insurance |
| 28.0 |
| 26.9 |
| 25.9 |
| 21.3 |
| 20.3 |
| 4.1 | % | 37.7 | % |
Life Insurance |
| 54.4 |
| 49.6 |
| 44.4 |
| 36.1 |
| 35.6 |
| 9.7 | % | 52.8 | % |
Total |
| 199.0 |
| 225.6 |
| 191.5 |
| 145.5 |
| 80.4 |
| (11.8 | )% | 147.5 | % |
Asset Management &and Other Services
We also offerGrupo Supervielle offers a variety of other services to its customers, including mutual fund products through Supervielle Asset Management. Since May 2018, Supervielle also offers products and services through SAM, InvertirOnline S.A.U. Since the MILA acquisition, the new portfolio of used car loans and non financial servicesits respective results are recorded under Consumer Financing segment. MILA portfolio outstanding at the moment of the acquisition and products through Espacio Cordial. Until March 31, 2017, we also offered microcredit services through Cordial Microfinanzas.its respective results are recorded under Asset Management and Others segment.
In 2016, these additional operations contributed Ps.330.2 million to our consolidated net revenues (3.7% of our segments’ net revenues before adjustments) and Ps.124.8 million of net income (9.5% of our segments’ net income before adjustments).
In 2016, SAM recorded Ps.77.4. million of net income, compared to Ps.81.8 million and Ps.18.5 million for years ended December 31, 2015 and 2014, respectively.
SAM’s assets under management amounted to Ps.10.0 billion as of December 31, 2016, compared to Ps.5.9 billion and Ps.3.4 billion as of December 31, 2015 and 2014, respectively.
As of December 31, 2016, SAM has approximately 8,000 customers.
The following graph sets forth the breakdown of SAM’s assets under management as of December 31, 2016.
Mutual Funds. SAM offers mutual funds services designed to meet customers’ particular investment objectives and risk profiles through its PREMIERPremier funds family. As of December 31, 2016,2019, SAM had US$10.0Ps 16.8 billion of assets under management.
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SAM’sAs of December 31, 2019, SAM had approximately 4,590 customers.
The PREMIER family of funds family is composedconsists of eleven14 mutual funds:
· a Money Market Fund (Premier Renta Corto Plazo en Pesos), three Argentina short-term fund (Premier Income Fund Qualified in Pesos);
· five fixed-incomefixed income funds (Premier Plus Income Fund in Pesos (Premier Fixed-Income Savings Fund,Renta Plus, Premier Renta Fija Ahorro, Premier Capital Fund, ), five Argentina fixed income and mixed income funds in Pesos (Premier Fixed-Income Growth Fund,Renta Fija Crecimiento, Premier Commodities, Premier Inversión, Premier Balanceado and Premier MixedRenta Mixta), two Argentina fixed income funds in US dollars (Premier Renta Mixta en Dólares and Premier Performance), a variable income fund (Premier Renta Variable), an investment fund in SME securities (Premier FCI Abierto PyMEs) and a fixed income LatAm fund (Premier Global Dólares).
The money market fund showed an increase of 143%, mainly due to the investments of corporate and institutional customers, representing 79% of the managed funds in December 2019, as compared to 40% in December 2018.
The Argentina Short Term Fixed Income Fundfunds in US$);Pesos (t+1) fell by 85%, and its share on the total managed funds fell to 3% in December 2019 as compared to 28% in December 2018. As from August, due to the devaluation and the rise of interest rates, the return became significantly volatile and corporate and individual customers began to redeem their funds. As from the last quarter, funds managed stabilized as a result of the low volatility of interest rates and exchange rates.
·The Argentina fixed and mixed income funds in U.S. dollars recorded an equity fund (Premier Equity Fund);
·81% fall in terms of Pesos. However, in terms of its currency of origin the funds recorded a fund specifically for90% fall. The share on the total managed funds fell from 21% in December 2018 to 3% in December 2019. In spite of the fact that during the last quarter of 2019 the downward trend ceased, investments in securities issued by SMEs (Premier Common Investment Open SMEs Fund);this segment have not yet recovered.
The Bank places funds through the face-to-face channel of its branch network, through its call center (centro integral de inversiones) and mainly through the home banking online channel.
In June 2013, SAM was ISO 9001 certified for meeting the requirements of the quality management system on “design and development, marketing, management, administration and control of mutual funds.” In October 2018, IRAM’s review audit recertified SAM, updated to the IRAM ISO 9001:2015 standard.
· three mixed-income funds -one of them investsIn April 2019 the Premier Global in agricultural commodities derivatives (Premier Agricultural Commodities) and two of them investDollars was launched to the market, with investments in a diversified portfolio orLatAm fixed income equity and derivatives-.
The placementassets. These assets represent 5% of these products is made by the Bank primarily through its commercial channels,funds managed by SAM, as per the average balance of December 2019.
InvertirOnline is an online platform that offers brokerage and by brokerage firms. In December 2014, SAM began to offer its fundsavings and investment services, to customers through the Bank’s corporate home banking service. This service broadens SAM’s channels of distribution and offers clients a high quality service.
In 2017 SAM plans to broaden its products in accordance to the new opportunities introduced by the new Capital Markets Law.
Retail Sales. Espacio Cordial sells various types of goods and services through a wide range of distribution channels, with a focus on cross-selling to our banking customers.improving the quality of life of persons, through the increase of their income.
As part of Grupo Supervielle,InvertirOnline can leverage its growth and take advantage of the synergy of the different businesses of Grupo Supervielle.
In 2016, Espacio Cordial conducted business through sales points located in the Bank’s service centers throughout Argentina, as well as by catalog orders placed at call centers. Espacio Cordial developed two online sales units in 2015: CordialShop.com.ar and TiendaSupervielle.com.ar, selling primarily household appliances, health plans, security products and prepaid services. In December 2014, Espacio Cordial obtained authorization from the Ministry of Tourism (Ministerio de Turismo) to operate as a travel and tourism company. In 2016, Espacio Cordial sold approximately 75,000 electronic products and approximately 150,000 prepaid service plans.
In 2016, net revenuesInvertirOnline’s assets under management amounted to Ps.152.2 million (US$9.6 million) compared to Ps. 115.8 million in 2015.Ps.12.5 billion as of December 31, 2019.
As of December 31, 2019,InvertirOnline had approximately 51,829 active customers located country-wide.
Espacio Cordial has a presence in all of the Bank’s senior citizen´s dedicated branches. In 2016, Espacio Cordial’s focus was to increase sales in the 78 existing sales point and develop other distribution channels.
Corporate Social Responsibility
Grupo Supervielle has become an important part ofleader in the Argentine financial system with a high visibility potential of visibility in its community actions. Its social activities. Our social commitmentengagement has been growing steadily as our clients continue to increase their expectations regarding the social impact of our projects. Our main subsidiary, Banco Supervielle,grown on a sustained basis and, at present, Corporate Social Responsibility has a strong regionalsignificant place in Grupo Supervielle’s agenda. In 2019 we continued focusing on our social and focused presence that allows itcommunity activities with 20 programs grouped in 4 main lines of action: Education, Childhood, Senior Citizens, and Institutional Strengthening. In addition, during the year we launched three new environmental programs related to participate in social actions, particularly in places with poor social investment.efficient management of energy, plastic reduction and technological scrap recycling.
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Grupo Supervielle issues a Sustainability Report on a yearly basis, following the guidelines and standards established by the Global Reporting Initiative (GRI). The report surveys the achievements made and the challenges ahead in its ongoing commitment towards sustainability, describing the performance of the different companies controlled by Grupo Supervielle in the economic, social and environmental areas. In the process of drafting the 2019 report we conducted a new materiality assessment survey with our stakeholders to identify those issues that are relevant to the business.
We have four strategic objectives for all actions taken:
| · | Become an agent of change and creator of sustainable social value. |
| · | Develop an innovative and transforming strategy with measurable and high-impact actions. |
| · | Synergize CSR initiatives with local communities in which the bank has commercial activity. |
| · | Build a cooperative and co-responsible organizational culture, through initiatives in partnership with different NGOs and corporate volunteering. |
The CSR are as follows:
i. Be perceived not just as a profitable and innovative bank but also as an agent of change and creator of sustainable social value;
ii. Develop an innovative and transformative strategy with concrete, measurable and high-impact actions;
iii. Synergize CSR initiatives with local communities in which the bank has commercial activity; and
iv. Build a collaborative and co-responsible organizational culture.
Our CSR strategicstrategic plan is developed through 1720 programs grouped in four core concepts:axis:
1.
| (i) | Senior Citizens: Programs for senior citizens aim to promote active and healthy aging, social participation and the prevention of dependency. |
| (ii) | Childhood: Programs for children help fight child poverty and malnutrition. |
| (iii) | Education: Education programs promote opportunities through education. |
| (iv) | Institutional Strengthening: Programs designed to contribute to the strengthening of public institutions and the construction of a long-term public agenda. |
In 2019, we carried out 20 programs. Three of our main programs are aimed at senior citizens aim to promote active and healthy aging, social participationreached 7,675 individuals. Four programs target childhood and prevention of dependency.
2. Childhood: Programs for children help to fight against childfighting poverty and malnutrition.malnutrition, seven are related to education and four are part of our institutional strengthening programs. We also supported 24 volunteering actions that 164 volunteers carried out in the City of Buenos Aires and Greater Buenos Aires, Mendoza, Córdoba and San Luis.
3. Education: Education programs promote opportunities and build future through education.
4. Institutional Strengthening: These programs contributeThis past year we also started working on two projects related to sustainability: one related to the strengtheningdisposal of institutionstechnological scrap, which includes recycling, and the construction of a long-term public agenda.
In 2016, Grupo Supervielle published the fourth edition of the Sustainability Report covering 2014-2015. The sustainability Report is prepared basedother focused on the guidelinessubstantial reduction of single-use plastic and standards of the Global Reporting Initiative (“GRI”) and is available on the Banco Supervielle website.correct recycling in our biggest buildings.
Our Subsidiaries
Banco Supervielle S.A.
We own 96.2%97.10% of the share capital of the Bank and Sofital owns 3.63%the remaining 2.79%. The Bank is a universal commercial bank and our largest subsidiary. When consolidated with CCF, the Bank accounted for 96.4% of our total assets as of December 31, 2016. During the last fifteen years, the Bank experienced significant growth while efficiently managing risks, including those posed by the 2001-2002 crisis and the 2008 international economic downturn.2019. The Bank operates in Argentina, and substantially all of its customers, operations and assets are located in Argentina. It offers a wide variety of financial products and services to retail and corporate customers.
According to the Central Bank, as of December 31, 2016,2019, the Bank ranked tenth10 in terms of deposits, and nine8 in terms of total loans and 10 in terms of total assets among private banks in Argentina. As of such date, the Bank ranked fourth in terms of deposits and in terms of total assets among domestically-owned private banking groups. In 2016,2019, the Bank continued to be a leader among private banks with respect to the payment of federal benefits to senior citizens in terms of the number of payments made. The Bank is also one of the leading providers of (i) factoring services in Argentina with a 6.9% in the financial system9.5% share among private banks as of December 31, 20162019 and (ii) leasing services, with a market share estimated to be above 13.1% (in each case, taking into account the securitized leasing portfolio)19% as of December 31, 2016.2019.
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As of December 31, 2016,2019, the Bank on a consolidated basis had total assets of Ps.48.7for Ps.142.3 billion, a total loan portfolio (including the securitized loan portfolio) of Ps.35.3Ps.87.5 billion and total deposits of Ps.35.3for Ps.91.5 billion, and its shareholders’ equity totaled Ps.5.9Ps.18.2 billion.
Cordial Compañía Financiera S.A.
The Bank owns 95% of CCF’s common shares and Grupo Supervielle owns the remaining 5%. As of December 31, 2016, CCF had total assets of Ps.4.9 billion, net shareholders’ equity of Ps.654.9 million and a a personal loan portfolio and credit card loan on balance of Ps.4.0 billion (including the securitized loan portfolio, the total loan portfolio and credit card loans amounted Ps. 4.6 billion) and approximately 379,000 active credit card issued.
In August 2011, we purchased CCF, a company formerly known as GE Compañía Financiera S.A., a financial services division of General Electric. GE Compañía Financiera had been operating for more than ten years in the Argentine market with financial products such as credit cards, personal loans, consumer loans and a wide range of insurance products.
The Bank owns 95% of CCF’s common shares and Grupo Supervielle owns the remaining 5%. As of December 31, 2019, CCF had total assets of Ps.8.1 billion, net shareholders’ equity of Ps.2.5 billion and a personal loan portfolio, credit card and car loan on balance of Ps.5.9 billion.
Since 2000, through an agreement with Walmart Argentina, CCF has had exclusive rights to promote and sell financial and credit products to Walmart Argentina customers nationwide, including Changomas stores. The Walmart Argentina agreement grants CCF access, on an exclusive basis, to a distribution channel that includes107 Walmart Argentina and Changomas stores located throughout Argentina and all future stores to be opened by Walmart Argentina during the term of the agreement. On July 6, 2010, CCF renewed the Walmart Argentina agreement through August 31, 2015 and in December 2014, CCF renewed the agreement again, through August 2020. This new extensionA renewal of the agreement is expected to foster the expansion of CCF’s business and the development of large, long term projects that are expected to bolster the growth of both parties to the agreement.
currently being negotiated.
CCF specializes in specific credit products and financial consumer services. Its business model is based on offering financial products to mainly the middle and lower-middle-income sectors and is focused on two fundamental pillars:
The multichannel concept requires that CCF be present countrywide, and i) (i) Accessibility: Convenient services centered on the customer and adapted to the concept of multi-channel banking. (ii) Diversification: Products that satisfy the customers’ needs in every stage of life with personalized offers and differentiated value propositions. adapted to the conceptas of multi-channel banking.
ii) Diversification: Products that satisfy the customers’ needsDecember 31, 2019 it was present in every stage of life with personalized offers and differentiated value propositions.
The concept of multi-channel banking requires CCF to have a presence everywhere in Argentina, including each of the 2322 provinces which it does through 102113 branches and three main channels of distribution:
· Walmart Financial Services: Through this channel, CCF offers loans, credit card origination and insurance through an exclusive agreement with Walmart Argentina, reaching approximately 369,000 customers.
·
| · | Walmart Financial Services: Through this channel, CCF offers loans, credit card origination and insurance through an exclusive agreement with Walmart Argentina, reaching approximately 309,000 customers as of December 31, 2019. |
| · | Tarjeta Branches: Through this channel, CCF offers financing to middle and lower-middle-income customers. This service has a strong presence in the Patagonia region, reaching approximately 36,600 customers as of December 31, 2019. |
| · | “Tu Crédito Hipertehuelche”: Through this channel, CCF offers loans, credit card origination and insurance through an exclusive agreement with Hipertehuelche Supermarkets, reaching approximately 11,800 customers as of December 31, 2019. |
Tarjeta Automática S.A.
In December 2012 CCF began to market loans and credit cards under “$YA” and “Carta Automática” brands through Tarjeta branch channel which supplements the consumer division network.
Tarjeta consists of a network of branches created in 1996 with a strong positioning in the Patagonia region. At present it has 20 own branches in 9 provinces. CCF’s commercial strategy in this channel is to offer a wide ranche of financial services and insurance.
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The channel’s objective is to reach the leadership in the Patagonia region and reaches approximately 50,000 customers.through a differential proposal: services similar to those of a bank but with an approach similar to that of a regional financial entity. To meet the demand of our customers the network focuses on the marketing of loans as the gateway.
· “Tu Crédito Hipertehuelche”: Through this channel, CCF offers loans, credit card origination and insurance through an exclusive agreementis the leader in the consumer loan segment in the Carta Automática markets, with Hipertehuelche, reaching approximately 15,000 customers.
To secure its market presence and to maximize customerhigh satisfaction and prospects, CCF owns financial service stands in all medium and large Walmart Argentina locations and has a total of 66 sales and services points. In smaller Walmart Argentina locations, CCF has developed a customer sales and services model through exclusive technology that does not require on-site presence.brand awareness levels among its customers (source: 2018 Quantitative Survey).
In the third quarter of 2014, CCF entered into an agreement with Hipertehuelche, a home improvement and construction products retail chain, in which it agreed to become the exclusive financial company of Hipertehuelche’s Patagonia locations, where it has sixteen stores. In these stores, there is a financial services stand where CCF’s products are offered.
For the year ended December 31, 2016, CCF was the largest private issuer of MasterCard credit cards with billing statement in Argentina. With respect to origination, for the year ended December 31, 2016 CCF placed 106,268 loans and issued 177,210 credit cards.
Tarjeta Automática S.A.
Tarjeta was founded in 2002 to offer credit services to a segment of customers to whom banking services were not previously available. Its operations are concentrated primarily on granting consumer credit. In 2007, we acquired Tarjeta.
Tarjeta has 20 public service branches and 41 stands at retail chains. The highest concentration of Tarjeta branches is in Patagonia.
CCF and Tarjeta entered into an agreement for the provision of certain services to create synergies between themselves within the framework governing complementary financial services established by the Central Bank. Pursuant to this agreement, CCF will provide services to Tarjeta related to risk and collection, finance, facilities, customer service call centers, IT and operations.
Supervielle Seguros S.A.
In June 2013, Grupo Supervielle and Sofital purchased 100% of the shares of Supervielle Seguros (formerly known as Aseguradores de Créditos del Mercosur S.A.). Supervielle Seguros began operations in October 2014.
Supervielle Seguros began issuing its first policies in October 2014 starting with a few non-credit related insurance products, such as protected bag insurance and personal accident insurance. By the end of 2015, it began issuing credit-related policies substantially growing its business since then, partly through the growth of the loans and credit card portfolio balances and partly through the migration of some of the portfolios previously booked in a third party insurance company. A Central Bank resolution issued in March, 2016 and effective September 1, 2016, prohibits financial institutions from charging individuals any fee and/or charge associated with credit related insurance policies. This resolution also specifies that financial institutions must purchase life insurance on debit balances or
alternatively, self-insure the risk of death and permanent total disability of their clients. As a result, since September 1, 2016, both Banco Supervielle and CCF assumeare self-insured against these risks by self-insuring and no longeronly contract new credit related insurances.insurances for mortgages loans. We intend to continue to expand this business and launch new insurance products previously offered to itsour customers by other insurance companies.
In parallel withThe challenge for 2020 is to continue consolidating the consolidation of its non-credit relatedcurrent insurance business Supervielle Seguros plansand to advance itsmake the necessary developments for the issuance of health and unemployment insurance policies, among other, focusing on the entrepreneur and SMEs, medium and large companies, senior citizens and Consumer Financing segments. Additionally, work will be done to develop new sales channels and to assess all those products adaptthat contribute to the needsprovision of its distribution channelsfinancial services and clients and evaluate howinsurance to incorporate the business into the credit-related businesses.customers.
Supervielle Asset Management Sociedad Gerente de FCI S.A.
Through SAM, we have become a player in the mutual funds market with the “Premier” funds family. In November 2014, Standard & Poor’s published its “FundStar Ranking,” which ranks
As of December 31, 2019, SAM offered 14 mutual funds based on relative strengths comparedservices designed to other mutualmeet customers’ particular investment objectives and risk profiles through its Premier funds with similar long-term investment strategies. Premier Fixed-Income Savings Fund and Premier Income Fund Qualified received the highest rating of five stars and Premier Equity Fund received four stars.
family. As of December 31, 2016,2019, SAM managed 11 mutual funds and had US$10.0U.S.$281 million of fundsassets under management. Based on data from the Argentine Association of Mutual Funds, we estimate that we have a market share of approximately 2.98%2,12% of the mutual fund industry in Argentina and that SAM is ranked 1118 out of 4352 managers in the market.
Espacio Cordial de Servicios S.A.
Espacio Cordial was created in October 2012 and began operating in December 2012. The business was created to sell various types of goods and services including those related to insurance, tourism, health care plans and/or services and other goods and services set forth in its corporate by-laws.
As a result of the restructuring conducted in August 2018, Cordial Servicios became part of the consumer financing sector of Grupo Supervielle.
During 2019 Espacio Cordial continued operating in the direct and indirect channels already developed. The direct channel continued developing through sales points located at the Bank’s branches throughout the country, trading mainly home appliances, health care and security plans, prepaid services and tourism services. It was also present in theCarta Automática branch of La Plata, where the first prototype of integrated branch and home appliances outlet was launched, increasing the traffic in the branch and a larger product turnover. The home appliances category strategy continued seeking for stocks optimization and product mix under the motto: “Primer precio, Primera marca” (“Best price for a leading brand”) during 2019. The services and assistance category developed a new channel in partnership with Walmart, obtaining 100 additional sales points.
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As regards indirect channels, the telephone channel continued to be used for the sale of prepaid health care services.
The digital channel, through Tienda Supervielle Marketplace, was used to sell home appliances, technology, home and furniture, sports, wellness and beauty, toys, perfumes, tires and accessories. As regards the tourism category, Tienda Supervielle continued growing as a sales channel, with the introduction of technological changes, a new “look & feel” and the integration to the Rewards program of Banco Supervielle, as the main vertical portal for flights and hotels. In March 2019 the corporate trip management platform was launched for Grupo Supervielle companies. New group packages were developed, fully managed by the area, offering domestic destinations under the Rewards Groups program for employees of the group’s companies.
The services and assistance category continued developing the digital channel with the sale of health care plans through a strong online strategy in the social media and developing digital self-management products for the companies of the consumer division and the launching of new digital products such as “Doctor en línea” (“Online doctor”).
In June 2019, the company purchased Deautos.com, a new and second-hand vehicle purchase and sale platform, one of the leading sites in its category with over 10 years in the market. The aim was to create a digital ecosystem, integrating and simplifying the offer of services and increasing the synergy with other Grupo Supervielle companies to deliver a higher customer experience through the best market offers.
During 2019, 41,500 home appliances were sold, which accounted for an income of over $186 million, and 137,000 service plans, which accounted for an income of over $501 million.
Micro Lending S.A.U.
MILA is a company devoted to originating car financing loans and was acquired by Grupo Supervielle on May 2, 2018.
In 2019, MILA originated car financing loans for a total of Ps.605 million from 3,316 transactions.
In 2019 a total of 440,452 new cars (76,990 of which were financed through car loans) and 1,592,965 used cars (61,603 of which were financed through car loans loans) were sold in Argentina.
Throughout 2019, MILA operated with six insurance companies, offering a wide array of products, and generated an income from these concepts that represents about 20% of the total income of MILA.
The goal for 2020 is to expand the placement of transactions. This goal will be pursued through three strategic pillars: (i) greater commercial efficiency, (ii) a greater capillarity to its network, and (iii) launch of new financial products while taking advantage from synergies within the group holding.
InvertirOnline.com
InvertirOnLine.com is a fintech Company which was established at the end of 2000 and was acquired by Grupo Supervielle from its founder in May 2018. At present InvertirOnline is an online platform that offers brokerage and savings and investment services, with a focus on improving the quality of life of persons, through the increase of their income.
In 2019 there was a 155% increase in the number of transactions made, as compared to 2018, totaling 1,123,000 transactions. In 2018 the number of transactions through InvertirOnline hit a record, with over 724,000 transactions. Also, the transacted amount in 2019 exceeded the Ps.76 billion, representing a 213% increase as compared to the previous year, and over 59,000 accounts opened by new customers during that period, which represents an increase of more than 750% as compared to the 7,800 accounts opened during the prior period.
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During 2019 the services offered through the Invertironline.com platform continued to improve and in order to enhance the customer experience work continued to be done in the automatic crediting of online deposits, which enables the immediate transfer of funds made by customers.
During 2019, InvertirOnline offered 24x7 services for the purchase and sale of U.S. dollars to all of its customers.
As from August the amount of the maximum fee charged was reduced, and account maintenance and withdrawal charges were eliminated, thus attracting more customers to capital markets at very affordable costs and favoring financial inclusion.
With the same objective of facilitating market access to people countrywide, during this period the 100% digital onboarding was launched, therefore the account opening process is automatic, immediate and is available 24x7.
Since the beginning of 2019 InvertirOnline also started to offer the possibility to make transactions in the US market through different investment instruments, so as to diversify the assets invested in one of the largest markets at global level. This business has to comply with the FATCA and the IRS QI agreements.
Supervielle Productores Asesores de Seguros S.A.
On December 21, 2018, Supervielle Broker de Seguros S.A. was created. The company has the exclusive corporate purpose of carrying out the insurance intermediation activity, promoting the contract of life insurance, wealth and pension insurance premiums, and advising customers and potential customers. Grupo Supervielle directly owns 95% of its share capital (and indirectly owns 100% of its share capital). The company was renamed Supervielle Productores Asesores de Seguros S.A and began operation in the second half of 2019.
The 2020 goal is to expand the offer to the group’s customers with a focus on the entrepreneurs and SMEs, SMEs and Medium and Large companies. This will improve risk management through the advice to customers, adding value to Grupo Supervielle’s comprehensive proposal.
A team of insurance experts will be working in every region so as to advice customers and create synergies to detect new business opportunities.
Bolsillo Digital S.A.U.
On June 12, 2019 Bolsillo Digital S.A.U. was created with the purpose of providing design, programming and development services for software, mobile phone applications, web pages and/or any other digital medium, commercializing products and services related to the management and processing of payments made by and in favor of third parties and developing and operate platforms and tools of payment methods of any type and in any of its forms.
Futuros del Sur S.A. (in process of changing its corporate name to Supervielle Agente de Negociación S.A.U.)
On December 18, 2019, Grupo Supervielle acquired 100% of the capital stock of Futuros del Sur S.A., a trading agent registered with the Argentine Securities Commission. Through this acquisition Grupo Supervielle seeks to expand the financial and investment services to institutional and corporate customers and increase cross selling in an efficient and profitable way.
Sofital S.A.F. e I.I.
Sofital S.A.F. e I.I. is asociedad anónima whose main activity consists of holding participations in other companies.
AsAs of the date of this annual report, Sofital holds 3.63%2.7944% of the capital stock of the Bank, and 5%a 5.0% of the capital stock of SAM.
An in-kind capital contribution by Mr. Julio Patricio Supervielle of 7,672,412 non-endorsable ordinary registered shares of Sofital S.A.F. e I.I. to Grupo Supervielle was approved at a shareholders’ meeting of Grupo Supervielle dated April 27, 2017.
The capitalization of such in-kind contribution is subject to regulatory approval by the CNV and registration by the IGJ, which are pending asCordial Servicios, 5.0% of the date of this annual report.
Viñas del Monte S.A.
Viñas del Monte is a wine company in the Cuyo region. As of December 31, 2016, our interest in Viñas del Monte was 99.4%. For the year ended December 31, 2016, Viñas del Monte had sales of Ps.4.7 million. Viñas del Monte was an investment funded by the Bank to participate in a program set up by the Province of San Juan designed to promote investments in certain industries. By participating in this program, the Bank deferred tax payments for 75% of the investment made in Viñas del Monte between 1998 and 2001 and up to 2010. The tax was paid in full, without interest, in 2014.
Investments in and Divestments of Grupo Supervielle in its Subsidiaries
On March 30, 2012, we made an irrevocable capital contribution to Cordial Microfinanzas for future capital increases. On August 29, 2012, Cordial Microfinanzas capitalized the contribution and we received 119,085 shares of Cordial Microfinanzas.
On October 2, 2012, the Board of Directors resolved to establish Espacio Cordial. Espacio Cordial has authorized capital of Ps.1,000,000, representing 1,000 common shares, of which we own 95% and Sofital owns the remaining 5%.
On November 9, 2012, we made an offer to the Bank to acquire the rights to its irrevocable contributions in the form of future capital increases made by the Bank to Viñas del Monte, a company in which we previously had owned a 1% stake. On November 14, 2012, the rights to the irrevocable contributions in the form of future capital increases for a nominal amount of Ps.2,500,000 were transferred to us in exchange for Ps.4,520,000.
On February 5, 2013, we accepted an offer for the acquisition of 95% of the purchase shares of Aseguradores de Créditos del Mercosur S.A. (which was later renamed Supervielle Seguros). On May 14, 2013, the National Superintendency of Insurance approved the transfer of the company’s shares. As a result, on June 6, 2013, 95% of the shares of Aseguradores de Créditos del Mercosur S.A. were transferred to us and the remaining 5% was transferred to Sofital.
On May 30, 2014, Sofital and Grupo Supervielle entered into an agreement for the sale of 100% of the shares of Adval to CAT Technologies S.A. The purchase price is scheduled to be paid in installments due between July 2014 and July 2019. As of December 31, 2015, Grupo Supervielle recorded a credit of Ps.2.3 million and Sofital S.A. a credit of Ps.0.1 million.
On February 25, 2014, the shareholdersstock of Supervielle Seguros voted to increase the share capital by an amountand 5.0% of Ps.5,000,000 in proportion to their holdings to be integrated in cash and in kind.
On November 26, 2014, our Board of Directors decided to make a capital contribution to Supervielle Seguros for an amount of Ps.12,462,232.05. The capital contribution did not change our stake in Supervielle Seguros. The increase in share capital of Supervielle Seguros is pending the approval of the Superintendency of Insurance.
On April 29, 2016, we and the Bank made capital contributions to CCF for a total amount of Ps.25.0 million.
On May 31 and June 3, 2016, we made capital contributions to the Bank for Ps.2.2 billion. On September 22, 2016, the Bank held an Extraordinary Shareholders’ meeting in which it resolved to capitalize said contributions by increasing the capital stock by Ps.182.1 million with an issue premium of Ps.2.0 billion.SAM.
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On May 31 and June 16, 2016, we made capital contributions to CCF for Ps.14.0 million. On October 24, 2016, CCF held an Extraordinary Shareholders’ meeting by which it resolved to accept such contributions for the total amount of Ps.305.0 million under the terms established in the respective agreements for the irrevocable capital contribution, to increase the capital stock in the amount of Ps.31.4 million increasing it from Ps.73.0 million to Ps.104.4 million, and issue 31,370,057 ordinary, non-endorsable nominative shares with a nominal value of Ps.1 each and entitled to one vote per share.
On February 17, 2017, we and the Bank made capital contributions to CCF for Ps.100.0 million. On March 9, 2017, CCF held an Extraordinary Shareholders’ meeting by which it resolved to accept such contributions and increase the capital stock in the amount of Ps.19.5 million, from Ps.104.4 million to Ps.123,7 million, and issue 19,348,722 ordinary, non-endorsable nominative shares with a nominal value of Ps. 1 each and entitled to one vote per share.
On March 20, 2017, both our Board of Directors and the Bank’s Board of Directors, accepted an offer from Ciudad Microempresa, to acquire 100% of the shares of Ciudad Microfinanzas. The offer was subject to the compliance of certain conditions, and the transaction was closed on March 31, 2017 when the conditions were met. Grupo Supervielle sold its 12,219,472 shares, representating 87.5% of the total capital stock, and Banco Supervielle sold its 1,745,632 shares, representing 12.5% of the total capital stock.
On March 27, 2017, we made a capital contribution to the Bank for Ps 95.0 million.
Market Area
We maintain a strong geographic presence in the City of Buenos Aires and the Greater Buenos Aires metropolitan area, which is Argentina’s most commercially significant and highly populated area, and we are leaders in terms of our banking network in some of Argentina’s most dynamic regions, including Mendoza and San Luis.
City of Buenos Aires.The City of Buenos Aires is the capital of Argentina and the center of commerce and seat of the national government in Argentina. Based on the publicly available information released by region,company estimates, the City of Buenos Aires had a GDP per capita in 20052019 of approximately US$40,000U.S.$28,000 and the INDEC estimated a population of approximately 2.9 million (approximately 7.2% of Argentina’s overall population). as of December 31, 2019. As of December 31, 2016,2019, the unemployment rate in the City of Buenos Aires was 5.7% decreasing from 8.5%6.9%, same rate as of June 30, 2016.December 31, 2018. In terms of the banking sector, there are 817855 bank branches (out of a total of 4,5494,773 bank branches in Argentina) in the City of Buenos Aires and the city accounts for 47% and 53% of total deposits and loans in Argentina, respectively.
Aires.
Province of Buenos Aires. The Province of Buenos Aires, which includes the Greater Buenos Aires metropolitan area, is an agricultural center focused primarily on the production of soy, wheat, corn and other agricultural products. Based on the most recent publicly available information released by region,Company estimates, the Province of Buenos Aires had a GDP per capita in 20052019 of approximately US$12,000U.S.$7,000 and the INDEC estimate a population of approximately 15.6 million (approximately 38.9% of Argentina’s overall population). as of December 31, 2019. As of December 31, 2016,2019, the unemployment rate in the Province of Buenos Aires decreased to 9.4%10.0% from 11.2%11.4% as of June 30, 2016.December 31, 2018. During the last decade, agricultural production has been strong as a result of high commodity prices which has contributed to Argentina’s economic growth. It is expected that agriculture production will continue to be a key driver of economic growth in Argentina in the coming years. In terms of the banking sector, there are 1,4191,504 bank branches (out of a total of 4,549)4,773) bank branches in Argentina) in the Province of Buenos Aires and the region accounts for 23% and 18% of total deposits and loans in Argentina, respectively.
Aires.
Mendoza. Mendoza. The Province of Mendoza is located in the Cuyo region and is the center of the wine industry in Argentina. Based on the most recent publicly available information released by region,Company estimates, Mendoza had a GDP per capita in 20052019 of approximately US$13,000U.S.$7,000 and the INDEC estimated a population of approximately 1.7 million (approximately 4.3% of Argentina’s overall population). as of December 31, 2019. As of December 31, 2016,2019, the unemployment rate in the Province of Mendoza decreasedincreased to 3.3%7.3% from 4.4%5.9% as of June 30, 2016.December 31, 2018. In terms of the banking sector, there are 162179 bank branches (out of a total of 4,5494,773 bank branches in Argentina) in Mendoza and the city accounts for 2% of total deposits and loans in Argentina.
Mendoza.
San Luis. Luis. The Province of San Luis is located in the Cuyo region. The primary industries in the Province of San Luis are agricultural production and tourism. Based on the most recent publicly available information released by region, San Luis had a GDP per capita in 2005 of approximately Ps.13,000 and a population of approximately 0.4 million (approximately 1.1% of Argentina’s overall population). As of December 31, 2016,2019, the unemployment rate in the Province of San Luis increased to 3.6%2.9% from 2.8% as of June 30, 2016.December 31, 2018. In terms of the banking sector, there are 5350 bank branches (out of a total of 4,5494,773 bank branches in Argentina) in the Province of San Luis and the city accounts for 0.5% and 0.3% of each of total deposits and loans in Argentina, respectively.Luis.
Distribution Network
Our current infrastructure supports our multi-channel distribution strategy with a strategic national footprint through 320316 access points, which include 176185 bank branches, and 1713 banking payment and collection centers, 6679 CCF sales points located in Walmart supermarkets, 6134 consumer financing branches of Tarjeta and other points of sale, points, 4945 Mila’s customer support offices, network of 393 car dealers and 536 ATMs, 217 self-service terminals and 167 self-service terminals. Since 2001, when our network consisted of 23 access points, our distribution network has grown at a 18.8% CAGR. In February and March 2017, the Central Bank approved our request to convert 31 remaining senior citizen service centers into full bank branches.
202 Cash Dispensers with biometric identification..
As of December 31, 2016, according to the Central Bank’s information,2019, the Bank’s loan portfolio to branches ratio, which we calculate by dividing the total amount of loans outstanding at the end of the period by the number of branches at the end of such period, was Ps.192 million,Ps.443.4, compared to Ps.255Ps.393.0 million for Argentine private banks, Ps.195 million for Banco Macro S.A., Ps.379 million for Banco de Galicia y Buenos Aires S.A., and Ps.309 million for BBVA Banco Francés S.A.as of December 31, 2018.
We have 78 dedicated bank branches to provide banking services to senior citizens and their representatives, including: a) making social security payments to senior citizens on behalf of ANSES; b) offering savings accounts and time deposits; c) receiving loan applications and disbursing loans; d) issuance of credit and debit cards and ancillary services; e) foreign exchange transactions; f) payment by senior citizens of taxes, loan installments, credit card balances and others; and g) check payment and collection to providers and customers. In February and March 2017, the Central Bank approved our request to convert the remaining Senior Citizen Service centers into full bank branches that provide full banking services.
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The following table and map showshows the geographicaldetail of our distribution of branches, senior citizen service centers and sales and collection centers, as of March 31, 2017, except otherwise indicated:
Distribution Network
network:
| Distribution Network | |||
| As of December 31, 2019 | |||
| Banco Supervielle S.A. |
| ||
Banco Supervielle S.A. Sales and Collection Centers |
| ||
Tarjeta Automática S.A. Branches | 20 | ||
Tarjeta Automática S.A. Sales and Collection Centers |
| ||
Cordial Compañía Financiera Sales Points |
| ||
|
| ||
ATMs | 536 | ||
| Self-service Terminals |
| ||
| “Caja Rapida” - Cash Dispensers with biometric identification | 202 | ||
(1) In February and March 2017, the Central Bank approved our request to convert 31 senior citizen service centers into full bank branches. As a result, as of the date of this annual report, we have 176 bank branches. One senior citizen service center was closed.Deposits
(2) As of December 31, 2016.
Deposits
The following tables showcompare the composition of the Bank’s (on a consolidated basis) and thetotal funding with those of all Argentine private banks’ total liabilities and depositsin each case as of December 31, 2016:2019:
| Year ended December 31, 2019 | ||||||||||||
| Liabilities and Shareholders equity | Banco Supervielle | Private Banks | ||||||||||
| (in millions of Pesos) | % | (in millions of Pesos) | % | |||||||||
| Deposits | 91,477.5 | 64,6% | 2,763,956 | 67.2% | ||||||||
| Other Liabilities | 50,121.5 | 35,4% | 1,347,676 | 32.8% | ||||||||
| Total | 141,599.0 | 4,111,632 | ||||||||||
|
| Year ended |
| ||||||
Liabilities |
| Banco Supervielle |
| Private Banks |
| ||||
|
| Ps. (in millions) |
| % |
| Ps. (in millions) |
| % |
|
Deposits |
| 35,930.8 |
| 78.7 |
| 1,046,394.4 |
| 82.0 |
|
Other Liabilities |
| 9,699.9 |
| 21.3 |
| 230,273.8 |
| 18.0 |
|
Total |
| 45,630.7 |
| 100.0 |
| 1,276,668.2 |
| 100 |
|
| Year ended December 31, 2019 | ||||||||||||
| Deposits Breakdown | Banco Supervielle | Private Banks | ||||||||||
| (in millions of Pesos) | % | (in millions of Pesos) | % | |||||||||
| Checking accounts | 12,127.0 | 13.3% | 550,907 | 19.9% | ||||||||
| Saving Accounts | 40,774.2 | 44.6% | 1.189,573 | 43.0% | ||||||||
| Time deposits | 28,350.9 | 31.0% | 802,404 | 29.0% | ||||||||
| Other deposits | 10,225.4 | 11.2% | 221,072 | 8.0% | ||||||||
| Total | 91,477.5 | 2,763,956 | ||||||||||
|
| Year ended |
| ||||||
Deposits Breakdown |
| Banco Supervielle |
| Private Banks |
| ||||
|
| Ps. (in millions) |
| % |
| Ps. (in millions) |
| % |
|
Checking accounts |
| 4,371 |
| 12.2 |
| 188,187 |
| 18.0 |
|
Saving Accounts |
| 13,206 |
| 36.8 |
| 341,060 |
| 32.6 |
|
Time deposits |
| 11,701 |
| 32.6 |
| 340,595 |
| 32.5 |
|
Other deposits |
| 6,653 |
| 18.5 |
| 176,553 |
| 16.9 |
|
Total |
| 35,931 |
| 100.0 |
| 1,046,394 |
| 100.0 |
|
|
| Year ended |
| ||
|
| Banco Supervielle |
| Private Banks |
|
Deposits <Ps.1.0 mm |
| 52.8 |
| 51.5 |
|
Deposits >Ps. 1.0mm |
| 47.2 |
| 48.5 |
|
As a result ofDue to the importance of the franchise of our sizeable deposit network, franchise, retail plus senior citizens deposits in Pesos continued to representaccount for a highsignificant portion of total deposits. As of December 31, 2016,2019, retail plus senior citizens deposits in Pesos represented 60%55% of total deposits compared to 54% as of December 31, 2015.deposits.
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Loan Portfolio —– General Overview
Each loan category in our loan portfolio faces different risks. We have established underwriting policies, standards and pricing mechanisms designed to mitigate the risks posed by each loan category. Our loan portfolio has grown significantly since 2001. As of December 31, 2016,2019, we had a loan portfolio (including the securitized loan portfolio) of Ps.38.8Ps.92.2 billion (equivalent to US$2.5U.S.$1.5 billion converted to U.S. dollars at the reference exchange rate as of December 31, 2016), compared to December 31, 2001, when we had a loan portfolio of Ps.92.9 million (equivalent to US$92.9 million, converted to U.S. dollars at the reference exchange rate as of December 31, 2001)2019).
Underwriting Policies
Our policies require that most loans only be approved for borrowers that are able to provide proof of a source of repayment and demonstrate an ability to service existing and future debt. Our underwriting procedures for all loan types require consideration of the borrower, including with respect to the borrower’s financial condition, cash flow, the management skills and industry of our corporate customers, and the economic environment surrounding the issuance of any given loan.
We generally expect customers to repay loans with unencumbered cash available to them. A significant part of our loan portfolio is securede,secured, and we assess the quality and liquidity of collateral before we grant any secured loan.
Interest Rate Terms
We price loans: (i) on both a fixed rate and floating rate basis; (ii) over different terms; and (iii) based upon different rate indices. Our pricing structures are consistent with our interest rate risk management policies and procedures. For more information on these policies and procedures, seeSee “—Credit Risk Management.”
Loans to individuals (personal loans, and credit card loans)loans, car loans and mortgages) are priced only on a fixed rate basis, whilebasis. UVA Mortgage loans and some UVA car loans principal is adjusted for inflation. Loans to small businesses SMEs, Middle-Market Companies and Large CorporatesSMEs are priced on both a fixed rate and floating rate basis as follows:
| · | Fixed rate: promissory notes (checking and invoice discounts, work certificates for government projects and warrants), overdrafts, foreign trade loans, automobile, personal loans and mortgages with adjustable principal, based on inflation. |
| · | Floating rate: automobile and other secured loans, receivables from financial leases. |
| · | Both rates: corporate unsecured loans. |
· Fixed rate: promissory notes (checking and invoice discounts, work certificates for government projects and warrants), overdrafts, foreign trade loans and personal loans.
· Floating rate: automobile and other secured loans, receivables from financial leases.
· Both rates: corporate unsecured loans.
Risks
Below we list our loan categories from lowest risk to highest risk in terms of repayment ability and historical default rates:
| (1) | Promissory notes (checking and invoice discounts and warrants) |
| (2) | Receivables from financial leases |
| (3) | Foreign trade loans |
| (4) | Mortgage loans |
| (5) | Corporate unsecured loans |
| (6) | Corporate credit cards |
| (7) | Overdrafts |
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| (8) | Automobile and other secured loans |
| (9) | Personal loans and credit card loans (from the Personal and Business segment) |
| (10) | Personal loans and credit card loans (from the Consumer Financing segment) |
1. Promissory notes (checking and invoice discounts and warrants)
2. Receivables from financial leases
3. Foreign trade loans
4. Mortgage loans
5. Corporate unsecured loans
6. Overdrafts
7. Automobile and other secured loans
8. Personal loans and credit card loans (from the Retail Banking segment)
9. Personal loans and credit card loans (from the Consumer Financing segment)
Summary of Loan Portfolio Categories
Promissory notes (factoring and check discounting and warrants)
Factoring and check discounting.Check discounting is used to finance working capital needs for businesses that have a diversified accounts receivable portfolio and customers or parties that issue checks and have a favorable credit history. Most of our check discounting transactions are with recourse to the assignor (i.e., we secure repayment with a pledge over an assignment of the borrower’s cash flow). However, some of our check discounting transactions are without recourse to the assignor, in which case we only have recourse to the endorser of the check. With respect to our operations with recourse, we evaluate the creditworthiness of both the assignor and the endorser of the check, specifically assessing each party’s payment history, credit history and legal history by requiring a variety of documents to aid us in our underwriting process. We accept checks that are issued in the ordinary course of business from the customer with a payment date generally no longer than 180 days.
Warrants.Warrants are granted to finance working capital needs for producers or sellers of commodities or non-commodities such as sugar, soy, wheat, corn, sunflower, peanuts, cotton and yerba mate and tobacco.mate. We take collateral in respect of the warrants for at least 20% to 35% in excess of the value of the products, depending on the type of product. The most significant risk we face when extending warrant financing relates to the quality and preservation of the underlying assets. To mitigate this risk, we select third-party companies to assess and monitor the value and quality of the underlying products. We establish maximum warranty amounts ranging from US$5U.S.$5.0 million to US$40U.S.$ 40.0 million depending on the type of product. We set interest rates for our warrants based on the term of the warrant and the quality of the underlying product.
Receivables from financial leases
Our financial leases are granted for financing acquisitions of capital assets, industrial equipment, road equipment and automobiles. The terms of these loans are typically between 18 and 60 months, varying based on the type of product or equipment and the useful life of such product or equipment.
The primary source of repayment for this product is cash flows from the borrower, and, therefore, we evaluate the borrower’s repayment ability before granting such loans. We also evaluate the type of asset for which the financial lease is granted in the event the borrower is unable to repay the loan. If the borrower is unable to repay the loan, we may sell the asset to recover all or part of the outstanding amount of the loan.
The primary risk associated with our financial leases is that the borrower may default on the loan and the collateral may be insufficient to recover the outstanding amount of the loan. We mitigate this risk by: (i) granting financial leases in respect of new assets that have historically shown adequate resale values, (ii) requiring a down payment of 10% to 30% (depending on the repayment ability of the customer); and (iii) for certain types of assets, requiring a commitment from the supplier of the asset to buy or find a buyer for the asset in the event of the borrower’s default. We set floating interest rates for our financial leases based on prevailing market rates.
Mortgage loans
We grantThe Bank grants inflation adjusted mortgage loans. We setThe Bank sets a fixed interest rate but the remaining capital is adjusted on a monthly basis according to the UVA monthly evolution. Therefore, the loan has index-linked capital payments (the value of the capital and the installment is updated by inflation). We evaluateThe Bank evaluates the creditworthiness of the client based on credit and legal track records, a minimum credit score and income level. The loan is granted based on a loan-to-value ratio up to 75% of the property value (with a unlimited maximum amount). The terms of the mortgage loans are from 12 months to 240360 months.
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Foreign trade loans
Foreign trade loans are granted to finance exports and imports through pre-financing and financing loans for exports, international factoring and letters of credit for imports.
In the case of pre-financing and financing loans for exports, we analyze the repayment ability of both the borrower and its foreign client. Specifically, we ensure that the credit line that we grant is tailored to the borrower’s historical export levels and projected export levels (based on contracts, purchase orders and other documentation). We generally grant pre-financing and financing loans for exports with terms ranging from 90 to 180 days, depending on the transaction and such loans are solely denominated in U.S. dollars. Interest rates for pre-financing and financing loans for exports depend on the term of the loan and range from 2% to 7.5%.
In the case of letters of credit for imports, we face a risk that we will have to pay for the imports in the event that the borrower defaults. To mitigate this risk, we ensure that the loan is granted once the merchandise to be imported can be shipped and the relevant shipment documentation can be issued. Generally, the term of our letters of credit do not exceed one year. We receive a fee for the letters of credit we issue instead of charging interest.
Corporate unsecured loans
Corporate financial loans. Our corporate financial loans finance short term working capital needs of up to one year or medium term working capital needs of up to three years for businesses that require monthly or periodic amortization. These loans are granted to customers with annual revenues in excess of Ps.40Ps.150 million. We evaluate the customer’s repayment ability using the general criteria and analysis for corporate customers. We also analyze the following factors: the shareholders and management of the borrower, the financial and economic environment, regulatory risk and projected cash flow for the entire period during which the loan will be outstanding to ensure that the borrower will be able to comply with the scheduled payments under the loan. We take into account the potential effects that economic variables such as exchange rate volatility and inflation could have on projected cash flow. We set either a floating or fixed interest rate for our corporate financial loans based on the creditworthiness of the borrower’s business and the term of the loan.
Loans to small businesses. Our loans to small businesses are originated at the Bank’s branches based on a policy that requires adequate credit and legal history, a minimum credit score and a certain level of revenues. Our loans to small businesses finance the working capital needs of businesses with annual revenues of up to Ps.40Ps.150 million. The maximum loan assistance that we provide is Ps.725,000Ps.12.5 million for unsecured loans and Ps.725,000Ps.16.6 million for factoring services. Our general policy is that our small business loan portfolio be composed 50% of unsecured loans and 50% of secured loans and factoring transactions. The Bank’s branches may grant up to Ps.150,000Ps.2.5 million of unsecured loans and Ps150,000Ps.3.3 million of factoring transactions, and any excess amount must be evaluated by the Bank’s specialized credit analysis unit. We set either a floating or fixed interest rate for our loans to small businesses based on the creditworthiness of the borrower’s business and the term of the loan. The interest rates for our loans to small business are generally higher than the interest rates for our corporate financial loans reflecting the difference in size and revenues of the businesses.
Overdrafts
We grant overdrafts to businesses to finance working capital needs and ordinary course business activity. We assess whether the borrower has the ability to meet its payment obligations over a maximum 180-day period, placing an emphasis on the borrower’s line of business. Businesses with operations that do not produce short-term revenues or with cyclical operations generally must seek other types of financing. We are able to anticipate a customer’s ability to repay overdrafts by analyzing daily accounts payable, accounts receivable, credits and fluctuations. We set interest rates for our overdrafts on a monthly basis.
Automobile and other secured loans
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We grant secured loans to finance automobile purchases. The maximum amount of our automobile loans is Ps.1,000,000Ps.1,500,000 with a maximum term of 60 months. Before granting this automobile and other secured loans, we evaluate a customer’s
ability to meet monthly payment obligations by taking into account the prospective borrower’s earnings, a minimum credit scorerating and creditfinancial and legal histories.background. We also require that the vehicle servesserve as collateral in the event of a payment default by the borrower. We set interest rates based on the term of the automobile loan and a loan-to-value ratio ranging from 30%50% to 75% of the value of the vehicle at the time of sale.
Personal loans and credit card loans (from the RetailPersonal and Business Banking segment)
Our RetailPersonal and Business Banking segment originates loans based on scoring systems and policies specifically tailored to ourPlan Sueldoservices, pension and retiree services and general clientele. For a detailed discussion of the Bank’s credit application process, credit monitoring and review process and the risks associated with personal loans and credit card loans, seeSee “—Credit Risk Management—Banco Supervielle S.A.”
Retail banking in Argentina is heavily regulated, including with respect to maximum interest rates and fees. See “Item 4.B Business overview—Argentine Banking Regulation—Interest Rate and Fee Regulations.” We tailor our policies related to issuing and granting loans and credit to comply with these regulations.
Personal loans and credit card loans (from the Consumer Financing segment)
The personal and consumer loans offered by CCF and Tarjeta are unsecured products for personal use and are offered to the middle and lower-middle-income sectors. Due to the nature of these products, our pricing structure is high compared to the Argentine financial system. To be approved for such loans, these customers must provide proof of an available means of repayment and they typically but do not always have credit history.
To mitigate the risks associated with personal and consumer loans, the initial term of any such loan is limited during the first loan, and performing borrowers may receive offers to extend the terms of the loans.
One of the principal sales channels for personal and consumer loans is through telemarketing typically targeting credit card customers or customers that took out a loan previously with CCF, Tarjeta or another company and performed in accordance with the terms of such loan.
The maximum amount of our personal and consumer loans is Ps.200,000,Ps.0.2 million, while the average loan is Ps.22,900.as of December 31, 2019 was Ps.32,500. The average term of our personal and consumer loans is 18as of December 31, 2019 was 17 months, with a maximum of 60 months. The loans are granted at a fixed rate and are paid back in monthly installments and amortized based on the French amortization system, which consists of equal monthly installments amortized in a manner in which (i) interest payments are higher at the beginning of the loan and decrease over the life of the loan, while (ii) principal payments are lower at the beginning of the loan and increase over the life of the loan.
Credit Risk Management
We define credit risk as the risk that arises from losses and/or a decline in the value of our assets as a result of our borrowers or counterparties defaulting on or not complying with their obligations. Credit risk includes any event that may cause a decline in the present value of our loans, but does not necessarily require the counterparty’s default. This risk also encompasses setllementliquidity risk, which exists whenever a financial transaction cannot be completed or generate liquidity in accordance with an agreement. The magnitude of credit risk losses hinges upon two factors:
| · | the amount of exposure at the time of the default; and |
| · | the amounts recovered by the Bank based on the payments received from the borrower and the execution of risk mitigation policies, such as guarantees that may limit losses. |
· the amount of exposure at the time of the default; and
· the amounts recovered by the Bank based on the payments received from the borrower and the execution of risk mitigation policies, such as guarantees that may limit losses.
With regard to risk appetite, the Credit Risk Management is the process that leads to the identification, measurement or evaluation, mitigation and monitoring or follow-up of the risk, as considered in the entire credit cycle, since its origin until collection, recovery or loss, and in case of non-compliance. Likewise, the definition of the Bank’s risk appetite is generated through the development and monitoring of indicators, with their respective thresholds and limits for Credit Risk.
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Our credit risk management policies also monitor concentration risk. This risk arises when the concentration of exposure has the capacity to generate enough losses (relating to results of operations, minimum capital requirements, assets or global risk levels) to impact the entity’s financial strength or capacity to maintain its operations and significantly change the entity’s risk profile.
The Board of Directors approves credit risk policies and strategies presented by the Risk Management Committee, in consultation with the Credit team, the Legal Affairs and Compliance team and the Corporate Banking team, and in accordance with Central Bank regulations. The Bank’s credit risk policies and strategies seek to develop commercial opportunities and business plans, while maintaining a prudent level of risk. The credit policy is tailored to corporations and individuals from every segment.
The pillars of the Bank’s credit policy are based on an analysis of the client’s cash flow and its repayment capacity. Regarding corporate clients, the
The Bank focuses on supporting companies belonging to sectors with great potential which tend to be successful in their activity. Within the range of credit products offered for the corporate business segment, the Bank aims to develop and lead the factoring products,and leasing market, as well as being leader in foreign trade.
Within the Plan Sueldo corporate banking segment, we seek to have a solid proposal for the SMEs and middle-market seeking to maintain proximity with customers through customer service centers, agreements with customers throughout their value chain and providing agile responses through existing credit processes.
With regard to individuals, in addition to the payroll customers and senior citizencitizens, the retail banking services. In addition,is specially focused on entrepreneurs and SMEs as well as the Bank grants short and long term financing for specific products (such as leasing and secured transactions).
Identité customers
We believe that loan portfolio diversification is a staple of the Bank’s credit risk management objective of distributing risk appropriately by economic segment, client type and loan amount. The same importance is given to the risk mitigation mechanisms that ensure adequate risk coverage, such as the use of credit instruments in the corporate segment that cover substantial amounts of the loan. Finally, we continuously use early detection processes to monitor the performance of the loan portfolio.
Credit Risk Measuring Models
The Bank relies on several models that estimate the distribution of possible losses arising out of the loan portfolio to calculate expected losses and minimum capital requirements. These models include:
·Credit risk measurement models. The Bank’s models estimate distribution of possible loan portfolio losses, which depend on counterparties’ default (Probability of default (“PD”)), as well as the exposure assumed with them (EAD - Exposure at the time of default) and the proportion of each unfulfilled loan that the Entity is able to recover (Loss in the event of default (“LGD”)). Based on these parameters, the expected loss (“PE”) and economic capital are estimated. As a result of this, a methodological and developmental plan has been developed in order to calculate the Risk Adjusted Return (“RAROC”) at Banco Supervielle in order to optimize the management linked to Credit Risk.
·Expected Losses Calculation. This is calculated based on the results of the PD, EAD and LGD models. The expected loss calculation analyzes portfolio information to estimate the average value of loss distributions for a one year time horizon.
·
| · | Credit risk measurement models.The Bank’s models estimate distribution of possible loan portfolio losses, which depend on counterparties’ default (probability of default (“PD”)), as well as the exposure assumed with them (EAD—Exposure at the time of default) and the proportion of each unfulfilled loan that the Entity is able to recover (Loss in the event of default (“LGD”)). Based on these parameters, the expected loss (“PE”) and economic capital are estimated. As a result of this, a methodological and developmental plan has been developed in order to calculate the Risk Adjusted Return (“RAROC”) at Banco Supervielle in order to optimize the management linked to Credit Risk. |
| · | Expected Losses Calculation.This is calculated based on the results of the PD, EAD and LGD models. The expected loss calculation analyzes portfolio information to estimate the average value of loss distributions for a one year time horizon in the case of performing loans and for a lifetime horizon in the case of underperforming or non-performing loans. |
| · | Minimum Capital Requirement Calculation.This is represented by the difference between the portfolio’s risk value and expected losses within a 99.9% confidence interval for individuals and 99.0% confidence interval for corporate customers. We have two minimum capital requirement models (one for corporate customers and one for individuals), which include the economic capital required for our concentration risk and securitization risk. |
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Allowance for Loan Losses
| a) | Definition |
Grupo Supervielle recognizes an impairment in the value to financial assets measured at amortized cost, debt instruments measured at fair value through other comprehensive income, loan commitments and financial guarantee contracts that are not measured at fair value.
The impairment for expected credit losses is recorded with a charge to the consolidated income statement for the period in which the impairment arises. In the event of occurrence, the recoveries of previously recognized impairment losses are recorded in the consolidated income statement for the period in which the impairment no longer exists or is reduced.
In the case of assets measured at fair value with changes in other comprehensive income, the changes in the fair value due to expected credit losses are charged in the consolidated income statement of the year where the change happened, reflecting the rest of the valuation in other comprehensive income.
As a rule, the expected credit loss is estimated as the difference between the portfolio’scontractual cash flows to be recovered and the expected cash flows discounted using the original effective interest rate. In the case of purchased or originated credit-impaired assets, this difference is discounted using the effective interest rate adjusted by credit rating.
Depending on the classification of financial instruments, which is mentioned in the following sections, the expected credit losses may be over 12 months or during the life of the financial instrument:
| · | 12-month expected credit losses: arising from the potential default events, as defined in the following sections that are estimated to be likely to occur within the 12 months following the reporting date. These losses will be associated with financial assets classified as Stage 1. |
| · | Expected credit losses over the life of the financial instrument: arising from the potential default events that are estimated to be likely to occur throughout the life of the financial instruments. These losses are associated with financial assets classified as Stage 2 or Stage 3. |
With the purpose of estimating the expected life of the financial instrument all the contractual terms have been taken into account (e.g. prepayments, duration, purchase options, etc.), being the contractual period (including extension options) the maximum period considered to measure the expected credit losses. In the case of financial instruments with an uncertain maturity period and a component of undrawn commitment (e.g.: credit cards), the expected life is estimated through quantitative analyses to determine the period during which the entity is exposed to credit risk, also considering the effectiveness of management procedures that mitigate such exposure (e.g. the ability to unilaterally cancel such financial instruments, etc.).
| b) | Financial instruments presentation |
For the purposes of estimating the impairment amount, and in accordance with its internal policies, Grupo Supervielle classifies its financial instruments (financial assets, commitments and guarantees) measured at amortized cost or fair value through other comprehensive income in one of the following categories:
| · | Normal Risk (“Stage 1”): includes all instruments that do not meet the requirements to be classified in the rest of the categories. |
| · | Normal risk under watchlist (“Stage 2”): includes all instruments that, without meeting the criteria for classification as doubtful risk, have experienced significant increases in credit risk since initial recognition. |
| · | Doubtful Risk (“Stage 3”): includes financial instruments, overdue or not, in which there are reasonable doubts about their total repayment (principal and interests) by the client in the terms contractually agreed. Likewise, off-balance-sheet exposures whose payment is probable and their recovery doubtful are considered in Stage 3. |
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| c) | Impairment valuation assessment |
The asset impairment model in IFRS 9 applies to financial assets measured at amortized cost, debt instruments at fair value with changes in other comprehensive income, lease receivables and commitments and guarantees granted that are not measured at fair value.
The impairment represents the best estimation of the financial assets expected credit losses withinat the balance sheet date, assessed both individually and collectively.
| · | Individually: for the purposes of estimating the provisions for credit risk arising from the insolvency of a financial instrument, Grupo Supervielle individually assesses impairment by estimating the expected credit losses on those financial instruments that are considered to be significant and with sufficient information to make such an estimate |
The individually assessed impairment estimate is equal to the difference between the gross carrying amount of the financial instrument and the estimated value of the expected cash flows receivable discounted using the original effective interest rate of the transaction. The estimate of these cash flows takes into account all available information on the financial asset and the effective guarantees associated with that asset.
| · | Collectively: Grupo Supervielle also assesses impairment by estimating the expected credit losses collectively in cases where they are not assessed on an individual basis. This includes, for example, loans with individuals, sole proprietors or businesses in retail banking subject to a standardized risk management. |
For the purposes of the collective assessment of expected credit losses, Grupo Supervielle has consistent and reliable internal models. For the development of these models, instruments with similar credit risk characteristics that are indicative of the debtors’ capacity to pay are considered.
The credit risk characteristics used to group the instruments are, among others: type of instrument, debtor’s sector of activity, geographical area of activity, type of guarantee, aging of past due balances and any other factor relevant to estimating the future cash flows.
Grupo Supervielle performs retrospective and monitoring tests to evaluate the reasonableness of the collective estimate.
On the other hand, the methodology required to estimate the expected credit loss due to credit events is based on an unbiased and weighted consideration by the probability of occurrence of a 99% confidence interval. series of scenarios, considering a range of three possible future scenarios which could have an impact on the collection of contractual cash flows, always taking into account the time value of money, as well as all available and relevant information on past events, current conditions and forecasts of the evolution of macroeconomic factors that are shown to be relevant for the estimation of this amount (for example: GDP (Gross Domestic Product), Interest Rate, unemployment rate, etc.).
For the estimation of the parameters used in the determination of the allowance for loan losses (EAD – Exposure at Default, PD – Probability of Default, LGD – Loss Given Default), Grupo Supervielle based its experience in developing internal models for the estimation of parameters both in the regulatory area and for management purposes, adapting the development of the impairment models under IFRS 9.
| · | EAD: is the amount of risk exposure at the date of default by the counterparty. |
| · | PD: is the estimated probability that the counterparty will default on its principal and/or interest payment obligations. |
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| · | LGD: is the estimate of the severity of the loss incurred in the event of non-compliance. It depends mainly on the updating of the collaterals associated with the operation and the future cash flows that are expected to be recovered. |
The Bankdefinition of default implemented by Grupo Supervielle for the purpose of calculating the impairment provision models is based on the requirements of IFRS 9, which considers that a “default” exists in relation to a specific customer/contract when at least one of the following circumstances exists: the entity considers that there are reasonable doubts about the payment of all its credit obligations or that the customer/contract is delinquent for more than 90 days with respect to any significant credit obligation.
Rebuttable presumption that the credit risk has two minimum capital requirement models (oneincreased significantly when payments are more than 30 days past due for corporate customerscommercial loans is used as an additional, but not primary, indicator of significant risk increase due to the credit evaluation complexity and one for individuals), which includeas a result of studies that show a low correlation of the significant risk increase with this past due threshold. In order to do so other information is taken into account as financial and economic capital required for our concentrationanalysis, repayment capacity, among others.
Assets with low credit risk and securitization risk.at the reporting date: Grupo Supervielle assesses the existence of significant risk increase in all its financial instruments.
For the estimation of the expected credit losses, the prospective information is taken into account. Specifically, Grupo Supervielle considers three prospective macroeconomic scenarios, which are updated periodically, for a time horizon of 12 months. Grupo Supervielle considers the following variables for estimating expected credit losses on the different scenarios:
| Parameter | Segment | Macroeconomic Indicator |
| Probability of Default | Retail | Real Wage |
| Corporate | Interest Rate | |
| Consumer Finance | Monthly Economic Activiy Estimator | |
| Loss Given Default | Retail | Private sector real wage |
Country Risk Management
Country risk arises from losses in investments or loans to individuals, corporations or governments, due to adverse changes in a foreign country’s economic, political or social environment. The risk is present in loans granted to non-residents, loans in which the borrower’s or its guarantor’s solvency is significantly tied to the another country’s circumstances, investments made abroad and contracts with foreign service providers.
We believe that the Bank has an adequate framework in place to manage this risk, given the complexity of its operations and its exposure to country risk. The Bank has no significant exposure to country risk except for credit lines with correspondents and international factoring. Country risk is a special consideration when granting credit lines and is analyzed on a case by case basis.
We have a Credit House Limit committee which is composed of at least three members of our Board of Directors, one of whom is the Chairman of the Board. The CEO of the Bank, the Chief Credit Risk Officer (“CCRO”CCO”) and the Bank’s heads of Retail Banking and/or Corporate Banking and/or Global Markets, are also members. The CCRO acts as chairman of the committee.
The Credit House Limit Committee is the highest authority in our and our subsidiaries’ credit risk decision-making structure with respect to assessing situations in which any credit approval limit is exceeded.
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Banco Supervielle S.A.
The Bank’s Board of Directors sets its credit policy and risk limits, with information from its risk department and the various commercial banking units and in compliance with Central Bank regulations. The credit policy is aimed at taking advantage of business opportunities within the scope and terms of the Bank’s business action plan, while maintaining prudent levels of exposure to counterparty risk. The Bank���sBank’s credit policy focuses on companies and individuals of all segments,, with a special focus on small businesses, entrepreneurs and SMEs.
The pillars of the Bank’s credit policy include:
| · | maintaining independence between the risk management function and the business and management team; |
| · | maintaining a highly professional corporate structure around risk management; |
| · | keeping the Board of Directors and senior management involved in risk management decision-making; |
| · | ensuring that risks are consistent with the risk appetite framework and subject to ongoing monitoring; and |
| · | propose limits for credit risk tolerance to be approved by the Board of Directors. |
· maintaining independence between the risk management function and the business and management team;
· maintaining a highly professional corporate structure around risk management;
· keeping the Board of Directors and senior management involved in risk management decision-making;
· ensuring that risks are consistent with the risk appetite framework and subject to ongoing monitoring; and
· propose limits for credit risk tolerance to be approved by the Board of Directors.
Credit Application Process
The credit approval process is designed to facilitate an accurate risks analysis, expedient decisions and complete support information.
Potential customers are interviewed and asked to submit documentation to efficiently evaluate risk. The risk area performs a risk evaluation using computer software and issues an opinion on the requested assistance. If credit assistance is deemed feasible, the customer’s application is submitted for approval at the appropriate level, pursuant to credit authority guidelines and depending on the facility amount requested, the term and security.
Applications by prospective retail customers are analyzed using an electronic application. Prospective corporate customers are evaluated on a case-by-case basis. There are no pre-approved lines of credit, except for individuals who may obtain a pre-approved line of credit for an amount up to seven timesbased on their monthly income.maximum debt burden ratio.
Credit Monitoring and Review Process
It is the Bank’s policy to continually track and monitor risk in order to anticipate or foresee changes in the macroeconomic environment and anomalies that may affect the course of customers’ activities and the repayment of loans. The Management and Credit Administration Department traces alert indicators for signals that may affect credit collection. Signals could be late payments of more than 30 days, alerts from credit bureaus, lawsuits from third parties, customers or suppliers and bounced checks. Action plans are in place to anticipate or mitigate potential nonperformance situations. The Credit Review Departmentand Risk Departments tracks alert indicators by:
| · | analyzing loan portfolio evolution; |
| · | verifying compliance with credit regulatory requirements; |
| · | reviewing the factoring portfolio on a daily basis by operation, maturity, concentration, direct and indirect risk; |
| · | verifying and analyzing customer arrears; |
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| · | detecting market alerts, customer behavior in the market and the financial system, lawsuits, etc.; |
| · | proposing action plans; |
| · | involving the Corporate Committee and the Small Enterprises Committee; |
| · | reporting customer alerts to officials and managers; and |
| · | establishing allowances for estimated loan losses. |
· analyzing loan portfolio evolution;
· verifying compliance with credit regulatory requirements;
· reviewing the factoring portfolio on a daily basis by operation, maturity, concentration, direct and indirect risk;
· verifying and analyzing customer arrears;
· detecting market alerts, customer behavior in the market and the financial system, lawsuits, etc.;
· proposing action plans;
· involving the Special Risks Committee;
· reporting customer alerts to officials and managers; and
· establishing allowances for estimated loan losses.
Credit Approval Process
The following chart describes the levels of approval for the different types of loans:
|
|
|
| Credit Approval Limit |
| ||
|
|
|
| Unsecured |
| Secured |
|
House Limit (Senior Committee + Board of Director’s Chairman) |
| Total |
| ||||
Credit |
| Senior Committee (Credit Manager + Commercial Coordinator Manager + CEO + Credit Coordinators + One Member of the Board of Directors) |
| 150 |
| 150 |
|
| Coordinating Officers Committee ( Credit + Corporate Banking) |
| 50 |
| 90 |
| |
| Regional Committee (Credit Manager or Credit Officers + Commercial Manager) |
| 24 |
| 45 |
| |
Retail |
| Small Businesses (Retail Credit Manager + Commercial Manager) |
| 8 |
| 25 |
|
| Small Businesses (Retail Credit Manager or Credit Supervisors) |
| 5 |
| 8 |
| |
| Retail Automatic credit analysis process |
| 0.2 |
| — |
| |
| Credit Approval Limit (in millions of Pesos) | ||||||||
| Unsecured | Secured | |||||||
| House Limit (Senior Committee + Board of Director’s Chairman) | Total Maximum Approval Limit | |||||||
| Credit Approval | Senior Committee (Credit Manager + Commercial Coordinator Manager + CEO + Credit Coordinators + One Member of the Board of Directors) | 300 | 300 | |||||
| Committee | Coordinating Officers Committee (Credit + Corporate Banking) | 80 | 140 | |||||
| Corporate Banking | Regional Committee (Credit Manager or Credit Officers + Commercial Manager) | 40 | 70 | |||||
| Retail Financing | Small Businesses (Retail Credit Manager + Commercial Manager) | 25 | 35 | |||||
| Small Businesses (Retail Credit Manager or Credit Supervisors) | 25 | 35 | ||||||
| Retail Automatic credit analysis process | 1.5 | — | ||||||
| Retail Manual credit analysis process | — | 10 | ||||||
The Retail BankingRisk Management Committee has the following primary responsibilities:
· Approvesresponsibilities regarding credit retail policies and oversees correct implementation and compliance with such policies.policies:
| · | Approves credit retail policies and oversees correct implementation and compliance with such policies. |
| · | Defines credit evaluation criteria, including the cut-off points concerning scoring models, minimum income levels required and others. |
| · | Monitors the evolution of the credit portfolio. |
· Defines credit evaluation criteria, including the cut-off points concerning scoring models, minimum income levels required and others.
· Monitors the evolution of the credit portfolio.
Recovery Process
The Bank’s Recovery Area handles the collection of past due credits. Collections are handled by different units for individual and corporate customers.
With respect to individual customers, the Recovery Area begins a collection process when credits become past due by three days. The recovery team issues automatic notice actions from the 3rd to the 8th past due days in order to warn the customers. After this period, the collection of the overdue credit is handled by a third-party collection agency. After 90150 days, the Recovery Area determines whether the past due credit should be sent to a different collection agency or if it should be subjectedmade subject to a judicial hearing.legal proceedings.
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With respect toIn the case of corporate customers,clients and SMEs, payment defaults are analyzed on a case-by-case basis, taking into consideration the size of the loan amount and the number of days in arrears, among other factors. However, generally,The Early Delinquency area of the Recovery Management once a week monitors clients overdue more than 15 days. As the delay progresses, the members of that team assist the commercial officers and join the direct management of the case for its solution: structuring, extension of terms, refinancing with the aim of improving the debt profile and obtaining better guarantees. If the SMEs and corporate clients’ obligatios have been due for more than 90 days, or if they request their Extrajudicial Preventive Agreement, Bankruptcy or reorganization process (Concurso Preventivo) or there are indications of insolvency, they enter under the orbit of the direct management of the Recovery team that determines whether to treat the case internally or refer ir to a law firm. The Recovery Department can participate in out-of-court and judicial settlement negotiations and approve debtor payment proposals in amounts for up to Ps. 10 million. Likewise, the Recovery Department meets in forums with the commercial areas to review the totality of cases overdue for more than 30 days. In the case of SME the forums are biweekly and in the case of corporate clients they are monthly. In these forums, the commercial, credit, or recovery areas can present proposals to the Coordinating Committee on how to deal with loan defaults that are beyond their reach.
This process allows the Recovery Department to manage risk earlier and also take steps such as refinancing a loan, reducing interest, or improving a guarantee.
The Corporate Committee meets every month to review the past due credits of corporate customers enterafter 35 days, while the collectionRetail SME Committee meets biweekly to review the outstanding dues after 15 days. This process after 90 days. For financial leasing customers,allows the collection process begins after a credit is past due by 60 days.
TheCorporate Recovery Department has the powerdepartment to engage in extra-judicial negotiationsmanage risk earlier, and approve payment proposals by debtors of amounts upalso to Ps.1 million.
The Recovery Committee has the power to engage in extra-judicial negotiations with a customer owing no more than Ps.4.0 million. The Special Risk Committee may allow the customer to refinancetake actions such as refinancing a loan, reducereducing the interest or useusing a guarantee.
The Special RiskCorporate and Retail SME Committee, formulatesjointly with the Corporate Recovery department, can submit proposals forto the Coordinating Officers Committee on how to address loan defaults that are outside the scope of its area.their scope.
CCF and Tarjeta
To evaluate a prospective customer and detect possible fraud, CCF and Tarjeta maintaincarried out a centralized credit analysisreengineering of the application assessment process for issuing credit cardsto update its processes and granting personal loans.assessment systems. This reengineering allowed CCF and Tarjeta use an Experian decision engine, which combines automatic evaluation processes (including scorecards,a faster and more flexible implementation of its credit policy. The assessment process continues to be centralized and seeks to automatize and streamline most controls using information available from credit bureaus (such as Equifax), negative file, maximum exposure, installment or,Central de Deudores (“Debtors Central”).
However, the management of credit policies was included in the Integral Risk Committee, securing a more encompassing view of the assessment of said policies.
Since late 2018 changes were implemented to income ratiosthe origination and cross selling policies intended to improve credit portfolio and guarantee loan repayment capacity in all segments, particularly those more exposed to the macroeconomic context’s uncertainty. In addition, the internal behavior scoring model used in cross selling activities was improved and updated, and an improved model is being developed for the evaluation of leads and customers without the required length of bank-customer relationship.
Income prediction models provided by credit bureaus were added to the existing processes, thus improving the repayment capacity assessment and limiting customer indebtedness.
Taking into account the increase of the nonperforming portfolio ratio during 2018, a thorough review was conducted and changes were implemented in strategies and collection teams so as to offer adequate assistance to nonperforming customers. Statistical tools were added to set collection management priorities, introducing data enrichment processes and improving collection agencies’ allocation and control tools.
As a result of all those changes and adjustments in credit and collection processes, indicators of early non-performing loans and non-performing portfolios stabilized during the second half of 2019.
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Information Technology and Operations
During 2019, the Corporate Technology and Operations Management of the Bank continued adapting its functional scheme to its strategy, in line assignment) with digitalized documentation controls performedthe business, and enhancing the existing capacity.
The area’s strategic planning was updated, with a three-year plan, incorporating digital capacities as a way to achieve an external differentiation and consolidate the Banks’s positioning in the domestic market. The guidelines of the Corporate Management of Technology and Operations result from the strategic lines defined by the underwriting team. This process also features different parameters for determining exposurebusiness. Such guidelines include the evolution of technology and maximum risk per applicant, including pointsystems (through evolution of sale, channel, product, incorporation process, risk level, among others.
In addition, each branch is categorized by risk leveltheir technological architecture to ensure an efficient processing model with adequately managed and contained technological risks), acceleration of the digital transformation (implementing the capacities required to build a new digital business); excellence in operational processes (putting up a technological operational model based on its portfolio’s behavior trends per score range. Athe best practices ensuring an efficient management of technological services and supporting the transformation of operational processes) and the search for a high performance organization (setting up a result oriented organization with clear cut off by level is determined accordingly. These classificationsroles and responsibilities and service vision).
This update on the strategic planning was done on the basis of two pillars: execution of plans related to business strategic projects (initiatives executed in line with the Bank’s strategies) and the definition and execution of strategic IT plans that pave the way for the evolution in areas such as technological infrastructure, applications, service operation, quality and governance.
The business’ strategic projects were grouped in 5 programs: Cash Management, Digital Banking, Service Model, Senior Citizens, Commercial Platform and Efficiency. Within these programs the following projects are updatedworthy of mention: a technological solution was developed fore-cheque management, implementation continued of a new queue management solution, advance was made on Plan Sueldo onboarding programs and validated regularlyon the new scoring and offer system and a new tool was implemented for campaign management.
The strategic IT projects are grouped in five chapters: Applications, Quality, Technological Infrastructure, Service Operation and Security. They include the new reengineering of the entity’s batch process, launching of API for cards, individuals, signatures and powers of attorney, reengineering of ESB services, improvements in credit card app, migration of all terminals to ensure their accuracy.
Windows 10, improvements in networking and in data architecture and implementation of a new tool for application.
CCF
During 2019, the Information Technology area of CCF, aligned with the corporate general strategy, worked on the exploration and Tarjeta periodically perform a risk analysisimplementation of their entire respective customer bases, evaluating payment behavior and exposure level, and using this informationnew technologies to offer better credit options for existing servicesa competitive, innovative and new productsflexible value proposition, and services.
Collection efforts are managed internally at the early stages of delinquency and are tailoredstarted transitioning to each customer’s risk level and behavior. CCF and Tarjeta conduct collection actions using an Avaya predictive dialer and applying different communication channels such as call centers, virtual messaging, SMS, letters and telegrams. After 180 days past due, collection efforts are outsourced to third-party collection agencies.
Despite the release of lending rates on the market in December 2015, CCF maintained its origination parameters, continuing its portfolio growth strategy with existing clients and incorporating new credit applications with a limited risk profile.
On the macroeconomic stage, in the first half of 2016, the exchange market was adjusted, and the increase in public services and transportation rates — as well as the the cost of living— was higher than the wage increases. These factors affected the level of disposable income and the payment capacity of CCF’s target segment, particularly sensitive to the economic recession, which led to an expected deterioration in customer behavior.
In this context, a series of steps were taken in the collection process in order to improve clients’ payment behavior such asdigital transformation, through the implementation of deeper operation processes, new contact channels, greater choiceplatforms, apps and processes.
The creation of refinancing alternatives,the Digital Strategy area, focused on onboarding and hiringcustomer experience, was key for the consumer segment.
Thus, the “Mobile” app continued evolving, offering new external recovery agenciescapabilities that enhance experience, enabling new services and customer service models (100% digital).
Digital Transformation
In 2019, we have made significant progress on Digital Transformation. Increasingly, customers want and expect to engage with us anytime from anywhere. Our digital strategy is aimed at responding to that demand. We have a three-prongued approach:
| · | Transformation of core businesses (banking, consumer financing and insurance) to enhance customer experience, agility and efficiencies. For example, we recently launched a groundbreaking senior citizens app which addresses their transactional needs and launched a 100% digital onboarding platform for new customer acquisition. |
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| · | Development of digital attackers to broaden access to financial services. This includes Invertir Online, our online broker, and a new digital brand to be launched in the coming months which will refocus our strategy in the consumer financing business and allow acquisition of multisegment clients with full digital financial services. |
| · | Development of an ecosystem by building traffic from financial services into new spaces enhancing and deepening customer engagement. |
In April 2019, the COO of the Bank was appointed. The COO leads the Bank’s digital transformation, ensuring its adequate implementation organization-wide. Digital transformation involves the use of new working methodologies, new technologies and a strong cultural change within the organization. Agile methodologies are implemented in response to current needs, where the willingness to change and the prompt delivery of value are a competitive advantage. Under this methodology, independent and highly efficient work teams are formed with short turnaround times.
Digital Innovation Developments
The strong belief that Fintech capabilities have a direct impact on the “customer centric” culture boosted the creation of theFondo Corporativo de Capital Emprendedor (Fideicomiso Fintech Supervielle I), which allows the Bank to partner with Fintech companies (digital solutions applied to finance) and Insurtech companies (digital solutions applied to insurance) which are within the strategic verticals of Grupo Supervielle. The goal is double fold: to generate a financial profit from investments made and to create commercial synergies to add mutual value.
With the vision to create incremental business opportunities for portfolios with advanced delinquency levels, among others. These steps helped stabilize delinquencythe companies of the portfolio and of Grupo Supervielle, four investments were made: 123Seguro, an online car insurance broker; Increase, a financial solutions platform for stores and businesses; Avancargo, a Company that uses technology to facilitate cargo freight contracts to match demand and supply; and more recently, in January 2020, Blended, a comprehensive school management platform for kinder, primary and secondary levels.
Technology
In order to advance our strategy of becoming an efficient provider of financial services, we invest in technological upgrades to automate our business model and improve our IT and security, among other things.
Below we describe some of our current and planned technological investmentsThe Bank continues participating in the Bank.Arfintech fund together with another 7 local capital Banks and participates in investment rounds; the Arfintech fund portfolio already has 10 companies in the insurance, payment, security, SMEs and blockchain segments.
BancoBolsillo Digital SAU
With the aim of broadening the portfolio of product and services offered by Grupo Supervielle, S.A.
Wewe have madecreated Bolsillo Digital S.A.U. This company is a fintech that belongs to the collecting payment’s industry. It will design, program and plan to continue making technological improvements with respect to our automationdevelop products and services IT capacity, software development and security.
Automation Services
We have made certain improvements to our automation services including:
· installing 17 new ATMs, reaching a total number of 494 ATMs as of December 31, 2016;
· installing 13 new self-service terminals, reaching a total number of 167 terminals as of December 31, 2016;
· installing 10 terminals related to new bill payment services in branches as of December 31, 2016;
· improving our biometrical identification services by installing a total of 246 terminals as of December 31, 2016;
· improving our individual home banking platform; and
· launching a new mobile app focused on the retail segment.
IT Capacity
We have created an IT environment geared toward future challenges relating to innovative initiatives such as cloud services, big data services, customer relation management and shared services. With regard to technological infrastructure capabilities, we intend to make the following upgrades:
· To install new equipment with biometric capabilities in service centers to support the new customer service model.
· To continue improving our computing capabilities to support digital transformation.
· To have better storage and backupprocessing of payments, offering payment solutions to ensure information availability.
· To continue updating our ATMretail businesses and SST (Self-Service Terminal) networkindividuals. Mobile POS and mobile wallet will be the first products to reduce security breaches.
Moreover, we plan to continue working on securing the necessary capabilities to support business strategy, providing efficient execution of IT services and delivering valuebe launched during 2020. Commercial efforts will be directed, initially, to the business. The work axes are expected to be:Cuyo Region where the Bank is one of the main market players.
· strategy, governmentBolsillo Digital will enrich Supervielle’s value proposition in those client segments, and IT organization;
· architecture; and
· methodology for implementing projects and initiatives.
Software Development
Currently, we intend our strategic software development projects for the IT area to focus on:
· Cash Management: we plan to expand transactional products offered through solutions and improvements in systems and processes.
· Digital Banking: we plan to to redesign the user’s digital experience for all segments, expand Home Banking functionalities for Individuals and Companies, and develop Mobile platforms for Individuals and Companies.
· Senior citizens segment service model: we plan to implement Cash Dispenser in service centers with biometric identification and a new queuing solution.
· Commercial Platform: we plan to expand customer service capabilities for all segments that operate in presence channels (branches, service centers and points of sale) and to incorporate more products. We plan to support new processes of unified product origination and delivery.
Security
Wewill also seek to improve technology related to e-crime,establish new sales alliances & partnerships with social, educational and public institutions based on possibilities and flexibility of mobile security, cyber security, cloud securitypayments and other areas of security related to our banking services.wallet platforms.
Competition
CCF
CCF has implemented improvements in its technological infrastructure in telecommunications, datacenter and end user devices, to improve the availability and performance of the services offered to the business. In 2016, projects were developed and implemented to continue offering an agile, simple and cordial service, emphasizing statements via email, launching a mobile application for consultation of credit card status and making improvements in interactive voice response via phone in order to provide a better customer experience and expand self-management.
CCF’s initiatives for the short and medium term include projects relating to technological infrastructure, especially, improvements to increase perimeter security and updates of the call center platform. At the same time, there is a plan to support the business in the implementation of “Embozado en Tienda” (to produce the physical credit card plastic on the spot); the development of a new origination model, and to continue innovating the mobile application by adding more functionalities.
Software Development
We intend to implement a new origination process with a new online sales platform and the use of SOA to access core information. In addition, we intend to improve processes related to accounting and financial information. We already implemented a new platform that allows us to monitor critical processes online. We also seek to improve customer loyalty through our software.
Digital Innovation Unit
We created the Digital Innovation Unit in response to ongoing technological evolution and changing customer preferences. This unit establishes a deep and dynamic research process for the creation of value for the new generations and profiles of users, participating in the development of new tools (products or services) generated internally and/or with the participation in the so-called FINTECH companies.
In 2016, the following services were generated for the Bank’s clients:
Chat Banking. From Facebook Messenger, our clients are able to make enquiries about their bank accounts or cards without having to leave the portal. This simplifies their communication with the Bank as our clients are able to make daily enquiries without the need to go through the Bank’s Home Banking.
App Supervielle Cheques. With a simple photo, the new mobile app allows SMEs and small businesses to discount and deposit checks without having to go to a branch. This improves their experience as they have the chance to avail themselves of funds without waiting or having to leave their place of work.
We intend to continue leveraging on the concepts of creativity and innovation with respect to mobile banking. The launch of Supervielle Móvil for the IOS and Android platforms has afforded over 90% growth in the number of users. We recently added functions such as Purchase and Sale of foreign currency and making a Time Deposit at a preferential rate.
Over 160,000 users to opt for Home Banking when making transactions. Today, customers are able to check the holdings of Bonds and Shares, create a Todo Pago virtual wallet or purchase a household appliance from Tienda Supervielle from their homes. We intend to continue to meet the needs of the different segments, expanding the spectrum of transactions available.
In addition, the Walmart Tarjeta App and the Carta App were launched for the clients of CCF. For Grupo Supervielle’s Consumer portfolio (CCF), apps were developed for the clients of Tarjetas Walmart and Tarjetas Carta Automática. Thus, clients can quickly access information about their Consumption, Balances and Due Dates.
With respect to the implementation of biometric identification technology in the financial system, we continue to invest in the upgrade of the existing system to be compatible with new regulatory requirements. Currently, the Bank’s senior citizens can interact with a totally renewed fleet of over 240 biometric terminals, with touch technology and a friendly design.
Competition
Retail Banking, Corporate Banking and Treasury
The Argentine financial system remains highly fragmented compared to the rest of Latin America.
In 1999,As of December 31, 2019, the Argentine financial system had 11678 financial entities. This number decreased to 100 in 2002 and 89 in 2005. As of December 31, 2016, this number stood at 78,entities, of which 63 were banks (1313 public and 50 private). In terms of ownership, in 1999 Argentine and foreign entities each held 41.3% of the Argentine banks while the remaining 17.3% of the banks were held by the public sector. Asas of December 31, 2016,2019, while the participation of the public sector remained stable atwas 20.6%, the portion of banks controlled by Argentine entities represented 52.3%54.0% and the portion of banks controlled by foreign entities represented 27.0%25.4%.
In 1999, there were 17 financial companies, nine of which were controlled by Argentine entities and eight of which were controlled by foreign entities, and seven credit unions. As of December 31, 2016,2019, the number of financial companies had decreased to 14, fivewas 15, six of which were controlled by Argentine entities and nine of which were controlled by foreign entities, and only one credit union remained.
Digital Banking
In recent years, following the main global trends, digital banking begins to develop in Argentina. As of December 31, 2016,2019, the largest private bankmain digital banks were: Wilobank, Brubank, Rebanking, Openbank, Naranja, Wenance and Ualá. The main features of each are outlined below:
(1). Wilobank offers credit cards even to unbanked people. It operates with a virtual card that will replace Mastercard Contactless. (2). Brubank offers savings accounts in terms of bank assetsPesos and U.S. dollars and loans and transfers from an app. It uses contactless technology and allows purchases made with debit card to be paid in Argentina held a 14.6% shareinstallments, allowing the partition of the total bank assetsexpenses. (3). Rebanking aims at the lowest economic sectors with a corresponding banking offer. (4) Openbank, owned by the Santander Group, offers savings accounts, credit cards, loans and facilitates investments. In Spain it already has more than one million customers. (5). Naranja, owned by Banco Galicia, has more than 1 million of digital users. This company developed an app that enables merchants and professionals billing by using a dongle. (6). Wenance has two platforms: one for people who are in the financial systemremote areas (not near branches) and the five largest banks (including privateother one is aimed at unbanked people, enabling them to operate through the mobile phone. (6). Ualá is associated with the prepaid MasterCard and public banks) in terms of assets heldallows people to pay for services and bill payment service by scanning a 56.9% share, higher thanbarcode from the 48.7% share held in 2001. Banking systems in other Latin American countries are even more concentrated. As of December 31, 2016, the five largest banks (including private and public banks) in terms of assets held a 77.2% in Chile, 65.3% in Colombia, 70.6% in Mexico and 86.5% in Peru. In Brazil, as of September 30, 2016, the five largest banks (including private and public banks) in terms of assets held 72.0% share of total bank assets.mobile phone.
Competitive Framework
The Bank wasWe were one of the top 10 private banks in the Argentine financial system with respect to loans, deposits, assets and equity as of December 31, 2016,2019, as shownpresented in the following tables:tables (figures are expressed in original currency and not adjusted for inflation):
| As of December 31, 2019 | ||||||||
| Total Assets | ||||||||
| (in millions of Pesos) | Share of Total (%) | |||||||
| Banco Santander Río S.A. | 621,110.3 | 15.2 | % | |||||
| Banco de Galicia y Buenos Aires S.A. | 596,094.4 | 14.6 | % | |||||
| BBVA Banco Francés S.A. | 431,493.2 | 10.6 | % | |||||
| Banco Macro S.A. | 425,324.1 | 10.4 | % | |||||
| HSBC Bank Argentina S.A. | 298,800.6 | 7.3 | % | |||||
| Credicoop Cooperativo Limitado | 232,241.3 | 5.7 | % | |||||
| ICBC S.A. | 224,501.6 | 5.5 | % | |||||
| Citibank N.A. | 189,245.0 | 4.6 | % | |||||
| Banco Patagonia S.A. | 188,176.2 | 4.6 | % | |||||
| Banco Supervielle S.A. | 138,034.4 | 3.4 | % | |||||
| Nuevo Santa Fe | 93,537.2 | 2.3 | % | |||||
| Banco Hipotecario S.A. | 83,065.1 | 2.0 | % | |||||
| Itau Argentina | 80,362.2 | 2.0 | % | |||||
| Others | 486,876.9 | 11.9 | % | |||||
| Total Private Banks | 4,088,862.5 | |||||||
|
| As of December 31, 2016 |
| ||
|
| Total Assets |
| ||
|
| Ps. (in millions) |
| Share of |
|
Banco Santander Río S.A. |
| 211,211.80 |
| 14.6 | % |
Banco de Galicia y Buenos Aires S.A. |
| 209,306.30 |
| 14.4 | % |
BBVA Banco Francés S.A. |
| 149,073.40 |
| 10.3 | % |
|
| As of December 31, 2016 |
| ||
|
| Total Assets |
| ||
|
| Ps. (in millions) |
| Share of |
|
Banco Macro S.A. (1) |
| 144,421.20 |
| 10.0 | % |
Credicoop Cooperativo Limitado |
| 86,404.60 |
| 6.0 | % |
HSBC Bank Argentina S.A |
| 83,679.20 |
| 5.8 | % |
ICBC S.A. |
| 76,390.50 |
| 5.3 | % |
Banco Patagonia S.A. |
| 69,533.50 |
| 4.8 | % |
Citibank N.A. |
| 67,995.30 |
| 4.7 | % |
Banco Supervielle S.A. |
| 48,730.60 |
| 3.4 | % |
Banco Hipotecario S.A. |
| 47,143.40 |
| 3.3 | % |
Nuevo Banco de Santa Fe S.A. |
| 37,792.10 |
| 2.6 | % |
Banco Itau Argentina S.A. |
| 28,175.00 |
| 1.9 | % |
Banco de San Juan SA |
| 22,825.90 |
| 1.6 | % |
Banco Comafi SA |
| 21,331.80 |
| 1.5 | % |
Other (2) |
| 146,289.50 |
| 10.1 | % |
Total Private Banks |
| 1,450,304.10 |
|
|
|
|
| As of December 31, 2016 |
| ||
|
| Total Loans |
| ||
|
| Ps. (in millions) |
| Share of |
|
Banco Santander Río S.A. |
| 115,364.40 |
| 15.5 | % |
Banco de Galicia y Buenos Aires S.A. |
| 105,343.70 |
| 14.2 | % |
Banco Macro S.A. (1) |
| 81,043.70 |
| 10.9 | % |
BBVA Banco Francés S.A. |
| 75,980.20 |
| 10.2 | % |
HSBC Bank Argentina S.A. |
| 44,376.10 |
| 6.0 | % |
Banco Patagonia S.A. |
| 40,430.70 |
| 5.4 | % |
ICBC S.A. |
| 39,831.30 |
| 5.4 | % |
Credicoop Cooperativo Limitado |
| 33,352.70 |
| 4.5 | % |
Banco Supervielle SA |
| 32,180.20 |
| 4.3 | % |
Citibank N.A. |
| 31,787.00 |
| 4.3 | % |
Banco Hipotecario S.A. |
| 25,223.00 |
| 3.4 | % |
Nuevo Banco de Santa Fe S.A. |
| 20,113.40 |
| 2.7 | % |
Banco Itaú Argentina S.A. |
| 16,437.60 |
| 2.2 | % |
Banco Comafi S.A. |
| 11,861.60 |
| 1.6 | % |
Banco de San Juan SA |
| 4,970.70 |
| 0.7 | % |
Other (2) |
| 64,095.10 |
| 8.6 | % |
Total Private Banks |
| 742,391.40 |
|
|
|
|
| As of December 31, 2016 |
| ||
|
| Total Deposits |
| ||
|
| Ps. (in millions) |
| Share of |
|
Banco Santander Rio S.A. |
| 162,070.00 |
| 15.5 | % |
Banco de Galicia y Buenos Aires S.A. |
| 150,639.20 |
| 14.4 | % |
BBVA Banco Francés S.A. |
| 114,652.10 |
| 11.0 | % |
Banco Macro S.A. (1) |
| 102,496.90 |
| 9.8 | % |
Credicoop Cooperativo Limitado |
| 75,935.70 |
| 7.3 | % |
HSBC Bank Argentina S.A. |
| 63,423.90 |
| 6.1 | % |
Banco Patagonia S.A. |
| 51,788.40 |
| 5.0 | % |
ICBC S.A. |
| 51,440.80 |
| 4.9 | % |
Citibank N.A. |
| 45,398.90 |
| 4.3 | % |
Supervielle SA |
| 35,334.50 |
| 3.4 | % |
Nuevo Banco de Santa Fe S.A. |
| 29,802.90 |
| 2.9 | % |
Banco Hipotecario S.A. |
| 19,043.90 |
| 1.8 | % |
Banco Itaú Argentina S.A. |
| 18,650.10 |
| 1.8 | % |
Banco Comafi S.A. |
| 15,876.70 |
| 1.5 | % |
Banco de San Juan SA |
| 14,209.40 |
| 1.4 | % |
Other |
| 93,784.80 |
| 9.0 | % |
Total Private Banks |
| 1,044,548.20 |
|
|
|
Source: Central Bank
(1) Includes Banco del Tucumán S.A.84
| As of December 31, 2019 | ||||||||
| Total Loans | ||||||||
| (in millions of Pesos) | Share of Total (%) | |||||||
| Banco de Galicia y Buenos Aires S.A. | 302,307.5 | 18.3 | % | |||||
| Banco Santander Río S.A. | 266,431.1 | 16.1 | % | |||||
| Banco Macro S.A. | 218,772.0 | 13.3 | % | |||||
| BBVA Banco Francés S.A. | 184,200.4 | 11.2 | % | |||||
| HSBC Bank Argentina S.A. | 107,099.7 | 6.5 | % | |||||
| ICBC S.A. | 94,123.4 | 5.7 | % | |||||
| Banco Patagonia S.A. | 83,241.0 | 5.0 | % | |||||
| Banco Supervielle S.A. | 78,851.4 | 4.8 | % | |||||
| Itau Argentina S.A. | 40,261.6 | 2.4 | % | |||||
| Banco Hipotecario S.A. | 39,013.4 | 2.4 | % | |||||
| Credicoop Cooperativo Limitado | 37,665.6 | 2.3 | % | |||||
| Citibank N.A. | 33,115.8 | 2.0 | % | |||||
| Nuevo Santa Fe | 32,975.1 | 2.0 | % | |||||
| Others | 132,849.7 | 8.0 | % | |||||
| Total Private Banks | 1,650,907.7 | |||||||
Source: Central Bank
| As of December 31, 2019 | ||||||||
| Total Deposits | ||||||||
| (in millions of Pesos) | Share of total (%) | |||||||
| Banco Santander Río S.A. | 474,903.3 | 17.2 | % | |||||
| Banco de Galicia y Buenos Aires S.A. | 397,839.6 | 14.4 | % | |||||
| BBVA Banco Francés S.A. | 293,411.8 | 10.6 | % | |||||
| Banco Macro S.A. | 262,383.5 | 9.5 | % | |||||
| HSBC Bank Argentina S.A. | 219,362.3 | 7.9 | % | |||||
| Credicoop Cooperativo Limitado | 184,876.4 | 6.7 | % | |||||
| ICBC S.A. | 128,485.1 | 4.6 | % | |||||
| Citibank N.A. | 119,830.1 | 4.3 | % | |||||
| Banco Patagonia S.A. | 119,535.4 | 4.3 | % | |||||
| Banco Supervielle S.A. | 89,737.1 | 3.2 | % | |||||
| Nuevo Santa Fe | 69,869.9 | 2.5 | % | |||||
| Itau Argentina | 48,359.3 | 1.7 | % | |||||
| Banco Comafi S.A. | 44,226.1 | 1.6 | % | |||||
| Others | 310,825.5 | 11.2 | % | |||||
| Banco Santander Río S.A. | 474,903.3 | 17.2 | % | |||||
| Total Private Banks | 2,763,645.4 | |||||||
Source: Central Bank.
(2) Includes 34 private banks with assets below Ps. 19.0 billion, as of December 31, 2016.
The Bank, whenWhen consolidated with CCF, waswe were one of the top five private banks in the Argentine financial system with respect to personal loans as of December 31, 2016,2019, as shownpresented in the following table:table (figures are expressed in original currency and not adjusted for inflation):
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|
| As of December 31, 2016 |
| ||
|
| Personal Loans |
| ||
|
| Ps. (in millions) |
| Share of |
|
Banco Macro S.A.(1) |
| 29,784.70 |
| 21.8 | % |
Banco Santander Río S.A |
| 15,718.80 |
| 11.5 | % |
Banco de Galicia y Buenos Aires S.A(2) |
| 12,853.42 |
| 9.4 | % |
Banco Supervielle S.A. (3)(4) |
| 9,614.62 |
| 7.0 | % |
BBVA Banco Francés S.A. |
| 9,368.90 |
| 6.9 | % |
Nuevo Banco de Santa Fe S.A |
| 6,847.40 |
| 5.0 | % |
Banco Patagonia S.A |
| 5,990.50 |
| 4.4 | % |
HSBC Bank Argentina S.A |
| 4,358.60 |
| 3.2 | % |
Nuevo Banco de Entre Ríos S.A |
| 4,111.70 |
| 3.0 | % |
Citibank N.A |
| 3,630.30 |
| 2.7 | % |
Others |
| 34,285.06 |
| 25.1 | % |
Financial Private System |
| 136,564.00 |
|
|
|
(1) Includes Banco del Tucumán S.A.
(2) Consolidated with Compañía Financiera Argentina S.A.
(3) Does not include securitized personal loans portfolio.
(4) Consolidated with CCF.
| As of December 31, 2019 | ||||||||
| Personal Loans | ||||||||
| (in millions of Pesos) | Share of total (%) | |||||||
| Banco Macro S.A | 55,586.5 | 23.2 | % | |||||
| Banco Santander Río S.A. | 26,564.9 | 11.1 | % | |||||
| Banco de Galicia y Buenos Aires S.A.U. | 22,281.1 | 9.3 | % | |||||
| BBVA Banco Francés S.A. | 19,969.3 | 8.3 | % | |||||
| Banco Supervielle S.A.(1) | 16,844.5 | 7.0 | % | |||||
| Nuevo Banco de Santa Fe | 13,781.9 | 5.8 | % | |||||
| Banco Patagonia S.A. | 8,388.8 | 3.5 | % | |||||
| Nuevo Banco de Entre Rios | 7,259.4 | 3.0 | % | |||||
| Banco Hipotecario S.A. | 6,305.4 | 2.6 | % | |||||
| ICBC S.A. | 5,644.8 | 2.4 | % | |||||
| HSBC Bank Argentina S.A. | 5,464.5 | 2.3 | % | |||||
| Otros | 51,470.9 | 21.5 | % | |||||
| Financial Private System | 239,562.0 | |||||||
The Bank was
Source: Central Bank.
| (1) | Consolidated with CCF. |
We were one of the top five private banks in the Argentine financial system with respect to leasing, as shownpresented in the following table as of December 31, 2016:2019 (figures are expressed in original currency and not adjusted for inflation):
| As of December 31, 2019 | ||||||||
| Leasing | ||||||||
| (in millions of Pesos) | Share of total (%) | |||||||
| Banco Comafi S.A. | 3,972.4 | 24.7 | % | |||||
| Banco Supervielle SA | 3,186.7 | 19.9 | % | |||||
| Banco de Galicia y Buenos Aires S.A. | 2,332.2 | 14.5 | % | |||||
| BBVA Banco Francés S.A. | 1,660.2 | 10.3 | % | |||||
| HSBC Bank Argentina S.A. | 1,191.9 | 7.4 | % | |||||
| ICBC S.A. | 610.7 | 3.8 | % | |||||
| Credicoop Cooperativo Limitado | 521.4 | 3.2 | % | |||||
| Banco Patagonia S.A. | 509.1 | 3.2 | % | |||||
| Banco Santander Río S.A. | 479.9 | 3.0 | % | |||||
| Citibank N.A. | 352.0 | 2.2 | % | |||||
| Others | 5,209.2 | 32.4 | % | |||||
| Total Private Banks | 16,053.3 | |||||||
|
| As of December 31, 2016 |
| ||
|
| Leasing |
| ||
|
| Ps. (in millions) |
| Share of |
|
BBVA Banco Francés S.A. |
| 1,965.70 |
| 16.3 | % |
Banco Supervielle S.A(1) |
| 1,528.30 |
| 12.7 | % |
Banco Patagonia S.A. |
| 1,451.30 |
| 12.1 | % |
Banco de Galicia y Buenos Aires S.A |
| 1,175.70 |
| 9.8 | % |
Banco Comafi S.A |
| 1,173.90 |
| 9.7 | % |
HSBC Bank Argentina S.A |
| 947.6 |
| 7.9 | % |
ICBC S.A |
| 845.1 |
| 7.0 | % |
Citibank N.A |
| 795.6 |
| 6.6 | % |
Credicoop Cooperativo Limitado |
| 686.2 |
| 5.7 | % |
Banco Santander Río S.A |
| 582.6 |
| 4.8 | % |
Others |
| 888.4 |
| 7.4 | % |
Total Private Banks |
| 12,040.4 |
|
|
|
Source: Central Bank
(1) Does not include securitized leasing portfolio.
The Bank, when consolidated with CCF, ranked firstsecond among private banks in the Argentine financial system with respect to MastercardMasterCard active accounts as of December 31, 20162019 as shownpresented in the following table:
|
|
|
| As of December 31, 2016 |
|
|
|
|
| Mastercard active accounts |
|
1 |
| Banco Supervielle S.A.(1) |
| 9.2 | % |
2 |
| Banco Macro S.A. |
| 7.1 | % |
3 |
| Banco de Galicia y Buenos Aires S.A. |
| 7.0 | % |
4 |
| BBVA Banco Francés S.A. |
| 6.8 | % |
5 |
| HSBC Bank Argentina S.A. |
| 6.1 | % |
6 |
| Citibank N.A. |
| 3.8 | % |
7 |
| Industrial and Commercial Bank of China (Argentina) S.A. |
| 3.6 | % |
8 |
| Banco Itaú Argentina S.A |
| 3.5 | % |
|
|
|
| As of December 31, 2016 |
|
|
|
|
| Mastercard active accounts |
|
9 |
| Banco Columbia S.A. |
| 3.1 | % |
10 |
| Banco Patagonia S.A. |
| 2.1 | % |
(1) Consolidated with CCF.
| As of December 31, 2019 | ||||||||
| MasterCard active accounts with billing statement | ||||||||
| 1 | Banco de Galicia y Buenos Aires S.A | 10.3 | % | |||||
| 2 | Banco Supervielle S.A.(1) | 9.3 | % | |||||
| 3 | BBVA Banco Francés S.A. | 8.2 | % | |||||
| 4 | Banco Macro S.A. | 6.0 | % | |||||
| 5 | Banco Patagonia S.A | 5.7 | % | |||||
| 6 | HSBC Bank Argentina S.A. | 4.8 | % | |||||
| 7 | Industrial and Commercial Bank of China (Argentina) S.A. | 3.6 | % | |||||
| 8 | Banco Itaú Argentina S.A | 1.9 | % | |||||
| 9 | Banco Columbia S.A. | 1.9 | % | |||||
| 10 | Banco Comafi S.A. | 1.2 | % | |||||
Until our IPO in May 2016, the Bank ranked first among private banks in the Argentine financial system with respect to the origination of all bank asset securitization in the Argentine market. Since the IPO we significantly reduced the number of our own securitizations. The Bank’s market share as of the periods indicated, are shown in the following table:
Source: First Data Cono Sur S.R.L.
|
| As of December 31, 2016 |
| ||
|
| Bank asset securitization |
| ||
|
| Ps. (in millions) |
| Share of total (%) |
|
Banco Sáenz S.A. |
| 718.0 |
| 26.9 | % |
Banco Supervielle S.A |
| 550.0 |
| 20.6 | % |
Banco BICA S.A |
| 546.4 |
| 20.5 | % |
BST S.A. |
| 456.9 |
| 17.1 | % |
Banco Comafi S.A |
| 399.2 |
| 15.0 | % |
Total |
| 2,670.5 |
| 100 | % |
We were one of the top ten companies in the Argentine capital markets with respect to the origination of total asset securitizations as of the periods indicated, as shown in the following table:
|
| As of December 31, 2016 |
| ||
|
| Total Securitizations |
| ||
|
| Ps. (in millions) |
| Share of total (%) |
|
Grupo Electrónica Megatone |
| 5,709.9 |
| 16.4 | % |
Grupo Garbarino |
| 4,830.3 |
| 13.8 | % |
Grupo Carsa |
| 3,444.5 |
| 9.9 | % |
Grupo Frávega |
| 3,410.6 |
| 9.8 | % |
Grupo Supervielle |
| 1,651.9 |
| 4.7 | % |
Grupo Cencosud |
| 1,575.6 |
| 4.5 | % |
Grupo Ribeiro |
| 1,481.5 |
| 4.2 | % |
CMR Fallabaella |
| 1,283.8 |
| 3.7 | % |
Grupo Hipotecario — IRSA |
| 1,181.1 |
| 3.4 | % |
Grupo Comafi |
| 1,037.6 |
| 3.0 | % |
| (1) | Consolidated with CCF. |
The Bank faces a high degree of competition in virtually all core financial products with respect to pricing (interest rate or fee) and term. The Bank’s strategy in the face of this competition is to maintain aggressive business policies, differentiate itself with respect to product offering and customer service, and redesign processes for greater sales productivity.
Notwithstanding this competitive challenge, our strategy for growth, both organic and through acquisitions, has resulted in an 118.0%an increase in our financial system market share (excluding public banks) since 2005.2005 according to the Central Bank. Throughout this period, we gained some of the market share lost by several of our larger competitors.
The following graph shows the Bank’s loan market share on a consolidated basis since 2001.
Source: Central Bank.
Taking into consideration total loan portfolio and receivables from financial leases portolio,portfolio, total loans and leasing market share was 4.8%5.0% as of December 31, 2016.2019.
In addition, 2016 was a very important year in the history of Grupo Supervielle and its subsidiaries with the completion of the IPO. This transaction doubled Grupo Supervielle’s capital base and allowed us to increase our total loan portfolio 58% in 2016, reaching a 4.8% market share of the private financial system.
The graph below shows a comparison of the Bank’s loan portfolio CAGR as of December 31, 2019 compared to the average loan portfolio CAGR of Argentine private Banks and the private financial system (excluding public banks).
Source: Central Bank. Figures are expressed inPesos in original currency and not adjusted for inflation.
The graph below shows a comparison of the Bank’s loan portfolio growth compared to the average loan portfolio growth of the Argentine financial system.
Source: Central Bank. Figures are expressed inPesos in original currency and not adjusted for inflation.
Consumer Financing
CCF offers its products primarily to the middle and lower-middle-incomelower middle income sectors. CCF’s main competitors can be divided into two groups: (1) those that are not subject to Central Bank oversight such as Provencred, Tarjeta Naranja, Tarjetas Cuyanas Credial and Tarjeta ShoppingCredial and (2) those that are subject to Central Bank oversight such as Compañía Financiera Argentina and BST CrediLogros.Banco Columbia.
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With respect to its Walmart Argentina private label credit card, CCF’s primary competitors in terms of the types of products offered are Tarjeta MásCENCOSUD (issued at Jumbo and Easy and used in Jumbo, Easy, Disco, Vea and Blaisten), Tarjeta Carrefour (issued and used exclusively at Carrefour) and Tarjeta Coto (issued and used exclusively at Coto). However, unlike its competitors, CCF was the first to also issue an open MasterCard credit card, allowing CCF to operatetherefore operating in the banking and retail sectors. Currently, Tarjeta MásCENCOSUD is the only other competitor with a similar strategy. In addition, CCF is the sole provider of in-storein store personal cash loans and consumer loans that may be granted and used immediately at the retail stores.
Tarjeta’s competitors vary in terms of region and type of product. Competitors in the lending space include Compañía Financiera Argentina, BST CrediLogros, Banco Columbia, Credil, Corefin and Empresur. In terms of the credit card space, Tarjeta’s main competitor is Tarjeta Naranja, followed by regional competitors.
MILA is a financial company focused on car financing solutions that had been providing products in the Argentine market for almost 14 years. MILA’s main competitors can be divide into two groups: (1) those that are banks or financial companies such as NevadaSantander, ICBC, BBVA, MG Group and Credimas.
With respectHSBC and (2) those that are financial institutions owned by car manufacturers such as Renault Credit, Fiat Credito and Peugeot Finance. MILA’s main product is car loan with pledge that helps to maintain a low risk level portfolio. Currently MILA is ranked as one of the products offered through the Hipertehuelche channel, even though there are no financial companies dedicated solely to the construction sector, CCF’s competitors include CETELEM, Cuota sí (CFA), DIRECTO and Cuota YA. However, these competitors do not operatetop five players in the Patagonia region where Hipertehuelche operates,new car financing market with 3.0% market share and are competitors onlyachieved the fifth position in the used car financing market with respect4.9% market share (source ACARA, December 2019). Regarding its distribution channel, MILA sells its products through 393 active dealers that allow the company to have presence in the types of products offered.whole country.
Mutual Funds
With respect to the mutual fund market, based on third party sourcesthe Chamber of Mutual Funds information we estimate our market share is 2.98%was 2.12% as of December 31, 2019, and that SAM is ranked 11theightteenth out of 4352 managers in the industry. Our main competitors are Galicia Administradora de Fondos S.A.S.G.F.C.I., Macro Fondos S.G.F.C.I.S.A., ICBC Investments S.A.S.G.F.C.I., Francés Administradora de Inversiones S.A.G.F.C.I., Itaú Asset Management S.A.S.G.F.C.I., HSBC Administradora de Inversiones S.A.S.G.F.C.I., BNP Paribas Asset Management Arg S.A.S.G.F.C.I. and Santander Río Asset Management G.F.C.I.S.A.
Online trading broker
According to BYMA information,InvertirOnline ranked 3 out of 205 broker With respect to theInvertirOnline operations, according to BYMA, as of December 31, 2019, our equity trading volume market share was 3.3% andInvertirOnline was ranked 8 out of 235 brokers.
Argentine Banking Regulation
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 FIL. 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 FIL, 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.
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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 different technical ratios that must be observed by financial entities with respect to levels of solvency, liquidity, the maximum credits that may be granted per customer and foreign exchange asset and liability positions.
In addition, financial entities need authorization from the Central Bank for the disposition of their assets, 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.
As the supervisor of the financial system, the Central Bank requires financial institutions to submit information on a daily, monthly, quarterly, semiannual 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 for the financial institution to continue to operate.
Banking Regulation and Supervision
Central Bank Supervision
Since September 1994, the Central Bank superviseshas supervised the Argentine financial institutions on a consolidated basis. Such institutions must file periodic consolidated financial statements that reflect the operations of headquarters,head offices or parent companies, as well as those of their branches in Argentina and abroad, and 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 FIL governs any individuals and entities that serve asperform habitual financial intermediariesintermediation 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 FIL and by related Central Bank regulations. 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 FIL 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 regulations) to the extent that the commercial bank’s interest in such companies does not exceed 12.5% of its voting stock or 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 referred authority,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.
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Furthermore, pursuantaccording to Communication “A” 5700,the rules regarding “Complementary Services of the Financial Entities and Allowed Activities”, as amended, commercial banks are authorized to hold interestsoperate 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. IfThe financial entities shall give notice to the Superintendency if the corporate purposes of such companies include twoany of the corporate purposes listed in section 2.2 of Communication “A” 5700, the authorization of the Central Bank is required.that rule.
Under Central Bank regulations, the total amount of the investments of a commercial bank in the capital stock of third parties, including interests in Argentine mutual funds, may not exceed 50% of such bank’s regulatory capital (Responsabilidad Patrimonial Computable, or “RPC”). In addition, the total amount of a commercial bank’s investments in the following, taken as a whole: (i) unlisted stock, excluding interests in companies that provide services that are supplementary to the finance business and interests in state-owned companies that provide public services, (ii) listed stock and interests in mutual funds that do not give rise to minimum capital requirements on the basis of market risk, and (iii) listed stock that does not have a “largely publicly available market price,” is limited to 15% of such bank’s RPC. To this effect, a given stock’s market price is considered to be “largely publicly available” when daily quotations of significant transactions are available, and the sale of such stock held by the bank would not significantly affect the stock’s quotation.
Operations and Activities that Banks Are Not Permitted to Perform
TheSection 28 of the FIL prohibits commercial banks from: (a) placingcreating liens on their own assets without prior approval from the Central Bank, (b) accepting their own shares as collateral, (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 financial activities under Central Bank regulations. 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
Legal Reserve
According FIL rules andAs of 1994, the Central Bank regulations,supervision of financial institutions is carried out on a consolidated basis. Therefore, all the documentation and information filed with the Central Bank, including financial statements, must show the operations of each entity’s headquarters 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 FIL, we are required to maintain a Legal Reservelegal reserve to be funded with no more than 20% and no less than 10% of their 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 such 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 mayis not allowed to pay dividends to its shareholders. For further information, please see “Item“Item 5. Operating and Financial Review and Prospects—Prospects–Item 5.A Operating Results.Results.”
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 swap,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.
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Unless otherwise indicated, the regulations described 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 financial institutions to 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 (together with(including their branches in Argentinadomestic Argentine and abroad)international branches) must comply with the minimum capital requirements both on an individual and a consolidated basis.
The following table sets forth information regarding excess capital and selected capital and liquidity ratios of the Bank, consolidated with CCF:
|
| Year ended December 31, |
| ||||
|
| 2016 |
| 2015 |
| 2014 |
|
|
| (in thousands of Pesos, except percentages) |
| ||||
Calculation of excess capital: |
|
|
|
|
|
|
|
Allocated to assets at risk |
| 3,178,270 |
| 2,082,489 |
| 1,497,829 |
|
Allocated to Bank premises and equipment, intangible assets and equity |
| 172,154 |
| 102,252 |
| 81,876 |
|
Market risk |
| 45,385 |
| 30,741 |
| 51,073 |
|
Public sector and securities in investment account |
| 78,472 |
| 16,739 |
| 7,516 |
|
Operational risk |
| 713,227 |
| 512,948 |
| 467,629 |
|
Required minimum capital under Central Bank regulations |
| 4,187,508 |
| 2,745,169 |
| 2,105,923 |
|
Basic net worth |
| 5,706,639 |
| 2,597,534 |
| 2,033,758 |
|
Complementary net worth |
| 778,885 |
| 662,679 |
| 532,097 |
|
Deductions |
| (338,671 | ) | (291,653 | ) | (228,529 | ) |
Total capital under Central Bank regulations |
| 6,146,853 |
| 2,968,560 |
| 2,337,326 |
|
Excess capital |
| 1,959,345 |
| 223,391 |
| 231,403 |
|
|
| Year ended December 31, |
| ||||
|
| 2016 |
| 2015 |
| 2014 |
|
|
| (in thousands of Pesos, except percentages) |
| ||||
Selected capital and liquidity ratios: |
|
|
|
|
|
|
|
Regulatory capital/credit risk weighted assets(1) |
| 15.5 | % | 11.8 | % | 12.8 | % |
Regulatory capital/risk weighted assets(2) |
| 12.5 | % | 8.7 | % | 8.9 | % |
Average shareholders’ equity as a percentage of average total assets |
| 11.2 | % | 9.5 | % | 9.5 | % |
Total liabilities as a multiple of total shareholders’ equity |
| 7.8 | x | 10.9 | x | 10 | x |
Cash as a percentage of total deposits |
| 22.6 | % | 28.5 | % | 21.5 | % |
Liquid assets as a percentage of total deposits |
| 27.0 | % | 32.6 | % | 26.5 | % |
Tier 1 Capital / Credit risk weighted assets |
| 13.5 | % | 9.1 | % | 9.9 | % |
Tier 1 Capital / Risk weighted assets |
| 10.9 | % | 6.7 | % | 6.9 | % |
(1) Credit Risk Weighted Assets is calculated by applyingAs stated above under “Presentation of Financial and Other Information”, we have prepared our audited consolidated financial statements for 2019, 2018 and 2017 under IFRS. Minimum capital requirement has been prepared in accordance with the respective credit risk-weights to our assets, followingrules of the Argentine Central Bank, regulations. It doeswhich is not include market risk or operational risk.comparable to data prepared under IFRS.
(2) Risk Weighted Assets is calculated by multiplying the required minimum capital under Central Bank regulations by 12.5. The minimum capital requirement includes credit risk, market risk and operational risk. This calculation has been applicable since 2013.
| Year ended December 31,(2) | ||||||||||||
| 2019 | 2018 | 2017 | ||||||||||
| (in thousands of Pesos except percentages and ratios) | ||||||||||||
| Calculation of excess capital: | ||||||||||||
| Allocated to assets at risk | 7,164,842 | 6,090,341 | 4,710,391 | |||||||||
| Allocated to Bank premises and equipment, intangible assets and equity investment assets | 826,133 | 370,233 | 191,549 | |||||||||
| Market risk | 251,739 | 301,724 | 121,155 | |||||||||
| Interest rate risk | — | — | — | |||||||||
| Public sector and securities in investment account | 11,472 | 96,882 | 131,109 | |||||||||
| Operational risk | 2,349,952 | 1,486,516 | 1,016,501 | |||||||||
| Required minimum capital under Central Bank rules | 10,604,138 | 8,345,696 | 6,170,705 | |||||||||
| Basic net worth | 16,991,091 | 11,847,865 | 9,903,099 | |||||||||
| Complementary net worth | 1,033,734 | 1,163,939 | 913,256 | |||||||||
| Deductions | (2,999,716 | ) | (867,798 | ) | (386,192 | ) | ||||||
| Total capital under Central Bank rules | 15,025,109 | 12,144,006 | 10,430,163 | |||||||||
| Excess capital | 4,420,971 | 3,798,310 | 4,259,458 | |||||||||
| Selected capital and liquidity ratios: | ||||||||||||
| Regulatory capital/risk weighted assets(1) | 15.6 | % | 15.30 | % | 13.9 | % | ||||||
| Average shareholders’ equity as a percentage of average total assets | 10.4 | % | 9.9 | % | 10.5 | % | ||||||
| Total liabilities as a multiple of total shareholders’ equity | 7.1 | x | 9.4 | x | 8.2 | x | ||||||
| Cash as a percentage of total deposits | 28.2 | % | 35.1 | % | 18.2 | % | ||||||
| Tier 1 Capital / Risk weighted assets | 10.8 | % | 10.8 | % | 12.6 | % | ||||||
| (1) | Risk Weighted Assets includes operational risk weighted assets, market risk weighted assets, and credit risk weighted assets. Operational risk weighted assets and market risk weighted assets are calculated by multiplying their respective required minimum capital under Central Bank rules by 12.5. Credit Risk Weighted Assets is calculated by applying the respective credit risk weights to our assets, following Central Bank rules. |
| (2) | Nominal values without inflation adjustment. |
As of December 31, 2016,2019, Banco Supervielle’s Tier 1 Capital ratio on a consolidated basis with CCF was 10.9%10.8%, compared to 6.7% atjust as it was as of December 31, 2015.2018. Including the Ps.690Ps. 645 million funds from the IPO proceeds retained at the holding company Grupo Supervielle, which are available for furtherfuture capital injections to our subsidiaries in its subsidiaries,order to fund our growth strategy, the consolidated proforma TIER1pro-forma Tier 1 Capital ratio as of December 31, 20162019 stood at 12.3%11.3%. Supervielle’s Tier1Tier 1 ratio coincides with CET1 ratio.
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As of December 31, 2019, the Bank’s total capital ratio on a consolidated basis with CCF was 11.6% compared to 11.9% at December 31, 2018. Including Ps.645 million retained at the holding company which are available for futurecapital injections to our subsidiaries in order to fund our growth strategy, the consolidated pro-forma total capital ratio as of December 31, 2019 stood at 12.1%.
The capital composition to be considered in order to determine compliance with minimum capital requirements is the financial institution’s RPC (Communication “A” 5580(Central Bank rules regarding to “Financial Entities Minimum Capital”, as amended).
Basic minimum capital
Minimum capital requirements of commercial banks acting as custodians of securities representing investments of theFondo de Garantía de Sustentabilidad del Sistema Integrado Previsional Argentino and/or as registrar of mortgage securities must comply with an extra 0.25% of the value of securities in custody and/or mortgage securities and must be invested in Argentine public bonds or monetary regulation instruments.
In addition, pursuant to Communication “A” 5694 as amended of the Central Bank, those entities considered as domestic systemically important (“D-SIB”), must take into account an extra minimum capital requirement, equivalent to 1% of the total risk-weighted assets (“RWA”), which they must comply with using exclusively ordinary capital level 1 (“COn1”), as described below, according to the following schedule (currently, RWA arises from multiplying the required minimum capital under Central Bank regulations by 12.5):
|
| January/March |
| April/June |
| July/September |
| October/December |
|
2016 |
| 0.075 |
| 0.15 |
| 0.225 |
| 0.30 |
|
2017 |
| 0.375 |
| 0.45 |
| 0.525 |
| 0.60 |
|
2018 |
| 0.675 |
| 0.75 |
| 0.825 |
| 0.90 |
|
From January 2019 |
|
|
| 1 |
|
|
|
|
|
We are not considered a D-SIB.
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).
Category | Banks |
| Other Entities (*) | |
I and II | Ps.26 million | Ps.12 million | ||
III | Ps.15 million | Ps.8 million |
(*) Except credit entities.
(*) | Except credit entities. |
Additionally, financial entities located in ports and airports must comply with Category I requirements and those entities engaged in foreign trade transactions must comply with the requirements applicable to banks under such category.
Notwithstanding the foregoing, the regulatory capital of commercial banks acting as custodians of securities representing investments of the Fondo de Garantía de Sustentabilidad del Sistema Integrado Previsional Argentino must be equal to or exceed the greater of Ps.400 million or an amount equivalent to 1% of the total book value of the securities in custody.
Description of Argentine 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. Pursuant to Communications “A” 5369 and “A” 5580, as amended and supplemented, RPC consists of Tier 1 capital (Basic Net Worth) and Tier 2 capital (Complementary Net Worth).
Tier 1 capital consists of (i) COn1,ordinary capital level 1 (“COn1”), (ii) deductible items from ordinary capital level 1 (“CDCOn1”)(CDCOn1), (iii) additional capital level 1 (“CAn1”), and (iv) deductible items from additional capital level 1 (“CDCAn1”)(CDCAn1).
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:
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· with respect to results from prior fiscal years, 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;
| · | with respect to results from prior fiscal years, 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) share premiums of the instruments included in COn1, and, in the case of consolidated entities, (viii) minority shareholdings (common shares issued by subsidiaries subject to consolidated supervision and belonging to third parties, if certain criteria are met).Other comprehensive results:
| (a) | 100% of the results registered in the following items belonging to the account “Other comprehensive cumulative results” for the most recent audited quarterly or annual financial statements: |
| · | Revaluation of property, plant, and equipment and |
| · | intangibles; gains or losses on financial instruments at fair value with changes in other comprehensive income. |
| (b) | 100% of the debit balance of each of the items recorded in other comprehensive income not mentioned in section (a). 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’s rules regarding “Financial Entities Minimum Capital”. |
| (viii) | share premiums of the instruments included in COn1, and, in the case of consolidated entities, and |
| (ix) | 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.
Deductible Items
The above-mentioned items will be considered without certain deductions pursuant to subsection 8.4.1 and 8.4.2 (as applicable) of the Central Bank Communication “A” 5580.rules regarding “Financial Entities Minimum Capital”, as amended.
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Items 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;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) certain credits related to the application of tax deferrals;shareholders; (g) shareholders; (h) 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) goodwill; (j) organization and development costs; (k) items pending allocation, debtor balances and other; (l)(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; (m)(k) any deficiency relating to the minimum loan loss provisions required by the Superintendency; (n)(l) 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; (m) the issuanceexcess to the limits set forth for secured assets on Section 3 of credit or debit cards as provided by Communication “A” 5700; (o) excess in the grantingrules on “Affectation of asset-backed guaranties, according to Central Bank’s regulations; (p)Secured Assets” (n) 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, when certain conditionssector” surpass the authorized limit and/or are met; (q) earningsnot settled within the terms established therein; (o) income from sales relatedrelating to securitizations under certain circumstances; (r)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; (p) in the case of liabilities from derivatives accounted for at fair value, unrealized gains andor losses related to derivative transactions due to changes in the financial institution’s credit risk ofwill be deductible. The deduction will be limited to the financial institution; (s) losses from derivatives under certain circumstances and (t)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; (q) equity interests in other Argentine or foreign 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 consolidated supervision.
proportional basis to their respective interests.
CAn1 includes certain debt instruments of financial entities not included under COn1 andthat meet the regulatory criteria established in section 8.3.2 of Communication “A” 5580 (asthe rules regarding “Financial Entities Minimum Capital”, as amended and supplemented),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 CAn1Can1 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. |
| (5) | After five 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, (ii) the entity does not create any expectations regarding the exercise of the purchase option, and (iii) 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. |
· Must be totally subscribed and paid in full.
· 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.
· 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.
· 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.
· After 5 years as from the issuance date, the financial entity can buy back the debt instruments if: (i) it has the previous 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.
· 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.
· The financial entity can pay dividends/interest coupons at any time. The included dividends/interest coupons shall not have periodic adjustments because of the financial entity’s credit risk.
· Debt instruments should not have been bought by the financial entity or any other entity over which the financial entity has control or significant influence.
· Debt instruments should not have been bought with direct or indirect financing from the financial entity and they shall not contain elements that make re-capitalization difficult.
| (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 pay dividends/interest coupons at any time, and at its sole discretion, which shall not be considered a default in itself and shall not grant bondholders the right to claim 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 common shares and 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 (PNc): Tier 2 capital consists of
Tier 2 Capital includes
(i) certain debt instruments of financial entities which are not included in Tier 1 capitalCapital and which meet the regulatory criteria established in section 8.3.3 of Communication “A” 5580 (asthe Central Bank rules regarding “Financial Entities Minimum Capital” as amended and supplemented),supplemented, (ii) share premium from instruments included in Tier 2 capital,Capital, and (iii) loan loss provisions on the loan portfolio of debtors classified as being in a “normal situation” pursuant to Central Bank regulationsrules on debtor classification and on financings with class “A” preferred securities 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 complementary net worth.
The above-mentioned items will be considered minus deductible items pursuant to section 8.4.2 of Communication “A” 5580 (asthe Central Bank rules regarding “Financial Entities Minimum Capital”, as amended and supplemented) issued by the Central Bank,supplemented, which is described below.
Moreover, debt instruments included under complimentary net worth must comply with the following requirements:
| · | Must be totally subscribed and paid in full. |
| · | Subordinated to depositors, unsecured creditors and the subordinated debt of the financial entity. |
· Must be totally subscribed and paid in full.
· 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 has no agreement in place to improve payment priority in the case of the entity’s bankruptcy either legally or economically.
· Maturity: (i) original maturity date within no less than 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 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.
· 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.
| · | Must not be insured or guaranteed by the issuer or a related entity, and has 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 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 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. |
| · | 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. |
Additionally, instruments included in Tier 2 capital and CAn1,Can1, shall meet 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.
| (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 regularizationamnesty 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.
The Bank has issued three series of subordinated notes, all of which are outstanding as of the date of this annual report. The series issued in 2013 and 2014 comply with all the requirements described above. However, the series issued in November 2010 is not in compliance with the requirements because it was issued prior to the effectiveness of Communication “A” 5580. See “Item“Item 5.B Liquidity and Capital Resources—Financings—Bank —– Foreign currency-denominated Subordinated Notes.Notes.”
On February 9, 2017, under the Bank’s global program of simple negotiable obligations, not convertible into shares, for a nominal value of up to U.S.$2,300 million (previously, U.S.$800 million) (or its equivalent in other currencies or units of value), the Bank issued Class A Negotiable Obligations, which constitute unsubordinated senior obligations, and therefore are not computable for the purpose of calculating the RPC.
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 COn1Con1 of the financial entity if the original instrument complies with the requirements established for its qualification as common shares regarding the RPC.
Deductible items applied to the different capital levels: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 Capital Tier 1), AT1 (Additional Capital Tier 1) or PNc (Supplementary Capital) 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 entity, net of applicable deductions, the amount over such 10% shall be deducted from each capital tier in accordance with the following formula: 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 PNc: aggregate excess amount over 10% multiplied by the proportion represented by the PNc 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 supervision 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 a 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 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 supervision; 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 PNc 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 PNc must be deducted from the applicable capital tier. |
Investments in computable instruments under the financial entity’s RPC are 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 to be placed within 5 business days. When the holdings in other financial entity’s capital (individually representing less than 10% of each issuer’s COn1) exceed 10% of the COn1 of the financial entity, net of deductions, the amount over 10% must be deducted from each one of the capital levels according to the following formula:Limits
· Amount to be deducted from COn1: the amount exceeding 10% multiplied by the proportion of holdings of COn1 over total capital interests.
· Amount to be deducted from CAn1: the amount exceeding 10% multiplied by the proportion of holdings of CAn1 over total capital interests.
· Amount to be deducted from complementary net worth: the amount exceeding 10% multiplied by the proportion that represents the holdings of complementary net worth over total capital interests.
Investments in computable instruments under the financial entity’s RPC are not subject to consolidated supervision when the entity owns up to 10% of the issuer’s ordinary capital or when the issuer is a subsidiary of a financial entity according to the following criteria: (i) investments include direct, indirect or synthetic interests; (ii) investments include the acquired net position; and (iii) securities issued to be placed within 5 business days.
Limitations
Communication “A” 5580 (asCentral Bank Rules regarding “Financial Entities Minimum Capital”, as amended and supplemented)supplemented, establishes minimum thresholds regarding capital integration: (i) for COn1,Con1, the amount resulting from multiplying the capital risk weighted assets (“RWA”) by 4.5%; (ii) for the basic net worth, the amount resulting from multiplying the RWA by 6% and (iii) for the RPC, the amount resulting from multiplying the RWA by 8%. It is important to note that the RWA calculation results from multiplying the required minimum capital under Central Bank regulationsrules by 12.5.12.5%. The failure to comply with any of these limitations is considered an infringement of the minimum capital integration requirements.
Pursuant to Communication “A” 5867,5889, RWA shall be calculated as follows:
RWA = RWAc + [(MR+OR) x 12.5]
Where:
RWAc: credit risk weighted assets
RM:MR: minimum capital requirement for market risk
OR: minimum capital requirement for operational risk
Economic Capital
Communication “A” 5398 of the Central Bank 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.
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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 boardBoard of directorsDirectors 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.
Pursuant to Communication “A” 5398, 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. |
| (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 entities may opt for a simplified calculation methodology. Such option must be approved by the board of directors of such entity.
Group B entities which have opted for the simplified methodology shall apply the following expression:
EC = (1.05 x MC) + max [0; ρ EVE – 15 % x bNW)]
Where:
EC: economic capital
MC: minimum capital requirements
EVE: measure of risk calculated according to a standardized framework forseen in section 5.4 of Communication “A” 6534
bNW: basic net worth (tier 1 capital)
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Requirements Applicable to Dividend Distribution
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.
By meanssubject to compliance with the rules set forth in the “Rules on Dividend Distributions” of Communication “A” 6013, the Central Bank, amendedunder the criterion that the amount to be distributed cannot affect the institution’s liquidity and restated its regulations regarding dividend distribution by financial institutions. Pursuant to such regulation, the Superintendency will review the ability of a financial institution to distribute dividends upon request for approvalsolvency, which shall be verified by the institutions. The request must be filed within 30 business days prior tosatisfaction of certain requirements, on a consolidated basis.
Such regulations provides that the shareholders’ meeting that will approve the institution’s annual financial statements. The Superintendency may authorize the distributionpayment of dividends when each(other than dividends on common shares), the acquisition of treasury shares, the following circumstances are applicable during the month preceding the request:
(i) the financial institution is not subject to a liquidation procedure or the mandatory transfer of assets ordered by the Central Bankpayment on other tier 1 equity instruments (as determined in accordance with section 34 the provisions set forth in the rules on “Minimum capital of financial institutions”) and/or 35 bis the payment of financial incentives (bonuses) to personnel – in this case, subject to the FIL;
(ii)public order labor regulations (legal, statutory and contractual) governing the financial institution is not receiving financial assistance from the Central Bank;
(iii) the financial institution is in complianceinstitutions’ relationships with its reporting obligations to the Central Bank;
(iv) the financial institution is in compliance with minimum capital requirements (both on an individual and consolidated basis and excluding any individual franchise granted by the Superintendency) and with minimum cash reserves (on average), whether in Pesos, foreign currency or securities issued by the public sector; and
(v) the financial institution is nottheir personnel– shall be subject to any significant fines, — exceeding 25% of the last reported computable regulatory capital— , or debarment, suspension, revocation or prohibition imposed in the last five years by the Central Bank, the UIF, the CNV, and/or the National Superintendency of Insurance (Superintendencia de Seguros de la Nación), except when such financial institution has implemented corrective measures that are satisfactory to the Superintendency (such corrective measures would also be brought, if applicable, to the attention of the regulatory body that originally imposed the sanction). The Superintendency also takes into consideration information that it receives from, and/or sanctions imposed by, equivalent foreign agencies or authorities. When weighing the significance of the sanctions, the Superintendency takes into account the type of sanctions, the underlying reason for such sanctions and the amount of sanctions imposed on the financial institution. Additionally, the Superintendency factors in the degree of participation in the events leading up to the sanction, the economic effects of the violation, the degree of damage caused to third parties, the economic benefit that the sanctioned party received from the violation, the sanctioned party’s operating volume, its liability and the title or function that such party holds.these rules.
Financial institutions that comply with all of the above-mentioned conditionsInstitutions may distribute dividends up to an amount equal to: (i) the positive balanceamount 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 account “unappropriated earnings” (“resultados no asignados”) at the end of the fiscal year (ii) plusto which they belong, in the account “Unassigned Results” (Resultados no asignados) and in the voluntary reservesreserve for future dividend paymentsdistributions of dividends shall be computed, deducting the amounts – recorded on the same date – of the legal and (iii) minus voluntary reserves and mandatory statutory reserves – whose creation is mandatory – and other items, such as (a)the following items:
1. 100% of the negative balance of account related to payments madeeach of the items recorded under pesification judicial rulings; (b) 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 balance ofdifference resulting from the book-valuecalculation at amortized cost and the market-value of certain public debt securities and Central Bank notes thatfair market value recorded by the financial institution owns that are not marked to market; (c) unrecordedin 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 of asset value informednotified by the Superintendency – whether accepted or mentionednot by the institution– that are pending registration and/or those indicated by the external auditors on their report; (d)audit that have not been accounted.
5. The individual exemptions fordeductibles – regarding asset valuation granted– established by the Superintendency; (e) balance of judicial deposits in foreign currency and accounting value of such deposits as required by Law No. 25,561 and Decree No. 214/02; and (f) net results of losses dueSEFyC, including the adjustments derived from the failure to application of rules for valuation of securities of the non-financial public sector and monetary regulations of the Central Bank.
Dividends cannot be paid, however, in any of the following circumstances:
· if the average minimum cash reserve is lower than the amount of cash required by the latest reported position or the pro-forma position after making the dividend payment; and/or
· if the financial institution did not comply with the applicable Additional Capital Margins (as defined below).
consider agreed adjustment plans.
In addition, financial entities may not distribute profits with the profit arising from the application of IFRS for financial institutionsthe first time, and must set up a special reserve that are branches of foreign financial institutions,can only be canceled for capitalization or to absorb any negative balances from the Superintendency will consideritem “Unassigned results.”
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 their headquarters and the marketsinstitution. This requirement shall be considered satisfied once it has been verified that there are no integration defects in which they operate.
Pursuant to Communication “A” 5580, the minimum regulatory 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 items set forth above in points 1 to 5, if applicable, from the assets. |
| 2. | The failure to consider the deductibles established by the SEFyC affecting the requirements, integrations and minimum capital position. |
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| 3. | The deduction of the amounts relating to the following items 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 of the FIL; |
| · | 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 SEFyC); |
| · | 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. |
As from January 2020, in order to accountrecalculate the minimum capital position set under Section 3 of the rules on “Dividends Distribution”, financial institutions of the Company “B” shall enforce Section 5.5 about Impairment from the IFRS Financial Instrument No. 9.
The aforementioned regulation contemplated transitory provision, effective until March 31, 2020, pursuant to which those financial institutions which, in order to determine distributable earnings, have not increased the ranges of COn1 net of deductions (CDCOn1) set forth in 1 percentage point, must obtain the prior authorization of the SEFyC for the requirementdistribution of counterparty risk capital for securitizations for every ongoing transaction at the time of determination.
Central Bank´s Communication “A” 5689, dated January 8, 2015, set forth that financial entities shall make an accounting entry for and provide information about any administrative and/or disciplinary penalties, and adverse criminal judgments issued by courts, which were applied or filed by the Central Bank, the UIF, the CNV and the National Insurance Superintendence (SSN). Beginning in January 2015, the amount corresponding to the accounting entry shall include all of the penalties and a provision for 100% of each penalty must be made. Such provisions must be maintained until payment is made or a final judgment is issued. According to Central Bank Communication “A” 5707, as amended by Central Bank Communication “A” 5827, if dividends are to be distributed, this amountearnings. This requirement shall also be deductedapplicable to the payment of financial services applicable to the issue of debt securities.
Unless otherwise indicated, the regulations explained in this sectionareapplied to financial information of the banks calculated in accordance with Argentine Banking GAAP. IFRS differs in certain significant respects from Argentine Banking GAAP.
On March 19, 2020, in the distributable amount. In April 2016,midst of the coronavirus’ outbreak crisis, the Central Bank issued Communication “A” 5940,
6939, by virtue of which amended provisionsthe distribution of dividends by financial entities was temporarily suspended until June 30, 2020.
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Capital Conservation Buffer
Communication “A” 5689. Pursuant to such Communication, the financial entities that, to the date thereof, have an amount for these items registered in the account “Provisions — For administrative, disciplinary and criminal penalties”, must analyze, according to the enforcing legal reports, if each such penalty meets the conditions for its total or partial accountable registration, according to the provisions in the “Accounts Plan and Manual” (which set forth that penalties must be probable and that their amount can be reasonably estimated).
In January 2015, Communication “A” 56945827 of the Central Bank also establishedestablishes that those entities considered domestic systemically important (D-SIB) must take into account an extra minimum capital requirement equivalent to 1% of the total risk-weighted assets which they must comply with using exclusively ordinary capital level 1 (Con1) according to the schedule described (currently, RWA is calculated by multiplying the required minimum capital under Central Bank regulations by 12.5). According to Central Bank Communication “A” 5707, as amended by Central Bank Communication “A” 5827, if dividends are to be distributed, this requirement becomes effective immediately.
Pursuant to Central Bank Communication “A” 5827, as of January 1, 2016, financial entities are required to establishshall maintain a capital conservation margin in addition to theirthe minimum capital requirements for the purpose of accumulating their own resources, which they will be able to use if they incur losses, thus reducing the risk of non-compliance with minimum capital requirements. The higher the use of such marginal amounts, the higher the percentage of profits that financial entities will be required to withhold in order to restoreensure the accrual of owned resources to cope with eventual losses, reducing the non-compliance risk.
Financial entities considered D-SIBs or globally systemically important (“G-SIBs”), shall have a capital level that margin. Additionally,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 preservation margin shall be 2.5% of the entity’s RWA,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 addition to applicable minimum capital requirements. In the case of financial entities qualified as systematically significantconsidered systemically important, must be integrated exclusively with Common Equity Tier 1 (COn1), net from deductible items (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 preservationconservation 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 Tier 1 (CAn1) or Tier 2 Capital (PNc), 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.
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Any entity that desires to exceed the dividend distribution limits shall finance this distribution by new contributions of COn1 in the excess amount.
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.
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 3.5%observed by means of their respective RWA (the “Capital Conservation Buffer”)an increase in the conservation capital margin and shall be satisfied exclusively with Common Equity Tier 1, net of deductible concepts (CDCOn1).
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 by dividingapplying the sum of each item’s daily balance by the amount of days corresponding to the month. Pursuant to Communication “A” 6128, as of January 1, 2017, the minimum capital requirement for credit risk will be calculated as follows:
following equation:
CRC = (k x 0.08 x RWAc) + INC
Variable “k” is determined by the rating (1 is the strongest, 5 is the weakest) assigned to the financial entity by the Superintendency, pursuant to the following scale:
Rating |
| K Factor |
1 |
| 1 |
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: These are credit risk weighted assets, calculated by adding the following:
A x p + PFB x CCF x p + no DvP + (DVP + RCD+ INC(fractioning)) x 12.5
Variable “A” refers to computable assets/exposures; “PFB” is computable items which are not registered on the balance sheet (“off balance sheet items”), whether or not accounted for under memorandum accounts; “CCF” the conversion credit factor; and “p” refers to the weighting factor, expressed on a per unit basis.
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.
“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.
“RCD” refers to requirements for counterparty risk in over-the-counter (“OTC”) transactions.
“INC(fractioning)” 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 rules on “Credit risk fractioning.”
“INC” incremental minimum capital requirements based on any excess in the fixed assets and other ratios, the limitations established under “Credit risk fractioning” rules, and the limitations derived from the credit risk degree.
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:
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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: These are credit risk weighted assets, calculated by adding the following:
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CAMELBIG Rating |
| K Factor |
1 |
| 1.00 |
2 |
| 1.03 |
3 |
| 1.08 |
4 |
| 1.13 |
5 |
| 1.19 |
A * p + PFB * CCF * p + no DVP “DvP”+ (DVP + RCD + INC significant holding in other companies) * 12,50
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.
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.
“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.
“RCD” refers to requirements for counterparty risk in OTC transactions.
“INC” incremental minimum capital requirements based on any excess in the fixed assets and other ratios, the limitations established under the “Major Exposure to Credit Risk Regulations”.
“INC(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 rules 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 the public non-financial sector and the Central Bank. Other. 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 ot the credit rating assigned to the respective sovereign | 0 | ||
| AAA to AA- | 20 | ||
| A+ to A- | 50 | ||
| BBB+ to BBB- | 100 | ||
| BB+ to B- | 100 | ||
| Below B- | 150 | ||
| Unrated | 100 | ||
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| Type of Asset | Weighting (%) | ||
| 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 | ||
| 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 European Investment Bank (EIB), 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 national 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 for the case in which the grade was less than B-, in which the weighting percentage will be 150%. | 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 | ||
| Primary mortgages and mortgages of any ranking on residential homes, to the extent the entity is the mortgagee | |||
| If credit facility does not exceed 75% of the appraised value of such real property | |||
| - Sole, permanently-occupied family home | 35 | ||
| - Other | 50 | ||
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| Type of Asset | Weighting (%) | ||
| On the amount exceeding 75% of the appraised value of such real property | 100 | ||
| Primary mortgages and mortgages of any ranking other than on residential homes, to the extent the entity is the mortgagee | |||
| Up to 50% of the lower of the real property market value or 60% of the mortgage loan. | 50 | ||
| 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 exposure. | * | ||
| Exposures to individuals or companies originated in credit card purchases made in installments of travel tickets to foreign destinations and other touristic services abroad (logding, 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;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:
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| · | Intraday interbank exposures; |
| · | Exposures of financial entities with qualifying central counterparties, as defined by the Central Bank rules on minimum capital; |
| · | Exposures with the Central Bank; and |
| · | Exposures with the Argentine non-financial public sector. |
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
Communication “A” 6620 sets at 15% the limit of exposure with a counterparty 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%.
Similarly, 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. |
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| (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 arewere intended to capture the sensitivity of assets and liabilities to changes in the interest rates. Communication “A” 5369 removed all of theserules and regulations regarding minimum capital requirements.requirements for interest rate risk. Notwithstanding this change, financial entities must continue to calculate the interest rate risk and remain subject to the Superintendency’s supervision. Communication “A” 6534, dated July 3, 2018 established that the interest rare risk shall be measured through the calculation of the Investment Portfolio Interest Rate (RTICI).
Market Risk
Minimum capital requirements for market risks are computed as a function of the market risk of financial entities’ portfolios, measured as their VaR. The regulation includes those assets traded on a regular basis in open markets and excludes those assets held in investment accounts, which must meet counterparty and interest rate risk minimum capital requirements.
There are five categories of assets. Domestic assets are divided into equity and public bonds/Central Bank debt instruments, the latter being classified in two categories based on whether their modified duration is less than or more than 2.5 years. Foreign equity and foreign bonds comprise two other categories and are also classified according to their duration, the latter of which is also broken up into two separate categories based on whether their modified duration is less than or more than 2.5 years. The fifth category is made up of foreign exchange positions, which are differentiated based on currency.
Overall capital requirements in relation to market risk are based on the sum of the five amounts of capital necessary to cover the risks arising from each category of assets.
Market risk minimum capital requirements must be met daily. Information must be reported to the Central Bank on a monthly basis. Since May 2003, the U.S. dollar has been included as a foreign currency risk component for the calculation of the market risk requirement and all assets and liabilities denominated in U.S. dollars are taken into account.
Pursuant to Communication “A” 5867, market risk will be 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 will beis the arithmetic sum of the minimum capital requirement for interest rate (trading portfolio), stock (trading portfolio), exchange rate, commodities and options risks.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” 5867,6690, 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 over-the-counterOTC transactions involving derivatives and securities financing transactions, (SFT) — 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: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 — aportfolio. 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 commonordinary 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” 58676690 if the entity only purchases options —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“delta plus”) method, also contemplatedprovided for in the regulation.
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As from the effective date of Communication “A” 5867 and until August 31, 2016, financial entities were required to calculate the market risk minimum capital requirement in accordance with the method set forth in Communication “A” 5867 and also on an off-balance sheet basis, pursuant to the method in effect as of December 31, 2015, and to consider, for purposes of determining the minimum capital requirement, the result of the method involving the highest amount of the market risk capital requirements. After August 31, 2016, only the method set forth in Communication “A” 5867 is applicable.
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 institutions: the institution must meet the required capital no later than the end of the second month after becoming non-compliant or submit a restructuring plan within 30 calendar days following the last day of the month in which such non-compliance occurred. In addition, non-compliance with minimum capital requirements will entail a number of consequences for the financial institution, including prohibition from opening branches in Argentina or in other countries, establishing representative offices abroad, or owning equity in foreign financial institutions, as well as a prohibition from paying cash dividends. Also, the Superintendency may appoint a delegate, who shall have the powers set forth by the FIL.
(ii)Non-compliance identified by the Superintendency: the institution must file its defense within 30 calendar days after being served notice by the Superintendency. If no defense is filed, or if the defense is disallowed, the non-compliance will be deemed to be final, and the procedure described in item (i) confirm will apply.
| (i) | non-compliance reported by the institutions: the institution must meet the required capital no later than the end of the second month after becoming non-compliant or submit a restructuring plan within thirty (30) calendar days following 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 FIL. |
| (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” 5282,5867, 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. |
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· 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 boardBoard of directors,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 done 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.
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 (at least annually) of control strategies and risk mitigation, and adjust these as necessary.
| (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. |
| (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 36thirty-six (36) months.
The OR formula is as follow:
The variables in the OR formula are defined as follows:
| · | Cro: the capital requirement for operational risk. |
| · | α: 15%. |
| · | n: the number of twelve-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 twelve-month consecutive terms, provided that it is a positive figure, corresponding to the 36 months preceding the month of calculation. |
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· Cro: 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.
IB is defined as the sum of (a) financial and service income minus financial and service expenses and (b) other income minus other expenses.
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 financial public sector notes, as set forth under the Central Bank regulations (“Valuación de instrumentos de deuda del sector público no financiero y de regulación monetaria del Banco Central de la República Argentina”).
| (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. From the thirty-seventh month onwards, the monthly requirement is calculated based on the OR formula.
Minimum Cash Reserve Requirements
The minimum cash reserve requirement requires that a financial institution keeps a portion of its deposits or obligations readily available and not allocated to lending transactions. Pursuant to Communication “A” 3498 (astransactions and it is included in the Central Bank “Rules of Minimum Cash”, as amended and supplemented) as of March 1, 2002, the minimum cash requirement includes deposits and obligations for other financial intermediation transactions (overnight and fixed term transactions).
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 formal 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 (without including(excluding special deposits related to inflows of funds —– Decree 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, (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, and (vii) demand obligations for money orders and transfers from abroad pending settlement to the extent that they do not exceed a 72seventy-two (72) business hour term as from their deposit.
deposit and (iii) 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-term deposit of UVA and UVIs, (as defined below), 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 monthly average of the daily balances of the liabilitiesliabilities:
| · | registered at the end of each day during the period (monthly or bimonthly) prior to the one of its integration, in the case the liabilities are denominated in Pesos (in the July/August and December/January periods, the June and November averages shall be used, respectively, and in September and February, the average of the previous two-month period shall be used); or |
| · | registered at the end of each day during the calendar month, in the case of liabilities denominated in foreign currency, or government and corporate securities. |
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The averages shall be obtained by dividing the aggregate of the daily balances into the total amount of the days of each day during each calendar month, except for the period ranging from December of a year to February of the next year, period in which it shall be applied on a quarterly average. period.
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, depending on whether: (i) the financial entities are included in Group “A” 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” (Autoridades de entidades financieras) of the Central Bank classifies the financial entities in: (a) Group “A” which includes those entities in which the caseamount of transactionstheir 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); and (b) Group “B” composed of all those entities that are not included in Peso,Group “A”. The following fees arise from Communication “A” 6616, as amended, dated December 20, 2018, its effectiveness will depend on the category undergroup to which the jurisdictionfinancial entity belongs, being February 2, 2019 for Group “A” and G- SIB and on January 1, 2019 for the remaining entities:
| Rate % | |||||||||||||||
| Group A and G-SIB | Group B | ||||||||||||||
| 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 rescheduled 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 | 0 | 5 | 0 | 5 | |||||||||||
| (v) From 180 days to 365 days | — | 2 | — | 2 | |||||||||||
| (vi) More than 365 days | — | 0 | — | 0 | |||||||||||
| 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 | |||||||||||||
| Rate % | |||||||||||||||
| Group A and G-SIB | Group B | ||||||||||||||
| Item | Pesos | Foreign Currency | Pesos | Foreign Currency | |||||||||||
| (v) From 180 days to 365 days | 2 | 2 | |||||||||||||
| (vi) More than 365 days | 0 | 0 | |||||||||||||
| 7- | Demand and time deposits made upon a court order with funds arising from cases pending before the court, and the related immobilized balances | 15 | 15 | ||||||||||||
| (i) Up to 29 days | 29 | 10 | |||||||||||||
| (ii) From 30 days to 59 days | 22 | 7 | |||||||||||||
| (iii) From 60 days to 89 days | 4 | 2 | |||||||||||||
| (iv) More than 90 days | |||||||||||||||
| 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 | ||||||||||||||
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 up to 16 percentage points of the main officerate provided in section (i) of point 5 (in Pesos) and 9; in up to 13 percentage points of the rates provided by section (ii) of point 5 (in Pesos); in up to 3 percentage points of the rates provided by seciton (i) and (ii) of point 10 and 11; and in up to 2 percentage points of the rates provided by section (iii) of point 5.
Financial entities not included in the last paragraph up to 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 in up to 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”, 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 % | Reductions (over the % | ||
| Less than | 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 | ||
Calculations will consider 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 2% 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,” as set forth in Communication “A” 6857, to 35% of the aggregate financings in Pesos granted by the relevant institution. Additionally, Communication “A” 6916 set the limit of the deduction at 4% over the items in Pesos subject to the Central Bank Rules of Minimum Cash. Amended by Communication “A” 6937, effective from March 19, 2020, the latter percentage was raised to 6%.
| (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.
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| (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.
The financings calculated for this item 4 deduction cannot be included for the determination of the item 1 above deduction.
| (5) | In accordance with the special treatment provided for financing under Resolution No. 1/19 of the Ministry of Territorial Development and Habitat. |
For the period from February 2020 until January 2021 inclusive, the minimum cash requirement in Pesos will be reduced by 0.8% over the contractual balance – at the end of November 2019- from the financings that the institution decides to subject to the special treatment provided by point 6.4 of the “Credit Policy Rules.”
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 falls (Communication “A” 6195):and/or those complementary measures that are deemed pertinent.
|
| Rate % |
| ||||||
|
| Category I |
| Categories II to VI |
| ||||
Item |
| Pesos |
| Foreign |
| Pesos |
| Foreign |
|
1- Checking account deposits |
| 20 |
|
|
| 18 |
|
|
|
2- Savings account, basic account and free universal account |
| 20 |
| 25 |
| 18 |
| 25 |
|
3- Legal custody accounts, special accounts for savings clubs, “Unemployment Fund for Construction Industry Workers” (Fondo de Cese Laboral para los Trabajadores de la lndustria de la Construcción) and “Salary payment,” special checking accounts for legal entities and social security savings accounts |
| 20 |
| 25 |
| 18 |
| 25 |
|
4- 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 |
| 20 |
| 25 |
| 18 |
| 25 |
|
5- Unused balances of advances in checking accounts under executed overdraft agreements |
| 20 |
|
|
| 18 |
|
|
|
6- Deposits in checking accounts of non-bank financial institutions, computed for purposes of meeting their required minimum cash reserve |
| 100 |
|
|
| 100 |
|
|
|
7- Time deposits, liabilities under acceptances, repurchase agreements (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 rescheduled deposits included in the following items 11, 12, 13 and 14 of this table: |
|
|
|
|
|
|
|
|
|
(i) Up to 29 days |
| 14 |
| 23 |
| 13 |
| 23 |
|
(ii) From 30 days to 59 days |
| 10 |
| 17 |
| 9 |
| 17 |
|
(iii) From 60 days to 89 days |
| 5 |
| 11 |
| 4 |
| 11 |
|
(iv) From 90 days to 179 days |
| 1 |
| 5 |
| 0 |
| 5 |
|
|
| Rate % |
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|
| Category I |
| Categories II to VI |
| ||||
Item |
| Pesos |
| Foreign |
| Pesos |
| Foreign |
|
(v) From 180 days to 365 days |
| — |
| 2 |
| — |
| 2 |
|
(vi) More than 365 days |
| — |
| 0 |
| — |
| 0 |
|
8- Liabilities owed due to foreign facilities (not executed by means of time deposits or debt securities) |
| — |
|
|
| — |
|
|
|
9- Securities (including Notes) |
|
|
|
|
|
|
|
|
|
(i) Up to 29 days |
| 14 |
| 23 |
| 14 |
| 23 |
|
(ii) From 30 days to 59 days |
| 10 |
| 17 |
| 10 |
| 17 |
|
(iii) From 60 days to 89 days |
| 5 |
| 11 |
| 5 |
| 11 |
|
(iv) From 90 days to 179 days |
| 1 |
| 5 |
| 1 |
| 5 |
|
(v) From 180 days to 365 days |
| — |
| 2 |
| — |
| 2 |
|
(vi) From 365 days |
| — |
| — |
| — |
| — |
|
10- Liabilities owing to the Trust Fund for Assistance to Financial and Insurance Institutions |
| — |
|
|
| — |
|
|
|
11- Demand and time deposits made upon a court order with funds arising from cases pending before the court, and the related immobilized balances |
| 13 |
| 15 |
| 13 |
| 15 |
|
12- Special deposits related to inflows of funds. Decree 616/2005 |
|
|
| 100 |
|
|
| 100 |
|
13- 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 |
| 16 |
|
|
| 15 |
|
|
|
14- Deposits and term investments —including savings accounts and securities (including Notes)— in UVIs and UVAs |
|
|
|
|
|
|
|
|
|
(i) Up to 29 days |
| 7 |
| — |
| 6 |
| — |
|
(ii) From 30 days to 59 days |
| 5 |
| — |
| 4 |
| — |
|
(iii) From 60 days to 89 days |
| 3 |
| — |
| 2 |
| — |
|
(iv) More than 90 days |
| 0 |
| — |
| 0 |
| — |
|
15-Deposits and fixed term investments created in the name of minors for funds they receive freely |
| 0 |
| — |
| 0 |
| — |
|
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.
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. |
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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 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.
| (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.
The Central Bank makes interest payments on reserve requirements up to the legal cash requirement level established for term transactions. Reserves in excess of that requirement will not be compensated.
Compliance on public bonds and time deposits must be done with holdings marked to market and of the same type, only in terms of monthly status. Holdings must be deposited in special accounts at the Central Bank.
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 monthperiod 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 50%25% of the total required cash reserve, excluding the requirement for incremental deposits, determined for the next preceding month,period, recalculated on the basis of the requirements and items in force in the month to which the cash reserves relate.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 70%50% when a deficit to the admitted transfer margin occurs in the previous month.
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 twice1.5 times the private banks’ Buenos Aires Depositsaverage nominal interest rate of Large Amount Rate (“BADLAR”) rate for deposits in Pesos forthe shorter term peso denominated LELIQs auction published on the last business day of the month.
Any deficiencies in meeting the required minimum cash reserve and the daily minimum reserve in foreign currency are subject to a penalty equal to twice the private banks’ BADLAR rate for deposits in U.S. dollarsrelevant period or, twice the 30-day U.S. dollar LIBOR rate forif not available, the last business dayone available.
LELIQ global daily position
Pursuant to Communication “A” 6661 of the month (whichever is higher).
Minimum cash requirements may decrease with (i)Central Bank, the implementationLELIQ global daily position of the Consumer Promotion Program andbanks shall not exceed the Production of Goods and Services named “Ahora 12” created by Joint Resolution 671/2014 and 267/2014 of the former Ministry of Economy and Public Finance and the Ministry of Industry, and (ii) the payment of social security benefits. Minimum cash requirements may increase with a defect in the application of credit quotas to clients other than MiPyMEs. Minimum foreign cash requirements may decrease in the event of a relaunching of Lebac’s (Central Bank bills) subscriptions.larger sum between:
| (1) | the RPC of the bank in the immediately preceding month; and |
| (2) | 100% of the monthly average of the total deposits in Pesos, excluding the financial sector’s and the notes in Pesos issued until February 8, 2019 in the current month. |
Internal Liquidity Policies of Financial Institutions
Liquidity Coverage Ratio
Pursuant to Communication “A” 5693, as amended,the Central Bank’s 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 with a 30 day horizon.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 impact on credit availability, and (iii) the ability to obtain funds by selling government debt securities and 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 liquidity coverage ratio (“LCR”),LCR, which will require daily monitoring. The participation and coordination of the entity’s top management authority (e.g., a 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.
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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 10ten (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” 5693,6209, 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 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.
For implementing the above, the financial institutions must consider the following schedule:
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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. In order to calculate the LCR, the related assets include, among others, cash in hand, in transit, in armored transportation companies and ATMs; deposits with the BCRA;Central Bank; certain national public bonds in pesosPesos or in foreign currency; securities issued or guaranteed by the International Payments Bank, the International Monetary Fund,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
Credit Risk RegulationIn August 2017, the Central Bank introduced the net stable funding ratio (“NSFR”), effective as of January 1, 2018. The purpose of this ratio (which complements the LCR) is to encourage that long-term assets be financed with stable resources and, in this way, mitigate the risk of eventual tense situations in funding. By requiring financial institutions to maintain a stable funding profile in relation to the composition of their assets and off-balance sheet operations, the NSFR limits excessive dependence on short-term wholesale funding, promotes a better assessment of the funding risk of the items on and off balance sheet and favors the stability of the sources of funds.
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The regulations on credit risk establish standards in order to reduce such risk without significantly eroding average profitability. There are three types of ratios that limit a lender’s risk exposure, namely: risk concentration limits, limits on transactions with customers on the basis of the institution’s capital and credit limits on the basis of the customer’s net worth.
Risk concentration: regulations include the concept of risk concentration,NSFR is defined as the sumavailable amount of loans that individually exceed 10% of the financial institution’s RPC. Total operations may not exceed, at any time:
· three times the institution’s RPC for the previous month, without considering the operations involving local financial institutions;
· five times the institution’s RPC for the previous month, on total financings; and/or
· ten times the institution’s RPC for the previous month, for second tier commercial banks when taking into account transactions with other financial institutions.
The three times and five times limits listed above are increased to four times and six times the institution’s RPC for the previous month, respectively, whenever increases are allocated to provide assistance to trusts or fiduciary funds from the non-financial public sector.
Loans (other than inter-bank loans) that exceed 2.5% of the financial institution’s RPC must be recommended by senior management and approved by the institution’s board of directors or similar authority.
Diversification of risk: Financial institutions must ensure that their loan portfolio is diversified among the highest possible number of individuals or companies and across all economic sectors to avoid a concentration of risk arising from a small group of individuals or companies or related to a specific sector that could significantly affect the institution’s assets.
Degree of risk: In the case of credit limits based on the customers’ net worth, as a general rule the financial assistance cannot exceed 100% of the customer’s net worth. The basic margin may be increased by an additional 200% provided such additional margin does not exceed 2.5% of the financial institution’s RPC as of the last day of the second month priorstable funding relative to the date of the financing and the increase is approved by the board of directors of the relevant financial institution.
Limits on Credit Assistance
Maximum individual limits on credit assistance for non-related clients are calculated as a percentage of the financial institution’s RPC.
Maximum limits for credit assistance to non-financial public sector are as follows:
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(*) Individual limits will be increased by 15% when the increase is applied to financial assistance granted to trusts or fiduciary funds, subject to certain conditions and related to the financing of public sector or the inclusion of debt instruments issued by them.
Globally, lending to the public sector cannot exceed 75% of the institution’s RPC. As of July 2007, monthly credit assistance to the public sector cannot exceed 35% of a financial institution’s assets.
Maximum limits for credit assistance to the non-financial private sector of the country and non-financial sector abroad are as follows:
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Maximum limits for credit assistance to the financial sector of the country are as follows:
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*This limit can be divided in two segments, with and without collateral, in each case by 25% subject to compliance with certain requirements.
Maximum limits for credit assistance to the financial sector abroad are as follows:
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The allocation of margins for exposure to counterparty credit risk in derivative contracts is done on the basis of risk-sensitive measures and the features of each particular type of transaction (type of contract, frequency of marking to market, volatility of the asset). Transactions to be included are forwards, futures and options on shares and public bonds, and Central Bank debt instruments for which volatility is published, purchase and sale options on such assets, and swaps.
Limits for Affiliated Individuals
The aggregaterequired amount of relevant transactions with affiliated companies or individuals may not exceed at any timestable funding, where: AASF (Available Amount of Stable Funding) is the limits of the financial institution’s net worth as of the last day of the month prior to the month of calculation, according to the following general rules:
· in the case of local financial institutions which have transactions that are subject to consolidation by the lender or borrower, when the entity receiving financial assistance (i) has received a grade 1 rating by the Superintendency, the financial institution can provide assistance in an amount up to 100% of its computable net worth; or (ii) has received a grade 2 rating by the Superintendency, general financial assistance can be provided for an amount up to 10% of the financial institution’s computable net worth;capital and additional assistance in an amount up to 90% of said computable net worth as long as loans and other credit facilities mature within 180 days;
· in the case of local financial institutions not included in (i) above, the financial institution can provide assistance in an amount up to 10% of its computable net worth; and
· in the case of other related local companies that exclusively provide complementary services to the activity performed by the financial institution, as well as related foreign banks rated “investment grade,” such companies may receive assistance in an amount of up to 10% of the computable net worthliabilities of the financial institution which grants assistance.
If– calculated in the financial institution hasmanner set forth in Section 2 – that are expected to be available over a ratingone -year term. RASF (Required Amount of 4 or 5, financial assistance to a related person or company cannot be granted, except in certain special situations.
Finally,Stable Funding) is the total, non-excluded amount of financial assistance provided to, and the shareholder participationfunding necessary for such period – calculated in the related individualsmanner set forth in Section 3 – based on its liquidity and companies by a financial institution cannot exceed 20.0%remaining life of the institution’s Argentine regulatory capital, except whenassets 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 applicable limit is 100.0%.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.
Under Central Bank regulations,The Financial Institutions shall observe the NSFR all times and report it on a person is “related” to a financial institution (and thus part of the same “economic group”):
· if the financial institution directly or indirectly controls, is controlled by, or is under common control with, such person;
· if the financial institution or the person that controls the financial institution and such person has or may have common directorsquarterly basis to the extent such directors, voting together, will constitute a simple majority of each board; orSuperintendency.
· as an exception, determined by the Board of Directors of the Central Bank (pursuant to a proposal from the Superintendency).
In turn, control by one person over another is defined under such regulations as:
· holding or controlling, directly or indirectly, 25.0% or more of the voting stock of the other person;
· having held 50% or more of the voting stock of the other person at the time of the last election of directors;
· holding, directly or indirectly, any other kind of participation in the other person (even if it represents a participating interest below the abovementioned percentages) so as to be able to prevail in its shareholders’ or board of directors’ meetings; or
· when the Board of Directors of the Central Bank, pursuant to a proposal from the Superintendency, determines that a person is exercising a controlling influence, directly or indirectly, in the direction or policies of another person.
The regulations contain several non-exclusive factors to be used in determining the existence of such controlling influence, including, among others:
· the holding of a sufficient amount of the other person’s capital stock as to exercise influence over the approval of such person’s financial statements and payment of dividends;
· representation on the other person’s board of directors;
· significant transactions between both persons;
· transfers of directors or senior officers between both persons;
· technical and administrative subordination by one person to the other; and
· participation in the creation of policies of the financial institution.
Interest rate and fee regulations
Maximum lending rates
Leverage Ratio
Pursuant to Communication “A” 5590, which was in force from June 2014 to December 2015,6431, effective as of March 1, 2018, the Central Bank established limitsincorporated a ratio to lending rates applicablelimit the leverage of financial institutions in order to consumer financingavoid 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 respecta minimum capital requirement simple and not based on risk.
The leverage ratio, which must be greater than or equal to personal loans3%, 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 pledge loans granted to retail customers, that are not considered as MiPyMEs.
Pursuant to these limits, two groups of institutions were defined: (i) financial entities with non-financial private sector deposits in Pesos, taking into account the averagemeasure of the three months priorexposure will be the sum of (i) the exposures in the asset (excluding the items corresponding to April 2014, equal to or higher than 1% of the total non-financial private sector deposits of the financial system (Group I)derivatives and Securities Financing Transactions (SFT)), (ii) all other financial institutions (Group II).
In the case of institutions falling under Group I, the Central Bank would publish on a monthly basis the maximum interest rates that these financial institutions were authorized to apply to each financing disbursed and/or restructured. The maximum interest rates wereexposures by derivatives, (iii) exposures for SFT transactions, and (iv) off-balance-sheet items. Both measures must be calculated based on the productclosing balances of multiplying the most recent “reference interest rate” (as published by the Central Bankeach quarter.
Interest rate and based on the simple average of the cut-offfee regulations
Maximum lending rates applicable to Central Bank bills for a term closest to 90 days, two months before the disbursement) by the following multiples: (i) in respect of pledge loans: 1.25; (ii) in respect of overdrafts, credit card loans and mortgages on housing assigned to financial institutions by third parties, as receivables in respect to trusts where trust assets were constituted by them, and as collateral for granting loans: 2.00; and (iii) in respect of personal loans: 1.45.
In the case of Group II, the multiples used were as follows (i) in respect of pledge loans: 1.40; (ii) in respect of overdrafts, credit card loans and mortgages on housing assigned to financial institutions by third parties, as receivables in respect to trusts where trust assets were constituted by them, and as collateral for granting loans: 2.00; and (iii) in respect of personal loans: 1.80.
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 described above 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 regulationsrules 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.
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 conductedlinked 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 withoutin remsecurity interests granted in the same period; |
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| · | 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 noin remsecurity 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 AFIPto whom the financial institutions may grant credit card financings to be paid in at least 12 equal and consecutive installments after a regulated rate, any non-compliance identified until December 31, 20156-month grace period. In regards to these loans, the minimum cash requirement will be addressed pursuantreduced 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 rulesformation of external assets, remittance of family aid and derivatives; and, (ii) sell securities with settlement in effect as of December 16, 2015. For any non-compliance identified as from January 1, 2016, the rules established by Communication “A” 5849 will be applicable. Communication “A” 5849 establishes the procedure for reimbursing customers any amounts charged by financial institutions in excess of the applicable maximum lending rate.foreign currency or transfer them to other depositary entities (contado con liquidación).
Minimum term deposit rates
Pursuant to Communication “A” 5640, which was in effect from October 2014 to December 2015, the Central Bank established minimum interest rates applicable to term deposits made5853 (as amended by individuals (in a principal amount equal to or lower than the amount covered by Seguro de Depósitos S.A. (“SEDESA”) at the time) (i.e., deposits not exceeding Ps.350,000). Communication “A” 5659, issued on October 31, 2015, increased the monthly contribution that banks were required to set aside each month to fund the Deposits Guarantee Fund (“Fondo de Garantía de los Depósitos”) from 0.015% to 0.060% of the monthly average of the daily deposits balance. On April 7, 2016, the Central Bank issued Communication “A” 5943, pursuant to which the monthly contribution rate reverted back to 0.015% of the monthly average of the daily deposits balance, and as of May 1, 2016, the amount covered was extended to Ps.450,000.
The interest rate applicable to such deposits could not be lower than the result of multiplying the most recent “reference borrowing rate” (as published by the Central Bank and based on the simple average of the cut-off rates applicable to Central Bank bills for a term closest to 90 days, two months before the withdrawal of the deposits) by the following multiple, depending on the original term of each deposit: (a) from 30 to 44 days: 0.91, (b) from 45 to 59 days: 0.93 and (c) from 60 to 119 days: 0.97, (d) from 120 to 179 days: 0.98 and (e) over 180 days: 0.99.
On December 17, 2015, the Central Bank issued Communication “A” 5853, pursuant to which5891, among others) the provisions that established minimum interest rates applicable to the term deposits described above ceased to have effect in respect of any new transactions conducted as from and including such date. The remuneration for fixed-rate deposits and term investments will be established at a rate freely agreed upon among the parties.
With respect to transactions conducted at a regulated rate, any non-compliance identified on or before December 31, 2015 will be addressed pursuantparties according to the applicable rules in effect asfor each type of December 16, 2015. For any non-compliance identified as from January 1, 2016, the rules established by Communication “A” 5849 will be applicable. Communication “A” 5849 established the procedure by which financial institutions must pay customers any amounts due as a result of non-compliance with the applicable minimum term deposit rates.operation.
Fees
On October 6, 2013, the Central Bank issued Communication “A” 5460, granting broad protection to financial services customers. 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, (asas amended and supplemented by several regulations, including but not limited to Communication “A” 5828)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 users.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 customers who make electronic transfers willwould not be charged with fees or commissions. ClientsFor clients that do not meet suchthis category, (such as certain companies) that makecompanies, transfers of funds of 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 of up to Ps.100,000 per day and per account can be made via the internet (home banking)home banking every day of the year.
On March 21, 2016, the Central Bank issued Communication “A” 5928, pursuant to which all savingssaving accounts willshall be free, including the use of the corresponding debit card. In this regard, all existing and new savingssaving accounts will nowshall be free of charge. Savingcharge, as well as for new clients. The saving accounts willshall not face minimumhave amount requirementslimits, or any charge related to their creation, maintenance or renewal.renovation. In addition, pursuant to such regulation, commissions could be increased up to 20%, but clientssuch increase must be notified of such increase 60informed to the client sixty (60) days in advance. Furthermore, as of September 1, 2016 commissions’ caps on commissions will beare eliminated, but financial institutions will have to notifyinform their customers regardingin advance about the commissions that other financial entities will beare charging.
Lastly, throughCentral Bank issued Communication “A” 6212, effective as of April 1, 2017, the Central Bank issued a scheme to gradually reduce, on an annual basis, which reduces credit card and debit card sales commissions. In this regard,commissions on a gradual annual plan. Pursuant to Comminication “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.
Moreover, pursuant to Communication “A” 6681, banks are not allowed to charge fees or commissions to SMEs for over-the-counter cash deposits.
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.
Mandatory extension of credit facilities for productive investments
On July 5, 2012, the Central Bank issued Communication “A” 5319, mandating financial entities to extend credit facilities for productive investments, (the “2012 Quota”), according to the terms and conditions described therein. Subsequently,Recently, the Central Bank issued Communication “A” 5380 and “A” 5449 (the “2013 Quota”), “A” 5516 and “A” 5600 (the “2014 Quota”), “A” 5681 and “A” 5771 (the”2015 Quota”),Communications “A” 5874 and “A” 5975 (the “2016 Quota”) and “a” 6084, “A” 6352 “A” 6259 (the “2017 Quota”) and “A” 6352 (the “2018 Quota”), establishing newthe regulations applicable to credit facilities for productive investments (the “Quota”).corresponding for those years. The 2012 Quota, the 2013 Quota, the 2014 Quota, the 20152017 Quota and the 20162018 Quota are not cumulative and must be complied with, independently, in each year.
Financial Institutionsinstitutions subject to this
regime are those operating as financial agents of the national, provincial, City of Buenos Aires and/or municipal governments and/or those whose average totalparticipation in the deposits over a related three-month periodof the non-financial private sector in Pesos, are equal to or greater than 1% of the total deposits in the financial system.
2014 Quota
Financial entities included in Through Communication “A” 6352 issued on November 3, 2017, the 2014 quota must extend credit facilities for an amount equivalent to 5% of the nonfinancial private sector deposits in Pesos, calculated according to the balance resulting as of the end of November 2013, for the first tranche, and for an amount equal to at least 5.5% of deposits of non-financial private sector deposits in Pesos, calculated according to the balance resulting as of the end of May 2014, for the second tranche.
The maximum interest rate for the first tranche is 17.50% and for the second tranche is 19.50% fixed per annum for at least the first 36 months. After the completion of this period, if the financing continues, institutions may apply a variable rate that may not exceed the total BADLAR rate in Pesos plus 300 basis points.
The 2014 Quota must target 100% of the credit facilities rendered to micro, small- and medium-sized enterprises. The credits granted must be denominated in Pesos and, at the time of disbursement of the funds, must have a weighted average life equal to or greater than 24 months and shall mature beyond 36 months. Financing under the first tranche must be granted by June 30, 2014. Financing under the second tranche must be granted by December 31, 2014.
The maximum interest rate for the second semester of 2014 Quota is 19.50% fixed per annum for at least the first 36 months. After the completion of this period, if the financing continues, institutions may apply a variable rate that may not exceed the total BADLAR rate in Pesos plus 300 basis points.
2015 Quota
Financial entities included in the 2015 Quota must extend credit facilities in the first tranche for an amount equal to at least 6.5% of deposits of non-financial private sector deposits in Pesos, calculated according to the average balances of November 2014, and in the second tranche for an amount equal to at least 7.5% of deposits of non-financial private sector deposits in Pesos, calculated according to the average balances of May 2015.
The maximum interest rate for the 2015 Quota was established at a fixed 19% per annum for the first tranche and at a fixed 18% per annum for the second tranche, for at least the first 36 months. After the completion of this period, if the financing continues, institutions may apply a variable rate that may not exceed the BADLAR rate in Pesos plus 150 basis points for the first tranche and BADLAR rate in Pesos plus 50 basis points for the second tranche.
The 2015 Quota must target 80% of the credit facilities rendered to micro, small- and medium-sized enterprises. The remaining 20% can target enterprises that exceed the maximum established for their area of activity in the rules on “micro-, small- and medium- sized enterprises” and that the total exports do not exceed the 20% of total sales of the last financial year. The credits granted must be denominated in Pesos and, at the time of disbursement of the funds, must have a weighted average life equal to or greater than 24 months and shall mature beyond 36 months. All financing under the 2015 Quota must be granted by December 31, 2015.
At September 30, 2015, funding must have been convened by at least 30% of the total amount of the first tranche of the 2015 Quota.
2016 Quota
Central Bank Communications “A” 5874 and “A” 5975 established the following guidelines for the 2016 Quota:
Financial entities acting as financial agents for the national, provincial, Autonomous City of Buenos Aires’ and/or municipal governments and/or whose share in the non-financial private sector deposits in pesos in the financial system is equalstarted to or greater than 1%, based on the simple average of daily balances of the non-financial private
sector deposit in pesos for the previous calendar six-month period, will be required to extend credit facilities equivalent to at least 14% of the non-financial private sector deposits in pesos, calculated on the basis of the monthly average of daily balances in November 2015 and, as of July 1, 2016, to at least 15.5% of the non-financial private sector deposits in pesos, calculated on the basis of the monthly average of daily balances in May 2016.
In the case of entities falling within the above scope whose share of total non-financial private sector deposits in pesos is lower than 0.25% (calculated as described in the preceding paragraph)gradually reduce the percentage to be applied will be not less than 8% - and not less than 9% from July 1, 2016, to December 31, 2016.
Not less than 75% of the 2016 Quota must be allocated to credit facilities intended for micro-, small- and medium- sized enterprises.
Communication “A” 5874 and “A” 5975 established the type of financing which may be considered eligible to be computed as part of the 2016 Quota, which includes the following:
(i) Financing of investment projects (meaning financing extended for the purchase of capital goods and/or the construction of facilities necessary for the production of goods and/or services and for the commercialization of goods and/or services; financing of working capital for investment projects for up to an amount equivalent to 20% of the total project amount; the purchase of real estate, provided the financing amount does not exceed 70% of the value attributable to the constructions built on the land; financing for the purchase of motor vehicles and machinery, provided that the purchase transaction be carried out at the selling price applied to cash transactions; among others);
(ii) Discount of deferred payment checks, certificates of public works (or any documentation that may replace them) and invoices and promissory notes for customers that are micro-, small- and medium- sized enterprises for up to an amount equivalent to 30% of the first tranche of the 2016 Quota, and for the whole quota of the second tranche of the 2016 Quota;
(iii) Inclusion, by means of an assignment or discount, of financing facilities provided to users of financial services, or of receivables in respect of trusts whose trust assets consist — primarily — of such financing provided by financial entities not included within the scope of the above mentioned rules, with a total nominal annual financial cost not exceeding 27%, for the financings granted as of October 31, 2016, and 21% for the financings granted as of November 1, 2016, which may amount to up to 5% of the 2016 Quota;
(iv) Microcredit extended to micro entrepreneurs that meet certain requirements (including that, either individually or as a family group, they do not have revenues exceeding two adjustable minimum living wages and are not registered as value added tax, income tax and personal assets tax payers with AFIP). On a supplemental basis, micro entrepreneurs may be granted loans for the purchase of consumption goods or services;
(v) Loans extended to natural persons at an interest rate of up to a nominal annual 22% for the first year and as from the second year, if the above rate is not maintained, at a variable interest rate equivalent to the peso BADLAR rate charged by private banks, plus 150 basis points. The proceeds of these loans must be used directly for the purchase of a sole family dwelling for the respective family group, and must be implemented by means of a collateral assignment of rightsfacilities, until its complete elimination scheduled in the trusts created for the construction of those properties , subject to certain conditions. This type of financing may collectively amount to up to 10% of the 2016 Quota;December 2018.
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(vi) Mortgage loans extended to individuals for the purchase, construction or enlargement of dwellings, at an interest rate of up to a nominal annual 22% for the first year and as from the second year, if the above rate is not maintained, at a variable interest rate equivalent to the peso BADLAR rate charged by private banks, plus 150 basis points. These loans may collectively amount to up to 10% of the 2016 Quota;
(vii) Assistance provided to natural persons and/or legal entities in areas where an emergency situation prevails as a result of natural disasters. This assistance may amount to up to 15% of the 2016 Quota; and
(viii) Financing extended by financial entities that do not fall within the scope of these rules and/or to companies that provide financial assistance through capital lease transactions, provided the proceeds of such
transactions are applied to funds, as of the effective date of the legal regulation, to provide financing to MIPyMEs for the purchase of motor vehicles and/or machinery at prices not exceeding cash transaction prices (i.e., list price, net of any general discounts) and pursuant to the conditions of the 2016 Quota. The proceeds must be used within a term of 10 business days between the date when financial assistance is received from the financial entity and the date the funds are used for lending to MiPyMEs (Communication “A” 5929); and
(ix) Working capital financing to MiPyME, extended as of August 1, 2016, for working capital allocated to livestock farming (e.g., for the purchase and/or production of cattle, sheep, pigs, poultry, apiculture, etc.), dairy farming or other productive activities carried out in regional economies within the scope of section 2.2.9. of the “Minimum loan loss provisions” regulations, for up to an amount equivalent to 10% of the 2016 Quota.
The maximum interest rate to be applied, except for the financing facilities described in items (iii), (v) and (vi) above, will be a nominal annual fixed rate of 22% for the financings granted as of October 31, 2016, and of 17% for the financings granted as of November 1, 2016. In the case of financings restated in purchasing power units, CER adjustable, the maximum interest rate will be a nominal annual fixed rate of 1%. The rate will be free for transactions with customers who do not meet the conditions of a micro-, small- or medium-sized enterprise.
Financing facilities must be denominated in pesos and have — at the time of disbursement — an average maturity period equal to or longer than 24 months, based on weighted principal maturities, and the total maturity period must not be less than 36 months. Financing facilities described in item (i) above and to be used for working capital purposes must have an effective weighted average maturity period equal to or longer than 24 months. The discount transactions contemplated in items (ii) and (iii) will not be subject to a minimum maturity period requirement. The mortgage loans referred to in item (vi) must have a minimum maturity period of 10 years. The working capital financing facilities for MiPyMEs described in item (ix) must have an effective weighted average maturity period equal to or longer than 18 months.
The entities may make up this portfolio with loans extended on a joint basis with other entities, in the relevant proportion.
In case early pre-payment is accepted, only debtors will be entitled to such pre-payment right.
2017 Quota
As of January 1, 2017, and up to June 30, 2017, financial entities included in the 2017 Quota must maintain a balance of comprised financings, equal to at least 18% of the non-financial private sector deposits in pesos, calculated on the basis of the monthly average of daily balances in November 2016.
In the case of entities falling within the above scope whose share of total non-financial private sector deposits in pesos is lower than 0.25% (calculated as described in the preceding paragraph) the percentage to be applied will be no less than 10% from January 1, 2017 to July 30, 2016. According to Communication “A” 6217, at least 75% of the 2017 Quota must be granted to MiPyMEs and/or financial services customers.
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 Adjustable Purchase Value Units (Unidades de Valor Adquisitivo Actualizables, or “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. 14.05Ps.14.05 (the same as the UVA), representing the cost of construction of one thousandth square meter of housing as of March 31, 2016.2016. As of April 28, 2020, the value of UVI and UVA are Ps.48.93 and Ps.52.84, respectively.
Both units are amended based on the indices published by the INDEC and the Central Bank on their websites.
Foreign Exchange System
DuringOn September 1, 2019, with the first quarterpurpose of 2002,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 established certain foreignreinstated exchange controls. The new controls and restrictions.
On February 8, 2002, Decree No. 260 was issued, establishing as of February 11, 2002 a Local Foreign Exchange Market (“Mercado Único y Libre de Cambios” or “MULC”) system through which all foreign exchange transactions must be traded at exchange ratesapply to be freely agreed upon.
On such date, the Central Bank issued Communications “A” 3471 and “A” 3473, which stated that the sale and purchase of foreign currency can only be performed with entities authorized by the Central Bank to operate in the foreign exchange. Item 4 of Central Bank Communication “A” 3471 stated that the sale of foreign currency in the local exchange market shall in all cases be against Peso bills.
Since January 2, 2003, there have been further modifications to the restrictions imposed by the Central Bank. For further information, see “Item 10.D Exchange Controls.”
As of mid-December 2015, there have been significant changes to the legal framework applicableaccess to the foreign exchange market aiming at granting greater flexibility to foreign exchange transactions.
These changes, initially contemplated under Communication “A” 5850, Communication “A” 5899by residents for savings and Communication “A” 5955, among others, allowed those entities authorized to operate ininvestment purposes abroad, the exchange market to engagepayment of external financial debts abroad, the payment of dividends in foreign currency arbitrageabroad, payments of imports of goods and exchange transactions with their customers. In addition, these regulations made it less burdensome for residents to access the foreign exchange market in order to acquire external assets,services, and for the repatriation by non-residents of both portfolio and direct investment.
Effective as of August 9, 2016, the Central Bank continued to establish more flexible rules for foreign exchange transactions, for example through the issuance of Communication “A” 6037, which resulted in a simplification of the rules that had been in place since 2002.
The new regulations provide that foreign exchange transactions may be performed under a sworn statement detailing the subject matter of the transaction; insofar no specific requirements apply to the transaction, and eliminated the obligation to produce documents supporting each foreign exchange transaction.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”.
In addition, transactions involving the creation of external assets by residents are no longer limited by a specific amount, and regulations restricting market access to transactions involving derivative instruments with foreign counterparties have been suppressed. The new regulations also provided greater flexibility to the requirements needed to engage in exchange transactions during extended schedule hours.
Foreign Currency Lending Capacity
The Regulations on the allocation of deposits in foreign currencies, (including Communication “A” 48516428 as amended,amended), establish that the lending capacity from foreign currency deposits, including U.S. dollar-denominated depositsmust be applied in the corresponding deposit currency to be settled in Pesos, must fall under one of 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 of exports which 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 for the sale of their goods 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 goods 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 goods 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. |
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| (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 of suppliers of goods and/or services that are part of the production process of fungibles goods 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 goods; |
| (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 exports, the financing may be imputed when the cash flow in foreign currency from their exports, is enough for its cancelation; |
| (g) | financings to commercial portfolio clients and loans granted for consumption or housing purposes-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; |
| (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 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, that allow 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. |
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;124
b. financing for manufacturers, processors or collectors of goods, provided they refer to non-revocable sales agreements with exporters for foreign currency-denominated prices (irrespective of the currency in which such transaction is settled), and they refer to exchangeable foreign-currency denominated goods listed in local or foreign markets, broadly advertised and easily available to the general public;
c. 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;
d. financing of investment projects, working capital or purchase of any kind of goods—including temporary imports of commodities—that increase or are related to the production of goods to be exported, including syndicated loans, whether granted by local or foreign financial institutions;
e. financing for commercial clients or commercial loans considered as consumer loans, with the purpose of importing capital goods, whenever they help to increase goods production for the domestic market;
f. debt securities or financial trust participation certificates whose underlying assets are loans made by the financial entities in the manners set forth in (a) to (d) above (excluding syndicated loans);
g. foreign currency debt securities or financial trust participation certificates, publicly listed under an authorization by the CNV, whose underlying assets are securities bought by the fiduciary and guaranteed by reciprocal guarantee companies or public guarantee funds, in order to finance export transactions;
h. 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;
i. inter-financing loans (any inter-financing loans granted with such resources must be identified);
j. Central Bank bills denominated in dollars;
k. 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; and
l. financing of investment projects, including working capital, that allow the increase of production in the energy sector and have firm sales contracts and/or endorsements or guarantees in foreign currency.
Communication “A” 5534 as amended, provides a specific formula in order to calculate the financial institution’s capacity to lend money in foreign currency for imports (relating to items (d) and (e), and, as applicable items (f) to (h) of the foregoing paragraph).
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 OECDOrganization for Economic Co-operation and Development (OECD) members’ governments with a sovereign debt rating not below “AA”,“AA,” certificates of time deposits in foreign institutions (rated not less than “AA”), and correspondents’ debit and credit balances.balances and 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.
ThePursuant 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, ceiling is calculated every month and updatedthus allowing such entities to manage their exchange positions, both regarding the first business daycomposition of their assets, as well as the possibility to maintain or transfer their holdings out of the month. Pursuantcountry, with its subsequent impact on the reserves.
Furthermore, the aforementioned regulation establishes that the entities shall carry out arbitrage and foreign exchange operations, to the relevant reporting system regulations this ceilingextent that the counterparty is set at 15.0%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 amount equivalent in U.S. dollarsFinancial Action Task Force, or a foreign company dedicated to the RPC at the
endtrading 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 month immediately precedingBasel Committee for Banking Supervision.
Further changes to the last month when filing withGEP regulation have been introduced by Communications “A” 6770 and 6780. Prior approval by the Central Bank has already expired. It will be increased by an amount equivalent in U.S. dollarsis required to 5.0% ofincrease the total amount traded by the institution on account of the purchases and salesownership of foreign currency infrom the calendar month prior to the immediately preceding month, and by 10%higher of the total demandaverage foreign currency owned in August 2019 and time deposits locally held and payable in foreign bills, excluding deposits held in custody and deposits made under the Tax Amnesty Law, recorded by the institution at the endclosure of August 31, 2019. Moreover, the calendar month priorinstitutions are not permitted to buy securities on the immediately preceding month and by the daily amount equivalent in U.S. dollars to thesecondary market with liquidation on foreign currency deposits made under the Tax Amnesty Law, net of foreign currency banknotes submitted through foreign exchanges and arbitrations as from October 1, 2016. If the resulting ceiling is lower than US$8.0 million, plus the daily amount equivalent in U.S. dollars resulting from the foreign currency deposits made under the Tax Amnesty Law net of foreign currency banknotes submitted through foreign exchanges and arbitrations as of October 1, 2016, the minimum amount of the ceiling shall be the sum of the latter two amounts..currency.
Institutions authorized to trade in foreign currency failing to comply with the GEP ceilings or the exchange reporting regulations should refrain from trading in foreign currency until they are in compliance with the above.
Although certain exceptions are admitted, institutions authorized to trade in foreign currency require the Central Bank’s prior consent to perform their own purchases when payment is made against delivery of foreign currency or other foreign assets comprising the GEP.
Foreign Currency Net Global Position
AllThe foreign currency net global position shall consider all assets, liabilities, commitments and liabilities fromother instruments and transactions through financial intermediation in foreign currency and securitiesor linked to exchamge rate movement, including cash forward transactionsand other derivative contracts, deposits in foreign currency (deriving from cash and term transactions) are included in the net global position (for ongoing and completed operations), including related derivatives and agreements contemplating variations in the rate of exchange, the items included in the computation of the “General Foreign Exchange Position,” foreign currency deposits in accounts maintainedopened with the Central Bank, as well as gold, position, the Central Bank Billsmonetary regulation instruments in foreign currency, subordinated debt in foreign currency and debt securities issuedinstruments in foreign currency.
In addition, forwardForward transactions under master agreements entered withinexecuted in authorized domestic self-regulated 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 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.
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Deductible assets forwhen determining a bank’s RPC, and anyArgentine government bonds linked to the growth of the GDP, the included items recorded byconcepts that the financial entity registers in its foreign 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 viariable remuneration based on the U.S. dollar are excluded from the ratio.
Two ratios are considered in the Foreign Currency Net Global Position:
Limits
Negative Foreign Currency Net Global Position (liabilities exceeding assets)
As from January 1, 2017 (Communication “A” 6128): the limit is 25%30% of the RPC of the immediately preceding month (Communication “A” 6781).
Positive Foreign Currency Net Global Position (assetsNet Global Position
(assets exceeding liabilities): Communication “A” 6128 of the Central Bank established that, effective as of January 1, 2017, thisThis daily position (monthly average of the daily(daily balance converted to Pesos at the reference exchange rate)rate of the immediately preceding month) cannot exceed 25%5% of the lesser of the RPC or the entity’s own liquid assets (own liquid assets meaning the RPC surplus over fixed assets and other concepts to be computed in accordance with Central Bank regulation related to the “Fixed assets and other concepts ratio”) 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 national treasury bills in U.S. dollars as of June 15, 2018, maintained as excess admitted to the current limit as of that date; and/or |
| (c) | increase in the position in national treasury bills linked to U.S. dollars with respect to those held as of May 13, 2019. |
The excesses of these ratios are subject to a charge equal to 1.5 times the average nominal interest rate of the Peso denominated Lebac (Central Bank bill).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 Sectionsection 41 of the FIL shall apply (including: caution; warning; fine;(including caution, warning, fine, temporary or permanent disqualification to dispose of a banking current account;account, temporary or permanent disqualification to act as promoters, founders, directors, administrators, members of surveillance committees, comptrollers, liquidators, managers, auditors, partner or shareholders;shareholders, and license revocation).
Rosario Futures Index (“ROFEX”) U.S. dollar futures state of emergency
On December 14, 2015, Argentina Clearing S.A. and Mercado a Término de Rosario S.A. resolved, through Communication 657 (subject to the CNV’s express approval, which was subsequently granted): (i) to declare a state of emergency with respect to any open positions as of such date involving U.S. dollar futures contracts maturing prior to June 2016 and entered into after September 29, 2015; and (ii) to provide, in respect of any open purchased positions as of such date involving U.S. dollar futures maturing prior to and including June 2016, the following remedies: (a) the original transaction price was adjusted by adding Ps.1.25 per U.S. dollar for those transactions opened from and including September 30, 2015 to and including October 27, 2015; (b) the original transaction price was adjusted by adding Ps.1.75 per U.S. dollar for those transactions opened as of October 28, 2015.
The adjustments referred to in the preceding paragraph were applied by registering a sale transaction at the original transaction price and a simultaneous purchase at the original price plus the amount indicated in items (a) and (b) above, which caused a novation of the transactions involved into new transactions at the new established price.
For the purposes of complying with registration requirements involving the relevant ROFEX and Argentina Clearing S.A. transactions, the Central Bank was registered as counterparty to such transactions.
Assignment of foreign exchange positions by financial and foreign exchange entities
On December 17, 2015, Communication “A” 5852 provided that financial entities authorized to deal in exchange transactions and foreign exchange entities were required to sell to the Central Bank their respective positive foreign currency positions at closing on December 16, 2015, valued at the reference exchange rate of such date, and then repurchase them in full. The repurchase transaction could be effected on December 17, 18 or 21, 2015, at the reference exchange rate prevailing on the day of the repurchase.
In particular, an open purchase position in U.S. dollar futures traded on ROFEX and having had its original price adjusted as provided under Item II) of Communication 657 of Argentina Clearing and Mercado a Término de Rosario S.A. was required to be sold to the Central Bank at the adjusted original price resulting from the enforcement of such Communication, and then repurchased in full at the reference exchange rate prevailing on the day of the repurchase.
For the purpose of exercising the repurchase date option contemplated in the first paragraph, an entity was required to submit a letter signed by its president or chief local officer to the General Operations Sub-department before 10:00 a.m. of the selected day, expressly stating the decision it had adopted.
If an entity failed to exercise the option contemplated in the first paragraph or to comply with any of the formal requirements set forth above, the repurchase was to be completed on December 22, 2015 at the reference exchange rate prevailing on such date.
The notion of “foreign currency position” referred to above was determined as follows: (i) for foreign exchange bureaus, agencies and offices: their general exchange position; and (ii) for financial entities authorized to deal in foreign exchange transactions: their net global foreign currency position, less any net assets corresponding to their liabilities in foreign-currency denominated government securities, based on the currency in which the respective financial services were paid (either a foreign currency or U.S. dollar-linked Argentine pesos).
If the determined foreign currency position was negative, no sale to the Central Bank and repurchase was required.
On December 18, 2015, the Bank carried out the above-mentioned repurchase at the reference exchange rate established for such date. In addition, on December 22, 2015, CCF carried out the above-mentioned repurchase at the reference exchange rate established for such date.
Fixed Assets and Other Items
The Central Bank determines that the fixed assets and other items maintained by the financial entities must not exceed 100% of the entity’s RPC.
Such fixed assets and other items include the following:
| · | Shares of local companies; |
| · | Miscellaneous receivables; |
| · | Property and equipment; and |
| · | Other assets. |
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· Shares of local companies
· Miscellaneous receivables
· Property and equipment
· Other assets
The calculation of such assets will be effected according to the month-end balances, net of depreciations,devaluations, accumulated amortizations and allowances for loan losses.
Non-compliance with the ratio produces an increase in the minimum capital requirements equal to 100% of the excess on the ratio.
Credit Ratings
Since November 28, 2014, Communication “A” 5671, issued on November 28, 2014as amended by Communication “A” 6162, 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 regulationsrules 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 (“IOSCO”).
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
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.1,250,000Ps.29,740,000 to micro-credit institutions and commercial loans of up to Ps.2,500,000Ps.29,740,000 with or without preferred guarantees. All other loans are considered commercial loans. Consumer or housing loans in excess of Ps.2,500,000,Ps.29,740,000, 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.7.9 million, 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.
Commercial Loans Classification
The principal criterion by which 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 regulations,rules, commercial loans are classified as follows:
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Classification | Criteria | |
| Borrowers | |
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. | |
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) | |
Consumer and Housing Loans Classification
The principal criterion used in the assessment of loans in the consumer and housing portfolio is the length of the duration of the default of such loans. Under the Central Bank regulations,rules, consumer and housing borrowers are classified as follows:
Classification | Criteria | |
| Performing | ||
| 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. |
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Classification | Criteria | |
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. | |
| Non-recoverable loans | Loans in which payment obligations are more than one year overdue or the debtor is insolvent or in bankruptcy or liquidation. | |
Irrecoverable loans Central Bank’s rules | Same criteria as for commercial loans in the Irrecoverable according to Argentine Banking GAAP. | |
Minimum Credit Provisions
The following minimum credit provisions are required to be made by Argentine banks in relation to the credit portfolio category:
Category |
| With Preferred |
| Without Preferred |
|
“Normal” |
| 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 decision” |
| 100 | % | 100 | % |
Category | With Preferred | Without Preferred |
| “Performing” | 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 decision” | 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 the Argentine Banking GAAP. 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 Argentine Banking GAAP, shall automatically result in the corresponding debtor being recategorized accordingly.
Minimum Frequency for Classification Review
Financial institutions are required to develop procedures for the analysis of credit facilities assuring an appropriate evaluation of a debtor’s financial situation and a periodic revision of such situation taking into consideration 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 must be made available for the SuperintendencySuperintendency. The frequency of the review of existing classifications must be linked to review at any time.the importance considering all facilities. The classification analysis shall be duly documented. The classification review must include (i) clients whose outstanding credit (in Pesos and in foreign currency) exceeds the lesser of 1% of the financial institution’s RPC corresponding to the prior month and Ps.4.0 million and (ii) at least 20% of the financial institution’s total active credit portfolio, which, if applicable, shall be completed by incorporating clients whose total indebtedness is less than the limits described in (i) in this sentence.
In the case of commercial loans, the applicable regulations also require a minimum frequency of review. Such review must take place: (i) quarterly for clients with indebtedness equal to or greater than 5% of the financial entity’s RPC for the prior month and (ii) semi-annually for clients whose indebtedness is (x) greaterhigher than the lesserlower of 1% and Ps.19.8 million of the financial entity’s RPC for the prior month, and Ps.4.0 million, and (y) lesserlower than 5% of the financial
entity’s RPC for the prior month. At the end of the second quarter,first calendar semester, the fulltotal review under points (i) and (ii) should coverhave covered no less than 50% of the financial institution’sentity’s commercial loan portfolio and, if less, it shall be completed by incorporating customersclients (in descending order) whose total indebtedness is less thaninferior to the limits described in (ii)(x) of the preceding sentence.point (ii)(x).
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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 Group recognises the allowance for loan losses is maintainedunder the expected credit losses method included in accordance with applicable regulatory requirementsIFRS 9. The most significant judgements of the Central Bank. Increasesmodel relate to defining what is considered to be a significant increase in credit risk, determining the life of revolving facilities, and in making assumptions and estimates to incorporate relevant information about past events, current conditions and forecasts of economic conditions. A high degree of uncertainty is involved in making estimations using assumptions that are highly subjective and very sensitive to the risk factors.
In note 1.13 of our audited consolidated financial statements, provides more detail of how the expected credit loss 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.is measured.
Priority Rights of Depositors
Under Section 49 of the FIL, 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. 450,000Ps.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.450,000,Ps.1,500,000, or its equivalent in 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 FIL, 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 FIL 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 thisthese 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 point e) section 49 must be followed without giving a different treatment to liabilities of the same grade.
Mandatory Deposit Insurance System
deposit insurance system
Law No. 24,485 passed on April 12, 1995, as amended, created a Deposit Insurance System, or “SSGD”,“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 FIL, 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 SEDESA.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 regulations.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.
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The SSGD covers deposits made by Argentine individuals and legal entities in Argentine or 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.350,000, as set forth by Central Bank Communication “A” 5659, dated October 31, 2014, as amended. On April 7, 2016,amended, which pursuant to Communication “A” 5943 was issued, extending6973 of the amount covered to Ps.450,000,Central Bank, as of May 1, 2016.
2020 the amount covered by the SSGD is currently Ps.1,500,000.
Effective payment on this guaranty will be made within 30thirty (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 benefiting from some incentive (e.g., car raffles) in addition to the agreed upon interest rate, and (vi) 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 for persons up to the amount of Ps.1,000,000 per depositor, and demand deposit account balances and available amounts from overdue deposits or closed accounts.
accounts, and (vi) immobilized balances from deposits and excluded transactions.
Pursuant to Communication “A” 5710,5943, every financial institution wasis required to contribute to the FGD a monthly amount of 0.06%0.015% of the monthly average of daily balances of deposits in local and foreign currency, as determined by the Central Bank. On April 7, 2016, Communication “A” 5943 was issued, establishing the monthly contribution of 0.015% of the monthly average of the daily deposits balance.
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.
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.
GovernmentMeasuresin Response to theOngoing COVID-19Pandemic
The Argentine government and the Central Bank issued a series of preventive measures tocontain the spread of COVID-19 and mitigate its economic impact. In this regard, on March 19, 2020, the Executive Branchdeclared a nationwide lockdown from March 20, 2020 through March 31, 2020, whichhas now been extended to May 10, 2020. However, since April 13, 2020, the nationaland provincial governments have supervised a gradual relaxation of thelockdown and social distancing measures.
In this context, the Central Bank issued Communications “A” 6939 and “A” 6942, by means of which it was determined that during thelockdown period: (i) financial institutions shall not be open to the public; and (ii) the maturity of financings granted by local financial institutions scheduled for thelockdown period were postponed. Communication “A” 6949 also waived any punitory interest on unpaid balances in credits granted by financial entities.
On a different note, by means of Communication “A” 6939, the Central Bank suspended, until June 30, 2020, the distribution of dividends by financial entities. For more information, please see “Argentine Banking Regulations— Requirements applicable to dividend distribution.”
Through Communication “A” 6945, the Central Bank determined that until June 30, 2020, any operation effected through ATMs will not be subject to any charges or fees.
By virtue of Communication “A” 6964, 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 installmentsbeginning after a 3-month grace period. Interest rates on such unpaid balancesmay not exceed an annual nominal rate of 43%. 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. For more information, see “Argentine Banking Regulations— Credit Card Interest Rate.”
Additionally, on March 25, 2020, the Executive Branch issued Decree No. 312/2020, by means of which both the obligation to close and inhibit checking accounts, as well the imposition of penalties, were suspended until April 30, 2020. Furthermore, Decree No. 319/2020 established the freezing of mortgage payments if the mortagaged property isthe only and permanent residence of the debtor, until September 30, 2020. The Decree also resolved the freezing of UVA pledge loans (créditos prendarios) and the suspension of mortgage foreclosures until September 30, 2020. 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
| o | Classification of Debtors: On March 19, 2020, the Central Bank issued Communication “A” 6938, by which new rules regarding the criteria for debtor classification and provisioning are to be adopted until September 30, 2020. These rules provide an additional 60 days 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. |
| o | Facilities and Government Guarantees to Finance Payment of Salaries: Decree 326/2020 created a fund of specific application within the FOGAR (acronym in Spanish forFondo 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 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 BCRA regulatory framework for Group A entities, must be subtracted from the calculation to determine the distributable profit. |
| o | Remote shareholders and board of directors meetings: By means of CNV’s General Resolution No. 830/2020, dated March 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. 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 meetings that have been held remotely. |
| o | 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. |
| o | Securities-guaranteed transactions prohibition. By means of Communication “A” 6978, the Central Bank forbid financial institutions to guarantee transactions via securities (caución bursátil). |
| o | 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. |
Other restrictions
Pursuant to the FIL, 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 regulations,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.
Law 26,831 (the “CapitalThe Argentine Capital Markets Law”),Law introduced substantial changes to regulations governing markets, stock exchanges and the various agents operating in capital markets, in addition to certain amendments to the CNV’s powers. On September 9, 2013, the CNV published the CNV Rules supplementing the Capital Markets Law. The CNV Rules have been in force since September 18, 2013.
One of the most significant modifications introduced by the Argentine Capital Markets Law and the CNV Rules is that agents and markets must comply with the CNV’s requirements for applying for an authorization to operate, as well as registration requirements. It further provides that each category of agent must meet minimum net worth and liquidity requirements.
Additionally, under the Capital Markets Law, the self-regulation of markets was eliminated, and authorization, supervision, control, as well as disciplinary and regulatory powers, are conferred to the CNV regarding all capital market players.
The Argentine Productive Financing Law modified the Argentine Capital Markets Law and other related laws, and introduced some important changes such as, among others:
| · | reestablished certain markets self-regulation (which had been eliminated by the Argentine Capital Markets Law); |
| · | eliminated the powers granted to the CNV allowing it to appoint observers and intervene a company’s board of directors without first obtaining a court order; |
| · | introduced several changes in the internal organization of the CNV and in the appointment of its board, such as allowing the president of the CNV to have a decisive vote in case of tie in the decision making of the board and adopt urgent resolutions together with two directors in case of exceptional circumstances prevent the assemblies from taking place; |
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| · | empowered the CNV to regulate the private placement of negotiable securities so that these do not qualify as “public offers”; |
| · | as long as a mandatory offer is not required in cases where the buyer acquires control or more than 50% of voting rights shares of a company listed, either directly or indirectly; |
| · | modified some antiquated provisions related to the mutual fund system (such as the solidarity between the asset management company and the custodian, and the double registration of guidelines for investment in the CNV and in the Public Registry of Commerce); |
| · | created a “legal microsystem” for capital markets where certain provisions of the Civil and Commercial Code or Argentine Contest and Bankruptcy Law were not applicable; |
| · | promoted the financing of MiPyMes through the regulation of the issuance of electronic invoices with powers to easily execute them against the debtor and subject to negotiation or discount in the capital markets; |
| · | promoted mortgage financing by improving the regulation of mortgage bills and the securitization of mortgages; |
| · | empowered the CNV to rule crowfunding for entrepreneurs and the promotion of “financial inclusion” through programs and development plans; and |
| · | allowed legal entities incorporated abroad to participate, through a representative duly authorized, at the shareholders’ meetings of the companies authorized by the CNV to make public offerings of their shares, without the need for additional registration. |
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 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 FIL provides that any financial institution, including a commercial bank, operating at less than certain required technical ratios and minimum net worth levels,(i) with its solvency impaired, in the judgment of the Central Bank adoptedBank; (ii) recording deficiencies on the minimum cash reserve requirement during the periods established by members representing the majority ofCentral Bank; (iii) recording repeated failures to comply with the Board of Directors, with impaired solvencyvarious limits or liquiditytechnical relations established; or in any of(iv) that could not maintain the other circumstances listed in Section 44 of the FIL,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 (plan de regularización y saneamiento, or a restructuring plan.). The plan must be submitted to the Central Bank on a specified date, notno later than 30thirty (30) calendar days afterfrom the date on which a request to that effect is made by the Central Bank. UponIf the institution’s failureinstitution 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.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 distribuition 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.
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Furthermore, theThe Central Bank’s charter authorizes the Central Bank 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 30thirty (30) days if the liquidity or solvency thereof areis adversely affected. Such term could be renewed for up to 90ninety (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.
Institution restructuring to safeguard credit and bank deposits
If pera financial institution meets the Central Bank’s criteria a financial institutionand is undergoing a situation which, underfound to be in any of the FIL, would authorizesituations set forth in Section 44 of the Central Bank to revoke its license to operate as such,FIL, the Central Bank may before considering such revocation, order a plan ofauthorize the restructuring that may consist of a series of measures, including, among others:
· adoption of list measures to capitalize or increase the capital of the financial institution;
· revoke the approval granted to the shareholders of the financial institution in defense of depositors, prior to hold interests therein;
· restructure or transfer assets and liabilities;
· grant temporary exemptions to comply with technical regulations or payment of charges and penalties arising from such flawed compliance; or
· appoint a delegate or auditor (“interventor”) that may prospectively replace the board of directorsrevocation of the financial institution.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 (i) at the request of the legal or statutory authorities of the institution; (b) in casethe cases contemplated by the Argentine Civil and Commerce Code or in the laws governing its existence as a restructuring plan fails or is not deemed feasible, or local laws and regulations are violated, orlegal entity; (c) when, to the judgment of the Central Bank, the affections to the solvency and/or liquidity of the financial institution is affected, or significant changes occurcannot be solved through a regularization and sanitation program; (d) in the institution’s condition sincerest of the original authorization was granted, or if any decisioncases provided by the financial institution’s legal or corporate authorities concerning its dissolution is adopted, among other circumstances set forth in the FIL. In addition, pursuant to Communication “A” 5785, sanctions imposed by the Central Bank, the UIF, the CNV and/or the National Superintendency of Insurance (Superintendencia de Seguros de la Nación) on financial institutions and/or their authorities, may result in the revocation of their licenses to operate as financial institutions. Such revocation may occur when, in the opinion of
the Board of Directors of the Central Bank, there was a material change in the conditions deemed necessary to maintain such license, including those relating to the suitability, experience, moral character or integrity of (i) the members of a financial institution’s board of directors (directors, counselors or equivalent authorities), (ii) its shareholders, (iii) the members of its supervisory committee and (iv) others, such as its managers. For such purposes, the Superintendency also takes into consideration information that it receives from, and/or sanctions imposed by, equivalent foreign agencies or authorities. When weighing the significance of the sanctions, the Superintendency takes into account the type of sanctions, the underlying reason for such sanctions and the amount of sanctions imposed on the financial institution. Additionally, the Superintendency factors in the degree of participation in the events leading up to the sanction, the economic effects of the violation, the degree of damage caused to third parties, the economic benefit that the sanctioned party received from the violation, the sanctioned party’s operating volume, its liability and the title or function that such party holds.
Once the license to operate as a financial institution has been revoked, the financial institution will be liquidated.
LiquidationFIL.Liquidation of Financial Institutions
As provided in the FIL, the Central Bank must notify the revocation decision to a competent court, of the revocation decision, 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 or not there isare sufficient assuranceassurances that the corporate authorities are capable of carrying out such liquidation properly.properly, prior authorization of the Central Bank and in the cases provided by subsections a) and b) of section 44 of the FIL.
Bankruptcy of Financial Institutions
According to the FIL, 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 60sixty (60) calendar days has elapsed since the license was revoked.
Once the bankruptcy of a financial institution has been adjudged, provisions of the Bankruptcy Law (as defined below)No. 24,522 (the “Bankruptcy Law”) and the FIL shall be applicable; provided however that in certain cases, specific provisions of the FIL shall supersede the provisions of the Argentine Bankruptcy Law (i.e. priority rights of depositors).
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Merger Consolidation and Transfer of Goodwill
Merger consolidation 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.
Financial System Restructuring Unit
The Financial System Restructuring Unit was created to oversee the implementation of a strategic approach fortowards those banks benefitingthat 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.
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—Liquidity Coverage Ratio) 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.
Credit card interest rate
Recently, by virtue of Communication “A” 6964, the Central Bank determined that the unpaid balances of credit cards financings due between April 13, 2020 and April 30, 2020, shall be automatically refinanced for at least one year with three grace months in nine equal and consecutive monthly installments. From April 13, 2020, such unpaid balances shall only accrue compensatory interests, which cannot exceed an annual nominal rate of 43% nor shall they exceed 25% of the resulting from the average interest rates that the entity has applied, during the previous month, taking only into consideration the corresponding amount of personal loans without security guarantees granted in the same period.
Fintech regulations
The Central Bank has recently issued Communications “A” 6885 (repealing Communication “A” 6859), by means of which it began to regulate certain aspects ofFintech 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 it 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 FIL, 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.
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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 further regulated by the Central Bank.
Regarding the management of the funds, the regulation 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 FIL.
Anti-Money Laundering Regulation
and Terrorism Financing Regime
The concept of money laundering is generally used to denote transactions intended to introduce criminal proceedsaimed at introducing funds from illicit activities into the institutional system and thus to transform profitsgains from illegal activities into assets of a seemingly legitimate origin.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 ArgentineNational Congress passed Law No. 25,246, (assubsequently amended including by Laws No. 26,087; 26,119;26,087, 26,119, 26,268, 26,683 and 26,734 (the “Anti-Money Laundering26.734 (jointly, the “AML/ CFT Law”)), which definescreated at the national level the Anti- Money Laundering and Terrorism Financing Regime (“AML/CFT Regime”), criminalizing money laundering, creating and designating the UIF as a type of crime. In addition, the law, which supersedes several sectionsenforcement authority of the Argentine criminal code established severe penaltiesregime, and establishing the legal obligation for anyone participating in any such criminal activityvarious public and createdprivate sector entities and professionals to provide information and cooperate with the UIF, establishing an administrative criminal system. Following the enactment of Law No. 27, 260 and its complementary Decree No. 895/2016, theUIF.
The UIF is nowa decentralized agency that operates with autonomy and financial independency under the supervision of the Ministry of Economy, and Public Finance (currentlyits mission is to prevent and deter the Ministrycrimes of Treasury).money laundering and terrorist financing.
Below is a summary ofThe following are certain provisions regardingrelating to the provisions of the anti-money laundering regime set forthAML/CFT Regime established by the Anti-Money LaunderingAML/ CFT Law as amended and supplemented by other rulesits amending and regulations,complementary provisions, including regulations issued by the UIF the Central Bank,and the CNV and other regulatory entities. Investors are advised tothe Central Bank. It is recommended that investors consult their own legal counseladvisors and to read the Anti-Money LaunderingAML/ CFT Law and its statutorycomplementary regulations. The UIF is
Money laundering and terrorist financing in the agency responsible for the analysis, treatment and transmission of information, with the aim of preventing money laundering resulting from different crimes and the financing of terrorism. The Argentine Criminal Code
| (a) | Money laundering |
Section 303 of the Argentine Criminal Code (the “ACC”) defines money laundering as a crime committed by anywhenever a person who exchanges,converts, transfers, manages, sells, levies, disguisesencumbers, conceals or in any other way commercializes goods obtained through a crime,puts into circulation in the market, property derived from an unlawful act, with the possible consequence that the origin of the original assetsproperty or the substitute thereof appear to come fromsubordinate property acquires the appearance of a lawful source, provided that their value exceeds Ps.300,000, whether such amount results from oneorigin, either in a single act or more related transactions. The penalties established areby the following:repetition of various acts linked to each other. Section 303 of the ACC establishes the following penalties:
(i)
| (i) | If the amount of the operation exceeds Ps.300,000, imprisonment for a term 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 an 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. |
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| (ii) | Anyone who receives money or other property from a criminal offense 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 for a term of 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 offense; |
| (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 offense 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 terrorising the population or compelling national public authorities or foreign governments or agents of an international organisation to perform or refrain from performing an act (according to section 41.5 of the ACC); |
| (ii) | by an organisation 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 offenses for the purpose set out in (i). |
The penalty is imprisonment for a term of five (5) to fifteen (15) years and a fine of two (2) to ten (10) times the amount of the transaction;operation. Likewise, the same penalties shall apply to legal persons as described for the crime of money laundering.
(ii) the penalty provided in section (i) shall be increased by one third of the maximumReporting Subjects obliged to inform and a half of the minimum, when (a) the person carries out the act on a regular basis or as a member of an association or gang organizedcollaborate with the aim of continuously committing acts of a similar nature, and (b) the person is a governmental officer who carries out the act in the course of his duties; and
(iii) if the value of the assets does not exceed Ps.300,000, the penalty shall be imprisonment for six (6) months to three (3) years.
UIF
The Argentine Criminal CodeAML/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 punishes any person who receives money or other assets from a criminal sourceestablishes 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 purpose of applying them to a transaction, making them appear to be from a lawful source.UIF.
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In lineaccordance with internationally accepted practices, the Anti-Money LaunderingAML/ CFT Law does not merely assign responsibility for controlling these criminal transactions to government agencies, but also assigns certain duties to various private sector entities such as banks, stockbrokers, brokerage houses and insurance companies, which become legally bound reporting parties. These duties basically consist of information-capturing functions.
According to the Anti-Money Laundering Law,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, AFIP, the Superintendence of Insurance of the Nation (SSN), the CNV and the Public Registry; 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 their 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 object disclosure to UIF of 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 report to the UIF: (i) financial institutions and insurance companies; (ii) exchange agencies and individuals or legal entities authorized by the Central Bank to operate in the purchase and saleAnnex I of foreign currency in the form of cash or checks drawn in foreign currency or by means of credit or debit cards or in the transfer of funds within Argentina or abroad; (iii) broker-dealers, companies managing investment funds, over-the-counter market agents, and intermediaries engaged in the purchase, lease, or borrowing of securities; (iv) armored transportation services companies and companies or concessionaires rendering postal services that carry out foreign currency transfers or remittance of different types of currency or notes; (v) governmental organizations, such as the Central Bank, the Argentine Tax Authority, the National Superintendency of Insurance (Superintendencia de Seguros de la Nación), the CNV and the IGJ; (vi) professionals in economics sciences and notaries public; and (vii) individuals and legal entities acting as trustees of any kind and individuals or legal entities related directly or indirectly to trust accounts, trustees and trustors under trust agreements.
Individuals and entities subject to the Anti-Money Laundering Law must comply with some duties that include: (i) obtaining documentation from their customers that irrefutably evidences their identity, legal status, domicile, and other data stipulated in each case (know your customer policy); (ii) reporting any suspicious event or transaction (which according to the customary practicesResolution No. 154/2018 of the field involved, as well as toUIF (which establishes the experiencesupervision and competenceinspection mechanism of the parties who have the duty to inform, are those transactions attempted or consummated that, having been
previously identified as unusual transactions by the legally bound reporting party, or have no economic or legal justification or are unusually or unjustifiably complex, whether performed on a single occasion or repeatedly (regardless its amount)); and (iii) abstaining from disclosing to customers or third parties any act performed in compliance with the Anti-Money Laundering Law. Within the framework of analysis of a suspicious transaction report, the aforementioned individuals and entities cannot refrain from disclosing to the UIF any information required from it by claiming that such information is subject to bank, stock market or professional secret, or legal or contractual confidentiality agreements. The Argentine Tax Authority (“AFIP”) shall only disclose to UIF the information in its possession when the suspicious transaction report has been made by such entity and refers to the individuals or entities involved directly with the reported transaction. In all other cases the UIF shall request that the federal judge holding authority in a criminal matter order the AFIP to disclose the information in its possession.
Argentine financial institutions must comply with all applicable anti-money laundering regulations as provided by the Central Bank, the UIF, and, if applicable, the CNV. In this regard, in accordance with Resolution No. 229/2014 of the UIF,UIF), both the Central Bank and the CNV are considered “Specific Control Organs.”Agencies”(“Órganos de Contralor Específico”). In such capacity, they must cooperatecollaborate with the UIF in the evaluation of the compliance with the anti—money laundering proceedingsAML/CFT procedures by the legally bound reporting partiesReporting Subjects subject to their control. In that respect,For these purposes, they are entitled to supervise, monitor and inspect such entities, and if necessary, to implement certain corrective measures and actions. Resolution 121/2011 issuedthese entities. Denial or obstruction of inspections by the Reporting Subjects may result in administrative penalties by the UIF as amended (“Resolution 121”), is applicable to financial entities subject to the FIL, to entities subject to the Law No. 18,924, as amended, and to individuals and legal entities authorized by the Central Bank to intervene in the purchase and sale of foreign currency through cash or checks issued in foreign currency or through the use of credit or payment cards, or in the transfer of funds within or outside the national territory. Resolution No. 229/2011 of the UIF, as amended or supplemented by Resolutions No. 52/2012 and 140/2012 (“Resolution 229”), is applicable to brokers and brokerage firms, companies managing common investment funds, agents of the over-the-counter market, intermediaries in the purchase or leasing of securities affiliated with stock exchange entities with or without associated markets, and intermediary agents registered on forwards or option markets. Resolution 121 and Resolution 229 regulate, among other things, the obligation to collect documentation from clients and the terms, obligations and restrictions for compliance with the reporting duty regarding suspicious money laundering and terrorism financing transactions.
Resolution 121 and Resolution 229 set forth general guidelines in connection with the client’s identification (including the distinction between occasional and regular clients), the information to be requested, the documentation to be filed and the procedures to detect and report suspicious transactions.
On August 11, 2016, UIF Resolution No. 94/2016 established that legally bound reporting parties under Resolution 121 may apply simplified due diligence measures for customer identification when opening a savings account (i.e. presentation of ID, PEP declaration and checking that the holder is not in the lists of terrorists and/or terrorist organizations) in cases where the client meets certain specified requirements. According to the resolution, the simplified identification measures do not release the legally bound reporting party from the duty of monitoring the operations carried out by such customer. Also, in case any of the requirements stated in the resolution may not be verified, the legally bound reporting parties shall apply the identification measures set out in Resolution 121.
criminal penalties.
The Central Bank and the CNV must also comply with anti-money launderingthe AML/CFT regulations set forthestablished by the UIF, including the reporting of suspicious transactions. In particular,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 Central Bank must comply withrisk 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. 12/2011, as supplemented156/18), change the formal regulatory compliance approach to a risk-based approach (“RBA”), based on the revised recommendations issued by among other resolutions, Resolutions No. 1/2012 and No 92/2012, which, among other things, sets forth the Central Bank’s obligation to evaluate the anti-money laundering controls implemented by Argentine financial institutions (with the limitation of access to the reports and records of suspicious operations, which are, as explained above, confidential and subject only to the UIF’s supervision), and lists examples of what circumstances should be specifically consideredFinancial Action Task Force (the “FATF”) in 2012, in order to establish whether a particular transaction may be considered unusualensure that the implemented measures are proportional to the identified risks. Therefore, the Reporting Subjects shall identify and eventually qualified as suspicious.
Central Bank regulations require Argentine banksevaluate their risks and, based on this, adopt measures for the management and mitigation of such risks, in order to take certain minimum precautions tomore effectively prevent money laundering. Each institution must have an anti-money laundering committee, formed by a memberand terrorist financing. Likewise, the provisions of UIF Resolution No. 4/17 established the Boardpossibility of Directors, the officer responsible for anti-money laundering matters (oficial de cumplimiento) and an upper-level officer for financial intermediation and foreign exchange matters (i.e., with sufficient experience and knowledge on such matters and decision-making powers). Additionally, as mentioned, each financial institution must appoint a member of the Board of Directors as the person responsible for money laundering prevention, in charge of
centralizing any information the Central Bank may require on its own initiative or at the request of any competent authority and reporting any suspicious transactions to the UIF. Notwithstanding the officer’s role as a liaison with the UIF, all board members have personal, joint, several and unlimited responsibility for the entity’s compliance with its reporting duties with the UIF. In addition, this officer will be responsible for the implementation, tracking and control of internal procedures to ensure compliance with the regulations in financial institutions and its subsidiaries.
In addition, pursuant to Communication “A” 5738 (as amended and supplemented in) of the Central Bank, Argentine financial institutions must comply with certain additional “know your customer policies.” In this sense, pursuant to such Communication, under no circumstance may new commercial relationships be initiated if the “know your customer policies” and the risk management legal standards have not been complied with. In addition, in respect of the existing clients: if the “know your customer policies” could not be complied with, the Argentine financial institution must discontinue operations with such client (i.e. terminate the relationship with the client in accordance with Central Bank’s regulations for each type of product) within 150 calendar days as of the notice of such circumstances. Operations do not have to be discontinued when the “know your customer” policies are complied with in such period or when simplifiedconducting special due diligence procedures were implemented pursuantwith respect to applicable laws. Furthermore, pursuant to this Communication, Argentine financial entities must keep the documentation relatedclients supervised abroad (formerly called “international investors”) and local clients who are Reporting Subjects to the discontinuanceUIF.
Asset Freezing Regime
Decree No. 918/2012 establishes the procedures for 10 yearsthe freezing of assets linked to terrorism financing, and include in their prevention manuals the detailedcreation and maintenance procedures to initiate(including the inclusion and discontinue operations with clientsremoval of suspected persons) for registries created in accordance with the above-mentioned additional “know your customer policies” implemented.relevant United Nations Security Council’s resolutions.
The CNV Rules include a specific chapter regarding “PreventionAdditionally, UIF Resolution No. 29/2013, regulates the implementation of Money LaunderingDecree No. 918/2012 and establishes: (i) the procedure to report suspicious transactions of terrorism financing and the Financingpersons obligated to do so, and (ii) the administrative freezing of Terrorism” and state that theassets procedure on natural or legal persons set forth therein (Negotiation Agents, Clearing and Settlement Agents (which are stockbrokers), Distribution and Placement Agents, Manager and Custody Agents of Collective Investment Funds, Brokerage Agents, Collective Depositary Agents, issuers with respect to capital contributions, irrevocable capital contributions for future capital increases or significant loans that have been made in its benefit, specifically with respect to the identity of contributors and/or creditors and the origin and legality of the funds so contributed or loaned) are to be considered legally bound to report under the Anti-Money Laundering Law, and therefore must comply with all the laws and regulations in force in connection with anti-money laundering and terrorism financing, including resolutions issued by the UIF, presidential decrees referring to resolutions issuedentities 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 fulfill these 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 connectionSpanish), 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 fight against terrorismassociated risk and the resolutions (and its annexes) issued by the Ministry of Foreign Affairs. In addition, CNV Rules impose certain restrictions in connection with payment arrangements (limiting, among other things, the cash amount that the entities set forth therein could receiveoperation or pay per day and per client, to Ps.1,000) and impose certain reporting obligations.
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 establishstipulate, among other provisions, that the above-mentionedregulated entities under its control shall only be able to carry out any transactions contemplatedperform the operations provided for under the public offering system when such transactionsthese operations are carried outperformed or ordered by persons organized,constituted, domiciled or resident in dominions,countries, domains, jurisdictions, territories or associated States includedstates 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 Rules
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 cooperating countries list containeddecision, in Executiveaccordance with the respective procedural manuals.
140
Tax Amnesty System
The voluntary system of declaration under the Argentine Tax Amnesty Law No. 27,260 and its Regulatory Decree No. 589/2013, section 2(b). When such persons are not included in such list and in their home jurisdiction qualify as registered intermediaries in an entity under control and supervision of a body that carries out similar functions to those carried out by895/16 (jointly the CNV, they will only be allowed to carry out such transactions if they provide evidence indicating“Tax Amnesty System”) established that the relevant securities and exchange commission in their home jurisdiction has signed a memorandum of understanding for cooperation and exchange of information with the CNV.
On February 17, 2016, the “National Coordination Programvoluntarily submitted under such system may be used for the Prevention of Asset Launderinginvestigation and the Financing of Terrorism” was created by Executive Decree No. 360/2016 as an instrumentpunishment of the Ministry of Justice and Human Rights. This Program was assigned the duty to reorganize, coordinate and strengthen the national system for the preventioncrimes of money laundering and the financing of terrorism, taking in considerationterrorism. For such purpose, the specific risks that might have an impactUIF has the power to communicate information to other public intelligence or investigation agencies, based on Argentine territory and the global demand for a more effective compliance with international obligations and recommendations established under United Nations Conventions and the standardsprevious resolution of the Financial Action Task Force (“FATF”). These duties will be performedUIF’s President and implemented through a National Coordinator appointed for this purpose. Also, applicable statutory rules were modified,provided that there are serious, precise and it was established that the Ministry of Justice and Human Rights will be the Argentine government’s central authority in chargeconcordant indications of the inter-institutional coordination among all public and private agencies and entities with competent jurisdiction on this
matter, whilecommission of money laundering and/or terrorism financing crimes. Furthermore, the AFIP remains obliged to report to the UIF will retainsuspicious operations detected within the ability to perform operating coordination activities at the national, provincial and municipal levels in relation to matters strictly inherent in its jurisdiction as a financial intelligence agency.
Lastly, through the enactmentframework of the Tax Amnesty LawSystem and its supplemental Decree No. 895/2016, the UIF was granted the right to provide it with all information required by it, not being able to other public entities who also have intelligence or investigation rights, insofar as the sharing of this information has been previously authorized by the president of the UIF as long as there is reasonable, precise and serious evidence of the commission of any of the crimes contemplated under the Anti-Money Laundering Law. The entities receiving the communications of the UIF providing this information will be subject to the confidentiality obligations of Section 22 of the Anti-Money Laundering Law, and will be subject to the criminal penalties of such law if they breach their duty of confidentiality and reveal secret information. The UIF is not entitled to exercise this right with regards to voluntary and exceptional declarations made pursuant to the Tax Amnesty Law. In addition, pursuant to the UIF Resolution No. 92/2016, reporting agents have to implement a special risk management system. Furthermore, it implemented a special reporting system for operations carried out under the above-mentioned tax amnesty disclosure prior to March 31, 2017.
For an extensive analysis of the money laundering regime in effect as of the date of this annual report, investors should consult legal counsel and read Title XIII, Book 2 of the Argentine Criminal Code and any regulations issued by the UIF, the CNV and the Central Bank in their entirety. For such purposes, interested parties may visit the websites of the Argentine Ministry of Treasury, at www.infoleg.gov.ar, the UIF, at www.uif.gov.ar, the CNV, at www.cnv.gob.ar, or the Central Bank, at www.bcra.gov.ar. The information found on such websites is not a part of this annual report.oppose fiscal secrecy.
| Item 4.C | Organizational structure |
Item 4.COrganizational structure
The following diagram illustrates our organizational structure as of the date of this annual report. Percentages indicate the ownership interest held.
The following information is related to our subsidiaries and investees as of the date of this annual report:
Subsidiary | Jurisdiction of |
|
Banco Supervielle S.A. | Argentina |
|
Cordial Compañía Financiera S.A. | Argentina |
Servicios Financieros Hipertehuelche Pesos Ya |
Tarjeta Automática S.A. | Argentina | Carta Automática Pesos Ya |
| Supervielle Seguros S.A. | Argentina |
|
Supervielle Asset Management S.A. Sociedad Gerente de Fondos Comunes de Inversión S.A. | Argentina |
|
|
| |
|
| |
Espacio Cordial de Servicios S.A. | Argentina | Cordial |
| Sofital S.A.F. e I.I. | Argentina | N/A |
| Micro Lending S.A.U. | Argentina | MILA |
| InvertirOnline S.A.U. | Argentina | InvertirOnline |
| InvertirOnline.com Argentina S.A.U. | Argentina | InvertirOnline |
Supervielle Productores Asesores de Seguros S.A. | Argentina | N/A |
| Futuros del Sur S.A. (in the process of being renamed Supervielle Agent de Negociacion S.A.U.) | Argentina | N/A |
| Bolsillo Digital S.A.U. | Argentina | N/A |
| Item 4.D | Property, plants and equipment |
Item 4.DProperty, plants and equipment
The Bank owns 4,346 square meters of office space at Reconquista 330 in Buenos Aires and San Martín/Espejo in Mendoza for management, administrative and other commercial purposes and for central area personnel. The Bank also owns 15,046 square meters for retail branch properties in Mendoza, Córdoba, San Luis and Buenos Aires (including 13,001 squares meters of the properties acquired from the financial trust), 1,322 square meters of land in the City of San Luis and the City of Mendoza and 8,4622,832 square meters of properties not related to our core business.
In November 2007 Banco Supervielle securitized certain strategic located branches through the transfer of such properties to a real estate trust “Renta Inmobiliaria I” (the “Supervielle Renta Inmobiliaria Financial Trust”) which issued multiple classes of bonds and certificates of participation in the local capital market. Its initial value was US$14.3 million. The Bank leased the branches from the financial trust and paid a monthly rental since then.
Following the securitization terms and conditions, in November 2016, the Bank exercised its priority right to buy all or part of the properties from the Supervielle Renta Inmobiliaria Financial Trust, before these properties were divested by the trustee.
As a consequence, on December 14, 2016, the Bank acquired at market price, all of the properties from the financial trust, using their franchise value, for a total amount of Ps.329.8 million. Subsequently, the Supervielle Renta Inmobiliaria Financial Trust was terminated and the securities were paid back to its holders including the gain on sale of those properties as they were valued at historical acquisition cost.
As we had relevant holdings in the securities issued by the Supervielle Renta Inmobiliaria Financial Trust, we recognized a gain in income from our participation in securization trusts of Ps.137.7 million, a turnover tax of Ps.9.6 million in financial expenses and income tax of Ps.35.7 million.
Supervielle Seguros owns 1,9541,954 square meters of office space located at Reconquista 330 in Buenos Aires.
The rest of our administrative buildings and offices (including our headquarters), branches, senior citizen service centers, sales and collection centers and storage properties are leased pursuant to arm’s length agreements.
We sublease from the Bank the offices where our headquarters are located at Bartolomé Mitre 434, 5th Floor, City of Buenos Aires.
Selected Statistical Information
You should read this information in conjunction with our audited consolidated financial statements and related notes, and the information under “Item 5.A Operating Results” included elsewhere in this annual report. We prepared this information from our financial records,statements, which are maintainedprepared in conformity with Argentine Banking GAAP,IFRS. For further information, see notes 1.2 and do not reflect adjustments necessary2 to reflect the information in accordance with U.S. GAAP.our audited consolidated financial statements.
Average Balance Sheets, Interest Earnedearned on Interest-earning Assets and Interest Paid on Interest-bearing Liabilities
The average balances of our interest-earning assets and interest-bearing liabilities, including the related interest that is receivable and payable, are calculated on a daily basis.
Average balances have been separated between those denominated in Pesos and those denominated in U.S. dollars. The nominal interest rate is the amount of interest earned or paid during the period divided by the related average balance.
142
The following tables show average balances, interest amounts and nominal rates for our interest-earning assets and interest-bearing liabilities for the years ended December 31, 2016, 20152019, 2018 and 2014.2017.
| Year ended December 31, | |||||||||||||||||||||||||||
| 2019 | 2018 | 2017 | |||||||||||||||||||||||||
| Average Balance | Interest (Paid) | Average Nominal Rate | Average Balance | Interest (Paid) | Average Nominal Rate | Average Balance | Interest (Paid) | Average Nominal Rate | |||||||||||||||||||
| (in thousands of Pesos) | |||||||||||||||||||||||||||
| ASSETS | |||||||||||||||||||||||||||
| Interest-Earning Assets | |||||||||||||||||||||||||||
| Investment Portfolio | |||||||||||||||||||||||||||
| Government and Corporate Securities | 11,326,914 | 1,976,627 | 17.5% | 12,706,699 | 4,147,662 | 32.6% | 8,024,754 | 1,735,036 | 21.6% | ||||||||||||||||||
| Pesos | 7,103,805 | 3,002,584 | 42.3% | 7,037,870 | 1,698,336 | 24.1% | 3,118,790 | 666,711 | 21.4% | ||||||||||||||||||
| Dollars | 4,223,109 | (1,025,957 | ) | (24.3 | )% | 5,668,829 | 2,449,326 | 43.2% | 4,905,964 | 1,068,325 | 21.8% | ||||||||||||||||
| Securities Issued by the Central Bank | 30,219,625 | 18,714,976 | 61.9% | 22,998,423 | 9,500,771 | 41.3% | 17,662,433 | 4,366,998 | 24.7% | ||||||||||||||||||
| Pesos | 30,219,625 | 18,714,976 | 61.9% | 22,998,423 | 9,500,771 | 41.3% | 17,662,433 | 4,366,998 | 24.7% | ||||||||||||||||||
| Dollars | — | — | 0.0% | — | — | 0.0% | — | — | 0.0% | ||||||||||||||||||
| Total Investment Portfolio | 41,546,539 | 20,691,603 | 49.8% | 35,705,122 | 13,648,433 | 38.2% | 25,687,187 | 6,102,034 | 23.8% | ||||||||||||||||||
| Pesos | 37,323,430 | 21,717,559 | 58.2% | 30,036,293 | 11,199,107 | 37.3% | 20,781,223 | 5,033,709 | 24.2% | ||||||||||||||||||
| Dollars | 4,223,109 | (1,025,956 | ) | (24.3 | )% | 5,668,829 | 2,449,326 | 43.2% | 4,905,964 | 1,068,325 | 21.8% | ||||||||||||||||
| Loans | |||||||||||||||||||||||||||
| Loans to the Financial Sector | 555,588 | 189,836 | 34.2% | 1,402,040 | 380,052 | 27.1% | 943,550 | 58,853 | 6.2% | ||||||||||||||||||
| Pesos | 487,408 | 183,142 | 37.6% | 1,400,703 | 380,050 | 27.1% | 904,772 | 58,010 | 6.4% | ||||||||||||||||||
| Dollars | 68,180 | 6,694 | 9.8% | 1,337 | 2 | 0.1% | 38,778 | 843 | 2.2% | ||||||||||||||||||
| Overdrafts | 7,005,832 | 4,566,729 | 65.2% | 10,530,444 | 5,000,550 | 47.5% | 9,073,842 | 2,901,607 | 32.0% | ||||||||||||||||||
| Pesos | 7,004,941 | 4,566,729 | 65.2% | 10,529,838 | 5,000,550 | 47.5% | 9,073,665 | 2,901,607 | 32.0% | ||||||||||||||||||
| Dollars | 891 | — | 0.0% | 606 | — | 0.0% | 177 | — | 0.0% | ||||||||||||||||||
| Promissory notes | 9,343,602 | 5,878,441 | 62.9% | 16,912,839 | 6,272,283 | 37.1% | 17,832,275 | 3,767,218 | 21.1% | ||||||||||||||||||
| Pesos | 8,382,758 | 5,797,429 | 69.2% | 15,553,607 | 6,203,437 | 39.9% | 17,216,500 | 3,748,117 | 21.8% | ||||||||||||||||||
| Dollars | 960,844 | 81,012 | 8.4% | 1,359,232 | 68,846 | 5.1% | 615,775 | 19,101 | 3.1% | ||||||||||||||||||
| Mortgage loans | 8,216,816 | 3,781,641 | 46.0% | 7,410,179 | 3,028,718 | 40.9% | 1,243,094 | 263,172 | 21.2% | ||||||||||||||||||
| Pesos | 8,216,816 | 3,781,641 | 46.0% | 7,410,179 | 3,028,718 | 40.9% | 1,243,094 | 263,172 | 21.2% | ||||||||||||||||||
| Dollars | — | — | 0.0% | — | — | 0.0% | — | — | 0.0% | ||||||||||||||||||
| Automobile and Other Secured Loans | 1,846,408 | 693,000 | 37.5% | 3,021,281 | 757,191 | 25.1% | 439,268 | 75,663 | 17.2% | ||||||||||||||||||
| Pesos | 1,846,408 | 693,000 | 37.5% | 3,021,281 | 757,191 | 25.1% | 439,268 | 75,663 | 17.2% | ||||||||||||||||||
| Dollars | — | — | 0.0% | — | — | 0.0% | — | — | 0.0% | ||||||||||||||||||
| Personal Loans | 22,934,580 | 12,916,398 | 56.3% | 39,352,087 | 16,811,397 | 42.7% | 39,977,166 | 16,547,779 | 41.4% | ||||||||||||||||||
| Pesos | 22,934,580 | 12,916,398 | 56.3% | 39,352,087 | 16,811,397 | 42.7% | 39,977,166 | 16,547,779 | 41.4% | ||||||||||||||||||
| Dollars | — | — | 0.0% | — | — | 0.0% | — | — | 0.0% | ||||||||||||||||||
| Corporate Unsecured Loans | 10,855,345 | 6,141,212 | 56.6% | 13,801,409 | 4,643,906 | 33.6% | 11,240,625 | 3,060,510 | 27.2% | ||||||||||||||||||
| Pesos | 10,855,345 | 6,141,212 | 56.6% | 13,801,409 | 4,643,906 | 33.6% | 11,240,625 | 3,060,510 | 27.2% | ||||||||||||||||||
| Dollars | — | — | 0.0% | — | — | 0.0% | — | — | 0.0% | ||||||||||||||||||
| Credit Card Loans | 12,240,583 | 4,815,023 | 39.3% | 17,003,762 | 5,249,822 | 30.9% | 17,297,617 | 5,053,721 | 29.2% | ||||||||||||||||||
| Pesos | 11,735,230 | 4,814,830 | 41.0% | 16,453,795 | 5,249,740 | 31.9% | 16,626,969 | 5,053,564 | 30.4% | ||||||||||||||||||
| Dollars | 505,353 | 193 | 0.0% | 549,967 | 82 | 0.0% | 670,648 | 157 | 0.0% | ||||||||||||||||||
| Receivables from Financial Leases | 4,439,332 | 1,129,605 | 25.4% | 6,301,405 | 1,417,026 | 22.5% | 5,445,318 | 1,141,614 | 21.0% | ||||||||||||||||||
| Pesos | 2,485,309 | 975,764 | 39.3% | 4,676,336 | 1,281,853 | 27.4% | 4,914,898 | 1,093,227 | 22.2% | ||||||||||||||||||
| Dollars | 1,954,023 | 153,841 | 7.9% | 1,625,069 | 135,173 | 8.3% | 530,420 | 48,387 | 9.1% | ||||||||||||||||||
| Total Loans excl. Foreign trade and U.S.$.loans | 77,438,086 | 40,111,885 | 51.8% | 115,735,446 | 43,560,945 | 37.6% | 103,492,755 | 32,870,137 | 31.8% | ||||||||||||||||||
| Pesos | 73,948,795 | 39,870,145 | 53.9% | 112,199,235 | 43,356,842 | 38.6% | 101,636,957 | 32,801,649 | 32.3% | ||||||||||||||||||
| Dollars | 3,489,291 | 241,740 | 6.9% | 3,536,211 | 204,103 | 5.8% | 1,855,798 | 68,488 | 3.7% | ||||||||||||||||||
143
|
| Year ended December 31, |
| ||||||||||||||||
|
| 2016 |
| 2015 |
| 2014 |
| ||||||||||||
|
| Average Balance |
| Interest Earned/ |
| Average Nominal |
| Average Balance |
| Interest Earned/ |
| Average Nominal |
| Average Balance |
| Interest Earned/ |
| Average Nominal |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government and corporate securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pesos |
| 165,383 |
| 11,986 |
| 7.2 | % | 197,733 |
| 13,932 |
| 7.0 | % | 192,252 |
| 33,026 |
| 17.2 | % |
Dollars |
| 597,712 |
| 145,409 |
| 24.3 | % | 306,386 |
| 119,440 |
| 39.0 | % | 263,229 |
| 128,126 |
| 48.7 | % |
Total |
| 763,096 |
| 157,395 |
| 20.6 | % | 504,119 |
| 133,372 |
| 26.5 | % | 455,481 |
| 161,152 |
| 35.4 | % |
Participation in our securitization trusts(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pesos |
| 1,277,081 |
| 362,241 |
| 28.4 | % | 1,348,974 |
| 283,428 |
| 21.0 | % | 1,423,809 |
| 328,295 |
| 23.1 | % |
Dollars |
| — |
| — |
| 0.0 | % | — |
| — |
| 0.0 | % | 86 |
| 17 |
| 19.8 | % |
Total |
| 1,277,081 |
| 362,241 |
| 28.4 | % | 1,348,974 |
| 283,428 |
| 21.0 | % | 1,423,895 |
| 328,312 |
| 23.1 | % |
Securities issued by the Central Bank |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pesos |
| 1,846,240 |
| 684,258 |
| 37.1 | % | 707,491 |
| 257,274 |
| 36.4 | % | 700,844 |
| 198,585 |
| 28.3 | % |
Dollars |
| 106,696 |
| 49,838 |
| 46.7 | % | 1,716 |
| — |
| 0.0 | % | — |
| — |
| — |
|
Total |
| 1,952,936 |
| 734,096 |
| 37.6 | % | 709,207 |
| 257,274 |
| 36.3 | % | 700,844 |
| 198,585 |
| 28.3 | % |
Loans and financings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Promissory notes(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pesos |
| 3,811,989 |
| 1,086,442 |
| 28.5 | % | 3,165,116 |
| 837,789 |
| 26.5 | % | 2,881,142 |
| 830,095 |
| 28.8 | % |
Dollars |
| 25,772 |
| 882 |
| 3.4 | % | 12,530 |
| 675 |
| 5.4 | % | 29,017 |
| 1,389 |
| 4.8 | % |
Total |
| 3,837,761 |
| 1,087,324 |
| 28.3 | % | 3,177,646 |
| 838,464 |
| 26.4 | % | 2,910,159 |
| 831,484 |
| 28.6 | % |
Overdrafts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pesos |
| 2,509,796 |
| 996,571 |
| 39.7 | % | 1,638,881 |
| 594,315 |
| 36.3 | % | 1,020,640 |
| 341,500 |
| 33.5 | % |
Dollars |
| — |
|
|
| 0.0 | % | — |
| — |
| 0.0 | % | — |
| — |
| — |
|
Total |
| 2,509,796 |
| 996,571 |
| 39.7 | % | 1,638,881 |
| 594,315 |
| 36.3 | % | 1,020,640 |
| 341,500 |
| 33.5 | % |
Loans to the financial sector |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pesos |
| 240,611 |
| 73,754 |
| 30.7 | % | 28,977 |
| 9,173 |
| 31.7 | % | 8,782 |
| 8,556 |
| 97.4 | % |
Dollars |
| — |
| — |
| 0.0 | % | — |
| — |
| 0.0 | % | 2 |
| — |
| — |
|
Total |
| 240,611 |
| 73,754 |
| 30.7 | % | 28,977 |
| 9,173 |
| 31.7 | % | 8,784 |
| 8,556 |
| 97.4 | % |
Mortgage loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pesos |
| 40,766 |
| 8,999 |
| 22.1 | % | 59,344 |
| 10,014 |
| 16.9 | % | 74,172 |
| 14,011 |
| 18.9 | % |
Dollars |
| — |
| — |
| 0.0 | % | — |
| — |
| 0.0 | % | 150 |
| 18 |
| 12.0 | % |
Total |
| 40,766 |
| 8,999 |
| 22.1 | % | 59,344 |
| 10,014 |
| 16.9 | % | 74,322 |
| 14,029 |
| 18.9 | % |
Automobile and other secured loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pesos |
| 78,980 |
| 17,271 |
| 21.9 | % | 133,740 |
| 32,678 |
| 24.4 | % | 191,098 |
| 51,751 |
| 27.1 | % |
Dollars |
| — |
| — |
| 0.0 | % | — |
| — |
| 0.0 | % | — |
| — |
| — |
|
Total |
| 78,980 |
| 17,271 |
| 21.9 | % | 133,740 |
| 32,678 |
| 24.4 | % | 191,098 |
| 51,751 |
| 27.1 | % |
Corporate unsecured loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pesos |
| 2,418,252 |
| 819,097 |
| 33.9 | % | 1,769,763 |
| 561,635 |
| 31.7 | % | 1,111,391 |
| 348,323 |
| 31.3 | % |
Dollars |
| — |
| — |
| 0.0 | % | — |
| — |
| 0.0 | % | — |
| — |
| — |
|
Total |
| 2,418,252 |
| 819,097 |
| 33.9 | % | 1,769,763 |
| 561,635 |
| 31.7 | % | 1,111,391 |
| 348,323 |
| 31.3 | % |
Personal loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pesos |
| 7,884,433 |
| 3,631,979 |
| 46.1 | % | 5,170,131 |
| 2,144,410 |
| 41.5 | % | 3,287,127 |
| 1,356,786 |
| 41.3 | % |
Dollars |
| — |
| — |
| 0.0 | % | — |
| — |
| 0.0 | % | — |
| — |
| — |
|
Total |
| 7,884,433 |
| 3,631,979 |
| 46.1 | % | 5,170,131 |
| 2,144,410 |
| 41.5 | % | 3,287,127 |
| 1,356,786 |
| 41.3 | % |
Credit Cards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pesos |
| 5,399,079 |
| 1,733,539 |
| 32.1 | % | 4,108,877 |
| 1,289,162 |
| 31.4 | % | 2,619,616 |
| 814,215 |
| 31.1 | % |
Dollars |
| 145,684 |
| 67 |
| 0.0 | % | 84,161 |
| 224 |
| 0.3 | % | 40,260 |
| 185 |
| 0.5 | % |
Total |
| 5,544,763 |
| 1,733,606 |
| 31.3 | % | 4,193,038 |
| 1,289,386 |
| 30.8 | % | 2,659,876 |
| 814,400 |
| 30.6 | % |
|
| Year ended December 31, |
| ||||||||||||||||
|
| 2016 |
| 2015 |
| 2014 |
| ||||||||||||
|
| Average Balance |
| Interest Earned/ |
| Average Nominal |
| Average Balance |
| Interest Earned/ |
| Average Nominal |
| Average Balance |
| Interest Earned/ |
| Average Nominal |
|
Receivables from financial leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pesos |
| 1,310,083 |
| 359,116 |
| 27.4 | % | 834,193 |
| 207,296 |
| 24.8 | % | 551,064 |
| 93,966 |
| 17.1 | % |
Dollars |
| 7,606 |
| 471 |
| 6.2 | % | 2,958 |
| 115 |
| 3.9 | % | 3,605 |
| 152 |
| 4.2 | % |
Total |
| 1,317,689 |
| 359,587 |
| 27.3 | % | 837,151 |
| 207,411 |
| 24.8 | % | 554,669 |
| 94,118 |
| 17.0 | % |
Foreign Trade Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pesos |
| — |
| — |
| 0.0 | % | — |
| — |
| 0.0 | % | — |
| — |
| — |
|
Dollars |
| 2,375,825 |
| 130,047 |
| 5.5 | % | 645,829 |
| 42,975 |
| 6.7 | % | 633,145 |
| 36,608 |
| 5.8 | % |
Total |
| 2,375,825 |
| 130,047 |
| 5.5 | % | 645,829 |
| 42,975 |
| 6.7 | % | 633,145 |
| 36,608 |
| 5.8 | % |
Other receivables from financial transactions(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pesos |
| 692,438 |
| 218,755 |
| 31.6 | % | 159,750 |
| 35,164 |
| 22.0 | % | 13,242 |
| 2,203 |
| 16.6 | % |
Dollars |
| 1,625 |
| 187 |
| 11.5 | % | 143,294 |
| 18,408 |
| 12.8 | % | 116,809 |
| 24,301 |
| 20.8 | % |
Total |
| 694,063 |
| 218,942 |
| 31.5 | % | 303,044 |
| 53,572 |
| 17.7 | % | 130,051 |
| 26,504 |
| 20.4 | % |
Total interest-earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pesos |
| 27,675,131 |
| 10,004,010 |
| 36.2 | % | 19,322,972 |
| 6,276,271 |
| 32.5 | % | 14,075,179 |
| 4,421,312 |
| 31.4 | % |
Dollars |
| 3,260,920 |
| 326,901 |
| 10.0 | % | 1,196,874 |
| 181,837 |
| 15.2 | % | 1,086,303 |
| 190,796 |
| 17.6 | % |
Total |
| 30,936,051 |
| 10,330,911 |
| 33.4 | % | 20,519,845 |
| 6,458,108 |
| 31.5 | % | 15,161,482 |
| 4,612,108 |
| 30.4 | % |
Non interest-earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pesos |
| 4,804,565 |
|
|
|
|
| 3,339,803 |
|
|
|
|
| 2,543,954 |
|
|
|
|
|
Dollars |
| 2,149,089 |
|
|
|
|
| 1,000,228 |
|
|
|
|
| 925,591 |
|
|
|
|
|
Total |
| 6,953,654 |
|
|
|
|
| 4,340,031 |
|
|
|
|
| 3,469,545 |
|
|
|
|
|
Unlisted equity Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pesos |
| 7,806 |
|
|
|
|
| 5,973 |
|
|
|
|
| 4,465 |
|
|
|
|
|
Dollars |
| 1 |
|
|
|
|
| 1 |
|
|
|
|
| 1 |
|
|
|
|
|
Total |
| 7,807 |
|
|
|
|
| 5,974 |
|
|
|
|
| 4,466 |
|
|
|
|
|
Premises and equipment and miscellaneous and intangible assets and unallocated items |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pesos |
| 1,022,713 |
|
|
|
|
| 878,180 |
|
|
|
|
| 471,050 |
|
|
|
|
|
Dollars |
| — |
|
|
|
|
| — |
|
|
|
|
| — |
|
|
|
|
|
Total |
| 1,022,713 |
|
|
|
|
| 878,180 |
|
|
|
|
| 471,050 |
|
|
|
|
|
Allowance for loan losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pesos |
| (705,117 | ) |
|
|
|
| (510,429 | ) |
|
|
|
| (402,537 | ) |
|
|
|
|
Dollars |
| (30,459 | ) |
|
|
|
| (17,879 | ) |
|
|
|
| (14,148 | ) |
|
|
|
|
Total |
| (735,576 | ) |
|
|
|
| (528,308 | ) |
|
|
|
| (416,685 | ) |
|
|
|
|
Other assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pesos |
| 2,929,059 |
|
|
|
|
| 1,635,717 |
|
|
|
|
| 1,239,499 |
|
|
|
|
|
Dollars |
| 353,385 |
|
|
|
|
| 109,725 |
|
|
|
|
| 136,660 |
|
|
|
|
|
Total |
| 3,282,444 |
|
|
|
|
| 1,745,442 |
|
|
|
|
| 1,376,159 |
|
|
|
|
|
Total non interest-earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pesos |
| 8,059,345 |
|
|
|
|
| 5,349,245 |
|
|
|
|
| 3,856,432 |
|
|
|
|
|
Dollars |
| 2,472,016 |
|
|
|
|
| 1,092,075 |
|
|
|
|
| 1,048,104 |
|
|
|
|
|
Total |
| 10,531,361 |
|
|
|
|
| 6,441,319 |
|
|
|
|
| 4,904,537 |
|
|
|
|
|
Total Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pesos |
| 35,734,475 |
|
|
|
|
| 24,672,217 |
|
|
|
|
| 17,931,612 |
|
|
|
|
|
Dollars |
| 5,732,937 |
|
|
|
|
| 2,288,948 |
|
|
|
|
| 2,134,407 |
|
|
|
|
|
Total |
| 41,467,412 |
|
|
|
|
| 26,961,165 |
|
|
|
|
| 20,066,019 |
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pesos |
| 11,646,092 |
| 3,060,566 |
| 26.4 | % | 8,950,016 |
| 2,221,941 |
| 24.8 | % | 7,108,909 |
| 1,598,519 |
| 22.5 | % |
Dollars |
| 806,650 |
| 10,282 |
| 1.3 | % | 337,459 |
| 2,807 |
| 0.8 | % | 310,746 |
| 2,112 |
| 0.7 | % |
Total |
| 12,452,742 |
| 3,070,848 |
| 24.7 | % | 9,287,475 |
| 2,224,748 |
| 24.0 | % | 7,419,655 |
| 1,600,631 |
| 21.6 | % |
|
| Year ended December 31, |
| ||||||||||||||||
|
| 2016 |
| 2015 |
| 2014 |
| ||||||||||||
|
| Average Balance |
| Interest Earned/ |
| Average Nominal |
| Average Balance |
| Interest Earned/ |
| Average Nominal |
| Average Balance |
| Interest Earned/ |
| Average Nominal |
|
Borrowings from other financial institutions and unsubordinated negotiable obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pesos |
| 2,332,394 |
| 734,324 |
| 31.5 | % | 1,530,080 |
| 420,682 |
| 27.5 | % | 1,083,694 |
| 298,390 |
| 27.5 | % |
Dollars |
| 217,832 |
| 7,390 |
| 3.4 | % | 121,831 |
| 2,994 |
| 2.5 | % | 87,554 |
| 1,484 |
| 1.7 | % |
Total |
| 2,550,226 |
| 741,714 |
| 29.1 | % | 1,651,911 |
| 423,676 |
| 25.6 | % | 1,171,248 |
| 299,874 |
| 25.6 | % |
Subordinated Loan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pesos |
| — |
| — |
| 0.0 | % | — |
| — |
| 0.0 | % | — |
| — |
| 0.0 | % |
Dollars |
| 1,285,162 |
| 128,027 |
| 10.0 | % | 800,088 |
| 81,282 |
| 10.2 | % | 601,297 |
| 63,961 |
| 10.6 | % |
Total |
| 1,285,162 |
| 128,027 |
| 10.0 | % | 800,088 |
| 81,282 |
| 10.2 | % | 601,297 |
| 63,961 |
| 10.6 | % |
Total interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pesos |
| 13,973,486 |
| 3,794,889 |
| 27.2 | % | 10,480,095 |
| 2,642,623 |
| 25.2 | % | 8,192,603 |
| 1,896,909 |
| 23.2 | % |
Dollars |
| 2,309,644 |
| 145,699 |
| 6.3 | % | 1,259,378 |
| 87,083 |
| 6.9 | % | 1,176,044 |
| 67,557 |
| 6.8 | % |
Total |
| 16,288,130 |
| 3,940,588 |
| 24.3 | % | 11,739,473 |
| 2,729,706 |
| 23.3 | % | 9,192,200 |
| 1,964,466 |
| 21.4 | % |
Low and non-interest bearing liabilities and stockholders’ equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking and savings accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pesos |
| 6,192,384 |
| 3,899 |
| 0.1 | % | 4,616,801 |
| 4,556 |
| 0.1 | % | 3,043,130 |
| 2,975 |
| 0.1 | % |
Dollars |
| 1,238,934 |
| 740 |
| 0.1 | % | 286,894 |
| 274 |
| 0.1 | % | 999,597 |
| 167 |
| 0.1 | % |
Total |
| 7,431,318 |
| 4,639 |
| 0.1 | % | 4,903,695 |
| 4,830 |
| 0.1 | % | 3,219,577 |
| 3,142 |
| 0.1 | % |
Demand deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pesos |
| 6,541,618 |
|
|
|
|
| 4,766,900 |
|
|
|
|
| 3,424,790 |
|
|
|
|
|
Dollars |
| 601,764 |
|
|
|
|
| 99,828 |
|
|
|
|
| 81,673 |
|
|
|
|
|
Total |
| 7,143,382 |
|
|
|
|
| 4,866,728 |
|
|
|
|
| 3,506,463 |
|
|
|
|
|
Other liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pesos |
| 4,618,267 |
|
|
|
|
| 3,117,904 |
|
|
|
|
| 2,279,555 |
|
|
|
|
|
Dollars |
| 878,693 |
|
|
|
|
| 171,114 |
|
|
|
|
| 215,809 |
|
|
|
|
|
Total |
| 5,496,961 |
|
|
|
|
| 3,289,019 |
|
|
|
|
| 2,495,364 |
|
|
|
|
|
Non-controlling interest result |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
| 120,803 |
|
|
|
|
| 67,500 |
|
|
|
|
| 50,826 |
|
|
|
|
|
Stockholders’ equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pesos |
| 4,986,499 |
|
|
|
|
| 2,094,750 |
|
|
|
|
| 1,601,589 |
|
|
|
|
|
Total |
| 4,986,499 |
|
|
|
|
| 2,094,750 |
|
|
|
|
| 1,601,589 |
|
|
|
|
|
Total non-interest- bearing liabilities and stockholders’ equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pesos |
| 22,459,891 |
|
|
|
|
| 14,663,855 |
|
|
|
|
| 10,399,890 |
|
|
|
|
|
Dollars |
| 2,719,391 |
|
|
|
|
| 557,836 |
|
|
|
|
| 473,929 |
|
|
|
|
|
Total |
| 25,058,479 |
|
|
|
|
| 15,221,692 |
|
|
|
|
| 10,873,819 |
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pesos |
| 36,438,377 |
|
|
|
|
| 25,143,950 |
|
|
|
|
| 18,592,493 |
|
|
|
|
|
Dollars |
| 5,029,035 |
|
|
|
|
| 1,817,214 |
|
|
|
|
| 1,473,526 |
|
|
|
|
|
Total |
| 41,467,412 |
|
|
|
|
| 26,961,165 |
|
|
|
|
| 20,066,019 |
|
|
|
|
|
| Year ended December 31, | |||||||||||||||||||||||||||
| 2019 | 2018 | 2017 | |||||||||||||||||||||||||
| Average Balance | Interest (Paid) | Average Nominal Rate | Average Balance | Interest (Paid) | Average Nominal Rate | Average Balance | Interest (Paid) | Average Nominal Rate | |||||||||||||||||||
| (in thousands of Pesos) | |||||||||||||||||||||||||||
| Foreign Trade Loans and U.S.$.loans | 25,486,397 | 1,730,633 | 6.8% | 33,096,074 | 1,798,461 | 5.4% | 20,074,843 | 899,193 | 4.5% | ||||||||||||||||||
| Pesos | — | — | 0.0% | — | — | 0.0% | — | — | 0.0% | ||||||||||||||||||
| Dollars | 25,486,397 | 1,730,633 | 6.8% | 33,096,074 | 1,798,461 | 5.4% | 20,074,843 | 899,193 | 4.5% | ||||||||||||||||||
| Total Loans | 102,924,483 | 41,842,518 | 40.7% | 148,831,520 | 45,359,406 | 30.5% | 123,567,598 | 33,769,330 | 27.3% | ||||||||||||||||||
| Pesos | 73,948,795 | 39,870,145 | 53.9% | 112,199,235 | 43,356,842 | 38.6% | 101,636,957 | 32,801,649 | 32.3% | ||||||||||||||||||
| Dollars | 28,975,688 | 1,972,373 | 6.8% | 36,632,285 | 2,002,564 | 5.5% | 21,930,641 | 967,681 | 4.4% | ||||||||||||||||||
| Repo transactions | 981,998 | 596,797 | 60.8% | 252,162 | 78,349 | 31.1% | — | — | 0.0% | ||||||||||||||||||
| Pesos | 981,998 | 596,797 | 60.8% | 252,162 | 73,349 | 31.1% | — | — | 0.0% | ||||||||||||||||||
| Dollars | — | — | 0.0% | — | — | 0.0% | — | — | 0.0% | ||||||||||||||||||
| Total Interest-Earning Assets | 145,453,020 | 63,130,918 | 43.4% | 184,788,804 | 59,086,188 | 32.0% | 149,254,785 | 39,871,364 | 26.7% | ||||||||||||||||||
| Pesos | 112,254,223 | 62,184,502 | 55.4% | 142,487,690 | 54,634,298 | 38.3% | 122,418,180 | 37,835,358 | 30.9% | ||||||||||||||||||
| Dollars | 33,198,797 | 946,416 | 2.9% | 42,301,114 | 4,451,890 | 10.5% | 26,836,605 | 2,036,006 | 7.6% | ||||||||||||||||||
| Non Interest-Earning Assets | |||||||||||||||||||||||||||
| Cash and due from banks | 40,084,120 | 42,489,403 | 30,192,607 | ||||||||||||||||||||||||
| Pesos | 19,151,085 | 23,105,066 | 17,688,924 | ||||||||||||||||||||||||
| Dollars | 20,933,035 | 19,384,337 | 12,503,683 | ||||||||||||||||||||||||
| Unlisted equity investments | 40 | — | 4,394 | ||||||||||||||||||||||||
| Pesos | — | — | 4,394 | ||||||||||||||||||||||||
| Dollars | 40 | — | — | ||||||||||||||||||||||||
| Premises and equipment and miscellaneous and intangible assets and unallocated items | 8,038,882 | 5,776,552 | 4,069,732 | ||||||||||||||||||||||||
| Pesos | 8,038,882 | 5,776,552 | 4,069,732 | ||||||||||||||||||||||||
| Dollars | — | — | — | ||||||||||||||||||||||||
| Allowance for loan losses | (6,351,235 | ) | (8,250,210 | ) | (6,569,557 | ) | |||||||||||||||||||||
| Pesos | (5,442,708 | ) | (7,809,354 | ) | (6,332,636 | ) | |||||||||||||||||||||
| Dollars | (908,527 | ) | (440,856 | ) | (236,921 | ) | |||||||||||||||||||||
| Other assets | 13,028,974 | 14,372,811 | 17,675,942 | ||||||||||||||||||||||||
| Pesos | 11,412,769 | 12,755,495 | 15,789,742 | ||||||||||||||||||||||||
| Dollars | 1,616,205 | 1,617,316 | 1,886,200 | ||||||||||||||||||||||||
| Total Non Interest-Earning Assets | 54,800,781 | 54,388,556 | 45,373,118 | ||||||||||||||||||||||||
| Pesos | 33,160,028 | 33,827,759 | 31,220,156 | ||||||||||||||||||||||||
| Dollars | 21,640,753 | 20,560,797 | 14,152,962 | ||||||||||||||||||||||||
| Total Assets | 200,253,801 | 239,177,360 | 194,627,903 | ||||||||||||||||||||||||
| Pesos | 145,414,251 | 176,315,449 | 153,638,336 | ||||||||||||||||||||||||
| Dollars | 54,839,550 | 62,861,911 | 40,989,567 | ||||||||||||||||||||||||
| Year ended December 31, | |||||||||||||||||||||||||||
| 2019 | 2018 | 2017 | |||||||||||||||||||||||||
| Average Balance | Interest (Paid) | Average Nominal Rate | Average Balance | Interest (Paid) | Average Nominal Rate | Average Balance | Interest (Paid) | Average Nominal Rate | |||||||||||||||||||
| (in thousands of Pesos) | |||||||||||||||||||||||||||
| LIABILITIES | |||||||||||||||||||||||||||
| Interest-Bearing Liabilities | |||||||||||||||||||||||||||
| Time Deposits | 46,909,708 | 19,855,152 | 42.3% | 43,144,927 | 9,991,637 | 23.2% | 38,639,592 | 5,786,088 | 15.0% | ||||||||||||||||||
| Pesos | 41,118,910 | 19,778,723 | 48.1% | 36,276,233 | 9,906,758 | 27.3% | 34,953,771 | 5,765,429 | 16.5% | ||||||||||||||||||
| Dollars | 5,790,798 | 76,429 | 1.3% | 6,868,694 | 84,879 | 1.2% | 3,685,821 | 20,659 | 0.6% | ||||||||||||||||||
| Borrowings from Other Financial Institutions and Unsub Negotiable Obligations | 21,657,316 | 7,966,708 | 36.8% | 37,100,799 | 8,434,082 | 22.7% | 24,935,967 | 4,843,645 | 19.4% | ||||||||||||||||||
| Pesos | 13,664,014 | 7,542,643 | 55.2% | 26,956,510 | 8,040,293 | 29.8% | 22,983,905 | 4,783,624 | 20.8% | ||||||||||||||||||
| Dollars | 7,993,302 | 424,065 | 5.3% | 10,144,289 | 393,789 | 3.9% | 1,952,062 | 60,021 | 3.1% | ||||||||||||||||||
| Subordinated Loans and Negotiable Obligations | 2,203,968 | 136,687 | 6.2% | 2,097,037 | 133,540 | 6.4% | 3,668,433 | 325,257 | 8.9% | ||||||||||||||||||
| Pesos | — | — | 0.0% | — | — | 0.0% | — | — | 0.0% | ||||||||||||||||||
| Dollars | 2,203,968 | 136,687 | 6.2% | 2,097,037 | 133,540 | 6.4% | 3,668,433 | 325,257 | 8.9% | ||||||||||||||||||
| Total Interest-Bearing Liabilities | 70,770,992 | 27,958,547 | 39.5% | 82,342,763 | 18,559,259 | 22.5% | 67,243,992 | 10,954,990 | 16.3% | ||||||||||||||||||
| Pesos | 54,782,924 | 27,321,366 | 49.9% | 63,232,743 | 17,947,051 | 28.4% | 57,937,676 | 10,549,053 | 18.2% | ||||||||||||||||||
| Dollars | 15,988,068 | 637,181 | 4.0% | 19,110,020 | 612,208 | 3.2% | 9,306,316 | 405,937 | 4.4% | ||||||||||||||||||
| Low and Non-Interest Bearing Deposits | |||||||||||||||||||||||||||
| Savings Accounts | 32,185,349 | 65,344 | 0.2% | 39,527,134 | 63,538 | 0.2% | 35,708,329 | 9,271 | 0.0% | ||||||||||||||||||
| Pesos | 16,677,758 | 60,885 | 0.4% | 21,970,349 | 58,885 | 0.3% | 25,006,000 | 6,461 | 0.0% | ||||||||||||||||||
| Dollars | 15,507,591 | 4,459 | 0.0% | 17,556,785 | 4,653 | 0.0% | 10,702,329 | 2,810 | 0.0% | ||||||||||||||||||
| Special Checking Accounts | 25,168,448 | 6,010,413 | 40.1% | 34,033,872 | 7,826,914 | 30.0% | 14,016,710 | 1,555,341 | 13.4% | ||||||||||||||||||
| Pesos | 14,892,493 | 5,973,650 | 40.1% | 25,989,349 | 7,795,154 | 30.0% | 11,512,318 | 1,546,597 | 13.4% | ||||||||||||||||||
| Dollars | 10,275,955 | 36,763 | 0.4% | 8,044,523 | 31,760 | 0.4% | 2,504,392 | 8,744 | 0.3% | ||||||||||||||||||
| Checking Accounts | 23,987,398 | 29,679,527 | 27,130,608 | ||||||||||||||||||||||||
| Pesos | 15,110,011 | 17,312,704 | 18,674,236 | ||||||||||||||||||||||||
| Dollars | 8,877,387 | 12,366,823 | 8,456,372 | ||||||||||||||||||||||||
| Other Liabilities | 24,556,832 | 24,469,574 | 25,654,959 | ||||||||||||||||||||||||
| Pesos | 19,825,696 | 22,013,436 | 20,012,444 | ||||||||||||||||||||||||
| Dollars | 4,731,136 | 2,456,138 | 5,642,515 | ||||||||||||||||||||||||
| Non-Controlling Interest Result | 232,677 | 430,932 | -69,908 | ||||||||||||||||||||||||
| Pesos | 232,677 | 430,932 | -69,908 | ||||||||||||||||||||||||
| Dollars | — | — | — | ||||||||||||||||||||||||
| Stockholders’ equity | 23,352,105 | 28,693,558 | 24,943,213 | ||||||||||||||||||||||||
| Pesos | 23,352,105 | 28,693,558 | 24,943,213 | ||||||||||||||||||||||||
| Dollars | — | — | — | ||||||||||||||||||||||||
| Total Low and Non-Interest Bearing Deposits | 129,482,809 | 156,834,597 | 127,383,911 | ||||||||||||||||||||||||
| Pesos | 90,090,740 | 116,410,328 | 100,078,303 | ||||||||||||||||||||||||
| Dollars | 39,392,069 | 40,424,269 | 27,305,608 | ||||||||||||||||||||||||
| Total Liabilities and Stockholders’ equity | 200,253,801 | 239,177,360 | 194,627,903 | ||||||||||||||||||||||||
| Pesos | 144,873,664 | 179,643,071 | 158,015,979 | ||||||||||||||||||||||||
| Dollars | 55,380,137 | 59,534,289 | 36,611,924 | ||||||||||||||||||||||||
(1) Includes senior and subordinated bonds and participation certificates.
(2) Consists of unsecured checks and accounts receivable deriving from factoring transactions.
(3) Includes overnight deposit and unlisted corporate bonds.
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. The changes are segregated for each major category of interest-earning assets and interest-bearing liabilities into amounts attributable to changes in the average volume and changes in their respective nominal interest rates for the year ended December 31, 20162019 compared to the year ended December 31, 20152018, and for the year ended December 31, 20152018 compared to the year ended December 31, 2014.2017. We have calculated volume variances based on movements in average balances over the period and rate variance based on changes in interest rates on average interest-earning assets and average interest-bearing liabilities. We have allocated variances caused by changes in both volume and rate to volume. As stated above under “Presentation of Financial and Other Information,” we have prepared our audited consolidated financial statements for 2019, 2018 and 2017 under IFRS. Data for past years has been prepared under our prior accounting framework, Argentine Banking GAAP, which is not comparable with data prepared under IFRS.
|
| Year ended |
| ||||||||||||||
|
| 2016 |
| 2015 |
| 2015 |
| 2014 |
| ||||||||
|
| Increase (Decrease) Due to Changes in |
| Increase (Decrease) Due to Changes in |
| ||||||||||||
|
| Volume |
| Rate |
| Net Change |
| Volume |
| Rate |
| Net Change |
| ||||
|
| (in thousands of Pesos, except percentages) |
| ||||||||||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest-earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Investment portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Government and corporate securities |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Pesos |
| (2,345 | ) | 398 |
| (1,946 | ) | 386 |
| (19,480 | ) | (19,094 | ) | ||||
Dollars |
| 70,873 |
| (44,903 | ) | 25,970 |
| 16,824 |
| (25,510 | ) | (8,686 | ) | ||||
Total |
| 68,528 |
| (44,505 | ) | 24,024 |
| 17,210 |
| (44,991 | ) | (27,780 | ) | ||||
Participation in our securitization trusts(1) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Pesos |
| (20,392 | ) | 99,206 |
| 78,813 |
| (15,723 | ) | (29,144 | ) | (44,867 | ) | ||||
Dollars |
| — |
| — |
| — |
| — |
| (17 | ) | (17 | ) | ||||
Total |
| (20,392 | ) | 99,206 |
| 78,813 |
| (15,723 | ) | (29,161 | ) | (44,884 | ) | ||||
Bills and securities issued by the Central Bank |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Pesos |
| 422,046 |
| 4,938 |
| 426,984 |
| 2,417 |
| 56,272 |
| 58,689 |
| ||||
Dollars |
| 49,036 |
| 802 |
| 49,838 |
| — |
| — |
| — |
| ||||
Total |
| 471,082 |
| 5,740 |
| 476,822 |
| 2,417 |
| 56,272 |
| 58,689 |
| ||||
Loans and financings: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Promissory notes(2) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Pesos |
| 184,363 |
| 64,290 |
| 248,653 |
| 75,166 |
| (67,473 | ) | 7,694 |
| ||||
Dollars |
| 453 |
| (246 | ) | 207 |
| (888 | ) | 174 |
| (714 | ) | ||||
Total |
| 184,816 |
| 64,044 |
| 248,860 |
| 74,278 |
| (67,299 | ) | 6,980 |
| ||||
Overdrafts |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Pesos |
| 345,816 |
| 56,440 |
| 402,256 |
| 224,196 |
| 28,619 |
| 252,815 |
| ||||
Dollars |
| — |
| — |
|
|
| — |
| — |
| — |
| ||||
Total |
| 345,816 |
| 56,440 |
| 402,256 |
| 224,196 |
| 28,619 |
| 252,815 |
| ||||
Loans to the financial sector |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Pesos |
| 64,872 |
| (291 | ) | 64,581 |
| 6,393 |
| (5,776 | ) | 617 |
| ||||
Dollars |
| — |
| — |
| — |
| — |
| — |
| — |
| ||||
Total |
| 64,872 |
| (291 | ) | 64,581 |
| 6,393 |
| (5,776 | ) | 617 |
| ||||
Mortgage Loans |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Pesos |
| (4,101 | ) | 3,086 |
| (1,015 | ) | (2,502 | ) | (1,495 | ) | (3,997 | ) | ||||
Dollars |
| — |
| — |
| — |
| — |
| (18 | ) | (18 | ) | ||||
Total |
| (4,101 | ) | 3,086 |
| (1,015 | ) | (2,502 | ) | (1,513 | ) | (4,015 | ) | ||||
Automobile and other secured loans |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Pesos |
| (11,975 | ) | (3,432 | ) | (15,407 | ) | (14,015 | ) | (5,058 | ) | (19,073 | ) | ||||
Dollars |
| — |
| — |
| — |
| — |
| — |
| — |
| ||||
Total |
| (11,975 | ) | (3,432 | ) | (15,407 | ) | (14,015 | ) | (5,058 | ) | (19,073 | ) | ||||
Corporate unsecured loans |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Pesos |
| 219,653 |
| 37,809 |
| 257,462 |
| 208,935 |
| 4,377 |
| 213,312 |
| ||||
Dollars |
| — |
| — |
| — |
| — |
| — |
| — |
| ||||
Total |
| 219,653 |
| 37,809 |
| 257,462 |
| 208,935 |
| 4,377 |
| 213,312 |
| ||||
Personal loans |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Pesos |
| 1,250,348 |
| 237,221 |
| 1,487,569 |
| 781,012 |
| 6,612 |
| 787,624 |
| ||||
Dollars |
| — |
| — |
| — |
| — |
| — |
| — |
| ||||
Total |
| 1,250,348 |
| 237,221 |
| 1,487,569 |
| 781,012 |
| 6,612 |
| 787,624 |
| ||||
Credit cards |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Pesos |
| 414,259 |
| 30,118 |
| 444,377 |
| 467,257 |
| 7,691 |
| 474,947 |
| ||||
Dollars |
| 28 |
| (185 | ) | (157 | ) | 117 |
| (78 | ) | 39 |
| ||||
Total |
| 414,287 |
| 29,933 |
| 444,220 |
| 467,373 |
| 7,613 |
| 474,986 |
| ||||
Receivables from financial leases |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Pesos |
| 130,449 |
| 21,370 |
| 151,820 |
| 70,357 |
| 42,973 |
| 113,330 |
| ||||
Dollars |
| 288 |
| 68 |
| 356 |
| (25 | ) | (12 | ) | (37 | ) | ||||
Total |
| 130,737 |
| 21,438 |
| 152,176 |
| 70,332 |
| 42,961 |
| 113,293 |
| ||||
Foreign Trade Loans |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Pesos |
| — |
| — |
| — |
| — |
| — |
| — |
| ||||
Dollars |
| 94,696 |
| (7,624 | ) | 87,072 |
| 844 |
| 5,523 |
| 6,367 |
| ||||
Total |
| 94,696 |
| (7,624 | ) | 87,072 |
| 844 |
| 5,523 |
| 6,367 |
| ||||
Other receivables from financial transactions(3) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Pesos |
| 168,287 |
| 15,304 |
| 183,591 |
| 32,249 |
| 712 |
| 32,961 |
| ||||
Dollars |
| (16,303 | ) | (1,918 | ) | (18,221 | ) | 3,402 |
| (9,295 | ) | (5,893 | ) | ||||
Total |
| 151,984 |
| 13,386 |
| 165,370 |
| 35,652 |
| (8,584 | ) | 27,068 |
| ||||
Total interest-earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Pesos |
| 3,019,139 |
| 705,998 |
| 3,727,738 |
| 1,704,529 |
| 150,430 |
| 1,854,959 |
| ||||
Dollars |
| 206,917 |
| (61,852 | ) | 145,065 |
| 16,799 |
| (25,758 | ) | (8,959 | ) | ||||
Total |
| 3,226,056 |
| 646,747 |
| 3,872,803 |
| 1,721,328 |
| 124,672 |
| 1,846,000 |
| ||||
|
| Year ended |
| ||||||||||||||
|
| 2016 |
| 2015 |
| 2015 |
| 2014 |
| ||||||||
|
| Increase (Decrease) Due to Changes in |
| Increase (Decrease) Due to Changes in |
| ||||||||||||
|
| Volume |
| Rate |
| Net Change |
| Volume |
| Rate |
| Net Change |
| ||||
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Time deposits |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Pesos |
| 708,522 |
| 130,102 |
| 838,625 |
| 457,075 |
| 166,347 |
| 623,422 |
| ||||
Dollars |
| 5,981 |
| 1,494 |
| 7,475 |
| 222 |
| 473 |
| 695 |
| ||||
Total |
| 714,503 |
| 131,597 |
| 846,100 |
| 457,297 |
| 166,820 |
| 624,117 |
| ||||
Borrowings from other financial institutions and unsubordinated negotiable obligations |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Pesos |
| 252,598 |
| 61,044 |
| 313,642 |
| 122,730 |
| (438 | ) | 122,292 |
| ||||
Dollars |
| 3,257 |
| 1,139 |
| 4,396 |
| 842 |
| 668 |
| 1,510 |
| ||||
Total |
| 255,855 |
| 62,183 |
| 318,038 |
| 123,572 |
| 230 |
| 123,802 |
| ||||
Subordinated Loan |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Pesos |
| — |
| — |
| — |
| — |
| — |
| — |
| ||||
Dollars |
| 48,323 |
| (1,578 | ) | 46,745 |
| 20,195 |
| (2,874 | ) | 17,321 |
| ||||
Total |
| 48,323 |
| (1,578 | ) | 46,745 |
| 20,195 |
| (2,874 | ) | 17,321 |
| ||||
Total interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Pesos |
| 961,121 |
| 191,146 |
| 1,152,267 |
| 576,806 |
| 168,908 |
| 745,714 |
| ||||
Dollars |
| 57,560 |
| 1,056 |
| 58,616 |
| 17,963 |
| 1,563 |
| 19,526 |
| ||||
Total |
| 1,018,681 |
| 192,202 |
| 1,210,883 |
| 592,301 |
| 172,938 |
| 765,240 |
| ||||
Low and non-interest bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Checking and savings accounts |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Pesos |
| 992 |
| (1,649 | ) | (657 | ) | 1,553 |
| 28 |
| 1,581 |
| ||||
Dollars |
| 569 |
| (103 | ) | 466 |
| 105 |
| 2 |
| 107 |
| ||||
Total |
| 1,561 |
| (1,752 | ) | (191 | ) | 1,658 |
| 30 |
| 1,688 |
| ||||
| Year ended December 31, | ||||||||||||||||||
| 2019/2018 | 2018/2017 | |||||||||||||||||
| Increase (Decrease) Due to Changes in | ||||||||||||||||||
| Volume | Rate | Net Change | Volume | Rate | Net Change | |||||||||||||
| (in thousands of Pesos) | ||||||||||||||||||
| ASSETS | ||||||||||||||||||
| Interest-Earning Assets | ||||||||||||||||||
| Investment Portfolio | ||||||||||||||||||
| Government and Corporate Securities | 379,090 | (2,550,125 | ) | (2,171,035 | ) | 1,275,339 | 1,137,287 | 2,412,626 | ||||||||||
| Pesos | 27,869 | 1,276,379 | 1,304,248 | 945,729 | 85,896 | 1,031,625 | ||||||||||||
| Dollars | 351,221 | (3,826,504 | ) | (3,475,283 | ) | 329,610 | 1,051,391 | 1,381,001 | ||||||||||
| Securities Issued by the Central Bank | 4,472,081 | 4,742,123 | 9,214,204 | 2,204,326 | 2,929,447 | 5,133,773 | ||||||||||||
| Pesos | 4,472,081 | 4,742,123 | 9,214,204 | 2,204,326 | 2,929,447 | 5,133,773 | ||||||||||||
| Dollars | — | — | — | — | — | — | ||||||||||||
| Total Investment Portfolio | 4,851,171 | 2,191,998 | 7,043,169 | 3,479,665 | 4,066,734 | 7,546,399 | ||||||||||||
| Pesos | 4,499,950 | 6,018,502 | 10,518,452 | 3,150,055 | 3,015,343 | 6,165,398 | ||||||||||||
| Dollars | 351,221 | (3,826,504 | ) | (3,475,283 | ) | 329,610 | 1,051,391 | 1,381,001 | ||||||||||
| Loans | ||||||||||||||||||
| Loans to the Financial Sector | (336,605 | ) | 146,388 | (190,217 | ) | 134,504 | 186,695 | 321,199 | ||||||||||
| Pesos | (343,168 | ) | 146,259 | (196,909 | ) | 134,560 | 187,480 | 322,040 | ||||||||||
| Dollars | 6,563 | 129 | 6,692 | (56 | ) | (785 | ) | (841 | ) | |||||||||
| Overdrafts | (2,297,985 | ) | 1,864,164 | (433,821 | ) | 691,527 | 1,407,416 | 2,098,943 | ||||||||||
| Pesos | (2,297,985 | ) | 1,864,164 | (433,821 | ) | 691,527 | 1,407,416 | 2,098,943 | ||||||||||
| Dollars | — | — | — | — | — | — | ||||||||||||
| Promissory Notes | (4,992,875 | ) | 4,599,033 | (393,842 | ) | (625,575 | ) | 3,130,640 | 2,505,065 | |||||||||
| Pesos | (4,959,286 | ) | 4,553,278 | (406,008 | ) | (663,232 | ) | 3,118,552 | 2,455,320 | |||||||||
| Dollars | (33,589 | ) | 45,755 | 12,166 | 37,657 | 12,088 | 49,745 | |||||||||||
| Mortgage loans | 371,240 | 381,683 | 752,923 | 2,520,636 | 244,910 | 2,765,546 | ||||||||||||
| Pesos | 371,240 | 381,683 | 752,923 | 2,520,636 | 244,910 | 2,765,546 | ||||||||||||
| Dollars | — | — | — | — | — | — | ||||||||||||
| Automobile and Other Secured Loans | (440,957 | ) | 376,766 | (64,191 | ) | 647,102 | 34,426 | 681,528 | ||||||||||
| Pesos | (440,957 | ) | 376,766 | (64,191 | ) | 647,102 | 34,426 | 681,528 | ||||||||||
| Dollars | — | — | — | — | — | — | ||||||||||||
| Personal Loans | (9,246,084 | ) | 5,351,085 | (3,894,999 | ) | (267,037 | ) | 530,655 | 263,618 | |||||||||
| Pesos | (9,246,084 | ) | 5,351,085 | (3,894,999 | ) | (267,037 | ) | 530,655 | 263,618 | |||||||||
| Dollars | — | — | — | — | — | — | ||||||||||||
| Corporate Unsecured Loans | (1,666,682 | ) | 3,163,988 | 1,497,306 | 861,654 | 721,742 | 1,583,396 | |||||||||||
| Pesos | (1,666,682 | ) | 3,163,988 | 1,497,306 | 861,654 | 721,742 | 1,583,396 | |||||||||||
146
| Year ended December 31, | ||||||||||||||||||
| 2019/2018 | 2018/2017 | |||||||||||||||||
| Increase (Decrease) Due to Changes in | ||||||||||||||||||
| Volume | Rate | Net Change | Volume | Rate | Net Change | |||||||||||||
| (in thousands of Pesos) | ||||||||||||||||||
| Dollars | - | - | - | - | - | - | ||||||||||||
| Credit Card Loans | (1,935,990 | ) | 1,501,191 | (434,799 | ) | (55,271 | ) | 251,372 | 196,101 | |||||||||
| Pesos | (1,935,973 | ) | 1,501,063 | (434,910 | ) | (55,253 | ) | 251,429 | 196,176 | |||||||||
| Dollars | (17 | ) | 128 | 111 | (18 | ) | (57 | ) | (75 | ) | ||||||||
| Receivables from Financial Leases | (834,326 | ) | 546,906 | (287,420 | ) | 25,659 | 249,753 | 275,412 | ||||||||||
| Pesos | (860,224 | ) | 554,136 | (306,088 | ) | (65,393 | ) | 254,019 | 188,626 | |||||||||
| Dollars | 25,898 | (7,230 | ) | 18,668 | 91,052 | (4,266 | ) | 86,786 | ||||||||||
| Total Loans excl. Foreign trade and U.S.$.loans | (21,380,264 | ) | 17,931,204 | (3,449,060 | ) | 3,933,199 | 6,757,609 | 10,690,808 | ||||||||||
| Pesos | (21,379,119 | ) | 17,892,422 | (3,486,697 | ) | 3,804,564 | 6,750,629 | 10,555,193 | ||||||||||
| Dollars | (1,145 | ) | 38,782 | 37,637 | 128,635 | 6,980 | 135,615 | |||||||||||
| Foreign Trade Loans and U.S.$.loans | (516,729 | ) | 448,901 | (67,828 | ) | 707,582 | 191,686 | 899,268 | ||||||||||
| Pesos | — | — | — | — | — | — | ||||||||||||
| Dollars | (516,729 | ) | 448,901 | (67,828 | ) | 707,582 | 191,686 | 899,268 | ||||||||||
| Total Loans | (21,896,993 | ) | 18,380,105 | (3,516,888 | ) | 4,640,781 | 6,949,295 | 11,590,076 | ||||||||||
| Pesos | (21,379,119 | ) | 17,892,422 | (3,486,697 | ) | 3,804,564 | 6,750,629 | 10,555,193 | ||||||||||
| Dollars | (517,874 | ) | 487,683 | (30,191 | ) | 836,217 | 198,666 | 1,034,883 | ||||||||||
| Repo transactions | 443,549 | 74,899 | 518,448 | 78,349 | — | 78,349 | ||||||||||||
| Pesos | 443,549 | 74,899 | 518,448 | 78,349 | — | 78,349 | ||||||||||||
| Dollars | — | — | — | — | — | — | ||||||||||||
| Total Interest-Earning Assets | (21,453,444 | ) | 18,455,004 | (2,998,440 | ) | 4,719,130 | 6,949,295 | 11,668,425 | ||||||||||
| Pesos | (20,935,570 | ) | 17,967,321 | (2,968,249 | ) | 3,882,913 | 6,750,629 | 10,633,542 | ||||||||||
| Dollars | (517,874 | ) | 487,683 | (30,191 | ) | 836,217 | 198,666 | 1,034,883 | ||||||||||
| LIABILITIES | ||||||||||||||||||
| Interest-Bearing Liabilities | ||||||||||||||||||
| Time Deposits | 2,315,163 | 7,548,352 | 9,863,515 | 400,486 | 3,805,063 | 4,205,549 | ||||||||||||
| Pesos | 2,329,390 | 7,542,575 | 9,871,965 | 361,154 | 3,780,175 | 4,141,329 | ||||||||||||
| Dollars | (14,227 | ) | 5,777 | (8,450 | ) | 39,332 | 24,888 | 64,220 | ||||||||||
| Borrowings from Other Financial Institutions and Unsub Negotiable Obligations | (7,451,677 | ) | 6,984,303 | (467,374 | ) | 1,502,917 | 2,087,520 | 3,590,437 | ||||||||||
| Pesos | (7,337,562 | ) | 6,839,912 | (497,650 | ) | 1,184,905 | 2,071,764 | 3,256,669 | ||||||||||
| Dollars | (114,115 | ) | 144,391 | 30,276 | 318,012 | 15,756 | 333,768 | |||||||||||
| Subordinated Loans and Negotiable Obligations | 6,632 | (3,485 | ) | 3,147 | (100,067 | ) | (91,650 | ) | (191,717 | ) | ||||||||
| Pesos | — | — | — | — | — | — | ||||||||||||
| Dollars | 6,632 | (3,485 | ) | 3,147 | (100,067 | ) | (91,650 | ) | (191,717 | ) | ||||||||
| Total Interest-Bearing Liabilities | (5,129,882 | ) | 14,529,170 | 9,399,288 | 1,803,336 | 5,800,933 | 7,604,269 | |||||||||||
| Pesos | (5,008,172 | ) | 14,382,487 | 9,374,315 | 1,546,059 | 5,851,939 | 7,397,998 | |||||||||||
| Dollars | (121,710 | ) | 146,683 | 24,973 | 257,277 | (51,006 | ) | 206,271 | ||||||||||
| Low and Non-Interest Bearing Deposits | ||||||||||||||||||
| Savings Accounts | (19,911 | ) | 21,717 | 1,806 | (6,320 | ) | 60,587 | 54,267 | ||||||||||
| Pesos | (19,322 | ) | 21,322 | 2,000 | (8,136 | ) | 60,560 | 52,424 | ||||||||||
| Dollars | (589 | ) | 395 | (194 | ) | 1,816 | 27 | 1,843 | ||||||||||
| Special Checking Accounts | (4,443,168 | ) | 2,626,667 | (1,816,501 | ) | 4,364,062 | 1,907,511 | 6,271,573 | ||||||||||
| Pesos | (4,451,151 | ) | 2,629,647 | (1,821,504 | ) | 4,342,190 | 1,906,367 | 6,248,557 | ||||||||||
| Dollars | 7,983 | (2,980 | ) | 5,003 | 21,872 | 1,144 | 23,016 | |||||||||||
(1) Includes senior and subordinated bonds and participation certificates.
(2) Consists of unsecured checks and accounts receivable deriving from factoring transactions.
(3) Includes overnight deposits and unlisted corporate bonds.
Interest-earning Assets: Net Interest Margin and Spread
The following table analyzes, by currency of denomination, our levels of average interest-earning assets and net interest income, and illustrates the comparative margins and spreads for each of the years indicated.
| Year ended December 31, | |||||||||
| 2019 | 2018 | 2017 | |||||||
| (in thousands of Pesos, except percentages) | |||||||||
| Average interest-earning assets(1)(2) | |||||||||
| Pesos | 112,254,223 | 142,487,690 | 122,418,180 | ||||||
| Dollars | 33,198,797 | 42,301,114 | 26,836,605 | ||||||
| Total | 145,453,020 | 184,788,804 | 149,254,785 | ||||||
| Net interest earned | |||||||||
| Pesos | 28,828,601 | 28,833,208 | 25,733,247 | ||||||
| Dollars | 268,013 | 3,803,269 | 1,618,515 | ||||||
| Total | 29,096,614 | 32,636,477 | 27,351,762 | ||||||
| Net Interest Margin | |||||||||
| Pesos | 25.7% | 20.2% | 21.0% | ||||||
| Dollars | 0.8% | 9.0% | 6.0% | ||||||
| Weighted average yield(3) | 20.0% | 17.7% | 18.3% | ||||||
| Yield Spread | |||||||||
| Pesos | 16.8% | 15.1% | 18.1% | ||||||
| Dollars | 1.2% | 9.1% | 5.7% | ||||||
| Weighted interest spread(4) | 16.8% | 15.0% | 16.0% | ||||||
| Gross Yield | |||||||||
| Pesos | 55.4% | 38.3% | 30.9% | ||||||
| Dollars | 2.9% | 10.5% | 7.6% | ||||||
| (1) | Includes all loans, leasing agreements and investments (including public and private bonds and Central Bank notes) and other receivables from financial intermediation that earn interest. |
| (2) | These figures represent daily averages. |
| (3) | Takes into account the average interest earned on interest-earning assets and is weighted in accordance with the volume of each asset. |
| (4) | Takes into account the average interest earned on interest-earning assets, net of average interest paid on interest-bearing liabilities. |
|
| Year ended |
| ||||
|
| 2016 |
| 2015 |
| 2014 |
|
|
| (in thousands of Pesos, except percentages) |
| ||||
Average interest-earning assets(1)(2) |
|
|
|
|
|
|
|
Pesos |
| 27,675,131 |
| 19,322,972 |
| 14,075,179 |
|
Dollars |
| 3,260,920 |
| 1,196,874 |
| 1,086,303 |
|
Total |
| 30,936,051 |
| 20,519,845 |
| 15,161,482 |
|
Net interest earned |
|
|
|
|
|
|
|
Pesos |
| 6,205,220 |
| 3,629,092 |
| 2,521,428 |
|
Dollars |
| 180,462 |
| 94,480 |
| 123,072 |
|
Total |
| 6,385,682 |
| 3,723,572 |
| 2,644,500 |
|
Net Interest Margin |
|
|
|
|
|
|
|
Pesos |
| 22.4 | % | 18.8 | % | 17.9 | % |
Dollars |
| 5.5 | % | 7.9 | % | 11.3 | % |
Weighted average yield(3) |
| 20.6 | % | 18.1 | % | 17.4 | % |
Yield Spread |
|
|
|
|
|
|
|
Pesos |
| 17.3 | % | 14.9 | % | 14.5 | % |
Dollars |
| 5.9 | % | 9.5 | % | 11.8 | % |
Weighted interest spread(4) |
| 16.8 | % | 15.0 | % | 14.6 | % |
Gross Yield |
|
|
|
|
|
|
|
Pesos |
| 36.1 | % | 32.5 | % | 31.4 | % |
Dollars |
| 10.0 | % | 15.2 | % | 17.6 | % |
(1) Includes all loans, leasing agreements and investments (including public and private bonds, Central Bank notes and securitization securities) and other receivables from financial intermediation that earn interest.
(2) These figures represent daily averages.
(3) Takes into account the average interest earned on interest-earning assets and is weighted in accordance with the volume of each asset.
(4) Takes into account the average interest earned on interest-earning assets, net of average interest paid on interest-bearing liabilities.
Investment Portfolio
We own, manage and trade a portfolio of securities issued by the Argentine government and other public sector and corporate issuers. We also hold senior and subordinated bonds and participation certificates in financial trusts created in connection with our securitization transactions. The following table sets out our investments in Argentine and other governments and corporate securities, including holdings in senior and subordinated bonds and participation certificates in financial trusts as of December 31, 2016, 20152019, 2018 and 20142017 by type and currency of denomination.
|
| Year ended |
| ||||
|
| 2016 |
| 2015 |
| 2014 |
|
|
| (in thousands of Pesos) |
| ||||
LISTED GOVERNMENT SECURITIES |
|
|
|
|
|
|
|
Holdings of Trading Securities |
|
|
|
|
|
|
|
LOCAL |
|
|
|
|
|
|
|
In Pesos: |
|
|
|
|
|
|
|
Argentine sovereign bonds in pesos maturity 2019 |
| 33,161 |
| — |
| 1,240 |
|
Argentine sovereign bonds in pesos maturity 2018 |
| 20,511 |
| — |
| — |
|
Argentine sovereign bonds in pesos maturity 2017 |
| 3,270 |
| — |
| — |
|
Argentine sovereign bonds in pesos maturity 2015 |
| — |
| — |
| 1,812 |
|
National Treasury Bonds maturity 09/30/2016 (BONAC) |
| — |
| 6,345 |
| — |
|
National Treasury Bonds maturity 05/09/2016 (BONAC) |
| — |
| 10,145 |
| — |
|
National Treasury Bonds maturity 2016 (BONAR) |
| — |
| 6,150 |
| — |
|
GDP Bonds Linked Securities 2035 |
| — |
| — |
| 379 |
|
Consolidation bonds |
| — |
| 1,027 |
| 1,989 |
|
Securities denominated in pesos discount |
| 158 |
| — |
| 176 |
|
Secured government bonds in pesos (Decree 1579/02) 2018 |
| — |
| 7 |
| 151 |
|
Others |
| — |
| — |
| 13 |
|
In Foreign Currency: |
|
|
|
|
|
|
|
Bonds to step up in dollars par maturity 2038 |
| — |
| — |
| 4,873 |
|
Argentine sovereign bonds in dollars 8.28% maturity 2033 |
| — |
| 8,446 |
| 580 |
|
Argentine sovereign bonds in dollars 8.75% maturity 2024 |
| — |
| 183 |
| 579 |
|
Argentine sovereign bonds in dollars 8% maturity 2020 BONAR XX |
| 14 |
| — |
| — |
|
Argentine sovereign bonds in dollars 7% maturity 2017 |
| 20 |
| — |
| — |
|
Argentine sovereign bonds in dollars 7% maturity 2015 |
| — |
| — |
| 7,680 |
|
Securities denominated in dollars discount maturity 2033 |
| 155 |
|
|
|
|
|
Argentine sovereign bonds in dollars 0.75%, maturity 2017 (BONAD) |
| — |
| 56,505 |
| — |
|
Argentine sovereing bonds in dollars 1.75% maturity 2016 (BONAD) |
| — |
| 13 |
| — |
|
Argentine sovereign bonds in dollars 7% maturity 2017 (BONAR X) |
| — |
| 54,025 |
| 38,234 |
|
Argentine sovereign bonds in dollars 2.40% maturity 2018 |
| 42,815 |
| 79,203 |
| 33,040 |
|
Argentine sovereign bonds in dollars 4% maturity 2016 (BAADE) |
| — |
| 7,579 |
| 6,943 |
|
Argentine sovereign bonds in dollars 0.75% maturity 2017 |
| 25,137 |
| — |
| — |
|
Federal Government bonds, maturity 2017 |
| — |
| — |
| 5 |
|
Buenos Aires City bonds in dollars maturity 2019 |
| — |
| — |
| 916 |
|
Others |
| 2 |
| — |
| 46 |
|
Total listed government securities |
| 125,243 |
| 229,627 |
| 98,656 |
|
UNLISTED GOVERNMENT SECURITIES |
|
|
|
|
|
|
|
In Pesos: |
|
|
|
|
|
|
|
Social Security Consolidation Bonds |
| — |
| — |
| — |
|
GDP Bonds Linked Securities in pesos 2035 |
| — |
| — |
| — |
|
Consolidation bonds in dollars 5th Series |
| — |
| — |
| — |
|
In Foreign Currency: |
|
|
|
|
|
|
|
GDP Bonds linked securities USD 2035 |
| ��� |
| — |
| 1 |
|
Treasure letters in dollars, maturity 2017 |
| 818,853 |
| — |
| — |
|
Debt Securities class 2 Bs As City |
| — |
| — |
| — |
|
Others |
| — |
| — |
| — |
|
Total unlisted government securities |
| 818,853 |
| — |
| 1 |
|
SECURITIES ISSUED BY THE ARGENTINE CENTRAL BANK |
|
|
|
|
|
|
|
Listed |
|
|
|
|
|
|
|
Central Bank Bills in pesos |
| 336,785 |
| 645,218 |
| 319,151 |
|
Central Bank Notes in pesos |
| — |
| — |
| — |
|
Unlisted |
|
|
|
|
|
|
|
Central Bank Bills in pesos |
| 1,077,268 |
| 46,028 |
| 416,557 |
|
Central Bank Notes in pesos |
| — |
| — |
| — |
|
Total securities issued by the Argentine Central Bank |
| 1,414,053 |
| 691,246 |
| 735,708 |
|
|
| Year ended |
| ||||
|
| 2016 |
| 2015 |
| 2014 |
|
|
| (in thousands of Pesos) |
| ||||
INVESTMENTS IN LISTED CORPORATE SECURITIES |
|
|
|
|
|
|
|
LOCAL |
|
|
|
|
|
|
|
Others |
| 1,895 |
| 11,008 |
| 173,715 |
|
Total investments in listed corporate securities |
| 1,895 |
| 11,008 |
| 173,715 |
|
Total government and corporate securities |
| 2,360,044 |
| 931,881 |
| 1,008,080 |
|
PARTICIPATION IN SECURITIZATION TRUSTS(1) |
|
|
|
|
|
|
|
Financial trusts debt securities — senior |
| 100,644 |
| 664,933 |
| 647,769 |
|
Financial trusts debt securities — subordinated |
| — |
| 167 |
| 48,793 |
|
Financial trusts participation certificates |
| 530,607 |
| 706,956 |
| 612,676 |
|
Total |
| 631,251 |
| 1,372,056 |
| 1,309,238 |
|
| As of December 31, | |||||||||
| 2019 | 2018 | 2017 | |||||||
| (in thousand of Pesos) | |||||||||
| Debt Securities at fair value through profit or loss | |||||||||
| LOCAL | |||||||||
| Government securities | |||||||||
| Treasury bills in dollars maturity September 13, 2019 | 158,290 | — | — | ||||||
| Treasury bills in dollars maturity November 15, 2019 | 126,313 | — | — | ||||||
| Treasury bills in dollars maturity November 15, 2019 | 22,659 | — | — | ||||||
| Treasury bonds in Pesos maturity June 21, 2020 | 7,726 | — | — | ||||||
| Argentine sovereign bonds in dollars 5.625% maturity 2022 | 3,948 | — | — | ||||||
| Argentine sovereign bonds in dollars 8.00% maturity 2020 | 4,464 | — | — | ||||||
| Argentine sovereign bonds in dollars 8.75% maturity 2024 | 8,059 | — | — | ||||||
| Argentine sovereign bonds in Pesos 2.5% maturity 2021 | 14,989 | — | — | ||||||
| Argentine sovereign bonds in Pesos maturity 2020 | 13,492 | — | — | ||||||
| Debt securities of the Province of Buenos Aires in Pesos maturity April 12, 2025 | 8,093 | — | — | ||||||
| Treasury bills in dollars maturity May 10, 2019 | — | 1,905,860 | — | ||||||
| Others | 104,038 | 3,835,569 | 3,533,563 | ||||||
| Securities issued by the Central Bank: | |||||||||
| Liquidity Central Bank bills maturity January 2, 2019 | — | 9,214,982 | — | ||||||
| Liquidity Central Bank bills maturity January 4, 2019 | — | 4,592,608 | — | ||||||
| Liquidity Central Bank bills maturity January 8, 2019 | — | 1,521,039 | — | ||||||
| Liquidity Central Bank bills maturity January 7, 2019 | — | 1,142,615 | — | ||||||
| Liquidity Central Bank bills maturity January 3, 2019 | — | 920,007 | — | ||||||
| Central Bank bills in Pesos maturity January 17, 2018 – 273 days | — | — | 18,714,875 | ||||||
| Central Bank bills in Pesos maturity July 18, 2018 – 273 days | — | — | 377,137 | ||||||
| Central Bank bills in Pesos maturity June 21, 2018 – 274 days | — | — | 474,123 | ||||||
| Central Bank bills in Pesos maturity May 16, 2018 – 273 days | — | — | 279,364 | ||||||
| Central Bank bills in Pesos maturity February 21, 2018 – 280 days | — | — | 1,818,327 | ||||||
| Others | — | — | 585,039 | ||||||
| Corporate Securities: | |||||||||
| YPF S.A. notes class 41 in Pesos – Maturity September 24, 2020 | — | 50,925 | 115,921 | ||||||
| Bco Galicia Bs.As. notes class S2 – Maturity April 26, 2021 | — | 38,906 | — | ||||||
| Credimas 33 financial trust debt securities Class A | — | 2,466 | — | ||||||
| Quickfood Class 9 Maturity November 11, 2022 | 1,075 | 2,417 | 3,836 | ||||||
| YPF S.A. notes class 28 at 8,75% – Maturity April 4, 2024 | — | 1,283 | — | ||||||
| YPF S.A. notes class 36 – Maturity February 10, 2020 | — | 18,652 | — | ||||||
| Others | 95,355 | — | — | ||||||
| Total debt securities at fair value through profit or loss | 568,501 | 23,247,329 | 25,902,185 | ||||||
| OTHER DEBT SECURITIES | |||||||||
| Measure at fair value through changes inOther Comprehensive Income | |||||||||
| LOCAL | |||||||||
| Securities issued by the Central Bank: | |||||||||
| Liquidity Central Bank bills maturity January 7, 2020 | 5,435,852 | — | — | ||||||
| Liquidity Central Bank bills maturity January 8, 2020 | 918,038 | — | — | ||||||
| Liquidity Central Bank bills maturity January 3, 2020 | 543,264 | — | — | ||||||
| Liquidity Central Bank bills maturity January 6, 2020 | 249,023 | — | — | ||||||
| Liquidity Central Bank bills maturity January 2, 2020 | 24,962 | — | — | ||||||
| Corporate bonds | |||||||||
| Others | 32 | 49 | 73 | ||||||
| Measure at amortized cost | |||||||||
| LOCAL | |||||||||
| Public bonds | |||||||||
| Treasury bonds in Pesos maturity November 21, 2020 | 3,090,168 | 4,754,852 | — | ||||||
| Treasury bills in dollars maturity March 15, 2019 – 203 days | — | 1,599,488 | — | ||||||
| Treasury bills in dollars maturity January 26, 2018 | — | — | 274,499 | ||||||
| Treasury bills in dollars maturity April 27, 2018 | — | — | 101,830 | ||||||
| Treasury bills in dollars maturity April 13, 2018 | — | — | 65,522 | ||||||
| Treasury bills in Pesos maturity April 30, 2019 | — | 1,032 | — | ||||||
| Treasury bills in Pesos maturity January 31, 2019 | — | 223,902 | — | ||||||
| Others | 191,760 | 5,490 | — | ||||||
(1) Included within “other receivables from financial transactions”. Consists mainly of participations in financial trusts created pursuant to our own securitization transactions.
| As of December 31, | |||||||||
| 2019 | 2018 | 2017 | |||||||
| (in thousand of Pesos) | |||||||||
| Central Bank bills | |||||||||
| Others | — | — | 231,421 | ||||||
| Corporate bonds | |||||||||
| Prear S.2 notes – Maturity February 15, 2019 | — | 3,938 | 5,646 | ||||||
| Mbt 1 financial trust debt securities class A | — | 1,863 | 4,034 | ||||||
| Credimas 32 | — | — | 129,508 | ||||||
| Catalinas Coop. 1 PyMe notes September 19, 2018 | — | — | 2,294 | ||||||
| OCOX6 Soc Com del Plata notes | — | — | 20 | ||||||
| Ind Met Pescarmona notes Cl 12 | — | — | 204 | ||||||
| Productos de Agua S.A. | — | — | 93 | ||||||
| Others | 5,457 | 41,247 | — | ||||||
| Total other debt securities | 10,458,556 | 6,631,861 | 815,144 | ||||||
| Investments in equity instruments | |||||||||
| Measured at fair value through profit and loss | |||||||||
| LOCAL | |||||||||
| YPF S.A. | — | 1,664 | 18,797 | ||||||
| Grupo Financiero Galicia S.A. | 5,796 | 801 | — | ||||||
| Loma Negra S.A. | — | — | 53,413 | ||||||
| Tenaris S.A. | — | — | 5,122 | ||||||
| Pampa Energía S.A. | — | — | 8,978 | ||||||
| Measured at fair value through changes inOther Comprehensive Income | |||||||||
| LOCAL | |||||||||
| Others | 8,783 | 13,540 | 19,651 | ||||||
| Total investments in equity instruments | 14,579 | 16,005 | 105,961 | ||||||
| Total | 11,041,636 | 29,895,195 | 26,823,290 | ||||||
| (1) | The market value is the same as the book value for the issuer than exceeds ten percent of stockholder’s equity attributable to owners of the parent company. |
As of December 31, 2016, we held securities issued by the Central Bank for a total of approximately Ps. 1.4 billion, in terms of market value and book value. These amounts exceeded 10% of our shareholders’ equity as of such dates and represented 2.7% of our total assets.
Remaining Maturity of Investment Portfolio
The following table analyzes the remaining maturities of our investment portfolio (including our holdings in senior and subordinated bonds and participation certificates in financial trusts) as of December 31, 20162019 based on their terms when issued.issued.
|
| Maturing |
| ||||||||
|
| Within |
| After 1 year |
| After 5 years |
| After 10 years |
| Total |
|
|
| (Book value in thousands of Pesos) |
| ||||||||
LISTED GOVERNMENT SECURITIES |
|
|
|
|
|
|
|
|
|
|
|
Holdings of Trading Securities |
|
|
|
|
|
|
|
|
|
|
|
LOCAL |
|
|
|
|
|
|
|
|
|
|
|
In Pesos: |
|
|
|
|
|
|
|
|
|
|
|
Argentine sovereign bonds in pesos maturity 2018 |
| — |
| 20,511 |
| — |
| — |
| 20,511 |
|
Argentine sovereign bonds in pesos maturity 2019 |
| — |
| 33,161 |
| — |
| — |
| 33,161 |
|
Argentine sovereign bonds in pesos maturity 2017 |
| 3,270 |
| — |
| — |
| — |
| 3,270 |
|
National Treasury Bonds maturity 30/09/16 (BONAC) |
| — |
| — |
| — |
| — |
| — |
|
National Treasury Bonds maturity 2016 (BONAR) |
| — |
| — |
| — |
| — |
| — |
|
GDP Bonds Linked Securities 2035 |
| — |
| — |
| — |
| — |
| — |
|
Consolidation bonds |
| — |
| — |
| — |
| — |
| — |
|
Securities denominated in pesos discount |
| — |
| — |
| — |
| 158 |
| 158 |
|
Secured government bonds in pesos (Decree 1579/02) 2018 |
| — |
| — |
| — |
| — |
| — |
|
Others |
| — |
| — |
| — |
| — |
| — |
|
In Foreign Currency: |
|
|
|
|
|
|
|
|
|
|
|
Bonds to step up in dollars par maturity 2038 |
| — |
| — |
| — |
| — |
| — |
|
Argentine sovereign bonds in dollars 8.28% maturity 2033 |
| — |
| — |
| — |
| — |
| — |
|
Argentine sovereign bonds in dollars 8% maturity 2020 BONAR XX |
| — |
| 14 |
| — |
| — |
| 14 |
|
Argentine sovereign bonds in dollars 7% maturity 2017 |
| 20 |
| — |
| — |
| — |
| 20 |
|
Securities denominated in dollars discount maturity 2033 |
| — |
| — |
| — |
| 155 |
| 155 |
|
Argentine sovereign bonds in dollars 0.75% maturity 2017 (BONAD) |
| — |
| — |
| — |
| — |
| — |
|
Argentine sovereign bonds in dollars 2,40% maturity 2018 |
| — |
| 42,815 |
| — |
| — |
| 42,815 |
|
Argentine sovereign bonds in dollars 4% maturity 2016 (BAADE) |
| — |
| — |
| — |
| — |
| — |
|
Argentine sovereign bonds in dollars 0.75% maturity 2017 |
| 25,137 |
| — |
| — |
| — |
| 25,137 |
|
Buenos Aires City bonds in dollars maturity 2019 |
| — |
| — |
| — |
| — |
| — |
|
B. Pcia Bs As USD C / Discount Maturity 2017 |
| — |
| — |
| — |
| — |
| — |
|
Others |
| — |
| — |
| — |
| 2 |
| 2 |
|
Total listed government securities |
| 28,427 |
| 96,501 |
| — |
| 315 |
| 125,243 |
|
UNLISTED GOVERNMENT SECURITIES |
|
|
|
|
|
|
|
|
|
|
|
In Pesos: |
|
|
|
|
|
|
|
|
|
|
|
Social Security Consolidation Bonds |
| — |
| — |
| — |
| — |
| — |
|
GDP Bonds Linked Securities in pesos 2035 |
| — |
| — |
| — |
| — |
| — |
|
Consolidation bonds in dollars 5th Series |
| — |
| — |
| — |
| — |
| — |
|
In Foreign Currency: |
|
|
|
|
|
|
|
|
|
|
|
GDP Bonds linked securities USD 2035 |
| — |
| — |
| — |
| — |
| — |
|
Treasure letters in dollars, maturity 2017 |
| 818,853 |
| — |
| — |
| — |
| 818,853 |
|
Debt Securities class 2 Bs As City |
| — |
| — |
| — |
| — |
| — |
|
Others |
| — |
| — |
| — |
| — |
| — |
|
Total unlisted government securities |
| 818,853 |
| — |
| — |
| — |
| 818,853 |
|
SECURITIES ISSUED BY THE ARGENTINE CENTRAL BANK |
|
|
|
|
|
|
|
|
|
|
|
Listed |
|
|
|
|
|
|
|
|
|
|
|
Central Bank Bills in pesos |
| 336,785 |
| — |
| — |
| — |
| 336,785 |
|
Central Bank Notes in pesos |
| — |
| — |
| — |
| — |
| — |
|
Unlisted |
|
|
|
|
|
|
|
|
|
|
|
Central Bank Bills in pesos |
| 1,077,268 |
| — |
| — |
| — |
| 1,077,268 |
|
Central Bank Notes in pesos |
| — |
| — |
| — |
| — |
| — |
|
Total securities issued by the Argentine Central Bank |
| 1,414,053 |
| — |
| — |
| — |
| 1,414,053 |
|
INVESTMENTS IN LISTED CORPORATE SECURITIES |
|
|
|
|
|
|
|
|
|
|
|
LOCAL |
|
|
|
|
|
|
|
|
|
|
|
Others |
| 1,895 |
| — |
| — |
| — |
| 1,895 |
|
Total investments in listed corporate securities |
| 1,895 |
| — |
| — |
| — |
| 1,895 |
|
Total government and corporate securities |
| 2,263,228 |
| 96,501 |
| — |
| 315 |
| 2,360,044 |
|
|
|
|
|
|
|
|
|
|
|
|
|
PARTICIPATION IN SECURITIZATION TRUSTS |
|
|
|
|
|
|
|
|
|
|
|
Financial trusts debt securities — senior |
| 98,171 |
| 2,473 |
| — |
| — |
| 100,644 |
|
Financial trusts debt securities — subordinated |
| — |
| — |
| — |
| — |
| — |
|
|
| Maturing |
| ||||||||
|
| Within |
| After 1 year |
| After 5 years |
| After 10 years |
| Total |
|
|
| (Book value in thousands of Pesos) |
| ||||||||
Financial trusts participation certificates |
| 80,989 |
| 4,449,618 |
| — |
| — |
| 530,607 |
|
Total |
| 179,160 |
| 452,091 |
| — |
| — |
| 631,251 |
|
Weighted average yield |
| 33.64 | % | 34.55 | % | 0.00 | % | 75.51 | % | — |
|
| Maturing | |||||||||||||||
| Within 1 year | Within 1 year but within 5 years | Within 5 year but within 10 years | After 10 years | Total amount | |||||||||||
| (Book value in thousands of Pesos, except percentages) | |||||||||||||||
| Debt Securities at fair value through profit or loss | |||||||||||||||
| LOCAL | |||||||||||||||
| Government securities | |||||||||||||||
| Treasury bills in dollars maturity September 13, 2019 | 158,290 | — | — | — | 158,290 | ||||||||||
| Treasury bills in dollars maturity November 15, 2019 | 126,313 | — | — | — | 126,313 | ||||||||||
| Treasury bills in dollars maturity November 15, 2019 | 22,659 | — | — | — | 22,659 | ||||||||||
| Treasury bonds in Pesos maturity June 21, 2020 | 7,726 | — | — | — | 7,726 | ||||||||||
| Argentine sovereign bonds in dollars 5.625% maturity 2022 | 3,948 | — | — | — | 3,948 | ||||||||||
| Argentine sovereign bonds in dollars 8.00% maturity 2020 | 4,464 | — | — | — | 4,464 | ||||||||||
| Argentine sovereign bonds in dollars 8.75% maturity 2024 | 8,059 | — | — | — | 8,059 | ||||||||||
(1) Included within “other receivables from financial transactions”. Consists mainly of participations in financial trusts created pursuant to our own securitization transactions.
| Maturing | |||||||||||||||
| Within 1 year | Within 1 year but within 5 years | Within 5 year but within 10 years | After 10 years | Total amount | |||||||||||
| (Book value in thousands of Pesos, except percentages) | |||||||||||||||
| Argentine sovereign bonds in Pesos 2.5% maturity 2021 | 14,989 | — | — | — | 14,989 | ||||||||||
| Argentine sovereign bonds in Pesos maturity 2020 | 13,492 | — | — | — | 13,492 | ||||||||||
| Debt securities of the Province of Buenos Aires in Pesos maturity April 12, 2025 | 8,093 | — | — | — | 8,093 | ||||||||||
| Others | 104,038 | — | — | — | 104,038 | ||||||||||
| Corporate Securities | |||||||||||||||
| Quickfood Class 9 Maturity November 11, 2022 | — | 1,075 | — | — | 1,075 | ||||||||||
| Others | 95,355 | — | — | — | 95,355 | ||||||||||
| Total debt securities at fair value through profit or loss | 567,426 | 1,075 | — | — | 568,501 | ||||||||||
| OTHER DEBT SECURITIES | |||||||||||||||
| Measure at fair value through changes inOther Comprehensive Income | |||||||||||||||
| LOCAL | |||||||||||||||
| Securities issued by the Central Bank: | |||||||||||||||
| Liquidity Central Bank bills maturity January 7, 2020 | 5,435,852 | — | — | — | 5,435,852 | ||||||||||
| Liquidity Central Bank bills maturity January 8, 2020 | 918,038 | — | — | — | 918,038 | ||||||||||
| Liquidity Central Bank bills maturity January 3, 2020 | 543,264 | — | — | — | 543,264 | ||||||||||
| Liquidity Central Bank bills maturity January 6, 2020 | 249,023 | — | — | — | 249,023 | ||||||||||
| Liquidity Central Bank bills maturity January 2, 2020 | 24,962 | — | — | — | 24,962 | ||||||||||
| Corporate bonds | |||||||||||||||
| Other | 32 | — | — | — | 32 | ||||||||||
| Measure at amortized cost | |||||||||||||||
| LOCAL | |||||||||||||||
| Public bonds | |||||||||||||||
| Treasury bonds in Pesos maturity November 21, 2020 | 3,090,168 | — | — | — | 3,090,168 | ||||||||||
| Others | 191,760 | — | — | — | 191,760 | ||||||||||
| Corporate bonds | |||||||||||||||
| Others | 5,457 | — | — | — | 5,457 | ||||||||||
| Total other debt securities | 10,458,556 | — | — | — | 10,458,556 | ||||||||||
| Investments in equity instruments | |||||||||||||||
| Measured at fair value through profit and loss | |||||||||||||||
| LOCAL | |||||||||||||||
| Grupo Financiero Galicia SA | 5,796 | — | — | — | 5,796 | ||||||||||
| Measured at fair value through changes inOther Comprehensive Income | |||||||||||||||
| LOCAL | |||||||||||||||
| Others | 8,783 | — | — | — | 8,783 | ||||||||||
| Total investments in equity instruments | 14,579 | — | — | — | 14,579 | ||||||||||
| Total | 11,040,561 | 1,075 | 11,041,636 | ||||||||||||
Loan and other Financing Portfolio
The following table analyzes our loan and other financing portfolio by type as of December 31, 2016, 2015, 2014, 20132019, 2018 and 2012.2017:
| Grupo Supervielle S.A. | |||||||||
| As of December 31, | |||||||||
| 2019 | 2018 | 2017 | |||||||
| Loans and other financings | (in thousands of Pesos) | ||||||||
| To the non-financial public sector | 28,872 | 50,460 | 74,060 | ||||||
| To the financial sector | 64,522 | 613,101 | 902,009 | ||||||
| To the non-financial private sector and foreign residents: | |||||||||
| Overdrafts | 5,598,311 | 7,292,439 | 8,214,818 | ||||||
| Promissory notes | 19,620,906 | 24,107,254 | 35,192,489 | ||||||
| Mortgage loans | 7,917,020 | 8,220,484 | 3,519,931 | ||||||
| Automobile and other secured loans | 1,219,936 | 2,369,848 | 712,552 | ||||||
| Personal loans | 16,295,241 | 29,266,364 | 38,064,143 | ||||||
| Credit card loans | 12,953,381 | 14,168,278 | 18,093,001 | ||||||
| Foreign trade loans and U.S. dollar loans | 18,150,746 | 29,069,507 | 25,473,973 | ||||||
| Others | 9,726,326 | 5,976,288 | 5,197,256 | ||||||
| Receivables from financial leases | 3,186,689 | 5,231,202 | 5,672,816 | ||||||
| Less: allowance for loan losses | (6,751,939 | ) | (7,593,590 | ) | (7,115,689 | ) | |||
| Total loans and other financings | 88,010,011 | 118,771,635 | 134,001,359 | ||||||
|
| Grupo Supervielle S.A. |
| ||||||||
|
| As of |
| ||||||||
|
| 2016 |
| 2015 |
| 2014 |
| 2013 |
| 2012 |
|
|
| (in thousands of Pesos) |
| ||||||||
Loans and financings |
|
|
|
|
|
|
|
|
|
|
|
To the non-financial public sector |
| 4,306 |
| 8,778 |
| 12,666 |
| 15,699 |
| 18,183 |
|
To the financial sector |
| 473,414 |
| 181,734 |
| 3,514 |
| 36,029 |
| 63,200 |
|
To the non-financial private sector and foreign residents: |
|
|
|
|
|
|
|
|
|
|
|
Overdrafts |
| 3,110,097 |
| 1,634,870 |
| 993,284 |
| 679,085 |
| 488,229 |
|
Promissory notes(1)(2) |
| 9,101,773 |
| 5,707,289 |
| 5,296,100 |
| 4,272,286 |
| 3,070,949 |
|
Mortgage loans |
| 78,057 |
| 50,032 |
| 69,554 |
| 83,660 |
| 36,247 |
|
Automobile and other secured loans |
| 65,076 |
| 104,469 |
| 168,603 |
| 225,901 |
| 219,948 |
|
Personal loans |
| 9,916,776 |
| 6,018,601 |
| 3,631,840 |
| 2,970,622 |
| 1,509,756 |
|
Credit card loans |
| 6,678,578 |
| 5,677,922 |
| 3,688,328 |
| 2,410,111 |
| 1,719,422 |
|
Foreign trade loans and U.S. dollar loans |
| 5,311,475 |
| 618,410 |
| 591,887 |
| 530,186 |
| 368,650 |
|
Others |
| 1,056,104 |
| 763,469 |
| 557,827 |
| 410,710 |
| 165,547 |
|
Less: allowance for loan losses |
| (899,147 | ) | (617,313 | ) | (417,023 | ) | (342,000 | ) | (285,458 | ) |
Total loans |
| 34,896,509 |
| 20,148,261 |
| 14,596,580 |
| 11,292,289 |
| 7,374,673 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other receivables from financial transactions(3) |
|
|
|
|
|
|
|
|
|
|
|
Unlisted corporate bonds |
| 29,166 |
| 14,243 |
| 191,372 |
| 145,718 |
| 16,114 |
|
Others |
| 669,119 |
| 423,640 |
| 243,246 |
| 107,028 |
| 71,557 |
|
Plus: accrued interest and adjustment receivables |
| 1 |
| 1 |
| 1 |
| 1 |
| 1 |
|
Less: allowances |
| (5,807 | ) | (5,944 | ) | (5,221 | ) | (4,439 | ) | (3,143 | ) |
Total other receivables from financial transactions |
| 692,479 |
| 431,940 |
| 429,398 |
| 248,308 |
| 84,529 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables from financial leases |
| 1,543,109 |
| 1,090,368 |
| 590,960 |
| 519,197 |
| 601,428 |
|
Less: Allowances for receivables from financial leases |
| (15,254 | ) | (15,391 | ) | (7,114 | ) | (7,317 | ) | (7,090 | ) |
Total receivables from financial leases |
| 1,527,855 |
| 1,074,977 |
| 583,846 |
| 511,880 |
| 594,338 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financing |
| 37,116,843 |
| 21,655,178 |
| 15,609,824 |
| 12,052,477 |
| 8,053,540 |
|
As stated above under “Presentation of Financial and Other Information”, we have prepared our audited consolidated financial statements for 2019, 2018 and 2017 under IFRS. Data for past years has been prepared under our prior accounting framework, Argentine Banking GAAP, which is not comparable with data prepared under IFRS.
| Grupo Supervielle S.A. | ||||||
| As of December 31, | ||||||
| 2016 | 2015 | |||||
| (in thousands of Pesos) | ||||||
| Loans and financings | ||||||
| To the non-financial public sector | 4,306 | 8,778 | ||||
| To the financial sector | 473,414 | 181,734 | ||||
| To the non-financial private sector and foreign residents: | ||||||
| Overdrafts | 3,110,097 | 1,634,870 | ||||
| Promissory notes(1)(2) | 9,101,773 | 5,707,289 | ||||
| Mortgage loans | 78,057 | 50,032 | ||||
| Automobile and other secured loans | 65,076 | 104,469 | ||||
| Personal loans | 9,916,776 | 6,018,601 | ||||
| Credit card loans | 6,678,578 | 5,677,922 | ||||
| Foreign trade loans and U.S. dollar loans | 5,311,475 | 618,410 | ||||
| Others | 1,056,104 | 763,469 | ||||
| Less: allowance for loan losses | (899,147 | ) | (617,313 | ) | ||
| Total loans | 34,896,509 | 20,148,261 | ||||
| Other receivables from financial transactions(3) | ||||||
| Unlisted corporate bonds | 29,166 | 14,243 | ||||
| Others | 669,119 | 423,640 | ||||
| Plus: accrued interest and adjustment receivables | 1 | 1 | ||||
| Less: allowances | (5,807 | ) | (5,944 | ) | ||
| Total other receivables from financial transactions | 692,479 | 431,940 | ||||
| Receivables from financial leases | 1,543,109 | 1,090,368 | ||||
| Less: Allowances for receivables from financial leases | (15,254 | ) | (15,391 | ) | ||
| Total receivables from financial leases | 1,527,855 | 1,074,977 | ||||
| Total financing | 37,116,843 | 21,655,178 | ||||
| (1) | Consists of unsecured checks and accounts receivable deriving from factoring transactions, and unsecured corporate loans that totaled, Ps.3,102.8 million and Ps.2,399.3 million as of December 31, 2016 and 2015, respectively. |
| (2) | The Bank purchases promissory notes at less than face value. Documented interest is the difference between face value and the price paid for the promissory notes, plus accrued interest, and represents the income that will accrue during the life of the promissory note. The face value of the promissory note is listed under the item “Promissory notes.” |
| (3) | Includes only line-items within other receivables from financial transactions that are considered financings under Central Bank rules. |
152
(1) Consists of unsecured checks and accounts receivable deriving from factoring transactions, and unsecured corporate loans that totaled Ps. 3,102.8 million, Ps.2,399.3 million, Ps.1,547.5 million, Ps.979.9 million, Ps.663.7 million and Ps.479.9 million as of December 31, 2016, 2015, 2014, 2013 and 2012, respectively.
(2) The Bank purchases promissory notes at less than face value. Documented interest is the difference between face value and the price paid for the promissory notes, plus accrued interest, and represents the income that will accrue during the life of the promissory note. The face value of the promissory note is listed under the item “Promissory notes.”
(3) Includes only line-items within other receivables from financial transactions that are considered financings under Argentine Banking GAAP.
As of December 31, 2016, our loanLoan and financing portfolio, (net of allowances for loan losses) amounted to Ps. 37,116.8 million, a 71,4% increase when compared to December 31, 2015, driven by a 73.2% increase in loans to the non-financial private sector compared to a 31.3% increase of the Argentine financial system as a whole (which includes private banks, public banks and other financial institutions). If we also considerincluding the loan portfolio outstanding in each of the financial trusts created in connection with our securitizations, the annual increase inis not a measure defined by Argentine Banking GAAP. This measure represents our loan and financing portfolio was 58.1%. Loans to the financial and non-financial public sector as of December 31, 2016 amounted to Ps. 477.7 million, Ps. 287.2 million higher than the Ps.190.5 million outstanding as of December 31, 2015.
Loan and financing portfolio represents the balance as of each period end derived from our balance sheet plus the loan portfolio outstanding in each of the financial trusts created in connection with our securitizations for the same periods. The measure is an important indicator of our loan origination and administration capacity. The loan portfolio outstanding in all of the financial trusts created in connection with our securitizations totaled Ps.1.4 billion Ps.2.7 billion and Ps.3.1Ps.2.7 billion as of December 31, 2016 2015 and 2014,2015, respectively. These measures have inherent limitations, such as the lack of comparability, the absence of a standard defining how to perform calculations so that these calculations are uniformly applied and the fact that they are not audited. To mitigate these limitations, we have procedures in place to calculate these measures using the appropriate Argentine Banking GAAP or other regulations. Although these measures are frequently used in the evaluation of performance, they have the above mentioned limitations as analytical tools, and should not be considered in isolation, or as a substitute for, analysis of results as reported under Argentine Banking GAAP.
The following table sets forth information describing variations in our loan and financing portfolio taking into account the impact of transfers to financial trusts created in connection with our securitizations as of the dates indicated below:
| Grupo Supervielle S.A. | ||||||
| As of December 31, | ||||||
| 2016 | 2015 | |||||
| (in thousands of Pesos) | ||||||
| Total loan and financing portfolio (net of allowances for loan losses) | 37,116,843 | 21,655,178 | ||||
| Personal loan portfolio outstanding in each of the financial trusts (net of allowances for loan losses)(1) | 1,367,117 | 2,465,621 | ||||
| Receivables from financial leases outstanding in each of the financial trusts (net of allowances for receivables from financial leases)(1) | 46,310 | 244,922 | ||||
| Total financing including loan and financing portfolio outstanding in each of our financial trusts | 38,530,270 | 24,365,721 | ||||
| (1) | Net of allowances for loan losses and allowances for receivables from financial leases, which together totaled Ps.70.4 million and Ps.74.1 million for the years ended December 31, 2016 and 2015. |
|
| Grupo Supervielle S.A. |
| ||||||||
|
| As of |
| ||||||||
|
| 2016 |
| 2015 |
| 2014 |
| 2013 |
| 2012 |
|
|
| (in thousands of Pesos) |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Total loan and financing portfolio (net of allowances for loan losses) |
| 37,116,843 |
| 21,655,178 |
| 15,609,824 |
| 12,052,477 |
| 8,053,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal loan portfolio outstanding in each of the financial trusts (net of allowances for loan losses)(1) |
| 1,367,117 |
| 2,465,621 |
| 2,613,915 |
| 2,176,414 |
| 2,459,941 |
|
Receivables from financial leases outstanding in each of the financial trusts (net of allowances for receivables from financial leases)(1) |
| 46,310 |
| 244,922 |
| 444,341 |
| 304,145 |
| 42,124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financing including loan and financing portfolio outstanding in each of our financial trusts |
| 38,530,270 |
| 24,365,721 |
| 18,668,080 |
| 14,533,036 |
| 10,555,605 |
|
(1) Net of allowances for loan losses and allowances for receivables from financial leases, which together totaled Ps. 70.4 million, Ps.74.1 million, Ps.68.1 million, P s.83.0 million and Ps.64.3 million for the years ended December 31, 2016, 2015, 2014, 2013 and 2012, respectively.
Maturity Composition of the Loan and Other Financing Portfolio
The following table analyzes our loan and other financing as of December 31, 2019 by type and by the time remaining to maturity. Loans and other financings are stated before deduction of allowances for loan losses.
| Grupo Supervielle S.A. | ||||||||||||
| Maturing as of December 31, 2019 | ||||||||||||
| Within 1 year | After 1 year through 5 years | After 5 years | Total | |||||||||
| (in thousands of Pesos except percentages) | ||||||||||||
| Loans and other financing | ||||||||||||
| To the non-financial public sector | 7,020 | 21,852 | — | 28,872 | ||||||||
| To the financial sector | 33,000 | 31,522 | — | 64,522 | ||||||||
| To the non-financial private sector and foreign residents: | ||||||||||||
| Overdrafts | 5,598,311 | — | — | 5,598,311 | ||||||||
| Promissory notes | 18,873,616 | 741,225 | 6,065 | 19,620,906 | ||||||||
| Mortgage loans | 711 | 29,197 | 7,887,112 | 7,917,020 | ||||||||
| Automobile and other secured loans | 579,389 | 640,547 | — | 1,219,936 | ||||||||
| Personal loans | 4,239,510 | 11,953,520 | 102,211 | 16,295,241 | ||||||||
| Credit card loans | 12,403,975 | 549,406 | — | 12,953,381 | ||||||||
| Foreign trade loans and U.S. dollar loans | 12,716,652 | 5,277,101 | 156,993 | 18,150,746 | ||||||||
| Others | 8,017,025 | 1,707,310 | 1,991 | 9,726,326 | ||||||||
| Receivables from financial leases | 1,364,037 | 1,809,706 | 12,946 | 3,186,689 | ||||||||
| Total loans and other financing | 63,833,246 | 22,761,386 | 8,167,318 | 94,761,950 | ||||||||
Interest Rate Sensitivity
The following table analyzes our loan and other financing portfolio as of December 31, 2016 by type and by the time remaining to maturity. Loans and financings are stated before deduction of allowances for loan losses.
|
| Maturing |
| ||||||
|
| Within 1 year |
| After 1 year |
| After 5 years |
| Total |
|
|
| (in thousands of Pesos) |
| ||||||
Loans |
|
|
|
|
|
|
|
|
|
To the non-financial public sector |
| 4,306 |
| — |
| — |
| 4,306 |
|
To the financial sector |
| 379,000 |
| 94,414 |
| — |
| 473,414 |
|
To the non-financial private sector and foreign residents: |
|
|
|
|
|
|
|
|
|
Promissory notes(1) |
| 7,986,780 |
| 1,114,912 |
| 81 |
| 9,101,773 |
|
Overdrafts |
| 3,110,097 |
| — |
| — |
| 3,110,097 |
|
Mortgage loans |
| 67,749 |
| 5,546 |
| 4,762 |
| 78,057 |
|
Automobile and other secured loans |
| 33,078 |
| 31,998 |
| — |
| 65,076 |
|
Personal loans |
| 4,390,484 |
| 5,523,039 |
| 3,253 |
| 9,916,776 |
|
Credit card loans |
| 6,475,106 |
| 203,472 |
| — |
| 6,678,578 |
|
Foreign trade loans |
| 4,107,129 |
| 1,194,142 |
| 10,204 |
| 5,311,475 |
|
Other loans |
| 882,051 |
| 170,472 |
| 3,582 |
| 1,056,104 |
|
Total loans |
| 27,435,780 |
| 8,337,995 |
| 21,882 |
| 35,795,656 |
|
|
| Maturing |
| ||||||
|
| Within 1 year |
| After 1 year |
| After 5 years |
| Total |
|
|
| (in thousands of Pesos) |
| ||||||
Percentage of total loan portfolio |
| 76,6 | % | 23.3 | % | 0.1 | % | 100.0 | % |
|
|
|
|
|
|
|
|
|
|
Other receivables from financial transactions |
|
|
|
|
|
|
|
|
|
Unlisted corporate bonds |
| 16,506 |
| 12,120 |
| 540 |
| 29,166 |
|
Others |
| 637,391 |
| 31,728 |
| — |
| 669,119 |
|
Plus: accrued interests and adjustments receivable included in the debtor classification regulation |
| 1 |
| — |
| — |
| 1 |
|
Total other receivables from financial transactions |
| 653,898 |
| 43,848 |
| 540 |
| 698,286 |
|
Percentage of total loan portfolio |
| 93.6 | % | 6.3 | % | 0.1 | % | 100.0 | % |
|
|
|
|
|
|
|
|
|
|
Total receivables from financial leases |
| 591,176 |
| 950,992 |
| 941 |
| 1,543,109 |
|
Percentage of total portfolio of receivables from financial leases |
| 38.3 | % | 61.6 | % | 0.1 | % | 100.0 | % |
(1) Consists of unsecured checks and accounts receivable deriving from factoring transactions.
Interest Rate Sensitivity
The following table analyzes our loan and other financing portfolio as of December 31, 20162019 by type of interest rate. Loans and financings are stated before deduction of allowances for loan losses.
|
| As of |
| ||||||
|
| Loans |
| Other receivables from |
| Receivables from |
| Total |
|
|
| (in thousands of Pesos) |
| ||||||
Variable rate |
|
|
|
|
|
|
|
|
|
Ps. |
| 914,019 |
| 13,604 |
| 366,450 |
| 1,294,073 |
|
Foreign currency |
| — |
| — |
| — |
| — |
|
Sub Total |
| 914,019 |
| 13,604 |
| 366,450 |
| 1,294,073 |
|
Fixed rate |
|
|
|
|
|
|
|
|
|
Ps. |
| 29,343,303 |
| 663,271 |
| 1,126,636 |
| 31,133,211 |
|
Foreign currency |
| 5,538,334 |
| 21,411 |
| 50,023 |
| 5,609,768 |
|
Sub Total |
| 34,881,637 |
| 684,682 |
| 1,176,659 |
| 36,742,979 |
|
Total |
| 35,795,656 |
| 698,286 |
| 1,543,109 |
| 38,037,051 |
|
(1) Includes only line-items within other receivables from financial transactions that are considered financings under Argentine Banking GAAP.
| Grupo Supervielle S.A. | ||||
| As of December 31, 2019 | ||||
| Loans and other financing | ||||
| Variable rate | ||||
| Ps. | 7,527,459 | |||
| Foreign currency | 21,725 | |||
| Sub Total | 7,549,184 | |||
| Fixed rate | ||||
| Ps. | 65,716,751 | |||
| Foreign currency | 21,496,015 | |||
| Sub Total | 87,212,766 | |||
| Total | 94,761,950 | |||
Loans and Financingsother financings — Portfolio Classification
The following table presents our loan and other financing, portfolio, before the deduction for allowances for loan losses, using the classification system of the Central Bank in effect at the end of each year indicated:losses:
| Grupo Supervielle | ||||||||||||||||
| Assets Before Allowances | As of | |||||||||||||||
| Stage 1 | Stage 2 | Stage 3 | December 31, 2019 | |||||||||||||
| Promissory notes | 8,009,641 | 220,628 | 284,448 | 8,514,717 | ||||||||||||
| Unsecured corporate loans | 9,974,477 | 363,545 | 768,167 | 11,106,189 | ||||||||||||
| Overdrafts | 4,339,933 | 88,118 | 1,170,260 | 5,598,311 | ||||||||||||
| Mortgage loans | 6,030,357 | 1,139,227 | 747,436 | 7,917,020 | ||||||||||||
| Automobile and other secured loans | 799,642 | 260,651 | 159,643 | 1,219,936 | ||||||||||||
| Personal loans | 14,047,805 | 1,115,171 | 1,132,265 | 16,295,241 | ||||||||||||
| Credit card loans | 11,850,570 | 560,447 | 542,364 | 12,953,381 | ||||||||||||
| Foreign Trade Loans | 16,198,790 | 615,514 | 1,336,442 | 18,150,746 | ||||||||||||
| Other financings | 7,742,824 | 93,942 | 75,911 | 7,912,677 | ||||||||||||
| Other receivables from financial transactions | 1,844,597 | 16,506 | 45,940 | 1,907,043 | ||||||||||||
| Receivables from financial leases | 2,818,321 | 184,319 | 184,049 | 3,186,689 | ||||||||||||
| Total as of December 31, 2019 | 83,656,957 | 4,658,068 | 6,446,925 | 94,761,950 | ||||||||||||
|
| Grupo Supervielle S.A. |
| ||||||||||||||||||
|
| Year ended December 31, |
| ||||||||||||||||||
|
| 2016 |
| % |
| 2015 |
| % |
| 2014 |
| % |
| 2013 |
| % |
| 2012 |
| % |
|
|
| (in thousands of Pesos, except percentages) |
| ||||||||||||||||||
Loan portfolio categories |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Normal situation (1) |
| 34,057,394 |
| 95.1 | % | 19,613,596 |
| 94.5 | % | 14,192,413 |
| 94.5 | % | 11,038,865 |
| 94.9 | % | 7,122,305 |
| 93.0 | % |
Subject to special monitoring-under observation- in negotiation or subject to refinancing agreements/low risk (2) |
| 726,232 |
| 2.0 | % | 470,003 |
| 2.3 | % | 357,393 |
| 2.4 | % | 233,641 |
| 2.0 | % | 206,830 |
| 2.7 | % |
With problems/ medium risk (3) |
| 498,572 |
| 1.4 | % | 264,492 |
| 1.3 | % | 176,231 |
| 1.2 | % | 152,207 |
| 1.3 | % | 112,319 |
| 1.5 | % |
High risk of insolvency/ high risk (4) |
| 494,126 |
| 1.4 | % | 364,649 |
| 1.8 | % | 256,510 |
| 1.7 | % | 187,607 |
| 1.6 | % | 145,346 |
| 1.9 | % |
Uncollectible (5) |
| 18,533 |
| 0.1 | % | 52,533 |
| 0.3 | % | 30,668 |
| 0.2 | % | 21,729 |
| 0.2 | % | 73,170 |
| 1.0 | % |
Uncollectible, classified as such under regulatory requirements (6) |
| 799 |
| 0.0 | % | 301 |
| — |
| 387 |
| — |
| 242 |
| — |
| 162 |
| — |
|
Total loans |
| 35,795,656 |
| 100.0 | % | 20,765,574 |
| 100.0 | % | 15,013,603 |
| 100.0 | % | 11,634,289 |
| 100.0 | % | 7,660,132 |
| 100.0 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other receivables from financial transactions portfolio categories |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Normal situation (1) |
| 648,582 |
| 92,9 | % | 407,884 |
| 93.1 | % | 422,043 |
| 97.1 | % | 243,131 |
| 96.2 | % | 78,681 |
| 89.7 | % |
Subject to special monitoring-under observation- in negotiation or subject to refinancing agreements/low risk (2) |
| 20,568 |
| 2.9 | % | 13,022 |
| 3.0 | % | 4,587 |
| 1.1 | % | 3,718 |
| 1.5 | % | 3,167 |
| 3.6 | % |
With problems/ medium risk (3) |
| 12,822 |
| 1.8 | % | 6,048 |
| 1.4 | % | 2,532 |
| 0.6 | % | 1,980 |
| 0.8 | % | 1,877 |
| 2.1 | % |
High risk of insolvency/ high risk (4) |
| 14,746 |
| 2.1 | % | 7,902 |
| 1.8 | % | 3,822 |
| 0.9 | % | 3,066 |
| 1.2 | % | 2,471 |
| 2.8 | % |
Uncollectible (5) |
| 1,562 |
| 0.2 | % | 3,028 |
| 0.7 | % | 1,633 |
| 0.4 | % | 850 |
| 0.3 | % | 1,476 |
| 1.7 | % |
Uncollectible, classified as such under regulatory requirements (6) |
| 6 |
| 0.0 | % | — |
| — |
| 1 |
| — |
| 2 |
| — |
| — |
| — |
|
Total Other receivables from financial transactions |
| 698,286 |
| 100.0 | % | 437,884 |
| 100.0 | % | 434,619 |
| 100.0 | % | 252,747 |
| 100.0 | % | 87,672 |
| 100.0 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Categories of receivables from financial leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Normal situation (1) |
| 1,510,245 |
| 97.9 | % | 1,065,057 |
| 97.7 | % | 567,063 |
| 96.0 | % | 489,224 |
| 94.2 | % | 564,479 |
| 93.9 | % |
Subject to special monitoring-under observation- in negotiation or subject to refinancing agreements/low risk (2) |
| 18,114 |
| 1.2 | % | 12,113 |
| 1.1 | % | 12,715 |
| 2.6 | % | 20,285 |
| 3.9 | % | 24,803 |
| 4.1 | % |
With problems/ medium risk (3) |
| 5,331 |
| 0.3 | % | 1,674 |
| 0.2 | % | 6,010 |
| 1.0 | % | 3,099 |
| 0.6 | % | 3,154 |
| 0.5 | % |
High risk of insolvency/ high risk (4) |
| 9,386 |
| 0.6 | % | 10,987 |
| 1.0 | % | 1,098 |
| 0.2 | % | 6,045 |
| 1.2 | % | 8,374 |
| 1.4 | % |
Uncollectible (5) |
| 33 |
| 0.0 | % | 537 |
| — |
| 4,074 |
| 0.7 | % | 544 |
| 0.1 | % | 618 |
| 0.1 | % |
Uncollectible, classified as such under regulatory requirements |
| — |
| 0.0 | % | — |
| — |
| — |
| 0.0 | % | — |
| 0.0 | % | — |
| — |
|
Total receivables from financial leases |
| 1,543,109 |
| 100.0 | % | 1,090,368 |
| 100.0 | % | 590,960 |
| 100.0 | % | 519,197 |
| 100.0 | % | 601,428 |
| 100.0 | % |
| Grupo Supervielle | ||||||||||||||||
| Assets Before Allowances | As of | |||||||||||||||
| Stage 1 | Stage 2 | Stage 3 | December 31, 2018 | |||||||||||||
| Promissory notes | 11,040,711 | 728,667 | 372,861 | 12,142,239 | ||||||||||||
| Unsecured corporate loans | 9,566,113 | 2,115,729 | 277,612 | 11,959,454 | ||||||||||||
| Overdrafts | 6,888,246 | 1,096,622 | 181,025 | 8,165,893 | ||||||||||||
| Mortgage loans | 8,362,500 | 216,941 | 14,937 | 8,594,378 | ||||||||||||
| Automobile and other secured loans | 1,945,195 | 163,435 | 279,678 | 2,388,308 | ||||||||||||
| Personal loans | 24,712,374 | 3,388,932 | 2,630,599 | 30,731,905 | ||||||||||||
| Credit card loans | 12,498,927 | 916,4 | 781,512 | 14,196,839 | ||||||||||||
| Foreign Trade Loans | 18,771,657 | 854,199 | 1,561,731 | 21,187,587 | ||||||||||||
| Other financings | 8,008,012 | 1,386,762 | 175,934 | 9,570,708 | ||||||||||||
| Other receivables from financial transactions | 2,039,401 | 18,592 | 32,756 | 2,090,749 | ||||||||||||
| Receivables from financial leases | 4,942,686 | 265,384 | 129,095 | 5,337,165 | ||||||||||||
| Total as of December 31, 2018 | 108,775,822 | 11,151,663 | 6,437,740 | 126,365,225 | ||||||||||||
(1)Current loans and loans up to 31 days past due on principal or interest. Borrower can readily service all financial obligations: shows strong cash flow, liquid current financial situation, adequate financial structure, punctual payment record, capable management, timely and precise available information and satisfactory internal controls. Borrower is determined to be in the top 50.0% of an industry that is performing well and has a good outlook.
(2)Debt payment is occasionally delinquent, with arrears from 31 to 90 days. Under observation: cash flow analysis indicates that, at the time made, the customer is able to honor all financial commitments. However, there are potential situations that, unless timely controlled or corrected, may affect the customer’s future payment capacity. Under negotiation or with refinancing agreements includes customers that, upon their inability to pay their obligations on agreed upon conditions, state their intention to refinance their debts within 60 days computed from the date of their default in payment.
(3)Debt is in arrears at least 91 days and up to 180 days. Cash flow analysis evidences difficulties in servicing of debt on agreed terms, such that if the problems are not solved, they may result in some loss.
(4)Judicial proceedings demanding payment have been initiated against the borrower, or the borrower is delinquent with arrears greater than 180 days and up to one year. Cash flow analysis demonstrates that full repayment of the borrower’s obligations is highly improbable.
(5)Loans to insolvent or bankrupt borrowers, or borrowers subject to judicial proceedings, with little or no possibility of collection, or in arrears in excess of one year. Loans in this category are considered total losses. Although these assets could have a possibility of recovery under certain future circumstances, lack of collectability is evident as of the date of analysis.
(6)Loans to borrowers indicated by the Central Bank to be more than 180 days in arrears to any liquidated or bankrupt financial entity.
| Grupo Supervielle | ||||||||||||||||
| Assets Before Allowances | As of | |||||||||||||||
| Stage 1 | Stage 2 | Stage 3 | December 31, 2017 | |||||||||||||
| Promissory notes | 21,539,389 | 304,588 | 64,107 | 21,908,084 | ||||||||||||
| Unsecured corporate loans | 11,837,372 | 355,029 | 95,527 | 12,287,928 | ||||||||||||
| Overdrafts | 8,790,546 | 136,896 | 98,409 | 9,025,851 | ||||||||||||
| Mortgage loans | 3,622,440 | 94,996 | 2,067 | 3,719,503 | ||||||||||||
| Automobile and other secured loans | 694,197 | 26,076 | 1,533 | 721,806 | ||||||||||||
| Personal loans | 31,439,231 | 3,856,644 | 4,354,438 | 39,650,313 | ||||||||||||
| Credit card loans | 16,015,173 | 1,319,547 | 791,471 | 18,126,191 | ||||||||||||
| Foreign Trade Loans | 18,866,859 | 128,883 | 6,814 | 19,002,556 | ||||||||||||
| Other financings | 8,895,926 | 68,508 | 63,355 | 9,027,789 | ||||||||||||
| Other receivables from financial transactions | 1,811,863 | 29,302 | 25,852 | 1,867,017 | ||||||||||||
| Receivables from financial leases | 5,592,890 | 101,748 | 85,373 | 5,780,011 | ||||||||||||
| Total as of December 31, 2017 | 129,105,886 | 6,422,217 | 5,588,946 | 141,117,049 | ||||||||||||
As stated above under “Presentation of Financial and Other Information”, we have prepared our audited consolidated financial statements for 2019, 2018 and 2017 under IFRS. Data for past years has been prepared under our prior accounting framework, Argentine Banking GAAP, which is not comparable with data prepared under IFRS.
| Grupo Supervielle S.A. | ||||||||||||||||
| Year ended December 31, | ||||||||||||||||
| 2016 | % | 2015 | % | |||||||||||||
| (in thousands of Pesos, except percentages) | ||||||||||||||||
| Loan portfolio categories | ||||||||||||||||
| Normal situation(1) | 34,057,394 | 95.1% | 19,613,596 | 94.5% | ||||||||||||
| Subject to special monitoring-under observation- in negotiation or subject to refinancing agreements/low risk(2) | 726,232 | 2.0% | 470,003 | 2.3% | ||||||||||||
| With problems/ medium risk(3) | 498,572 | 1.4% | 264,492 | 1.3% | ||||||||||||
| High risk of insolvency/ high risk(4) | 494,126 | 1.4% | 364,649 | 1.8% | ||||||||||||
| Uncollectible(5) | 18,533 | 0.1% | 52,533 | 0.3% | ||||||||||||
| Uncollectible, classified as such under regulatory requirements(6) | 799 | 0.0% | 301 | 0.0% | ||||||||||||
| Total loans | 35,795,656 | 100.0% | 20,765,574 | 100.0% | ||||||||||||
| Other receivables from financial transactions portfolio categories | ||||||||||||||||
| Normal situation(1) | 648,582 | 92,9% | 407,884 | 93.1% | ||||||||||||
| Subject to special monitoring-under observation- in negotiation or subject to refinancing agreements/low risk(2) | 20,568 | 2.9% | 13,022 | 3.0% | ||||||||||||
| With problems/ medium risk(3) | 12,822 | 1.8% | 6,048 | 1.4% | ||||||||||||
| High risk of insolvency/ high risk(4) | 14,746 | 2.1% | 7,902 | 1.8% | ||||||||||||
| Uncollectible(5) | 1,562 | 0.2% | 3,028 | 0.7% | ||||||||||||
| Uncollectible, classified as such under regulatory requirements(6) | 6 | 0.0% | — | 0.0% | ||||||||||||
| Total Other receivables from financial transactions | 698,286 | 100.0% | 437,884 | 100.0% | ||||||||||||
| Categories of receivables from financial leases | ||||||||||||||||
| Normal situation(1) | 1,510,245 | 97.9% | 1,065,057 | 97.7% | ||||||||||||
| Subject to special monitoring-under observation- in negotiation or subject to refinancing agreements/low risk(2) | 18,114 | 1.2% | 12,113 | 1.1% | ||||||||||||
| With problems/ medium risk(3) | 5,331 | 0.3% | 1,674 | 0.2% | ||||||||||||
| High risk of insolvency/ high risk(4) | 9,386 | 0.6% | 10,987 | 1.0% | ||||||||||||
| Uncollectible(5) | 33 | 0.0% | 537 | — | ||||||||||||
| Uncollectible, classified as such under regulatory requirements | — | 0.0% | — | 0.0% | ||||||||||||
| Total receivables from financial leases | 1,543,109 | 100.0% | 1,090,368 | 100.0% | ||||||||||||
| (1) | Current loans and loans up to 31 days past due on principal or interest. Borrower can readily service all financial obligations: shows strong cash flow, liquid current financial situation, adequate financial structure, punctual payment record, capable management, timely and precise available information and satisfactory internal controls. Borrower is determined to be in the top 50.0% of an industry that is performing well and has a good outlook. |
| (2) | Debt payment is occasionally delinquent, with arrears from 31 to 90 days. Under observation: cash flow analysis indicates that, at the time made, the customer is able to honor all financial commitments. However, there are potential situations that, unless timely controlled or corrected, may affect the customer’s future payment capacity. Under negotiation or with refinancing agreements includes customers that, upon their inability to pay their obligations on agreed upon conditions, state their intention to refinance their debts within 60 days computed from the date of their default in payment. |
| (3) | Debt is in arrears at least 91 days and up to 180 days. Cash flow analysis evidences difficulties in servicing of debt on agreed terms, such that if the problems are not solved, they may result in some loss. |
| (4) | Judicial proceedings demanding payment have been initiated against the borrower, or the borrower is delinquent with arrears greater than 180 days and up to one year. Cash flow analysis demonstrates that full repayment of the borrower’s obligations is highly improbable. |
| (5) | Loans to insolvent or bankrupt borrowers, or borrowers subject to judicial proceedings, with little or no possibility of collection, or in arrears in excess of one year. Loans in this category are considered total losses. Although these assets could have a possibility of recovery under certain future circumstances, lack of collectability is evident as of the date of analysis. |
| (6) | Loans to borrowers indicated by the Central Bank to be more than 180 days in arrears to any liquidated or bankrupt financial entity. |
Amounts Past Due and Non-accrual Loans and Other Financing
The following table analyzes our non-accrual loan and other financing portfolio, by type of loan as of the dates indicated, as well as amounts past due in our loan and other financing portfolio, by type of loan and other financing as of the dates indicated.
The past due loans listed in the table below include loans of the Bank, Tarjeta, Espacio Cordial, CCF and CCFMILA past due more than 90 days and Cordial Microfinanzas loans past due more than 30 days.
| Grupo Supervielle S.A. | ||||||||||||
| As of December 31, | ||||||||||||
| 2019 | 2018 | 2017 | ||||||||||
| Past Due | ||||||||||||
| Loans and other Financing | ||||||||||||
| To the non-financial private sector and foreign residents | ||||||||||||
| Overdrafts | 1,146,669 | 503,127 | 101,526 | |||||||||
| Promissory notes | 246,342 | 319,291 | 43,617 | |||||||||
| Mortgage loans | 747,385 | 14,858 | — | |||||||||
| Automobile and other secured loans | 55,296 | 284,065 | 182 | |||||||||
| Personal loans | 1,098,388 | 2,255,072 | 2,259,214 | |||||||||
| Credit card loans | 540,727 | 838,231 | 703,979 | |||||||||
| Foreign trade loans | 2,319,503 | 1,589,120 | 2,969 | |||||||||
| Other loans | 644,931 | 740,112 | 199,329 | |||||||||
| Receivables from financial leases | 269,143 | 369,324 | 96,100 | |||||||||
| Total Past Due Loans and other financing | 7,068,384 | 6,913,200 | 3,406,916 | |||||||||
| Past Due Financings | ||||||||||||
| With Preferred Guarantees | 2,517,891 | 882,571 | 148,582 | |||||||||
| Without Guarantees | 4,550,493 | 6,030,629 | 3,258,334 | |||||||||
| Total Past Due Financings | 7,068,384 | 6,913,200 | 3,406,916 | |||||||||
Our policyAs stated above under “Presentation of Financial and Other Information”, we have prepared our audited consolidated financial statements for placing Bank2019, 2018 and CCF loans on non-accrual status2017 under IFRS. Data for past years has been prepared under our prior accounting framework, Argentine Banking GAAP, which is prescribed by Central Bank regulations, which consider both quantitative and qualitative factors. Loans are deemed either “With problems/Medium risk,” “High risk of insolvency/High risk” or “Uncollectible.” Loans deemed “With problems/Medium risk” are those loans to individuals that are in arrears at least 91 days and up to 180 days, or those loans to businesses for which cash flow analysis suggests problems in normal servicing of existing debt, such that if the problems are not resolved, we may incur some loss. Loans deemed “High risk of insolvency/High risk” are (i) those of borrowers against whom judicial proceedings have been initiated for payment, (ii) those whose borrowers are delinquentcomparable with arrears greater than 180 days and up to one year, and (iii) those for which cash flow analysis suggests that full repayment of the borrower’s obligations is highly improbable. Lastly, loans deemed “Uncollectible” are those (i) to insolvent or bankrupt borrowers, or borrowers subject to judicial proceedings, with little or no possibility of collection, or (ii) those in arrears in excess of one year. Loans in the “Uncollectible” category are considered total losses.data prepared under IFRS.
156
|
| Grupo Supervielle S.A. |
| ||||||||
|
| Year ended |
| ||||||||
|
| 2016 |
| 2015 |
| 2014 |
| 2013 |
| 2012 |
|
|
| (in thousands of Pesos) |
| ||||||||
Non-Accrual Loans |
|
|
|
|
|
|
|
|
|
|
|
To the non-financial private sector and foreign residents |
|
|
|
|
|
|
|
|
|
|
|
Overdrafts |
| 32,840 |
| 35,388 |
| 28,044 |
| 25,936 |
| 11,400 |
|
Promissory notes(1) |
| 20,423 |
| 17,709 |
| 22,349 |
| 4,903 |
| 13,179 |
|
Unsecured corporate loans |
| 24,313 |
| 36,125 |
| 10,159 |
| 13,472 |
| 15,009 |
|
Mortgage loans |
| 4,473 |
| 207 |
| 403 |
| 1,018 |
| 1,169 |
|
Automobile and other secured loans |
| 888 |
| 3,237 |
| 7,228 |
| 7,480 |
| 16,177 |
|
Personal loans |
| 658,513 |
| 336,448 |
| 241,946 |
| 189,309 |
| 150,376 |
|
Credit card loans |
| 282,414 |
| 244,396 |
| 152,331 |
| 119,772 |
| 128,420 |
|
Foreign Trade Loans |
| — |
| 3,810 |
| — |
| 2,627 |
| 1,410 |
|
Other Loans |
| 17,400 |
| 13,530 |
| 8,840 |
| 6,129 |
| 3,413 |
|
Total Non-Accrual Loans |
| 1,041,264 |
| 690,850 |
| 471,300 |
| 370,645 |
| 340,552 |
|
Other receivables from financial transactions |
|
|
|
|
|
|
|
|
|
|
|
Others |
| 9,597 |
| 8,103 |
| 4,762 |
| 3,344 |
| 3,596 |
|
Total Non-Accrual Other receivables from financial transactions |
| 9,597 |
| 8,103 |
| 4,762 |
| 3,344 |
| 3,596 |
|
Receivables from financial leases |
| 14,750 |
| 13,198 |
| 11,182 |
| 9,688 |
| 12,146 |
|
Total Non-Accrual receivables from financial leases |
| 14,750 |
| 13,198 |
| 11,182 |
| 9,688 |
| 12,146 |
|
Total Non-Accrual Financings |
| 1,065,611 |
| 712,151 |
| 487,244 |
| 383,677 |
| 356,481 |
|
Non-Accrual Financings |
|
|
|
|
|
|
|
|
|
|
|
With Preferred Guarantees |
| 25,747 |
| 17,698 |
| 23,849 |
| 25,488 |
| 36,650 |
|
With Other Guarantees |
|
|
| 101 |
| 96 |
| 17 |
| 239 |
|
Without Guarantees |
| 1,039,864 |
| 694,352 |
| 463,299 |
| 358,172 |
| 319,592 |
|
Total Non-Accrual Financings |
| 1,065,611 |
| 712,151 |
| 487,244 |
| 383,677 |
| 356,481 |
|
|
| Grupo Supervielle S.A. |
| Grupo Supervielle S.A. | |||||||||||||||
|
| Year ended |
| Year ended December 31, | |||||||||||||||
|
| 2016 |
| 2015 |
| 2014 |
| 2013 |
| 2012 |
| 2016 | 2015 | ||||||
|
| (in thousands of Pesos) |
| (in thousands of Pesos) | |||||||||||||||
Past Due Loans |
|
|
|
|
|
|
|
|
|
|
| ||||||||
To the non-financial private sector and foreign residents |
|
|
|
|
|
|
|
|
|
|
| ||||||||
Overdrafts |
| 51,259 |
| 4,413 |
| 34,044 |
| 13,048 |
| 15,345 |
| 51,259 | 4,413 | ||||||
Promissory notes(1) |
| 23,695 |
| 50,026 |
| 23,128 |
| 6,793 |
| 12,372 |
| ||||||||
| Promissory notes(1) | 23,695 | 50,026 | |||||||||||||||||
Unsecured corporate loans |
| 46,789 |
| 141,557 |
| 36,397 |
| 15,476 |
| 9,526 |
| 46,789 | 141,557 | ||||||
Mortgage loans |
| 6,141 |
| 47 |
| 5,685 |
| 957 |
| 3,804 |
| 6,141 | 47 | ||||||
Automobile and other secured loans |
| 857 |
| 1,060 |
| 6,309 |
| 6,207 |
| 15,593 |
| 857 | 1,060 | ||||||
Personal loans |
| 558,722 |
| 123,072 |
| 204,569 |
| 166,708 |
| 137,562 |
| 558,722 | 123,072 | ||||||
Credit card loans |
| 202,698 |
| 256,475 |
| 115,312 |
| 95,504 |
| 115,712 |
| 202,698 | 256,475 | ||||||
Foreign trade loans |
| 2,562 |
| 47,476 |
| 25,461 |
| 5,476 |
| 18,890 |
| 2,562 | 47,476 | ||||||
Other loans |
| 13,102 |
| 36,629 |
| 8,434 |
| 5,088 |
| 5,187 |
| 13,102 | 36,629 | ||||||
| Past Due Loans | |||||||||||||||||||
Total Past Due Loans |
| 905,825 |
| 660,755 |
| 459,339 |
| 315,257 |
| 333,992 |
| 905,825 | 660,755 | ||||||
Other receivables from financial transactions |
|
|
|
|
|
|
|
|
|
|
| ||||||||
Unlisted corporate bonds |
| — |
| — |
| — |
| — |
| — |
| ||||||||
Others |
| 8,322 |
| 1,946 |
| 2,870 |
| 1,857 |
| 2,022 |
| 8,322 | 1,946 | ||||||
Total Past Due Other receivables from financial transactions |
| 8,322 |
| 1,946 |
| 2,870 |
| 1,857 |
| 2,022 |
| 8,322 | 1,946 | ||||||
Receivables from financial leases |
| 21,602 |
| 113,375 |
| 19,168 |
| 9,593 |
| 17,238 |
| 21,602 | 113,375 | ||||||
Total Past Due Financings |
| 935,749 |
| 776,076 |
| 481,377 |
| 326,707 |
| 353,252 |
| 935,749 | 776,076 | ||||||
Past Due Financings |
|
|
|
|
|
|
|
|
|
|
| ||||||||
With Preferred Guarantees |
| 70,901 |
| 119,075 |
| 70,821 |
| 24,792 |
| 42,304 |
| 70,901 | 119,075 | ||||||
Without Guarantees |
| 864,848 |
| 657,001 |
| 410,556 |
| 301,915 |
| 310,948 |
| 864,848 | 657,001 | ||||||
Total Past Due Financings |
| 935,749 |
| 776,076 |
| 481,377 |
| 326,707 |
| 353,252 |
| 935,749 | 776,076 | ||||||
(1)
| (1) | Consists of unsecured checks and accounts receivable deriving from factoring transactions.
Analysis of the Allowance for Loan Losses
The table below sets forth annual variations in the allowances for loan losses for the years ended December 31,
As stated above under “Presentation of Financial and Other Information”, we have prepared our audited consolidated financial statements for
158
Allocation of the Allowance for Loan Losses and Other Financing The following table allocates the allowance for loan and other financing losses by category of loans and sets forth the percentage distribution of the total allowances for each of the years ended December 31,
As stated above under “Presentation of Financial and Other Information”, we have prepared our audited consolidated financial statements for 159
Loans and Other Financing Portfolio by Economic Activity The table below analyzes our loan and other financing portfolio according to the borrower’s main economic activity as of December 31,
160
As stated above under “Presentation of Financial and Other Information”, we have prepared our audited consolidated financial statements for 2019, 2018 and 2017 under IFRS. Data for past years has been prepared under our prior accounting framework, Argentine Banking GAAP, which is not comparable with data prepared under IFRS.
161
Composition of Deposits The following table sets out the composition of each category of deposits by currency of denomination that exceeded 10% of average total deposits at December 31,
162
Maturity of Deposits The following table sets forth information regarding the maturity of our deposits exceeding Ps.100,000 at December 31, 2019.
Short-term Borrowings The table below shows our short-term borrowings as of the dates indicated.
Return on Equity and Assets The following table presents certain selected financial information and ratios for the dates indicated.
Minimum Capital Requirements Our main subsidiary, the Bank, is required to satisfy minimum capital requirements. The following table sets forth the Bank and CCF’s consolidated minimum capital requirements set by the Superintendency as of the dates indicated.
As of December 31, 2019, the As of December 31, 2019, the Bank’s total capital ratio on a consolidated basis with CCF was 11.6% compared to 11.9% as of December 31, 2018. Including the funds retained at the holding company (Grupo Supervielle) level available for future capital injections to our
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 This discussion should be read in conjunction with our audited consolidated financial statements which are included elsewhere in this annual report. Financial Presentation Our audited consolidated financial statements are prepared in accordance with Our audited consolidated financial statements changes in the general pricing power of the functional currency, using the consumer pricing index (CPI) published by the INDEC. Our segment disclosure for the years ended December 31, We measure the performance of each of our business segments primarily in terms of net income (i.e., net
New Accounting Standards As of January 1, 2019, the application of IFRS 16 “Leases” entered into force. This rule eliminates the distinction between the “financial leasing” agreements that are recorded in the statement of financial position and “operating leases,” for which recognition of future lease installments was not required. IFRS 16 provides for what were previously called “lease liabilities” the recognition of an asset, given the right to use of the assets included in the lease contracts from the date they are available for use, and a liability, equal to the present value of the payments to be made in the term of the contract, considering the implicit discount rate in the lease agreement, if it can be determined, or an incremental reference indebtedness rate. In the initial application of this rule, we have opted for the simplified retrospective application scheme provided in the transitional provisions of IFRS 16, and therefore we did not modify comparative information as of December 31, 2018. Accordingly, certain comparisons between periods may be affected. See Note 10 to our audited consolidated financial statements for a more comprehensive discussion of the effects of the adoption of these new standards. 167 The lease liability includes fixed payments (including fixed payments in substance), less any incentives receivable; variable lease payments that depend on the use of an index or rate, initially measured using the index or rate as at the commencement date; the amounts payable by the Group under residual value guarantees; the exercise price of the purchase option if the Group is reasonably certain to exercise that option; and payments of penalties for terminating the lease, if the lease term reflects the Group exercising an option to terminate the lease. The cost of the assets for right of use includes the amount of the initial measurement of the liability, the payments made before the date of initial application, the initial direct costs and the associated restoration costs. Subsequently, the assets for right of use are measured at cost minus accumulated depreciation and accumulated losses due to impairment, if any. The depreciation of the asset is calculated using the method of linear depreciation in the term of the contract or useful life of the asset, whichever is lower. The lease liability is increased by the accrual of interests and remedied to reflect changes in payments, the scope of the contract and the discount rate. The Ongoing COVID-19 Pandemic In December 2019, a novel strain of coronavirus (SARS-COV-2) was reported to have surfaced in Wuhan, China. COVID-19 has since spread across the world, including to Argentina, and on March 11, 2020 the World Health Organization declared COVID-19 a pandemic. By late April, around 4,000 cases had been confirmed in Argentina. In response,countries around the world, including Argentina, have adopted extraordinary measures to contain the spread of the virus, including imposing travel restrictions and closing borders, requiring closures of non-essential businesses, instructing residents to practice social distancing, issuing stay at home orders, implementing quarantines and similar actions. The ongoing pandemic and these extraordinary government measures are disrupting global economic activity and resulting in significant volatility in global financial markets. According to recent IMF estimates released on April 14, 2020, as a result of the COVID-19 pandemic, the global economy is expected to contract sharply by 3% in 2020, in a drastic downgrade from its forecast of 6.3% growth in January 2020. Also, the IMF changed its outlook for Latin America’s growth, from a 1.6% growth under the estimates published in January to an expected contraction of the region’s economy by 5.2% in 2020, with a forecast for Brazil’s economy to contract by 5.3% (Brazil being the main trading partner of Argentina). As regards Argentina, according to the recent IMF estimates, the country’s economy is expected to contract by 5.7% in 2020. See “Item 5.D—Trend Information.” The Argentine government has adopted multiple measures in response to the COVID-19 pandemic, including a nationwide mandatory lockdown that began on March 19, 2020 and has been extended several times, most recently through May 10, 2020. The government has also required the mandatory shutdown of businesses not considered essential. At the same time, in order to mitigate the economic impact of the COVID-19 pandemic and mandatory lockdown and shutdown of non-essential businesses, the Argentine government has adopted social aid, monetary and fiscal measures, including the following:
In addition, by means of Communication “A” 6939, the Central Bank suspended, until June 30, 2020, the distribution of dividends by financial entities, including the Bank. For more information, see “Item 4.B.—Business Overview—Argentine Banking Regulations—Government Measures in Response to the Ongoing COVID-19 Pandemic.” The ongoing COVID-19 pandemic and government measures taken to contain the spread of the virus are adversely affecting our business and results of operations. Our branches were required to remain closed during the second half of March 2020, and have subsequently only gradually been allowed to open with limited operations. As of the date of this annual report, banks are permitted to open to provide limited services to clients with prior appointments, in each case with prior appointment, provided that certain health and safety requirements set forth by the Central Bank are complied with. Since early March 2020, our management has been actively monitoring the evolution of the ongoing COVID-19 pandemic and the impact it may have on our business. Measures have been taken rapidly as the situation continued to evolve, focusing mainly in protecting our employees and customers and ensuring the continuity of our operations. On March 13, 2020, even before the nationwide lockdown was declared, we implemented a protocol by whicha significant part of our workforce (including elder employees and pregnant women) started to work remotely. We have allocated additional resources to the provision of laptops for such employees, and have made investments in new VPN licenses to enhance the security of working remotely. Remote work may nonetheless exacerbate certain risks to our business, including an increased reliance on information technology resources, increased risk of phishing and other cybersecurity attacks, and increased risk of unauthorized dissemination of sensitive personal information. More recently, we have taken other measures such as the implementation of a back-to-work protocol for essential employees, which includes the rotation of teams within our branches, the incorporation of medical personnel to our crisis management teams, the monitoring of COVID-19 positive cases, online psychological assistance for employees, and online yoga and gym classes. As of the date of this annual report, approximately 90% of our central areas employees are working remotely. Since 2018, we have made significant progress on the digital transformation of our operations, focusing on an enhanced customer experience. Since the beginning of the COVID-19 pandemic crisis in Argentina, with the main goal of protecting the health and safety of our customers, specially senior citizens (which are a significant portion of our customers’ base and are more vulnerable to the effects of the virus), we have been encouraging our customers to use our available digital channels. Since the senior citizens’ segment is generally less familiar with our online or mobile banking platforms, we implemented a direct and free exclusive telephone line to assist them and released tutorials through social media with instructions on how to operate online. Additionally, we made numerous debit cards reprints and deliveries as well as debit card resets for non-user clients, we adapted our existing biometric recognition technology for our customers to withdraw money from the ATMs without a debit card, and we released additional features in our mobile app for senior citizens with the purpose of reducing their need to personally attend a branch. With respect to SMEs, we have made available loans promoted by the Central Bank at a 24% interest rate, to assist them with payroll payments and working capital needs. We have also launched specific credit lines for SMEs in the health and the transportation sectors. As of the date of this annual report, the Bank has granted loans at a 24% interest rate for an approximate amount of Ps. 5 billion. Grupo Supervielle has announced a donation of Ps.10 million to social organizations located throughout the country, funds which will be applied to social initiatives related to the COVID-19 pandemic, such as the purchase of medical equipment for health centers and the provision of food for the most vulnerable communities in the City of Buenos Aires and the Provinces of Buenos Aires, Mendoza and San Luis.
We are continuing to monitor the impact of the ongoing COVID-19 pandemic on the Group, and
The Argentine Economy and Financial System Introduction
Commodities had a good performance in 2019, with prices increasing by 9.4% compared to 2018, according to Thomson Reuters CRY Index. In particular, the prices of commodities exported by Argentina grew by 6.5% during the
170 With respect to Argentina, the 2019 macroeconomic context posed challenges due to the primary presidential elections held in August and the general elections held in October, generating significant volatility in financial markets. During 2019, the Argentine economy was bound under the IMF arrangement program with a restrictive monetary policy As to activity levels, 2019 ended with the economy in recession for the second year in a row, accumulating a fall of 2.2% as of December of such year and maintaining a similar trend to that of 2018, when economic activity levels went down by 2.5% on average. In connection with fiscal accounts, 2019 closed with a fiscal deficit of 0.44% as compared to the GDP, which represents an improvement over 2018. The general inflation rate for 2019 was of 53.8%, which represented an increase compared to the 47.6% inflation rate for 2018. In order to The banking industry’s evolution was also affected by high volatility, high inflation, low economic activity and high rates. Total deposits from the private sector in the financial system increased in 2019 by 25%, showing an increase in Peso-denominated deposits but a strong fall in U.S. dollar-denominated deposits as from August. Peso-denominated deposits grew by 35%, U.S. dollar-denominated deposits measured in Pesos increased by 6%, as a result of the rise of the nominal exchange rate, though, if measured in U.S. dollars, deposits dropped by 33%. On the other hand, total loans to the private sector grew only 15% in the year, well below the inflation The Argentine Economy Beginning in December 2001 and for most of 2002, Argentina experienced one of the most severe crises in its history which nearly left its economy at a standstill and deeply affected its financial sector. Between 2004 and 2009, the Argentine economy and the financial sector recovered considerably. Since 2009, the Argentine economy has shown increased
volatility. The table below includes certain economic indicators in Argentina for the years indicated:
Source: INDEC, Central Bank and City of Buenos Aires. (1) (2) Company estimates based on (3) Company estimates based on information published by the Ministry of Economy In 2017, Argentina’s GDP recovered by 2.7%, recording 0.3%, 2.1%, 3.8% and 4.5% year-on-year growth rates for the four quarters of the year, respectively. In 2018, Argentina’s GDP decreased by 2.5%. As regards quarterly evolution, the economic activity recorded a positive year-on-year growth rate only in the first quarter (4.1%) and then negative rates in the second (-3.8%), third quarter (-3.7%) and in the fourth quarter (-6.2%). In 2019, Argentina’s GDP decreased by 2.2% recording (5.8)%, 0.0%, 1.7% and (1.1)% year-on-year growth rates for the four quarters of the year, respectively. Foreign Trade and Foreign Exchange Market During 2019 the trade balance surplus amounted to US$15,992 million, which implies an improvement as compared to the US$3,701 million deficit of 2018 and the US$8,308 million deficit recorded in 2017. The trade balance dynamics changed due to the fall in the activity level started by mid-2018 and which went on during 2019, worsening after the exchange depreciation which took place in August 2019. In fact, while exports rose by 5.4% during the year, imports dropped by 25%, evidencing the greatest year-on-year fall in August (-30%). In 2019 (unlike the past three years), international reserves recorded a strong decrease (US$21,025 million), with a stock of US$44,781 million at year end. The year was marked by the strong reduction of international reserves on several occasions as a result of the uncertainty derived from the presidential elections, sale of foreign currency and the fall of deposits in U.S. dollars in the financial system. Following the PASO elections, reserves dropped by US$21,527 million. Given the constant exit of reserves as a result of the prevailing uncertainty, the Central Bank established exchange controls as of September 1, 2019, which were intensified following the general elections held on October 27, 2019. With these recent limits, a brake was placed on the exit of reserves and a subsequent increase was recorded of US$1,375 million. The nominal dollar/peso exchange rate at the end of 2019 was US$1.00 to Ps.59.89, which meant a devaluation of Ps.22.8 or 58% as compared to the close of the prior year. The exchange rate throughout the year was more or less stable until the PASO elections in August (when the exchange rate rose by +16%). As a result of the prevailing uncertainty, the Central Bank was forced to intervene on a daily basis in the exchange market with U.S. dollars net sales of US$7,456 millions - which did not manage to contain devaluation pressures - and imposed greater exchange controls by the end of October. 171 Labor Market In 2019, wages grew by 40.9% year-on-year as a result of the rise of wages of 43.8% to registered employees and of 29.5% to non-registered private sector employees. In addition, within the total registered employees, wages in the private sector grew by 44.3% and by 42.9% in the public sector. In all cases, the wage increase was well below inflation, thus causing the fall of real wages. The unemployment rate of the first, second and third quarter was 10.1%, 10.6% and 9.7%, respectively, averaging 10.1% in the first three quarters of the year. Comparing the average unemployment rates with those recorded in the first three quarters of 2018, there was an increase of 90 basis points (from 9.2% in 2018 to 10.1% in 2019). On the other hand, the activity rate increased from 46.5% in the fourth quarter of 2018 to 47.2% in the fourth quarter of 2019. Fiscal Balance The Argentine public sector recorded in 2019 a primary deficit (without considering extraordinary income) of Ps.208,766.7 million (-0.96% of the GDP) while the financial deficit reached Ps.933,052 million (-4.28% of the GDP). In 2019 an extraordinary income was received by the national government from the transfer of Lotería Nacional to the ambit of City of Buenos In order to improve fiscal accounts, the “Social Solidarity and Once again one of the critical aspects of the year for the Argentine Treasury was access to financing. As a result of the closure of international financial
Argentina’s Sovereign Debt Restructuring The new Fernández administration has publicly announced its intention to renegotiate the terms and conditions of the government’s indebtedness with the IMF. Also, the new Fernández administration has initiated negotiations with creditors in order to restructure its current peso and U.S. dollar denominated public debt. In this context, on February 5, 2020, the Argentine Congress passed Law No. 27,544, by virtue of which the sustainability of sovereign debt is declared as a national priority, authorizing the Ministry of Economy to renegotiate new terms and conditions with Argentina’s creditors within certain parameters. Notwithstanding the foregoing, in the midst of debt restructuring negotiations, on April 5, 2020 the Argentine government issued Decree No. 346/2020, through which the repayment of Argentine law-governed dollar-denominated notes was postponed. On April 21, 2020, the Argentine government launched an exchange offer with the aim of refinancing its external indebtedness in a manner which does not compromise the development and potential growth of Argentina over the next several years. To that end, the Argentine government proposed to effect an exchange of different series of foreign currency-denominated bonds (in U.S. dollars, Euros and Swiss Francs) and governed by English or New York law, issued both under its 2005 and 2016 indentures for new series of U.S. dollar or Euro-denominated amortizing bonds maturing between 2030 and 2047, to be issued by the Argentine government under its 2016 indenture. As informed by the Minister of Economy and pursuant to the exchange documents filed with the Securities Exchange Commission (“SEC”), in general terms, the Argentine government’s exchange offer involves a reduction in interest payment burden of 62% (US$37.9 billion), a decrease in principal payments of 5.4% (US$3.6 billion) and a grace period of approximately 3 years before principal payments become due. The period for creditors under each bond series to give their consent or to reject the exchange (and to chose which series of new bonds to receive in exchange for their eligible bonds, in case of acceptance) is scheduled to expire on May 8, 2020, unless extended. Announcement of the results of the exchange is scheduled for May 11, 2020, while the settlement of the new bonds is scheduled to take place on May 13, 2020. As of the date of this annual report, the exchange offer is still open and there is uncertainty as to whether the Argentine government will be able to successfully carry out the exchange and restructure its foreign financial indebtedness.
Monetary Policy During 2019, the Central Bank
In spite of the fact that, since the effective date of the program, the Central Bank had met the monetary base target, following the PASO elections, it was forced to stop implementing the program, after being unable to sustain the intervention and non-intervention zone scheme and having to relax compliance with the During the first 173
Inflation Argentina has faced and continues to face inflationary pressures. From 2011 to date, Argentina experienced increases in inflation as measured by CPI and WPI that reflected the continued growth in the levels of private consumption and economic activity (including exports and public and private sector investment), which applied upward pressure on the demand for goods and services. On January 8, 2016, based on its determination that the INDEC had failed to produce reliable statistical information, particularly with respect to CPI, GDP and foreign trade data, as well as poverty and unemployment rates, former President Macri declared a state of administrative emergency for the national statistical system and the INDEC until December 31, 2016. The INDEC suspended publication of certain statistical data pending reorganization of its technical and administrative structure to recover its ability to produce reliable statistical information. The INDEC published official CPI figures published by the City of Buenos Aires and the Province of San Luis for reference for the first four months of 2016. In June 2016, the INDEC began publishing an official inflation rate using its new methodology for calculating the CPI. According to the available public information based on data from the City of Buenos Aires, CPI grew On July 11, 2017, the INDEC started to publish a national CPI (the “National CPI”). The National CPI is based on a survey conducted by INDEC and several provincial statistical offices in 39 urban areas encompassing each of the Republic’s provinces. Results are not reported
The National CPI is prepared in accordance with current international standards and classifies individual consumption by purpose, previously used in the preparation of the former CPI. The adoption of the National CPI brings Argentina’s statistical practice in line with the OECD guidelines as well as the methodology followed by the statistical divisions of several international organizations, including the United Nations, World Bank, IMF, Economic Commission for Latin America and the Caribbean, and the Inter-American Development Bank. According to the INDEC, in 2019 inflation was 53.8% while the core inflation rate (excluding regulated and seasonal goods prices) was 56.7%, as compared to the 47.6% rate and 47.7% core inflation rate in 2018. This accounts for a rise of 6.2 and 8.9 percentage points, respectively, with regard to the 2018 inflation rate. Inflation was more or less volatile during 2019. After an increase in the first quarter of 2019, inflation decelerated until August, from 4.7% per month in March to 2.2% in July. However, after the devaluation following the PASO elections, prices accelerated and the inflation rate hit 4% in August and 5% in September, ending the year with a monthly inflation rate of 3.7% in December 2019. The greatest year-on-year price increases were recorded in the northeastern region of the country (57.6%), northwestern region of the country (55.5%), Cuyo region (54.7%) and Patagonia region (54%) while in the City of Buenos Aires and Greater Buenos Aires inflation was below the average (52.9%). 174 As regards inflation components in 2019, prices of goods increased by 58.4% while prices of services increased by 45.7%. As in 2018, such increase was due to the strong peso devaluation, as the rise in the exchange rate impacts more on goods than on services due to the tradable nature of goods. During periods of high inflation, effective wages and salaries tend to fall and consumers adjust their consumption patterns to eliminate unnecessary expenses. The increase in inflationary risk may erode macroeconomic growth and further limit the availability of financing, causing a negative impact on our operations. See
The Financial System During 2019 the management of the financial system liquidity was a key issue given the significant market uncertainty that caused material outflows of deposits in U.S. dollars industry-wide. The broad liquidity ratio (including not only cash but also Central Bank instruments and the 2020 Argentine Treasury Bonds recorded as reserve requirements) of the banks in aggregate reached 58.8% of deposits in December 2019, recording an increase of more than 300 basis points as compared to the prior year, according to information published by the Central Bank. In In 2017, total deposits increased by
The Central Bank reported that
In 2019 private sector total deposits in the financial system increased by 25.4%, closing the year at Ps.3,935,385 million. By currency, deposits in Pesos ended the year at Ps.2,770,847 million, increasing by 35.5%, while deposits in U.S. dollars measured in Pesos slightly increased by 6.4% totaling Ps.1,164,538 million, while the same deposits measured in U.S. dollars dropped by 32.8% as a The Central Bank reported that non-financial private sector loans increased 15.3% and According to the Central Bank, ROAA was
2019. The following table shows the
Source: Central The table below shows the evolution of the number of financial institutions in the system:
Source: Central Bank. Figures are expressed in original currency, not adjusted for inflation. The graph below shows the evolution of loans and deposits growth in Argentina:
Source: Central
Decemnber 31, 2019 and therefore do not apply IFRS 9 provisions, and they are in original currency and not adjusted for inflation.
The graph below shows the evolution of the private loans portfolio composition in Argentina:
Source: Central The graph below shows the evolution of non-performing loan ratios in Argentina:
Source: Central
The following graph shows the evolution of non-performing loans coverage, measured as allowances over non-performing loans:
Source: Central The following graphs show the evolution of ROAA and ROAE in Argentina:
Source: Central
Source: Central Bank. Figures are expressed following Argentine Banking GAAP as of Decemnber 31, 2019 and therefore do not apply IFRS 9 provisions, and they are in original currency and not adjusted for inflation. The following tables show market share of Argentine banks in terms of assets, loans and deposits as of December 31,
180
With respect to the distribution network, as of December 31, The table below shows the distribution of the network by jurisdiction as of December 31,
Presentation of Financial Statements in Pesos. Inflation. Historically, inflation in Argentina has played a significant role in influencing the economic conditions in Argentina and, in turn, the operations and financial results of companies operating in Argentina, such as Grupo Supervielle. Argentina has faced and continues to face inflationary pressures. From 2011 to date, Argentina experienced increases in inflation as measured by the WPI that reflected the continued growth in the levels of private consumption and economic activity (including exports and public and private sector investment), which applied upward pressure on the demand for goods and services.
IAS 29 requires that financial statements of any entity whose functional currency is the
181
The following table shows the rate of inflation, as measured by the variations in the WPI and the CPI, according to INDEC and the evolution of the
Currency Composition of our Consolidated Financial Statements The following table sets forth our assets and liabilities denominated in Pesos, in Pesos adjusted by the CER and in foreign currency, at the dates indicated.
Critical Accounting Policies In the preparation of our audited consolidated financial statements, An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact our audited consolidated financial
In order to provide an understanding about how management forms its judgments about future events, including the variables and assumptions underlying the estimates, and the sensitivity of those judgments to different variables and conditions, we summarize our main critical accounting a- Fair value of derivatives and other instruments
The information on instruments that have not been valuated based on the market information is included in Note 6. In this regard, the Senior Management decides whether significant risks and property benefits of financial assets and financial lease are transferred to the counterparty, especially those of higher risk.
We assess on a forward-looking basis the expected credit losses (“ECL”) associated with
For c- Impairment of Non-Financial Assets
Identifying the indicators of impairment of property, plant and equipment and intangible assets requires the use of judgment. We have concluded that there were no indicators of impairment for any of the years reported in its consolidated financial statements. Assets with indefinite useful life are tested for impairment. This process require Management to make judgements, including the identification of cash-generating units, the identification and allocation of assets and liabilities to a cash-generating unit and the definition of their recoverable value. When calculating the recoverable value of a cash-generating unit, we use estimates and significant judgments and assumptions. Although we believe that assumptions and forecasts used are suitable in virtue of the information available for the administration, changes in assumptions or circumstances may require changes in the assessment. Negative changes in assumptions used in impairment tests of assets with indefinite useful life may result in a potential impairment recognition. 183
Assessing whether we control a structured entity, requires the The management assesses its exposure to risks and rewards, as well as its ability to make decisions and direct the relevant activities of
e- Income tax and deferred tax A significant level of judgment is required to
Deferred tax assets and Loss Carryforward are recognized when future taxable income is Future taxable income and the number of tax benefits likely to be available in the future are based on a medium term business plan prepared by management on the basis of reasonable expectations. Results of Operations for the Years Ended December 31, 2017 We discuss below: (i) our results of operations for the year ended December 31, 184 Attributable Comprehensive Income and Attributable Net Income
Attributable net income ROAA and ROAE were 185
Attributable net income in ROAA and ROAE were (1.9%) and (16.2 %), respectively, in 2018, as compared to
The main factors explaining the
These factors were partially offset by:
2017. The main factors explaining the
186
These factors were partially offset by:
Net Financial Income (Net Interest Income -NII-, Net Income from Financial Instruments -NIFFI- and Exchange Rate Differences on Gold and Foreign Currency) Net Financial Income Net financial income in 2019 amounted to Ps.30.5 billion and net financial margin was 21.0%, compared to Ps.31.4 billion, and 17.0%, respectively, in 2018. The increase in net interest margin reflects higher volumes invested in high-yield Central Bank seven-days LELIQS and the higher interest rates of those instruments, also supported by the 370 basis points increase in net interest margin loans in Pesos driven by themarket interest rates increase trend. These were partially offset by the mark to market impact accounting of short term Pesos and U.S. dollars local treasury notes following the debt reprofiling announced by the Argentine government in August 2019. Net financial income in 2018 amounted to Ps.31.4 billion and net interest margin was 17.0%, compared to Ps.27.5 billion, and 18.4%, respectively, in 2017. Breakdown Net Interest Income, NIFFI and Exchange Rate Differences
Since 2019, the NIM also includes the exchange rate differences and net gains or losses from currency derivatives representing more accurately our financial margin and spreads. This ratio coincides with the net financial margin ratio published in previous years (now renamed as NIM). Net Interest Income 2019 Compared to 2018 Net interest income in 2019 totaled Ps.9.9 billion, a
2018 Compared to 2017 Net interest income in 2018 totaled Ps.20.0 billion, a 6.8% decrease from the Ps.21.5 billion recorded in 2017. Additional deposits to fund new investments in high-yield short term Central Bank securities resulted in higher interest expenses, impacting net interest income, while yields from the investment in those securities held for trading purposes are recorded in the net income from financial instruments. i) Interest Income 2019 Compared to 2018 Interest income in 2019 totaled Ps.44.8 billion, a 4.3% decrease from the Ps.46.8 billion recorded in 2018, primarily due to the 30.8% decrease in average balance, while interest on loans increased 1,000 basis points following the increase in Yields from investments in high-yield short term Central Bank securities were recorded in NIFFI following the fair value through profit or loss accounting methodology. 188 2018 Compared to Interest income in 2018 totaled Ps. 46.8 billion, a 36.6% increase from
average loans. Our
The following table sets forth our yields on interest-earning assets:
The average balance of 189 Other interest income amounted to Ps.3.1 billion in 2019 compared to Ps.1.8 billon in 2018. This line itemmainly reflects results from investments in securitiesheld to maturity or available forsale. The average interest rate on total loans (excluding foreign trade loans and U.S. dollar loans) increased to 51.8% in 2019 from 37.6% in 2018. Average BADLAR increased 1,450 basis points in 2019 to 48.9% compared to 34.3% in 2018. 2018 Compared to 2017 The average balance of loan excluding foreign trade and
Other Interest Income amounted to Ps.1.8 billion in 2018 comparing to Ps.540.0 in 2017, reflecting higher results from investments securities held to maturity or available for sale, recorded at amortized cost.
ii) Interest Expenses Our Interest expenses were comprised of the following:
2019 Compared to 2018 Interest expenses for 2019 totaled Ps.34.9 billion,. a 30.3% increase from Ps.26.8 billion for 2018. This increase was due to the 1,270 basis points increase in the average rate of interest
Other financial expenses in
Other financial expenses in 2018 totaled Ps.471.2 million, compared to Ps.588.6 million in 2017. The following table sets forth our yields
Average balance of
Average balance of our low or non-interest-bearing deposits in 2019 totaled Ps.56.2 billion, compared to Ps.69.2 billion in 2018. This decrease was mainly due to (i) a 18.6% or Ps. checking accounts. Out of our total average interest-bearing deposits of 191 Out of our total average The average rate paid on interest-bearing liabilities and low or Our average balance of borrowings from other financial institutions and unsubordinated negotiable obligations in 2018. Our average balance of subordinated loans and subordinated negotiable obligations in 2018 Compared to 2017 Average balance of our interest-bearing liabilities in 2018 totaled Ps.116.4 billion, compared to Ps.81.3 billion in 2017. This increase was mainly due to (i) a Ps.20.0 billion increase in average balance of interest-bearing special checking accounts to Ps.34.0 billion from Ps.14.0 billion, and a (ii) 48.8% increase to Ps.37.1 billion, in the average balance of our borrowings from other financial institutions, and (iii) 11.7% increase to Ps.43.1 billion, increase in the average balance of time deposits. Average balance of our low or non-interest-bearing deposits in 2018 totaled Ps.69.2 billion, compared to Ps.62.8 billion in 2017. This increase was mainly due to (i) a 10.7% increase to Ps.39.5 billion in the average balance of savings accounts, and (ii) a 9.4% increase to Ps.29.7 billion in non-interest bearing checking accounts. Out of our total average interest-bearing deposits of Ps 116.7 billion in 2018, Ps.32.5 billion were U.S. dollar-denominated deposits and Ps.84.2 billion were Peso-denominated, compared to Ps.16.9 billion and Ps.71.5 billion, respectively, in 2017. Out of our total average non-interest-bearing deposits of Ps.29.7 billion for 2018, Ps.12.4 billion were U.S. dollar-denominated deposits and Ps.17.3 billion were Peso-denominated, compared to Ps.8.5 billion and Ps.18.7 billion, respectively, in 2017. The average rate paid on interest-bearing liabilities and low or non-interest-bearing deposits for 2018 was 14.3%, 560 basis points above the 8.7% average rate for 2018. For 2018, Peso-denominated time deposits accrued interest at an average rate of 27.3%, 1,080 basis points above the 16.5% average interest rate accrued in 2017. In 2018, U.S. dollar-denominated time deposits accrued interest at an average rate of 1.2%, 60 basis points above the 0.6% average interest rate accrued in 2017. Our average balance of borrowings from other financial institutions and unsubordinated negotiable obligations in 2018, was Ps.37.0 billion, compared to Ps.24.9 billion in 2017. The average cost of borrowings from other financial institutions and unsubordinated negotiable obligations increased 330 basis points to 22.7% in 2018, from 19.4% in 2017. Our average balance of subordinated loans and subordinated negotiable obligations in both 2018 and 2017 was Ps.2.1 billion and Ps.3.7 billion respectively. The average rate of subordinated negotiable obligations (denominated in U.S. dollars or U.S. dollar linked) was 192
i) Net Income from financial instruments and Exchange rate differences 2019 Compared to
2018 Compared to 2017 Net Income from financial instruments at fair value through profit or
Total income from U.S. dollar operations for 2019 totaled 2018 Compared to 2017 Total income from U.S. dollar operations for 2018 totaled Ps.2.0 billion, a 32.4% increase from the Ps.1.5 billion recorded in 2017, mainly explained by higher trading gains from Fx transactions. ii) Result from exposure to changes in the purchasing power of money 2019 Compared to 2018 Result from exposure to changes in the purchasing power of the currency for 2019 totaled a Ps.5.4 billion loss, from the Ps.9.3 billion loss recorded in 2018. This reflects the loss in the purchasing power of the currency to which our net monetary assets are exposed as a result of the 53.8% and 47.6% increase in consumer price index in 2019 and 2018, respectively. 2018 Compared to 2017 Result from exposure to changes in the purchasing power of the currency for 2018 totaled a Ps.9.3 billion loss, from the Ps.4.0 billion loss recorded in 2017. This reflects the loss in the purchasing power of the currency to which our net monetary assets are exposed as a result of the 53.8%, 47.6% and 24.8% increase in consumer price index in 2019, 2018 and 2017 respectively. Loan Loss Provisions 2019 Compared to 2018 Loan loss provisions totaled Ps.7.7 billion in 2019, a 2.9% decrease compared to Ps.8.0 billion in 2018. This was due to lower levels of provisioning required by IFRS 9 to commercial loans compared to those levels required to consumer loans. In 2019, due to the challenging macroeconomic environment, certain commercial loans became delinquent which was partially offset by the decline in NPL creation in the Consumer Finance segment. As a result. NPLs from the corporate business segment over the total non-performing loan portfolio represented higher percentage than Consumer Finance NPL but required lower provisioning. The decrease in the Consumer Finance NPL creation reflects the measures taken by us since the first quarter of 2018 to enhance asset quality following the peaks observed in the second quarter of 2018. These measures included tightening of credit scoring standards. slower origination and changes in the collection process in the consumer finance segment. 194 Loan loss provisions include the expected losses for each portfolio and segment, based on past performance and current conditions as of the financial statements date. The increase in delinquency also requires expected losses to be measured for the whole life of each loan, instead of accounting for expected losses during a 12-month period. This increases significantly the probability of default for loans with a maturity of more than 1 year. For further information. see “Item 4.D – Selected Statistical Information—Amounts past due loans and other financing.” 2018 Compared to 2017 Loan loss provisions totaled Ps.8.0 billion in 2018, a 28.4% increase compared to Ps.6.2 billion in 2017, mainly due to an increase in
In the consumer finance
The percentage of the delinquent loan portfolio in both 2018 and 2017 was 4.1% and 3.1%, respectively. The consumer finance segment NPL ratio increased to 19.4% in December 2018 from 14.7% in 2017 mainly as a result
Retail loans showed an NPL ratio of 3.3% as of December 31, 2018, increasing from 2.8% as of December 31, 2017. This was mainly driven by an increase in Corporate loans showed an NPL ratio of 1.1% as of December 31, 2018, increasing from 0.2% as of December 31, 2017, mainly due to deteriorated macroeconomic conditions which impacted negatively SME and middle-market companies’ profits and cash flows. The following tables show the changes in our loan loss provisions for the periods indicated:
Net Services Fee Income Our net services fee income was comprised of:
2018 Net services fee income (excluding income from insurance activities) totaled 2018. The Service charges on deposit accounts are comprised principally of maintenance and transaction fees on checking and savings accounts. These fees increased to 2018. Credit and debit card fees Pursuant to Communication “A” 6212, effective as of April 1, 2017, the Central Bank Other commissions increased to Ps.1.9 billion in 2019 from
premiums. Services fee expense increased
2017 Net services fee income (excluding income from insurance activities) totaled 2017. The partially offset by an increase in other fees. Service charges on deposit accounts are comprised principally of maintenance and transaction fees on checking and savings accounts. These fees Credit and debit card fees Pursuant to Communication “A” 6212, effective as of April 1, 2017, the Central Bank issued a program to gradually reduce MDR on an
Espacio Cordial. Services fee expense increased 197 Income from insurance activities 2019 Compared to 2018
2018 Compared to 2017
Personnel and Administration Expenses The following table sets forth the components of our administrative expenses:
2019 Compared to 2018
The number of our employees was 5,019 compared to 5,253 as of December 31, 2018. See “Item 6. Directors,. Senior Management and Employees—Employees—Compensation.” Administration expenses totaled Ps.7.6 billion, a 12.1% decrease compared to Ps.8.6 billion recorded in 2018. This decrease was primarily due to (i) a decrease in other professional fees (including audit, legal and other professional
In 198 2018 Compared to 2017 In 2018 personnel expenses
The number of our employees
Other Income/(Expenses), Net 2019 Compared to We had other expenses,
2018 Compared to 2017 We had other expenses, net of Ps.2.8 billion for 2018, compared to Ps.3.6 billion in 2017. This was due to higher turnover taxes which were more than offset by higher commissions earned from guarantee lines and higher gains from investment properties. Other Comprehensive Income, net of tax 2019 Compared to 2018 Other comprehensive loss, net of tax totaled Ps.47.7 million compared to a net gain of Ps.371.2 million in 2018. This reflects mainly the difference between the amortized cost and the market value of financial instruments held for investments. 2018 Compared to 2017 Other comprehensive income, net of tax totaled Ps.371.2 million compared to Ps.72.1 million in 2017. This reflects mainly the revaluation of real estate properties together with the difference between the amortized cost and the market value of financial instruments held for investments. Income Tax As per the tax reform passed by Congress in December 2017 and the amendment to Income Tax Law No. 20,628 (the “Income Tax Law”) passed in December 2019, the corporate tax rate declined to 30% from
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The above mentioned tax reform allowed the deduction of losses arising from exposures to changes in the purchasing power of the currency, only if inflation as measured by the Consumer Price Index (CPI) issued by the INDEC would exceed the following thresholds applicable for each fiscal year: 55% in 2018, 30% in 2019 and 15% in 2020. For 2021 and subsequent periods, inflation must exceed 100% in 3 years on a cumulative basis in order to deduct inflation losses. In 2018 the 55% threshold was not met, but in 2019 inflation widely exceeded 30%. Therefore, the income tax For income tax return purposes, one sixth (1/6) of the inflation losses arising in the 2019 fiscal year will be deductible in 2019, while the remaining five sixths (5/6) will be deductible in each of the subsequent 5 years. Accordingly, one sixth (1/6) of the inflation losses reduce the current income tax provision, while the other five sixths (5/6) create a
2018 The income tax charge
2017 The income tax charge
Results by Segments Our results by segments for the years ended December 31, The table below sets forth information regarding the financial statements and the results of our
200
201
202
203
(1) These amounts are calculated based on
Below is a discussion of our results of operations by segments for the years ended December 31, Retail Banking 2019 Compared to 2018
The main factors explaining the
Result from exposure to changes in the a 47.6% increase in 2018. Loan loss provisions totaled Ps.2.9 billion in 2019 compared to Ps.2.6 billion in 2018. Loan loss provisions include the expected losses for each portfolio and segment, based on past performance and current conditions as of the financial statements date. The increase in delinquency also requires expected losses to be measured for the whole life of each loan, instead of accounting for expected losses during a 12-month period. This increases significantly the probability of default for loans with a maturity of more than one year. Retail loans showed an NPL ratio of 4.1% as of December 31, 2019, increasing from 3.3% as of December 31, 2018. This was mainly driven by: (i) an increase in the personal loans NPL ratio to 4.2% in December 2019, from 3.5% in December 2018, and (ii) an increase in the mortgage loans NPL ratio to 1.3% from 0.2% in December 2018. Credit cards NPL ratio remained unchanged at 3.8% in December 2019 from December 2018. 205 In 2019 net financial income totaled Ps.17.3 billion, a 3.4% increase from Ps.16.7 billion in 2018. This increase was mainly due to a Ps.580.0 million or 43.2% increase in 2019 in net income from financial instruments at fair value through profit or loss and exchange rate differences mainly due to higher income on foreign currency trading with retail customers, while net interest income remained unchanged from 2018. In 2019, interest income decreased due to lower average volumes of personal loans and credit cards, while interest expenses increased following the increase in market interest rates. Net services fee income totaled Ps.4.0 billion in 2019, a 4.3% decrease compared to Ps.4.2 billion in 2018. This reflects lower average volumes of credit and debit cards as well as the reduction in MDR. The maximum MDR for 2019 and 2018 was 1.65% and 1.85%, respectively, and the maximum debit card sales commissions for 2019 and 2018 was 0.8% and 0.9%, respectively. In 2019, the Retail Banking segment’s loan and financing portfolio totaled approximately Ps.47.0 billion compared to Ps.56.4 billion in 2018. In 2019, retail deposits amounted to 2018 Compared to 2017 Attributable Comprehensive Income in 2018 recorded a Ps.758.1 million loss, compared to a Ps.1.2 billion loss in The main factors explaining the decrease were: (i) Ps.1.8 billion loss from exposure to changes in the purchasing power of money compared to a Ps.948.3 million Result from exposure to changes in the purchasing power of money for 2018 totaled a Ps.1.8 billion loss, from the Ps.948.3 million loss recorded in 2017. This reflects the loss in the purchasing power of the currency to which our net monetary assets are exposed as a result of the 47.6% and 53.8% increase in consumer price index in 2018 and 2019 respectively, compared to a 24.8% increase in 2017. Loan loss provisions totals Ps.2.6 billion from Ps.2.2 billion in 2017. Loan loss provisions include the expected losses for each portfolio and segment, based on past performance and current conditions as of the financial statements date. The increase in delinquency also requires expected losses to be measured for the whole life of each loan, Retail loans showed an NPL ratio of 3.3% as of December 31, 2018, increasing from 2.8% as of December 31, 2017. This was mainly driven by an increase in the personal loans NPL ratio to 3.5% in December 2018, from 2.9% in December 2017 and an increase in the In 2018 Net Financial Income totaled Ps.16.7 billion, a 13.2% increase from Ps.14.7 billion in 2017. This increase was mainly due to (i) a 6.6% increase to Ps.15.3 billion in Net Interest Income, as a result of higher volumes and interest rates of Mortgages (ii) a Ps.70.2 million in Net Income from financial instruments at fair value through profit or loss compared to Ps.28.9 million loss in 2017 and (ii) a 247.8% increase to Ps.1.3 billion in Exchange rate differences. Net services fee income totaled Ps.4.2 billion in 2018, a 6.4% decrease compared to Ps.4.5 billion in 2017. This reflects lower average volumes of credit and debit cards as well as the reduction in credit card and debit card merchant discounted rates (“MDR”). MDR are commissions charged by the issuer of credit and debit cards on the amount of credit and debit card transactions. The maximum MDR for 2018 and 2017 was 1.85% and 2.0% respectively and the maximum debit card sales commissions for 2018 and 2017 was 1.0% and 0.9% respectively. 206
In
Corporate Banking 2019 Compared to Attributable comprehensive loss in 2019 was Ps.1.2 billion, compared to
In 2018, net financial income totaled Ps.7.2 billion, a 10.0% decrease from Ps.8.0 billion in 2018. This decrease was Result from exposure to changes in the purchasing power of money for 2019 totaled a Ps.1.9 billion loss, compared to the Ps.2.4 billion loss recorded in 2018. This reflects the loss in the purchasing power of money to which our net monetary assets are exposed as a result of the 47.6% and 53.8% increase in consumer price index in 2018 and 2019 respectively. Loan loss provisions totaled Ps.3.6 billion in 2019 compared to Ps.1.3 billion in 2018. This is explained as a result of an increase in delinquency ratios. The delinquency ratio increase is mainly explained by economic downturn in Argentina, with GDP contracting and inflation reaching 53.8% which also led to a high interest rate environment with average BADLAR increasing 1,450 basis points in 2019 to 48.9% compared to 34.3% in 2018. This environment led some companies to restraints in their cash flow and impairing their ability to repay their loans. As of December 31, 2019, collateralized non-performing commercial loans were 58% of our total. Loan loss provisions include the expected losses for each portfolio and segment, based on Corporate loans showed an NPL ratio of 8.7% as of December 31. 2019, increasing from 1.1% as of December 31, 2018, mainly due to deteriorated macroeconomic conditions which impacted negatively in SME and middle-market companies’ profits and cash flows. 207 In 2019 the corporate banking segment’s loan and financing portfolio totaled Ps.43.4 billion compared to Ps.59.8 billion in 2018 reflecting lower credit demand following the recession recorded in 2019. In 2019 corporate deposits amounted to Ps.14.5 billion remaining unchanged from 2018. 2018 Compared to 2017 Attributable Comprehensive Income in 2018 was Ps.2.0 billion, compared to a Ps.251.1 million loss in 2017. The main factors explaining the increase were: (i) a Ps.4.6 billion increase in Net Financial Income to Ps.8.0 billion from Ps.3.4 billion, (ii) a Ps.33.1 million decrease in Personnel and Administration expenses, to Ps.2.3 billion, (iii) a Ps.269.0 million decrease in Other Expenses, net, to Ps.154.9 million from Ps. 423.9 million, and (iv) a Ps.181.8 million in Other Comprehensive Income from Ps.7.9 million in 2017 mainly due to the revaluation of real estate properties. These factors were partially offset by (i) a Ps.2.4 billion loss from exposure to changes in the purchasing power of money compared to Ps.1.2 million loss in 2017, (ii) a Ps.887.0 million increase in loan loss provisions to Ps.1.3 billion from Ps.445.1 million in 2017, (iii) a Ps.342.6 million decrease in net services fee income, to Ps.727.9 million from Ps.1.1 billion, and (iv) a Ps.413.1 million increase in income tax, to Ps.636.0 million from Ps.222.9 million. In 2018 Net Financial Income totaled Ps.8.0 billion, a 136.5% increase from Ps.3.4 billion in 2017. This increase was mainly due to (i) a 125.9% increase to Ps.7.9 billion in Net Interest Income, (ii) an Ps.123.2 million gain in in Exchange rate differences compared to a loss of Ps.104.5 million in 2017. Result from exposure to changes in the purchasing power of money for 2018 totaled a Ps.2.4 billion loss, from the Ps.1.2 billion loss recorded in 2017. This reflects the loss in the purchasing power of money to which our net monetary assets are exposed as a result of the 47.6% and 53.8% increase in consumer price index in 2018 and 2019 respectively, compared to a 24.8% increase in 2017. Loan loss provisions totals Ps.1.3 billion from Ps.445.1 million in 2017. This is explained as a result of an increase in delinquency ratios. The delinquency ratio increase is mainly explained by economic downturn in Argentina, with GDP contracting 2.5%, and inflation reaching 46.7% which also led to a high interest rate environment with average BADLAR increasing 1,370 basis points in 2018 to 34.3% compared to 20.6% in 2017 and reaching and average of 50.2% in the fourth quarter. The corporate segment has had a historically low NPL ratio, being 0.2% as of December 31, 2017. However, as macroeconomic conditions worsened and interest rates rose throughout the year, the NPL ratio increased to 1.1% as of December 31, 2018 leading some companies to restraints in their cash flow and impairing their ability to repay their loans. Loan loss provisions include the expected losses for each portfolio and segment, based on past performance and current conditions as of the financial statements date. The increase in delinquency also requires expected losses to be measured for the whole life of each loan, instead of accounting for expected losses during a 12 month period. This increases significantly the probability of default for loans with a maturity of more than 1 year. Corporate loans showed an NPL ratio of 1.1% as of December 31, 2018, increasing from 0.2% as of December 31, 2017, mainly due to deteriorated macroeconomic conditions which impacted negatively SME and middle-market companies’ profits and cash flows. In 2018, the corporate banking segment’s loan and financing portfolio totaled Ps.59.8 billion compared to Ps.68.9 billion in 2017 reflecting lower credit demand following the recession recorded in 2018. In 2018, corporate deposits amounted to Ps.14.5 billion, a 38.3% increase from the Ps.10.5 billion in 2017. Treasury 2019 Compared to 2018 Attributable comprehensive income in 2019 recorded a Ps.1.3 billion loss, compared to Ps.2.3 billion loss in 2018. 208 This performance is explained by (i) a Ps.2.5 billion increase in net financial income, (ii) 74.8% decrease or Ps.1.2 billion loss from exposure to changes in the purchasing power to Ps. 393.5 million, (iii). Ps. 17.5 million gain in income tax compared to Ps. 138.8 million charge in 2018, and (iv) a Ps.155.1 million decrease in other expenses net to Ps. 167.2 million. These were partially offset by: (i) a Ps.133.5 million increase in personnel and administration expenses to Ps.960.6 million in 2019 compared to Ps.827.2 million in 2018. In 2019 net financial income totaled Ps.2.9 billion, an increase of Ps. 2.5 billion from Ps.426.3 million in 2018. This increase was mainly due to higher income from holdings of securities issued by the Central Bank due to higher volumes of these securities and The balance of short-term securities issued by the Central Bank were classified as “held for trading” and 2018 Compared to 2017
In 2018 Net Financial Income totaled Ps.426.3 million, an 82.9% decrease from Ps.2.5 billion in 2017. This decrease was mainly due to (i) a Ps.8.5 billion loss in Net Interest Income compared to Ps.2.3 billion loss in 2017. This was partially offset by a 94.9% or Ps.4.2 billion increase to Ps.8.6 billion in Net Income from financial instruments at fair value through profit or loss. The treasury segment’s securities at fair value through profit or loss amounted to Ps.23.0 billion in 2018, a 8.3% decrease from Ps.25.1 billion recorded in 2017 reflecting higher holdings of securities issued by the Central Bank. The treasury segment’s cash and due from banks amounted to Ps.43.9 billion in 2018, a 142.2% increase from Ps.18.1 billion recorded in 2018 reflecting the increase in minimum cash reserve requirements. Consumer Financing 2019 Compared to 2018 Attributable comprehensive income in 2019 recorded a Ps.1.1 billion loss compared to a Ps.2.2 billion loss in 2018. The main factors explaining this performance were: (i) a Ps.2.6 billion decrease in loan loss provisions In 2019 net financial income totaled Ps.2.1 billion, a 49.4 % decrease compared to Ps.4.2 billion in 2018. This decrease was mainly
209 Result from exposure to changes in the purchasing power of money for 2019 totaled a Ps.838.7 million loss from the Ps.885.7 million loss recorded in 2018. This reflects the loss in the purchasing power of the currency to which our net monetary assets are exposed as a result of the 53.8% increase in consumer price index in 2019 respectively. Loan loss provisions totaled Ps.1.3 billion compared to Ps.3.9 billion in 2018. This reflects the measures taken by us since the first quarter of 2018 to enhance asset quality following the peaks observed in the second quarter of Loan loss provisions include the expected losses for each portfolio and segment, based on past performance and current conditions as of the financial statements date. The increase in delinquency also requires expected losses to be measured for the whole life of each loan, instead of accounting for expected losses during a 12-month period. This increases significantly the probability of default for loans with a maturity of more than one year. The Consumer Finance NPL ratio was 17.2% as of December 31, 2019, declining from 19.4% as of December 31, 2018. NPL creation improved throughout the year despite the challenging environment, reflecting the measures taken by us since the first quarter of 2018 to enhance asset quality following the peaks observed in the second quarter of 2018. These measures included tightening of credit 2018 Compared to 2017 Attributable Comprehensive Income in 2018 recorded a Ps.2.2 billion loss, compared to a Ps.838.1 million loss in 2017. The main factors explaining the decrease were: (i) a Ps.904.7 million decrease in Net Financial Income to Ps.4.2 billion compared to Ps.5.1 billion in 2017, (ii) a Ps.885.7 million loss from exposure to changes in the purchasing power of money compared to Ps.264.4 million loss in 2017, (iii) a Ps.358.3 million increase in loan loss provisions to Ps.3.9 billion from Ps.3.6 billion in 2017, (iv) a Ps.85.7 million decrease in net services fee income, to Ps.1.5 billion, and (v) a In 2018 Net Financial Income totaled Ps.4.2 billion, a 17.7% decrease from Ps.5.1 billion in 2017. This decrease was mainly due to (i) a 11.1% decrease to Ps.5.1 billion in Net Interest Income as a result of the decrease in average volumes reflecting the tightening of credit scoring metrics in the segment and the increase in the cost of fund as a result of the increase in market interest rates, and (ii) a Ps.899.8 million losses from financial instruments at fair value through profit or loss compared to Ps.634.8 million loss in 2017. Result from exposure to changes in the purchasing power of money for 2018 totaled a Ps.885.7 million loss, from the Ps.264.4 million loss recorded in 2017. This reflects the loss in the purchasing power of the currency to which our net monetary assets are exposed as a result of the 47.6% and 53.8% increase in consumer price index in 2018 and 2019 respectively. Loan loss provisions totaled Ps.3.9 billion from Ps.3.6 billion in 2017. This is explained mainly due to an increase in delinquency ratios. Salary adjustments resulting from collective bargaining agreements below the annual inflation rate which even accelerated in 2018, along with additional increases in 210 The consumer finance segment NPL ratio increased to 19.4% in December 2018 from 14.7% in 2017 mainly as a result of an increase in the personal loans NPL ratio to 26.0% as of December 31, 2018 from 18.7% as of December 31, 2017. In the Consumer Finance Segment higher delinquency rates experienced in the first months of the year have been typically expected to improve throughout the year as the beginning of the year salary bargaining agreements catch up with inflation improving consumers’ disposable income and their ability to pay their
The
Insurance 2019 Compared to 2018 Attributable comprehensive income totaled Ps.103.7 million in 2019 compared to Ps.306.7 million in 2018. This was due to (i) the decrease in credit related policies following Central Bank regulations that offset the increase in non-credit related policies. (ii) a 11.4% increase to Ps.451.5 million in personnel and administrative expenses, and (iii) a net loss from exposure to changes in the
Following the Central Bank regulation issued in 2018 Compared to 2017
Asset Management and Other Services 2019 Compared to 2018 Attributable Comprehensive Income recorded a Ps.101.7 million loss in 2019 compared to Ps.26.2 million loss in 2018. 211 The decrease in 2019 was mainly driven by (i) a Ps.349.4 million loss from exposure to changes in the purchasing power of the currency compared to Ps.186.2 million loss in 2018, (ii) Ps.5.9% or Ps.38.3 million decrease in net service fee income 2018 Compared to 2017 Attributable comprehensive income recorded a Ps.26.2 million loss in The decrease in
Adjustments Financial expenses and other results incurred by Grupo Supervielle at the holding level, and transactions between segments, are not allocated to any particular segment for internal reporting purposes, and are disclosed under “Adjustments” to reconcile the total of each line item with the amounts appearing in our statement of income. 2019 Compared to 2018 Inter-segment transactions offset each other and do not impact total direct earnings on a consolidated basis. Other results not allocated to segments totaled 2018 Compared to 2017 Inter-segment transactions offset each other and
Consolidated Assets The structure and main components of our consolidated assets as of the dates indicated were as follows:
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2019 Compared to 2018 Of our 2018 Compared to 2017 Of our Ps.218.0 billion total assets as of December 31, 2018, Ps.214.9 billion, equivalent to 98.6% of the total, corresponded to the Bank and CCF. As of December 31, 2018, our total direct exposure to the non-financial public sector amounted to Ps.29.8 billion. Our exposure to the non-financial public sector is primarily composed of our holdings of government securities, which as of December 31, 2018 amounted to Ps.29.7 billion.
Our main source of liquidity is the Bank’s deposit base. The Bank Consolidated Cash Flows The table below summarizes the information from our consolidated statements of cash flows for the three years ended December 31,
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Management believes that cash flows from operations and available cash and cash equivalent balances will be sufficient to fund our financial commitments and capital expenditures for 214 Cash Flows from Operating Activities
2018 In
2017 In
Cash Flows from Investing Activities
2018 In
2017 In Cash Flows from Financing Activities
2018 In In 2019, net funds used to make payments of unsubordinated negotiable obligations was Ps.8.9 billion, compared to Ps.5.2 billion used in 2018. Net funds used to make payments of subordinated negotiable obligations was Ps.843.0 million 2018 Compared to 2017 In 2018, net cash used in financing activities was Ps.1.4 billion, compared to Ps.28.4 billion in 2017. In 2018, funds used to make payments of unsubordinated negotiable obligations was Ps.5.2 billion, compared to Ps.13.7 million provided for financing activities in
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Funding Deposits Our major source of funding is the Bank’s significant deposit base comprised of checking and savings accounts and time deposits. The following table presents the composition of our consolidated deposits as of December 31,
2018 Total deposits
2019. Total
Private sector saving accounts deposits, time deposits and special checking accounts decreased 24.0%, 39.9% and 72.1%, respectively, in 2019. Checking accounts increased 17.8% in 2019. Retail plus Senior Citizens customer deposits in Pesos represented 55% of total deposits as of December 31, 2019. Wholesale and institutional deposits in Pesos declined to 15% of total deposits in Pesos from 32% as of September 30, 2019, reflecting our decision to deleverage our balance sheet in the fourth quarter of 2019. 2018 Compared to 2017 Total deposits increased 14.0% in 2018. Total deposits from the non-financial private sector increased
Retail branch deposits plus senior citizens deposits represented 44% of
Financings Banco Supervielle
Global Program for the Issuance of U.S.$2.3 billion On September 22, 2016, the On May 6, 2018, the shareholders’ meeting resolved to approve the increase of the Program for up to a maximum outstanding amount of US$2,300,000,000. The Program was authorized by the CNV through Resolution No. 19,470 dated April 16, 2018. On December 21, 2018, the Board of Directors approved the issuance of notes under the aforementioned Program for an amount of up to Ps.3 billion. Here are the main terms and Series: F Amount: Ps.3,000,000,000 Due date: November 4, 2019 Interest rate: Floating Badlar of Private Banks + 4.85% Interest payment date: Interest accrued by the notes will be paid on a three-month basis making the first payment on May 4, 2019. Amortization: bullet. Applicable law and jurisdiction: Argentina. Program for the issuance of notes for up to nominal value Ps.750 million (increased to Ps.2 billion) As of March 25, 2013, the Bank’s extraordinary general shareholders’ meeting, approved the creation of a Global Program for the issuance of Negotiable Obligations for
223 On August 6, 2018 the Shareholders’ meeting resolved to request the Bank’s registration as Frequent Issuer of Negotiable Obligations before the CNV. The request was authorized by the CNV through Resolution No. 19,958 dated December 27, 2018. Cordial Compañía Financiera S.A. Global Program for the Issuance of Negotiable Obligations for up to USD 500.000.000 On March 22, 2017, the shareholders’ meeting No.45 of CCF resolved to approve the creation of a Global Program for the Issuance of Negotiable Obligations for up to a maximum outstanding amount of US$ MicroLending S.A.U. On
2017. As of December 31,
224
Consolidated Capital The table below shows information on our shareholders’ equity as of the dates indicated.
The table below shows information on the Bank and CCF’s consolidated computable regulatory capital, and minimum capital requirements as of the dates indicated.
(1)
Capital Expenditures In the course of our business, our capital expenditures are mainly related to infrastructure and organizational and IT system development. In general terms, our capital expenditures are not significant when compared to our total assets. We expect that capital expenditures in
Other than our technology program, we do not have any significant policies or projects relating to research and development, and we own no patents or licenses. See “Item
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 increase our value to our shareholders will depend upon, among other factors, economic growth in Argentina and the corresponding growth of the market for long-term private sector lending and access to financial products and services by a larger segment of the population. The analysis should be read in conjunction with the discussion in “Item 3.D Risk Factors” and taking into consideration that the Argentine economy has been historically volatile, which has negatively affected the volume and growth of several sectors, including the financial system. Related to Argentina Before the COVID-19 pandemic, the IMF had estimated, according to its world economic outlook update dated January 20, 2020, a growth in global economy of 3.3% in 2020. However, according to recent IMF estimates released on April 14, 2020, as a result of the COVID-19 pandemic and government measures to contain the spread of the virus, the global economy is expected to contract sharply by 3% in 2020. In a baseline scenario, which assumes that the pandemic fades during the second half of 2020 and containment efforts can be gradually unwound, the global economy is projected to grow by 5.8% in 2021 as economic activity normalizes, helped by policy support by governments and central banks. Furthermore, the IMF changed its outlook on Latin America’s growth, from a 1.6% growth under the estimates published in January to an expected contraction of the region’s economy by 5.2% in 2020, with a forecast for Brazil’s economy to contract by 5.3% (Brazil being the main trading partner of Argentina). As regards Argentina, according to the recent IMF estimates, the country’s economy is expected to contract by 5.7% in 2020. The economic consulting firms that participate in the REM (Spanish acronym forRelevamiento de Expectativas de Mercado, or Market Expectations Report) published by the Central Bank in March 2020 expect an economic contraction of 4.3% for Argentina in 2020, as a result mainly of the ongoing COVID-19 pandemic and According to the REM published by the Central Bank in
We cannot predict, particularly due to the
REM forecasts. Related to the Argentine Financial System
However, as a result of the ongoing COVID-19 pandemic and the government measures taken to
Related to Us
We intend to maintain prudent financial risk management policies and to continue improving our operating efficiency. We are pursuing focused initiatives to transform our company into a modern, leading edge, cost efficient player and position our business to serve consumer's evolving needs and aspirations. Even though we ran into some external headwinds last year, we remained focused on executing our strategy to strengthen our brand and improve operating performance. The following items are the key components of our strategy:
2. Enhance value proposition for our target segments 3. Increase customer acquisition and 4. Streamline operations 5. Develop new
Our off-balance sheet risk mainly arises from the Bank’s activities.
We 227
The table below identifies the principal amounts of our main
Commitments under Lease Agreements Our commitments under our lease agreements are mainly rental payments. We can terminate lease agreements at any time at low or no cost at our option. The following table sets forth the maximum potential amount of future payments under our lease agreements.
See the discussion at the beginning of this annual report under
Board of Directors According to our bylaws, our Board of Directors may be composed of a minimum of three and a maximum of nine directors, and 228 Directors and their alternates, if any, are appointed for a term of two years by our shareholders during the annual ordinary shareholders’ meeting. Directors may be reelected. Alternate directors replace directors in the order in which they were elected. meeting. The latest election relating to our Board of Directors took place at the ordinary and extraordinary shareholders’ meeting held on April bylaws. During the first meeting after directors have been appointed, they must appoint a chairman and vice-chairman of the board, or, if considered appropriate, a first vice-chairman and a second vice-chairman. The vice-chairman, or, if applicable, the first vice-chairman, would automatically replace the chairman in the event that the chairman is absent, resigns, The Board of Directors functions and acts upon the majority vote of its members present at its meetings either physically or via any form of audio and visual simultaneous communication. The following table sets forth the composition of our Board of Directors as of April 28, 2020:
There are no Directors, except for Julio Patricio Supervielle and Hugo Enrique Santiago Basso (uncle and nephew). The following are academic and professional backgrounds of the members of the board. Julio Patricio Supervielle Outstanding Entrepreneur of 2017 in recognition of those who undertake investing for the development of the country. Jorge Oscar Ramírez is a certified public accountant, with a degree from the Futuros del Sur S.A... Emérico Alejandro Stengel is an Atilio Dell-Oro Maini is a lawyer, a Bachelor in Political Science and a Bachelor in Agricultural Production. In 1984, he joined the firm Cárdenas, Cassagne & Asociados, where he was appointed partner in 1990. He worked in New York City as a foreign associate at White & Case in 1987 and at Simpson Thacher & Bartlett from 1988 to 1989. In 1997, he worked at Linklaters & Paines, a global firm based in London. He also completed the Instruction Program for Lawyers by the School of Law at Harvard University. In 2003 he joined the firm Cabanellas • Etchebarne • Kelly as a senior partner for the Banking and Capital Markets departments. He has extensive experience advising banks and other financial entities, companies and governments in all types of banking and financial operations, both local and international. He was also a professor of the Master’s in Business Law at Universidad de San Andrés. He is a member of the Bar Association of the Autonomous City of Buenos Aires. To date, he is Director of Grupo Supervielle 230 Eduardo Pablo Braun is an Industrial Engineer graduated from Universidad de Buenos Aires, where he won the Bunge & Born scholarship for his academic excellence and holds an MBA with an emphasis in Finance and Marketing from The Wharton School, University of Pennsylvania, 1990. He is an international lecturer in Leadership and Innovation, a business consultant and the author of ‘People First: Chief Emotions Officers’. He taught in programs at UC Berkeley, as executive positions. He participates or has participated in several NGOs such as the Clinton Global Initiative, of which he was a member for 5 years, EMA (Multiple Sclerosis Argentina), is a member of the Council of ICANA (Argentine Cultural Institute of North America) and President of the G25 Foundation. Victoria Premrou holds degrees in Accountancy and Business Administration, graduated from Universidad Católica Argentina and holds a Master’s Degree in Corporate Finance from Universidad del CEMA. Between 1995 and 1997 she worked at Fitch-Ibca in the analysis and risk rating of companies and debt instruments in different sectors, being a member of the Risk Rating Committee of Fitch. Between 1997 and 1999 she worked at Hermes Management Consulting, performing valuation tasks and consultancy in strategy and organization for the Exxel Group (retail, mass consumption, among others). In 1999 she joined Infupa S.A. to provide advice on mergers and acquisitions for clients in the mass consumption, wine, refrigeration, textile and financial services industries, among others. Since 2018, she has been an advisor on analysis and evaluation of investment projects for Grupo La Nación. Laurence Nicole Mengin de
Hugo Enrique Santiago Basso is an Industrial Engineer graduated from Instituto Tecnológico de Buenos Aires (ITBA) and holds an MBA from The Wharton School of Business, University of Pennsylvania. He began his career at Banco Banex in 2004, where he successfully managed the merger project with Société Générale Argentina. In 2007 he led the startup of the ‘Cordial Negocios’ unit, with a focus on microfinancing. Then, he continued his career in the consultancy area working for Mars & Co., with responsibilities in competitive strategy for CPG multinationals. For the last five years, he has been residing in California, United States of America, having developed a successful career in the financial area for the wine industry in high-end brands. After working for Treasury Wine Estates, he joined E&J Gallo, currently overseeing a portfolio of ten luxury wineries. He is Director of Grupo Supervielle S.A., Director of Banco Supervielle S.A. (approval of the Central Bank
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Duties and Liabilities of Directors Directors have the obligation to perform their duties with the loyalty and the diligence of a prudent business person. Under Section 274 of the
In general, a director will not be held liable for a decision of the Section 271 of the The acts or agreements that a company enters into with a related party involving a relevant amount shall fulfill the requirements set forth in Section 72 and 73 of firms or if the transaction has been approved by the ordinary shareholders’ meeting without the decisive vote of the shareholder in respect of which the condition of a related party is met or has an interest in the act or contract at issue. Causes of action 232
Except in the event of a mandatory liquidation or bankruptcy, shareholder approval of a director’s performance, or express waiver or settlement approved by the shareholders’ meeting, terminates any liability of a director vis-à-vis the company, provided that shareholders representing at least 5% of the company’s capital stock do not object and provided further that such liability does not result from a Under Argentine law, the Meetings, Quorum, Majorities Our Board of Directors must hold a minimum of one regularly scheduled meeting every three months. Meetings must also be convened when called by any member of the Board of Directors. The quorum for a Board of Directors’ meeting is the majority of its members. The Board of Directors will pass resolutions by the affirmative vote of the majority of members present. Pursuant to our bylaws our directors may participate in a meeting of the Board of Directors by means of a communication system that provides for a simultaneous transmission of sound, images and words.
Incentive-based Retirement Plan for Senior Management and Directors In December 2016, Grupo Supervielle approved an incentive-based retirement plan, which replaced certain existing compensation mechanisms. Members of our senior management and Board of Directors Independence Criteria of Directors In accordance with the provisions of Section 4, Chapter I, Title XII “Transparencia en el Ámbito de la Oferta Pública” and Section 11, Chapter III, Title II “ The members of the Board of Directors and the Supervisory Committee of companies admitted to the public offering regime in Argentina must inform the CNV within ten (10) business days from the date of their appointment whether such members of the Board of Directors or the Supervisory Committee are “independent” pursuant to CNV standards. Pursuant to the CNV Rules, a director is not considered independent in certain situations, including where a director: (1) is also a member of the board of the parent company or another company belonging to the same economic group of the issuer through a preexisting relationship at the time of his or her election, or if said relationship had ceased to exist during the previous three years; (2) 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; 233 (3) 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 company 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; (4) directly or indirectly owns 5% or more of shares with voting rights and/or a capital stock of the company or any company with a “significant participation” in it; (5) 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; (6) 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 company, 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; (7) 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); (8) has served as director at the company, 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; (9) 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; while those relating to the “economic group” correspond to the definition contained in section e) subsection 3, chapter V, Title II of the CNV Rules. The Argentine independence standards under the CNV Rules differ in many ways from U.S. federal securities law and NYSE standards. 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:
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Currently, Julio Patricio Supervielle, Jorge Oscar Ramirez, Atilio Dell’Oro Maini, independent members of our board according to the criteria established by the CNV. See Corporate Governance We have adopted a Corporate Governance Code to put into effect corporate governance best practices, which are based on strict standards regarding transparency, efficiency, ethics, investor protection and equal treatment of investors. The Corporate Governance Code follows the guidelines established by the CNV and the Central Bank. We have also adopted a Code of Ethics and an Internal Conduct Code, each designed to establish guidelines with respect to professional conduct, morals and employee performance. Officers
Our management is comprised of our Our Chief Risk Officer (“CRO”), Javier Conigliaro, the Head of
Chief Executive Officer
Senior Management that reports to the
235
Senior Management that report to the Board of Directors
The CEO has five main responsibilities: (i) creating value for shareholders by monitoring the business units, (ii) bringing innovation to the provision of financial services, (iii) making sure that we deliver high quality and cost competitive services, (iv) leveraging key resources to provide support for the business units and (v) planning and executing acquisitions and alliances that fit into the corporate strategy. The Bank’s COO Bank’s digital transformation program, ensuring its adequate implementation organization-wide. The CFO directs and oversees the finance, controlling, accounting and investor relations divisions. The finance division is responsible for capital planning and funding strategies. The controlling division is responsible for continuous evaluations of short-term and long-term strategic financial objectives, preparing financial trends analyses and analyses of forecasts, budgets and costs. The accounting division monitors compliance with generally accepted accounting principles and applicable federal, state and local regulations and laws, and rules for financial and tax reporting. The investor relations division is responsible for preparing and providing financial information to, and coordinating with, regulatory bodies and both domestic and international investors and analysts. The Chief of Legal Affairs and
The Chief Credit Officer is responsible for defining and putting into practice our global credit risk policies across all business units. The Chief Credit Officer utilizes common risk assessments and information collection platforms across all business units. He also maximizes the value we offer clients by facilitating the transit of clients across business units through credit policies designed specifically for upward sales and cross sales. In addition, the Chief Credit Officer maximizes penetration into different socio-economic segments through inclusive credit policies, while ensuring that pricing is consistent with risk levels. The Chief Credit Officer also manages and controls procedures related to credit risk and collection and recoveries for the purpose of safeguarding our assets, minimizing losses related to defaults and maximizing the protection of our businesses’ rights and interests. The Chief of Human Resources is responsible for the design and implementation of human capital strategies. The human resource manager is in charge of global human resource policies across all business units. He functions as a strategic partner of top management to ensure that we attract and retain the talent necessary to achieve business growth. The Chief of Human The Chief Technology Officer is responsible for leading the information technology administration, and in turn establish a solid relationship between IT and business areas to deliver added value to the organization and ensure compliance with digital transformation objectives. The CTO also leads the digital transformation of the core business with agile methodologies and organization by tribes to contribute with the vision of becoming a technological company. The Chief of Operations and Central Services is responsible for the execution and control of support processes for the branch network and other commercial areas or business units in relation to loans, means of payment, sales support, securities and international operations, general treasury, safety and centralized processes such as strategic supply management and contracting, general services, works, maintenance, building planning; in order to ensure the quality of internal and external customer service, the physical / health protection of employees, customers and values in the facilities, as well as optimizing expenses. The CRO is responsible for developing and implementing an appropriate framework for the administration of overall risks that allows for the identification, evaluation, monitoring and mitigation of credit risk, financial risk (including market risk, interest rate risk and liquidity risk), as well as operational risks (including reputation and cybersecurity risks) for each of our businesses. The Head of Internal Audit is responsible for the audit process, evaluating and advising on internal control, corporate governance and risk management, in order to ensure compliance with laws, regulations and internal policies, contributing to the availability of reliable financial information, and the effectiveness and efficiency of operations, within the framework of the strategic objectives. The Compliance Officer isresponsible for creating, implementing and overseeing the Ethics and Compliance program. This program includes promoting an ethical corporate culture, monitoring the adherence to the the Code of Ethics and verifying the effective enforcement of the anticorruption policy. The Compliance Officer conductsa regular risk analysisin order to adapt theEthics and Compliance Programafter monitoring and evaluating its effectiveness. The following are academic and professional backgrounds of our management members.
Alejandra Naughton has been Chief Financial Officer of Grupo Supervielle since September 2011. She holds a degree in Economics from the Universidad de Buenos Aires and a post graduate degree in Project Management from Universidad de Belgrano. She attended the CFO Executive Program at the University of Chicago Booth School of Business. She has taken courses at the Bank of England in London, where she was awarded the Expert in Finance and Management Accounting and Expert in Corporate Governance degrees; at the Federal Reserve Bank of New York where she was conferred the Expert in Management and Operations degree and at the ByMA. Sergio Gabai has been Chief of Legal Affairs and IESE Business School. He attended the Management Program for Lawyers at Yale University and participated of the Effective Leadership Program at Universidad Austral 231
Credit Risk at BankBoston Chile. He also held positions as Credit Risk Manager at American Express Argentina. He has over 30 year of experience in the financial services industry. Santiago Enrique Batllegraduated from Universidad Católica de La Plata as an Attorney at Law and received his Master’s degree in Business Administration Management from the School of Business and Management at IAE Universidad Austral. He also received a postgraduate degree in Human Resources from Universidad Argentina de la Empresa. He participated in the Senior Management Program at IAE Universidad Austral and other programs at Stanford, London Business School and Michigan University. From July 2000 to 2004, he served as Labor Relations Manager at Bank Boston NA, and from 2005 to March 2007 he served as their Human Resources Executive Director. From April 2007 to December 2010, he was Human Resources Executive Director at Standard Bank Argentina. He has served as Human Resources Head of Grupo Supervielle and Banco Supervielle since February 2011. He was appointed an alternate director of the Boards of Directors of Banco Supervielle and CCF.
Esteban Nicolás D´Agostinohas been Chief of Operations and Central Services of Grupo Supervielle since Javier Conigliaro has been Chief Risk Officer of Grupo Supervielle since July 2016. Previously he served as Chief Risk Officer of Banco Supervielle from 2012 through 2016. With over 32 years of experience in the risk industry within financial institutions, Mr. Conigliaro is an economist with graduate studies from the University of Buenos Aires, he attended the Executive Education Program in Risk Management at Kellogg School of Management & PRMIA and the Management Development Program at Universidad Austral – IAE School of Business. Previous to his experience in Banco Supervielle, Mr. Conigliaro was the Head of Corporate Risk in Société Générale Argentina, a credit risk senior analyst in SocGen New York and in Beal WestLB Argentina. Sergio Gustavo Vázquez has been Head of Internal Audit since March 2019. He holds degrees in Business Administration and Public Accountant from the University of Buenos Aires and an MBA from the IAE. He also obtained international certifications as Internal Auditor “CIA” from the Institute of Internal Auditors in 2001 and as Information System Auditor “CISA” from ISACA in 2006. Prior to his appointment he IT.
For the biography of Mr. 232
Supervisory Committee We have a monitoring body called the supervisory committee (“Supervisory Committee”). Our Supervisory Committee consists of three syndics and three alternate syndics appointed by the shareholders at our annual ordinary shareholders’ meeting. The syndics and their alternates are elected for a period of one year, and any compensation paid to our syndics must have been previously approved at an ordinary shareholders’ meeting. The term of office of the members of the Supervisory Committee expires on the annual ordinary shareholders’ meeting to consider our financial statements as of December 31, Pursuant to the The primary responsibilities of the Supervisory Committee are to monitor The following chart shows the members of our Supervisory Committee appointed by the annual ordinary Allof the members of ourSupervisory Committee were appointed for the term of one year, until the annual shareholders’ meeting that considers the financial statements corresponding to the fiscal year ended December 31, 2020.
The following are academic and professional backgrounds of the Supervisory Committee members: Enrique José Barreiro Sur S.A. Carlos
233 Valeria Del Bono Lonardi is a
Carlos Enrique Loseholds a degree in
Bolsillo Digital S.A.U. Roberto Aníbal Boggiano holds a degree in Accountancy graduated from Jorge Antonio Bermúdezholds a degree in Accountancy from Universidad de Buenos Aires. After working in the Audit Department of a major firm, he specialized in the Consulting and Finance fields, where he held senior management positions at important service companies. Later on he became a full time advisor in these fields. He was also a professor at the School of Economics of Universidad de Buenos Aires and lectured courses in private entities in addition to those arranged by his own firm. At present, he is an alternate syndic of Banco Supervielle S.A., Cordial Compañía Financiera S.A., Espacio Cordial de Servicios S.A., InvertirOnline S.A.U., InvertirOnline.com Argentina S.A.U., Micro Lending S.A.U. and Bolsillo Digital S.A.U. According to the provisions of Section 79 of the Argentine Capital Markets Law, listed companies which have an audit committee are allowed not to have a Supervisory Committee. Such decision may only be adopted by an extraordinary shareholders meeting with a special quorum and supermajority of 75% of the voting stock.. Compensation of Directors, Management and Supervisory Committee Our shareholders fix our directors’ compensation, including their salaries and any additional wages arising from the directors’ permanent performance of any administrative or technical activity. Compensation of our directors is regulated by the AGCL and the CNV regulations. Any compensation paid to our directors must have been previously approved at an ordinary shareholders’ meeting. Section 261 of the AGCL provides that the compensation paid to all directors in a year may not exceed 5.0% of net income for such year, if the company is not paying dividends in respect of such net income. The AGCL increases the annual limitation on director compensation to up to 25.0% of net income based on the amount of dividends, if any, that are paid. In the case of directors that perform duties at special committees or perform administrative or technical tasks, the aforesaid limits may be exceeded if a shareholders’ meeting so approves, such issue is included in the agenda, and is in accordance with the regulations of the CNV. In any case, the compensation of all directors and members of the supervisory committee requires shareholders’ ratification at an ordinary shareholders’ meeting. 234 We have not entered into employment contracts with the members of our Board of Directors. We have assigned certain executive and technical-administrative functions to some of our directors. As of the date of this annual report,
Audit Committee Pursuant to
We will take the necessary measures to ensure that independent alternate members are available in order to fill possible vacancies. A quorum for a decision by the audit committee will require the presence of a majority of its members and matters will be decided by the vote of a majority of those present at the meeting. A chairman of the committee must be appointed during the first meeting after members of the committee have been appointed. The chairman of the committee may cast two votes in the case of a tie. Pursuant to our bylaws, audit committee members may participate in a meeting of the committee by means of a communication system that provides for a simultaneous transmission of sound, images and words, and members participating by such means count for quorum purposes and the committee will pass resolutions by the affirmative vote of the majority of members present either physically or by means of such communication system. If the committee holds meetings by means of such communication system, it must comply with the same requirements applicable to Board of Directors’ meetings held in such way. Decisions of the audit committee will be recorded in a special corporate book and will be signed by all members of the committee who were present at the meeting. Pursuant to Section 17 Chapter III Title II of the CNV Rules, the audit committee must hold at least one regularly scheduled meeting every three months.
Additionally, the audit committee is required to prepare an annual working plan and present it to the Board of Directors and the Supervisory Committee. Members of the board, members of the Supervisory Committee and external independent accountants are required to attend the meetings of the audit committee if the audit committee so requests it, and are required to grant the audit committee full cooperation and information. The audit committee is entitled to hire experts and counsel to assist it in its tasks and has full access to all of our information and The following chart shows the current membership of our Audit Committee:
Anti-Money Laundering and Anti-Terrorist Finance Committee We have an anti-money laundering and anti-terrorist finance committee consisting of 236
Among its duties, the anti-money laundering and anti-terrorist finance committee must:
The following table sets forth the members of the anti-money laundering and anti-terrorist finance committee.
Risk Management Committee The risk management committee is composed of at least two directors and of members of our Our risk management committee performs the following functions:
The following table sets forth the members of the risk management committee.
Credit House Limit Committee The The Our
The following table sets forth the members of the credit house limit committee.
The ethics, compliance and corporate governance committee is tasked with assisting the Board of
239
The following table sets forth the members of the ethics, compliance and corporate governance committee.
The nominations and remuneration committee is tasked with assisting the Board of Directors in the following: (a) nomination of Directors and members of the senior management and their succession plans, (b) remuneration policy for The following table sets forth the members of the Nominations and Remuneration Committee.
The disclosure committee is responsible for the
240
The following table sets forth the members of the
Banco Supervielle S.A.’s Board of Directors Our main subsidiary, the Bank, is managed by its Board of Directors, which is currently comprised of
The following table sets forth information about the members of the Bank’s Board of Directors, which is currently comprised of
241
Appointed directors Messrs. Julio Patricio Supervielle, Atilio Dell’Oro Maini, Richard Guy Gluzman
Mr. Richard Guy Gluzman has the Set forth below is a brief biographical description of
Banco Supervielle S.A.’s Senior Management The Bank’s senior management is in charge of the implementation and execution of its overall
Senior management
242
Senior management that reports to the COO:
Senior Management that report to the Board of Directors
Set forth below are brief biographical descriptions of the members of the Bank’s senior management.
Roberto García Guevarahas been the Head of Capital Markets and Structuring since April 2018. He is a public accountant graduated from the University of Buenos Aires. From 1992 to 1995 he worked at Baring Securities Argentina as a sales trader. From July 1995 to June 1998 he served as Head of Argentine Research at Caspian Securities Sociedad de Bolsa. Between July 1998 and November 2002 he worked at Merril Lynch S.A. Sociedad de Bolsa serving as Senior Country Analyst - First Vice President, covering Argentina and Chile, and Vice President of the Board. From 2003 to August 2007 he served as Head of Research of Raymond James Argentina. From September 2007 until 2009 he worked at UBS Pactual as Head of Southern Cone and Andean Equity Strategy & Research. Between 2010 and 2012 he worked at AR Partners (formerly Raymond James Argentina) as Head of Research and then between 2015 and March 2018 as Head of Corporate Finance. 243
Esteban Petracchi has been the Head of Corporate Banking since April 2019. Since 2004 and until April 2019, he had served as the Medium and Large Companies Banking Manager and as Leasing and Payroll Manager. He holds a degree in Business Administration from the Universidad del Salvador and has more than 26 years of experience in renowned financial institutions: Bank of New York, European Bank for Latin America and Societé Générale Argentina, having joined Banco Supervielle in 2003. Germán Magnoni has been the Bank’s Head of Fernando Lavezzohas been the Process and Project Manager since April 2019. He is a Public Accountant graduated from the University of Buenos Aires and completed the Executive Training Program at Austral University Business School. He has more than 24 years of experience in the financial industry. Before joining Banco Supervielle, he led process reengineering projects at Banco Galicia. He joined Banco Supervielle in 2003 in the Organization and Methods area where he led important projects for the retail and wholesale business. He held various positions in the Operations area, managing the Special Projects team from 2015 to 2018. Jacqueline Rubarthhas led the Customer Experience and Business Intelligence team since April 2019. She joined the Bank in January 2013 as Commercial Leader in the Medium and Large Business team and in February 2016 she was appointed Business Intelligence and Business Banking Planning Manager. She has more than 23 years of experience in the financial industry with a trajectory mostly carried out in the commercial line, always with focus in customer service. Before joining Supervielle, she spent 2 years as Corporate Commercial Executive at Banco Galicia and previously 14 years at BBVA, developing in the Corporate Banking and Investment Banking areas. She has a degree in Capital Markets from the Universidad del Salvador and attended the Management Development Program at Austral Business School. Fernando Lavezzohas been the Process and Project Manager since April 2019. He is a Public Accountant graduated from the University of Buenos Aires and completed the Executive Training Program at Austral University Business School. He has more than 24 years of experience in the financial industry. Before joining Banco Supervielle, he led process reengineering projects at Banco Galicia. He joined Banco Supervielle in 2003 in the Organization and Methods area where he led important projects for the retail and wholesale business. He held various positions in the Operations area, managing the Special Projects team from 2015 to 2018. For the biography of Mr. Jorge Oscar Ramirez and Mr. Emérico Alejandro Stengel, see “—Board of Directors.” For the biographies of Committees Reporting to Banco Supervielle S.A.’s Board of Directors In accordance with Central Bank regulations, the Bank has several 244 Banco Supervielle S.A.’s Audit Committee The audit committee is formed by at least two members of the Bank’s Board of Directors and its internal audit manager. The Board of Directors appoints the members of the audit committee for a term of two or three years. The CEO is invited to attend the meetings. The audit committee is responsible for assisting the Board of Directors in the supervision of the consolidated financial statements, controlling compliance with policies, processes, procedures and rules set forth for each of the Bank’s business areas and for evaluating and approving the corrective measures proposed by the internal audit area. The following table sets forth the members of the audit committee:
Banco Supervielle S.A.’s Information Technology Committee The information technology committee is formed by Directors, the Chief Technology Officer, the CEO, the COO, the CRO, the Head of Technology Infrastructure, the Head of Innovation and Channel Development, the Head of Central Systems, the Head of Information Security and the Head of IT Governance. The information technology committee is responsible, among other things, for the following activities: (i) controlling the adequate operation of the information technology The following table sets forth the members of the Information Technology Committee.
Banco Supervielle S.A.’s Committee on the Control and Prevention of Money Laundering and Financing of Terrorism The committee on the control and prevention of money laundering and financing of terrorism is formed by The committee on the control and prevention of money laundering and financing of terrorism the FIU from time to time.. The following table sets forth
Banco Supervielle S.A.’s Risk Management Committee The Risk Management Committee sets forth policies and limits to financial risks (including market risk, credit risk, liquidity risk, interest rate risk, exchange risk and other risks) and submits to the Board of Directors the appropriate proposals. Furthermore, this committee supervises the degree of correlation between the risks assumed and the risk profile set forth by the Board of Directors, and analyzes and approves investment and funding policies. 246
The
Banco Supervielle S.A.’s Credit Committee The Bank’s credit committee is formed by two directors and the Bank’s CEO, Chief Credit Officer, the Head of Corporate Banking and certain Corporate Banking Officers. The Chairman of the Risk Committee of Grupo Supervielle is a permanent invitee to their meetings.
Banco Supervielle S.A.’s other management committees The Bank has other management committees, such as the Management of Our Other Subsidiaries The senior management of our other subsidiaries is in charge of the implementation and execution of those subsidiaries’ overall short-term and strategic objectives and reports to the respective CEOs of those companies. The CEO of CCF, Tarjeta, Espacio Cordial and Hernán Villegas. Set forth below are brief biographical descriptions of the CEOs of our other subsidiaries.
Supervielle. Guillermo Guichandut has served as CEO of SAM since 2005. He received a degree in public accounting from Universidad Nacional de la Plata, and has completed a masters in Banking Management at the Universidad del CEMA. He is currently an Adjunct Professor of financial mathematics in the Economics department of the Universidad Nacional de la Plata. He is a member of the Executive Committee of the Argentine Chamber of Mutual Funds and President of its Communication Commission. Mr. Guichandut has vast experience in the financial sector, having worked at Bank of Boston and Banco Société Générale Argentina until his appointment as General Manager at SAM in 2005. Diego Squartini has been Chief Executive Officer of Supervielle Seguros since 2013. He obtained a degree in Economics and a Master’s degree in Business Management from Universidad Nacional de Cuyo. He also attended the Leadership Program at Universidad Austral. From 2010 to 2013, he served as Regional Manager at Banco Supervielle. From 2004 to 2010 he was the Financial Manager at Banco Regional de Cuyo. From 2000 to 2004, he worked as Corporate Business Manager and from 1995 to 2000 as Branch Manager, also at Banco Regional de Cuyo. 247
Hernán Villegas is Chief Executive Officer of Bolsillo Digital SAU since December 2019. He joined Banco Employees
We had At the holding company we had All management positions in the Bank are held by non-union employees. The Bank currently does not maintain any pension or retirement program for its employees. In order to incentivize the performance of its employees, the Bank implemented several incentive payment plans for its employees linked to performance and results.
As of December 31, 2019, MILA had 32 employees. As of December 31, 2019, 56% of MILA’s employees were under the collective bargaining agreementConvenio Colectivo de 248 As of December 31,
Compensation Labor relations in Argentina are governed by specific legislation, such as labor Law No. 20,744 and Collective Bargaining Law No. 14,250, which, among other things, dictate how salary and other labor negotiations are to be conducted. Every industrial or commercial activity is regulated by a specific collective bargaining agreement that groups together companies according to industry sectors and by trade unions. While the process of negotiation is standardized, each chamber of industrial or commercial activity negotiates the increases of salaries and labor benefits with the relevant trade union of such commercial or industrial activity. In the banking sector, salaries are established on an annual basis through negotiations between the chambers that represent the banks and the banking employees’ trade union. The National Labor Ministry mediates between the parties and ultimately approves the annual salary increase to be applied in the banking activity. Parties are bound by the final decision once it is approved by the labor authority and must observe the established salary increases for all employees that are represented by the banking union and to whom the collective bargaining agreement applies. For the past ten years, negotiations have taken place during the first half of the year. In addition, each company is entitled, regardless of union-negotiated mandatory salary increases, to give its employees additional merit increases or variable compensation schemes.
As of April The table below sets forth information concerning the ownership of our Class A and Class B shares as of April
249 As of
Share Ownership of Banco Supervielle S.A. As of April The following table sets forth information regarding the ownership of the Bank’s Class A and Class B shares as of April
Other than as set forth below, we are not a party to any material transactions with, and have not made any loans to any (i) enterprises that directly or indirectly through one or more intermediaries, control or are controlled by us; (ii) associates (i.e., an unconsolidated enterprise in which we have a significant influence or which has significant influence over us); (iii) individuals owning, directly or indirectly, an interest in our voting power that gives them significant influence over us, as applicable, and close members of any such individual’s family (i.e., those family members that may be expected to influence, or be influenced by, that person in their dealings with us, as applicable); (iv) key management personnel (i.e., persons that have authority and responsibility for planning, directing and controlling our activities, including directors and senior management of companies and close members of such individual’s family); or (v) enterprises in which a substantial interest is owned, directly or indirectly, by any person described in (iii) or (iv) over which such a person is able to exercise significant influence nor are there any proposed transactions with such persons. For purposes of this paragraph, this includes enterprises owned by our directors or major shareholders that have a member of key management in common with us, as applicable. In addition, “significant influence” means the power to participate in the financial and operating policy decisions of the enterprise, but means less than control. Shareholders beneficially owning a 10% interest in our voting power are presumed to have a significant influence on us. Management Services To the extent that there are no conflicts of interest, we lend management services to our subsidiaries, the Bank, Tarjeta, SAM, Sofital, CCF and Espacio Cordial. 250 The following table sets forth information regarding fees received from our subsidiaries and related parties for our management services for the
In March 2016, we entered into an agreement with the Bank pursuant to which the Bank will provide accounting, administrative, legal and treasury services to us. We Trademark Licenses In 2013, we signed agreements with Espacio Cordial Financial Loans Some of our directors and the directors of the Bank have been involved in certain credit transactions with the Bank as permitted by Argentine law. The The Bank is required by the Central Bank to present to its Board of Directors, on a monthly basis, the outstanding amounts of financial assistance granted to directors, controlling shareholders, officers and other related entities, which are transcribed in the minute books of the Board of Directors. The Central Bank establishes that the financial assistance to directors, controlling shareholders, officers and other related entities must be granted on an equal basis with respect to rates, tenor and guarantees as loans granted to the general public. 251 The financial assistance granted to our directors, officers and related parties by the Bank was granted in the ordinary course of business, on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other non-related parties, and did not involve more than the normal risk of collectability or present other unfavorable features. The following table presents the aggregate amounts of total consolidated financial exposure of the Bank to related parties, the number of recipients, the average amounts and the single largest exposures as of the end of the periods indicated.
Not applicable.
See Item 18 and our audited consolidated financial statements as of and for the Legal Proceedings As of the date of this annual report, we are not a party to any legal or administrative proceedings for which the outcome is likely to have a material adverse effect on our results of operations. The Bank and CCF are party to proceedings relating to collection efforts and other legal or administrative actions initiated in the normal course of business, including certain class actions initiated against a number of banks and financial companies, including ours, by public and private organizations in connection with alleged overcharging on products and interest rates, among others. Although the provisions regarding class actions held in the Argentine National Constitution and the Consumer Protection Law are currently considered to be insufficient and in need of completion, the Argentine Supreme Court has, nonetheless, admitted class actions, as is the case with lawsuits against financial entities related to “collective interests,” as long as certain procedural requirements are met. The class action lawsuits involving the Bank and CCF are related to alleged overcharging on life insurance, interest rates and administrative charges, fees on the sale price of foreign currency, administrative charges on savings accounts, consumer loans and credit cards, and interest rates in factoring operations, as well as the inadequacy of the contingency risk charge on checking accounts. These types of class actions were brought against every financial entity in Argentina. Some of these lawsuits have been settled by the parties out of court. These settlements have typically involved an undertaking by the financial institution to adjust the fees and charges. Our subsidiaries are not parties to any legal proceedings, the outcome of which is likely to have a material adverse effect on their respective results of operations.
In accordance with Declaration and payment of dividends to all holders of each class of our shares (Class A, Class B shares and preferred shares (to the extent any such shares are outstanding)), to the extent funds are legally available, is determined by all of our shareholders with voting rights (i.e., our Class A and Class B shareholders) at the annual ordinary shareholders’ meeting. At such annual ordinary shareholders’ meeting, our Class A shares will be entitled to five votes each and our Class B shares will be entitled to one vote each. It is the responsibility of our Board of Directors to make a recommendation to our shareholders with respect to the amount of dividends to be distributed. The Board of Directors’ recommendation will depend on a number of factors, including but not limited to, our operating results, cash flow, financial condition, capital position, legal requirements, contractual and regulatory requirements, and investment and acquisition opportunities. As a general rule, the Board of Directors will favor efficient use of capital in its recommendation-making process. Thus, the Board will recommend reinvesting earnings when there are investment opportunities or it will recommend distributing dividends when there is excess capital. However, shareholders are ultimately entitled to overrule the recommendation of the Board of Directors through the affirmative vote of the absolute majority of the present votes at an ordinary shareholders’ meeting. The Board of Directors may also decide and pay anticipated dividends. In such instance, each individual director and member of the Supervisory Committee will be jointly and severally liable for the payment of such dividends if our retained earnings for the year for which such dividends were paid is insufficient to cover the payment of such dividends. Dividends are distributed on a pro rata basis according to the number of common shares held by the shareholder. CNV for the public offering of such shares. The right of shareholders to demand payment of dividends shall toll three years after the date on which we first make them available to shareholders. Any dividends that are not claimed during this period are deemed extraordinary gains by us. In accordance with Argentine law, our bylaws and CNV regulations, we are required to allocate to our legal reserve 5% of our yearly income, plus or minus the results of prior years, until our legal reserve equals 20% of our adjusted capital stock. Under Holders of ADSs will be entitled to receive any dividends payable in respect of our underlying Class B shares. 253 The general shareholders’s meeting held on April 28, 2020 determined the creation of voluntary reserves under the terms of Section 70 of the AGCL in the amount of Ps. 426 million for the future distribution of dividends. Our Board of Directors has be granted the discretion to determine the timing, amount, and other terms and conditions of the payment of dividends according to the scope of the delegation made by the general shareholders’ meeting. For more information on current exchange controls applicable to the payment of dividends, see “Item 3.D. —Risk Factors— Risks Relating to Our Class B Shares and the ADSs—Restrictions on transfers of foreign exchange and the repatriation of capital from Argentina may impair your ability to receive dividends and distributions on, and the proceeds of any sale of, the Class B shares underlying the ADSs.”
We are a holding company, and in addition to certain management fees we collect from some of our subsidiaries, our main source of cash to pay dividends are the dividends we receive from our subsidiaries. We therefore depend on the results of operations, cash flow and distributable income of our operating subsidiaries, principally the Bank. We and our subsidiaries are subject to contractual, legal and regulatory requirements affecting our ability to pay dividends.
Although distribution of dividends by the Bank has been authorized by the Central Bank at times, no assurance can be given that in the future the Central Bank will We are required to pay personal assets tax corresponding to Argentine and foreign individuals and foreign entities for the holding of our shares at December 31 of each year. We pay this tax on behalf of our shareholders, whenever applicable, and are entitled, pursuant to the Personal Assets Tax Law, to seek reimbursement of such paid tax from the applicable shareholders in various ways, including by withholding dividends. See “Item 10.E Taxation—Material Argentine Tax Considerations—Personal assets tax.”
As described in Note 25 to our audited consolidated financial statements we our audited consolidated financial statements may not be wholly distributable. Grupo Supervielle paid dividends to its shareholders for Our shareholders’ equity under the rules of the Argentine Central Bank comprise the following captions:
In addition to the information set forth in this section, additional information on significant changes can be found in “Item 3. Key Information— D. Risk Factors.” and in “Item 5.—A. Operating Results.” The Ongoing COVID-19 Pandemic The ongoing COVID-19 pandemic and government measures taken to contain the spread of the virus are disrupting economic activity. The ongoing COVID-19 pandemic has significantly increased economic uncertainty and is likely to cause a global recession. For more information, see “Item 3. Key Information—D. Risk Factors.—Risk Factors—Risks Relating to Argentina—The ongoing COVID-19 pandemic and government measures to contain the virus are adversely affecting our business and results of operations, and, as conditions are evolving rapidly, we cannot accurately predict the ultimate impact on the Group” and “Item 5. A. —Operating Results—The Ongoing COVID-19 Pandemic.” Argentina’s Sovereign Debt Restructuring On
The information set forth in Exhibit 2(d), “Description of Securities Registered under Section 12(b) of the Exchange Act” is incorporated herein by
Not applicable.
On May 18, 2016, we completed our On December 29, 255
Not applicable.
Not applicable.
Not applicable.
Not applicable.
No material contracts outside the ordinary course of business have been entered into during the last 2 years.
During 2001 and 2002, Argentina went through a period of severe political, economic and social crisis. Among other consequences, the crisis resulted in Argentina defaulting on its foreign debt obligations. After some years in which the Peso was freely convertible into U.S. Dollars, on December 3, 2001, in the midst of the crisis, the Argentine government imposed a number of monetary and currency exchange control measures through Decree No. 1570/01, which included restrictions on the free disposition of funds deposited with banks and tight restrictions on transferring funds abroad (including the transfer of funds to pay dividends) without the Central Bank’s prior authorization subject to specific exceptions for transfers related to foreign trade. In January 2002, with the approval of the Public Emergency Law, Argentina declared a public emergency situation in its social, economic, administrative, financial and foreign exchange matters and authorized the Argentine Executive Branch to establish a system to determine the foreign exchange rate between the Peso and foreign currencies and to issue foreign exchange-related rules and regulations. Within this context, on February 8, 2002, through Decree No. 260/2002, the Argentine Executive Branch established (i) 256
Due to the
Furthermore, on May 19, 2017, the Central Bank issued Communication “A” 6244, effective as of July 1, 2017, which structurally modified the exchange regulations in On September 1, 2019, after the market disruptions caused by the results of
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 MLC, 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 MLC, in accordance with article 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 MLC, 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. 257 Amounts collected in foreign currency for insurance claims related to the exported goods must also be repatriated and settled in Pesos in the MLC, up to the amount of the insured exported goods. Moreover, through section 8 of the FX Regulations, the Central Bank
Finally, the FX Regulations authorize the application of Obligation to repatriate and settle in Pesos the proceeds from Article 2.2 of the FX Regulations imposes to exporters the obligation to repatriate, and settle in the MLC, the proceeds from exports of services within 5 business days following payment thereof. Sale of non-financial non-produced assets Pursuant to article 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 MLC within 5 business days following either the perception of funds in the country or abroad, or their accreditation in foreign accounts. External financial indebtedness Article 2.4 of the FX Regulations have reinstated the requirement to repatriate, and settle in Pesos through the Subject to compliance with the aforementioned obligations, access to the MLC is granted for the repayment of debt services at maturity or up to 3 business days in advance. In addition, as set forth by article 3.5 of the FX Regulations, access to the MLC 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, article 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 MLC 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 MLC 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 MLC within 5 business days from the corresponding debt service payment date. 258
Duly registered securities that are denominated and payable in foreign currency in Argentina In accordance with article 2.5 of the FX Regulations issued by the Central Bank, resident debt issuers are granted access to the MLC 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 Payments of local debt securities denominated in foreign currency among residents In accordance with article 3.6 of the FX Regulations, access to the MLC 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 foreign exchange market by security trusts for principal and interest payments. Pursuant to article 3.7 of the FX Regulations, Argentine security trusts created to guarantee principal and interest payments by resident debtors may access the MLC in order to make such payments at their scheduled maturity, to the extent that, pursuant to Specific Provisions Regarding Access to the Exchange Market Residents are authorized to access the MLC for the payment of 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. Prior authorization by the All outstanding debts as of August 31, 2019, either those due prior to such date or those that did not have a stipulated expiration date, are considered to be 259
Payment of
Access to the Repayment of principal and interest of imports of goods and services Access to the foreign exchange 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. Access to the MLC for the prepayment of debts for imports of goods and services shall require prior authorization by the Central Bank. Payment of dividends and corporate profits In accordance with article 3.4 of the FX Regulations, access is granted to the MLC to pay dividends to non-resident shareholders, subject to the following conditions:
Access to the MLC by other residents -excluding entities- for the formation of external assets and for derivatives transactions Article 3.10 of the FX Regulations sets forth that access to the MLC 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 Article 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). 260 Likewise, access to the MLC 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 MLC 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. Other Specific Provisions Access to the MLC for savings or investments purposes of individuals Pursuant to article 3.8 of the FX Regulations, Argentine residents may access the MLC 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. Access to the MLC by non-residents In accordance with article 3.12 the FX Regulations, prior approval by the Central Bank
Exchanges and Pursuant to
261 Securities related operations As per article 4.5 of the FX Regulations, if an individual purchases securities through payment in foreign currency, the
Foreign Exchange Criminal Regime
Notwithstanding the above mentioned measures adopted by the current administration, the Central Bank and
The following discussion contains a description of the principal Argentine and United States federal income tax consequences of the acquisition, ownership and disposition of our Class B shares or Material Argentine Tax Considerations The following 262 This This summary does not purport to be a comprehensive description of all 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, as of fiscal year 2018, the taxation applicable on the distribution of dividends from Argentine companies would be as follows:
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.
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For Argentine individuals and The Income Tax Law provides a first in-first out rule pursuant to which distributed dividends correspond to the former accumulated distributing company. Holders are encouraged to consult a tax advisor as to the particular Argentine income tax consequences derived from Capital gains tax
Capital gains obtained by Argentine
264 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 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 recent 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 this is not very clear in the law 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 (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 sales of ADSs to the extent the underlying shares are authorized for public offering by the CNV. 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 relevant Foreign Beneficiary is a cooperative jurisdiction resident and its 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 For Foreign Beneficiaries resident in
As a result of the
265 Tax treaties Argentina has signed tax treaties for the Personal assets tax For tax period 2019 onwards, Argentine and/or foreign
Value added tax The sale, exchange or other disposition of our Class B shares Tax on debits and credits on Argentine bank accounts
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 266 Tax on minimum presumed income
PAIS Tax (“Impuesto para una Argentina inclusiva y solidaria”)
Investors should consider the provisions that apply to them according to their specific case. Gross turnover tax This tax is a local tax levied on 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 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 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 “Fiscal Consensus” and/or the “Consensus”), local jurisdictions took on certain commitments in connection with certain taxes that are within their area of competence. 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 on December 17, 2019, the Argentine Executive Branch, the representatives of the Provinces and the City of Buenos Aires signed an agreement to suspend the Fiscal Consensus. This agreement 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. Holders of 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 267
Stamp tax Stamp tax is a
In 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 to Law No 27,469 (the “Fiscal Consensus 2018”) which was 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, on December 17, 2019, the Argentine Executive Branch, the representatives of the Provinces and the City of Buenos Aires signed an agreement to suspend the Fiscal Consensus and the Fiscal Consensus 2018. 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 Court tax In the Incoming Funds Arising from Non-Cooperative or Low or Nil Tax Jurisdictions According to Section 82 of the As defined under Section 19 of the Income Tax
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In turn, low or nil tax jurisdictions are defined as those countries, territories, associated states or special tax regimes that foresee a maximum corporate tax rate below 15%. Pursuant to Section 25 of the regulatory decree of the Income Tax Law, the 15% threshold rate should be assessed considering the aggregate corporate tax rate in each jurisdiction, regardless of the governmental level in which the taxes were levied. 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:
Although the concept of “incoming funds” is not clear, it should be construed as any transfer of funds:
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. THE ABOVE United States Federal Income Tax Considerations This 269
This For purposes of this summary, 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, a citizen or resident of the United States, a U.S. domestic corporation, or otherwise subject to U.S. federal income tax on a net income basis with respect to income from the Class B shares and ADSs. In general, if you are the beneficial owner of ADSs, you will be treated as the beneficial owner of the Class B shares represented by those ADSs for U.S. federal income tax purposes, and no gain or loss will be recognized if you exchange an ADS for the Class B shares represented by that ADS. Dividends
Subject to the discussion under “—Passive Foreign Investment Company” below, Dividends received by certain non-corporate U.S. holders will generally be subject to taxation at reduced rates if the dividends are “qualified dividends.” Subject to applicable limitations (including a minimum holding period requirement), dividends paid on the ADSs will be treated as qualified dividends if (i) the ADSs are readily tradable on an established securities market in the United States and (ii) the issuer was not, in the year prior to the year in which the dividend was paid, and is not, in the year in which the dividend is paid, a passive foreign investment company Because the Class B shares are not themselves listed on a U.S. exchange, dividends received with respect to the Class B shares Dividends received by U.S. holders will generally constitute foreign source and “passive category” income for U.S. foreign tax credit purposes. Subject to limitations under U.S. federal income tax law concerning credits or deductions for foreign taxes, any Argentine taxes withheld from cash dividends on the Class B shares or ADSs will be treated as a foreign income tax eligible for credit against a U.S. holder’s U.S. federal income tax liability if the tax is treated for U.S. federal income tax purposes as imposed on the U.S. holder (or at a U.S. holder’s election, may be deducted in computing taxable income if the U.S. holder has elected to deduct all foreign income taxes for the taxable year). However, amounts withheld on account of the Argentine personal assets tax (as 270 Passive Foreign Investment Company Based on the past and projected composition of our income and assets, and the valuation of our assets, including goodwill, we do not believe we were a PFIC for our most recent taxable year, and we do not expect to become a PFIC in the current taxable year or in the foreseeable future, although there can be no assurance in this regard. In general, we will be a PFIC for any taxable year in which:
For this purpose, passive income generally includes dividends, interest, royalties and rents (other than royalties and rents derived in the active conduct of a trade or business and not derived from a related person). If we own at least 25% (by value) of the stock of another corporation, for purposes of determining whether we are a PFIC, we will be treated as owning our proportionate share of the other corporation’s assets and receiving our proportionate share of the other corporation’s income. Our determination with respect to our PFIC status is based in part upon certain proposed U.S. Treasury regulations that are not yet in effect and which are subject to change in the future. Those regulations and other administrative pronouncements from the IRS provide special rules for determining the character of income derived in the active conduct of a banking business for purposes of the PFIC rules. Although we believe we have adopted a reasonable interpretation of the regulations and administrative pronouncements, there can be no assurance that the IRS will follow the same interpretation. The determination of whether we are a PFIC is made annually. Because we have valued our goodwill based on the market value of our Class B shares and ADSs, a decrease in the price of our Class B shares and ADSs may also result in us becoming a PFIC. Accordingly, it is possible that we may become a PFIC in the current or any future taxable year due to changes in our asset or income composition. If we are a PFIC for any taxable year during which you hold our Class B shares or ADSs, you will be subject to special tax rules discussed below. If we are a PFIC for any taxable year during which you hold our Class B shares or ADSs and you do not make a timely mark-to-market election, as described below, you will be subject to special tax rules with respect to any “excess distribution” received and any gain realized from a sale or other disposition, including a pledge, of such Class B shares or ADSs. Distributions received in a taxable year will be treated as excess distributions to the extent that they are greater than 125% of the average annual distributions received during the shorter of the three preceding taxable years or your holding period for the Class B shares or ADSs. Under these special tax rules:
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Although the determination of whether we are a PFIC is made annually, if we are a PFIC for any taxable year in which you hold our Class B shares or ADSs, you will generally be subject to the special tax rules described above for that year and for each subsequent year in which you hold Class B shares or ADSs (even if we do not qualify as a PFIC in such subsequent years). However, if you own Class B shares or ADSs and we cease to be a PFIC, you may be able to avoid the continuing impact of the PFIC rules by making a special election to recognize gain as if your Class B shares or ADSs had been sold on the last day of the last taxable year during which we were a PFIC. You are urged to consult your own tax advisor about this election. In lieu of being subject to the special tax rules discussed above, you may make a mark-to-market election with respect to your Class B shares or ADSs provided such Class B shares or ADSs are treated as “marketable stock.” Class B shares or ADSs generally will be treated as marketable stock if the Class B shares or ADSs shares are regularly traded on a “qualified exchange or other market” (within the meaning of the applicable Treasury regulations). Under current law, the mark-to-market election may be available to holders of ADSs for as long as the ADSs are traded on the NYSE, which constitutes a qualified exchange, although there can be no assurance that the ADSs will be “regularly traded” for purposes of the mark-to-market election. The Class B shares are traded on the ByMA, which must meet certain trading, listing, financial disclosure and other requirements to be treated as a qualified exchange for these purposes, and no assurance can be given that the Class B shares will be “regularly traded” for purposes of the mark-to-market election. If you make an effective mark-to-market election, for each taxable year that we are a PFIC you will include as ordinary income the excess of the fair market value of your Class B shares or ADSs at the end of the year over your adjusted tax basis in the Class B shares or ADSs. You will be entitled to deduct as an ordinary loss in each such year the excess of your adjusted tax basis in the Class B shares or ADSs over their fair market value at the end of the year, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. Your adjusted tax basis in the Class B shares or ADSs will be increased by the amount of any income inclusion and decreased by the amount of any deductions under the mark-to-market rules. In addition, upon the sale or other disposition of your Class B shares or ADSs in a year that we are a PFIC, any gain will be treated as ordinary income and any loss will be treated as ordinary loss, but only to the extent of the net amount of previously included income as a result of the mark-to-market election. If you make a mark-to-market election, it will be effective for the taxable year for which the election is made and all subsequent taxable years unless the Class B shares or ADSs are no longer regularly traded on a qualified exchange or other market, or the IRS consents to the revocation of the election. You are urged to consult your tax advisor about the availability of the mark-to-market election, and whether making the election would be advisable in your particular circumstances. Alternatively, holders of shares in a PFIC can sometimes avoid the special tax rules described above by electing to treat the PFIC as a “qualified electing fund” under Section 1295 of the Code. However, this option is not available to you because we do not intend to comply with the requirements necessary to permit you to make this election. If we are a PFIC for any taxable year during which you hold our Class B shares or ADSs and any of our non-U.S. subsidiaries is also a PFIC, you 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. You are urged to consult your tax advisors about the application of the PFIC rules to any of our subsidiaries. You will generally be required to file IRS Form 8621 if you hold our Class B shares or ADSs in any year in which we are classified as a PFIC. You are urged to consult your tax advisors concerning the U.S. federal income tax consequences of holding our Class B shares or ADSs if we are considered a PFIC in any taxable year. 272 Sale or Other Disposition Upon a sale or other disposition of the Class B shares or ADSs, U.S. holders will recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference between the U.S. dollar value of the amount realized on the disposition and the U.S. holder’s tax basis, determined in U.S. dollars, in the Class B shares or ADSs. shares or ADSs were held for more than one year. A U.S. holder’s ability to offset capital losses against ordinary income is limited. Long-term capital gain recognized by an individual U.S. holder may be taxable at a preferential rate. If an Argentine tax is withheld on the sale or other disposition of the Class B shares or ADSs, a U.S. holder’s amount realized will include the gross amount of the proceeds of the sale or other disposition before deduction of the Argentine tax. See “—Material Argentine Tax Foreign Financial Asset Reporting Certain U.S. Information Reporting and Backup Withholding Dividends paid on and proceeds from the sale or other disposition of the Class B shares or ADSs that are made within the United States or through certain U.S.-related financial intermediaries generally will be subject to information reporting unless A holder that is a foreign corporation or a non-resident alien individual may be required to comply with certification and identification procedures in order to establish its exemption from information reporting and backup withholding. FATCA We have entered into an agreement with the 273
published. FATCA is particularly complex and its application to Argentine financial institutions is uncertain at this time. Although we have registered with the IRS and believe that we are compliant with obligations imposed on us under FATCA, it is unclear to what extent we may be able to comply with FATCA in the future. Each holder of Class B shares or ADSs should consult its own tax
Not applicable.
Not applicable.
We file reports, including 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.
Not applicable.
Market risk is the risk of loss arising from fluctuations in financial markets variables, such as interest rates, foreign exchange rates and other rates or prices. This risk is a consequence of lending, trading and investments businesses and mainly consists of interest rate risk and foreign exchange risk.
The Risk Management Committee is responsible for approving and amending The Risk Management Committee uses a risk map to explain, in detail, the trades that the
In addition, the Risk Management Committee authorizes risk levels in terms of interest rate, foreign exchange rate, inflation and term imbalance risks. The Assets and Liabilities Committee is responsible for monitoring compliance with In the course of its monthly meetings, 274
All VaR models, while Additional information on our risk management is set forth in Note 27 to our audited consolidated financial statements. The following table shows the
In order to take advantage of good trading opportunities, Interest Rate Risk Central Bank Communication “A” We define
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The Bank and CCF employ a prudent interest rate risk strategy allowing them to uphold their commitments and maintain desired levels of revenue and capital, both in normal and adverse market conditions. Interest Rate Risk Management Model – Standardized Framework The Bank and CCF include interest rate gaps in their interest rate risk management model. This approach analyzes mismatches between asset and liability interest rates between reevaluation periods with respect to Every The Asset and Liability Management Committee monitors interest rate risk management and each financial management team is in charge of executing it. The Risk Management team and Financial Planning team are in charge of monitoring compliance, enforcing risk management strategies and issuing periodic reports. Interest Rate Risk Capital Requirement The Bank
The Bank and CCF’s consolidated gap position refers to the mismatch of interest-earning assets and interest-bearing liabilities. The following tables show the Bank and CCF’s consolidated exposure to a positive interest rate gap,
The table below shows the Bank’s consolidated exposure to an interest rate gap in foreign currency:
Foreign Currency Risk The Risk Management Committee is responsible for deciding the net position in foreign currency to be maintained at all times according to market conditions and monitoring it regularly. Policies regarding foreign currency risk are applied at the level of our subsidiaries. Our foreign currency risk arises mainly from Since May 2003, the fluctuation of the U.S. dollar has been included as a risk factor for the calculation of the market risk requirement, considering all assets and liabilities in U.S. dollars. As of December 31, Liquidity Risk Policies regarding liquidity risk are applied at the level of our subsidiaries. Our liquidity risk arises mainly from the operations of the Bank and CCF. Our other subsidiaries are also subject to liquidity risk, which is not significant. The Bank and CCF define liquidity risk as the risk of having to pay additional financial costs due to an unexpected need for liquidity. This risk arises out of the differences in amounts and maturity of the assets and liabilities held by the Bank. There are two types of Liquidity Risk:
To manage liquidity risk, the Bank and CCF focus on their sources of liquidity. The Bank relies on certain financial products that can provide a quick source of liquidity in extreme situations of illiquidity. To this effect, the Bank
Management team and approved by the Board of Directors. These indicators are constantly monitored by the Risk Management Committee. The Risk Management Committee coordinates and supervises the identification, measuring and monitoring of liquidity risk. The Assets and Liabilities Committee develops the strategies that allow for adequate liquidity risk management. The Assets and Liabilities Committee relies on several different departments within the Bank to develop and enforce these strategies, from issuing reports and risk management proposals to monitoring compliance with the established limits. Operational Risk We define operational risk as the risk of loss resulting from inadequate or failed internal processes due to personnel, systems or external events. The definition includes legal risk but excludes strategic and reputational risk. Legal risk can result from internal or external events and includes exposure to sanctions, penalties or other economic consequences that arise out of non-compliance with contractual or regulatory obligations. We believe that we are pioneers in the design of operational risk management frameworks in Argentina, placing emphasis on risk identification, risk management policies and our organizational model. We have tailored our framework to the requirements established by the Central Bank, the Basel accords and international best practices. The Bank’s operational risk management processes are overseen by a process owner, who is assisted by a network of correspondents, and every branch and service center has a delegate in charge of monitoring risk. The correspondents and delegates report to the Operational Risk Department, ensuring that the Bank’s entire network is working together to monitor operational risk. Operational Risk Measuring Models The risk management process is based on complying with several stages designed to evaluate the Bank’s vulnerability to operational risk events, minimizing operational risk. This method allows the Bank to achieve a better understanding of its operational risk profile and adopt the necessary measures to address any vulnerability. The stages are divided into:
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The Bank and CCF The Bank and CCF internally evaluate their minimum capital requirements regarding operational risk through
Not applicable.
Not applicable.
Not applicable.
Fees and Expenses
Holders of our ADRs are generally expected to pay fees to
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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 collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them. The depositary may collect any of its fees by deduction from any cash distribution payable (or by selling a portion of securities or other property distributable) to ADS holders that are obligated to pay those fees. The depositary may generally refuse to provide fee-attracting services until its fees for those services are paid. From time to time, the depositary may make payments to us to reimburse us for costs and expenses generally arising out of establishment and maintenance of the ADS program, waive fees and expenses for services provided to us by the depositary or share revenue from the fees collected from ADS holders. The depositary for our ADRs is The Bank of New York Mellon. In 2019, the Depositary reimbursed expenses for an amount of U.S.$.46,001. In performing its duties under the deposit agreement, the depositary may use brokers, dealers, foreign currency or other service providers that are owned by or affiliated with the depositary and that may earn or share fees, spreads or commissions. The depositary may convert currency itself or through any of its affiliates and, in those cases, acts as principal for its own account and not as agent, advisor, broker or fiduciary on behalf of any other person and earns revenue, including, without limitation, transaction spreads, that it will retain for its own account. The revenue is based on, among other things, the difference between the exchange rate assigned to the currency conversion made under the deposit agreement and the rate that the depositary or its affiliate receives when buying or selling foreign currency for its own account. The depositary makes no representation that the exchange rate used or obtained in any currency conversion under the deposit agreement will be the most favorable rate that could be obtained at the time or that the method by which that rate will be determined will be the most favorable to 280 Part II
None.
None.
(a)Disclosure Controls and Procedures. We maintain disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, as amended. We performed an evaluation of the effectiveness of our disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file with or submit to the SEC under the Exchange Act, as amended, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and is communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding the required disclosure. Our CEO and CFO concluded that, as of the end of the period covered by this annual report, our disclosure controls and procedures were effective to provide reasonable assurance of their reliability. Notwithstanding the effectiveness of our disclosure controls and procedures, these disclosure controls and procedures cannot provide absolute assurance of achieving their objectives because of their inherent limitations. Disclosure controls and procedures are processes that involve human diligence and compliance and are subject to error in judgment. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by our disclosure controls and procedures. (b)Management’s Annual Report on Internal Control over Financial Reporting.
Price Waterhouse & Co. S.R.L., an independent registered public accounting firm, has audited the effectiveness of our internal control over financial reporting Please see “Item 18. Financial Statements-Report of the
(d)Changes in Internal Control over Financial Reporting During the Year Ended December 31, During the period covered by this annual report, there have not been any changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.
Laurence Nicole Mengin de Loyer is our audit committee’s financial expert. She is an independent member of the audit committee under Rule 10A-3
We have adopted a code of ethics that is applicableto all our employees, which is posted on our We have also adopted the following policies: (i) investor communication, confidentiality and insider trading information, (ii) conflict of interest, (iii) related parties transactions and (iv) travel and gift policies. These policies are posted on our website at www.gruposupervielle.com/English/Corporate-Governance/Corporate-Governance-policies/default.aspx.
The following table sets forth the total amount billed to us and our subsidiaries by our independent registered public accounting firm, Price Waterhouse & Co. S.R.L., during the fiscal years ended December 31,
Audit feesare fees for professional services performed by Price Waterhouse & Co. S.R.L for the audit and limited review of Grupo Supervielle’s consolidated annual and quarterly financial statements under Audit-related feesconsist of fees for professional services performed by Price Waterhouse & Co S.R.L. related to attestation, review and verification services with respect to our financial information and the provision of services in connection with special reports. Tax feesare fees billed with respect to tax compliance and advisory services related to tax liabilities. All other fees include fees paid for professional services other than the services reported above under “audit fees”, “audit related fees” and “tax fees” in each of the fiscal Audit Committee Pre-approval Our audit committee is required to pre-approve all audit and non-audit services to be provided by our independent registered public accounting firm. Our Audit Committee has reviewed and approved audit and non-audit services fees proposed by our independent auditors.
Not applicable.
None.
NYSE Corporate Governance Rules Under NYSE rules, foreign private issuers are subject to more limited corporate governance requirements than U.S. domestic issuers. As a foreign private issuer, we must comply with four principal NYSE corporate governance rules: (1) we must
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Not applicable.
Not applicable.
Our audited consolidated financial statements are included in this annual report beginning at Page F-1.
EXHIBIT INDEX
The amount of long-term debt securities of Grupo Supervielle authorized under any given instrument does not exceed 10% of its total assets on a consolidated basis. Grupo Supervielle hereby agrees to furnish to the SEC, upon its request, a copy of any instrument defining the rights of holders of its long-term debt or of its subsidiaries for which consolidated or unconsolidated financial statements are required to be filed. 290 SIGNATURES 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.
Date:
Contents
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Grupo Supervielle S.A.
We have audited the accompanying consolidated In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Basis for Opinions The Company's management is responsible for these consolidated financial statements, We conducted our audits Our audits of the consolidated financial statements 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
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
Buenos Aires, Argentina April 30, 2020 We have served as the Company’s auditor since 2008.
GRUPO SUPERVIELLE S.A.
As of December 31, (Expressed in thousands of
The accompanying
GRUPO SUPERVIELLE S.A.
As of December 31, (Expressed in thousands of
The accompanying
GRUPO SUPERVIELLE S.A.
(Expressed in thousands of
The accompanying
GRUPO SUPERVIELLE S.A.
Consolidated Statement of Comprehensive Income
(Expressed in thousands of
The accompanying notes are an integral part of these
GRUPO SUPERVIELLE S.A.
Consolidated Statement of For the financial years ended on December 31, 2019, 2018 and 2017 (Expressed in thousands of pesos)
The accompanying Notes are an integral part of these Consolidated Financial Statements.
GRUPO SUPERVIELLE S.A. Consolidated Statement of Cash Flow For the years ended December 31, (Expressed in thousands of
The accompanying Notes are an integral part of these Consolidated Financial Statements.
GRUPO SUPERVIELLE S.A. Consolidated Statement of Cash Flow For the years ended December 31, 2019, 2018 and 2017 (Expressed in thousands of pesos)
The accompanying notes are an integral part of these
GRUPO SUPERVIELLE S.A.
As of December 31, 2019, 2018 and
(Expressed in thousands of
Grupo Supervielle S.A.
Grupo
The preparation of Financial Statements at a certain date requires Management to make estimations and evaluations affecting the amount of assets and liabilities recorded and contingent assets and liabilities disclosed at such date, as well as income and expenses recorded during the year. Actual results might differ from the estimates and evaluations made at the date of preparation of these Consolidated Financial Statements. The most significant judgments made by Management in applying the Group’s accounting policies and the major estimations and significant judgments are described in Note 2. These consolidated financial statements as of December 31, 2019, were approved by resolution of the Board of Directors’ meeting held on April 30, 2020.
The consolidated financial statements as of December 31, 2019, 2018 and 2017 have been prepared on a going concern basis as there is a reasonable expectation that the Group will continue its operational activities in
The IAS 29 establishes the conditions under which an entity shall restate its financial statements if it is located in an economic environment considered hyperinflationary. This Standard requires that the financial statements of
The Group determined to use the Internal Wholesale Price Index (IWPI) to restate balances and transactions until the year 2016, for the months of November and December 2015 the average variation of the Consumer Price Index (CPI) of the City of Buenos Aires was used, due to the fact that during those two months there were no IWPI measurements at national level. Then, from January
GRUPO SUPERVIELLE S.A.
Notes to
and for the years ended December 31, (Expressed in thousands of
As a consequence of the aforementioned, these Consolidated Financial Statements as of December 31, 2019 were restated in accordance with the provisions of IAS 29. Restatement of the Financial Position The Group restated all the non-monetary items in order to reflect the impact of the inflation in terms of the measuring unit current as of December 31, 2019. Consequently, the main items restated were Property, Plant and Equipment, Intangible assets, Goodwill, Inventories and the Equity items. Each item must be restated since the date of the initial recognition in the Group's accounts or since the date of the last revaluation. Monetary items have not been restated because they are stated in terms of the measuring unit current as of December 31, 2019. Comparative figures must also be presented in the measuring unit current as of December 31, 2019. Therefore, comparative figures for the previous reporting periods have been restated by applying a general price index, so that the resulting comparative financial statements are presented in terms of the current unit of measurement as of the closing date of the reporting period. Restatement of the Income Statement and the Statement of Cash Flows In the Income Statement, items shall be restated from the dates when the items of income and expense were originally recorded. To this end, the Group applied the variations in a general price index. The effect of inflation on the monetary position is included in the Income Statement under Results from exposure to changes in the purchasing power of money. The items of the Statement of Cash Flows must also be restated in terms of the measuring unit current at the closing date of the Statement of Financial Position. IAS 29 para 33 states that all items in the statement of cash flows are expressed in terms of the measuring unit current at the end of the reporting period. The loss arising from the restatement has an impact on the Income Statement and must be eliminated from the Statement of Cash Flows because it is not considered cash or cash equivalent. Restatement of the Statement of Changes in Shareholder’s Equity All components of the Statement of Changes in Shareholder’s Equity, except reserves and retained earnings, must be restated from the dates on which the items were contributed or otherwise arose. (c) New Standards and Interpretations issued by the IASB adopted by the Group In January 2016, the IASB issued IFRS 16 “Leases” which establishes the criteria for recognition and valuation of leases for lessees and lessors. IFRS 16 affect primarily the accounting by lessees and requires recognition of an asset (the right to use the leased item) and a financial liability for those contracts that meet the definition of leases under the standard. An optional exemption exists for short-term leases that do not contain a purchase option and low-value leases. The group has adopted IFRS 16 Leases retrospectively from 1January 2019, but has not restated comparatives for the 2018 reporting period, as permitted under the specific transition provisions in the standard. The reclassifications and the adjustments arising from the new leasing rules are therefore recognised in the opening balance sheet
GRUPO SUPERVIELLE S.A. Notes to Consolidated Financial Statements As of December 31, 2019, 2018 and 2017, and for the (Expressed in thousands of pesos) On adoption of IFRS 16, the group recognised lease liabilities in relation to leases which had (i) Practical expedients applied In applying IFRS 16 for the first time, the group has used the following practical expedients permitted by the standard: · applying a single discount rate to a portfolio of leases with reasonably similar characteristics; · relying on previous assessments on whether leases are onerous as an alternative to performing an impairment review – there were no onerous contracts as at January 1, 2019; · accounting for operating leases with a remaining lease term of less than 12 months as at 1 January 2019 as short-term leases; · excluding initial direct costs for the measurement of the right-of-use asset at the date of initial application; and · using hindsight in determining the lease term where the contract contains options to extend or terminate the lease. The group has also elected not to reassess whether a contract is, or contains a lease at the date of initial application. Instead, for contracts entered into before the transition date the group relied on its assessment made applying IAS 17 and Interpretation 4 Determining whether an Arrangement contains a Lease. (ii) Measurement of lease liabilities
(iii) Measurement of right-of-use assets The associated right-of-use assets were measured at the amount equal to the lease liability. (iv) Adjustments recognised in the balance sheet on 1 January 2019 The change in accounting policy affected the following items in the balance sheet on January 1, 2019:
(ii) Lessor accounting The group did not need to make any adjustments to the accounting for assets held as lessor under operating leases as a result of the adoption of IFRS 16. (d) New Standards and Interpretations issued by the IASB not in force IFRS 17 “Insurance contracts”: In May 18, 2017, the IASB issued IFRS 17 “Insurance contracts” as replacement for IFRS 4. It requires a current measurement model where estimates are re-measured each reporting period. Contracts are measured using the building blocks of discounted probability-weighted cash flows, an explicit risk adjustment, and a contractual service margin representing the unearned profit of the contract which is recognized as revenue over the coverage period. This standardis effective for fiscal years beginning on or after January 1, 2021. The Group is evaluating the impact of the adoption of this new standard.
GRUPO SUPERVIELLE S.A. Notes to Consolidated Financial Statements As of December 31, 2019, 2018 and 2017, and for the years ended December 31, 2019, 2018 and 2017 (Expressed in thousands of pesos)
A subsidiary is an entity, including structured entities, over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. The subsidiaries are consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. The following chart details the subsidiaries included in the consolidation process:
Financial Statements of controlled companies are for the same period of the Group´s Financial Statements.
Non-controlling interests in the Supervielle Productores Asesores de Seguros S.A., Bolsillo Digital S.A.U. and Futuros del Sur S.A. are consolidated from the date of their acquisition (See Note 29). The acquisition method of accounting is used to account for business combinations by the Group. The consideration transferred for the acquisition of a subsidiary comprises the fair value of the assets transferred, the liabilities incurred to the former owners of the acquired business, the equity interests issued by the Group, the fair value of any asset or liability resulting from a contingent consideration arrangement and the fair value of any pre-existing equity interest in the subsidiary. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date.
GRUPO SUPERVIELLE S.A. Notes to Consolidated Financial Statements As of December 31, 2019, 2018 and 2017, and for the years ended December 31, 2019, 2018 and 2017 (Expressed in thousands of pesos) The Group recognizes any non-controlling interest in the acquired entity on an acquisition-by-acquisition basis either at fair value or at the non-controlling interest’s proportionate share of the acquired entity’s net assets. Acquisition-related costs are expensed as incurred. The excess of the consideration transferred, the amount of any non-controlling interest in the acquired entity and the acquisition-date fair value of any previous equity interest in the acquired entity over the fair value of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the business acquired, the difference is recognized directly in the Consolidated Income Statement as a “bargain purchase”.
Banco Supervielle S.A., Cordial Compañía Financiera S.A. and Micro Lending S.A.U have securitized certain The Group controls a structured entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Structured entities are consolidated from the date on which the control is transferred to the Group. They are deconsolidated from the date that control ceases. As for financial trusts, the Group has evaluated the following: • The purpose and design of the trust • Identification of relevant activities of the trust • Decision-making process on these activities • If the Group has the power to direct the relevant activities of the trust • If the Group is exposed to, or has rights to, variable returns from its involvement with the trust • If the Group has ability to affect those returns through its power over the trust In accordance with the aforementioned, the Group controls such financial trusts and, therefore, such structured entities have The following chart details the assets and liabilities of Structured Entities that have been consolidated by the Group as of December 31, 2019 and 2018:
The Group treats transactions with non-controlling interests that do not result in a
An operating segment is defined as a component of an entity or a Group that
GRUPO SUPERVIELLE S.A. Notes to Consolidated Financial Statements As of December 31, 2019, 2018 and and for the years ended December 31, 2019, 2018 and 2017 (Expressed in Operating segments are reported in a manner consistent with the internal reporting provided to:
(a) Functional and presentation currency Figures included in the Consolidated Financial
Cash and due from Banks item includes available cash and unrestricted deposits held in Banks, which are short-term liquid instruments and have original maturities of less than three months.
Cash and
- investment in high-quality instruments with high liquidity and
- highly diversified portfolio.
Reconciliation between balances as appearing on the
GRUPO SUPERVIELLE S.A. Notes to Consolidated Financial Statements As of December 31, 2019, 2018 and 2017, and for the years ended December 31, 2019, 2018 and 2017 (Expressed in thousands of pesos)
Reconciliation of liabilities from financing activities at December 31, 2019 and 2018 is as follows:
Initial Recognition and measurement Financial assets and financial liabilities are recognized when the entity becomes a party to the contractual provisions of the instrument. Purchases and sales of financial assets are recognized on trade-date, the date on which the Group commits to purchase or sell the asset. At initial recognition, the Group measures a financial asset or liability at its fair value plus or minus, in the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs that are incremental and directly attributable to the acquisition or issue of the financial asset or financial liability, such as fees and commissions. Transaction costs of financial assets and financial liabilities carried at fair value through profit or loss are expensed in profit or loss. Immediately after initial recognition, an expected credit loss allowance (ECL) is recognized for financial assets measured at amortized cost and investments in debt instruments measured at fair value through other comprehensive income, as described in note 1.12, which results in an impariment loss being recognized in profit or loss when an asset is newly originated. When the fair value of financial assets and liabilities differs from the transaction price on initial recognition, the Group recognizes the difference as follows:
a – Debt Instruments Debt instruments are those instruments that meet the definition of
GRUPO SUPERVIELLE S.A. Notes to Consolidated Financial Statements As of December 31, 2019, 2018 and 2017, and for the years ended December 31, 2019, 2018 and 2017 (Expressed in thousands of pesos) Classification Pursuant to IFRS 9, the Entity classifies financial assets depending on whether these are subsequently measured at amortized cost, fair value through other comprehensive income or fair value through profit or loss, on the basis of:
Business Model
The The business model of the Group does not depend on the management’s intentions for an individual instrument. Consequently, such business model is not assessed instrument by instrument, but at a higher aggregated level. The Group reclassifies an instrument when and only when its business model for managing those assets has changed. Contractual Cash Flow Characteristics Where the business model is to hold assets to collect contractual cash flows or to collect contractual cash flows and sell, the Group assesses whether the financial instruments’ cash flows represent solely payments of principal and interest. Where the contractual terms introduce exposure to risk or volatility that are inconsistent with Based on the aforementioned, there are three different categories of Financial Assets: i) Financial assets at amortized cost. Financial assets shall be measured at amortized cost if both of the following conditions are met:
The amortized cost is the amount at which it is measured at initial recognition minus the principal repayments, plus or minus the cumulative amortization using the effective interest method of any difference between that initial amount and the maturity amount and, for financial assets, adjusted for any loss allowance. ii) Financial assets at fair value through other comprehensive income: Financial assets shall be measured at fair value through other comprehensive income when:
These instruments shall be initially recognized at fair value plus or minus transaction costs that are incremental and directly attributable to the acquisition or issue of the instrument, and subsequently measured at fair value through other comprehensive income. Gains and losses arising out of changes in fair value shall be included in other comprehensive income within a separate component of equity. Impairment gains or losses or reversal, interest revenue and foreign exchange gains and losses on the instrument’s amortized cost shall be recognized in profit or loss. At the time of sale or disposal, the cumulative gain or loss previously recognized in other comprehensive income is reclassified from equity to the income statement. Interest income from these financial assets is determined using the effective interest rate method.
GRUPO SUPERVIELLE S.A. Notes to Consolidated Financial Statements As of December 31, 2019, 2018 and 2017, and for the years ended December 31, 2019, 2018 and 2017 (Expressed in thousands of pesos) iii) Financial assets at fair value through profit or loss: Financial assets at fair value through profit or loss comprise:
These financial instruments are initially recognized at fair value and any change in fair value measurement is charged to the income statement. The Group classifies a financial instrument as held for trading if such instrument is acquired or incurred for the main purpose of selling or repurchasing it in the short term, or it is part of a portfolio of financial instruments which are managed together and for which there is evidence of short-term profits or if it is a derivative financial instrument not designated as a hedging instrument. Derivatives and trading securities are classified as held for trading and are measured at fair value. b – Equity Instruments Equity instruments are instruments that do not contain a contractual obligation to pay and that evidence a residual interest in the issuer’s net assets. Such instruments are measured at fair value through profit and loss, except where the Group’s senior management has elected, at initial recognition, to irrevocably designate an equity investment at fair value through other comprehensive income. This option is available when instruments are not held for trading. The gains or losses of these instruments are recognized in other comprehensive income and are not subsequently reclassified to profit or loss, including on disposal. Dividends that result from such instrument will be charged to income when the Group’s right to receive payments is established. Derecognition of Financial Assets The Group recognizes the write-off of financial assets only when any of the following conditions are met:
The Group derecognizes financial assets that have been transferred only when the following characteristics are met:
a. Has no obligation to make b. Is prohibited from selling or pledging the financial assets; c. Has an obligation to remit any cash it collects from the assets without material delay. Write Off of Financial Assets The Group reduces the gross carrying amount of a financial asset when it has no reasonable expectations of recovering a financial asset in its entirety of a portion thereof. A write-off constitues a derecognition event. Financial Liabilities Classification The Group classifies its financial liabilities as subsequently measured at amortized cost using the effective rate method, except for:
GRUPO SUPERVIELLE S.A. Notes to Consolidated Financial Statements As of December 31, 2019, 2018 and and for the (Expressed in thousands of pesos)
Financial Liabilities valued at fair value through profit or loss: At initial recognition, the Group can designate a liability at fair value through profit or loss if it reflects more appropriately the financial information because:
Financial guarantee contract: A guarantee contract is a contract which requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due, in accordance with the terms of a debt instrument. Financial guarantee contracts and loan commitments are initially measured at fair value and subsequently measured at the higher of the amount of the loss allowance and the unaccrued premium at year end. Derecognition of financial liabilities The Entity derecognizes financial liabilities when they are extinguished; this is, when the obligation specified in the contract is discharged, cancelled or expires. 1.9 Derivatives Derivatives are initially recognized at their fair value on the date on which the derivative contract is entered into and are subsequently remeasured at fair value. All derivative instruments are recognised as assets when their fair value is positive, and as liabilities when their fair value is negative. Any change in the fair value of derivative instruments is included in the income statement. The Group has not applied hedge accounting in these consolidated financial statements. 1.10 Repo Transactions
According to the derecognition principles set out in IFRS 9, these transactions are treated as secured loans for the risk has not been transferred to the counterparty. Loans granted in the form of reverse repo agreements are accounted for under “Repo Transactions”, classified by counterparty and also by the type of assets received as collateral. At the end of each month, accrued interest income is charged against “Repo Transactions” with its corresponding offsetting entry in “Interest Income.” The assets received and
Loans granted in the form of repo agreements are accounted for under “Repo Transactions”, classified by counterparty and also by the type of asset pledged as collateral.
GRUPO SUPERVIELLE S.A. Notes to Consolidated Financial Statements As of December 31, 2019, 2018 and 2017, and for the years ended December 31, 2019, 2018 and 2017 (Expressed in thousands of pesos) In these transactions, when the recipient of the underlying asset becomes entitled to sell it or pledge it as collateral, it is reclassified to “Financial assets in guarantee”. At the end of each month, these assets are measured according to the category they had before they were subject to the repo transaction, and results are charged against the applicable accounts, depending on the type of asset. At the end of each month, accrued interest expense is charged against “Repo Transactions” with its corresponding offsetting entry in “Interest-Expenses”. 1.11 Allowance for Loan Losses
The Group assesses on a forward-looking basis the expected credit losses (“ECL”) associated to its financial assets measured at amortized cost, debt instruments measured at fair value through other comprehensive income, loan commitments and financial guarantee contracts that are not measured at fair value. The impairment for expected credit losses is recorded with a charge to the consolidated income statement for the period in which the impairment arises. In the event of occurrence, the recoveries of previously recognized impairment losses are recorded in the consolidated income statement for the period in which the impairment no longer exists or is reduced. In the case of assets measured at fair value through other comprehensive income, the changes in the fair value due to expected credit losses are charged in the consolidated income statement of the year where the change happened, other movements in the fair value of the instrument are reflected in other comprehensive income. As a rule, the expected credit loss is estimated as the difference between the contractual cash flows to be recovered and the Depending on the classification of financial instruments, which is mentioned in the following sections, the expected credit losses may be over 12 months or during the life of the financial instrument:
With the purpose of estimating the expected life of the financial instrument all the contractual terms have been taken into account (e.g. duration, purchase options, etc.), for most financial instruments the contractual period (including extension options) is the maximum period considered to measure expected credit losses. In the case of revolving credit facilities (e.g.: credit cards), the expected life is estimated through quantitative analyses to determine the period during which the entity is exposed to credit risk, taking into account the effectiveness of management procedures that mitigate such exposure (e.g. the ability to unilaterally cancel such financial instruments, etc.).
For the purposes of estimating ECL, and in accordance with its internal policies, the Group classifies its financial instruments (financial assets, loan commitments and guarantees) measured at amortized cost or fair value through other comprehensive income in one of the following categories:
The Group considers a financial instrument to have experienced a significant increase in credit risk when any of the following conditions exist:
Retail Banking
Corporate Banking
Consumer Finance:Portfolios between 31 and 90 days past due.
The impairment model in IFRS 9 applies to financial assets measured at amortized cost, debt instruments at fair value through other comprehensive income, lease receivables and loan commitments and financial guarantees that are not measured at fair value. ECL represents the best estimation of the financial assets´ expected credit losses at the balance sheet date, assessed both individually and collectively.
The individually assessed impairment estimate is equal to the difference between the gross carrying amount of the financial instrument and the estimated value of the expected cash flows discounted using the original effective interest rate. The estimate of these cash flows takes into account all available information on the financial asset and the guarantees associated with that asset.
For expected credit loss provisions modelled on a collective basis, the Group has developed internal models. The grouping of exposures is preformed on the basis of shared characteristics, such that risk exposures within group are homogeneous. In performing the grouping there must be sufficient information for the group to be statistically reliable . The Group has identified three groupings: Retail Banking, Corporate Banking and Consumer Finance, amongst these three segments the Group estimates parameters in a more granular way based on the shared risk characteristics. Below are detailed the groupings by shared risk characteristics:
(1) For credit cards and personal loans, the breakdown per segment was added because there was enough materiality. The segments are: senior citizens, high income open market, high income payroll, non- high income open market, non-high income payroll, bussiness in retail banking, former senior cityzens and former payroll
The credit risk characteristics used to group the instruments are, among others: type of instrument, debtor's sector of activity, geographical area of activity, type of guarantee, aging of past due balances and any other factor relevant to estimating the future cash flows. The Group performs backtesting analysis to evaluate the reasonableness of the collective models. Expected credit loss impairment allowance in the financial statements reflects a range of possible outcomes, calculated on a probability weighted basis based on three possible future scenarios, always taking into account the time value of money, as well as all available and relevant information on past events, current conditions and forecasts of the For the estimation of the parameters used in the determination of the allowance for loan losses (EAD - Exposure at Default, PD -Probability of Default, LGD -Loss Given Default), the
The definition of default implemented by the Group for
The Group has not used the low credit risk exemption for any financial instrument. For the estimation of the expected credit losses, prospective information is taken into account. Specifically, the Group considers three prospective macroeconomic scenarios, which are updated periodically,
Each one of the macroeconomic scenarios has its corresponding weighting the Group associates the Base scenario with the highest probability of occurrence and therefore this scenario is the one with the highest weighting:
The sensitivity analysis for the macroeconomic scenarios’ probability of occurrence was based on a 5% increase/decrease in the probability of occurrence of Scenario 1. The ECL allowance sensitivity to future macroeconomic conditions is as follows:
1.12 Leases For leases where the Group acts as lessee the accounting policy is described in note 1.1.(c). The group as lessor: Operating leases Leases where the lessor retains a substantial portion of the risks and rewards of ownership are classified as operating leases. Payments made under operating leases (net of lease incentives) are recognized in profit or loss on a straight-line basis over the term of the lease. In addition, the Group recognizes the associated costs such as amortization and expenses. The historical cost includes expenditures that are directly attributable to the acquisition of these items and those expenses are charged to profit or loss during the lease term. The depreciation applied to the leased underlying assets is consistent with the one applied to similar assets’ group. In addition, the Group utilizes the criteria described in Note 1.18 to determine whether there is objective evidence that an impairment loss has occurred. Finance leases Finance leases are measured at the present value of on the future lease payments using a discount rate determined at inception. The difference between the gross receivable and the present value represents unearned finance income and is recognized during the lease term using the net investment method, which reflects a constant periodic rate of return. Incremental costs directly attributable to negotiating and arranging the lease are included in the initial measurement of the lease and reduce the amount of income recognized during the lease term. The Group utilizes the criteria described in Note 1.11 to determine whether there is objective evidence that an impairment loss has occurred, as for loans carried at amortized cost. 1.13 Property, plant and equipment Property, plant and equipment is measured at historical cost less depreciation, except for land and buildings, where the Group adopted the revaluation model. The historical cost includes expenditure that is directly attributable to the acquisition or building of these items. The subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group, and the cost of the item can be measured reliably. The carrying amount of an asset is derecognized when replaced. Repairs and maintenance expenses are charged to profit or loss when they are incurred. The depreciation is calculated using the straight-line method, applying annual rates sufficient to extinguish the values of assets at the end of their estimated useful lives. In those cases in which an asset includes significant components with different useful lives, such components are recognized and depreciated as separate items. The following chart presents the useful life for each item included in property, plant and equipment:
The asset’s residual values and useful lives are reviewed and adjusted if appropriate, at the end of each reporting period. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.
Increases in the carrying amounts arising on revaluation of land and buildings are recognized in other comprehensive income. Decreases that reverse previous increases of the same asset are first recognized in other comprehensive income to the extent of the remaining surplus attributable to the asset. All other decreases are charged to profit or loss. Gains and losses on disposals are determined by comparing proceeds with carrying amount. 1.14 Investment properties Investment properties are composed of buildings held for obtaining a rent or for capital appreciation or both, but is never occupied by the Group. Investment properties are measured at its fair value, and any gain or loss arising from a change in the fair value is recognized in profit or loss when arises. Investment properties are never depreciated. The fair value is determined using sales comparison approach prepared by the Group’s management considering a report of an independent expert. Gain and losses on disposals are determined by comparing proceeds with the carrying amount. 1.15 Inventories Inventories are valued at the lower of cost and net realizable value. The cost includes the acquisition costs (net of discounts, rebates and similar), as well as other costs that have been incurred to give the inventories their location and conditions to be commercialized. The net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of sale. The inventories’ net realizable values are reviewed and adjusted if carrying amount is greater than its net realizable value at the end of each reporting period. The Group establishes an allowance for obsolete inventory and low turnover rate products at the end of each year. 1.16 Intangible Assets (a) Goodwill Goodwill resulting from the acquisition of subsidiaries, associates or joint ventures account for the excess of the:
Goodwill is included in the intangible assets item in the consolidated financial statement. Goodwill is not subject to amortization, but it is annually tested for impairment. Impairment losses are not reverted once recorded. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairment testing. Goodwill impairment is recognized when the carrying amount exceeds its recoverable amount which derives from the fair value of (b) Trademarks and licenses Trademarks and licenses acquired separately are initially valued at historical cost, while those acquired through a business combination are recognized at their estimated fair value at the acquisition date..
Intangible assets with a finite useful life are subsequently carried at cost less accumulated depreciation and / impairment losses, if any. These assets are tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired. Trademarks acquired by the Group have been classified as intangible assets with an indefinite useful life. The main factors considered for this classification include the years in which they have been in service and their recognition among industry customers. Intangible assets with an indefinite useful life are those that arise from contracts or other legal rights that can be renewed without a significant cost and for which, based on an analysis of all the relevant factors, there is no foreseeable limit of the period over which the asset is expected to generate net cash flows for the Group. These intangible assets are not amortized, but are tested for impairment annually or more frequently if events or changes in circumstances indicate that they might be impaired, either individually or at the level of the cash generating unit. The categorization of the indefinite useful life is reviewed annually to confirm if it is still sustainable. (c) Software Costs related to software maintenance are recognized as an expense as incurred. Development, acquisition or implementation costs which are directly attributable to the design and testing of identifiable and unique software products controlled by the Group are recognized as intangible assets when the following criteria are met:.
These intangible assets are amortized on a straight-line basis during their estimated useful life, over a term not exceeding five years. 1.17 Assets held for sale The assets, or groups of assets, with some directly associated liabilities, classified as held for sale in accordance with the provisions of IFRS 5 "Non-current assets held for sale and discontinued operations" will be disclosed separately from the rest of assets and An asset may be classified as held for sale if its carrying amount will be recovered primarily through a sale transaction, rather than through its continued use, and a sale is considered highly probable. To apply the above classification, an asset must meet the following conditions: - it must be available for immediate sale in its current conditions; - Management must be committed to a plan to sell the asset and have started an active program to locate a buyer and complete the plan; - the asset must be actively marketed for sale at a reasonable price, in relation to its current fair value; - the sale must be expected to be completed within 12 months from the reclassification date; - it is unlikely that the plan will be significantly changed or withdrawn. The assets, or groups of assets, possibly with some directly associated liabilities, classified as held for sale in accordance with the provisions of IFRS 5 "Non-current assets held for sale and discontinued operations", are measured at the lower of their carrying amount and fair value less costs to sell. The Group will not depreciate the asset while classified as held for sale.
The balances of financial instruments, deferred taxes and investment properties classified as held for sale are not subject to the valuation methods detailed above. 1.18 Impairment of non-financial assets Assets with an indefinite useful life are not subject to amortization but are tested annually for impairment Impairment losses are recognized when the carrying amount exceeds its recoverable amount. The recoverable amount of an asset is the higher of an asset’s fair value less costs of disposal and value in use. For purposes of assessing impairment, assets are grouped at the lowest level for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or group of assets (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period. 1.19 Trust Assets Assets held by the Group in its Trustee role, are not included in the Consolidated Financial Statements. Commissions and fees earned from trust activities are included in Service fee income. 1.20 Offsetting Financial assets and liabilities are offset and the net amount reported in the consolidated financial statement where the Group has a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or realize the assets and settle the liability simultaneously. 1.21 Financing received from the Argentine Central Bank and other Financial Institutions The amounts owed to other financial institutions are recorded at the time the bank disburses the proceeds to the economic group. Non-derivative financial liabilities are measured at amortized cost. 1.22 Provisions / Contingencies A provision will be recognized when:
An Entity will be deemed to have an implicit obligation where (a) the Group has assumed certain responsibilities as a consequence of past practices or public policies and (b) as a result, the Group has created an expectation that it will discharge those responsibilities The Group recognizes the following provisions: For labor, civil and commercial lawsuits: provisions are calculated based on lawyers’ reports about the status of the proceedings and the estimate about the potential losses to be afforded by the Group, as well as on the basis of past experience in this type of claims. For miscellaneous risks: These provisions are set up to address contingencies that may trigger obligations for the Group. In estimating the provision amounts, the Group evaluates the likelihood of occurrence taking into consideration the opinion of its legal and professional advisors. Other contingent liabilities are: i) possible obligations that arise from past events and whose existence will be confirmed only by the occurrence or non-occurrence of uncertain future events not wholly within the control of the Group; or ii) present obligations that arise from past events but it is not probable that an outflow of resources will be required to its settlement; or whose amount cannot be measured with sufficient reliability. Other contingent liabilities are not recognized. Contingent liabilities, whose possibility of any outflow in settlement is remote, are not disclosed unless they involve guarantees, in which case the nature of the guarantee is disclosed.
The Group does not account for positive contingencies, other than those arising from deferred taxes and those contingencies whose occurrence is virtually certain. As of the date of these consolidated financial statements, the Group's management believes there are no elements leading to determine the existence of contingencies that might be materialized and have a negative impact on these consolidated financial statements other than those disclosed in Note 17. 1.23 Other non-financial liabilities Non-financial accounts payable are accrued when the counterparty has fulfilled its contractual obligations and are measured at amortized cost. 1.23.1 Employee benefits The Group’s short-term obligations includes liabilities for wages and salaries, including annual leave, that are expected to be settled wholly within 12 months after the end of the period in which the employees render the related service are recognised in respect of employees’ services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled. The liabilities are presented as Other Non-Financial Liabilities in the Consolidated Financial Position. During 2018, the Group had in place a retirement plan based on incentives for members of senior management and the Board of Directors, who will be entitled to receive cash payments over time if certain performance objectives are met. This retirement plan was ceased in 2019. In addition, provisions related to pre-retirement plans and seniority awards benefits are recognized. Liabilities related to this plan are not expected to be settled wholly within 12 months after the end of the period in which the employees render the related service. These obligations are therefore measured as the present value of expected future payments to be made in respect of services provided by employees up to the end of the reporting period, using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the end of the reporting period of high-quality corporate bonds with terms and currencies that match, as closely as possible, the estimated future cash outflows. Remeasurements as a result of experience adjustments and changes in actuarial assumptions are recognised in profit or loss. These provisions are measured at the present value of the disbursements that are expected to be required to settle the obligation using a pre-tax interest rate that reflects prevailing market conditions the time value of money and the specific risks for that obligation. Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or when an employee accepts voluntary redundancy in exchange for these benefits. The group recognises termination benefits at the earlier of the following dates: (a) when the group can no longer withdraw the offer of those benefits; and (b) when the entity recognises costs for a restructuring that is within the scope of IAS 37 and involves the payment of terminations benefits. In the case of an offer made to encourage voluntary redundancy, the termination benefits are measured based on the number of employees expected to accept the offer. Benefits falling due more than 12 months after the end of the reporting period are discounted to present value 1.24 Negotiable Obligations Subordinated and unsubordinated negotiable obligations issued by the Group are measured at amortized cost. Where the group buys back its own negotiable obligations, such obligations will be derecognized from the Consolidated Financial Statements and the difference between the residual value of the financial liability and the amount paid will be recognized as financial income or expenses.
1.25 Assets and liabilities derived from insurance contracts The Group applies IFRS 4 “Insurance Contracts” in order to recognize and measure the assets and liabilities derived from insurance contracts. Assets derived from insurance contracts An insurance contract is a contract under which the Group (the insurer) accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder. Once a contract has been classified as an insurance contract, it remains an insurance contract for the rest of its term, even if the insurance risk is significantly reduced during this period, unless all rights and obligations are extinguished or expired. The insurance contracts offered by the Group include property insurance that covers combined family insurance, theft and similar risks, property damage, personal accidents, among other risks. They also include temporary life insurance contracts. Total premiums are recognized on the date of issuance of the policy as an account receivable. At the same time, a reserve for unearned premiums representing premiums for risks that have not yet expired is recorded as a liability. Unearned premiums are recognized as income during the contract period, which is also the coverage and risk period. The book value of insurance accounts receivable is reviewed for impairment whenever events or circumstances indicate that the book value may not be recoverable. The Liabilities derived from insurance contracts Debt with insured The insurance claims reserves represent debts with insured people for claims reported to the company and an estimate of Debts with reinsurers and co-insurers The Group mitigates the risk for some of its insurance businesses through co-insurance or reinsurance contracts in other companies. In the case of co-insurance, the Group Coinsurance and reinsurance liabilities represent balances owed under the same conditions and the amounts payable are estimated in a manner consistent with the contract that Debts with producers They represent liabilities with insurance agents originated in the commissions for the insurance operations that they originate for the Group companies. The balances of the current accounts with these entities are also included. Technical commitments The current risk reserve regularizes the premiums to be 1.26 Capital Stock and Capital Adjustments Accounts included in this item are expressed in terms of the
As
1.28 Revenue Recognition
Financial income and expense is recognized in respect of all debt instruments in accordance with the effective interest rate method, pursuant to which all gains and losses which are an integral part of the transaction effective interest rate are deferred. Gains or losses included in the effective interest rate embrace disbursements or receipts relating to the creation or acquisition of a financial asset or liability, such as preparation and processing of the documents required to consummate the transactions, and payments received for the extension of credit arrangements. Fees and commissions earned by the Group on the origination of syndicated loans are not part of the product effective interest rate, and are recognized in the income statement at the time the service is delivered. Commissions and fees earned by the Group on negotiations in third parties’ transactions are not part of the effective interest rate either, and are recognized at the time the transactions are executed. The Group's income from services is recognized in the income statement as performance obligations are fulfilled, part of the consideration received is allocated to the customer loyalty programs described below. Consideration is allocated based on the relative standalone selling prices for services rendered and points granted. . Below is a summary of the main commissions earned by the Bank:
Customer loyalty programs The Group offers reward programs that allow its cardholders to earn points that can be redeemed for a broad range of rewards, including goods and travels among others. This constitutes a performance obligation. The Group establishes a liability based on the fair value of the points issued that are expected to be exchanged by customers. Points to be redeemed are estimated based on the historical redemption behavior of each program. The liability is reduced and the revenue is recognized as performance obligations relating to the points are satisfied, which normally is when the points are exchanged by customers or at their due dates. Revenue recognized during the year is adjusted as explained in Note 1.1.b. GRUPO SUPERVIELLE S.A. Notes to Consolidated Financial Statements As of December
(Expressed in thousands of pesos) 1.29 Income tax and minimum presumed income tax Income Tax Income tax expense for the year includes current and deferred tax. Income tax is recognized in the consolidated statements of income, except for items required to be recognized directly in other comprehensive income. In this case, the income tax liability related to such items is also recognized in such statement. Current income tax expense is calculated on the basis of the tax laws enacted or substantially enacted as of the date of the Statement of Financial Position in the countries where the Company and its subsidiaries operate and generate taxable income. The Group periodically assesses the position assumed in tax returns in connection with circumstances in which the tax regulation is subject to interpretation. The Group sets up provisions in respect of the amounts expected to be required to pay to the tax authorities. Deferred income tax is recognized, using the deferred tax liability method, on temporary differences arising from the carrying amount of assets and liabilities and their tax base. However, the deferred tax arising from the initial recognition of an asset or liability in a transaction other than a business combination which, at the time of the transaction does not affect income or loss for accounting or tax purposes, is not recorded. Deferred income tax is determined using tax rates (and laws) enacted as of the date of the Financial Statements and that are expected to be applicable when the deferred tax assets are realized or the deferred tax liabilities are settled. Deferred income tax assets are recognized only to the extent future tax benefits are likely to arise against which the temporary differences can be offset. The Group recognizes a deferred tax liability for taxable temporary differences related to investments in subsidiaries and affiliates, except that the following two conditions are met:
Deferred income tax assets and liabilities are offset when a legal right exists to offset current tax assets against current tax liabilities and to the extent such balances are related to the same tax authority of the Group or its subsidiaries, where tax balances are intended to be, and may be, settled on a net basis.. Minimum Presumed Income Tax The Group determines the minimum presumed income tax at the effective rate of 1% of the computable assets at each fiscal year-end. This tax is supplementary to income tax. The Group’s tax liability is equal to the higher of the two taxes. However, if the minimum presumed income tax were to exceed income tax in a given fiscal year, such excess may be computed as a payment on account of the income tax that could be generated in any of the next ten fiscal years. The minimum presumed income tax credit disclosed under "Current Income Tax Assets" is the portion the Group expects to offset against the income tax in excess of minimum presumed income tax to be generated in the following ten fiscal years. 1.30 Earnings per share Basic earnings per share are calculated by dividing net income attributable to the Group’s shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share are calculated by dividing the net income for the year by the weighted average number of common shares issued and dilutive potential common shares at year end. Since the Company has no dilutive potential common shares outstanding, there are no dilutive earnings per share amounts. 2. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The preparation of these Consolidated Financial Statements in accordance with IFRS requires the use of certain critical accounting estimates. It also requires Senior Management to make judgements in applying the accounting standards to define the Group’s accounting policies. The Group has identified the following areas which involve a higher degree of judgement or complexity, or areas where assumptions and estimates are material for these Consolidated Financial Statements which are essential to understand the underlying accounting/financial reporting risks:
GRUPO SUPERVIELLE S.A. Notes to Consolidated Financial Statements As of December 31, 2019, 2018 and 2017, and for the years ended December 31, 2019, 2018 and 2017 (Expressed in thousands of pesos)
The fair value of financial instruments not listed in active markets is determined using valuation techniques. Such techniques are validated and reviewed periodically by qualified personnel independent from the area which developed them. All models are assessed and adjusted before being put into use in order to ensure that results reflect current information and comparable market prices. As long as possible, models rely on observable inputs only; however, certain factors such as the Group's own and the counterparty's credit risk, volatilities and correlations, require the use of estimates. Changes in the assumptions of these factors may affect the reported fair value of financial instruments.
The Group recognizes the allowance for loan losses under the expected credit losses method included in IFRS 9. The most significant judgements of the model relate to defining what is considered to be a significant increase in credit risk, determining the life of revolving facilities, and in making assumptions and estimates to incorporate relevant information about past events, current conditions and forecasts of economic conditions. A high degree of uncertainty is involved in making estimations using assumptions that are highly subjective and very sensitive to the risk factors. Note 1.12 provides more detail of how the expected credit loss allowance is measured.
Intangible assets with definite useful life and property, plant and equipment are amortized or depreciated on a straight-line basis during their estimated useful life. The Group monitors the conditions associated with these assets to determine whether the events and circumstances require a review of the remaining amortization or depreciation term and whether there are factors or circumstances indicating impairment in the value of the assets which might not be recoverable. Identifying the indicators of impairment of property, plant and equipment and intangible assets requires the use of judgment. The Group has concluded that there were no indicators of impairment for any of the years reported in its consolidated financial statements. Assets with indefinite useful life are tested for impairment. This process require Management to make judgements, including the identification of cash-generating units, the identification and allocation of assets and liabilities to a cash-generating unit and the definition of their recoverable value. When calculating the recoverable value of a cash-generating unit, the Group use estimates and significant judgments and assumptions. Although the Group believes that assumptions and forecasts used are suitable in virtue of the information available for the administration, changes in assumptions or circumstances may require changes in the assessment. Negative changes in assumptions used in impairment tests of assets with indefinite useful life may result in a potential impairment recognition.
Assessing whether the Group controls a structured entity requires Management to make, judgments. Management assesses its exposure to risks and rewards, as well as its ability to make decisions and direct the relevant activities of such structured entity. Structured entities controlled by the Group are subject to consolidation. The following elements were used to determine if the Group controls a structured entity: The purpose and design of the trust Identification of relevant activities of the trust Decision-making process on these activities If the Group has the power to direct the relevant activities of the trust If the Group is exposed to, or has rights to, variable returns from its involvement with the trust If the Group has the ability to affect those returns through its power over the trust If Structured Entities were not consolidated by the Group, the consolidated income statement would record a loss of 13,234, 91,227 and 59,155 as of December 31, 2019, 2018 and 2017 respectively. See Note 1.3 for further information on the Group´s exposure to structured entities.
GRUPO SUPERVIELLE S.A. Notes to Consolidated Financial Statements As of December 31, 2019, 2018 and 2017, and for the years ended December 31, 2019, 2018 and 2017 (Expressed in thousands of pesos)
A significant level of judgment is required to determine current and deferred tax assets and liabilities. Current income tax is measured at the amount expected to be paid while deferred income tax is measured based on the temporary differences between the carrying amount of assets and liabilities and their tax base, at the rates expected to be in force at the time of reversal of such differences. A deferred tax asset is recognized when future taxable income is expected to exist to offset such temporary differences, based on Management's assumptions about the amounts and timing of such future taxable income. Then, management needs to determine whether deferred tax assets are likely to be used and offset against future taxable income. Actual results may differ from these estimates, for instance, changes in the applicable tax laws or the outcome of the final review of the tax returns by the tax authorities and tax courts. Future taxable income and the number of tax benefits likely to be available in the future are based on a medium term business plan prepared by management on the basis of reasonable expectations. 3. SEGMENT REPORTING The Group determines operating segments based on performance reports which are reviewed by the Board and key personnel of Senior Management and updated upon changes. The Group considers the business for the type of products and services offered, identifying the following operating segments:
Operating results of the different operating segments of the Group are reviewed individually with the purpose of taking decisions over the allocation of resources and the performance appraisal of each segment. The performance of such segments will be evaluated based on operating earnings and losses and is measured consistently with operating earnings and losses of the consolidated earnings and losses statement. When a transaction is carried out, transfer prices between segments are taken in an independent and equitative manner, as in cases of transactions with third parties. Later, income, expenses and results from transfers between operating segments are removed from the consolidation. The following chart includes information by segment measured in accordance with IAS 29, as of December 31, 2019, 2018 and 2017:
GRUPO SUPERVIELLE S.A. Notes to Consolidated Financial Statements As of December 31, 2019, 2018 and 2017, and for the years ended December 31, 2019, 2018 and 2017 (Expressed in thousands of pesos)
GRUPO SUPERVIELLE S.A. Notes to Consolidated Financial Statements As of December 31, 2019, 2018 and 2017, and for the years ended December 31, 2019, 2018 and 2017 (Expressed in thousands of pesos)
GRUPO SUPERVIELLE S.A. Notes to Consolidated Financial Statements As of December 31, 2019, 2018 and 2017, and for the years ended December 31, 2019, 2018 and 2017 (Expressed in thousands of pesos)
GRUPO SUPERVIELLE S.A. Notes to Consolidated Financial Statements As of December 31, 2019, 2018 and 2017, and for the years ended December 31, 2019, 2018 and 2017 (Expressed in thousands of pesos) 4. INCOME TAX On December 21, 2019, the National Executive enacted Income Tax Law 27,541. This law has introduced several changes to the previous income tax treatment. Some of the key changes involved in the reform include: Article 27 of the Law stipulates that the inflation adjustment, positive or negative, corresponding to the first and second fiscal year beginning on January 1, 2019, should allocate a sixth (1/6) in that fiscal period and the remaining five sixth (5/6), in equal parts, in the next five (5) immediate fiscal periods. In turn, it is clarified that said provision does not preclude the allocation of the remaining thirds corresponding to previous periods, calculated in accordance with the previous version of article 194 of the Income Tax Law. Article 48 of the Law 27,541 establishes that until the fiscal years beginning as of January 1, 2021 inclusive, the tax rate will be thirty percent (30%) -Dividends or distributed profits will be 7%. The following table reconciles the statutory income tax rate in Argentina to the Group´s effective tax rate as of December 31, 2019, 2018 and 2017:
The following is a reconciliation between the income tax charged to income as of December 31, 2019, 2018 and 2017, and that which would result from applying the current tax rate on the accounting profit
GRUPO SUPERVIELLE S.A. Notes to Consolidated Financial Statements As of December 31, 2019, 2018 and 2017, and for the years ended December 31, 2019, 2018 and 2017 (Expressed in thousands of pesos)
The net position of the deferred tax is as follows:
Deferred tax assets / (liabilities) are summarized as follows:
5. FINANCIAL INSTRUMENTS Financial instruments held by the Group as of December 31, 2019 and 2018:
GRUPO SUPERVIELLE S.A. Notes to Consolidated Financial Statements As of December 31, 2019, 2018 and 2017, and for the years ended December 31, 2019, 2018 and 2017 (Expressed in thousands of pesos)
6. FAIR VALUES
The Group classifies fair values of financial instruments in a three level hierarchy according to the reliability of the inputs used to determine them. Fair Value level 1: The fair value of financial instruments traded in active markets (such as publicly-traded derivatives, debt securities or available for sale) is based on market quoted prices as of the date of the reporting period. If the quoted price is available and there is an active market for the instrument, it will be included in Level 1. Otherwise, it will be included in Level 2. Fair Value level 2: The fair value of financial instruments which are not traded in active markets, such as over-the-counter derivatives, is determined using valuation techniques that maximize the use of observable market data and rely the least possible on the Group’s specific estimates. If all significant inputs required to determine fair value a financial instrument are observable, such instrument is included in level 2. If the inputs used to determine the price are not observable, the instrument will be included in Level 3. Fair Value level 3: If one or more significant inputs are not based on observable market data, the instrument is included in level 3.
GRUPO SUPERVIELLE S.A. Notes to Consolidated Financial Statements As of December 31, 2019, 2018 and 2017, and for the years ended December 31, 2019, 2018 and 2017 (Expressed in thousands of pesos) The Group’s financial instruments measured at fair value as of December 31, 2019 and 2018 are detailed below:
Below is shown the reconcilation of the financial instruments classiffied as Fair Value Level 3:
(*) The transfer was due to the lack of observable prices, directly or indirectly, for the measurement of this Financial Instruments The Group’s policy is to recognize transfers between fair value levels only at end of period. The transfers were produced by the classification as Level 3 of the financial instruments with lack of observable prices. Valuation Techniques Valuation techniques to determine fair values Level 2 and Level 3 include the following:
GRUPO SUPERVIELLE S.A. Notes to Consolidated Financial Statements As of December 31, 2019, 2018 and 2017, and for the years ended December 31, 2019, 2018 and 2017 (Expressed in thousands of pesos) The valuation technique to determine fair value Level 2 is based on inputs other than the quoted price included in Level 1 that are readily observable for the asset or liability (i.e., prices). For Level 3, the Group uses valuation techniques through spot rate curves which calculate the yield upon market prices. These valuation techniques are detailed below: - Interpolation model: It consists of the determination of the value of financial instruments that do not have a market price at the closing date, based on quoted prices for similar assets (both in terms of issue, currency, and duration) in the active markets ( MAE, Bolsar or secondary) through the linear interpolation of them. This technique has been used by the Entity to determine the fair value of the instruments issued by the BCRA and Treasury Bills without quotation at the end of this period. - Performance Curve Model under Nelson Siegel: This model proposes a continuous function to model the trajectory of the instant forward interest rate considering as a domain the term comprised until the next interest and / or capital payment. It consists in the determination of the instrument’s price estimating for this the volatility through market curves. The Entity has used this model to estimate prices in negotiable obligations or financial instruments with variable interest rate. The principal inputs considered by the Group for its determination of fair values under the linear interpolation model are: - Instrument prices that were quoted between the date the curve is estimated and the settlement date of the latest payment available. - Implicit rates in the last available tender. - Only instruments that have been traded with a 24-hour settlement are considered. - If the same instrument has been listed on MAE (“Mercado Abierto Electrónico”) and Bolsar, only the market price that has been traded in the market with higher volume is considered - The yield curve is standardized based on a set of nodes, each of which has an associated expiration date. - Instruments denominated in US dollars are converted at the exchange rate on the date the instrument is negotiated. Likewise, for the determination of fair values under the Nelson Siegel model, the main data and aspects considered by the Entity were: - The Spot rate curves in pesos + BADLAR and the Spot rate curve in US dollars are established based on bonds predefined by Financial Risk Management. - The main source of prices for Bonds is MAE, without considering those corresponding to operations for own portfolio. - The portfolio of bonds used as input is changed with every issuance. The Group periodically evaluates the performance of the models based on indicators which have defined tolerance thresholds. Under IFRS, the estimated residual value of an instrument at inception is generally the transaction price. In the event that the transaction price differs from the determined fair value, the difference will be recognized in the statement of results proportionally for the duration of the instrument. 6.2 Fair Value of other Financial Instruments The following describes the methodologies and assumptions used to determine the fair values of financial instruments not recorded at their fair value in these financial statements: - Assets whose fair value is similar to book value: For financial assets and liabilities that are liquid or have short-term maturities (less than three months), the book value is considered to be similar to fair value. - Fixed rate financial instruments: The fair value of financial assets was determined by discounting future cash flows at the current market rates offered, for each year, for financial instruments with similar characteristics. The estimated fair value of deposits with a fixed interest rate was determined by discounting future cash flows through the use of market interest rates for deposits with maturities similar to those of the Bank's portfolio. - For listed assets and the quoted debt, fair value was determined based on market prices.
GRUPO SUPERVIELLE S.A. Notes to Consolidated Financial Statements As of December 31, 2019, 2018 and 2017, and for the years ended December 31, 2019, 2018 and 2017 (Expressed in thousands of pesos) Below is the difference between the carrying amount and the fair value of the main assets and liabilities recorded at amortized cost as of December 31, 2019 and 2018, respectively:
6.3 Fair Value of Equity instruments The following are the equity instruments measured at Fair Value with changes in profit or loss as of December 31, 2019 and 2018:
GRUPO SUPERVIELLE S.A. Notes to Consolidated Financial Statements As of December 31, 2019, 2018 and 2017, and for the years ended December 31, 2019, 2018 and 2017 (Expressed in thousands of pesos) The following are the equity instruments measured at Fair Value with changes in Other Comprehensive Income as of December 31, 2019 and 2018:
7. FINANCE LEASES 7.1 The Group as lessee
The Group leases several branches. Rental agreements are generally made for fixed periods of 1 to 10 years, but may have extension options as described in (iv) below.
GRUPO SUPERVIELLE S.A. Notes to Consolidated Financial Statements As of December 31, 2019, 2018 and 2017, and for the years ended December 31, 2019, 2018 and 2017 (Expressed in thousands of pesos) Contracts may contain lease components or not. The Group assigns consideration in the contract to the lease and non-lease components based on their independent relative prices. However, for the leases of real estate for which the Group is a lessee, it has chosen not to separate the lease components and those that are not, and instead counts them as a single lease component. Lease terms are negotiated individually and contain a wide range of different terms and conditions. Lease agreements do not impose other obligations to do or not do, other than the leased assets owned by the lessor. Leased assets cannot be used as collateral for obtaining loans. Until 2018, Property, Plant and Equipment leases were classified as operating leases. As of January 1, 2019, leases are recognized as a right-of-use asset by registering a liability as a counterparty on the date on which the leased asset is available for use by the Entity. Assets and liabilities arising from leases are initially measured based on the present value. Lease liabilities include the net present value of the following lease payments:
Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability. Lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be easily determined, which is generally the case with leases in the Group, the lessee's incremental borrowing rate is used, which is the rate that the individual lessee would have to pay to borrow the necessary funds to obtain an asset of similar value to the asset by right of use in a similar economic environment with similar terms, security and conditions. To determine the incremental interest rate, the Group:
The Group is exposed to possible future increases in variable lease payments based on an index or rate, which are not included in the lease liability until they become effective. When adjustments to lease payments based on an index or rate become effective, the lease liability is reassessed and adjusted against the right-of-use asset. Lease payments are allocated between capital and financial cost. The financial cost is charged to income during the lease period to produce a constant periodic interest rate on the remaining balance of the liability for each period. The right-of-use assets are measured at cost comprising the following:
The right-of-use assets are generally depreciated during the shortest useful life of the asset and the lease term in a linear fashion.
GRUPO SUPERVIELLE S.A. Notes to Consolidated Financial Statements As of December 31, 2019, 2018 and 2017, and for the years ended December 31, 2019, 2018 and 2017 (Expressed in thousands of pesos) Payments associated with short-term leases of equipment and all leases of low-value assets are recognized linearly as an expense in income. Short-term leases are leases with a lease term of 12 months or less and that does not contains a purchase option. Low-value assets include computer equipment and small items of office furniture. (iv) Extension and termination options Extension and termination options are included in several property leases. These are used to maximize operational flexibility in terms of managing the assets used in operations. Most of the extension and termination options maintained are exercisable only by the Group and not by the respective lessor. 7.2 The Group as lessor The following is a breakdown of the maturities of the Group's financial and operating leases receivables and of the current values as of December 31, 2019 and 2018:
The balance of allowance for loan losses related to finance leases amounts to 82,052 and 97,130 as of December 31, 2019 and 2018.
8. TRANSFER OF FINANCIAL ASSETS When the Group transfers financial assets under an agreement that meets all requirements to derecognize such assets, the difference between the carrying amount of those assets and the amount received as consideration is charged to income.
The following is a detail of the financial assets transferred by the Group that continue to be recognized in its consolidated financial statements as of December 31, 2019 and 2018:
GRUPO SUPERVIELLE S.A. Notes to Consolidated Financial Statements As of December 31, 2019, 2018 and 2017, and for the years ended December 31, 2019, 2018 and 2017 (Expressed in thousands of pesos)
The Group makes, in certain opportunities, non-recourse portfolio sales. In these cases, the Group has not retained any substantial risk or reward regarding the transferred portfolio, and therefore, such portfolio meets derecognition requirements. 9. REPO AND REVERSE REPO TRANSACTIONS The Group carries out repo transactions in which it performs the spot sale of a security with the related forward purchase thereof, thus substantially retaining all the risks and rewards associated with the instruments and recognizing them in "Financial Assets Pledged as Collateral" at year-end, as the provisions set out in point 3.4.2 (Derecognition of Assets) of IFRS 9 "Financial Instruments") are not met. The residual values of assets transferred under repo transactions as of December 31, 2019 and 2018 are detailed below: Repo Transactions:
10. DERIVATIVE FINANCIAL INSTRUMENTS In the normal course of business, the Group enters into a variety of transactions principally in the foreign exchange stock markets. Most counterparties in the derivative transactions are banks and other financial institutions. These instruments include:
As of December 31, 2019 and 2018, the following amounts were recorded for operations related to derivatives:
The following table shows, the notional value of options and outstanding forward and futures contracts as of December 31, 2019 and 2018:
The incomes/(expenses) generated by derivative financial instruments during the years ended December 31, 2019, 2018 and 2017 amounted to 713,616, (2,605,689) and (166,485) respectively.
GRUPO SUPERVIELLE S.A. Notes to Consolidated Financial Statements As of December 31, 2019, 2018 and 2017, and for the years ended December 31, 2019, 2018 and 2017 (Expressed in thousands of pesos) 11. EARNINGS PER SHARE Earnings per share are calculated by dividing income attributable to the
12. SPECIAL TERMINATION ARRANGEMENTS Special termination arrangements are principally termination benefits payable to employees who accepted a pre-retirement offer. These benefits are payable during the period between their effective termination date and their retirement age, when they voluntarily accept an irrevocable termination arrangement. As of December 31, 2019 and 2018, special termination arrangements amounted to Ps. 947,536 and Ps. 609,302, respectively. The amounts charged to profit or loss regarding these benefits as of December 31, 2019 and 2018 were Ps. 527,901 and Ps. 125,547, respectively. The evolution during each period is detailed below:
GRUPO SUPERVIELLE S.A. Notes to Consolidated Financial Statements As of December 31, 2019, 2018 and 2017, and for the years ended December 31, 2019, 2018 and 2017 (Expressed in thousands of pesos) 13. PROPERTY, PLANT AND EQUIPMENT Changes in property, plant and equipment for financial years ended on December 31, 2019 and 2018 are as follows:
GRUPO SUPERVIELLE S.A. Notes to Consolidated Financial Statements As of December 31, 2019, 2018 and 2017, and for the years ended December 31, 2019, 2018 and 2017 (Expressed in thousands of pesos) 13.1 Revaluation of Property, Plant and Equipment The Group´s properties, plant and equipment measured at revaluation model were valued at each reporting date by an independent expert. The frequency of revaluations ensures fair value of the revalued asset does not differ materially from its carrying amount. The last revaluation was made on December 31, 2019. The following are the book values that would have been recognized if the assets had been accounted under the cost model:
For all Land and Buildings with a total valuation of 1,825 million as of December 31, 2019, the valuation was determined using sales Comparison Approach prepared by the Group’s management considering a report of an independent expert. Sale prices of comparable properties are adjusted considering the specific aspects of each property, the most relevant premise being the price per meter (Level 3). The Group estimated that, other factors being constant, a 5% reduction on the Sales price per meter for the period ended December 31, 2019 would have reduced the value of the Land and Buildings on 91.2 million, which would impact, net of its tax effect on the "Net Revaluation surplus of property, plant and equipment" item in the statement of comprehensive income. 14. INVESTMENT PROPERTIES The movements in investment properties for the years ended December 31, 2019 and 2018 were as follows:
Investment properties are measured at their fair value determined byprofessionally qualified valuers. For all Investment Properties with a total valuation of 3.878 million as of December 31, 2019, the valuation was determined using sales Comparison Approach prepared by the Group’s management considering a report of an independent expert. Sale prices of comparable properties are adjusted considering the specific aspects of each property, the most relevant premise being the price per meter (Level 3). The Group estimated that, other factors being constant, a 5% reduction on the Sales price per meter for the period ended December 31, 2019 would have reduced the value of the Investment Properties by 193.9 million, which would impact, net of its tax effect on the "Other Operating Income" item in the Income statement.
GRUPO SUPERVIELLE S.A. Notes to Consolidated Financial Statements As of December 31, 2019, 2018 and 2017, and for the years ended December 31, 2019, 2018 and 2017 (Expressed in thousands of pesos) 15. INTANGIBLE ASSETS Intangible assets of the Group for fiscal years ended on December 31, 2019 and 2018 are as follows:
GRUPO SUPERVIELLE S.A. Notes to Consolidated Financial Statements As of December 31, 2019, 2018 and 2017, and for the years ended December 31, 2019, 2018 and 2017 (Expressed in thousands of pesos) 15.1 Goodwill impairment Goodwill is assigned to the Group's cash generating units on the basis of the operating segments.
The recoverable amount of a cash generating unit is determined on the basis of its value in use. These method uses cash flow projections based on approved financial budgets covering a period of five years. The key assumptions are related to marginal contribution margins. These were determined on the basis of historic performances, other external sources of information and the expectations of market development. The discount rates used are the respective average cost of capital ("WACC"), which is considered a good indicator of the cost of capital. For each cash generating unit, where the assets are assigned, a specific WACC was determined considering the industry, the country and the size of the business. The main macroeconomic premises used are detailed below:
Goodwill has been tested annually for impairment. No impairment adjustments have been determined over these assets as a result of the tests performed. The sensitivity analysis for the cash-generating unit to which the Goodwill was allocated was based on a 5% increase in the weighted average cost of capital. The Group concluded that no impairment loss would need to be recognized on the Goodwill in the segment under these conditions.
GRUPO SUPERVIELLE S.A. Notes to Consolidated Financial Statements As of December 31, 2019, 2018 and 2017, and for the years ended December 31, 2019, 2018 and 2017 (Expressed in thousands of pesos) 16. COMPOSITION OF THE MAIN ITEMS OF THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION AND CONSOLIDATED INCOME STATEMENT 16.1 Debt securities at fair value through profit or loss
16. 2 Other financial assets
16.3 Other debt securities
16.4 Financial assets in guarantee
16.5 Inventories
GRUPO SUPERVIELLE S.A. Notes to Consolidated Financial Statements As of December 31, 2019, 2018 and 2017, and for the years ended December 31, 2019, 2018 and 2017 (Expressed in thousands of pesos) 16.6 Other non-financial assets
16.7 Deposits
16.8 Liabilities at fair value through profit or loss
16.9 Other financial liabilities
16.10 Financing received from the Argentine Central Bank and other financial institutions
GRUPO SUPERVIELLE S.A. Notes to Consolidated Financial Statements As of December 31, 2019, 2018 and 2017, and for the years ended December 31, 2019, 2018 and 2017 (Expressed in thousands of pesos) 16.11 Provisions
16.12 Other non-financial liabilities
The following table shows the estimated use of the liability recorded as of December 31, 2019:
16.13 Interest Income
GRUPO SUPERVIELLE S.A. Notes to Consolidated Financial Statements As of December 31, 2019, 2018 and 2017, and for the years ended December 31, 2019, 2018 and 2017 (Expressed in thousands of pesos) 16.14 Interest Expenses
16.15 Net income from financial instruments at fair value through profit or loss
16.16 Service fee income
16.17 Service fee expenses
16.18 Income from insurance activities
16.19 Other operating income
GRUPO SUPERVIELLE S.A. Notes to Consolidated Financial Statements As of December 31, 2019, 2018 and 2017, and for the years ended December 31, 2019, 2018 and 2017 (Expressed in thousands of pesos) 16.20 Personnel expenses
16.21 Administration expenses
16.22 Depreciation and impairment of non-financial assets
16.23 Other operating expenses
17. COMMITMENTS AND CONTINGENCIES Capital Commitments During the financial year ended on December 31, 2019, the Group did not assume any significant capital commitment. Contingencies and Provisions Provisions for other contingencies to cover labor, legal, tax and other eventual effectiveness miscellaneous risks commitments have been estimated based on the available information and in accordance with the provisions of IFRS. As of December 31, 2019 and 2018, there were no contingent events entailing remote likelihood and which equity effects have not been recorded.
GRUPO SUPERVIELLE S.A. Notes to Consolidated Financial Statements As of December 31, 2019, 2018 and 2017, and for the years ended December 31, 2019, 2018 and 2017 (Expressed in thousands of pesos) 18. RELATED PARTY TRANSACTIONS Related parties are those entities that directly, or indirectly through other entities, have control over another, are under the same controlling party or may have significant influence on another entity’s financial or operating decisions. The Group controls another entity when it has power over other entities’ financial and operating decisions and also receives benefits from such entity. The subsidiaries that the Group has control are detailed in Note 1.2. Furthermore, the key personnel of the Group's Management (Board of Directors members and Managers of the Group and its subsidiaries) are considered as related parties. The aggregate compensation paid to our directors (including compensation paid to members of our Audit Committee, Anti-Money Laundering and Anti-Terrorist Financing Committee, Risk Management Committee, Credit House Limit Committee, Ethics, Compliance and Corporate Governance Committee, Human Resources Committee and Disclosure Committee), management and members of our Supervisory Committee in 2019 was approximately Ps. 218.5 million, 224.2 million and Ps.2.3 million, respectively. The following table presents the aggregate amounts of total consolidated financial exposure of the Bank to related parties, the number of recipients, the average amounts and the single largest exposures as of December 31, 2019 and 2018:
Controlling Interest Mr. Julio Patricio Supervielle is the main shareholder of the Group. Julio Patricio Supervielle´s interest in the capital and votes of the Group as of December 31, 2019 and December 31, 2018 amounts to the 35.12% and 57.89%; and 35.86% and 69.40%, respectively.
GRUPO SUPERVIELLE S.A. Notes to Consolidated Financial Statements As of December 31, 2019, 2018 and 2017, and for the years ended December 31, 2019, 2018 and 2017 (Expressed in thousands of pesos)
The composition of the item “Result for insurance activities” as of December 31, 2019 and 2018 is disclosed in Note 16.18.
As of December 31, 2019 and 2018, Banco Supervielle S.A. is the depository of the Mutual Funds managed by Supervielle Asset Management S.A.
GRUPO SUPERVIELLE S.A. Notes to Consolidated Financial Statements As of December 31, 2019, 2018 and 2017, and for the years ended December 31, 2019, 2018 and 2017 (Expressed in thousands of pesos)
Law No. 24485 and Decree No. 540/95 established the creation of the Deposit Insurance System to cover the risk attached to bank deposits, in addition to the system of privileges and safeguards envisaged in the Financial Institutions Law.
The National Executive Branch through Decree No. 1127/98 dated September 24, 1998,
This system does not cover deposits made by other financial institutions (including time deposit certificates acquired through a secondary transaction), deposits made by parties related to Banco Supervielle, either directly or indirectly, deposits of securities, acceptances or guarantees and those deposits set up
The Group acts as trustee or settler in financial
Guarantee Management Trusts
Trustee: Banco Supervielle.
Notes to Consolidated Financial Statements As and for the years ended December 31, 2019, 2018 and 2017 (Expressed in thousands of pesos)
The
Publicly offered and listed financial trusts as of December 31, 2019 and December 31, 2018:
Supervielle Assets Personal Loans Trustee: Equity TMF Trust Company (Argentina) S.A.
The following are financial trusts where Banco Supervielle S.A acts as settler as of December 31, 2019:
Assets Loans Trustee: Equity TMF Trust Company (Argentina) S.A.
GRUPO SUPERVIELLE S.A.
Notes to
(Expressed in thousands of
The following are
On September 22, 2010, Grupo Supervielle’s Shareholders’ General Meeting passed the adhesion to the public offering regime pursuant Law 17,811 and the creation of a Simple Negotiable Obligations Issuance Global Program, non-convertible into shares, which was passed by the National Securities Commission on November 11, 2010. Said negotiable obligations may be short, medium and/or long term, subordinated or not, with or without guarantee, in pesos, in US dollars or any other currency, for a maximum current amount that shall not exceed, at any time,
Likewise, negotiable obligations may be issued in several classes and/or series over the course of the program enforcement, relying on the possibility of re-issuing successive classes and/or series to be amortized. As of April 19, 2016, since the aforementioned Program was no longer in effect, the Group’s Ordinary and Extraordinary shareholders’ meeting, passed the creation of a new Negotiable Obligations Issuance Global Program, for the issuance of simple, short and/or medium term, subordinated or not, with or without guarantees, securities for up to a maximum outstanding amount of 1,000,000 (one
On April 25, 2013, the Shareholders' meeting No. 39, resolved to approve the creation of a Global Program for the Issuance of Negotiable Obligations (the "Program") for up to a maximum outstanding amount of AR$ 500,000,000. The Program was authorized by the National Securities Commission through Resolution No. 17,165 dated August 15, 2013. On April 18, 2016, the Shareholders' meeting No. 43 approved the increase of the total amount of the Program to a nominal value of up to AR$ 1,000,000,000. That increase was authorized by the National Securities Commission Board through Resolution No. 18,296 dated October 27, 2016. On March 22, 2017 the Extraordinary General shareholders’ meeting No. 45 approved the issuance of the Program for a maximum amount of nominal value AR$ 2,500,000,000. The National Securities Commission´s Board approved the program´s increase up by Resolution No. 18,608 on April 12, 2017. Global Program for the Issuance of Medium-Term Securities for up to V / N US $ 800,000,000 On September 22, 2016, the Shareholders' meeting No. 117, resolved to approve the creation of a Global Program for the Issuance of Negotiable Obligations for up to a maximum outstanding amount of USD 800,000,000 (United States dollars eight hundred million). The Program was authorized by the National Securities Commission through Resolution No. 18,376 dated November 24, 2016. On March 6, 2018, the Shareholders' meeting, resolved to approve the extension of the Program for up to a maximum outstanding amount of USD 2,300,000,000 (United States dollars two thousand and three hundred million). The Program was authorized by the National Securities Commission through Resolution No. 19,470 dated April 16, 2018.
GRUPO SUPERVIELLE S.A. Notes to
(Expressed in thousands of
On August 6, 2018 the Shareholders’ meeting resolved to request the National Securities Commission the Bank’s registration as Frequent Issuer of Negotiable Obligations. The request was authorized by the National Securities Commission through Resolution No. 19,958 dated December 27, 2018. Cordial Compañía Financiera S.A: Program for the Issuance of Negotiable Obligations On April 25, 2013, the Shareholders' meeting No. 39, resolved to approve the creation of a Global Program for the Issuance of Negotiable Obligations (the "Program") for up to a maximum outstanding amount of AR$ 500,000,000. The Program was authorized by the National Securities Commission through Resolution No. 17,165 dated August 15, 2013. On April 18, 2016, the Shareholders' meeting No. 43 approved the Increase of the total amount of the Program to a nominal value of up to AR$ 1,000,000,000. That increase was authorized by the National Securities Commission Board through Resolution No. 18,296 dated October 27, 2016. On March 22, 2017 the Extraordinary General shareholders’ meeting No. 45 passed the issuance of the Program for a maximum amount of nominal value AR$ 2,500,000,000. The National Securities Commission´s Board approved the program´s grow up by Resolution No. 18,608 on April 12, 2017.
As of December 31,
Program for the issuance of
GRUPO SUPERVIELLE S.A. Notes to Consolidated Financial Statements As of December 31, 2018 presented in comparative format (Expressed in thousands of pesos)
The
On August 6, 2018, the Board of Directors resolved to request the CNV the Bank´s registration as a
The
Shareholders' equity under the rules of the Argentine Central Bank comprise the following captions:
GRUPO SUPERVIELLE S.A. Notes to
(Expressed in thousands of
As of December 31,
GRUPO SUPERVIELLE S.A. Notes to
(Expressed in thousands of
Financial risk factors
The Policies and procedures enable the definition of accurate aspects aimed at the deployment of the Group´s Strategy related to the administration of credit risk; among them, the Group´s criteria to grant loans, credit benefits and powers, types of products and the way in which
The
The
Notes to
(Expressed in thousands of
The Group is aimed at keeping a diversified and atomized portfolio, in order to minimize risk concentration. To such ends, loan originationand client portfolio profiles are adjusted to each different circumstance.
Credit Risk Measurement Models The Entity relies on models aimed at estimating the
Based on the aforementioned, the Group has developed a Risk-Adjusted Return on Capital (RAROC) model. Allowances for loan losses calculation
The economic capital for credit risk is the difference between the portfolio’s value at risk (according to the confidence level for individuals of 99.9% and for companies of 99%) and the expected credit losses. The Group relies on economic capital models for credit risk (one for individuals and another for companies). Such quantitative models include the exacerbation of capital by concentration risk and Securitization Risk. In the economic capital calculation models a one year holding period is used, except from factoring exposures where a six month holding period is used. Counterparty Risk Management The Group relies on a Counterparty’s Risk Map approved by the Credit Committee where the following limits are defined for each counterparty according to the Group’s risk appetite: credit exposure and settlement limits, foreign exchange settlement risk, securities settlement risk and Repo transactions settlement risk, among other. Regarding the economic capital for the counterparty’s risk, it is included in the Economic Capital Quantitative Model for Credit Risk. Impairment of Financial Instruments The Group tests for impairment the financial assets measured at amortized cost, debt instruments measured at fair value through other comprehensive income, finance lease and financial guarantee contracts and loan commitments granted that are not measured at fair value. As a rule, the expected credit loss is estimated as the difference between the contractual cash flows to be recovered and the expected cash flows discounted using the original effective interest rate. In the case of purchased or originated credit-impaired assets, this difference is discounted using the effective interest rate adjusted by credit rating.
GRUPO SUPERVIELLE S.A. Notes to
(Expressed in thousands of
The Write-Off The Group reduce the gross carrying amount of a financial asset when it has no reasonable expectations of recovering a financial asset in its entirety of a portion thereof. A write-off constitues a derecognition event. Maximum Credit Risk Exposure Financial Instruments to which the impairment requirements in IFRS 9 are applied
GRUPO SUPERVIELLE S.A. Notes to Consolidated Financial Statements As of December 31,
(Expressed in thousands of
The Market risk Group defines Market Risk as the risk resulting from deviations in the
The Risk Department’s measurement, control and follow-up perimeter covers those operations where certain loss risk in the Group ´s shareholders equity value is assumed, as a result of changes in market factors. Such risk results from the variation in risk factors under evaluation (interest rate, exchange rate, market price of equity instruments and options), as well as liquidity risk in the different products and markets where the Group operates. According to its business strategy, Banco Supervielle is the component of the Group with the greatest exposure to this risk. On the other hand, Cordial Compañía Financiera has With the purpose of measuring the risk of positions homogeneously and therefore, setting a limit and threshold structure to support management and control schemes, Banco Supervielle uses the VaR model (Value at Risk), which defines the maximum expected loss to be recorded in a financial asset portfolio in normal market conditions, within a certain period of time and at a pre-established confidence level. Indicators obtained from this enable the Group to identify a potential market risk and take preventive measures. Market risk management is focused on the trading portfolio managed by the Trading desk, although there is also a broader control including managed positions with liquidity management objectives. For this reason, in terms of the broader trading portfolio, the controls are limited to the exposure to the assumed risk, measured using the VaR methodology, in relation to the regulatory capital (RC). During 2019 it was approved the set up of a VaR limit for The objective is to incorporate an element of alert to credit events or break in the correlations between groups of assets, events that may escape the consideration of a diversified VaR. Another important event of the year was the modification of the methodology used for the execution of market risk stress tests, both for Banco Supervielle's total trading portfolio and for the portfolios managed by its Trading Desk and by Cordial Financial Company. The new methodology implies the selection of one or more historical events characterized by stress situations that could increase the assumed market risk. From there, the variances and covariances matrix of these historical moments are incorporated into the evaluation of current trading portfolios. On the other hand, the controls over the trading desk are more exhaustive. Approved strategies and policies are reflected in what is known internally as a unified risk map, where detailed operations enabled by the Money Table can be explained in detail. In the same document the entire framework of controls that translate the risk appetite with which the Entity is willing to operate is exposed. In this way, limitations are established on the open position in certain financial instruments, VaR limit on the diversified portfolio, maximum allowable loss amount before executing the stop loss policy and conditions that could lead to the execution of a stop strategy gain The entire control scheme is complemented by action plans that must be implemented once a violation occurs within the limits established therein.
GRUPO SUPERVIELLE S.A. Notes to Consolidated Financial Statements As of December 31,
(Expressed in thousands of Approved strategies and policies are included in the Risk Map document, which establishes authorized transactions to be carried out by the trading desk and the authorized officers. Such document specifies the maximum term of transactions, maximum amounts of position per product and maximum loss amounts involved (“stop loss”).
The
Financial assets and liabilities are presented net of derivatives, which are disclosed separately. Derivative balances are shown at their Fair Value at the closing price of the respective currency.
The
A sensitivity analysis was performed considering reasonably possible changes in foreign exchange rates in relation to the Group's functional currency. The percentage of variation used in this analysis is the same the Group used in its Business Plan and Projections.
With the aim of improving the assumed risk analysis through the use of alternative measurement metrics, the Group recognizes the change in market conditions on exposure to risk through an adjustment to the volatilities used in the VaR calculation. According to the methodology used, the returns of assets registered in more recent dates have a greater incidence in the calculation of volatilities. In parallel, the Entity performs a measurement and monitoring of the assumed risk through the application
GRUPO SUPERVIELLE S.A.
As of December 31,
(Expressed in thousands of pesos) Economic capital calculation Banco Supervielle adopts the diversified Parametric VaR methodology for the calculation of market risk economic capital, both at a consolidated and individual level. It should be noted that in the case of Cordial Compañía Financiera, according to the provisions established by the Argentine EC = (1,05 x MC) + max [0; ΔEVE – Where, EC: economic capital according to profile’s risk (ICAAP). MC: Minimum capital requirement in accordance with Argentine Central Bank regulations. ΔEVE (Economic Value): measure of interest rate risk calculated according to the Standardized Framework bS (Basic Shareholders’ equity) : Tier 1 capital.
The Group’s interest rate risk management model, includes the analysis of interest rates gaps. Such analysis enables the basic explanation of the financial statement structure as well as the detection of interest rate risk concentration along the different terms. The interest rate risk management is aimed at keeping the Group’s exposure within those levels of risk appetite profile validated by the Board upon changes in the market interest rates. To such ends, the interest rate risk management relies on the monitoring of two metrics:
During 2018, with the publication of Communication "A" 6397, the Argentine
GRUPO SUPERVIELLE S.A. Notes to Consolidated Financial Statements As of December 31, 2018 presented in comparative format (Expressed in thousands of pesos) As established by the regulator, both Banco Supervielle and Cordial Compañia Financiera must use the Standardized Framework described in point 5.4. of the Communication "A" 6397 for
It is important to point out that, unlike what is established in the Economic Capital Calculation As a first step to calculate economic capital, Banco Supervielle calculates its exposure to interest rate risk from the MVE-EaR (economic value) approach of its internal measurement system (SIM), using a holding period of three months (90 days) and a confidence level of 99%. This quantitative model includes the exacerbation of capital by securitization risk. The result obtained is compared with the worst result of the
In the case of Cordial Compañía Financiera, as mentioned above, the
The
GRUPO SUPERVIELLE S.A.
Notes to
(Expressed in thousands of
The table below shows the
Liquidity Risk
The
In addition, the Assets and
Finally, suitable controls over intraday liquidity and the compliance of minimum cash regulations are established. With regard to intraday liquidity, the Financial Risk Management performs a historical monitoring of the intraday liquidity available at the beginning of each day, the amount of sensitive payments over time with a time segmentation according to the time of the day on which they are concentrated andalso calculates different ratios considering liquid assets available with gross payments or payments that are sensitive over time. From the analysis of this information, it was defined that the starting balance of the current account of Banco Supervielle in the Argentine Central Bank can never be lower than the average of sensitive payments in the time recorded in the immediately previous month, setting an alert when it is below 10% of that value.
GRUPO SUPERVIELLE S.A. Notes to
(Expressed in thousands of
Liquidity risk management consist in a strict daily follow-up of liquidity coverage ratio (LCR), ensuring a suitable forecast of funding and free-availability liquid assets needs with the purpose of maintaining LCR within levels set by the risk appetite policy. As from 2018, the follow-up on the net stable funding ration (NSFR) is included in accordance with provisions set by the Argentine Central Bank and Basle III criteria guidelines.
Economic capital calculation
The
GRUPO SUPERVIELLE S.A.
Notes to
(Expressed in thousands of
The
Banco Supervielle S.A. keeps active the following agreements: 1) A Foreign Trade Credit Facility Program with Inter-American Development Bank (IDB), whose line amounts to USD 20,000,000 (USD 20 million) and 2) A Global Financial Exchange Program with the International Finance Corporation (IFC), whose line amounts to USD 30,000,000 (thirty million US dollars). On the other hand, the FMO, a Netherlands Development Finance Company, and Proparco, an AFD (Agence Francaise de Développement) subsidiary, granted to the Bank on September a non-guaranteed senior sindicated loan of It should be noted that these agreements are subject to compliance with certain financial covenants, certain obligations to do and not to do, as well as certain information requirements. As of December 31, 2019, the Bank was not in compliance with the non-performing loans ratio and the coverage ratio of the IDB facility which generates a potential breach of the loan agreements with the FMO and Proparco by the cross default clauses included in those contracts. This breach would enable the aforementioned agencies to accelerate the payment of the loans for an amount of $7,167 millions as of December 31,
Consequently, on January 29, 2020, the Bank began the process to obtain a waiver with the IDB, which was obtained on February 18, 2020, by virtue of which the IDB waived its right to accelerate the debt due to non-compliance with the ratios of non-performing loans and coverage for the period from October 1, 2019 to December 31, 2019. Also on April 16, 2020, it requested a new waiver from the IDB, which was obtained on April 30, 2020, extending the aforementioned terms until May 31, 2020
On December 18, 2019, the Group acquired 100% of the capital stock of Futuros del Sur S.A. for a total price of 6,964. Futuros del Sur main activity is to be negotiation agent.
GRUPO SUPERVIELLE S.A. Notes to Consolidated Financial Statements As of December 31, 2018 presented in comparative format (Expressed in thousands of pesos) The amounts recognized as of the date of acquisition for each main class of assets acquired and liabilities assumed are:
The goodwill will not be deductible for tax purposes.
The group has adopted the presentation of all assets and liabilities in order of liquidity due to this presentation provides information that is reliable and more relevant.
GRUPO SUPERVIELLE S.A. Notes to Consolidated Financial Statements As of December 31, 2018 presented in comparative format (Expressed in thousands of pesos) As of December 31, 2019 and 2018, the amount expected to be recovered or settled after more than twelve months for each asset and liability line item is as follows:
GRUPO SUPERVIELLE S.A. Notes to Consolidated Financial Statements As of December 31, 2018 presented in comparative format (Expressed in thousands of pesos)
A financial asset and a financial liability shall be offset and the net amount presented in the statement of financial position when, and only when, the Group fulfill with paragraph 42 of IAS 32, and currently has a legally enforceable right to set off the recognized amounts; and intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.
In addition, the Group has
As of December 31,
The
The following table sets forth information regarding excess capital and selected capital and liquidity ratios of the
(1) Risk Weighted Assets includes operational risk weighted assets, market risk weighted assets, and credit risk weighted assets. Operational risk weighted assets and market risk weighted assets are calculated by multiplying their respective required minimum capital under Central Bank rules by 12.5. Credit Risk Weighted Assets is calculated by applying the respective credit risk weights to our assets, following Central Bank rules. (2) Nominal values without inflation adjustment.
GRUPO SUPERVIELLE S.A. Notes to
(Expressed in thousands of
In December 2019, a novel strain of coronavirus (COVID-19) was reported to have surfaced in Wuhan, China. COVID-19 has since spread to over 100 countries, including Argentina. On March 11, 2020 the World Health Organization declared COVID-19 a pandemic. It is likely that the pandemic will cause an economic slowdown of potentially extended duration, and it is possible that it could cause a global recession.
In
Some of these measures may adversely affect our revenues, while the consequences of the lockdown in
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