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Banco Macro turns to Leliq income to compensate for weak loan growth

Banco Macro SA expects "attractive income" from government securities to temper weak loan demand in 2019 due to Argentina's economic contraction, executives from the bank said March 11.

The Argentine banking major plans to continue investing its excess liquidity in high-yielding notes issued by Banco Central de la República Argentina. "We have the highest liquidity ratios in the [Argentine financial] system. Going forward, I would forecast attractive interest income coming from the Leliq," CFO Jorge Scarinci said during a call to discuss the bank's fourth-quarter 2018 earnings.

According to Scarinci, the bank decided a year ago "to stop lending aggressively and focus on asset quality control" as signs of an economic downturn emerged.

Banco Macro's position in Leliqs stood at roughly 55 billion pesos at the end of the fourth quarter, representing 81.3% of total public sector assets.

"The spread (against time deposits) was extremely positive for the bank," Scarinci said in reference to the quarterly results. The bank's net profit rose 67% year over year as a surge in interest and fee income offset a doubling of loan-loss provisions.

The executive hopes the first quarter of 2019 could mark "the lowest part of the economic cycle," while a partial recovery in the second half of the year should make way for a "marginal improvement" in its nonperforming loans ratio, which currently stands at 1.91%. Scarinci said the ratio could fall to between 1.5% and 1.7% later in the year.

He noted that 2019 "is not going to be a good year for going very aggressively on lending," forecasting nominal loan growth of 30% to 32%, broadly in line with inflation expectations for the year.

The credit growth expectations are similar to those disclosed by Grupo Financiero Galicia SA earlier in March.

Responding to a question during the call, Banco Macro investor relations manager Nicolas Torres said the company is still waiting for "an opportunity to buy another bank" and that there is "no official deal on the table" at the moment.

He added that chances for M&A may emerge after Argentina's presidential election in the hopes that the removal of the political uncertainty surrounding the vote may help raise takeout valuations.

As of March 8, US$1 was equivalent to 41.38 Argentine pesos.