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Grupo Supervielle (SUPV) Q4 2018 Earnings Conference Call Transcript

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SUPV earnings call for the period ending December 31, 2018.

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Grupo Supervielle (SUPV 1.04%)
Q4 2018 Earnings Conference Call
March 8, 2019 9:00 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

See all our earnings call transcripts.

Prepared Remarks:


Good morning, and welcome to the Grupo Supervielle fourth-quarter 2018 earnings call. A slide presentation will accompany today's webcast, which is available in the investors section of Grupo Supervielle's investor relations website, [Operator instructions] As a reminder, today's conference call is being recorded. At this time, I would like to turn the call over to Ana Bartesaghi, treasurer and IRO.

Please go ahead.

Ana Bartesaghi -- Treasurer and Investor Relations Officer

Thank you. Good morning, everyone, and thank you for joining us today. Speaking during today's call will be Patricio Supervielle, our chairman of the board of directors, who will discuss the overall macro environment; and Jorge Ramirez, our chief executive officer and vice chairman of the board, who will review our results for the quarter. Also joining us is Alejandra Naughton, chief financial officer.

All will be available for the Q&A session. Before we proceed, I would like to make the following safe harbor statement. Today's call will contain forward-looking statements, and I refer you to the forward-looking statements section of our earnings release and recent filings with the SEC. We assume no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances.

I would now like to turn the call over to Chairman Patricio Supervielle.

Patricio Supervielle -- Chairman of the Board of Directors

Thank you, Ana. Good morning, everyone, and thank you for joining us today. If you're following the presentation, please turn to Slide 3. It was a challenging year, yet we are able to make progress.

We almost doubled attributable comprehensive income year on year in the fourth quarter and posted a 7% sequential increase. Importantly, we met our annual profitability target operating in a challenging macro environment that was worse that originally anticipated. Moreover, we achieved these even as we decided to increase our loan-loss provision meeting a 100% NPL coverage goal, one year ahead of plan. Our franchise continues to demonstrates its resiliency and flexibility to navigate a macro scenario of low credit demand and macroeconomic challenges.

In a high interest rate environment, coupled with soft loan demand, increased liquidity is being invested in low risk short-term central bank securities. This resulted in net financial margins slightly above 20%, up both year-on-year and sequentially. For the next few minutes, I'm going to provide an overview of the key macro indicators to put into context, how it is impacting the overall Argentine economy, the financial industry and more specifically, our company. Jorge will then discuss our results for the quarter in greater detail and our -- an outlook for 2019.

Turn please to Slide No. 4. Fourth-quarter macroeconomics was characterized by high inflation following the sharp peso devaluation in the prior quarter. Following the agreement with the IMF, new monetary policy rules and FX bans, the FX stabilized, while interest rate started to decline, although still remaining at high levels.

The monetary policy rate reached 59% at year-end from a high of 74% in early October. And the average Badlar rate, the benchmark rate for the Argentine financial system, becomes slightly just below 50% at year-end. Economic activity seems to have reached an inflection point at the close of the year. For example, the December monthly GDP proxy is the MA, posted a 0.7% month-over-month increase.

Imports has also shown -- have also shown a monthly seasonal improvement over the past couple of months. Nevertheless, the recovery is expected to be slow, impacted by the contractionary monetary and fiscal policy mix. Additionally, the political environment also makes for more cautious scenario. Economist consensus in U.S.

calls for a GDP contraction of 1.3% in 2019 with a weaker performance in the first half of the year as recovery in the second half. For 2020, GDP growth is anticipated at 2.5%. Looking ahead market consensus also anticipate a scenario of further declines in inflation reaching 39.9% for 2019 and 20.3% for 2020. Monetary policy rates are also expected to decline to 37% by year-end.

We also continue to experience unusually high minimum reserve requirements of approximately 45% of demand deposits and 35% of time deposits. We expect these requirements to gradually decline as the credit dynamics normalize over time. In any event, as Jorge will explain later, we do not assume a reduction in this minimum reserve requirement in our 2019 outlook figures. Please turn to Slide 5.

Moving on to the Argentine financial sector. Argentine-denominated deposits expanded 19% sequentially in the quarter, while dollar-denominated deposits continue to increase, up 7% in dollar terms. Deposit growth measured in original currency is decelerated in January and remain relatively flat in February, reflected seasonality with the system remaining and highly liquid levels in this high interest rate environment. By contrast, system loan growth decelerated during the quarter against the difficult macro backlog.

Peso-denominated loans contracted nearly 2% sequentially in fourth-quarter 2018 and around 1% in each of the first two months of 2019. System dollar-denominated loans measured in U.S. dollars, in turn, contracted nearly 4% quarter on quarter by the increase this year, up 1% in January and just 2% -- and just under 2% in February. We experienced relatively single trading loans, while we reduced deposits toward the close of the quarter, reflecting excess liquidity management by our treasury.

Average deposit balances has, however, increased 15% sequentially. I will now turn the call to Jorge, who will review our financial performance and outlook. Please Jorge, go ahead.

Jorge Ramirez -- Chief executive Officer and Vice Chairman of the Board

Thank you, Patricio. Good day, everyone. Starting with the evolution of our asset base, our assets were up 4% sequentially. As the central bank finished rewinding Lebac stocks in the quarter, we capture a higher share of non-financial institutional deposits, mainly five wholesale deposits, to fund investments in high margin seven-day Leliq securities, issued by the central bank.

Towards the close of the year, we renews our holdings in these Leliqs to manage excess liquidity in the current environment. Our loan book in turn contracting nearly 4% quarter on quarter. Both these together resulted in a sequential decline in assets of slightly over 3%. Turning to Slide 7.

In a weaker environment characterized by soft loan demands, together with the tightening of credit scoring and for segments earlier in the year, peso-denominated loans were relatively stable, increasing about 1%. Foreign currency loans measured in U.S. dollars, in turn, were down 8%. This softer environment is the main reason for a year-on-year loan book growth of 32%, below our guidance range of 40 to 50% for 2018.

In line with the current market conditions, our exposure to our consumer finance segment remains below 10% of our total portfolio, at similar level to the prior quarter and down from 13% in the same quarter last year. The share of the corporate loans fell to 50% from 54% in the third quarter. This mainly reflect the impacts of the Argentine peso appreciation on U.S. dollar-denominated loans combined with a reduction of this portfolio measured in its original currency, as we continue to adjust our risk appetite.

Moving on to Slide 8. As a result of the foreign exchange dynamics, and overall soft loan demand in a recessionary environment, as I just explained, the corporate book contracted nearly 11% sequentially. In original currency, peso loans were down 6%, while our U.S. dollar-denominated loans fell 8%.

Retail loan growth continued to decelerate at 5% quarter on quarter of the back of softer mortgage demand in the current market. Our consumer finance loan portfolio in turn contracted again in the quarter, down 5% sequentially in line with our risk appetite in this economic scenario. Finally, our portfolio remains highly optimized and well diversified among a wide range of economic sectors, while maintaining growth collaboration levels. Turning to Slide 9.

Average deposits in the quarter were up 15% sequentially. Deposit balances, however, declined 2% in the period, as we manage excess liquidity toward year-end, particularly, we decided to reduce the balance of special checking accounts with 26%. Both the loans-to-deposits and loans-to-asset ratios continue to decline reflecting overall high liquidity and weaker loan demand. This year, our foreign exchange deposits remains stable at 33% of total deposits, as the Argentine peso appreciation in the quarter offset the 5% increase in U.S.

dollar-denominated deposits measured in original currency. Moving on to funding on Slide 10. Retail and senior deposits increased the share of total deposits up to 44% from 40% in the third quarter, while corporate deposits accounted for nearly 20%. The share of non-interest-bearing deposits accounted for a sizable portion of the total deposits come increasing to 39 from 37% in the prior quarter.

Moving on to our P&L on Slide 11. Net financial income rose 20% sequentially. Larger average values of assets and deposits, together with higher interest rate were the main drivers behind this performance, which was partially offset by higher cost of funds. That I think the margin of our loan portfolio increased by 130 basis points sequentially.

Both our Argentine peso and U.S. dollar portfolio contributed into this increase. Net financial margin expanded 210 basis points, reaching 20.3% in the quarter, up from 18.2% in the prior quarter. This combined high yield from the loan portfolio as we continue to reprice and high Leliq rates in the peso-denominated portfolio.

For the full year, net interest margin reached 19.4% in the higher end of our 18% to 20% guidance range. Remember two accounting considerations: first, net income from financial instruments benefits from the peso yield on holdings of both short-term central bank securities Leliq and dollar-denominated from the securities, Lebac. However, net interest income is penalized by the cost of deposits confirmed these investments. Second, as mentioned, net income from financial instruments include the peso yield of U.S.

dollar-denominated government securities, but does not include the foreign exchange gain or loss on dollar deposits taking to fund these securities. In the 4Q '18, as a result of the appreciation of the peso, the peso yield of dollar-denominated securities decline, as well as the peso cost of these U.S. dollar deposits. Turning to Slide 12.

Net service fee income growth remained soft in the quarter, up 4% sequentially. We experienced a dropping fees charged -- fees charge driven by a weak corporate loan origination together with higher commissions, paid mainly to debit and credit card processor. At the same time, income from insurance activities declined close to 2% quarter on quarter. We experienced seasonally higher grain ratios in the quarter together with a runover of our trade-related policies.

Moving on to asset quality on Slide 13. We proactively stepped up total NPL coverage to 100% a year ahead of plan. This compares to 94% coverage in the third quarter and 88% in the 4Q '17, reaching 100% coverage for the cost of risk up to 7% from almost 6% in the prior quarter. Excluding the 231 million pesos this quarter in addition to loan loss provisions, cost of risk would have remained flat sequentially.

Excluding also 120 million pesos loss provisions rate in the third quarter to increase coverage to 94%, cost of risk for the full year would have been 5.2%. This is slightly above the top end of our 4.6% to 5.1% annual cost of risk range as increased inflation impacted consumers' disposable income and the high interest rate environment hit the companies. The NPL ratio increased 40 basis points quarter on quarter to 4.1%. The corporate segment reported a 30-basis point increase in the NPL ratio, reaching 1.1%, remaining at historical lows.

With the banking proceeds at 90 days toward the delinquency ratio of 2%, below the 3.3% NPL ratio reported in the fourth quarter, reflecting the large share of payroll customers, which help better performance. In contrast, due to lower loan origination and the impact of inflation to customers' disposable income, the consumer finance segment reported 90 basis points sequential increase in its NPL ratio. Taking a deeper look at asset quality for the consumer finance business on Slide 14. This business is the most affected by inflation.

As you can see, three months vintage data and NPL creation, remain well below peak levels, experienced in the first half of the year. Vintages taking February of last year and NPL creation in the second Q '18, decline as we introduced our stringent credit scoring standard in the first quarter of the year to adjust to the challenging macro environment. However, the sharp increase in inflation experienced between September and November, resulted in summary duration in these metrics toward year-end. Preliminary data for 2019, gives us room to be optimistic.

Moving on to expenses on Slide 15. We saw a sequential deterioration of 260 basis points in the efficiency ratio, reaching 61.9% in the fourth Q '18, mainly due to regulatory salary increases. On an annual basis, efficiency improved to 61.5% from 67% in 2017, in the middle of our 59% to 63% guidance range. Next, Slide 16.

We almost doubled attributable comprehensive income year-on-year in the quarter and focused -- and posted a 7% sequential increase. Attributable net income was on -- were 50% year-on-year and remained flat quarter over quarter, when excluding the increase in NLPs to reach 100% NPL coverage ratio ahead of time. Return on average equity for the quarter reached 32.6%, up 20 basis points from the prior quarter, while return on average assets remained relatively stable at 2.6% sequentially. For the full year, we delivered attributable comprehensive income of 3 million pesos, up 61% and in line with our 2.9 to 3.3 million guidance range.

We achieved this, despite the more difficult than originally anticipated macro backdrop and the decision to step up the coverage of range, 100% NPL coverage. Moving on to capitalization on Slide 17. Consolidated pro forma Q1 capital ratio rose 40 to -- 40 basis points to 12.9% at year-end. This in line with our top end of our 12 to 15% guidance range.

The chart on this slide compares to a Q1 ratio for the fourth quarter against March the 2018. Before the sharp peso devaluation, that took place late during the year. As you can see, the impact of the special evaluation on our credit risk-weighted assets resulted in 120 basis points capital consumption in this period -- but more importantly, capital creation contributed with 150 basis points increase in Q1, exceeding the 130 basis points consumed in our risk-weighted assets increases in the period. During the quarter, we made capital injections of 1.3 million pesos Banco Supervielle and Mila.

A total of 927 million pesos remain at the holdco future capital injections. Please turn to Slide 18. In summary, as we said before, while the macro environment turned out to be worse than we originally anticipated at the time presented the guidance, we met our annual profitability targets. The strength and flexibility of our business model was evident in 2018 as we have to navigate through randomly changing macro and credit volatility.

Importantly, we have the franchise well positioned to return to growth in an improving macro environment. Let me now share with you, our guidance for 2019 and some of the underlying assumptions, which you can see on Slide 19. Despite limited visibility in the current rollout time and economic environment, we are keeping the policy of providing annual guidance. But note, we're presenting wider guidance ranges for 2019 than in previous years.

Based on our macro assumptions, as Patricio discussed at the start of the call, we expect a number in the range in the 21% to 31%, with assets and deposits growing in line with inflation. At the same time, we expect cost of risk of between 5% to 5.8% in 2019, assuming NPL coverage remains at 100%. We also anticipate NIM to remain in the 18.5% to 20.5% range for the year. Note that as of the first quarter of 2019, we will adjust our NIM calculation to also take into account exchange rate differences and net gains or losses from currency derivatives.

Until now, our NIM only included interest income and interest expense, as well as relaunch on the investment portfolio. With these additions, our NIM ratio remain more accurate and representative for the financial margin spreads. Consequently, we will stop reporting net financial margin as NIM will capture all the components of our net financial margin. Our guidance also calls for the efficiency ratio, reaching levels of between 61% to 63% for the full year.

While improving efficiency remains one of our strategic goals, the full impact of the salary increases, given resilient inflation impose a challenge. Note that, starting 2019, we are providing net income guidance instead of comprehensive income. Net income in 2019 is anticipated to increase between 28% to 52%, reaching between 3.3 to 3.9 billion pesos in the year from net income of 2.6 billion in 2018. Comprehensive income in 2019 is expected to be above 2018.

Given our expectations with the above metrics, the Tier 1 ratio is anticipated to range between 10.6 and 11.1% at year-end. Operator, please open the floor for questions. 

Questions and Answers:


[Operator instructions] Our first question is from Jason Mollin with Scotiabank. Please proceed with your question.

Jason Mollin -- Scotiabank -- Analyst

Hello, everyone. Thank you for the opportunity to ask a question. My question is on your 2019 outlook guidance and potentially 2020 and beyond. You've given very clear metrics that this guidance is based on GDP growth of 1.3%, inflation of 32%, your outlook for Badlar, etc.? Where do you see the various scenarios, let's say, a weaker-than-expected scenario and a better-than-expected scenario, how that could play out.

How that may be tied into the upcoming elections [Audio gap] the outlook for the FX that could really drive these different scenarios, how should we think about this? And what would -- what could drive your expectations to be at the low or high end or even be higher or lower than you're expecting?

Jorge Ramirez -- Chief executive Officer and Vice Chairman of the Board

Just one clarification. Our expectations for the GDP for this year have declined 1.3%, not a growth. But this aside, I mean, seems to be a very vital year in terms of how things play out. And I mean, we are expecting in any of the scenarios, the first half of the year to be tougher than the second half of the year and with the biggest caveat being the kind of volatility or uncertainty that the upcoming elections might bring to the table.

But clearly the economy should start improving from second quarter on, essentially because we are expecting a record harvest for this year compared to, one of the most severe drops in the past 50 years, that we have last year. So just by comparables, let's just start showing improvement for the economy to start performing better. On the other hand, I mean, pardon me, and that has a very major impact especially in the second quarter because that is the downward cash-rich quarter in Argentina, it's normally the quarter of year in which the Banco -- I mean, this is exports, currency -- our currency are liquidated in the country. On top of that, the company still has around $10 billion million from the IMF, that they can then use in order to keep the currency under control.

So if inflation starts coming down and as we move toward the second queue and clearly the central bank might have the tools in order to start bringing the inflation down and correct some of the cash reserve requirement. So cash reserve requirements currently are having a dual effect, no wonder, it's their increasing interest rate. And then as a result of that, they are clearly making it substantially less attractive for people and for companies to borrow money. So anyway, actually in the cost reserve requirement, even though interest rate might still remain high, it will have the impact of posting deposit rate raising, essentially, because the gap between the rates for deposits and the rates for interest rates, which is currently very wide, could start narrowing.

So we're expecting effects FX at the end of year to be at 48%. Clearly, I think we are going to have unvisited scenarios depending on the outcome of the elections. It could be below that if we have a postelection running. It could be above that we have lots of good news in the elections.

And a lots of news, what I mean is, a turn back toward -- if they results, policies that have already phased in the past. That's what I mean by that. So if anyone is cares what the currency might end up being in the given scenario. So we believe that the rate, which we have provide, take into account as much as possible of these binary scenario that we are expecting.

But again, this is Argentina, so the frequency with which highly unlikely scenarios tend to happen, is very frequent. So.

Jason Mollin -- Scotiabank -- Analyst

That's very helpful. Just as a follow-up. I mean, if you try to quantify, like its -- the median outlook or the base case outlook is, as you said, negative 1.3% real GDP growth. What's the worst case and what's the best case in that scenario?

Jorge Ramirez -- Chief executive Officer and Vice Chairman of the Board

My take would be probably worse case would -- could be around two -- minus two. Best case could be still negative, but between 0.5 percentage points and I mean, it's 2% flat.


Our next question is from Mario Pierry with Bank of America Merrill Lynch. Please proceed with your question.

Mario Pierry -- Bank of America Merrill Lynch -- Analyst

Good morning everybody. Let me ask you two questions as well. The first one is related to your loan portfolio NIM, right? If we look at Slide 11, you showed that you're NIM for your local currency loans, range from 22.5 to 25.3% in one year. So I was wondering, how far into the repricing of your loan book are you? Meaning, how much more upside is there for NIMs to continue going up, given the maturity or the duration of your loans? That's question No.


Jorge Ramirez -- Chief executive Officer and Vice Chairman of the Board

Mario, I think we are pretty, well ahead in terms of pricing of our loan book. I mean, the corporate portfolio has been fully repriced and the retail portfolio, I would say, both in consumer and retail bank is fairly fully repriced. However, we believe there still might be some room essentially, if interest rates -- if funding interest rates come down because that will have a very positive impact on consumer finance portfolio. We just -- you -- probably we go, does not waste retail deposits, it has to fund itself in the market.

So any drop in interest rates it helps that company and it helps that business. And also we have those in the retail bank where we do have a larger share of personal loans. So any expectation of improvement, which will leave, might still be some room for that. And we don't expect it to come from the repricing on the asset side, but mostly on the repricing on the liability side.

Mario Pierry -- Bank of America Merrill Lynch -- Analyst

OK. Second question is related to your cost of risk guidance. You expecting pretty much cost of risk to come down in 2019. So if you can help us understand, when do you expect NPLs to peak? And does your guidance consider you maintaining a coverage ratio of 100%? Or is that declining?

Jorge Ramirez -- Chief executive Officer and Vice Chairman of the Board

Yes. We're expecting NPLs and credit quality to peak in this -- around the second quarter of the year. It does include the cost of risk, does include the expectation of us maintaining 100% coverage for the year. And --

Alejandra Naughton -- Chief Financial Officer

More than five.

Jorge Ramirez -- Chief executive Officer and Vice Chairman of the Board

Yes, and NPLs --

Alejandra Naughton -- Chief Financial Officer

Sorry, Mario, I was adding some color regarding NPL, that we expect to be reaching by -- at year-end a number close to five. But anyway, I will highlight, again, that the guidance of cost of risk and this comment that they are making regarding NPL is the full year. So, you could be observing higher levels along the year because the cycle of economy could be working by the middle of the year. That's -- it is very important for us to highlight -- of course, we will be following the numbers quarter over quarter.

However, the guidance is full year. So, if you really observe some deterioration in the middle, it doesn't mean for us, according with information we have up till now, that it could be a trend to consider the guidance for 2019.

Jorge Ramirez -- Chief executive Officer and Vice Chairman of the Board

Yes. So just to add on that answer. We are expecting to have the 100% coverage -- to maintain the 100% coverage by year-end and, if possible, above the 100% ratio. However, throughout the year, we might see some movements because, again, it will depend on when some of the further credit quality issues might hit us in terms of quarter end, OK? So some of them might get anticipated.

Some of them might get delayed. But the idea is to end up the year and the figures account to that that we're going to end up the year on a 100% coverage.

Mario Pierry -- Bank of America Merrill Lynch -- Analyst

OK, now that's very clear. Thank you.


Our next question is from Gabriel Nobrega with Citi. Please proceed with your question.

Gabriel Nobrega -- Citi -- Analyst

Thank you for the opportunity to ask questions. I actually wanted to pick your brains and maybe understand what is going to be the strategy for the bank this year to maybe manage your excess liquidity. And here, I just wanted to understand, mainly as loan demand has been decreasing a lot, and at the same time, we have begun to see that the central bank is actually reducing interest rates and could even reduce them further through the years. So, I just wanted to maybe get a bit more sense from you on what is the strategy here.

Jorge Ramirez -- Chief executive Officer and Vice Chairman of the Board

OK. I mean, clearly the strategy is here. The name of the strategy that we've been following since the second q of last year is flexibility because you need to have a lot of flexibility in terms of having moved the different pillars of a business and when you go through an environment like the one we've been traversing since early second q of last year. What I mean by that is that we're using the investments in central bank notes as a way of compensate for weaker loan demand and more stricter and increased policies and risk appetite, OK? But at the same time, we're trying to keep the flexibility in the franchise to be able to go back to growth in our basic business, which is our commercial -- we're commercial lenders.

I mean, that's essentially our DNA and our spirit. So we want to go back to that. But in order for that to happen, we need the economy to stabilize and the macro environment to stabilize. So in the meantime, you have to -- we're using this excess liquidity as a flexibility tool in order to invest in this Leliqs, all the excess liquidity that we're generating.

So, regarding your -- the second part of your question is in terms of how interest rate compression hit us. Remember that the cost of funds for a consumer finance company is determined by the interest rates levels of Leliqs. So, the higher the Leliq rates, the higher cost of funds for the consumer finance company. The lower they are, the lower the cost of funds they have.

And they point on average loans at -- between 75% to 90% APR. So, the -- any reduction in the rate of the Leliq has an impact on the bank, but it -- which is compensated by the increasing NIMs names in our loan portfolio, mostly on a consumer finance company but also on a retail bank. So, in that sense, we have pretty well-hedged balance sheet on a consolidated basis. So, this is the way that we look at it.

Clearly, for us, in the long term is a much better scenario, a scenario of lower interest rates than the current scenario of high interest rates.

Gabriel Nobrega -- Citi -- Analyst

All right. That sounds very clear. And if you allow me to actually make a second question, could you just share more details on how the turnaround of your consumer finance business has been going so far? Also, could you maybe share with us what are the key metrics that you are tracking in order to become more comfortable with the situation of this business going forward?

Jorge Ramirez -- Chief executive Officer and Vice Chairman of the Board

OK. I mean, the consumer finance business has been, as I explained in the presentation, clearly, the business has been most affected by this high interest rate environment and high inflation. Essentially, because of its cost of funds; and second, because inflation hits -- inflation and other utility prices affect the disposable income for the segment of population which is some customer -- represent our customer base in this segment. So clearly, when we announced transition of the business in August, that was prior to the change in central bank's monetary policy of the bank increasing interest rates that we had by the end of August or early September of last year.

So the situation was even harder than we had originally anticipated when we started reorganizing the business. We've been able to streamline the operation. We did some reaction, very important one. So we're bringing down costs as the expectation for cost increases for that business for this year are very, very low, in the range of between 5 to 7% year-on-year.

So that's revenues in that sense. We've been taking a lot of measures in terms of improving our collections. And we're showing -- and that is already paying off. That was what I was meaning when I mentioned in the presentation that the preliminary data for the business in 2019 gives us room to be optimistic because essentially, we're seeing improvements in collections in all the different buckets that we have in the business.

Again, it's still early in the game. As I explained earlier, this is a very vital year, so things can go -- can still go south. But we're seeing that happening very well. In terms of the metrics that we're following, and I measure a lot the size of the portfolio, bad loan formation, the early stages of delinquency in the early buckets, like 30-plus because that is a very good -- lead indicator telling us how delinquency is going to be in the next 60 or 90 days.

And clearly, cost of funds and returns on the asset side of the business is another of the metrics that we follow up very closely. Finally, just one further point. We have, as part of the organization we're in, is we started to increase cross-selling or sales of nonfinancial services and products in that segment. And that is also progressing well.

It's still at modest levels, but we have good expectations at that as a way of originating nonfinancial income from this segment.

Gabriel Nobrega -- Citi -- Analyst

All right. That's very clear. Thank you so much.

Jorge Ramirez -- Chief executive Officer and Vice Chairman of the Board



Our next question is from Ernesto Gabilondo. Please proceed with your question.

Ernesto Gabilondo -- Bank of America Merrill Lynch -- Analyst

Hi, good morning, Patricio, Jorge, Alejandra and Ana. My question is related to the implementation of inflation accounting that I think you're going to give more details in the 20-F report next month. But can you provide some color on what could be the impact for net income and ROE in 2018?

Alejandra Naughton -- Chief Financial Officer

Hello, Ernesto. As you mentioned, since the bank in Argentina adopted inflationary accounting standards, from January 1, 2020. However, we will be disclosing those numbers in the coming filing of our 20-F because Argentina was included in the list of hyper inflationary countries. Preliminary numbers for us that shows that our return on equity would have resulted in a negative 10%.

And result into, let's say, close to 1.5 billion losses from our nominal profit of 3 billion.

Ernesto Gabilondo -- Bank of America Merrill Lynch -- Analyst

Perfect, perfect. And then just a second question regarding your OPEX line. So you grew around 35% in 2018. But given that we continue to see high inflation levels, and you are seeing negotiations with unions demanding to rise wages.

Will you see this line could be growing at the same pace in '18? Or even it could be growing at a higher pace this year?

Alejandra Naughton -- Chief Financial Officer

The thing is that clearly, I mean, cutting the expenses in this inflationary environment is a huge challenge. So just to give you some color regarding our model, we have -- and as I said the expenses for personal growing and close to high 30s or 40% increase. And on the interest, the expense is a little bit lower, low 30s. And it has to do with the situation that personal expenses has -- it carries from the increases experiences during 2018.

So you have taken 2019 projects one, they carry from the gradual increases around the year during 2018, this carry could be representing a number close to 25% increase, plus the expectations regarding inflation for this current year. So, all in all, our revenue expenses would be growing during the year in a number close to high 30s, combining as interest expenses and personal expenses.

Ernesto Gabilondo -- Bank of America Merrill Lynch -- Analyst

Perfect. Thank you very much, Alejandra.

Alejandra Naughton -- Chief Financial Officer

You're welcome.


Our next question is from Yuri Fernandes with JP Morgan. Please proceed with your question.

Yuri Fernandes -- J.P. Morgan -- Analyst

Oh, thank you, Jorge, Alejandra. I had a follow-up on Ernesto on these expenses, growth. I recall last year, you had some impact from adaptation like an early retirement kind of program, that was about 200 million pesos. And last quarter you also said -- you also had some impact from the head cost reduction due to some refinance.

So just pointing these to ask about the pace of the growth on personal expenses, so we are just by that, we are seeing personal expenses growing about 60% year over year. And my question here is, if there is anything else here in the end of the 4Q, any kind of -- or adjustment that you had to do regarding the previous salary's increase? Because 60% pace for salaries is a bit high for me. So that's my first question. And my second question is regarding your Q1 ratio in your guidance.

I just want to like to check if that number, the 10.6% in the lower end you have in the guidance for '19, if that includes the excess cash in the holding company and the capitalization that was approved by the central bank in January?

Alejandra Naughton -- Chief Financial Officer

OK, in terms of administrative expenses, you have -- first and very important, we do not have or had any further initiative regarding early retirements and the situation that you mentioned corresponding to 2017. So that the numbers, as I share two minutes ago, of an increase of 37% is clearly the dynamic of the company that is facing this high inflationary environment and the changes in headcount that is considerably different within this segment, let's say, while we are using the headcount in consumer finance, you could be observing some increase marginally on the bank subsidiary. Because the nature of the business and the dynamic of the business is different. So, this is my answer for you on that regard.

The second question was regarding, sorry?

Yuri Fernandes -- J.P. Morgan -- Analyst

The Tier 1 ratio on your guidance --

Alejandra Naughton -- Chief Financial Officer

Ah, the Tier 1--

Yuri Fernandes -- J.P. Morgan -- Analyst

The 6 to 11.1, if that includes their excess case, it's like the adjusted number?

Alejandra Naughton -- Chief Financial Officer

Thank you. Yes, exactly. We also -- always offer the guidance, that Tier 1 which we call the pro forma Tier 1, that includes that money. And along the year, we would plan to have some capital injections, particularly on the bank subsidiary and in cascade, one on the consumer finance segment.

But it will be included.

Yuri Fernandes -- J.P. Morgan -- Analyst

OK. If I may, a final one here, Alejandra. On Gabrielle's question regarding our strategy of excess liquidity, it's really caught my attention here, the decline on the deposit, the decline on assets, quarter over quarter given the inflation is running, I don't know, above 10% on a quarterly basis. So, my question here is just to understand, and I totally agree, like, your loan-to-deposit ratio and your decline is close 80%.

But still, given the high inflation environment, it's really called my attention that as total assets are declining. So, my question is, if we should expect this to go on? And also, if this is somewhat related to the decline on the number of active clients? I think there was a small decline, 1.9 -- 1.8 to 1.9 million clients, active clients. So, if you're being, I don't know, like, if your strategy is basically to not provide kind of funding, I don't know, new kind of relationship with clients. Just to understand, how you are managing this excess liquidity? How are you managing these with clients?

Jorge Ramirez -- Chief executive Officer and Vice Chairman of the Board

Yuri, this is Jorge. No, I mean, it does not have to do with the franchise or with the number of customers. This was a year-end event, and it had to do with -- I mean, if you look at the average deposits for quarter, you compare the growth, we had a 15% growth in deposits in the -- our average deposits of the quarter. So, we're holding money on the averages, we're holding money on year-end balances.

So, this was only a matter of -- when we took the picture and the risk return of investments compared to one day or side deposits that are iterated. I mean, if you look at the bulk of the reduction, it comes from special check accounts that are 100% institutional -- it's 100% institutional funding. You cannot see yet the figures for us in 2019, but if you would see them -- if you will be able to see them, you would see that that has come back up. So, it was only the leverage at the end of the year that have to do with internal metrics and us managing excess liquidity when we didn't see the right trade-off between risk and return.


[Operator instructions] Our next question is from Carlos Gomez with HSBC. Please proceed with your question.

Carlos Gomez -- HSBC Securities -- Analyst

I would like to complement the question about inflation accounting. How would your shareholders' equity have been, I would imagine, it'd have been higher than what you reported under the inflation accounting? And second also on the Tier 1 ratio, again, 10.6, 11.1 is not very high level. At what level would you think you might want to consider another capital increase?

Alejandra Naughton -- Chief Financial Officer

OK. Carlos, regarding net worth, we posted net worth as of December of 17 billion on the adjusted value inflation. That number would have been number close to 18 billion.

Carlos Gomez -- HSBC Securities -- Analyst

OK. So --

Jorge Ramirez -- Chief executive Officer and Vice Chairman of the Board

Hi, Carlos, this is Jorge. Regarding the second part of your question, probably we are closer to the 10% mark, we would consider raising it up. We still have options in terms for us to raise. We have that bucket, it's currently empty.

So we have some things that we can do, but I think that 10.6% is -- or around that figure, which is 10.6 and 10 is our minimum comfort level.

Carlos Gomez -- HSBC Securities -- Analyst

Yes. And just to clarify this 10.6 to 11, this is the capital ratio of the bank, of Banko Supervielle?

Jorge Ramirez -- Chief executive Officer and Vice Chairman of the Board

No, that's the consolidated pro forma.

Carlos Gomez -- HSBC Securities -- Analyst

So --sorry, that is consolidated pro forma. OK, OK. All right. So if it falls below 10%, you might consider another one?


Ladies and gentlemen, this concludes a question-and-answer session. I would like to turn the conference back over to Ana for closing remarks.

Ana Bartesaghi -- Treasurer and Investor Relations Officer

Thank you for joining us today. We appreciate your interest in our company. We look forward to meeting more of you over the coming months and providing financial and business updates next quarter. In the interim, we remain available to answer any questions that you may have.

Thank you, and enjoy the rest of your day.


[Operator signoff]

Duration: 55 minutes

Call Participants:

Ana Bartesaghi -- Treasurer and Investor Relations Officer

Patricio Supervielle -- Chairman of the Board of Directors

Jorge Ramirez -- Chief executive Officer and Vice Chairman of the Board

Jason Mollin -- Scotiabank -- Analyst

Mario Pierry -- Bank of America Merrill Lynch -- Analyst

Alejandra Naughton -- Chief Financial Officer

Gabriel Nobrega -- Citi -- Analyst

Ernesto Gabilondo -- Bank of America Merrill Lynch -- Analyst

Yuri Fernandes -- J.P. Morgan -- Analyst

Carlos Gomez -- HSBC Securities -- Analyst

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