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Grupo Supervielle S.A. (NYSE:SUPV)
Q3 2019 Earnings Call
Nov 8, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the Grupo Supervielle Third Quarter 2019 Earnings Call. A slide presentation will accompany today's webcast, which is available in the Investors section of Grupo Supervielle's Investor Relations website at www.gruposupervielle.com. [Operator Instructions].

At this time, I would like to turn the call over to Ana Bartesaghi, Treasurer and IRO. Please go ahead.

Ana Bartesaghi -- Treasurer and IRO

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 and Alejandro Stengel, Chief Operating Officer of the Bank. All will be available for the Q&A session.

Before we proceed, I would like to make the following Safe Harbour statements. Today's call will contain forward-looking statements and I refer you to the forward-looking statement 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 our Chariman, Patricio Supervielle.

Julio Patricio Supervielle -- Chairman

Thank you, Ana. Good morning, everyone, and thank you for joining us today. If you are following the presentation, please turn to slide 3. We continue to operate in a complex macro environment, which worsened in the quarter with the unexpected reprofiling of the short-term Argentine debt in late August. While our holdings in Argentine government peso on U.S. dollar short-term notes accounted for just 3% of our total assets, the sharp swing in mark-to-market valuation significantly impacted our bottom-line. To a lesser extent, results were also impacted by certain commercial loans that became delinquent in the quarter. By contrast, consumer loans reported lower NPL creation in the quarter. The collateralization level of non-performing commercial more than doubled sequentially. Jorge will discuss this in more detail.

Excluding the impact from the debt reprofiling pre-tax income would have increased 23% sequentially to ARS 1.9 billion even when taking into account the higher provisions in the quarter. With liquidity management, an important priority for us, particularly in this challenging market, we have been able to maintain liquidity in pesos and U.S. dollars above 50% even despite some U.S. dollar deposit outflow industrywide.

Moreover, we maintained a solid capital base with Tier 1 capital at 11.8%. Against the macro backdrop, we are strongly focused on maintaining a tight control on expenses, which provide some caution as we see loan growth slow. And although we are achieving efficiencies, it has been marked by the impact in the debt reprofiling on our financial results this quarter and to a lesser extent by salary increases adjustment for inflation. Our franchise is strong, although the near and medium-term visibility is not clear as we speak today, we're encouraged that with our long and successful operating history across different economic cycles, we are well positioned for when the economy recovers.

Please move on the macro on slide 4. The month of August and September were characterized by significant macro uncertainty tied to the presidential elections in October. While inflation has began to recede slightly in June and July, high grade volatility in August gave way to rising inflation by pass through of currency devaluation. Uncertainty around the election period challenged the government chances of rolling over short-term notes. This led to the current administration decision to reprofile short-term debt, which put additional pressure on the foreign exchange rate and assets under management. Pressure on U.S. dollar deposits was reflected in the drop in Central Bank reserves and consequently on U.S. dollar loans. On the monetary front, we have been observing a decline in the issuance of LELIQs along with increases in the stocks of bank repos as well as repos with mutual funds.

Turning now to slide 5. Despite all that I just mentioned, the Argentine financial system remained highly capitalized and liquid. Its resiliency was tested with the absorption of the 31% sequential decline in U.S. dollar denominated private deposits measured in original currency in the quarter. This drop was against the highest level of deposits observed over the past 16 years.

In the context of a weak macro environment and high interest rates, total industry loans to the private sector were just 9.5% quarter-on-quarter. This was mainly driven by the translation impact of the FX depreciation on commercial loans, while a pickup in credit card financing was supported by the government initiatives to promote consumer consumption. We delivered slightly lower loan growth this quarter. At the same time, U.S. dollar denominated private sector deposits measured in the regional currency declined 42% sequentially. This dynamic decelerated somewhat in October with deposits down 10% in line with the industry.

I will now turn the call over to Jorge, who will review our financial performance and outlook. Please, Jorge, go ahead.

Jorge Oscar Ramirez -- Chief Executive Officer and Vice Chairman

Thank you, Patricio. Good day, everyone. Turning to slide 6. Total assets declined nearly 4% sequentially as we applied liquidity in U.S. dollars held in the Central Bank following the outflows in U.S. dollar denominated deposits. Lower holdings of Central Bank securities also contributed to the decline in total assets. Actually, the share of high margin 7-day Leliq securities issued by the Central Bank, declined to mainly 19% of total assets at quarter-end from 24% in the second quarter 2019.

Please turn to slide 7. Our loan book was up nearly 7% sequentially, mainly driven by a 17% increase in U.S. dollar denominated loans, reflecting the translation impact from the FX evaluation. In original currency, however, the U.S. dollar denominated loan book contracted 14% in the period. Argentine peso denominated loans in turn increased 3% quarter-on-quarter, supported by new loans granted to customers who had paid on the U.S. dollar loans. Reflecting these ,dynamics corporate loans were up nearly 10% sequentially with their share of total loans reaching 52%, up from 50% in the prior three quarters.

In terms of consumer finance, we further reduced our exposure to this segment, which now accounts for 7% of our total portfolio, down from 12% in first Q 2018 when we first tightened credit standards. Our prudent approach together with weak consumer demand and high interest rate resulted in a contraction of the consumer finance loan book of nearly 4% sequentially and 22% year-on-year. Retail loans were just over 4% sequentially explained by higher credit card volumes driven by 12 and 18 months non-interest bearing installment plan, partly subsidized by the government support consumer consumption.

Now moving on to funding on slide 8. We maintained a relatively stable Argentine peso deposit base, while U.S. dollar deposits declined 45% sequentially. Importantly, liquidity remains at solid levels with the liquidity ratio in U.S. dollars flat sequentially at 57.5%. The liquidity ratio in pesos stood at 50.2%. Our Argentine peso loan-to-deposit ratio was up 3.6 percentage points to 2.2%. The U.S. dollar loan-to-deposit ratio in turn increased to 95.9% from 60.9% in the prior quarter as we repaid U.S. dollar deposits when funding U.S. dollar loans to SMEs with medium-term financing received from bilateral agencies. Combined, this resulted in a blended ratio of 85.8% compared to 72.9% in the second Q 2019. Finally, other sources of funding and shareholders' equity increased slightly over 8% quarter-on-quarter.

As you can see on slide 9, Argentine peso denominated corporate and retail deposits increased 32% and 5% sequentially respectively. By contrast, wholesale Argentine peso deposits declined 11% quarter-over-quarter due to the integration of money market funds, which since mid-September are allowed to do repo transactions with the Central Bank at the same rate as banks. Note that Argentine peso senior citizen deposits posted the seasonal 12% sequential decline. Remember, we typically see higher deposits from senior citizens at the end of June and December of each year as they collect half of the 13th salary in each period.

Now on to P&L on slide 10. Net financial income declined nearly 20% sequentially to ARS 5.3 billion. This was mainly impacted by a ARS 2 billion loss reflecting the mark-to-market accounting on our investment portfolio of short-term Argentine peso on U.S. dollar Argentine government treasury notes. While these holdings only accounted for approximately 3% of assets, profitability was impacted by the significant drop in fixed income instrument prices in the range of 35% to 45%. Total net interest margin in turn declined 470 basis points sequentially to 17.4%, reflecting the debt reprofiling effect. Our peso loan portfolio NIM increased 40 basis points sequentially to 24.2% as we continue to experience sustained repricing in loans to individuals. Excluding the debt reprofiling impact, net financial income would have increased 12% sequentially to ARS 7.3 billion and NIM would have been 24.1%.

Moving down the P&L on slide 11, net service fee income was up 9% sequentially. Fees charged continues to perform well, up 13% quarter-over-quarter, reflecting the before repricing on bundled services, credit card commissions, loan financial services and non-credit related insurance products. This was partially offset by higher commissions paid to debit and credit card processors.

Income from insurance activities was up nearly 19% sequentially. Written premiums increased 24% sequentially up to mid-single digits last quarter as we continue to drive growth in mortgage and home insurance as well as technology and ATM insurance. We began operations of our insurance broker in late August with the launch of an integral insurance product for entrepreneurs and SMEs that is performing well. We are planning to launch additional insurance products in the coming quarters. Claims paid, however, increased sequentially reflecting technical adjustments on our seasonal accident rate curve.

Please turn to asset quality on slide 12. Loan loss provisions were up ARS 800 million reaching ARS 2 million, reflecting certain commercial loans that became delinquent during the quarter coming from public works, contracting and retailers. The public works sector was impacted by a decline in the backlog of public works projects together with delayed or restricted collections, at the same time, reflect consumption in the current recessionary environment impacted the retail sector. In turn, these brought the corporate loans NPL ratio to 7.2%, up from 3% in the second Q 2019. Legals NPLs increased slightly by 10 basis points sequentially to 4%.

The 90 day delinquency ratio however remained stable at 2.6% given the large share of payroll and pension customers who continue to perform better with us and with our service system. NPL ratios of our consumer finance business continued to show sustained improvement with NPL creation down ARS 190 million. Total NPL ratio was up 180 basis points to 6.9%, while cost of risk rose to 9.6% from 6% in the prior quarter.

At quarter end, 65% of our non-performing commercial loans were collateralized compared with 20% at the end of June, thus more than doubling collateralization levels. Given these increased levels of collateralization, we closed the quarter with coverage at 86.1%, which we deem to be rather quick at this stage. We expect to foreclose and divest those collaterals in upcoming quarters. We continue closely monitoring our asset quality in this more challenging environment.

Turning to the next page, as you can see on slide 13, our Consumer Finance lending business continues to post improved asset quality since we implemented tighter credit scoring standards early last year together with improvements in the collaterals process. Consumer finance NPL ratio was down for the third consecutive quarter and was well below the peak levels experienced in second Q 2018 and in the same quarter last year.

Moving on to expenses on slide 14. We experienced a sequential deterioration in the efficiency ratio, which reached 70% affected by weaker revenues from the impact of the debt reprofiling. Excluding these effects, the efficiency would have been 53% in the quarter including 600 basis points from a comparable efficiency ratio of 59% in second Q 2019. Comparable expenses in turn were up nearly 4% sequentially, mainly explained by mandatory salary increases in an inflationary environment. We continue maintaining a strict focus on cost controls and efficiency.

Moving on to our bottom-line on slide 15. The debt reprofiling had a significant impact on profitability this quarter. Results were also affected by the increase in non-performing commercial loans discussed earlier. Combined, this resulted in a pre-tax loss of ARS 117 million this quarter compared with ARS 9.6 million gain in the prior quarter. Excluding the debt reprofiling, we would have delivered a pre-tax profit of ARS 1.9 billion, a 23% sequential increase. Similarly, adjusted return on equity would have increased to 34.9% from adjusted 34.6% in the second Q 2019.

Let me also highlight the solid performance of our Consumer Finance business, which posted a pre-tax gain. Finally, we reported attributable net income of ARS 301 million, which includes ARS 418 million benefit from recognizing inflation adjustment in the income tax provision, more than offsetting the pre-tax loss.

Please turn to capitalization on slide 16. We maintained solid capitalization levels in this challenging quarter. Tier 1 capital ratio was 11.8%, basically stable compared to 11.9% in the prior quarter. Capital creation and dividends contributed with 100 basis points increase in Tier 1. This was slightly offset mainly by the increase in risk-weighted assets, which includes the impact of the currency devaluation. ARS 645 million remained at the holding company for future capital injections.

Our underlying business model is solid, which enables us to navigate this adverse and volatile environment. It is not easy and I wish to thank all of our employees for the hard work. But it's still too soon to have clear visibility what the new government's plans will be, we will continue to run the business with a view toward the long-term. In that respect, we're very well positioned given our long and successful track record This concludes our prepared remarks. Operator, now please open the call for questions.

Questions and Answers:

Operator

Thank you. At this time we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Juan Recalde of Scotiabank. Please proceed with your question.

Juan Recalde -- Scotiabank -- Analyst

Good morning, everyone. Thank you for taking my question. So my question is related to the political front. So I would like to know what are your expectations regarding the next administration policy and also how are you preparing for this? Thank you.

Julio Patricio Supervielle -- Chairman

Good morning, Juan. Thank you for your question. We have not yet had a clear indication in terms of what the next government policies will be. My first consideration will be that we have to separate probably the speech during the campaign to what the current stands elected is having in terms of his comments regarding future economic policies. He has been mentioning that Argentina has a -- or will take a market-friendly stand in terms of refinancing its foreign debt. And the other thing we are expecting is that they will introduce Internal consumption as a way of taking the country out of recession.

If that is the case given our franchisee and given our positioning, we believe we are very well positioned to capture part of that growth since we have a very large presence in those businesses. And those are particularly the businesses that have suffered in the last couple of years especially since April of last year since the recession started. So we believe there is pent-up demand for credit and loans and financing to finance consumption in that sector of the economy. So those are the steps of the new administration takes, we believe we're well positioned to capture growth from.

Juan Recalde -- Scotiabank -- Analyst

Very clear. Thank you.

Operator

Our next question comes from the line of Ernesto Gabilondo of Bank of America. Please proceed with your question.

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

Hi. Good morning, Patricio, Jorge, Alejandro, Alejandro, and thanks for taking questions. My question is related on your gains on securities. When we look to the third quarter results, they benefited lot from the securities portfolio even if excluding the negative impact of the reprofiling debt. So what are you seeing for the next quarters. Do you think this was the peak for securities gains? And you think that the Alberto Fernandez government will try to have lower interest rates and that could imply lower yields for your securities portfolio? Thank you.

Alejandra Naughton -- Chief Financial Officer

Good morning, Ernesto. Alejandra here. Yes, you are right. Our gains on the quarter are connected with the holdings of Central Bank securities because as you know, the other securities unfortunately reported losses. So considering volumes and interest rates, it make sense to think that we are now in a peak, particularly because we are observing from the Central Bank Monetary Policy that interest rates has started to lower levels. So I think that is the reason of understanding yours, could be the peak.

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

Okay. Thank you. And then so when do you think we can start to see that this lower interest rate environment will translate into loan growth? Have you approached to Alberto Fernandez's government in trying to have an idea on how this could happen?

Julio Patricio Supervielle -- Chairman

We have had some meetings with some of the names that have been rumored then they're going to have a place in his future administration. As you know, he has not been yet as forthcoming in terms of detailing all the names that will participate, but some of the people we met with have been mentioned by himself as a playing a role in the future administration. And I think that they're really concerned in terms of how to manage the reduction in interest rates

Jorge Oscar Ramirez -- Chief Executive Officer and Vice Chairman

generating on the same time a big push in terms of inflation because of pesos being pumped into the economy. So I think that they want to manage that very carefully. Our sense again, it's very difficult yet to predict this because we have very minimal visibility, but my sense is that probably it could take the first half of next year until we start seeing a sustained picked up demand in -- for growth.

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

Perfect. Thank you, Jorge.

Operator

Our next question comes from the line of Gabriel Nobrega of Citi. Please proceed with your question.

Gabriel Nobrega -- Citigroup -- Analyst

Hi, everyone, and thank you for the opportunity to ask questions. My first question is actually a follow up to the first question asked regarding the incoming administration. I understand it is still too early to understand what they're going to do, they are only going to come into effect into December. However, we have been hearing some specific regulations which could come into the banking sector, the main one being the SME directed loans. So my question is, do you believe that the SME directed loan will actually happen. What could maybe the impact to your NII here? And also, have you heard any other, some specific measures which the Central Bank and the government could also take particularly to the banking sector? And I'll make the second question afterwards. Thank you.

Jorge Oscar Ramirez -- Chief Executive Officer and Vice Chairman

If we base ourselves in what they did in the past administration from 2011 to 2014, I'd say that it is a highly -- there is a high chance where they will try to give some -- and could inflate some kind of soft grade lines for SMEs in Argentina. It is very difficult to calculate the impact. I think of at the peak back in 2013 or 2014, I think they reached like something like 17% of the loan portfolio or something. In terms of measuring the impact, in terms of net interest margin, it's very difficult to say because it will heavily depend on what happens with the interest rate for deposits and what happens in here with interest rates in the market.

One thing they did in the past though, I think this is important to bear in mind is that took, they

Gabriel Nobrega -- Citigroup -- Analyst

the average cost of funds for the banking industry. So the blended cost of funds taking into consideration, term deposits and site deposits and the lines where it was profitable compared to that blended rate. So they didn't use the marginal rate, what they did was, they made is that -- I mean spent lots of money, but they weren't completely negative in terms of the blended cost of funds for the banking sector. It came more as an opportunity cost for banks the strength by posting a big loss compared to the average cost of funds?

Alejandra Naughton -- Chief Financial Officer

If you allow me, Gabriel over there on that these kinds of regulation also brings opportunities, business opportunities. So when you have a good relationship with SMEs as we have, we also have the opportunity to develop all the liabilities opportunities in terms of cost management. So I would think on the impact on margins not only on interest rates on loans, but also cash management and current account balances that brings lower cost of funds. So it's in our experience when that happens, we had the opportunity to risen our relationship with our customer base.

Julio Patricio Supervielle -- Chairman

I mean I think we still have very high cash reserve requirements, so they can take a note of that. So I think that we will have to wait and see. I think we have a clear picture in terms of what's coming to be able to anticipate actual impact that this will have on the banking industry.

Gabriel Nobrega -- Citigroup -- Analyst

All right. That's very clear. Thank you. And as from a second question, it's actually on asset quality. In your press release you actually say that companies in the public works and in the retail side went delinquent. My question here is it specific to only two companies, are there may be more companies and also what is your current coverage level for these companies which have gone delinquent in some quarters? Thank you.

Jorge Oscar Ramirez -- Chief Executive Officer and Vice Chairman

Can you repeat the last part of the question because I missed it?

Gabriel Nobrega -- Citigroup -- Analyst

Sorry. It's just to understand what's your current coverage on these companies which went delinquent during this quarter?

Jorge Oscar Ramirez -- Chief Executive Officer and Vice Chairman

Okay. I mean -- it was mostly two companies. We have, as we mentioned, the commercial portfolio, levels of collateralization went up from 20% in the end of June to 55%. That is why we -- that is why coverage came down to 86% in the quarter for the overall portfolio. These loans were not 100% covered, but we have operations above the Central Bank mandatory requirements. So -- and we believe that the current coverage level is adequate given the levels of collateralization, our expectation in terms of closure and divestiture of those collaterals going forward.

We do not see, we do not foresee any significant impact going forward. And we've been very proactively working with different companies that have been -- having some difficulties especially because of the recession and the very high level of interest rate, helping them go through is a scenario. So there is nothing on the horizon. In our last call, we anticipated that we were expecting the peak of delinquency to happen in the third Q, in the second Q as we had originally anticipated at the beginning of the year. And what we're showing in the figures is something what we were anticipating would happen.

Gabriel Nobrega -- Citigroup -- Analyst

All right. And just a quick follow up here. These incorporates, are they stage 2 or are they all in on stage 3 already?

Jorge Oscar Ramirez -- Chief Executive Officer and Vice Chairman

They are in stage 3 and 4. Central Bank, you mean?

Gabriel Nobrega -- Citigroup -- Analyst

Perfect. Thank you so much. Yes. Thank you.

Operator

Our next question comes from the line of Jason Mollin of Scotiabank. Please proceed with your question.

Jason Mollin -- Scotiabank -- Analyst

Thank you for the opportunity. Mine is a little bit of a follow up on the questions asked. I mean in this current context without really having a clear view of what the new policies could be or if you're going to be facing some different changes in regulation, but what can you do now going into the end of the year or how is Supervielle positioning the balance sheet. We saw the LELIQs declined from I think it was down 24% of assets to 19% in the third quarter from the second. What -- is there much that can be done or you really are just biding time trying to put your liquidity to work in -- I mean it seems like of course loan demand is non-existent. So what can you do and how are you positioning yourself for the transition and It seems like some are expecting the -- what we've heard some statements that the currency controls will remain in place for now. Just any comments you can say on what you think could happen and how the bank is positioned now? Thank you.

Jorge Oscar Ramirez -- Chief Executive Officer and Vice Chairman

Yeah. Thanks for your question, Jason. I think it's a very interesting question, the ones you are asking. I mean we've been working on the one major guideline in the past year and a half or so which is flexibility. It is something that you need to have in a country as volatile and as changing as Argentina has proven to be in these past three years. When we entered these type turmoils, and one of the things that we've learned from our past history is that liquidity is king. So the whole system is very liquid and we are very liquid as well.

Second thing we're focusing on is and we're starting to is we're coming from four years in which interest rates have been from marginally positive to very positive in real terms. When you look back into the former administration, Fernandez administration and the Kirchner from 2013 to 2015, what you see is that those were years of negative interest rates in terms of inflation, mostly positive in terms of U.S. dollars up until 2011 and then they turned back to negative both in dollar terms and in inflation terms for investors.

So the key question that we're trying to debate internally, this is part of the debate we're having is, are we're going back to negative interest rates in real terms for deposits because that shifts completely the focus on the business going forward because it will -- I mean during the Kirchner administration, banks made money out of lending and not very much out of deposit gathering. In the past few years, banks were making more money out of deposit gathering. So that is one quarterly rate we're having. And the way if the new ends up being, we're going to go back to a more neutral, slightly interest rate environment, probably one of the things we'll try to position is try to boost personal loans portfolio because we expect and in consumer lending. And therefore, we should expect the interest rates to come down and that is the way of maintaining and protecting earnings for banks, and especially for us since personal loans is a very important line.

The other thing we're doing is in terms of uncertainties, you're trying to focus on the things that you have to do no matter what is we focus on things that in any event we'll have to do. And this is a transformation and many of the initiatives we have in place, our key to this element irrespective of the future scenario that we have because that is how we expect to be able to compete again and other banks in the years to come. And that is the route we need to take in order to continue improving efficiency for our organization.

So many of the steps you saw us in the last couple of quarters, even though they might not be paying off today because of the recessionary environment, we still convince strategically they were right moves. We could have an argument about timing, but there is nothing in terms of the [Indecipherable]. They were the right moves because we are furnished and we are strongly convinced that we're going to be very well positioned in terms of taking advantage of those in the years to come.

Jason Mollin -- Scotiabank -- Analyst

I really appreciate your insights, a very valuable. Thank you.

Operator

Our next question comes from the line o Yuri Fernandes of JP Morgan. Please proceed with your question.

Yuri Fernandes -- JPMorgan Chase & Co. -- Analyst

Thank yo,u, gentlemen. I have a follow up on liquidity. If you can provide any color on how deposits in dollars withdrawal has been behaving in October and in November, post elections is we have started to see more stabilization on the withdrawals and a second follow-up regarding asset quality. I understood you have the collaterals to those two exposures and that's the reason why coverage decrease, but going on, do you plan to continue having the coverage around on the 100% that's one? And what should we expect for cost of risk. I understood, Jorge mentioned that maybe the peak was this quarter for asset quality. But [Indecipherable] for Argentina is split of right. I think the consensus is around 1.5 decrease by 2020. So even though we should not expect cost of risk running close to 10, what should we see for cost of risk going on consumer finance and seems to be doing well, but should we see more worsening on corporate book? Thank you.

Jorge Oscar Ramirez -- Chief Executive Officer and Vice Chairman

Regarding liquidity, first question is we saw a 10% drop in October. And since the elections, I would say that that has slowed down significantly and quickly. I think that one of the things that despite these major one is mostly U.S. dollar deposits, I mean peso deposits, they remain fairly stable even though they showed some drop, but that has more to do with the shift of deposits from mutual funds, from the banking sector toward the Central Bank in order to repos.

One of the things that brought it down below the depositors was that the liquidity in green banks[Phonetic], the banking sector time. I mean the level of inputs the banking industry have to do of a green build in order to be able to satisfy demand was incredible. And the fact that people came to the banks and they have absolutely no difficulties in terms withdrawing the deposits, did a lot in terms of coming down especially when -- because the standard toward what people compared every Argentine crisis is 2001 crisis and we're far, far away from that type of scenario.

Regarding asset quality, we would like to go to continued -- I mean to increase back our coverage toward the total NPLs. As I said, we believe that from where we are now, current levels of coverage, but clearly if our revenue generation from interest, we would like to increase and try to get closer to 100% because it always provides more cushion in case some surprises happen.

And regarding your question specifically in terms of corporate, our sense is that the half of the corporate loan portfolio in general for the economy is relying mostly on at which point will interest rates start to come down because what we've seen in this year 2019 is companies that at the beginning of the year didn't have some difficulties or operational difficulties because of the combination of the very strict public cost controls that the government especially in the second quarter combined with very high levels of interest rates created a situation that was very difficult for companies that depend heavily on financing, on bank's financing.

Many of the companies that have survived until now, one we would say that they're going through the worst of the storm, but clearly the whole [Indecipherable] hopefully sooner rather than later interest rate levels would start to fall especially interest rate levels in real terms because the biggest drop I think that we've had in these past two quarters of 2019 is that the level of interest rate in real terms was extremely high, extremely high and [Indecipherable] on main companies that were in that.

Yuri Fernandes -- JPMorgan Chase & Co. -- Analyst

No, thank you very much, Jorge. But with lower rates, it's going to be tough also for your top-line, right? It's a bit -- it's a challenging environment because if the rates come down, how you monetize the securities then?

Jorge Oscar Ramirez -- Chief Executive Officer and Vice Chairman

I mean it's going to take a while until the transition, but remember that for our bank, we always had more focus on personal loans rather than on credit cards. If interest rates come down, great demand for loans reactivates quite rapidly. Clearly it's not going to be overnight, it's going to take a while to transition toward that. But we do have a line of business in our view can enable us to expand our margins.

Yuri Fernandes -- JPMorgan Chase & Co. -- Analyst

Okay. Thank you very much.

Operator

Our next question comes from the line of Carlos Gomez with HSBC Global Asset Management. Please proceed with your question.

Carlos Gomez -- HSBC -- Analyst

Hello, good morning. First, congratulations on the presentation. It's very clear, very detailed and it really give us a lot of information. So thank you very much for that.

Julio Patricio Supervielle -- Chairman

Thank you.

Carlos Gomez -- HSBC -- Analyst

The questions. Well first, frankly, we are a bit surprised by how much we're hit by the reprofiling and if you could give us an idea about the logic about how you were positioning going into this partial debt restructuring and how you are going into the next one, you already referred to that? Second, where would you expect corporate non-performing loans to peak, you're already at 7%, you mentioned that the company's weaker because of government expenditure, real rates, but those are still high? And finally, can you tell us again how much capital do you have at the holding company and how much that would represent in terms of increasing the Tier 1 capital ratio of the bank? Thank you.

Jorge Oscar Ramirez -- Chief Executive Officer and Vice Chairman

Regarding your first question, the overall size of the securities we had was approximately 3% of our total assets. Part of them were at the bank, part of them were at the subsidiaries. In the case of the subsidiaries, most were invested in peso denominated bonds. They didn't have any other alternatives, in some cases they have to invest in public bonds [Indecipherable] for example of the insurance company. So that had mostly to do with that.

In the case of the bank, essentially, we had a position of letters that we've been coming down from a peak-over on over $100 million at the end of last year, down to around $60 million at the rate of the reprofiling. So we had been managing our exposure down. Part of our U.S. dollar related position, we used them to hedge our rental agreements that are U.S. dollar denominated and some other agreements like IT services or IT licenses that are dollar denominated, as per the Central Bank does not allow us to hedge it through our net foreign exchange position. So latest gave an increased signs of foreign exchange position from the 5% will translate to reduce to 4% up to 30% [Indecipherable] 30% mark, but it helped us cover some of the -- or we tried to hedge our U.S. dollar contracts that we could not hedge otherwise because of Central Bank regulations.

When you look at the overall size of the position compared to our market share and compared to signs, we believe it was reasonable. Our -- if you will allow me, state was, we were not expecting that this administration will default on circumvent because all of the maturities that we had in our portfolio all maturing prior to November or up to November.

And finally there is another thing we are in this, which the comparability of our figures compared to other banks that are reporting, probably the listed. In our case, we have been booked in our trading position. So that means that you will see everything, all the results prior to our...

Alejandra Naughton -- Chief Financial Officer

Within the market....

Carlos Gomez -- HSBC -- Analyst

is not available for sale, you mean?

Jorge Oscar Ramirez -- Chief Executive Officer and Vice Chairman

That's right. They were not held for sale. So you see above the line and below the line, our bank could be reporting that. So I think that when you analyze everything, you have to compute both things to see actual impact that was. And we think comparing ourselves with other banks in terms of proportion in size and it was a reasonable size of our position. It was not something that we were completely exceeding in the position we have. In the whole -- but regarding capital question, in the holding company, we have ARS 650 million, but we're completing it already in the portfolio moderation of 11.8% of Tier 1.

Carlos Gomez -- HSBC -- Analyst

Sorry, could you repeat that? So you said that the capital available...

Jorge Oscar Ramirez -- Chief Executive Officer and Vice Chairman

The capital available at the holding company to make further investments is ARS 650 million, but the capital ratio we published is a pro forma that already takes into consideration those ARS 650 million.

Carlos Gomez -- HSBC -- Analyst

Okay. Yeah. So the 11 -- yeah, I see. So the 11.8% is pro forma?

Alejandra Naughton -- Chief Financial Officer

Exactly. You compare that with capital level [Indecipherable] that is 11.2%. So as you can see here, due to the bank, you will find our level of [Indecipherable] 11.2%, but however, as we have funds at the holding company available for capital injections, we published with pro forma that includes that funds at the holding company level that sum up 11.8%. So the 11.8% shows our ability to [Indecipherable] .

Carlos Gomez -- HSBC -- Analyst

And can you remind us what you think is the minimum that you want to have?

Jorge Oscar Ramirez -- Chief Executive Officer and Vice Chairman

Around 10%.

Carlos Gomez -- HSBC -- Analyst

10%. Thank you so much.

Jorge Oscar Ramirez -- Chief Executive Officer and Vice Chairman

Pleasure.

Operator

[Operator Instructions] Our next question comes from the line of Rodrigo Nistor of Itau. Please proceed with your question.

Rodrigo Nistor -- Itau BBA -- Analyst

Hello, all. Good morning. Well actually most of my questions have already been answered, but just a quick one regarding the new reserve requirements for demand deposits. What kind of measures are you taking there to defend your margin? And also if you're expecting any additional changes in the requirement front? Thank you.

Jorge Oscar Ramirez -- Chief Executive Officer and Vice Chairman

Yes. Clearly that has an impact, but to us is more or less around ARS 2 billion less of LELIQs in the portfolio of Central Bank securities. So our investments and the one we're going to handle that streamlining liquidity in physical mining NPLs in the branches which enables us to -- because that one does not compute as legal reserve requirements. So that liberates some funds. And if I remember, we have been keeping extraordinary levels of liquidity at the branches levels in order to serve through a very volatile environment.measures in terms of managing the exposure over the NPL portfolio, the way of recovering liquidity is through that that will enable us to start investing in securities or in loans that are performance. So it's a combination of different measures that we're taking to compensate for us, but in the short-term, we expect it will have an impact really.

Rodrigo Nistor -- Itau BBA -- Analyst

Thank you.

Operator

We have reached the end of the question-and-answer session. I will now turn the call back over to management for any closing remarks.

Ana Bartesaghi -- Treasurer and IRO

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

Operator

[Operator Closing Remarks].

Duration: 57 minutes

Call participants:

Ana Bartesaghi -- Treasurer and IRO

Julio Patricio Supervielle -- Chairman

Jorge Oscar Ramirez -- Chief Executive Officer and Vice Chairman

Julio Patricio Supervielle -- Chairman

Alejandra Naughton -- Chief Financial Officer

Juan Recalde -- Scotiabank -- Analyst

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

Gabriel Nobrega -- Citigroup -- Analyst

Jason Mollin -- Scotiabank -- Analyst

Yuri Fernandes -- JPMorgan Chase & Co. -- Analyst

Carlos Gomez -- HSBC -- Analyst

Rodrigo Nistor -- Itau BBA -- Analyst

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