Grupo Supervielle S.A. (SUPV) Q4 2020 Earnings Call Transcript

Image source: The Motley Fool.

Grupo Supervielle S.A. (SUPV 2.09%)
Q4 2020 Earnings Call
Mar 9, 2021, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Ana Bartesaghi -- Treasurer and Investor Relations Officer

Good morning everyone and welcome to the Grupo Supervielle Fourth Quarter 2020 Earnings Call. This is Ana Bartesaghi, Treasurer and IRO. A slide presentation will accompany today's webinar, which is available in the investors section of Grupo Supervielle's investor relations website, gruposupervielle.com. Today's conference call is being recorded. As a reminder, all participants will be in listen-only mode. There will be an opportunity for you to ask questions at the end of today's presentation.

If you want to ask a question, you need to be connected to a Zoom platform from any device. We will not be able to take your questions if you are connected from a phone line. Also, please make sure your name and last name appear in the Zoom platform you are using. To ask a question by voice, please press the raise your hand button located in the Zoom platform. To withdraw your question, press raise your hand again. You can also send your questions in written form via the Q&A box in the Zoom platform anytime during the call. We will ask you to limit yourself to one question and a follow-up and then you can raise your hand again in another round.

Speaking during today's call will be Patricio Supervielle, our Chairman and CEO, and Mariano Biglia, our Chief Financial Officer. Also joining us are Alejandro Stengel, Second Vice Chairman of the Board and Bank CEO; and Jorge Ramirez, First Vice Chairman of the Board; Alejandra Naughton, Board Member of several of Grupo Supervielle's subsidiaries will also be joining us for today's call. All will be available for the Q&A session. Note that starting 1Q '20, as per Central Bank regulations, we began reporting results applying Hyperinflation Accounting in accordance with IFRS rule IAS 29. For ease of comparability, we have restated 2019 results to reflect the effects of inflation adjustment. Therefore, all results in this presentation are adjusted for inflation as of December 31st, 2020, unless otherwise noted.

For your convenience, our earnings report filed yesterday after market close also includes managerial results in nominal terms as well as more details on Hyperinflation Accounting. Before we proceed, I would like to make the following Safe Harbor statement. Today's call will contain forward-looking statements which are based on management's current expectations and beliefs and are subject to a number of risks and uncertainties, including as a result of the COVID-19 pandemic 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 Chairman, Patricio Supervielle.

Julio Patricio Supervielle -- Chairman of the Board and Chief Executive Officer

Thank you, Ana and good morning everyone.

Mariano Biglia -- Chief Financial Officer

Ana, I think Patricio is down.

Ana Bartesaghi -- Treasurer and Investor Relations Officer

Yes, Patricio is down. Just a few seconds. He will reconnect in a few seconds [Phonetic]. Okay. [Technical Issues].

Julio Patricio Supervielle -- Chairman of the Board and Chief Executive Officer

I'm sorry for the technical problem and so I start again. Thank you, Ana. Good morning everyone. Thank you for joining us today. Starting with our financial performance on Slide 3 on our earnings presentations. In a complex scenario, we continue to balance risk and profitability by managing the credit cycle and excess liquidity through assets and liability management. We achieved low-double digit comprehensive return on average equity in real terms during the year notwithstanding the many challenges by the pandemic, a recessionary macro that deepened during the year, and a shifting regulatory framework.

Return on average equity reached 9.9% for the year and was lower at 7.4% in the quarter as pressure from higher cost of funds resulting from the floor on time deposits, interest rates, and subsidized rates on loans resulted in a NIM contraction while regulatory controls continue to impact fees. Throughout the year, we consistently increased our coverage ratio, which reached 192% at year-end from 83% in the prior year and quarter reflecting a conservative stance in risk management. We also continue to review our expected loss models and are closely monitoring our loan book and risk models to adjust accordingly as the situation evolves.

Excluding one-time charges related to some severance charges in the quarter, the efficiency ratio in 4Q '20 was 66%. For the year, comparable efficiency excluding non-recurring charges in both periods improved 230 basis points to nearly 62% as we continue to keep a tight control on expenses and achieving a mid-single digit decline in personnel expenses while advancing on our transformation strategy. Lastly, strong liquidity levels and a solid capital base with a Tier 1 ratio of 13.8% positions us well to advance on our initiatives.

Now turning our strategic initiatives. In parallel, we have been executing our transformation strategy with the goal of driving sustainable growth as demand resumes while enhancing our current competitiveness. Specifically, this includes advancing on our digital transformation, evolving our service model in our branch network, and adding API capabilities to connect to third parties. I will discuss this in more detail shortly.

As you can see on Slide 3, sustained digital adoption continues across our business. To give some color on the progress we are seeing for example, monetary transactions at non-automated banking tellers declined sequentially to a historical low of 5.5% from the 19% seen prior to the pandemic while mobile more than doubled its share during the year accounting for 11% of transactions in the fourth quarter. Adoption of E-CHEQs was up 44% sequentially while use of e-factoring continued to grow as SMEs continued to rapidly welcome digital banking.

In consumer finance, new App functionalities added early in the year have been well received with mobile payments and digital onboarding expanding consistently throughout the year. Lastly, we continued to see good traction on our digital online broker, which saw a total of 134,000 new accounts opened during last year, more than doubling the number of accounts opened in the previous year. In turn, DART, that is Daily Average Revenue Trading reached nearly 24,000 in the fourth quarter, up from less than 11,000 in the same quarter of the prior year.

Now moving on to our branch transformation initiative on Page 4. We are very encouraged with the successful results from the service model pilots we have been carrying out since last August. This includes one pilot with a value proposition for SMEs in areas of our network where we see potential; another pilot where we are expanding self-service areas targeted to senior citizens building on our biometric technology, and a third one, which is a 100% self-service model.

These pilot programs are demonstrating significant improvements on several fronts. As shown on the top right chart, transaction through human cashiers are migrating at a much faster pace to the online and automatic channels in these three pilots vis-a-vis our senior citizens dedicated network. In just five months, the share of transactions at human tellers fell significantly from a range according to branch location between 14% to 28% in late August to a range between 5% to 6% in December. For the comparable network in the same period, the share of transactions at human tellers declined from 23% to 17%.

We achieved an average increase of 35 percentage points in the net promoter score in these three pilots with one location posting an even higher improvement. Our newly expanded 24-hour service lobbies helped increase self-service transactions. Importantly, we saw a drop in customers operating inside the branch lobby vis-a-vis the 24-hour lobbies with more customers operating outside of branch service hours.

We are also pleased to see that our strategy to broaden our service offerings to better reach SMEs resulted in early indication of higher performance for this cluster. Following these successful results, we plan to start scaling up these new formats across our branches during the year. This will include investment in construction works and IT with an expected payback period of between 30 to 36 months.

Please turn to Slide 5. During 2020, we implemented Agile at Scale operating model consolidating agile methodologies and processes. At the same time, we deepened the customer-centric cultural transformation across the company. We have organized the company into individuals, corporates, and SMEs and payments with customer service and omnichannel cutting across end-to-end interaction or experiences. These sets of experiences are managed by imports [Phonetic] squads as part of a tribe that works to enhance the Supervielle customer experience.

Our agile transformation offices aims to guarantee the alignment to the bank strategic objectives and to scale agility across our organization ensuring the customer centricity at all times. This is supported by Centers of Excellence that distribute talent, resources, and knowledge to each squad so that they can carry out their purpose based on the best practices of each discipline.

Now please turn to Slide 6 for a quick overview of our business and IT capabilities, which is based on three pillars. The first one is strengthen and modernize our core banking system. The second pillar is to speed up deployment of our omnichannel strategy, modern IT architecture including APIs to accelerate transformation, connect to third parties, and prepare for open banking. And lastly, our third pillar is be prepared for the future including leveraging digital marketing and artificial intelligence capabilities as well as cloud services.

During 2021, we plan to make capital investments of total ARS4.2 billion of which ARS3.1 billion will be applied to deploy our digital transformation strategy and ARS1.1 billion to start scaling up the service model pilots across branch network. Our goal is to offer our customers a human banking experience that combines the use of technology with our staff assistance to provide our customers the best of both worlds.

Please turn to the macro on Slide 7. Following a macro contraction of 10% in 2020, we see the economy beginning to rebound benefiting also from a statistical carry over of 6%. Favorable external conditions also offers some tailwinds for the year, particularly as higher prices for agricultural commodities continue strengthening the trade balance where the government continues to show signs of fiscal restraint. This provides a solid foundation for real GDP to expand above 7% in 2021.

The recovery however is still subject to advances in the vaccination program to contain the health crisis and the resumption of IMF negotiations. While inflation for 2020 dropped 17 points year-on-year to 36%, monthly inflation has deteriorated since last August and we anticipate it will increase to approximately 48% this [Phonetic] year. The gap between the blue chip rate and the official exchange has somewhat contracted although it still remains at high levels while interest rates remain unchanged with seven days repo rate at 36.5%. Let me now turn the call to Mariano Biglia, our CFO. Please Mariano, go ahead.

Mariano Biglia -- Chief Financial Officer

Thank you, Patricio. Good day, everyone. Please turn to Slide 8. Our loan book in the quarter contracted sequentially by nearly 4% on the back of sustained overall weak demand while we've maintained prudent lending and focused on profitability in this uncertain context. Personal loans were flat sequentially as growth in credit card loans were offset by lower corporate loans. Dollar denominated loans in original currency contracted as some large corporates paid down their dollar loans in line with the overall industry trend. Government-sponsored loans at preferential rates remained unchanged sequentially at 10% of our loan portfolio at year-end. This includes nearly ARS11 billion in SME loans at preferential rates, of which ARS4.5 billion were in short-term factoring transactions that are fully guaranteed by FOGAR.

Now looking at funding on Slide 9. We closed the year with strong liquidity levels both in pesos and dollars. The loans-to-deposit ratio remains at historically low levels of 62%. Average balances of peso deposits increased nearly 78% year-over-year and nearly 1% sequentially. Total peso deposits at year-end declined nearly 7% while core deposit in pesos remained flat sequentially with the leverage the balance sheet by reducing institutional funding to preserve financial margin. Dollar deposits in original currency rose 3% during the quarter, representing only 14% of total deposits in line with the outflow of dollar denominated deposits observed in the industry.

Turning to the P&L on Slide 10. Net financial income was down 15% sequentially to ARS9.3 billion. We saw a sequential NIM compression of 170 basis points during the quarter to 19.5% as higher cost of funds from the floor on the rate of time deposits along with higher market interest rates reduced the spreads. Increased volumes of loans granted to SMEs at preferential interest rates together with increased volumes on credit cards from government-sponsored programs also contributed to NIM compression.

Now moving on to asset quality on Slide 11. Loan loss provisions amounted to ARS1 billion in the quarter, down 67% sequentially. We continued to revise our expected loss models, including additional macro variables and updated top-down analysis of some industries that could be more susceptible to the pandemic. This reevaluation did not lead to an increase in COVID-19 specific provisions in the quarter, which stood unchanged sequentially at ARS2.8 billion at year-end. The ratio of total provisions to total loans declined to 7% from just over 8% last September. A breakdown of this ratio by key customer segment is shown on the top right chart.

The NPL ratio declined 80 basis points to 3.7% in the quarter mainly due to the write-off of atomized consumer loans in the personal and business banking segment reflecting our policy of writing off delinquent loans at 270 days. We also continued to increase coverage in the quarter reaching nearly 192% in the fourth quarter from 183% [Phonetic] in the prior quarter. NPLs and coverage ratios benefited from the relief programs established by the Central Bank, which allows debtors to reschedule their loan payments with grace period beginning to expire starting this coming April and to a lesser extent from the regulatory easing on debtor classification during the pandemic. Excluding regulatory easing, coverage increased to 184% in December from 158% in September as we continued to refine our models and conduct top-down industry analysis. We will continue to closely monitor events and make appropriate adjustments as required to our risk models.

As show on Slide 12, our loan book maintains a well-diversified industrial exposure. Agri business and food beverage, which comprises a large share of our portfolio continued to perform well in this environment. At the same time, we have further reduced our exposure to high-risk sectors which accounted for less than 9% of our portfolio from 13% in the prior quarter. Moreover, loans to the highest risk sectors have guarantees exceeding 60%. At the same time, over 40% of our commercial loan portfolio is collateralized while collaterals on non-performing commercial loans increased to 80% from 78% in the prior quarter. Importantly, loans to lower risk payrolls and pension clients accounted for 72% of our total loans to individuals at the bank level.

Now please turn to Slide 13 for some brief remarks on our perspectives for the year. While guidance remains suspended due to the limited visibility ahead, on this slide we share our overall views on the key business drivers for 2021. We expect to see loans and deposits growing above inflation. Loan growth will largely depend on the size and strength of the economic rebound, advance in the vaccination program along with consumer and investor confidence. We expect loan growth will come first from export-oriented industries particularly agri business. This is supported by the world economic rebound including Brazil and increased commodity prices. Visibility, however, still remains low.

Deposit growth in turn should be supported by foreign exchange market restrictions and the regulatory floor on interest rate tied [Phonetic] to time deposits. In terms of asset quality, we could see a potential deterioration in NPLs during the second and third quarters of the year after grace periods from the riskier [Phonetic] loans begin to expire in April. That moment will reflect more accurately the behavior of our clients in terms of their payment capacity. While we feel comfortable with the current level of provisions, this could be revised upwards if economic conditions were to worsen.

This is mitigated by our prudent approach to lending and the strength of our portfolio. Cost of risk in turn is expected to be below 2020 levels. We expect NIM to remain pressured by higher cost of funds resulting from the floor on interest rates on time deposits and subsidized rates on loans. Also, we expect fees to grow in line with inflation. Despite regulations limiting repricing until March of this year and some regulatory caps in place for credit card commissions and ATM fees for 2021, the bulk of our fees to individuals, mainly bundles of banking services, are not affected by regulations. Fees on loans will depend on the overall economic context.

In terms of expenses, salaries are anticipated to grow with inflation and we will continue to exercise strict control on recurring costs while investments in accelerating our digital transformation strategy and the revamping of some branches will result in some temporary increases in costs. This will contribute to enhanced efficiency in the longer-term. Higher turnover tax rates along with the recent extension of the turnover tax to Leliqs and repos in the city of Buenos Aires should also affect expenses.

To conclude, we expect capital and liquidity to remain at adequate levels underscoring long-term sustainability. Now we are ready to open the call for questions. Ana, please go ahead.

Questions and Answers:

Ana Bartesaghi -- Treasurer and Investor Relations Officer

Thank you, Mariano. At this time, we will be conducting the question-and-answer session. As a reminder, to ask a question, you need to be connected to the Zoom platform. We will not be able to take your questions if you are connected from a phone line. To ask a question by voice, please press the raise your hand button and press it again to withdraw your question. You can also send your questions in written form via the Q&A box. We will ask you to limit yourself to one question and a follow-up and then you can raise your hand again in another round. One moment while we poll for questions. The first question comes from Gabriel Nobrega with Citi.

Gabriel Nobrega -- Citi -- Analyst

Yes, hi everyone. Good morning and thank you for the opportunity to ask questions. During the quarter, we actually saw that you reversed some provisions from your corporate loan book and so I was wondering if -- are there any other parts of your book, which may have been more conservative than the results that are actually coming in. Do you expect that there could be any more provision reversals during 2021 or is there an expectation that due to the Central Bank still giving more reliefs and flexibilizations, this is going to generate uncertainty and then you could actually not even reverse, but actually create some additional provisions. Thank you.

Julio Patricio Supervielle -- Chairman of the Board and Chief Executive Officer

Thank you. Can you please, Mariano, can you answer this question? Thank you.

Mariano Biglia -- Chief Financial Officer

Sure, Patricio. Thank you. Hello, Gabriel. During the fourth quarter, as we do in every quarter, we revised our expected loss models, updated macroeconomic variables, revising by making a top-down industry analysis and revising all the high-risk and very high-risk sectors of every industry. In this context, we made mixed in our provisions, reducing provisions in corporate loans as we received some collections, particularly in the construction sector where as you could see in the presentation, we reduced exposure. So reducing exposure to a high-risk industry also reduces the need for provisions.

Then also we were expecting a higher devaluation of the peso as we expect now, so that also contributed to revise downwards the provisions of U.S. dollars loans, but on the other hand, we increased provisions particularly in loans to individuals and SMEs and also credit cards that have been deferred within the Central Bank deferral program. In this context, although it is an option for debtors and they could take it and and they -- if it's a loan, pay the deferred loan as an additional installment at the end of the loan or for credit card, they are deferred in 12 installments or nine installments after three months three upgrades [Phonetic]. So they are not past due but we increased coverage in those cases because we will have to expect a few months later to see starting in April how is the behavior of this debtors. So all-in-all, we maintained a same -- almost the same level of COVID-19 specific provisions while we increased coverage because we made some write-off, particularly in the retail segment and thus reducing NPLs and increasing coverage.

Gabriel Nobrega -- Citi -- Analyst

All right. That's perfect. And as for my second question, during this quarter, we saw that you increased your investments into digital transformation and I'm just wondering if you expect to keep the pace of investments in your digital platform throughout 2021 or should we start seeing this decreasing. Thank you.

Julio Patricio Supervielle -- Chairman of the Board and Chief Executive Officer

Let me take first this and then I pass to Alejandro, but basically the digital transformation that we started in 2019 and scaled in 2020 will continue going forward and over the next few years. This is one structural decision we've made in order to modernize our bank and then also there is a second transformation which concerns the future of branches at Supervielle and we've made three MVPs or pilot projects, very interesting that I think Alejandro will be able to explain both of them because they concern the transformation of our entire franchise into a modern bank, 21st century bank. Please, Alejandro.

Emerico Alejandro Stengel -- Second Vice-Chairman of the Board and Chief Executive Officer of Banco Supervielle

Thank you, Patricio. Yes, we are planning at least to sustain these levels of investments into 2022. As Patricio mentioned, we are working on two fronts. One is the channel and network -- branch network transformation into an omnichannel that will allow us to have the best customer experience. There, we worked on three formats to enhance this customer experience. One, increasing the self-service areas that were around 20% of premises into 60% of premises in space and this coupled with our biometrics technology is allowing an increased acceleration of the adoption of automatic channels to service clients and also to originate products and services from these automated channels.

We have also another format focused on offering SME value propositions in areas of the network where we see potential and we see indication -- early indication that this is actually going to do better than what originally expected. And in the third case, we are scaling up a fully automated format this year and next year, which allow us in the three cases to increase our efficiency quite considerably.

On the IT business fronts, we have increased all the digital transformation initiatives. Currently, we have 50 squads working with agile methodologies to make sure that end-to-end customer experiences and customer journeys are digitalized. We've seen an increase in NPS particularly in the case of the branch network pilots and we are working to enhance the full digital capabilities of onboarding for individuals, corporations as well as cross-sell and cash management services. We are very enthusiastic about this and we definitely see it going forward until the end of 2022.

Gabriel Nobrega -- Citi -- Analyst

Perfect, thank you everyone for your answers.

Ana Bartesaghi -- Treasurer and Investor Relations Officer

Thank you, Gabriel. Our next question comes from Ernesto Gabilondo from Bank of America. Ernesto, go ahead. Ernesto, I think you are in mute, maybe?

Ernesto Gabilondo -- Bank of America -- Analyst

Can you hear me now?

Ana Bartesaghi -- Treasurer and Investor Relations Officer

Yes. Perfect. Thank you, Ernesto.

Ernesto Gabilondo -- Bank of America -- Analyst

Thank you, Ana. Hi, good morning, Patricio. Good morning to all your team and good morning everyone. My question is on asset quality and the deferred portfolio. In your press release, you mentioned that around 10% of the loan portfolio is deferred and that you have already created extra provisioning of around ARS2.8 billion as of December related to COVID-19. So considering that the Central Bank is adding 60 days more of grace period, how should we think of the NPL ratio in the third quarter after ending these grace period, what could be the level of the peak, and if you have any expectations on the payment behavior of the deferred portfolio? Thank you.

Julio Patricio Supervielle -- Chairman of the Board and Chief Executive Officer

Thank you for your question. We -- in terms of the NPL, we believe that -- I think Mariano mentioned, it will peak in the second-Q or third-Q once the federal program ends. And maybe then afterwards in the second half of the year, we believe that there might be a decrease in NPLs. But please, Mariano, do you want to complement?

Mariano Biglia -- Chief Financial Officer

Yes. Hello, Ernesto. Regarding the behavior we expect from debtors who took the option to defer loan instalments or credit card balances; in general, we don't expect a different behavior that they would have in normal situations except for higher-risk industries where, as I mentioned, we have some additional provisions because those are debtors that could face higher challenges to repay all their loans that -- all the instalments that have been deferred.

And then we also differentiate between debtors that have deferred maybe on only one or two or three months, and debtors who have deferred five or more instalment. In those cases, we classify them as with a higher risk of not paying their loans when instalment start to mature. And we also monitor whether if these debtors, when -- particularly when they are individuals, if they have a credit card and a loan, and whether they have deferred both or only one. If they deferred only one, what's their behavior in the other financing.

So we take all these considerations and make additional provisions where we think they are necessary.

Ernesto Gabilondo -- Bank of America -- Analyst

Thank you, Patricio and Mariano. And for my second question, can you give us an update of the last regulatory framework, anything related to floors on the policies, subsidized as you mentioned, the caps on credit cards, freeze in fee?

Julio Patricio Supervielle -- Chairman of the Board and Chief Executive Officer

I would like to complement on Mariano's answer; also, I think it's regards what happen also in fourth Q. There was -- I mean, there was a decrease in our exposition of high or and very high-risk industries in terms of credit exposure. And also, we have all our non-performing loans are very well collateralized. 80% is very well collateralized. So regarding to finalize your question, I think that we are well positioned for what we expect for 2021.

Ernesto Gabilondo -- Bank of America -- Analyst

Yes. Thank you, Patricio and Mariano.

Ana Bartesaghi -- Treasurer and Investor Relations Officer

It was your follow-up. You can ask it again, if you want, Ernesto.

Ernesto Gabilondo -- Bank of America -- Analyst

Yes. Thank you. So my second question is, if you can give us an update of the last regulatory framework regarding floors on deposits, the subsidizing some interest loans, the caps on credit cards, the freeze on the fees; what else I am missing or what else are you hearing that could be on the regulatory front this year?

Ana Bartesaghi -- Treasurer and Investor Relations Officer

I think we lost you, Ernesto. I think you were asking in terms of an update on regulation, isn't it floors and interest rates and fees and all that?

Ernesto Gabilondo -- Bank of America -- Analyst

Correct, correct. Thank you.

Ana Bartesaghi -- Treasurer and Investor Relations Officer

Okay. Thanks.

Julio Patricio Supervielle -- Chairman of the Board and Chief Executive Officer

Okay. I will pass to Mariano. But regarding fees, there are certain regulations on ATM fees and -- but the bulk of fees we believe they are non-regulated. So more or less 90% of the fees, which is by the bundled banking products, which represent 90% of our fees, they are non-regulated and they will come along with inflation. Mariano, do you want to complement on the rest of regulations?

Mariano Biglia -- Chief Financial Officer

Yes, sure. Let me follow-up with the regulations on interest rates. Right now, we have on the liability side, we have floor on time deposit interest rates. We have two floors. One for deposit of less than ARS1 million, and another floor, which is a little bit higher for deposits of more than ARS1 million. In this case, the floor is set as a reference to the interest rate. So if the Central Bank happens to increase or decrease interest rates, the floors will also be moving in the same direction.

Then on the asset side, we have the subsidized lines at different interest rates. We have loans at 24% interest rate, 30% or 35%, depending on whether they are for working capital or investment. And those lines are offered principally to SMEs and to the lower end of our middle and bigger corporate clients.

And then of course, we have all the Central Bank instruments, which are not regulated itself, but they are nonetheless set, of course, by the Central Bank.

So we have, still in place, a lot of regulations both on the asset and liability side and also on fees, as Patricio mentioned, although fees had a much higher impact in 2020 where we were limited to increase all types of fees. And now in 2021, these affects only a smaller part of all our fees.

Ernesto Gabilondo -- Bank of America -- Analyst

Thank you. And is there any regulation on the provinces that is correlated to your business or related to your business?

Mariano Biglia -- Chief Financial Officer

In provinces, the regulations comes from the Texas side, not -- there are no different rules from the Central Bank or based on the provinces. But they tax provincial taxes, which is mainly the main tax, is the turnover tax. That tax has a different rate depending on the province. And on that side, the most important issue that started affecting us in in January this year is that the autonomous of Buenos Aires, which for this matter act as a province, expanded the reach of the turnover tax to Leliqs and repos with the Central Bank that were previously absent.

So now we have that tax, which has on average a rate -- it had on average a rate between 7% and 8%, but now it reaches also Leliqs and repos in the City of Buenos Aires, and also on top of that, the City of Buenos Aires increased the turnover tax rate to 9%, and that also was made by other provinces such as Cordoba and Tucuman.

Ernesto Gabilondo -- Bank of America -- Analyst

Very helpful. Thank you so much.

Mariano Biglia -- Chief Financial Officer

Thank you.

Ana Bartesaghi -- Treasurer and Investor Relations Officer

Thank you, Ernesto. Our next question comes from Yuri Fernandes from JPMorgan. Yuri, you can ask your question now.

Yuri Fernandes -- JPMorgan -- Analyst

Hi, Ana. Hi, Patricio. Thank you very much for the opportunity of asking questions. I have a first one regarding your consumer finance regarding IUDU. We see results improving, but still are printing some loss there. So my question is, when do you expect IUDU to breakeven? I am a bit concerned on the amount of loans deferral there. I guess, this was a portion of the previous question. But how do you see those loans behaving? Because if I read correctly in the release, I guess, 30%, 90%, of the loans that you do, they are being deferred to-date. So two questions, right, like, how do you see this is evolving? Maybe you can comment a little bit on your KPIs. I guess you do have an interesting strategy there on profitability and about asset quality, so an overview on the consumer finance.

And my second question is regarding margins. Like, I guess this quarter was the first quarter, full year reflecting the mandatory remuneration of time deposits. So should we see margin more stable now, like what's the outlook for margins going on? Thank you.

Julio Patricio Supervielle -- Chairman of the Board and Chief Executive Officer

Okay. Thank you for your question. First of all, IUDU, the strategy of IUDU and the consumer finance unit, one key part will be the opening of offering digital accounts for individuals in order to capture retail deposits. This is a structural move that will pay off in the next -- this year, we hope, in the following years. And it will reduce the cost of funding we have in this business, and therefore it will have a very important swing factor in the profitability of the entire group. IUDU will act as a digital attacker, offering services that banks are not so eager to offer, and therefore, we hope to attract segments of people that prefer to work with digital platforms.

There is another factor that's affecting the profitability of IUDU, that during the pandemic, IUDU had, let's say, less sales of insurances and less sales of non-monetary -- non-financial services, which are an important equation in the profitability. We -- this is already changing. We know we have -- we see that there is movement in terms of sales, much better sales in insurance and unknown financial services, and these are services that -- they're not -- it's not just one-off sale, but it's something that we build. Once you get a client, then this client keeps -- there is a life cycle of maybe a couple of years or two, three years of, let's say, fees that are coming into the platform.

Regarding margins, we have -- well, first of all, we have very good -- we think that we have a very disciplined score methodologies in terms when we -- when we assess and discriminate a good credit from a bad credit. And we believe that rates, it's important in consumer finance what happen with rates. And in 2021, we believe that rate -- interest rates will be stable. Because -- even though inflation is high, and that's the risk, the Central Bank does not have incentives to move rates. So rates will -- we believe that they will be quite stable during the year. And so therefore, margin -- financial margin for consumer finance, we believe that they will be strong.

I think -- so in the mean -- I mean, finally, we believe that profitability will start to improve 2021, 2022, and it will become a very important part of our, let's say, platform. I hope I answered your question.

Yuri Fernandes -- JPMorgan -- Analyst

No. Thank you, Patricio. Just a quick follow-up on IUDU. We saw the number of clients growing, right, like, 40,000 to 410 [Phonetic], so something like that, right? So the idea is to keep growing at that pace, accelerate that pace. Do you have a target of clients by year end? Because I think there are other players with similar strategy. So it would be nice just to have some KPI on your view for IUDU.

Julio Patricio Supervielle -- Chairman of the Board and Chief Executive Officer

Mariano, do you have some figures on that? I don't think I can give you specific targets. We are quite aggressive in terms of growth, but at the same time, very cautious approach in terms of who takes credit -- I mean, who -- I mean, exposure of credit and credit cards.

I think an only important feature that I want to mention is that Walmart is leaving the country and we have a contract that is renewed until August 2021. The partner, the new player replacing Walmart will be de Narvaez. We've been working with de Narvaez Group for the last few years as they were clients of -- with their retail operation in Argentina. Although they were out of the supermarket business for many years in Argentina, they have been -- they are in the supermarket business in other countries; for instance, Uruguay.

And so these guys are knowledgeable in retail, and we believe that the -- we are very happy to work with them, and we believe the business practices we might be even better than the ones we had with Walmart. And for instance, just to give you one idea is that Walmart is not used to have loyalty cards, whereas probably de Narvaez. They will incorporate the loyalty cards as accrual program. And this gives you a huge opportunity to expand the business in terms of traffic coming into Walmart.

Yuri Fernandes -- JPMorgan -- Analyst

Perfect, Patricio. Thank you very much.

Mariano Biglia -- Chief Financial Officer

And let me add also that it's important to highlight that we are turning IUDU also into a digital bank. So it's not only the quantity of clients, but that they -- we aim to get digital clients, which will increase also the funding and deposit base IUDU. That will be something new compared to the old business model, where it was only an underwriting of loans and only work with retail customers on the asset side. And now it will work both on the assets and liability side with retail customers and turning to digital.

And I think there was a second question regarding time deposits, was it?

Yuri Fernandes -- JPMorgan -- Analyst

Yeah, I was asking more, because I know it's a regulatory issue, right? But today, the numbers in the first Q, they kind of reflect the -- how the time deposits will behave in the future, right? So, my question was, what is your outlook for margins? Like, should margins be stable?

I guess, Patricio kind of addressed that, but I don't know Mariano, if you have -- if you want to add. Basically, what outlook for margin in 2021 putting in a easy -- in a short way to ask. What's the outlook for earnings?

Mariano Biglia -- Chief Financial Officer

Yes. Well, regarding regulation and now we are talking about all the Group, and mainly the bank for that matter. We expect, of course, frozen time deposits to be in place. They are now in place during the first quarter. So as they were in place, as you said, fully in the fourth quarter, the level of NIM that we saw in the fourth quarter is likely to stabilize during a few months, particularly in this first quarter, and until we start to offset that growing in more profitable loans. So that's -- in that way we will be able to increase NIM despite the floor on interest rates on time deposits. But we will see that for sure after the first quarter.

Emerico Alejandro Stengel -- Second Vice-Chairman of the Board and Chief Executive Officer of Banco Supervielle

Yuri, this is Alejandro Stengel. Maybe one thing to look at is that, if the Central Bank continues to buy dollar reserves and inflation continues to show signs of going down, as we've seen more calibrated fiscal situation in the first-Q, it is more likely that they will review their policy on the floor of rates, and for time deposits, and probably consider it bringing it down. I think these are two things that we might look at, and that would have, as you can imagine, a considerable impact very quickly on margin and therefore on overall profitability. I think that's something you might want to look out for.

Yuri Fernandes -- JPMorgan -- Analyst

That's interesting. So I guess the message is, again, there are a lot of uncertainty, so it's hard to write this down. But basically, stable margins, it's kind of the worst case in your view --

Emerico Alejandro Stengel -- Second Vice-Chairman of the Board and Chief Executive Officer of Banco Supervielle

Yes.

Yuri Fernandes -- JPMorgan -- Analyst

-- may be continue for the next quarter. And you have two avenues of increasing the margins. The first one is through low mix, so basically growing in higher risk, higher profitability loans in the second half; and another way is basically a review of those regulations in putting like a lower floor for time deposits. So that's kind of the message, right?

Emerico Alejandro Stengel -- Second Vice-Chairman of the Board and Chief Executive Officer of Banco Supervielle

I would sort of adjust a bit the first part of the message, Yuri. It's not that we're going to go for higher risk. We see a tremendous potential within our franchise and sort of sectors like agribusiness, the winery, the citric industries, which we've served for many years and that have really depleted their inventories. And they will have a strong need for working capital. And these are very good risks. Value change is led by strong industry captains that have very good distribution and supplier network. So there is -- to your side of the argument -- there is an opportunity, basically, to compensate by scale these narrow margins and then, yes, probably, maybe as of the third quarter, we'll see a possibility of the Central Bank reviewing the minimum rate or the minimum floor that they put on time deposits. That's the way I would frame the answer.

Yuri Fernandes -- JPMorgan -- Analyst

So, pretty clear. Thank you very much Alejandro, Patricio and Mariano.

Ana Bartesaghi -- Treasurer and Investor Relations Officer

Thank you, Yuri. So our next question comes from Alejandra Aranda from Itau. Alejandra, go ahead please.

Alejandra Aranda -- Itau -- Analyst

Hi. Good morning and thank you for taking my question. I was wondering, it's so difficult to think of Argentina on a six-month period. I was wondering if you could give us a little bit of spoiler and share with us what has been happening in on the last two months in terms of dynamics for your loans, how you're seeing that demand coming through and the NIMs there? If you could give us some indication of the first two months of the year?

Julio Patricio Supervielle -- Chairman of the Board and Chief Executive Officer

Yes, Alejandra, thank you. Let me start first of all with what happened last year. In second-Q and third-Q, we had very high NIMs that allow us to build very good provisions. Then in fourth-Q, there was a little bit of NIM compression due to the flows introduced in interest rates for deposits and also more competition on the institutional funding side, so that drove a little bit of NIM compression.

Looking forward, we believe that in the first -- maybe first-Q -- first half of the year, NIMs will basically remain stable. And what will happen -- what will be very important is that -- well, regarding NIMs, we believe that loan demand will start to pick up in the second half of 2021 in the avenues that Alejandro just explained. But these avenues of growth will allow us to provide to replace Leliqs and repos with high NIM loans. And it's interesting to observe that what would happen maybe in other in other bank franchises, they will also do -- if we expect loan demand resumes, the other banks will -- they will do it. They will replace these Leliqs and repos with low NIM loans. So because we -- historically, we have high NIM loans compared to the rest of the industry.

And then I think -- I don't know if I have answered your question, Alejandra. Do you want some more color?

Alejandra Aranda -- Itau -- Analyst

Well, I do understand the concept of loans probably picking up in the second half in that with stable rates on the deposit side. And we're all believing that they're going to keep those floors there. So, there -- you can replace that and have a pickup on NIMs on the second half. But I'm a little bit skeptical on the first half. As I know -- I'm not seeing where that loan demand on the first half is coming from, basically even with rates being stable on the deposit side, you're going to get compression as you were pointing before on one of your slides. The deposits are going to keep on coming because people can't fight dollars, and loan demand is just not there.

Julio Patricio Supervielle -- Chairman of the Board and Chief Executive Officer

This is true. We have -- this is true. We have lived a terrible credit crunch in 2019 and 2020. I mean, three years in a row of credit crunch. So today, credit penetration is 11% of GDP. So you can imagine, we have almost -- it's a very low credit penetration. And to have loan demand pick up, you need -- of course, you need business confidence and -- but still having said that in an electoral year, I believe that there will be some demand on personal loans, for instance, on consumption. And as Alejandro explained, maybe you're right that there are uncertainties and -- there are uncertainties, but at the same time there is a scenario of world demand. The world is picking up. The world is rebounding. So this is helping -- this is helping Argentina in terms of agricultural exports, and we have commodity prices that are in average 30% above last year. This is also supporting the export industries. And so I believe that there will be some pickup of loans in particular in these sectors.

The uncertainty -- the thing to watch in the first-Q and second-Q is the behavior of payment of the deferred loans, that's the thing to watch. We are confident that our coverage is OK. But the thing to watch is that, of course; and this is starting due in April.

Alejandra Aranda -- Itau -- Analyst

Okay. Okay. Thank you so much.

Ana Bartesaghi -- Treasurer and Investor Relations Officer

Thank you, Alejandra. Now we have a question from Carlos Gomez Lopez from HSBC. Hello, Carlos, and you can ask your question now.

Carlos Gomez Lopez -- HSBC -- Analyst

Hello, can you hear me now?

Ana Bartesaghi -- Treasurer and Investor Relations Officer

Yes, sure.

Carlos Gomez Lopez -- HSBC -- Analyst

Thank you very much. So, two questions. First, in terms of loan growth, do you ended up the year negative? And I was going back over your previous presentations. In the third quarter, you still expected a positive outcome. What happened exactly in the fourth quarter? Did you see less demand that you expected or is it simply that inflation was much higher than you expected?

Then also on inflation, given that you expect a higher inflation in 2021, should we expect therefore also a higher monetary correction, and therefore a lower return at the end of the year?

Julio Patricio Supervielle -- Chairman of the Board and Chief Executive Officer

And Alejandro, in terms of loan growth, do you want to -- what happened in the fourth-Q, why there was less demand?

Emerico Alejandro Stengel -- Second Vice-Chairman of the Board and Chief Executive Officer of Banco Supervielle

I think I will start my answer for fourth-Q. I think that there is -- I mean, there was uncertainty. I mean this -- the pandemic, there was uncertainty and also very cautious approach still. The market is not -- was not requesting loans. And so again, we had three years in a row of credit crunch.

We believe that this -- there will be a turning point and for the reasons I just mentioned: the world economic rebound, the agricultural exports and maybe an electoral year where consumption will have some rebound. But this is looking forward. What happened particularly in fourth-Q, I cannot explain except that there was lack of confidence and people did not want to request loans. Alejandro, do you want somewhat -- maybe Mariano, do you want to compliment on that?

Mariano Biglia -- Chief Financial Officer

Yes. Thank you, Patricio. Hello, Carlos. Yes, what we've seen in during the 4Q as Patricio mentioned was a weak, still a very weak demand. And we saw a mild rebound in the demand for personal loans, and then some growth in credit card loans or credit card financing overall. And on the commercial side, the demand for credit is still very low and only growing in the subsidized lines of 24%, 30% and 35% interest rates.

So we are still also cautious on growth, particularly as I mentioned, when I talked about asset quality. We are very cautious in the industries that we consider to be with a high risk or very high risk due to the pandemic. So for instance, in that sense, we received collections of loans of the construction industry, but we haven't grown with new origination in that industry. So we're being cautious, and at the same time the demand, particularly, on the commercial side is still very low.

Emerico Alejandro Stengel -- Second Vice-Chairman of the Board and Chief Executive Officer of Banco Supervielle

Carlos, this is Alejandro. Just to complement what Mariano is saying, when you look at what we were doing on the third quarter, that has a bearing on how you compare this on the fourth quarter. There was a significant increase in mandatory 24% lines, which are subsidized credit lines. And we focused on short-term working capital, not long-term. And that of course, build has a bearing on the level of growth that you have from one quarter to the other.

The other thing I think you should be aware of, or follow-up on is that there was a significant reduction in dollar denominated credit lines. So the combination of both things is having an effect on the result at the fourth quarter that you are correctly pointing out. I would highlight the reduction of dollars, dollar denominated credit lines and the fact that we did not want to become exposed in long-term subsidized credit lines.

Carlos Gomez Lopez -- HSBC -- Analyst

Thank you very much. And about inflation for this year?

Julio Patricio Supervielle -- Chairman of the Board and Chief Executive Officer

Mariano?

Mariano Biglia -- Chief Financial Officer

Yes, for this year, we are expecting inflation to be clearly higher than 2020. In line with market expectations, we were expecting inflation to be in the high'40s, closer to 50%. But, of course it's still soon to tell because there is a lot of credibility. We are seeing some good signs on the fiscal deficit side, but it's still too soon to predict a lower forecast, a much lower forecast of inflation.

Carlos Gomez Lopez -- HSBC -- Analyst

We understand that. I guess I have a question is, with higher inflation, I mean, do you think that the way the business looks now, you would need a nominal returns above 50% for -- to have a real earnings? Is that realistic or should we expect lower real returns this year than we saw last year?

Mariano Biglia -- Chief Financial Officer

Well, inflation of course, is never good for the financial industry. It's not good for great demand. But besides that, we are -- on the first place, we are hedge against inflation through different asset classes. So those assets should give us, first, the profitability in nominal terms to match inflation and on top of that deliver positive results in real terms.

Our hedge with inflation is based in non-monetary assets that include, real estate and also about 50% of our -- for equity. We have loans adjust by UVA and bonds, treasury bonds that adjust by both our inflation indexes.

So if inflation happens to increase, we will see an increase in those non-monetary assets, and thus that will increase our shareholders' equity. And then we will see a higher return, higher revenues from UVA loans and from bonds. I'm not sure if that answered your question.

Carlos Gomez Lopez -- HSBC -- Analyst

Yes. Thank you very much.

Julio Patricio Supervielle -- Chairman of the Board and Chief Executive Officer

Yes. Complementing what Mariano said, we also have 14% equity exposed into dollars, dollar linked bonds, which are also correlated to inflation. That completes the overall picture.

Carlos Gomez Lopez -- HSBC -- Analyst

Thank you so much.

Ana Bartesaghi -- Treasurer and Investor Relations Officer

[Operator Closing Remarks]

Duration: 75 minutes

Call participants:

Ana Bartesaghi -- Treasurer and Investor Relations Officer

Julio Patricio Supervielle -- Chairman of the Board and Chief Executive Officer

Mariano Biglia -- Chief Financial Officer

Emerico Alejandro Stengel -- Second Vice-Chairman of the Board and Chief Executive Officer of Banco Supervielle

Gabriel Nobrega -- Citi -- Analyst

Ernesto Gabilondo -- Bank of America -- Analyst

Yuri Fernandes -- JPMorgan -- Analyst

Alejandra Aranda -- Itau -- Analyst

Carlos Gomez Lopez -- HSBC -- Analyst

More SUPV analysis

All earnings call transcripts