Argentina Banks February 24, 2017

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1 February 24, 2017 Fernando Suarez, (5411) , Diego Delic, (5411) , Santiago Wesenack, CFA, (5411) , Quarterly News 4Q16 Wrap Up: GGAL and SUPV Outperformers; BFR Underperformer; NIMs Widened 160bp Q/Q We believe that 4Q results for the banks under coverage, were strong as the banks under coverage posted a 29% ROE on average, despite very weak results at BFR (Hold Rating). In 4Q16, mean net income for the banks was just 8% below our estimate. This difference was mainly explained by BFR s weak results in almost every line, which posted a 38% q/q contraction in EPS. On the other hand, SUPV (Buy Rating) beat our estimates on higher net financial income, with net income growing 22% q/q. Lastly, GGAL (Buy Rating) and BMA (Hold Rating) posted strong results, which were in-line with our estimates. We believe that the most important highlights for the quarter were: 1) the 32bp increase in GGAL market share; 2) SUPV loan growth of 600bp above the system; and 3) NIM s expanded across all banks under coverage. For the next quarter we will put our focus on: 1) the Congressional resolution related to merchant discount rates for debit and credit cards; 2) the potential Banco Patagonia s acquisition; and 3) the allocation of the excess cash liquidity. The average growth of the loan portfolio of the covered banks was above the system growth; SUPV outperformer. The system grew 12% q/q while the banks under coverage grew above the system 300bp on average. SUPV and GGAL posted the highest loan growth figures, outperforming the system by 600bp and 300bp, respectively. On the other hand, BMA posted mild results with their loan book growing by 200bp on top of the system growth, while BFR was the lagger as grew 100bp below the system. In terms of private sector loans market share, GGAL, SUPV and BMA expanded their market shares by 32bp, 15bp and 7bp, respectively, while BFR slightly reduced their participation by 6bp. This was in-line with our base case under which SUPV and GGAL were going to outgrow the system. NIM expanded 160bp on average sequentially; BMA underperformer. During the quarter, all banks under coverage widened their net interest margins sequentially, mainly showing their ability to lower the cost of funding in the context of declining reference rates. In this scenario, active rates were stable q/q, but funding rates fell on average 200bp due to a better funding mix and lower time deposits rate. As a consequence, the average NIM for the covered banks expanded 160bp, mainly driven by SUPV, GGAL and BFR that stood above the average at 209bp, 207bp and 197bp, respectively, while BMA was the clear underperformer just expanding their NIM by 38bp q/q. It should be noted that the banks outperformed our base case in which we were expecting an average expansion in NIMs of 40bp. Net Fee Income was stable sequentially, showing mixed trends; BFR underperformer. Whereas BMA and GGAL posted 1 and 8% higher net fee income q/q, respectively; SUPV s net fees decreased 2% and BFR saw a material contraction of 17% q/q. in 4Q16, mean net fee income was stable sequentially on higher fee expenses, which grew above our expectations, on higher insurances paid by the banks (as the CB prohibited the banks to charge individuals any fee and/or charge associated with credit related insurance policies), offsetting the growth we saw in fee income. BFR exacerbated this effect due to a significant increase in its customer acquisition efforts. The final outcome in this line was slightly below our base case, which considered an overall growth in net fees of 5%. Administrative expenses grew q/q, on average, among banks under coverage; All banks followed the same path. This increase mainly reflected higher payroll salaries, due to the agreement between the banks and the labor union. It Is worth highlighting that the banks that suffered the highest increases in non-interest expenses were BFR and SUPV (21% increase each q/q), which apart from paying higher salaries (24% increase on average salary at both SUPV and BFR), slightly increased their staff by 2%. Efficiency deteriorated in most of the banks from 3Q16 to 4Q16; GGAL outperformer; BFR underperformer. The only bank (from the ones under coverage) that improved its cost-to-income ratio was GGAL, posting a 62% figure, 3.5% lower sequentially. On the other side, BFR posted the worst efficiency ratio in the last five years, deteriorating 8.7% q/q. In turn, BMA s efficiency was practically unchanged, while SUPV s efficiency just worsened 2%. The trend in efficiency was in-line with our base case in which we were expecting GGAL to improve its efficiency, while the rest should slightly deteriorate the ratio. The four banks under coverage has seen an improvement in their nonperforming loans ratio during 4Q16. BFR kept leading the rank with the best ratio of 0.77%, down from the 0.83% in the previous quarter. The most important progression was made by BMA, which exhibited a decrease to 1.2% from the 1.5% in 3Q16, due to a substantial improvement in its commercial portfolio. Also, SUPV posted a 20bp improvement to 2.8% q/q, while GGAL reached a ratio of 3.3%, which was better than the 3.4% of 3Q16. Average ROE stood at 29% in 4Q16, down 1% q/q; GGAL and SUPV outperformers. The marginal decrease was mostly explained by BFR s weak ROE of 14% (-1000bp q/q). On the other hand, GGAL posted the highest ROE at 36%, while SUPV figure stood at 32%, reporting the highest growth among the covered banks (+400bp). Regarding our estimates, the banks under coverage posted a 200bp milder ROE compared with our base case. On average, net income for the banks under coverage grew a modest 1% q/q, broadly explained by weak results at BFR (-38%), which was fully offset by strong growth at SUPV (+22%) and GGAL (+16%). AR Partners S.A. San Martin 344, 22nd Floor Buenos Aires C10004AAH Argentina

2 Exhibit 1: Market Share 12. Exhibit 2: Net Interest Margin 25% % 9.6% 7.9% % 7.2% 3.2% 3.1% 1 18% 12% 14% 1 12% 2. 5% 0. Grupo Financiero Banco Macro BBVA Banco Frances Grupo Supervielle Grupo Supervielle Banco Macro BBVA Banco Frances Grupo Financiero Source: AR Partners Exhibit 3: Cost-to-Income Ratio Exhibit 4: ROE % 66% 62% 65% 65% 62% 48% 49% 4 35% 3 25% 1 36% 34% 33% 32% 32% 28% 24% 14% 1 5% BBVA Banco Frances Grupo Supervielle Grupo Financiero Banco Macro Grupo Financiero Banco Macro Grupo Supervielle BBVA Banco Frances Source: AR Partners Exhibit 5: NPLs % 3.31% Grupo Financiero Source: AR Partners 3.08% 2.83% % 0.83% 0.77% Grupo Supervielle Banco Macro BBVA Banco Frances Exhibit 6: Excess Regulatory Capital % 171% 77% 65% 53% 47% 52% 44% Banco Macro BBVA Banco Frances Grupo Supervielle Grupo Financiero 3Q16 4Q16 AR Partners S.A. San Martin 344, 22nd Floor Buenos Aires C10004AAH Argentina

3 Important Information Important Investor Disclosures AR Partners S.A. (under registration process, formerly Raymond James Argentina S.A.) (ARP) is a MERVAL (Mercado de Valores de Buenos Aires) member firm and registered in the Comisión Nacional de Valores as a broker-dealer (Agente de Liquidación y Compensación) under identification number 31. ARP is domiciled at San Martin 344, 22nd Floor, Buenos Aires, C10004AAH, Argentina (Tel: ). This document is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. The securities discussed in this document may not be eligible for sale in some jurisdictions. This research is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It does not constitute a personal recommendation nor does it take into account the particular investment objectives, financial situations, or needs of individual clients. Investors should consider this report as only a single factor in making their investment decision. The information provided is as of the date above and subject to change, and it should not be deemed a recommendation to buy or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. ARP, including affiliates, officers and employees, may execute transactions in the securities listed in this publication that may not be consistent with the ratings or contents appearing in this publication. Additional information is available on request. Analyst Information Analyst Holdings and Compensation: Equity analysts and their staffs at AR Partners S.A. (under registration process, formerly Raymond James Argentina S.A.) are compensated based on a salary and bonus system. Several factors enter into the bonus determination including quality and performance of research product, the analyst's success in rating stocks versus an industry index, and support effectiveness to trading and the retail and institutional sales forces. Other factors may include but are not limited to: overall ratings from internal (other than investment banking) or external parties and the general productivity and revenue generated in covered stocks. The views expressed in this report accurately reflect the personal views of the analyst(s) covering the subject securities. No part of said person's compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this research report. In addition, said analyst has not received compensation from any subject company in the last 12 months. Ratings and Definitions AR Partners S.A. (under registration process, formerly Raymond James Argentina S.A.) rating definitions: Buy (B) Expected to appreciate and produce a total return of at least 20. over the next twelve months. Hold (H) Expected to appreciate and produce a total return of between 20. and (20.0)% over the next twelve months. Sell (S): Expected to produce a total return of at least (20.) over the next twelve months. Suspended (Sus) The rating and price target have been suspended temporarily. This action may be due to market events that made coverage impracticable, or to comply with applicable regulations or firm policies in certain circumstances, including when AR Partners may be providing investment banking. In transacting in any security, investors should be aware that other securities in the AR Partners S.A. (under registration process, formerly Raymond James Argentina S.A.) research coverage universe might carry a higher or lower rating. Investors should feel free to contact their Financial Advisor to discuss the merits of other available investments. AR Partners Relationship Disclosures AR Partners S.A. (under registration process, formerly Raymond James Argentina S.A.) expects to receive or intends to seek compensation for investment banking services from the subject companies in the next three months. AR Partners S.A. has received investment banking services compensation from Grupo Supervielle (and its subsidiaries), Inversora Juramento, Petrolera Pampa, and TGLT in the past 12 months. As of the date of this report, AR Partners' research analysts and associates have no conflict of interests, that could influence the thoughts expressed on such report. Target Prices, and Valuation Methodologies Valuation Methodology: The AR Partners methodology for assigning ratings and target prices includes a number of qualitative and quantitative factors including an assessment of industry size, structure, business trends and overall attractiveness; management effectiveness; competition; visibility; financial condition, and expected total return, among other factors. To reach our target prices we use different well-known methodologies including: DCF, target multiple (based on historical values and peers), market value, and sum-of-the-parts, among others. These factors are subject to change depending on overall economic conditions or industry- or company-specific occurrences. Only stocks rated Buy (B), Hold (H), or Sell (S) have target prices and thus valuation methodologies. Risk Factors AR Partners S.A. San Martin 344, 22nd Floor Buenos Aires C10004AAH Argentina

4 General Risk Factors: Following are some general risk factors that pertain to the businesses of the subject companies and the projected target prices and recommendations included on AR Partners research: (1) Industry fundamentals with respect to customer demand or product / service pricing could change and adversely impact expected revenues and earnings; (2) Issues relating to major competitors or market shares or new product expectations could change investor attitudes toward the sector or this stock; (3) Unforeseen developments with respect to the management, financial condition or accounting policies or practices could alter the prospective valuation; (4) External and regulatory factors that affect the Argentienean economy, interest rates, the FX rate or major segments of the economy could alter investor confidence and investment prospects; or (5) issues that could affect markets in which the covered companies operate. International investments involve additional risks such as currency fluctuations, differing financial accounting standards, and possible political and economic instability. Specific Investment Risks Related to the Industry or Issuer Emerging Market Trends May Affect Risk Profile: General trends in emerging markets and Latin America may influence the perception of sovereign, macroeconomic, and regulatory risks of the countries in which companies operate and thus affect access to international capital markets. Macroeconomic Risk: As most of the operations related to companies under coverage take place mainly in Argentina, their profitability relies and are subject to the movements in the economic conditions of the country. Further Regulation May Affect Profitability: Profitability could decline with further or new regulation in the industries in which the companies under coverage operate. Company-Specific Risks for Grupo Financiero Significant devaluation or appreciation of the Argentine peso against the U.S. dollar may adversely affect the Argentine economy as well as Grupo Financiero s financial performance The asset quality of Argentine financial institutions, including Grupo Financiero, is fragile due to high exposure to public sector debt. Limitations on enforcement of creditors rights in Argentina may adversely affect financial institutions. Grupo Financiero s controlling shareholders have the ability to direct its business, and the controlling shareholders interests could conflict with other interested parties Management owns multiple shares with voting rights Grupo Financiero has a disparity between economic and voting interests. This difference is attributable to GGAL s Class A and Class B shares, which have five and one votes each, respectively. Company-Specific Risks for Grupo Supervielle AR Partners S.A. San Martin 344, 22nd Floor Buenos Aires C10004AAH Argentina

5 Significant devaluation or appreciation of the Argentine peso against the U.S. dollar may adversely affect the Argentine economy as well as Grupo Supervielle s financial performance The asset quality of Argentine financial institutions, including Grupo Supervielle, is fragile due to high exposure to public sector debt. Limitations on enforcement of creditors rights in Argentina may adversely affect financial institutions. Grupo Supervielle s controlling shareholders have the ability to direct its business, and the controlling shareholders interests could conflict with other interested parties Management owns multiple shares with voting rights Grupo Supervielle has a disparity between economic and voting interests. This difference is attributable to GGAL s Class A and Class B shares, which have five and one votes each, respectively. Company-Specific Risks for BBVA Banco Frances Significant devaluation or appreciation of the Argentine peso against the U.S. dollar may adversely affect the Argentine economy as well as BBVA Banco Frances financial performance The asset quality of Argentine financial institutions, including BBVA Banco Frances, is fragile due to high exposure to public sector debt. Limitations on enforcement of creditors rights in Argentina may adversely affect financial institutions. BBVA Banco Frances controlling shareholders have the ability to direct its business, and the controlling shareholders interests could conflict with other interested parties. Company-Specific Risks for Banco Macro Significant devaluation or appreciation of the Argentine peso against the U.S. dollar may adversely affect the Argentine economy as well as Banco Macro s financial performance AR Partners S.A. San Martin 344, 22nd Floor Buenos Aires C10004AAH Argentina

6 The asset quality of Argentine financial institutions, including Banco Macro, is fragile due to high exposure to public sector debt. Limitations on enforcement of creditors rights in Argentina may adversely affect financial institutions. Banco Macro s controlling shareholders have the ability to direct its business, and the controlling shareholders interests could conflict with other interested parties Proprietary Rights Notice By accepting a copy of this report, you acknowledge and agree as follows: This report is provided to clients of AR Partners S.A. (under registration process, formerly Raymond James Argentina S.A.) only for your personal, noncommercial use. Except as expressly authorized by AR Partners S.A. (under registration process, formerly Raymond James Argentina S.A.), you may not copy, reproduce, transmit, sell, display, distribute, publish, broadcast, circulate, modify, disseminate or commercially exploit the information contained in this report, in printed, electronic or any other form, in any manner, without the prior express written consent of AR Partners S.A. (under registration process, formerly Raymond James Argentina S.A.). You also agree not to use the information provided in this report for any unlawful purpose. This report and its contents are the property of AR Partners S.A. (under registration process, formerly Raymond James Argentina S.A.) and are protected by applicable copyright, trade secret or other intellectual property laws. AR Partners S.A. San Martin 344, 22nd Floor Buenos Aires C10004AAH Argentina