Raising EPS, Setting 2018 Targets

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1 November 17, :01 AM GMT Argentina Financial Institutions Raising EPS, Setting 2018 Targets We are updating EPS estimates on the back of 3Q17 results, and setting 2018 price targets. We see ~15% upside. Remain bullish Argentina banks. On the back of better than expected revenue dynamics, we are increasing EPS estimates for the group. Indeed, recently released 3Q17 numbers show most banks growing volumes and margins ahead of expectations. We now expect NII growth of 45% in 2017 (median of the 4 banks we cover), up from our previous estimate of 38%. For 2018, we now expect 40%, up from 30% before. We see upside to these estimates as macro, politics, and overall consumer and corporate confidence are moving in the right direction. Freshly raised capital at the banks should benefit credit supply. Also, recent rate tightening is supportive of financial margins. We are fine tuning other line items in our models, but the bulk of the changes comes from stronger revenues. All said, we are increasing our 2017 and 2018 EPS estimates by 7% and 17%, respectively (median of the 4 banks). The complete financial statements for each bank are included in this report. Consensus numbers look low, earnings revisions should ensue. Our 2017, 2018, and 2019 local currency net income estimates are 3-5%, 15-20%, and 20-25% above consensus, respectively. The implied 2-year net income CAGR in consensus numbers is only 25-30%, we see 40-45%. Consensus estimates are at odds with the attractive growth prospects of the economy and the banking system, in our view. Potential upward earnings revisions should drive further stock performance. New price targets offer 15% upside (also median of the 4 banks). We are incorporating our new EPS estimates in the targets as well as rolling them over to year-end 2018 estimates. Most of the potential upside comes from earnings growth, our price targets do not assume any multiple expansion; this represents further upside on the shares. At our year-end 2018 targets, the shares would be trading at 10.7 to 12.7x prospective P/E, roughly in line with current prospective multiples of 10.0 to 13.1x. Reiterate Overweight rating on BFR, BMA, GGAL, and SUPV. We are bullish Argentine banks as we think there is an attractive multi-year growth opportunity for lending as the economy normalization plays out. If so, earnings growth should far outpace the Latam peers. Inside this report we provide a recap of our investment thesis on the banks. MORGAN STANLEY & CO. LLC Jorge Kuri EQUITY ANALYST Jorge.Kuri@morganstanley.com Jorge Echevarria RESEARCH ASSOCIATE Jorge.Echevarria@morganstanley.com Argentina Financial Institutions Latin America IndustryView Exhibit 1: What's Changed Attractive A$ MM BFR GGAL BMA SUPV Rating OW OW OW OW Current Price (US$) Price Target (US$) New Old Implied Upside 15% 13% 27% 8% 2017e Net Income New 3,777 8,054 9,195 2,368 Old 3,854 7,102 8,915 2, e Net Income New 6,397 12,144 14,091 3,854 Old 6,062 9,749 12,545 3, e P/E 18.0x 15.5x 12.7x 14.7x 2018e P/E 13.1x 12.6x 10.0x 11.6x 2017e P/BV 3.0x 3.7x 3.0x 2.7x 2018e P/BV 2.9x 3.4x 2.7x 2.6x Source: Thomson Reuters, Morgan Stanley Research Estimates (e) Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision. For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report. 1

2 Reasons to be bullish Argentina Banks Credit growth in Argentina offers attractive upside on the back of low penetration. The penetration of bank loans in Argentina at 15% of GDP is very low compared to 35-40% at the LatAm peers and the pre-crisis levels of 25%. Credit penetration looks even lower when adjusting for consumer wealth. Indeed, Argentine consumers are among the wealthiest in the region, yet the amount of loans per capita is only US$1,134, almost US$700 below the average in the region, and very low relative to consumer wealth. Also, corporates and SMEs have particularly low levels of debt leverage, mostly because of poor macroeconomic policies over the last decade. Net debt to EBITDA of 1.3x and net debt to equity of 0.5x are almost 50% below the regional averages. As the macro improves, the banks could see a multi-year period of strong credit growth. The bancarization process in Argentina should benefit from a large, educated and wealthy middle class. Roughly 60% of the population is middle and high income, at the top of the peers, and far superior than the regional average (~38%). Argentina also has the second highest GDP per capita in the region, 50% higher than the average for Brazil, Colombia, Mexico, and Peru. The income inequality gap, as measured by the GINI index, is also much lower in Argentina. And labor informality, a key variable for bancarization, is also lower than the peers. Macro and credit recovery this year. We expect GDP growth of 2.8% in 2017 and 3.3% in 2018, a strong rebound from the 2.2% contraction experienced in As economic recovery plays out, we expect credit growth at the banks to pick up rapidly. We forecast 18% loan growth in real terms this and next year. This should provide ample room for the banks to deliver EPS growth far above the regional peers. Indeed, credit growth at the banks under our coverage has accelerated significantly, particularly in real terms. As of September 2017, loans were growing at 45-55% y/y, or 20-25% in real terms, a sharp pickup from the year-ago level of 35-40% y/y, or -2 to +2% real. MSCI Argentina will likely be moved from the Frontier index to the EM index, with the formal announcement expected next year. Yes, we were disappointed that the announcement did not happen in May this year, as we originally expected. That said, we think this is a transitory setback and progress on the reform agenda should help the country regain its EM status in 2019 (potential announcement in 2018). If so, money flows into the asset class should provide strong support for bank stocks. Our equity strategy team estimates that the migration of Argentina into EM could represent inflows of more than US$2.4 billion from benchmarked investors, or close to 19 days of average daily trading volume. Banks should benefit handsomely as they represent by far the largest portion of the index. GGAL, BFR, and BMA make up ~40% of MSCI Argentina. M&A activity represents additional potential catalysts for Argentine banks. The banking system remains highly fragmented, with many banks with single-digit market shares. Argentina has 78 banks, versus 23 in Chile, 24 in Colombia, 37 in Mexico, and 17 in Peru. Argentina s top 5 banks concentrate 58% of deposits and 51% of loans, compared to 70-75% in Brazil, Chile, Colombia, and Mexico. Valuation looks attractive relative to peers, especially considering the superior EPS 2

3 growth. Argentina banks are trading at 10-13x 2018e P/E, versus Brazilian banks at 12-13x, Mexican banks at 9-10x, Chilean banks at 16-17x, and Andean banks at 8-13x. That said, we believe EPS growth outlook is far superior in Argentina. We expect 2-year EPS CAGR (in US$ terms) of 20-25% for the large Argentine banks, much higher than the ~10% growth we see for the regional peers. Our bullish view is not without risks, including: the continuation of past economic policies that have resulted in high inflation, low economic growth, FX volatility, and limited investor appetite. Also, government intervention could increase. Banking competition and pricing pressure could rise. MSCI s decision not to upgrade Argentine to EM could be negatively received by the market. 3

4 Financial Models Banco Macro (BMA.N, OW - PT US$136) Exhibit 2: Macro - Consolidated Income Statement A$ Million e 2018e 2019e Financial Income 6,904 9,754 14,683 20,109 28,935 36,046 51,289 60,446 Financial Expenses 2,828 4,022 6,583 8,843 13,301 13,788 20,352 22,112 Net Interest Income 4,077 5,732 8,100 11,266 15,635 22,257 30,937 38,334 Provision for Loan Losses ,073 1,730 2,531 3,384 Net Interest Income after Provisions 3,476 5,192 7,435 10,389 14,561 20,528 28,406 34,950 Net Income from Services 1,959 2,509 3,440 4,401 5,365 7,274 9,405 11,470 Total Revenues 6,036 8,241 11,540 15,667 20,999 29,531 40,342 49,804 Total Operating Expenses 3,116 4,015 5,499 7,226 9,971 12,603 15,856 18,712 Personnel Expenses 1,919 2,469 3,354 4,557 6,354 7,950 9,636 11,130 Administrative Expenses 1,196 1,546 2,145 2,669 3,617 4,652 6,221 7,582 Operating Income 2,320 3,685 5,376 7,564 9,956 15,199 21,954 27,708 Non Operating Income (35) 117 (241) Income Before Taxes 2,361 3,795 5,465 7,530 10,073 14,958 22,156 27,957 Income Tax 854 1,333 1,962 2,486 3,477 5,692 7,976 10,065 Discontinued ops., & extraordinary items, net Minority Interest (14) (18) (24) (35) (55) (72) (89) (112) Net Income 1,494 2,444 3,480 5,008 6,541 9,195 14,091 17,781 Number of Shares Outstanding (million) ADS (million) Earnings per Share (A$) Earnings per ADS (US$) Profitability ROE 24% 28% 30% 32% 30% 21% 26% 26% ROE (before extraordinary items) 24% 28% 30% 32% 30% 21% 26% 26% ROA 3.1% 4.1% 4.6% 4.8% 4.2% 4.0% 4.5% 4.3% Efficiency Ratio 52% 49% 48% 46% 47% 43% 39% 38% Net Interest Margin 10.1% 11.6% 12.6% 13.6% 13.1% 12.6% 11.9% 11.1% Source: Company Data, Morgan Stanley Research Estimates (e). 4

5 Exhibit 3: Macro - Consolidated Balance Sheet A$ Million e 2018e 2019e Assets Cash and Due from Banks 10,047 12,861 15,434 19,403 36,089 42,926 57,719 72,674 Government and Corporate Securities 2,343 2,441 10,313 15,391 19,846 36,565 49,167 61,906 Loans 31,203 39,022 43,740 62,332 87, , , ,158 Other Receivables resulting from financial Brokerage 2,380 2,680 2,349 3,295 5,314 10,436 14,032 17,668 Equity Investments Miscellaneous Receivables ,277 1,794 1,794 1,794 Bank Premises and Equipment Intangible Assets Unallocated Items Miscellaneous & Other Assets 1,539 1,842 2,543 3,540 4, ,395 Total Assets 48,379 59,295 74, , , , , ,691 Liabilities Deposits 36,189 43,427 54,717 76, , , , ,087 Other Liabilities from Financial Brokerage 3,785 4,698 5,357 7,537 10,529 20,245 28,387 38,966 Subordinated Corporate Bonds ,287 1,958 6,408 7,971 11,146 14,644 Miscellaneous Liabilities & Other Liabilities 1,466 1,562 2,143 3,059 4,017 5,471 6,413 7,170 Provisions Unallocated Items Total Liabilities 42,180 50,668 63,504 89, , , , ,867 Minority Interest Stockholders' Equity 6,199 8,627 11,492 15,876 22,106 42,937 54,270 67,823 Total Liabilities, Minority Interest, and Equity 48,379 59,295 74, , , , , ,691 Source: Company Data, Morgan Stanley Research Estimates (e). 5

6 Exhibit 4: Macro - Key Projection Ratios e 2018e 2019e Profitability ROE 24% 28% 30% 32% 30% 21% 26% 26% ROE (before extraordinary items) 25% 29% 30% 32% 30% 21% 26% 26% ROA 3.1% 4.1% 4.6% 4.8% 4.2% 4.0% 4.5% 4.3% ROAE 27% 33% 33% 36% 33% 26% 29% 29% ROAA 3.2% 4.4% 4.8% 5.4% 4.9% 4.7% 5.0% 4.8% Dividend Payout ratio 0% 24% 17% 33% 30% 30% 30% 30% Growth Rates Net Interest Income 37% 41% 41% 39% 39% 42% 39% 24% Net Income for Services 27% 28% 37% 28% 22% 36% 29% 22% Total Revenues 34% 37% 40% 36% 34% 41% 37% 23% Operating Expenses 25% 29% 37% 31% 38% 26% 26% 18% Operating Income 32% 59% 46% 41% 32% 53% 44% 26% Net Income 27% 64% 42% 44% 31% 41% 53% 26% Net Income (Real Terms) 15% 47% 15% 18% -2% 15% 31% 13% EPS 29% 64% 42% 44% 31% 27% 49% 26% EPS (ex-one timers) 29% 64% 42% 44% 31% 27% 49% 26% EPS (US$ terms) 16% 32% -1% 15% -10% 13% 27% 18% Shareholders' Equity 31% 39% 33% 38% 39% 94% 26% 25% Shareholders' Equity (US$ terms) 16% 7% -2% -9% 14% 74% 9% 21% Revenue Mix Net income from Services / Total Revenues Net income from Services / Avg. Earning Assets 32% 5% 30% 5% 30% 5% 28% 5% 26% 5% 25% 4% 23% 4% 23% 3% Asset Quality Indicators NPLs / Total Loans 1.8% 1.7% 1.9% 1.5% 1.1% 1.0% 1.0% 1.0% Reserves / NPLs 154% 148% 139% 156% 179% 202% 202% 202% Reserves / Total Loans 2.8% 2.5% 2.6% 2.3% 2.0% 2.0% 2.0% 2.0% Charge-offs / Avg. Total Loans 1.1% 1.2% 1.1% 1.0% 1.0% 0.6% 0.8% 0.9% Charge-offs / NPLs 16% 20% 17% 19% 32% 13% 21% 23% NPLs / Equity 9% 8% 7% 6% 5% 3% 4% 4% Provisions / Operating Income 26% 15% 12% 12% 11% 11% 12% 12% Provisions / Avg. Loans 2.1% 1.5% 1.6% 1.6% 1.4% 1.5% 1.5% 1.5% Capital Structure Equity / Total Assets 13% 15% 15% 15% 14% 19% 17% 17% Loans / Total Assets 66% 68% 60% 61% 58% 61% 62% 62% Loans / Earning Assets 72% 72% 64% 65% 62% 64% 65% 65% Earnings Assets / Total Assets 92% 93% 94% 94% 94% 96% 96% 95% Loans / Deposits 89% 92% 82% 83% 80% 92% 91% 91% Earnings Assets / Interest Bearing Liabilities 116% 119% 123% 123% 122% 127% 130% 128% Deposits / Interest Bearing Liabilities 96% 95% 96% 96% 93% 92% 92% 92% Margin / Volume Analysis Net Interest Margin 10.1% 11.6% 12.6% 13.6% 13.1% 12.6% 11.9% 11.1% Net Interest Margin / Avg. Int. Rate 70% 68% 58% 62% 44% 48% 45% 52% Growth in Loans 28% 25% 12% 43% 41% 57% 39% 31% Growth in Avg. Loans 27% 26% 13% 39% 39% 56% 43% 32% Growth in Avg. Interest Earnings Assets 25% 23% 30% 34% 47% 50% 41% 30% Growth in Avg. Interest Bearing Liabilities 23% 20% 27% 35% 49% 39% 43% 32% Efficiency Indicators Efficiency Ratio 52% 49% 48% 46% 47% 43% 39% 38% Operating Exp. / Avg. Assets 7% 7% 8% 8% 8% 7% 6% 5% Income for Services / Operating Exp. 63% 62% 63% 61% 54% 58% 59% 61% Source: Company Data, Morgan Stanley Research Estimates (e). 6

7 Grupo Financiero Galicia (GGAL.O, OW - PT US$62) Exhibit 5: Galicia - Consolidated Income Statement A$ Million e 2018e 2019e Financial Income 9,129 13,073 19,860 25,844 36,608 44,212 58,632 68,489 Financial Expenses 3,941 6,168 10,321 13,402 20,239 19,984 25,309 27,317 Net Interest Income 5,188 6,906 9,539 12,442 16,369 24,229 33,323 41,172 Provision for Loan Losses 1,347 1,776 2,411 2,214 3,533 5,245 7,356 9,851 Net Interest Income after Provisions 3,841 5,129 7,128 10,228 12,836 18,984 25,967 31,320 Net Income from Banking Services 3,200 4,239 5,698 7,837 10,746 14,321 18,113 22,089 Income of Subsidiaries and Affiliates Income from Insurance Activities ,238 1,801 2,452 2,005 2,404 2,932 Non-Interest Income 3,969 5,268 7,150 9,739 13,279 16,557 20,642 25,162 Total Revenues 9,157 12,174 16,689 22,181 29,648 40,786 53,965 66,334 Monetary Result of Financial Brokerage Total Operating Expenses 5,774 7,428 9,221 12,905 17,618 22,388 27,278 32,320 Personnel Expenses 3,260 4,276 5,285 7,198 9,749 12,243 14,666 16,896 Administrative Expenses 2,513 3,152 3,936 5,707 7,869 10,145 12,612 15,424 Monetary Result of operating expenses Operating Income 2,036 2,969 5,057 7,062 8,497 13,153 19,331 24,162 Non Operating Income , ,079 1,327 Income Before Taxes 2,312 3,265 5,560 7,504 9,774 13,652 20,411 25,489 Income Tax 789 1,232 1,992 2,801 3,353 4,959 7,348 9,176 Discontinued ops., & extraordinary items, net Minority Interest (186) (209) (230) (365) (403) (639) (918) (1,147) Net Income 1,336 1,824 3,338 4,338 6,018 8,054 12,144 15,166 Number of Shares Outstanding (million) 1,241 1,300 1,300 1,300 1,300 1,427 1,427 1,427 ADR (million) Earnings per Share (A$) Earnings per ADR (US$) Profitability ROE 27% 26% 33% 30% 30% 22% 26% 26% ROA 2.1% 2.2% 3.1% 2.7% 2.5% 2.7% 3.0% 2.9% Efficiency Ratio 63% 61% 55% 58% 59% 55% 51% 49% Net Interest Margin 10.4% 10.6% 10.9% 10.3% 9.1% 9.9% 9.8% 9.1% Source: Company Data, Morgan Stanley Research Estimates (e). 7

8 Exhibit 6: Galicia - Consolidated Balance Sheet A$ Million e 2018e 2019e Assets Cash and Due from Banks 8,345 12,560 16,959 30,835 61,166 40,074 53,346 67,167 Government and Corporate Securities 3,627 3,987 10,010 15,525 13,701 35,716 47,544 59,863 Loans 42,593 55,265 66,608 98, , , , ,355 Other Receivables resulting from financial Brokerage 4,419 5,696 6,798 8,061 18,178 20,409 27,169 34,208 Equity Investments Miscellaneous Receivables Bank Premises and Equipment 2,461 3,062 3,759 4,925 6,677 7,905 8,065 8,227 Intangible Assets Unallocated Items Miscellaneous & Other Assets 1,937 2,495 3,129 4,006 5,024 1,220 2,856 8,956 Total Assets 63,458 83, , , , , , ,806 Liabilities Deposits 39,945 51,395 64, , , , , ,209 Other Liabilities from Financial Brokerage 14,282 19,333 25,401 37,329 57,794 64,929 91, ,807 Miscellaneous Liabilities & Other Liabilities 1,995 2,763 3,748 4,930 6,434 9,367 12,357 15,551 Provisions Subordinated Negotiable Obligations 1,188 1,656 2,066 3,301 4,065 4,796 6,584 8,651 Unallocated Items Total Liabilities 57,886 75,607 96, , , , , ,190 Minority Interest ,107 1,462 1,840 2,157 2,412 Stockholders' Equity 4,870 6,947 10,246 14,485 20,353 37,356 47,071 59,204 Total Liabilities, Minority Interest, and Equity 63,458 83, , , , , , ,806 Source: Company Data, Morgan Stanley Research Estimates (e). 8

9 Exhibit 7: Galicia - Key Projection Ratios e 2018e 2019e Profitability ROE 27% 26% 33% 30% 30% 22% 26% 26% ROE (before extraordinary items) 24% 24% 31% 30% 30% 22% 26% 26% ROA 2.1% 2.2% 3.1% 2.7% 2.5% 2.7% 3.0% 2.9% ROA(before extraordinary items) 1.9% 2.1% 3.0% 2.7% 2.5% 2.7% 3.0% 2.9% ROAE 31% 31% 37% 34% 34% 27% 28% 28% ROAA 2.3% 2.5% 3.4% 3.2% 2.9% 3.0% 3.3% 3.1% Dividend Payout ratio 2% 2% 1% 3% 2% 10% 20% 20% Growth Rates Net Interest Income 39% 33% 38% 30% 32% 48% 38% 24% Fees from Banking Services 31% 32% 34% 38% 37% 33% 26% 22% Total Revenues 35% 33% 37% 33% 34% 38% 32% 23% Operating Expenses 37% 29% 24% 40% 37% 27% 22% 18% Operating Income 17% 46% 70% 40% 20% 55% 47% 25% Net Income 21% 37% 83% 30% 39% 34% 51% 25% Net Income (Real Terms) 9% 23% 47% 7% 4% 9% 29% 12% EPS 21% 34% 77% 30% 39% 27% 44% 25% EPS (before extraordinary items) 23% 38% 82% 33% 40% 27% 44% 25% EPS (US$ terms) 9% 9% 23% 8% -8% 15% 23% 16% EPS (before extraordinary items) 11% 11% 26% 11% -8% 15% 23% 16% Shareholders' Equity 37% 43% 47% 41% 41% 84% 26% 26% Shareholders' Equity (US$ terms) 21% 10% 10% -7% 15% 64% 9% 22% Revenue Mix Non-Interest Income / Total Revenues 43% 43% 43% 44% 45% 41% 38% 38% Net income from Services / Total Revenues 35% 35% 34% 35% 36% 35% 34% 33% Net income from Services / Avg. Earning Assets 7% 7% 7% 7% 6% 6% 6% 5% Asset Quality Indicators NPLs / Total Loans 3.4% 3.6% 3.6% 3.1% 3.3% 3.3% 3.3% 3.3% Reserves / NPLs 116% 104% 106% 112% 100% 102% 102% 102% Reserves / Total Loans 4% 4% 4% 3% 3% 3% 3% 3% Charge-offs / Avg. Total Loans 2.4% 2.7% 3.0% 1.5% 2.0% 1.8% 1.9% 2.1% Charge-offs / NPLs 23% 27% 22% 17% 18% 11% 14% 16% NPLs / Equity 31% 30% 24% 22% 23% 18% 20% 20% Provisions / Operating Income 66% 60% 48% 31% 42% 40% 38% 41% Provisions / Avg. Loans 3.6% 3.5% 3.8% 2.6% 2.9% 3.0% 3.0% 3.0% Capital Structure Equity / Total Assets 8% 8% 10% 9% 8% 12% 12% 11% Loans / Total Assets 70% 69% 65% 63% 59% 67% 68% 69% Loans / Earning Assets 79% 78% 72% 69% 66% 73% 73% 74% Earnings Assets / Total Assets 89% 89% 90% 92% 90% 92% 93% 93% Loans / Deposits 111% 112% 114% 110% 112% 112% 106% 107% Earnings Assets / Interest Bearing Liabilities 119% 120% 123% 127% 126% 127% 132% 131% Deposits / Interest Bearing Liabilities 85% 84% 85% 87% 87% 86% 86% 86% Margin / Volume Analysis Net Interest Margin 10.4% 10.6% 10.9% 10.3% 9.1% 9.9% 9.8% 9.1% Net Interest Margin / Avg. Int Rate 72% 62% 49% 47% 31% 38% 37% 43% Growth in Loans 38% 30% 21% 48% 40% 42% 39% 31% Growth in Avg. Loans 34% 33% 22% 41% 41% 44% 41% 32% Growth in Avg. Interest Earnings Assets 27% 32% 32% 45% 46% 34% 39% 31% Growth in Avg. Interest Bearing Liabilities 27% 31% 27% 41% 49% 28% 39% 32% Efficiency Indicators Efficiency Ratio 63% 61% 55% 58% 59% 55% 51% 49% Operating Exp. / Avg. Assets 10% 10% 10% 10% 9% 8% 8% 7% Non Interest Income / Operating Exp. 69% 71% 78% 75% 75% 74% 76% 78% Income for Services / Operating Exp. 55% 57% 62% 61% 61% 64% 66% 68% Source: Company Data, Morgan Stanley Research Estimates (e). 9

10 Grupo Supervielle (SUPV.N, OW - PT US$27) Exhibit 8: Supervielle - Consolidated Income Statement A$ Million e 2018e 2019e Financial Income 2,210 3,045 4,751 6,742 10,657 15,233 21,552 25,013 Financial Expenses 818 1,304 2,465 3,386 4,857 6,040 8,475 8,960 Net Interest Income 1,392 1,741 2,287 3,356 5,800 9,193 13,078 16,053 Provision for Loan Losses ,058 1,736 2,322 3,077 Net Interest Income after Provisions 1,182 1,391 1,930 2,812 4,742 7,458 10,755 12,976 Net Income from Services 1,035 1,344 1,561 2,057 2,447 3,479 4,268 5,070 Income from Insurance Activities Non-Interest Income 1,035 1,344 1,561 2,233 3,053 3,929 4,874 5,917 Total Revenues 2,427 3,086 3,848 5,589 8,853 13,122 17,952 21,970 Total Operating Expenses 1,808 2,287 3,014 4,261 6,060 8,250 10,026 11,735 Personnel Expenses 1,144 1,484 1,982 2,767 3,860 5,434 6,648 7,816 Administrative Expenses ,029 1,169 Other Operating Expenses ,503 1,943 2,349 2,750 Operating Income ,735 3,136 5,603 7,157 Non Operating Income (29) Income Before Taxes ,706 3,211 5,693 7,267 Income Tax ,822 2,398 Minority Interest (10) (11) (14) (16) (22) (9) (17) (22) Result of Discontinued Businesses (2) - - Extraordinary Items Net Income ,311 2,368 3,854 4,847 Shares Outstanding (million) ADRs (million) Earnings per Share (A$) Earnings per ADR (US$) Profitability ROE 32.7% 27.6% 21.2% 28.4% 18.9% 15.8% 21.1% 21.9% ROA 2.5% 2.1% 1.6% 2.0% 2.5% 2.7% 3.3% 3.2% Efficiency Ratio 74% 74% 78% 76% 68% 63% 56% 53% Net Interest Margin 11.2% 12.1% 11.6% 12.7% 14.5% 13.5% 13.2% 12.3% Source: Company Data, Morgan Stanley Research Estimates (e). 10

11 Exhibit 9: Supervielle - Consolidated Balance Sheet A$ Million e 2018e 2019e Assets Cash and due from banks 2,177 2,663 3,649 6,809 8,166 10,177 13,548 16,742 Government and corporate securities , ,360 6,854 9,124 11,276 Net loans 7,375 11,292 14,597 20,148 34,897 52,597 72,889 93,769 Other receivables from brokerage 1,737 1,743 2,264 2,462 3,774 11,048 14,707 18,175 Assets under financial leases ,075 1,528 2,416 3,217 3,975 Equity investments Miscellaneous receivables ,110 1,841 1,878 1,916 Fixed assets Other assets ,781 1,031 3,071 Intangible assets Unallocated items Total Assets 12,692 17,418 23,241 33,046 53,206 88, , ,200 Liabilities Deposits 9,302 12,819 16,893 23,717 35,898 51,428 69,644 91,289 Other liabilities from brokerage 1,604 2,034 2,787 4,153 6,515 17,313 22,842 28,043 Miscellaneous liabilities ,479 2,182 2,932 4,169 5,683 Provisions Subordinated negotiable obligations ,126 1,379 1,671 2,139 2,503 Unallocated items Other liabilities Total Liabilities 11,672 16,024 21,479 30,601 46,171 73,669 99, ,033 Minority interest Shareholders' Equity 988 1,352 1,707 2,374 6,932 15,005 18,281 22,158 Total Liabilities and Equity 12,692 17,418 23,241 33,046 53,206 88, , ,200 Source: Company Data, Morgan Stanley Research Estimates (e). 11

12 Exhibit 10: Supervielle - Key Projection Ratios A$ Millions e 2018e 2019e Profitability ROE 32.7% 27.6% 21.2% 28.4% 18.9% 15.8% 21.1% 21.9% ROA 2.5% 2.1% 1.6% 2.0% 2.5% 2.7% 3.3% 3.2% ROAE 33.0% 31.2% 23.0% 33.7% 24.0% 21.3% 22.7% 23.3% ROAA 2.6% 2.4% 1.7% 2.4% 3.0% 3.2% 3.6% 3.5% Dividend Payout ratio NA 2% 2% 1% 0% 10% 15% 20% Growth Rates Net Interest Income NA 25% 31% 47% 73% 59% 42% 23% Fee Income NA 30% 16% 32% 19% 42% 23% 19% Total Revenues NA 27% 25% 45% 58% 48% 37% 22% Operating Expenses NA 27% 32% 41% 42% 36% 22% 17% Pre-Provision Operating Income NA 29% 4% 59% 110% 74% 63% 29% Operating Income NA 9% 7% 64% 121% 81% 79% 28% Net Income NA 15% -3% 86% 95% 81% 63% 26% Net Income (Real Terms) NA 4% -27% 65% 61% 58% 46% 14% EPS NA 15% -3% 86% 41% 50% 47% 26% EPS (US$) NA -1% -34% 42% 1% 36% 26% 17% Shareholders' Equity NA 37% 26% 39% 192% 116% 22% 21% BVPS (US$) NA 6% -7% -8% 63% 54% 5% 18% Revenue Mix Non-Interest Income / Total Revenues 43% 44% 41% 40% 34% 30% 27% 27% Income from Services / Total Revenues 43% 44% 41% 37% 28% 27% 24% 23% Income from Services / Avg. Earning Assets 8% 9% 8% 8% 6% 5% 4% 4% Asset Quality Indicators NPLs / Total Loans 4.6% 3.2% 3.2% 3.4% 2.9% 3.0% 3.0% 3.0% Reserves / NPLs 85% 94% 89% 90% 87% 89% 89% 89% Reserves / Total Loans 3.9% 3.0% 2.9% 3.1% 2.6% 2.7% 2.7% 2.7% Charge-offs / Avg. Total Loans NA 3.0% 2.2% 1.9% 2.9% 2.8% 2.8% 2.9% Charge-offs / NPLs NA 16% 18% 14% 20% 25% 22% 24% NPLs / Equity 35% 28% 28% 30% 15% 11% 12% 13% Provisions / Operating Income 51% 78% 75% 69% 61% 55% 41% 43% Provisions / Avg. Total Loans 2.7% 3.6% 2.8% 3.1% 3.9% 4.0% 3.6% 3.6% Capital Structure Equity / Total Assets 8% 8% 7% 7% 13% 17% 16% 15% Loans / Total Assets 60% 67% 65% 63% 67% 61% 64% 64% Loans / Earning Assets 62% 68% 67% 65% 69% 64% 65% 66% Earnings Assets / Total Assets 98% 98% 97% 97% 97% 95% 98% 98% Loans / Deposits 82% 91% 89% 88% 100% 105% 108% 106% Earnings Assets / Interest Bearing Liabilities 120% 119% 120% 118% 126% 132% 135% 133% Deposits / Interest Bearing Liabilities 90% 90% 90% 87% 88% 80% 81% 83% Margin / Volume Analysis Net Interest Margin 11.2% 12.1% 11.6% 12.7% 14.5% 13.5% 13.2% 12.3% Net Interest Margin / Avg. Int Rate 73% 71% 53% 58% 49% 52% 50% 57% Growth in Net Loans NA 53% 29% 36% 49% 72% 51% 39% Growth in Avg. Loans NA 48% 28% 37% 67% 56% 40% 30% Growth in Avg. Interest Earnings Assets NA 33% 31% 37% 60% 70% 38% 28% Growth in Avg. Interest Bearing Liabilities NA 33% 30% 41% 49% 63% 35% 29% Efficiency / Other Efficiency Ratio 74% 74% 78% 76% 68% 63% 56% 53% Operating Exp. / Avg. Assets 14% 15% 14% 15% 14% 11% 9% 9% Non Interest Income / Operating Exp. 57% 59% 52% 52% 50% 48% 49% 50% Income for Services / Operating Exp. 57% 59% 52% 48% 40% 42% 43% 43% Effective Tax Rate 18% 20% 35% 26% 27% 27% 32% 33% Source: Company Data, Morgan Stanley Research Estimates (e). 12

13 Banco BBVA Francés (BFR.N, OW - PT US$24) Exhibit 11: BBVA Francés - Consolidated Income Statement A$ Million e 2018e 2019e Financial Income 5,705 8,235 13,271 16,561 22,667 24,844 36,362 42,465 Financial Expenses 2,061 3,257 5,663 7,121 10,256 9,989 15,367 16,562 Net Interest Income 3,644 4,978 7,609 9,440 12,411 14,855 20,994 25,903 Provision for Loan Losses ,055 1,725 2,330 3,114 Net Interest Income after Provisions 3,388 4,525 7,034 8,803 11,357 13,130 18,664 22,789 Net Income from Services 1,846 2,499 3,349 3,675 4,323 5,683 7,478 9,001 Income of Subsidiaries and Affiliates Non-Interest Income 1,914 2,595 3,539 3,874 4,507 6,029 7,704 9,253 Total Revenues 5,558 7,573 11,148 13,313 16,918 20,884 28,699 35,157 Monetary Result of Financial Brokerage Total Operating Expenses 3,040 3,882 5,594 6,588 9,542 12,503 15,847 18,665 Personnel Expenses 1,899 2,368 3,445 3,999 5,932 7,450 9,570 11,052 Administrative Expenses 1,140 1,514 2,149 2,589 3,609 5,053 6,277 7,614 Operating Income 2,262 3,238 4,979 6,088 6,322 6,656 10,522 13,378 Non Operating Income (135) (38) 2 (123) (117) (496) (287) (352) Income Before Taxes 2,127 3,200 4,981 5,965 6,205 6,160 10,235 13,026 Income Tax 851 1,120 1,670 2,050 2,449 2,275 3,684 4,689 Discontinued ops., & extraordinary items, net Minority Interest (38) (55) (107) (131) (112) (108) (154) (195) Net Income 1,264 2,024 3,205 3,784 3,644 3,777 6,397 8,141 Shares Outstanding (million) ADR (million) Earnings per Share (A$) Earnings per ADR ($) Profitability ROE 25% 28% 31% 28% 22% 15% 21% 23% ROE (before ex-items) 24% 28% 31% 28% 22% 15% 21% 23% ROA 2.8% 3.5% 4.3% 3.4% 2.4% 1.7% 2.2% 2.2% Efficiency Ratio 55% 51% 50% 49% 56% 60% 55% 53% Net Interest Margin 9.7% 10.8% 12.6% 12.0% 10.8% 9.2% 9.4% 8.7% Source: Company Data, Morgan Stanley Research Estimates (e). 13

14 Exhibit 12: BBVA Francés - Consolidated Balance Sheet A$ Million e 2018e 2019e Assets Cash and Due from Banks 8,615 12,882 12,560 27,970 48,226 30,683 40,748 51,230 Government and Corporate Securities 4,057 3,433 11,626 14,416 12,706 33,317 44,246 55,628 Net Loans 28,467 36,468 41,443 56,563 78, , , ,094 Other Receivables resulting from financial Brokerage 701 1,168 2,612 3,729 2,428 21,285 28,267 35,539 Equity Investments Intangible Assets Other Assets 2,575 4,167 5,530 7,413 8,638 6,895 3,561 2,938 Total Assets 44,687 58,458 74, , , , , ,471 Liabilities Deposits 34,165 43,784 51,443 76, , , , ,123 Banks and non Subordinated Debt ,863 1,503 2,049 2,814 3,687 Subordinated Debt Other Liabilities from Financial Brokerage 2,659 4,363 8,064 13,168 12,282 37,190 49,062 61,741 Provisions ,000 1,375 2,892 3,389 3,790 Other Liabilities 1,436 1,780 2,800 3,749 4,856 5,796 6,794 7,596 Total Liabilities 39,445 51,137 63,640 96, , , , ,936 Minority Interest Stockholders' Equity 5,132 7,156 10,332 13,716 16,460 25,563 30,040 35,739 Total Liabilities, Minority Interest, and Equity 44,687 58,458 74, , , , , ,471 Source: Company Data, Morgan Stanley Research Estimates (e). 14

15 Exhibit 13: BBVA Francés - Key Projection Ratios e 2018e 2019e Profitability ROE 25% 28% 31% 28% 22% 15% 21% 23% ROE (before extraordinary items) 24% 28% 31% 28% 22% 15% 21% 23% ROA 2.8% 3.5% 4.3% 3.4% 2.4% 1.7% 2.2% 2.2% ROAE 27% 33% 34% 31% 23% 18% 23% 24% ROAA 3.1% 3.9% 4.5% 4.1% 2.8% 2.0% 2.4% 2.4% Dividend Payout ratio 0% 11% 29% 28% 77% 30% 30% 30% Growth Rates Net Interest Income 48% 37% 53% 24% 31% 20% 41% 23% Net Income for Services 28% 35% 34% 10% 18% 31% 32% 20% Total Revenues 39% 36% 47% 19% 27% 23% 37% 23% Operating Expenses 33% 28% 44% 18% 45% 31% 27% 18% Operating Income 44% 43% 54% 22% 4% 5% 58% 27% Net Income 26% 60% 58% 18% -4% 4% 69% 27% Net Income (Real Terms) 13% 44% 27% -3% -28% -15% 44% 14% EPS 26% 60% 58% 18% -4% -5% 61% 27% EPS (ex-one timers) 23% 63% 58% 18% -4% -5% 61% 27% EPS (US$ terms) 14% 28% 11% -3% -35% -15% 37% 19% Shareholders' Equity 33% 39% 44% 33% 20% 55% 18% 19% Shareholders' Equity (US$ terms) 17% 8% 7% -12% -2% 39% 1% 15% Revenue Mix Non-Interest Income / Total Revenues 34% 34% 32% 29% 27% 29% 27% 26% Net income from Services / Total Revenues 33% 33% 30% 28% 26% 27% 26% 26% Net income from Services / Avg. Earning Assets 5% 5% 6% 5% 4% 4% 3% 3% Asset Quality Indicators NPLs / Total Loans 0.6% 0.8% 1.0% 0.6% 0.8% 0.7% 0.7% 0.7% Reserves / NPLs 279% 254% 224% 301% 263% 271% 271% 271% Reserves / Total Loans 1.8% 1.9% 2.2% 1.9% 2.0% 1.9% 1.9% 1.9% Charge-offs / Avg. Total Loans 0.7% 0.8% 0.9% 0.9% 0.8% 0.9% 0.9% 1.0% Charge-offs / NPLs 33% 26% 22% 28% 36% 35% 33% 36% NPLs / Equity 4% 4% 4% 3% 4% 3% 4% 4% Provisions / Operating Income 11% 14% 12% 10% 17% 26% 22% 23% Provisions / Avg. Loans 1.0% 1.4% 1.4% 1.3% 1.5% 1.7% 1.5% 1.5% Capital Structure Equity / Total Assets 11% 12% 14% 12% 11% 12% 10% 10% Loans / Total Assets 65% 64% 57% 52% 53% 58% 60% 62% Loans / Earning Assets 70% 70% 64% 58% 57% 66% 67% 68% Earnings Assets / Total Assets 93% 92% 90% 90% 93% 88% 90% 90% Loans / Deposits 85% 85% 82% 75% 70% 88% 89% 89% Earnings Assets / Interest Bearing Liabilities 118% 120% 125% 127% 124% 125% 130% 129% Deposits / Interest Bearing Liabilities 98% 99% 99% 98% 99% 99% 99% 99% Margin / Volume Analysis Net Interest Margin 9.7% 10.8% 12.6% 12.0% 10.8% 9.2% 9.4% 8.7% Net Interest Margin / Avg. Int Rate 68% 64% 58% 54% 37% 35% 35% 41% Growth in Net Loans 24% 28% 14% 36% 39% 57% 38% 31% Growth in Avg. Loans 23% 30% 17% 30% 41% 57% 40% 32% Growth in Avg. Interest Earnings Assets 16% 28% 28% 39% 43% 41% 38% 30% Growth in Avg. Interest Bearing Liabilities 12% 27% 21% 40% 47% 32% 39% 32% Efficiency Indicators Efficiency Ratio 55% 51% 50% 49% 56% 60% 55% 53% Operating Exp. / Avg. Assets 7% 8% 8% 7% 7% 7% 6% 6% Non Interest Income / Operating Exp. 63% 67% 63% 59% 47% 48% 49% 50% Income for Services / Operating Exp. 61% 64% 60% 56% 45% 45% 47% 48% Source: Company Data, Morgan Stanley Research Estimates (e). 15

16 Valuation Comps Exhibit 14: Latam - Valuation Comparables MS Price Price Upside EPS P / E ROE (%) Price Performance in US$ (%) 52-week Market Cap Daily Vol. (US$ MM) Div. Yield Coverage Rating 16-Nov-17 Target (%) P/BV 16 17e 18e 16 17e 18e 17e 1d 1w 1m 3m 6m 12m YTD 2016 High Low (US$ MM) 1-Year 1-Month 17e (%) ARGENTINA Banco Francés $/ADR O x x 18.0x 13.1x (0) (3) (9) , GF Galicia $/ADR O x x 15.5x 12.6x (0) (1) , Macro $/ADR O x x 12.7x 10.0x (11) (15) , Supervielle $/ADR O x x 14.7x 11.7x (2) (4) N/A , Argentine Bank Sample 3.3x 16.3x 14.9x 11.7x (4) (6) , MSCI Argentina 3,801 2 (9) (9) ,342 2,339 BRAZIL Banco do Brasil R$/ON U (19) 1.0x x 8.7x 7.9x (1) (17) , Bradesco $/ADR U (6) 1.8x x 13.2x 13.0x (0) (12) (3) , Itaú Unibanco $/ADR U (6) 2.2x x 11.1x 12.1x (9) , Santander Brasil 2 $/ADR U (44) 1.8x x 13.8x 16.1x (6) , Banrisul R$/PNB E x x 7.9x 6.9x (4) (5) (12) , Banco BTG Pactual R$/ON O x x 7.4x 6.7x (1) (7) NA NA N/A , B3 R$/ON E (11) 2.0x x 34.3x 30.6x (5) , Cielo R$/ON O x x 15.6x 14.4x (0) 2 (2) 3 (4) (1) , Porto Seguro R$/ON U (31) 1.6x x 12.8x 12.4x (3) , BB Seguridade R$/ON O x x 14.1x 13.2x (2) (6) (3) (2) (0) (3) , IRB R$/ON NC x N/A NA 11.8x 11.3x N/A 1 (1) 3 14 NA NA NA N/A , SulAmerica R$/ON NC x x 11.0x 9.9x N/A , Brazil Bank Sample 1 1.8x 13.5x 11.8x 12.4x (0) (10) , MSCI Brazil 1,894 (0) (6) (12) (0) (4) ,168 1,536 CHILE Banco de Chile $/ADR E (3) 3.0x x 16.3x 16.2x (2) (5) , Santander Chile $/ADR E (1) 3.0x x 16.6x 17.5x (2) (2) , Corpbanca $/ADR NC x x 28.7x 10.8x N/A 1 1 (4) (4) (5) , Chile Bank Sample 2.7x 18.7x 16.5x 16.9x (2) (4) , MSCI Chile 1,870 (1) (4) (6) ,002 1,393 MEXICO Banorte M$/O x x (1) (5) (12) (10) , Santander Mexico $/ADR O x x 10.8x 9.0x (2) (10) (23) (13) (18) , Banco del Bajio M$/O O x x 10.4x 8.9x (1) (5) NA NA NA N/A , Banregio M$/O NC x x 12.5x 10.9x N/A 0 (0) (1) (14) (4) (6) (3) , Gentera M$/O NC x x 8.9x 8.6x N/A 0 (3) (25) (33) (30) (37) (40) (16) , Bolsa Mexicana M$/O NC x x 16.8x 15.5x N/A 0 (3) 3 (6) (5) (0) Interacciones M$/O NC x x 8.2x 7.5x N/A 0 (2) (15) (20) (1) (34) , Inbursa M$/O NC x x 14.4x 13.4x N/A 0 (2) 1 3 (0) (16) , Mexico Bank Sample¹ 1.9x 15.4x 7.7x 6.8x (2) (5) (12) (4) (14) 45, MSCI Mexico 5,246 (1) (3) (6) (13) (6) (11) 6,145 4,445 OTHER Credicorp $/ADR O x x 14.6x 13.4x (2) (2) , Bancolombia $/ADR O x x 9.6x 7.9x (2) (13) (13) (15) , Grupo Aval $/ADR O x x 11.5x 10.4x (6) (4) , Davivienda Co$/PFD NC 31, x 3,819 2,991 3, x 10.4x 8.7x N/A 0 2 (6) (9) (8) ,520 28,420 4, Grupo Sura Co$/PFD NC 36, x N/A N/A N/A NA NA NA N/A 0 (0) (11) (9) (6) ,360 33,618 7, Bladex $/ADR NC x x 13.2x 11.3x N/A 1 1 (0) 10 7 (0) (1) , Other Bank Sample 1.7x 10.7x 10.4x 9.2x (1) (5) (3) , MSCI LatAm 2,678 (0) (5) (10) (3) (3) ,000 2,222 Latin America Bank Sample 1 2.0x 14.0x 11.7x 11.7x (1) (8) (0) , Source: Company Data, Thomson Reuters, Morgan Stanley Research Estimates (e). Note (1): Sample averages exclude BTG Pactual, BM&F Bovespa, Cielo, Porto Seguro and Bolsa Mexicana. O = Overweight E = Equal-weight U = Underweight NR = Not rated NA = Not available UR = Under Review neg = Negative NM = Not Meaningful NC = Not Covered. Morgan Stanley Estimates for Banco do Brasil, Bradesco, Itaú, Banrisul, Santander Brasil, BTG Pactual, BM&F Bovespa, Porto Seguro, Cielo, Banco de Chile, Santander Chile, Banorte, Santander Mexico, Banco del Bajio, Credicorp, BB Seguridade, Banco Macro, GF Galicia, Banco Frances, Supervielle, Bancolombia, and Grupo Aval. All other from Thomson Reuters. Country samples are market cap. weighted. Average Trading Volumes are combined total for ADRs plus Local Shares. Note(2): P/BV, P/E, and ROE for Santander Brasil exclude goodwill. ++ Data for this Company have been removed from consideration in this report because, under applicable law and/or Morgan Stanley policy, Morgan Stanley may be precluded from issuing such information with respect to this company at this time. Please note that all important disclosures including personal holdings disclosures and Morgan Stanley disclosures appear on the Morgan Stanley public website at 16

17 Valuation and Risks SUPV.N Our valuation work and price targets are based on residual income analysis. To review, residual income analysis values a stock by adding the present value of all future cash earnings in excess of the company s cost of capital to the company s book value. Thus, in our residual income model, the value of the firm is mainly a function of the magnitude of the spread between return on equity and cost of equity (performance spread) and the time period in which management can generate returns in excess of the cost of equity (economic growth horizon). For SUPV, our year-end 2018 price target of US$27 assumes the shares will trade at 10.7x prospective P/E and year-end 2018e P/BV of 2.8x. Our valuation model uses a discount rate of 13% and long term ROAE of ~20%. We consider the uncertainty in Argentina s economic and political climate as the key long-term investment concern related to Argentine banks. In the past, economic instability has resulted in great share price volatility. A scenario of economic contraction, inflation, and currency depreciation would have a significant negative impact on our outlook for Argentine banks. Additionally for SUPV, we think execution challenges from the company's rapid growth plan need to be considered. GGAL.O Our valuation work and price targets are based on residual income analysis. To review, residual income analysis values a stock by adding the present value of all future cash earnings in excess of the company s cost of capital to the company s book value. Thus, in our residual income model, the value of the firm is mainly a function of the magnitude of the spread between return on equity and cost of equity (performance spread) and the time period in which management can generate returns in excess of the cost of equity (economic growth horizon). For GGAL, our year-end 2018 price target of US$62 assumes the shares will trade at 12.3x prospective P/E and year-end 2018e P/BV of 3.9x. Our valuation model uses a discount rate of 13% and long term ROAE of ~21%. We consider the uncertainty in Argentina s economic and political climate as the key long-term investment concern related to Argentine banks. In the past, economic instability has resulted in great share price volatility. A scenario of economic contraction, inflation, and currency depreciation would have a significant negative impact on our outlook for Argentine banks. Additionally for Galicia, we think its larger exposure to credit cards may pose delinquency risk if the economy contracts more than we expect, plus regulatory risk given large exposure to MDR. 17

18 BFR.N Our valuation work and price targets are based on residual income analysis. To review, residual income analysis values a stock by adding the present value of all future cash earnings in excess of the company s cost of capital to the company s book value. Thus, in our residual income model, the value of the firm is mainly a function of the magnitude of the spread between return on equity and cost of equity (performance spread) and the time period in which management can generate returns in excess of the cost of equity (economic growth horizon). For BFR, our year-end 2018 price target of US$24 assumes the shares will trade at 12.7x prospective P/E and year-end 2018e P/BV of 3.4x. Our valuation model uses a discount rate of 13% and long term ROAE of ~21%. We consider the uncertainty in Argentina s economic and political climate as the key long-term investment concern related to Argentine banks. In the past, economic instability has resulted in great share price volatility. A scenario of economic contraction, inflation, and currency depreciation would have a significant negative impact on our outlook for Argentine banks. Additionally for BBVA Frances, we think parent company risks need to be considered. BMA.N Our valuation work and price targets are based on residual income analysis. To review, residual income analysis values a stock by adding the present value of all future cash earnings in excess of the company s cost of capital to the company s book value. Thus, in our residual income model, the value of the firm is mainly a function of the magnitude of the spread between return on equity and cost of equity (performance spread) and the time period in which management can generate returns in excess of the cost of equity (economic growth horizon). For BMA, our year-end 2018 price target of US$136 assumes the shares will trade at 10.8x prospective P/E and year-end 2018e P/BV of 3.5x. Our valuation model uses a discount rate of 13% and long term ROAE of ~22%. We consider the uncertainty in Argentina s economic and political climate as the key long-term investment concern related to Argentine banks. In the past, economic instability has resulted in great share price volatility. A scenario of economic contraction, inflation, and currency depreciation would have a significant negative impact on our outlook for Argentine banks. Additionally for Banco Macro, we think its excess capital may put a drag on profitability relative to the peers, plus lower exposure to Buenos Aires area may hinder long-term growth opportunities. Issues surrounding Cicconi case need to be considered. 18

19 Disclosure Section The information and opinions in Morgan Stanley Research were prepared by Morgan Stanley & Co. LLC, and/or Morgan Stanley C.T.V.M. S.A., and/or Morgan Stanley Mexico, Casa de Bolsa, S.A. de C.V., and/or Morgan Stanley Canada Limited. As used in this disclosure section, "Morgan Stanley" includes Morgan Stanley & Co. LLC, Morgan Stanley C.T.V.M. S.A., Morgan Stanley Mexico, Casa de Bolsa, S.A. de C.V., Morgan Stanley Canada Limited and their affiliates as necessary. For important disclosures, stock price charts and equity rating histories regarding companies that are the subject of this report, please see the Morgan Stanley Research Disclosure Website at or contact your investment representative or Morgan Stanley Research at 1585 Broadway, (Attention: Research Management), New York, NY, USA. For valuation methodology and risks associated with any recommendation, rating or price target referenced in this research report, please contact the Client Support Team as follows: US/Canada ; Hong Kong ; Latin America (U.S.); London +44 (0) ; Singapore ; Sydney +61 (0) ; Tokyo +81 (0) Alternatively you may contact your investment representative or Morgan Stanley Research at 1585 Broadway, (Attention: Research Management), New York, NY USA. Analyst Certification The following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed and that they have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report: Jorge Kuri. Unless otherwise stated, the individuals listed on the cover page of this report are research analysts. Global Research Conflict Management Policy Morgan Stanley Research has been published in accordance with our conflict management policy, which is available at Important US Regulatory Disclosures on Subject Companies As of October 31, 2017, Morgan Stanley beneficially owned 1% or more of a class of common equity securities of the following companies covered in Morgan Stanley Research: Banco Macro S.A., Grupo Financiero Galicia, Grupo Supervielle S.A.. Within the last 12 months, Morgan Stanley managed or co-managed a public offering (or 144A offering) of securities of BBVA Banco Frances. Within the last 12 months, Morgan Stanley has received compensation for investment banking services from BBVA Banco Frances. In the next 3 months, Morgan Stanley expects to receive or intends to seek compensation for investment banking services from Banco Macro S.A., BBVA Banco Frances, Grupo Financiero Galicia, Grupo Supervielle S.A.. Within the last 12 months, Morgan Stanley has received compensation for products and services other than investment banking services from BBVA Banco Frances, Grupo Financiero Galicia, Grupo Supervielle S.A.. Within the last 12 months, Morgan Stanley has provided or is providing investment banking services to, or has an investment banking client relationship with, the following company: Banco Macro S.A., BBVA Banco Frances, Grupo Financiero Galicia, Grupo Supervielle S.A.. Within the last 12 months, Morgan Stanley has either provided or is providing non-investment banking, securities-related services to and/or in the past has entered into an agreement to provide services or has a client relationship with the following company: Banco Macro S.A., BBVA Banco Frances, Grupo Financiero Galicia, Grupo Supervielle S.A.. Morgan Stanley & Co. LLC makes a market in the securities of Banco Macro S.A., BBVA Banco Frances, Grupo Financiero Galicia. The equity research analysts or strategists principally responsible for the preparation of Morgan Stanley Research have received compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors, firm revenues and overall investment banking revenues. Equity Research analysts' or strategists' compensation is not linked to investment banking or capital markets transactions performed by Morgan Stanley or the profitability or revenues of particular trading desks. Morgan Stanley and its affiliates do business that relates to companies/instruments covered in Morgan Stanley Research, including market making, providing liquidity, fund management, commercial banking, extension of credit, investment services and investment banking. Morgan Stanley sells to and buys from customers the securities/instruments of companies covered in Morgan Stanley Research on a principal basis. Morgan Stanley may have a position in the debt of the Company or instruments discussed in this report. Morgan Stanley trades or may trade as principal in the debt securities (or in related derivatives) that are the subject of the debt research report. Certain disclosures listed above are also for compliance with applicable regulations in non-us jurisdictions. STOCK RATINGS Morgan Stanley uses a relative rating system using terms such as Overweight, Equal-weight, Not-Rated or Underweight (see definitions below). Morgan Stanley does not assign ratings of Buy, Hold or Sell to the stocks we cover. Overweight, Equal-weight, Not-Rated and Underweight are not the equivalent of buy, hold and sell. Investors should carefully read the definitions of all ratings used in Morgan Stanley Research. In addition, since Morgan Stanley Research contains more complete information concerning the analyst's views, investors should carefully read Morgan Stanley Research, in its entirety, and not infer the contents from the rating alone. In any case, ratings (or research) should not be used or relied upon as investment advice. An investor's decision to buy or sell a stock should depend on individual circumstances (such as the investor's existing holdings) and other considerations. Global Stock Ratings Distribution (as of October 31, 2017) The Stock Ratings described below apply to Morgan Stanley's Fundamental Equity Research and do not apply to Debt Research produced by the Firm. For disclosure purposes only (in accordance with NASD and NYSE requirements), we include the category headings of Buy, Hold, and Sell alongside our ratings of Overweight, Equal-weight, Not-Rated and Underweight. Morgan Stanley does not assign ratings of Buy, Hold or Sell to the stocks we cover. Overweight, Equal-weight, Not-Rated and Underweight are not the equivalent of buy, hold, and sell but represent recommended relative weightings (see definitions below). To satisfy regulatory requirements, we correspond Overweight, our most positive stock rating, with a buy recommendation; we correspond Equal-weight and Not-Rated to hold and Underweight to sell recommendations, respectively. 19