MEMORIA BHSA ingles

A N N UA L R E P O RT
A N E W S TA G E
1999
CORPORATE PROFILE
For over 114 years, Banco Hipotecario has provided
access to home ownership for Argentine Families.
Banco Hipotecario has led the growth of the
residential mortgage during the 90’s, lending nearly
$ 2.3 billion since 1994. Today, it is the Argentine
largest bank in term of equity.
Based on its superior knowledge of the mortgage
market, Banco Hipotecario’s business strategy for
further growth will include the extension towards
mortgage related business.
INDEX
Initial Public Offering and
Listing at the Buenos Aires
Stock Exchange
Macroeconomic Environment
and Mortgage Market Evolution
4
Political and Economic scenario
New Products and Projects
Outlook
12
16
17
Secondary Mortgage Market Company
22
Business
28
Selected Financial Information
Management’s Discussion and
Analysis of Financial Condition
and Results of Operations
42
Senior Management
66
6
44
DEAR SHAREHOLDERS
*
This is the first Annual Report of Banco
Hipotecario S.A. (BHSA) after the Initial Public
Offering was made by the Argentine
government and the Bank's Class "D" shares
were listed on the Buenos Aires Stock
Exchange.
The information contained in this Annual
Report includes a Management Discussion
and Analysis of the Financial Condition and
Results of Operations, and should be read in
conjunction with Banco Hipotecario's
Financial Statements.
The Financial Statements have been prepared
in accordance with Argentine GAAP and
Central Bank accounting rules.
!
!
The Safest Bank
“THE SAFEST BANK OF ARGENTINA”
GLOBAL FINANCE MAGAZINE - OCTOBER, 1999
OUR PURPOSE IS TO MAKE OUR CLIENTS FEEL AS SAFE AS BEFORE THEY WERE BORN.
INITIAL PUBLICO NOFFERING
AND LISTING
T H E B U E N O S A I R E S STO C K E XC H A N G E
INITIAL PUBLIC OFFERING OF SHARES
Pursuant to the Privatization Law, and within the
framework of an Initial Public Offering carried out in
January 1999, the Argentine government sold to
national and international investors 42 million Class "D"
shares at Ps.7.00 per share and granted five-year options
for the acquisition of 27 million additional shares at the
same price, enforceable as of February 2, 2000.
The combined offer allocated to the domestic capital
markets 15,250,600 Class "D" book-entry ordinary shares,
and 61,289 options for the acquisition of 100 American
Depositary Shares each, and allocated to the
international markets 26,749,400 American Depositary
Shares - each representing one Class "D" share - and
208,711 options, pursuant to Rule 144A under the United
States Securities Act, settled on February 2, 1999.
4
!
Despite the extremely unfavorable international capital
markets environment since 1997, the Initial Public
Offering of BHSA was considered a success by all
members of the investment community.
Although the Argentine Government still holds an
important stake in the Bank (49 percent of the shares),
on March 15, 1999, the control of the Board was
transferred to private investors.
It is important to note that during the presentation of
the "Year 2000 Financing Program," the National
Government stated its intention to place a percentage
of its interest in the Bank in the markets during the
current year.
!
SHARE EVOLUTION AND SHARE COMPOSITION
Banco Hipotecario Class "D" shares have been listing in the Buenos Aires Stock Exchange under the "BHIP" ticker since
February 2, 1999.
MONTH
MONTHLY AVERAGE VOLUME (*)
MAXIMUM PRICE
MINIMUN PRICE
AVERAGE PRICE
53.362
16.669
26.834
23.729
8.386
19.204
20.675
38.541
39.011
52.636
37.432
9.00
8.90
11.40
12.70
11.00
10.50
9.80
11.00
11.50
13.50
14.60
7.65
7.85
8.86
9.70
10.15
8.40
8.40
9.70
10.20
11.40
13.30
8.21
8.53
9.66
11.28
10.51
9.10
8.86
10.33
10.97
12.31
13.69
Febrary
March
April
May
June
July
August
September
October
November
December
Source: Bloomberg & own estimations.
OWNERSHIP AS OF DECEMBER 31. 1999
(*) Number of shares
• Maximum price: $14.60
Other Private
Investors 4%
• Minimum price: $7.65
• Average price: $10.35
Pension
Funds 10%
• Average daily volume: $324,926
• Dividends payment date: 05/21/99
• Dividend payout ratio: 45%
• Total outstanding shares: 150,000,000
15.0
700,000
14.5
14.0
600,000
13.5
13.0
500,000
12.5
Dividends
Payment
12.0
400,000
11.5
11.0
10.5
300,000
10.0
dec. 99
nov. 99
sep. 99
oct. 99
aug. 99
jul. 99
jun. 99
apr. 99
LDC, Quantum Dolphin plc, and IRSA International Ltd., all
affiliates of George Soros, as well as latin America capital
Partner II LP.
(2) Shares are currently in a trust pending sale to Argentine
construction companies.
offering. Argentine Government will keep a “Golden
8.5
Share”, representing 0.1% of the capital stock.
7.0
may. 99
(1)Lead Investors include Quantum Industrial Partners
(3) Shares are currently in a trust, pending public
7.5
mar. 99
Government (3)
44%
9.0
8.0
0
5
9.5
200,000
100,000
M o n t h ly Av e r ag e P r i c e
Employees (4)
5%
• Market capitalization: $2,070 million
feb. 99
Option
Trust 18%
Real Estate
Companies (2) 5%
• Dividend yield: 5%
M o n t h ly Av e r ag e Vo lu m e i n P s.
Lead
Investors (1)
14%
(4) Share are currently in a trust pending establishment of
program.
MACROECONOMIC ENVIRONMENT
M
M
E
AND
O RTG AG E
For several decades, Argentina experienced periods of
slow or negative growth, with a fragile financial system,
escalating interest rates, high levels of fiscal deficit, and
hyperinflation.
Beginning with the announcement of economic reform in
1991 - based on the Convertibility Law - the Argentine
economy underwent a transformation.
This transformation was characterized by local currency
stability, an increase in tax collections, public expenditure
cutbacks, fiscal deficit reduction, privatization of public
companies, and an opening up to international trade.
6
ARKET
VOLUTION
In the period that followed, these structural changes
resulted in an approximately 6 percent average annual
growth rate for the Argentine economy until 1998.
Contributing to this growth was a remarkable increase
in foreign capital investments, credit restitution, and the
access of public and private issuers not only to global
capital markets but also as participants in agreements
with multilateral credit organizations.
As a consequence of the currency crisis that began in
Asia in July 1997, the volatility in the world's financial
markets adversely affected emerging economies. The
drop in worldwide demand had a particularly significant
negative effect on the prices of commodities that
Argentina exports; this problem has intensified following
Brazil's monetary devaluation in January 1999. In
addition, domestic demand showed a sustained
deceleration, within a framework of relatively high
domestic interest rates and increasing country risk,
measured by the widening of the sovereign bond
spreads.
However, due to the preventive measures adopted by
the Central Bank after the 1995 Mexican peso
devaluation crisis, the liquidity levels of the financial
system strengthened as depositors' confidence in local
banks increased. This helped mitigate the impact of that
crisis on the Argentine economy.
Thus, local banks were able to continue responding to
the economy's financing needs, particularly those of the
public sector.
Within this environment, after decades of a very low
level of mortgage lending by the banking sector, the
mortgage market regained its pulse in 1991 upon the
enforcement of the Convertibility Law.
GDP EVOLUTION
Source: Estudio Miguel Angel Broda y Asoc.
10%
8%
6%
4%
2%
IV 98
I 99 II 99
III 99 IV 99
0%
I 97
II 97
III 97 IV 97
I 98
II 98
III 98
-2%
-4%
-6%
Between 1991 and 1998, the Argentine mortgage market
grew at a compound annual rate of 22 percent. The
economy was strong and stable, per-capita gross
domestic product (GDP) was rising, and inflation rates
remained low. In 1999, however, with a significant
decrease in credit demand, the growth rate of the
mortgage market declined sharply.
CLIENT PROFILE |
SOURCE: INDEC
BORROWERS THAT FINANCED THEIR HOMES VIA MORTGAGE LOANS IN
THE PAST THREE YEARS HAVE THE FOLLOWING CHARACTERISTICS:
Despite the growth recorded between 1991 and 1998,
the mortgage market today still is in the early stages of
development, representing a mere 4 percent of the GDP.
This is quite low compared with other countries, such
as Mexico and Chile, where the mortgage market
represents 11 percent and 17 percent of the GDP,
respectively.
Based on the current housing deficit, the willingness of
banks to grant mortgage loans, and the fact that with
more mortgage options now available, more customers
have access to mortgages, Banco Hipotecario believes
that this market will continue to grow and that BHSA
stands to benefit from that growth.
• AN AVERAGE HOUSEHOLD MONTHLY INCOME OF 1,640 PESOS
COMPARED TO THE NATIONAL AVERAGE OF 600 PESOS.
* 30% HAVE A DEGREE COMPARED TO 8% OF THE
ENTIRE POPULATION.
• AVERAGE 36 YEARS OLD.
• BANKING USAGE LEVEL IS HIGHER THAN THE POPULATION’S AVERAGE
(80 % VS. 25 %).
• 60 % RESIDE IN CAPITAL FEDERAL AND GBA.
• 70 % LIVE IN HOUSES.
7
The following provides a brief description of the factors
that are expected to spur growth in the Argentine
residential mortgage market:
1. I NCREASING ACCESSIBILITY TO MORTGAGE PRODUCTS: the
availability of residential mortgage loans has created a
new market for homebuyers, opening the door to
middle- and lower-middle-income groups. The top-tier
private banks have historically focused on the higherincome segment of the market but have now begun to
look at the middle-income segment, as well. They see
potential in this interesting client segment that, up to
now, has been a very low user of banking services.
2. NEW HOUSEHOLD CREATION: the growing number of young
adults leaving their parents' homes, the formation of
approximately 100,000 new households each year, and
the lifestyle trends in Argentina will lead to increased
demand for new housing. This, in turn, will result in an
increase in mortgage financing needs.
TOTAL MORTGAGE MARKET - Source: BCRA
Includes residential and commercial mortgages (in billion of Pesos)
16.2
16.5
1998
1999
15
12.8
11.0
10.0
10
9.0
6.7
5.8
5
3.3
0
1991
1992
1993
1994
1995
1996
1997
GDP PER CAPITA - 1998
Source: Salomon Smith Barney
$
3. LOW RESIDENTIAL MORTGAGE PENETRATION: the low base of
residential mortgage loans in Argentina and the current
outlook for economic and social conditions indicate
there is potential for significant growth in the sector.
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
Venezuela
Mexico
Colombia
Chile
0
Brazil
4. POTENTIAL MARKET: the total potential market for this
type of product is estimated at slightly more than one
million families, given current income levels, and the
debt-to-income and loan-to-value (LTV) ratios required
by the market and Argentine regulations.
Agrentina
8
!
*
*
I n i t i a l Pu b l i c O f f e r i n g
LARGEST INTERNATIONAL EQUITY OFFERING
IN LATIN AMERICA IN 1999
SOURCE: EUROMONEY
OUR FIRST STEPS AS A PRIVATE-OWNED FINANCIAL INSTITUTION.
A YEAR BCHARACTERIZED
Y A CO M P L E X P O L I T I C A L A N D E CO N O M I C S C E N A R I O
The turmoil that has affected the world's financial
markets since the 1997 Southeast Asian crisis was
followed by the Russian default in mid-August 1998 and
Brazil's devaluation of the real in January 1999. These
factors, together with the uncertainty generated by the
presidential elections held on October 24, 1999, resulted in
a severe recessionary period for the Argentine economy.
This environment - and the uncertainty it caused in
regard to Argentina's economic evolution - brought
about a sharp decline in mortgage loan demand and
activity in 1999 compared with the previous year, and
along with it, an increase in financial costs.
Responding to these pressures, BHSA increased the total
financial cost for new loans granted to borrowers after
September 1998 by approximately 150 basis points
through higher insurance premiums and administrative
fees. BHSA also suspended mortgage loan origination
through the Bank Network. Subsequently, in April 1999,
it increased interest rates by 100 to 150 basis points for
new mortgage loans extended through its "Acceso
Inmediato" line, excluding individual loans related to
construction projects previously financed by the Bank,
and focused its efforts on generating individual loans
for these residential projects.
*
12
At the same time, Banco Hipotecario faced difficult and
volatile international capital market conditions, as well
as declining investor confidence and interest in
emerging markets. Despite these pressures, BHSA has
been successful in maintaining not only adequate
access to the different markets where the Bank was
already active but also in gaining access to new markets.
These included U.S. commercial paper and local
institutional investors through medium-term time
deposits. This allowed the Bank to obtain financing for
an aggregate amount of approximately US$ 1 billion.
Moreover, despite this complex scenario, BHSA
consolidated its leading position in the residential
mortgage loan market, increasing its market share by
100 basis points to 42 percent. As of December 31, 1999,
the total residential mortgage loan portfolio amounted
to Ps.4,624.8 million.
and start up during April 1999 of an early
* Creation
delinquency management section. In its first eight
BHSA also continued to make important strides in
improving the quality of its loan portfolio, increasing
efficiency in operations and streamlining its cost
structure. With this streamlining, the benefits from
economies of scale
houses were sold at auction, with Banco Hipotecario
recovering, on average, 48 percent of the balances due
after paying preferred and procedure-related expenses.
months, this section significantly improved collections
through the recovery of delinquent loans.
of the foreclosure procedures initiated at
* Intensification
the end of 1998. During the second half of 1999, 240
origination of loans with "Mortgage
* Generalized
Instruments." Mortgage transference time was sharply
reduced, increasing liquidity and saving registration
expenses and taxes paid upon the transference of a loan.
*H
IGHLIGHTS:
Improvements in the asset quality levels of the prerestructuring and individual post-restructuring loan
portfolios. The NPL ratio of the total pre-restructuring
portfolio showed a significant decrease of 220 basis
points to 21.1 percent as of December 31, 1999, from 23.3
percent as of December 31, 1998. The NPL ratio of the
individual post-restructuring portfolio decreased 90
basis points to 3.1 percent, 22.5 percent lower than the
4.0 percent recorded as of December 31, 1998.
A 6.4 percent reduction in operating expenses (before
of the deferred charge related to the
compensation plan for directors and senior
management). The ratio of administrative expenses to
assets was 2.7 percent as of December 31, 1999, 23 basis
points lower than the 2.9 percent as of December 31,
1998. This reduction was due mainly to the restructuring
process implemented by the Bank since 1998, which has
resulted in a 27 percent reduction in its headcount, to
1474 at the end of 1999, and the negotiation of better
contracts and purchase conditions.
* accrual
13
of loan origination, administration
at the beginning of the year of a new
* Implementation
* Centralization
operations, and risk analysis. This was accomplished
Mortgage Credit Scoring Behavior system. This system
through new technology and greater efficiency,
resulting in a 100 percent increase in productivity in the
risk-analysis sector.
*
*
Integration of the National Payment System (Sistema
Nacional de Pagos) into the Bank's collection system. This
relates to the collection of installment payments through
direct debit from the client's bank account at any financial
institution. The new collection procedure has resulted in
improvements in the efficiency of the administration
process and is expected to generate important savings in
terms of commissions paid for collection services.
Expansion of the Call Center's capabilities through the
implementation of new technologies. These capabilities
include Customer Service and Collection functions,
important tools in delinquency management. During
the year, calls increased to approximately 346,500:
234,700 calls requested product information or were
related to client banking, and 111,800 were made by the
collection service.
*
14
enables continuous improvement in the quality of
originated loans.
and development of a new Sales in Advance
* Design
Management System (Sistema de Administración de
Preventas). This system is involved in the administration
of housing unit sales from construction projects
previously financed by BHSA and has been fully
integrated into the Loan Administration System (NSP).
of the start-up phase of SAP/R3. SAP/R3 is
* Completion
new, integrated application software for the accounting,
budget, treasury, human resources, and logistic
functions. In addition, the Management Information
System (MIS) was implemented.
Y2K Compliance of All Computer Systems
Effective January 1, 1999, the Bank adopted a new policy
of suspending the accrual of interest, insurance, and
BHSA HAS CONSOLIDATED ITS LEADING POSITION IN
THE RESIDENTIAL MORTGAGE LOAN MARKET,
INCREASING ITS MARKET SHARE BY 100BPS, TO 42%
fees in respect to nonperforming loans. This was
another important advance during 1999. This policy
provides a high-quality and clear representation of
BHSA operating results to the investing community.
Banco Hipotecario's policy prior to January 1, 1999, was
to accrue income from effective and capitalized interest,
insurance premiums, and fees on nonperforming loans,
and allocate a portion of its reserves for loan losses
against the amounts so accrued.
*
As a result of the new policy implemented by the Bank
during 1999, financial income of Ps.31.4 million, Ps.3.6
million for insurance, and Ps.1.0 million for commissions
were not recorded. Nevertheless, Banco Hipotecario's
financial income still includes non-cash income, as a
result of the capitalization of interest, reflecting the
difference between the "referential" interest rate and a
lower interest rate payable on pre-restructuring loans.
This item is expected to disappear during the year 2002.
NEW PRODUCTS AND PROJECTS
Confianza: pursuing its objective of providing
Bank: in its quest for continuous
* Wholesale
* Credito
the most attractive and innovative mortgage products,
development and in order to maintain its leading
Banco Hipotecario introduced a new line of mortgage
loans - "Credito Confianza" in April 1999. This new
product - designed for the purchase, construction, or
improvement of new or existing housing units - is for
borrowers with established credit histories. Financing
conditions are for shorter terms, ranging between three
and 10 years, at a 13.5 percent dollar-denominated
interest rate and with LTV ratios not exceeding 60
percent.
Equity Credit Lines: subsequently, the Bank
* Home
launched "Acceso Inmediato" and "Confianza" home
equity credit lines, with a maximum LTV ratio of 35
percent and interest rates in excess of those applied to
traditional individual mortgage loans, increasing the
Bank's profitability and minimizing risk.
Unit Auctions: by mid December 1999, Banco
* Housing
Hipotecario successfully completed the first sale of new
16
housing units through the public auction system, thus
introducing an innovative marketing tool to the real
estate market. After a 15-day advertising campaign, the
Bank sold 36 properties in 90 minutes from
construction projects it previously had financed. This
was equivalent to 5,577 square meters, with the sale of
all the properties totaling in excess of Ps.2 million.
Following this success, the Bank plans additional
auctions for the year 2000 to promote the sale of
housing units from construction projects it financed
that were not pre-sold.
*
position in the Argentine mortgage market, on October
19, 1999, Banco Hipotecario - together with IRSA
Inversiones y Representaciones S.A. - requested
authorization from the Argentine Central Bank to set up
Banco Corporación Financiera Hipotecaria S.A. This
initiative derived from combined efforts of BHSA, IRSA,
and the International Finance Corporation (IFC) of the
World Bank Group, to jointly set up a financial
institution that encourages the development of a
secondary mortgage market in Argentina. The goal is to
enable mortgage originators to have access to financial
resources at suitable terms and rates in order to
facilitate the growth of the primary mortgage market.
Banco Corporación Financiera Hipotecaria S.A.'s initial
capital will be Ps.50 million, which may be increased to
Ps.250 million, pursuant to the evolution of its
operations. Moreover, mid-term, the new financial
institution is expected to invite a foreign company to
come in as a strategic partner and invite domestic
financial entities to become shareholders of this bank.
OUTLOOK
In addition, the Bank remains committed to reducing its
operating costs, consolidating its operations, and
diversifying its sources of funding. BHSA also will
continue to work toward lengthening the maturity of its
obligations and reducing the cost of financing by
expanding its mortgage securitization and improving
the quality of its credit portfolios.
COMMERCIAL STRATEGY
BHSA is positioning itself in the Argentine mortgage
market as the Bank offering the best mortgage loan
options for the purchase, construction, or improvement
of housing units and for projects customers wish to
finance through home equity loans. To accomplish this,
the Bank's focus is on an aggressive pricing strategy, the
diversification and development of distribution
channels, and a mix of products and pricing policies that
provide adequate profitability levels.
EXISTING CHANNEL
• 24 FULL BRANCHES THROUGHOUT ARGENTINA
• CALL CENTER
c
Banco Hipotecario's primary strategy is to focus on
continued profit-generation, expand its expertise in the
mortgage market, and exploit the synergies inherent in
its position in that market. In line with this strategy, the
Bank will continue to develop each of the components
of the mortgage business, leveraging its solid and
competitive financial strength, its dominant market
position, its strong "brand" recognition, and the
efficiency of its operations.
NEXT 2 YEARS
• 60 BRANCHES AND NEW SALE POINTS
• TECHNOLOGICALLY DRIVEN CALL CENTER
• INTERNET
• B2C
• B2B (BANKS, BROKERS, DEVELOPERS)
• AGREEMENTS WITH REAL STATE BROKERS
• RETAIL BANK NETWORK
• ARRANGEMENTS WITH COMPANIES
AND PRIVATE NEIGHBORHOODS
• PREMIUM BANKING
(TARGETING HIGH INCOME LEVEL CLIENTS)
17
The implementation of this commercial strategy is
based on three components:
"Acceso Inmediato Mortgage Loan, the Lowest-cost
Installment Plan for All Purposes"
offer the lowest-price mortgage products in
* Products:
the market to generate an important new client base,
With its Acceso Inmediato marketing campaign
underway, backed by a new pricing structure that is
based on competitive rates and commissions, the
product component of the Bank's commercial strategy
should be a profitable one. This implies the modification
of the insurance pricing structure, the elimination of the
administration fee, and the implementation of an upfront fee of up to 3 percent, favoring the placement of
larger loans and the application of differential interest
rates, depending on the product and purpose.
the primary goal being the cross-selling of new higheryield products and services to these new customers.
These products and services will include those related to
the mortgage market, insurance, and other financial
products. Thus, the Bank seeks to profit from crossselling to both future clients and current clients in its
own portfolio and in its managed portfolios, which
currently number approximately 402,000.
"ACCESO I NMEDIATO
MORTGAGE LOAN , THE
LOWEST MARKET INSTALLMENT FOR ALL PURPOSES"
diversify the origination channels, expanding
* Channels:
BHSA's presence so that its services are readily available
to potential clients no matter where they live or work. In
line with this component are the following:
-Branch Network: expansion from 24 to 60 branches, by
the opening of mini-branches in the main cities of the
country within the next two years.
-Bank Network: use of the infrastructure, sales force, and
clients of retail banks to generate mortgage loans in
those places where the Bank is unlikely to open a
branch. In this way, the Bank can reach and develop
heretofore unexploited markets for mortgage loans.
-Banca Premium: focus on high-income clients
requesting loans for amounts in excess of Ps.70,000 or
who purchase real estate for more than Ps.140,000. This
will enhance future cross-selling opportunities.
-Real Estate Brokers' Network: expand the geographical
presence of the Bank into areas that are currently
difficult to serve. This opens up new opportunities to
increase the number of new clients, as a real estate
broker's office usually is the first place prospective
customers go when they are ready to purchase a home.
-Internet: marketing of loans and real estate through
special sites, and e-commerce/e-banking through the
development and update of BHSA's web site,
18
incorporating experienced international partners.
- Additional channels: Banco Hipotecario is developing
additional distribution channels, including those to be
located in private residential neighborhoods and in
areas with weekend homes.
Profile: The Bank's goal is to attract targeted
* Client
clients age 40 and under, with combined annual
household income ranging between Ps.32,000 and
Ps.40,000 - or income of approximately Ps.20,000 for an
individual - in order to facilitate cross-selling of new
products and services in the future. Diversification and
redesign of distribution channels, as well as advertising
campaigns, will essentially focus both on attracting the
targeted customers and retaining existing traditional,
middle-income clients.
In addition, BHSA will concentrate on the management
and sale of housing units from construction projects
previously financed by Banco Hipotecario, establishing
attractive, competitive pricing and using public auctions
as a real estate marketing tool. This will be implemented
along with a restructuring of the Construction Projects
business unit to improve the risk position undertaken by
the Bank and increase project revenues.
OPERATIONS, MANAGEMENT AND TECHNOLOGY
* Operations, Management, and Technology
Bank plans to complete the following projects during
* The
the forthcoming year:
- The integration and start up of the Loan Originations
System.
- The expansion of its mortgage loan servicing business,
increasing the number of mortgage loans serviced to the
Provincial Housing Institutes (IPVs) and attracting new
clients through the integration of new, related services.
- The completion of the implementation of an Electronic
Deed Execution system, the Bank's first Internet-based
application program, in which the Notaries Network is
connected on-line to the Bank, enabling the execution of
standardized deeds, using a uniform model. This should
reduce significantly the amount of time needed for the
execution process and also reduce costs due to the
increased efficiency of the Notaries Network. A significant
achievement during 1999 was the reduction in the number of notaries authorized to work with the Bank to 175
from 578 at the end of 1998.
19
- Centralization of the Loan Administration System (NSP),
based on Unix technology from Sun Microsystems.
- Enlargement of the Call Center functions through the
use of new technology oriented to customer service.
- Implementation of Internet-based technology to
improve both customer service and interaction with different members of the mortgage loan origination channels (i.e., real estate brokers and notaries).
“
“
S M M C - SECONDARY MORTGAGE MARKET COMPANY
WILL FULFILL A SIGNIFICANT DEVELOPMENTAL ROLE BY
PROVIDING LIQUIDITY TO THE BANKING SYSTEM, AND BY
LOWERING THE COST OF BORROWING, THEREBY INCREASING
THE AFFORDABILITY OF MORTGAGES.
NEW PROJECTS FOR GROWING FAMILIES.
SECONDARY MORTGAGE
MARKET COMPANY
("SMMC")
Banco Hipotecario, IRSA, and International Finance
Corporation (IFC) of the World Bank Group, are joining
to form a second-tier bank, Banco Corporación
Financiera Hipotecaria - also known as the Secondary
Mortgage Market Company (SMMC) - to create and
develop a secondary mortgage market in Argentina.
This will represent the largest investment in a single
project ever made by the IFC.
PROJECT HIGHLIGHTS
SMMC will offer mortgage originators access to
* -financial
resources at suitable terms and rates to
facilitate the growth of the primary mortgage market.
- Initial capital will reach up to US$ 250 million, and IFC will
* participate as an equity partner, with a 20 percent share.
- Source of Funding: i) IFC will provide a US$ 100 million
enhancement facility, in order to create a
structure that should enable SMMC to establish a
funding program of up to US$ 1 billion of corporate debt,
thus reducing the cost of funding and minimizing
issuance exposure to the volatility of emerging markets;
and, ii) SMMC will establish a mortgage-backed
securitization program (MBS) that, over time, will create
brand awareness for the company's MBS product
among investors, in terms of credit and price
performance as well as liquidity.
* credit
BHSA believes that SMMC is an excellent investment, due
* to the fact that it is designed to have low operating costs,
higher leverage, and access to international funding
sources. In addition, the company will benefit from the
strong mortgage-market growth projected for Argentina.
22
SMMC's strategy is to organize and standardize all key
aspects of mortgage lending, such as origination,
pricing, portfolio management, and servicing. The use of
standardized underwriting criteria and mortgage
products will create a much higher level of liquidity,
“
SMMC IS AN EXCELLENT INVESTMENT, DUE TO ITS
PROJECTED LOW OPERATING COSTS, HIGHER
LEVERAGE AND ACCESS TO INTERNATIONAL
FUNDING SOURCES AS WELL AS THE EXPECTED
STRONG MORTGAGE MARKET GROWTH.
which can be traded at any time. SMMC also is designed
to have the management and resources to keep the
purchasing window open for all qualified mortgages
from all qualified originators.
The new company will operate exclusively in the
secondary market and will not compete with primary
originators. It will leverage BHSA's established
reputation and technology to securitize portfolios for
domestic and international institutional investors. As
such, the company will fulfill a significant
developmental role by providing liquidity to the banking
system and lowering the cost of borrowing, thereby
increasing the affordability of mortgages. This will
improve access to home ownership for an everincreasing proportion of the Argentine population.
As stated, in the formation stage, the investor group
consists of BHSA, IRSA, and the IFC. Near term, a
broadening of the shareholders' list is anticipated. A
significant shareholding will be reserved for the largest
and most influential banking firms in Argentina, with a
leading foreign company - perhaps one specialized in
the insurance and or mortgage business - as a strategic
partner. Expectations are that this partner will be a U.S.based firm. And the goal is to attract a company with a
strong capital markets presence and significant
financial resources, in order to enhance the prestige and
recognition of the SMMC as it establishes itself in
international capital markets. This is particularly
important given that SMMC will be a recurrent issuer on
this market.
LINES OF BUSINESS
SMMC will have three primary lines of business and will
work toward developing a fourth:
PORTFOLIO BUSINESS
Purchasing qualified mortgage loans for its own
portfolio. SMMC's income from its portfolio business
will derive from the spread (the difference between the
yield on this investment and the cost of funding it). On
the yield side, SMMC can achieve cost reductions
through economies of scale and through the use of
state-of-the-art portfolio management techniques.
MORTGAGE SECURITIZATION
Structuring and selling mortgage-backed securities to
both domestic and international institutional investors.
This key business line will enable SMMC to leverage its
equity and its corporate funding ability to ensure a
continuous, strong flow of credit for mortgage
originators. In order to issue simple senior/subordinated
securities, the SMMC will not only be able to assess risks
from third-party pools (as in the held loan portfolio), but
it also will be able to transform those loans into
marketable securities.
REPO LENDING
Repurchase agreement operations will provide funding
for mortgage originations to qualified originators of the
primary market (warehouse lending). This involves
collateralized borrowing by the originator of mortgage
loans and provides short-term capital to cover
origination and packaging costs. Collateral is provided
by a pool of high-quality mortgage assets that may not
be directly traded in the secondary market.
SUPPORT SERVICES
Support services to mortgage-market participants will
be provided on a for-profit basis. Such services would
include: financial guarantees, trading, master servicing,
and mortgage-related insurance.
BENEFITS
*
*
*
*
Portfolio Management
Mortgage Securitization
Repo Lending to Mortgage Originators
Support Services (to be developed)
SMMC's support services will bring the best
international practices and technology relating to
mortgage lending and the secondary market to
23
Argentina and will:
i) further develop the Argentine capital markets by
issuing mortgage-backed securities (MBS) and the
SMMC's general corporate debt;
ii) further develop the organization, standardization,
and commoditization of mortgage products, fostering
liquidity in both whole loans and securitized products;
iii) develop the primary mortgage market in Argentina
by improving the efficiency of loan origination,
standardization of loans, and mortgage loan quality;
iv) improve the affordability of housing and lower the
cost of mortgage loans by making longer term funding
available and by enhancing the liquidity of mortgage
assets; and,
v) strengthen the banking sector by making the SMMC
available to banks as a liquidity guarantor and an
eventual guarantor of mortgage-backed securities.
SPECIFIC BENEFITS TO THE BANKING SECTOR
•Improve liquidity and credit quality of mortgage loans
through standardization.
•Grow mortgage volumes through greater affordability
and increased market stability.
•Strengthen property valuations and stimulate new
construction.
•Provide tools for better asset and liability management.
•Generate fee earning opportunities through
unbundling of mortgage loan services.
CAPITAL, RESERVES
AND PROPOSED
P R O F I T D I ST R I B U T I O N
24
For the fiscal year ended December 31, 1999, Banco
Hipotecario's Capital, Reserves, and Retained Earnings
combined increased 2.3 percent, or Ps.56.8 million, to
Ps.2,477.1 million from the previous year.
IN MILLIONS OF PS.
To Legal Reserve 20%
29.5
To Special Reserve
35.4
Net Income for the year 1999 was Ps.147.5 million and
Retained Earnings amounted to Ps.217.8 million.
To Retained Earnings
82.6
The Board of Directors submitted to the Shareholders'
Meeting of Banco Hipotecario S.A. the following
proposal of profit distribution for the fiscal year ended
December 31, 1999:
After profit distribution, Retained Earnings would
amount to Ps.152.9 million.
THE BOARD
“
}
}
Our Mortgage Products
ARE DESIGNED TO IMPROVE ACCESS
TO HOME OWNERSHIP FOR
ARGENTINE PEOPLE
MORE THAN 1.000.000 OF ARGENTINES HAVE ALREADY COUNTED ON US.
BUSINESS
INTRODUCTION
Established in 1886 by the Argentine government,
Banco Hipotecario, with headquarters in Buenos Aires,
is one of the oldest and largest financial institutions in
the country.
BHSA is Argentina's best-known and most respected
name in the residential mortgage business. With its
strong financial position, as well as its efficient, low-cost
operations, the Bank is able to capitalize on the strong
growth expected for the Argentine mortgage market.
BHSA is the leading mortgage lender in Argentina, with
Ps.4,414.0 million of residential mortgage loans
outstanding at December 31, 1999, a 42 percent share of
such loans in the Argentine residential mortgage market,
and a 28.1 percent share of the total mortgage market.
As of December 31, 1999, BHSA was the eighth-largest
Argentine bank in terms of assets (Ps.5,180.2 million)
and the first in terms of shareholders' equity (Ps.2,477.1
million), being the highest capitalized bank in
Argentina, with an equity-to-assets ratio of 47.8 percent.
Net income for the fiscal year ended December 31, 1999
and December 31, 1998, was Ps.147.5 million and Ps.201.3
million, respectively,.
In addition, the Bank is the largest provider of
mortgage-related insurance and the largest mortgage
servicer in Argentina; as of December 31, 1999, the Bank
was servicing approximately 402,000 loans, including
its own and third-party mortgage loan portfolios.
Despite the sharp decline in demand for mortgages
during 1999, Banco Hipotecario has maintained its
dominant position. It was the largest mortgage
originator in Argentina in 1999 and 1998, with mortgage
loan disbursements of approximately Ps.435 million and
Ps.912 million, respectively.
28
KEY MORTGAGE ORIGINATORS
Source: BCRA
However, net income for fiscal year 1999 is not directly
comparable with that of the prior fiscal year due to the
Bank's new policy of suspending accrual of interest,
insurance, and fees on nonperforming loans, effective as
of January 1, 1999
As of December 31, 1999, the Bank serviced a loan
portfolio of Ps.7,274.0 million, which included its own
and third-party portfolios serviced by the Bank. The
breakdown of this portfolio was as follows: BHSA's total
on-balance sheet loan portfolio, Ps.4,612.6 million; thirdparty mortgage loans, Ps.2,450.5 million; and, individual
post-restructuring mortgage loans originated by the
Bank and later securitized through off-balance sheet
structures, Ps.210.9 million.
In spite of the recessionary period in Argentina, the ratio
of nonperforming loans to total loans remained stable, at
14.6 percent, as of December 31, 1999, compared with 14.5
percent for the previous year. This was a result of the
Bank's active delinquency management policies and new
information systems being implemented during the year.
Other
20%
The Bank distributes its products through its own
Branch Network, composed of 24 branches, one in the
City of Buenos Aires and one in each province of
Argentina. Since the Bank reassumed direct mortgage
loan origination in September 1997, the Branch Network
has become the most important and fastest-growing
channel of distribution.
}
Prior to September 1998, Banco Hipotecario also
distributed its products through the Bank Network,
consisting of approximately 40 commercial banks that
had limited ability to establish independent mortgage
operations. BHSA is currently renegotiating the terms
and conditions with which the members of the Bank
Network are required to comply in order to offer BHSA's
products, receive commercial support, and use Banco
Hipotecario's name and trademark to promote their
mortgage activities. The Bank is expected to resume
mortgage loan origination through the Bank Network
on a limited basis in 2000.
OVERVIEW OF BUSINESS ACTIVITIES
The Bank focuses its efforts on three principal business
activities: i) lending for the purchase, construction, and
improvement of housing units; ii) underwriting
insurance related to its mortgage-lending activities;
and, iii) servicing its own and third-party mortgage loan
portfolios.
29
The Bank also acts as a disbursement agent for
provincial housing funds administered by the federal
government agency FONAVI. In addition, it provides real
estate brokerage services through its wholly owned
subsidiary, BHN Inmobiliaria S.A., and real estate
management services and appraisals through a joint
venture with Vendôme Rôme, one of France's principal
property management companies.
Subsequent to receipt of the requested approval from
the Central Bank, the International Finance Corporation
(IFC) will join as a shareholder, subscribing to newly
issued shares. Thereafter, the Bank, IRSA, and the IFC will
consider inviting a foreign strategic partner - and
attracting domestic financial entities - to participate in
BCFH as a shareholder.
On October 19, 1999, the Bank and IRSA Inversiones y
Representaciones S.A. requested the Argentine Central
Bank's authorization to create a financial institution
under the name of Banco Corporación Financiera
Hipotecaria S.A. (BCFH) for the purpose of creating and
developing a secondary mortgage market in Argentina.
DESCRIPTION OF THE MORTGAGE LOAN PORTFOLIO
As of December 31, 1999, the Bank's on-balance sheet
loan portfolio totaled Ps.4,612.6 million. The
composition of this portfolio was as follows: Ps.4,414.0
million in mortgage loans and Ps.198.6 million in other
loans. The mortgage loan portfolio was composed of:
Ps.2,181.4 million in pre-restructuring loans (of which,
Ps.2,161.6 million were individual mortgage loans and
Ps.19.8 million were loans for construction projects);
and, Ps.2,232.6 million in post-restructuring loans (of
which, Ps.1,799.1 million were individual mortgage loans,
including Ps.633.5 million of loans conveyed in a trust in
anticipation of future securitizations and Ps.433.5
million in loans for construction projects).
At the end of the fiscal year ended December 31, 1999,
the Bank's mortgage loan portfolio consisted of
Ps.3,960.7 million in individual loans (89.7 percent of the
mortgage loan portfolio recorded on the balance sheet)
and Ps.453.3 million in loans for the construction of
residential units (10.3 percent of the mortgage loan
portfolio recorded on the balance sheet).
INDIVIDUAL MORTGAGE LENDING
30
BHSA offers individual mortgage loans for the purchase,
construction, or improvement of new or existing
housing units under the "Acceso Inmediato" credit line.
The principal targets of this line are middle-income
segments of the population with annual household
incomes between Ps.12,000 and Ps.50,000. In
comparison, its competitors target their supply of credit
mainly toward the high or middle-high income sectors.
The Bank offers U.S. dollar-denominated, fixed-rate and
floating-rate (based on the LIBOR) mortgage loans with
maturities of 3-to-20 years and fixed-rate, pesodenominated loans with maturities of 3-to-15 years.
The Bank prices its products to be among the most
competitive available in the Argentine residential
mortgage market.
Approximately 75 percent of the individual loans
granted by the Bank in the fiscal year ended December
31, 1999, had an original principal balance between
Ps.10,000 and Ps.50,000.
In 1999, Banco Hipotecario introduced an innovative line
of credit for the purchase, construction, or improvement
of new or existing housing units for individual clients,
called "Credito Confianza." With Credito Confianza, the
Bank originates mortgage loans, on a limited basis,
through its Reduced Documentation Program, under
which credit-worthy borrowers can qualify with certain
documentation related to the borrower's income
waived. Financing conditions include shorter maturities
(currently up to 10 years), lower LTV ratios (currently up
to 60 percent), and higher interest rates.
The Bank also launched a "Home Equity Credit Line"
program that limits the LTV ratio to a maximum of 35
percent, with interest rates in excess of those associated
with traditional individual mortgage loans. The
structure of this home equity mortgage line is expected
to increase the Bank's profitability and minimize risk.
BHSA's individual mortgage loans are marketed
through various distribution channels: i) its 24-branch
network; ii) arrangements with selected residential
property developers; and, iii) purchase of individual
mortgage loans in the secondary market.
BHSA IS THE LEADING MORTGAGE LENDER IN
ARGENTINA, WITH PS. 4,414.0 MILLION OF
RESIDENTIAL MORTGAGE LOANS OUTSTANDING AT
DECEMBER 31, 1999,
UNDERWRITING CRITERIA - INDIVIDUAL MORTGAGE LENDING
The classification process is based on a credit-bureau
rating and "mortgage scoring." "Mortgage scoring" is
a statistical analysis used to evaluate default
probability, taking into consideration certain
characteristics of the borrower, the terms of the loan,
and the underlying property.
The Bank will lend up to a maximum of 70 percent of
the value of the property being mortgaged. In cases
where it has financed the construction, the Bank will
lend up to 80 percent of the value. In general, the
amount of financing available depends on the purpose
of the loan, with lower LTV ratios allowed - and, in many
cases, higher interest rates accorded to - second homes,
home improvements and home equity loans.
Prior to September 1998, Banco Hipotecario also
distributed its products through the Bank Network,
consisting of approximately 40 commercial banks that
had limited ability to establish the Bank's independent
mortgage operations. BHSA is currently reevaluating its
distribution channels and may resume loan origination
through the Bank Network on a limited basis in 2000.
With respect to loans originated or approved prior to
September 1998, the Bank requires Bank Network
members to comply with its underwriting,
documentation, and pricing guidelines. To the extent
that the members service the loans they originate, they
must satisfy minimum requirements as to their status,
operations, and financial position. Further, they must
provide limited guarantees for such loans.
If the Bank resumes loan origination through its Bank
Network, mortgage loan applications will be processed
in the same manner as loans originated by the Bank's
Branch Network.
The Bank originated individual residential mortgage
loans of Ps.304 million and Ps.650 million in 1999 and
1998, respectively.
The Bank's underwriting criteria also includes the
following: i) monthly installment payments may not
exceed 30 percent of the borrower's household income;
ii) continuous employment of the borrower for at least
one year and by the same employer for the six months
before submitting the application; and, iii) provision for
borrower documentation regarding personal data,
salary, and employment history. Full appraisals are
ordinarily performed on all mortgage loans.
CONSTRUCTION PROJECT LENDING
The Bank provides U.S. dollar-denominated financing for
construction projects to selected private residential
property developers primarily as a vehicle for the
origination of individual mortgage loans. Construction
loans to private developers are typically structured
through a trust.
In addition, the Bank grants loans to public sector
entities, including the Provincial Housing Institutes
(IPVs) and small municipalities. The IPV loan
agreements allow the Bank to offset the amount it
31
collects as a servicer for a province and grant
mortgages to purchasers of homes constructed
under the IPV program.
In a similar manner, the Bank makes loans to eligible
small municipalities for the construction of housing,
currently at the rate of no more than Ps.15,000 per
housing unit and usually for a maximum term of 24
months. All such loans to municipalities are secured by
a mortgage on the property and by tax revenues
collected by the province that are distributed to the
municipality.
Anticipating a sharp decrease in real state activity due
to the deep recessionary environment, the Bank
financed only one new construction project in 1999.
(That project was located in Puerto Madero and had a
high level of pre-sold units.) Construction project
disbursements for existing projects in 1999 were Ps.131
million, compared with Ps.262 million in 1998.
32
Construction project loans generally have maturities of
18 to 30 months, depending on the nature of the project,
and to reflect their increased risk, these loans carry
interest rates that are higher than those for individual
mortgages.
}
The Bank permits the use of its name and logo on
advertisements for the projects it finances and believes
this is a particularly attractive feature for developers,
given the high recognition of the Banco Hipotecario
name in Argentina.
BHSA IS THE LARGEST PROVIDER OF MORTGAGERELATED
INSURANCE
MORTGAGE SERVICER IN
AND
THE
LARGEST
ARGENTINA
The Bank has established guidelines for, among other
things, its inspectors and outside auditors who monitor
construction projects originated by private developers
as a condition for further disbursements.
MORTGAGE-RELATED INSURANCE
3.5
3.2
3.2
3.0
2.4
2.4
2.5
2.2
2.2
2.2
Individual borrowers pay insurance premiums along
with their monthly loan installments; if payments are
past due by 30 to 90 days, depending on the loan
program, the insurance may be cancelled by the Bank.
For construction project mortgages, insurance
premiums are deducted from disbursements.
2.0
1.4
1.5
As one of the conditions for extending a mortgage loan,
BHSA requires both individual and construction project
borrowers to purchase property and casualty insurance
from the Bank. Individuals must purchase life insurance
as well.
1.0
0.5
0.5
0.1
0
1995
1996
Pre-restructuring loans
1997
1998
1999
Post-restructuring loans (*)
(*) Include mortgage loans conveyed ina trust and securitized loans
Underwriting Criteria - Construction Project Lending
As of December 31, 1999, 91.2 percent of the managed
loan portfolio (based on the total principal balance of
the portfolio) was covered by life insurance issued by the
Bank. Moreover, 95.7 percent of the managed loan
portfolio (based on the number of loans) was covered by
property and casualty insurance issued by the Bank.
33
All construction project loans are subject to the Bank's
underwriting criteria, which take into account the
characteristics of the project, developer, borrower, and
guarantor, as well as the amount of the loan. Projects are
evaluated on the basis of technical, economic, financial,
and commercial considerations. Also, the developer must
contribute the land free of liens and fund at least 20
percent of the initial construction cost; the Bank will
finance the remainder. All loans from Ps.5.0 million to
Ps.10.0 million require the approval of the Corporate
Credit Committee. All loans in excess of Ps.10.0 million
must be approved by the Executive Committee.
Construction lending to public developers is secured by
a first mortgage on the land and additional guarantees.
The Bank fully assumes the risks underlying its
insurance activities. In order to reduce the level of risk,
the Bank has obtained reinsurance coverage for
earthquake damage with Swiss Re and Cologne Re for
both individuals and construction projects.
The National Superintendency of Insurance has
authorized BHN Vida S.A. and BHN Seguros Generales
S.A. - both wholly owned subsidiaries through an
intermediate holding company, BHN Sociedad de
Inversión S.A. - to operate in the life and property
insurance business, respectively.
INSURANCE LOSS RESERVES
In compliance with the Privatization Law and advised by
external actuarial consultants, BHSA establishes
reserves through a charge to income, in accordance with
regulations concerning provisions and reserves issued
by the National Superintendency of Insurance.
machine network, which currently has approximately
1,400 ATMs located throughout Argentina. Recently, the
Bank expanded its collection system, incorporating
direct debit to "Ahorro Postal" saving accounts, and to
bank accounts at any financial institution through the
National Payment System.
Third-party mortgage loans as of December 31, 1999,
As of December 31, 1999, the Bank maintained Ps.8.6
million of total insurance loss reserves.
MORTGAGE SERVICING
BHSA is the largest mortgage loan servicer in
Argentina, servicing approximately 402,000 loans as of
December 31, 1999, which include own and third-party
loan portfolios. The Bank has developed unique
capabilities for loan servicing and implemented
management information systems and procedures to
improve productivity.
34
The Bank manages loans originated through its Branch
Network, mortgages held by IPVs, and mortgage loans
that have been securitized through off-balance sheet
structures (for which it acts as master servicer). Master
servicing includes monitoring the servicing of mortgage
loans by other servicers, remitting payments and
submitting reports related to the performance of the
servicer, and the condition of the portfolio.
BHSA uses the same payment-and-collection
mechanisms and facilities to service third-party
mortgage loans that it uses to service its own portfolio.
Individuals are billed monthly and payments are
collected at the Bank's 24 branches, as well as at
approximately 2,000 collection points operated by its 50
collection agents (the Collection Network). These agents
are paid collection services fees, and funds they collect
are remitted to the Bank within three business days.
In January 1996, the Bank introduced the option of
allowing payments through the "Link" automated-teller
included approximately 8,000 securitized mortgage
loans and 176,000 IPV loans, with outstanding principal
balances of Ps.210.9 million and Ps.2,450.5 million,
respectively. The Bank intends to increase this business
by entering into servicing agreements with other IPVs.
The Bank also was servicing approximately 218,000
mortgage loans in its own portfolio, totaling Ps.4,414.0
million, as of December 31, 1999.
Fee income from servicing third-party mortgages
totaled Ps.8.8 million as of December 31, 1999, compared
with Ps.8.4 million the previous year.
OTHER SERVICES AND ACTIVITIES
The Bank distributes payments to provinces from the
federal government's housing fund (FONAVI), in
connection with public construction projects. In 1999,
commissions from this activity were Ps.4.2 million,
compared with Ps.4.9 million in 1998.
Through subsidiaries, BHSA provides real estate
management and brokerage services for properties
acquired by the Bank in foreclosure proceedings and
acts as an agent in transactions between third parties.
The Bank has established a wholly owned subsidiary,
BHN Inmobiliaria S.A., to provide real estate brokerage
services and marketing.
In October 1998, the Bank and International Vendôme
Rôme, one of France's principal property management
companies, created a joint venture - BHN-Vendôme
Rôme - to provide real estate management and
appraisal services.
Since August 1, 1999, by decision of the Federal Public
Revenues Administration (AFIP), the Bank has ceased to
act as collection agent for federal taxes payable by large
corporate taxpayers. In 1999, the Bank earned Ps.3.3
million in fee income from this activity.
SECURITIZATION ACTIVITIES
Banco Hipotecario maintains a securitization program
composed of off-balance-sheet, non-recourse, passthrough securitizations of U.S. dollar-denominated postrestructuring loans. All of the loans subject to
securitization are made to individual borrowers. Six
transactions relating to mortgage loans have been
completed, with an aggregate original principal balance
of approximately Ps.696.3 million, raising a total of
Ps.561.3 million since October 1996.
Securitization of Post-restructuring Loans to Individuals
The Bank has established four separate mortgage trusts
under the off-balance-sheet, non-recourse, passthrough securitization program. For each mortgage
trust, BHSA transfers a portfolio of post-restructuring,
U.S. dollar-denominated mortgage loans to a trustee.
The trustee then issues senior bonds, subordinated
bonds, and certificates of participation. The payment
obligation is secured by the trust assets, which consist
of the mortgage portfolio and a reserve fund
established for this purpose. Holders of the securities
have no recourse against the Bank if the trustee
defaults on its payment obligations. After the securities
are issued, the Bank no longer records the mortgage
loans conveyed to the trusts as assets.
The first mortgage trust (BHN I Mortgage Fund) was
established in October 1996, with approximately US$
93.0 million of mortgage loans and a reserve fund of
US$ 9.7 million. The second mortgage trust (BHN II
Mortgage Trust) was established in May 1997, with
approximately US$ 106.6 million of mortgage loans and
a reserve fund of US$ 1.4 million. In October 1997, the
third mortgage trust (BHN III Mortgage Trust) was
established, with approximately US$ 105.4 million of
mortgage loans and a US$ 1.4 million reserve fund. .
The total outstanding principal balance of these three
trusts was US$ 210.9 million at December 31, 1999. In
March 2000, a fourth - BHN IV Mortgage Trust - was
established, with approximately US$ 195.0 million of
mortgage loans.
The Bank acquired the subordinated bonds in three of
the four mortgage trusts and certificates of
participation in all four of them. The return on the
subordinated bonds is equal to the weighted average
interest rate earned on the securitized portfolio less
certain ongoing trust expenses. The return on the
certificates of participation is equal to the net income of
the mortgage loans (which incorporates losses on the
loans held by the trust) less the interest expense of the
senior and subordinated bonds plus other fees, taxes
and expenses.
The return on the subordinated bonds in regard to the
BHN I Mortgage Fund and the BHN II Mortgage Trust,
and on the certificates of participation for all four
mortgage trusts, are accrued until the senior bonds are
paid off. Subject to certain conditions, returns on the
subordinated bonds with respect to BHN III and BHN IV
Mortgage Trusts are paid on a current basis. Because
these securities are subordinated in right of payment to
securities that benefit from the same collateral, the
yield on such instruments is very sensitive to the rate of
principal prepayments and losses on the mortgage
loans constituting the collateral of each issue.
SECURITIZATION OF PRE-RESTRUCTURING PESO-DENOMINATED
MORTGAGE LOANS TO INDIVIDUALS
In November 1996, the Bank established an on-balancesheet, pay-through, limited-recourse securitization
program for the issuance of debt securities. Under this
program, the notes issued by the Bank granted
35
BANCO HIPOTECARIO IS THE ONLY ARGENTINE
BANK WITH A SECURITIZATION PROGRAM RATED
INVESTMENT GRADE.
noteholders recourse to funds collected from a selected
pool of pre-restructuring, peso-denominated mortgage
loans to individuals. The Bank granted a put option to all
holders of notes under this program, whereby the Bank
could be required to repurchase the notes on each
anniversary of the issue date for noteholders of the first
tranche and every two years for noteholders of the
second tranche. This put option was a general and
unsecured obligation. The Bank continues to record
mortgage loans in this program as assets.
program in November 1996, the Bank issued a first
tranche of notes totaling Ps.88.2 million. Of this, Ps.75.0
million were senior notes and Ps.13.2 million were
subordinated notes held by the Bank. In July 1997, the
Bank issued a second tranche of notes totaling Ps.108.1
million, of which, Ps.91.9 million were senior notes and
Ps.16.2 million subordinated notes held by the Bank. The
interest rate on the subordinated notes was equal to the
average interest rate earned on the securitized portfolio
less certain ongoing trust expenses.
Payments to noteholders were made from a trust that
contains the funds collected from the above mentioned
pool of pre-restructuring loans, which, at the time of the
creation of the program, had an outstanding principal
balance of Ps.196.3 million, consisting entirely of prerestructuring loans to individuals, denominated in
pesos. Simultaneous to the establishment of this
On November 25, 1998, the Bank repurchased Ps.54.5
million in notes, which represented a substantial
portion of the outstanding principal amount of the first
tranche senior notes following the exercise of the put
option by certain holders of the notes. On July 26, 1999,
the Bank redeemed all notes outstanding under this
program.
OFF BALANCE SHEET SECURITIZATION.
Date
Amount (US$MM)
Rate (1)
Spread over UST
Spread Arg. FRB over UST*
(1) Weighted average of fixed and ARs interest rates of Senior Bonds.
* Source: Bloomberg.
BHN I
BHN II
BHN III
BHN IV
Nov. 96
93
7.23%
185 bps
575 bps
May. 97
107
7.14%
150 bps
312 bps
Oct. 97
105
6.94%
159 bps
339 bps
Mar. 00
195
10.59%
400 bps
587 bps
EMPLOYEES
On December 31, 1999, the Bank had 1,474 employees:
780 at its headquarters and 694 at the 24 branches. At
that date, 1,256 employees were on permanent
contracts, while 218 were on fixed-term contracts that
may be renewed at management's discretion.
The following table sets forth the number and type of
employees as of the dates indicated.
1999
AT DECEMBER, 31
1998
1997
780
694
797
773
1.125
899
TOTAL EMPLOYEES
1.474
1.570
2.024
Permanent contract
Renewable fixed term contract
Interns
1.256
218
--
1,257
313
--
1.476
355
193
TOTAL EMPLOYEES
1.474
1.570
2.024
Headquarters
Branches
37
After the privatization in early 1999, Banco Hipotecario
implemented a new organizational structure in order
to redirect its workforce toward a more customeroriented approach. The restructuring is still under way,
as new technology is changing how operations - and
people - work. In January 2000, the Bank announced
plans to streamline its management structure by
eliminating approximately 38 mid-level positions. The
Bank currently expects to continue this restructuring to
improve productivity. As a result, the Bank likely will
establish a restructuring charge to its earnings during
the current year to cover severance and other costs
related to downsizing.
With respect to senior management, BHSA
implemented a complete "Salary Administration Policy."
This included a job evaluation process through the "Hay"
methodology," salary grades, salary bands, and a variable
pay system tied to the Bank's results, taking into
account return on equity and individual performance.
38
Currently, a strategic plan is being developed to outline
long-term human resources procedures. Various factors
will be taken into account, such as mission and values,
training and development, succession tables, key
competencies,
performance
appraisal,
salary
administration, benefits packages, communications,
sales incentives, labor climate, union relations, and
culture change.
Employees (excluding senior management and certain
other employees) are represented by a national bank
union in which membership is optional. Relations with
these employees are governed by a collective bargaining
agreement entered into on January 8, 1998. This
agreement increases the effective working day from 6
hours and 45 minutes to 9 hours, allows employee
compensation in excess of agreed minimums to be
based on performance, and reduces severance
payments in cases of dismissal without cause. Moreover,
it authorizes the Bank, in certain cases, to assign
additional or alternate duties to employees and
provides that promotions shall no longer be based on
seniority but, instead, on performance.
Pursuant to the collective bargaining agreement, the
salaries of approximately 50 percent of the employees
subject to this agreement are based on performance.
The agreement terminated on December 31, 1999, and
the Bank is renegotiating its renewal
PROPERTIES
BHSA owns the premises of 22 of its 24 offices. In
addition, to replace the Buenos Aires headquarters
building, which was transferred to the Argentine
government pursuant to privatization, BHSA purchased
and renovated a building nearby.
}
#
#
Attracting Resources
TO FUEL THE ARGENTINE MORTGAGE
MARKET GROWTH
WE ACCOMPANY EACH STAGE OF THE FAMILY LIFE.
SELECTED FINANCIAL INFORMATION
IN THOUSANDS OF PESOS, EXCEPT FOR PERCENTAGES
AS OF OR FOR THE YEAR
ENDED DECEMBER 31
1999
1998
INCOME STATEMENT DATA:
Financial income (1)
Financial expenditures (1)
Net financial income (1)
Provision for loan losses
Insurance contribution (2)
Other income from services, net (3)
Administrative expenses
Miscellaneous income, net (4)
Income tax
Ps. 463,206
(201,622)
261,584
(11,983)
50,491
14,296
(140.637)
(5,244)
(21,041)
Ps. 435,824
(135,143)
300,681
(20,928)
49,927
9,285
(144,694)
17,031
(10,040)
147,466
201,262
Ps. 108,679
62,449
58,886
2,158,641
1,562,218
193,160
65,148
(386,694)
3,592,473
1,193,620
(16,375)
55,628
124,812
Ps. 78,459
107,413
81,490
2,230,213
1,609,554
112,448
117,819
(429,095)
3,640,939
792,340
(8,239)
24,647
198,897
5,180,172
4,915,946
Ps. 132,750
1,468,518
62,368
-330,321
709.133
Ps. 241,750
1,089,536
263,151
111,171
207,936
582,118
TOTAL LIABILITIES
2,703,090
2,495,662
SHAREHOLDER’S EQUITY
2,477,082
2,420,284
NET INCOME
42
BALANCE SHEET DATA:
Assets
Cash and due from banks
Government securities
Mortgage-backed obligations (5)
Pre-Reestructuring loans (6)
Post-Reestructuring loans
Other loans
Accrued interest receivable
Reserve for loan losses
Net loans
Other receivables from financial transactions (6) (7)
Reserve for loan losses
Bank premises and equipment, net
Other assets
TOTAL ASETS
Liabilities and Shareholder’s Equity
Other banks and international entities
Bonds
Short-term notes
Borrowings secured with mortgage loans (8)
Deposits
Other liabilities (7)
NOTE: INTERESTS ACCRUED ARE SHOWN IN A SEPARATE LINE.
IN THOUSANDS OF PESOS, EXCEPT FOR PERCENTAGES
SELECTED RATIOS:
Profitability
Return on average assets
Return on average shareholder’s equity
Net interest margin (9)
Efficiency (10)
Insurance loss ratio (11)
AS OF OR FOR THE YEAR
ENDED DECEMBER 31
1999
1998
3.08%
6.00%
5.82%
37.85%
17.24%
4.49%
8.54%
7.23%
35.41%
13.32%
47.82%
Ps. 347,188
2,457,900
2,110,712
7.08 x
49.23%
Ps. 285,719
2,424,534
2,138,815
8.49 x
Assets Quality (12) (13)
Non-performing loans as a percentage of total loans
Reserve for loan losses as a percentage of total loans
Reserve for loan losses as a percentage of non-performing loans
14.57%
8.73%
59.91%
14.53%
9.78%
67.31%
PER SHARE DATA (14)
Net income per share
Book value per share
Face value date
Ps. 0.98
16.51
10.00
Ps. 1.34
16.14
10.00
Capital
Shareholders equity as a percentage of total assets
Argentine regulatory arequired capital
Argentine regulatory actual capital
Excess regulatory capital
Actual capital as a percentage of Argentine regulatory required capital
(1) Financial income principally represents income from interest on loans and other receivables from financial transactions plus gains/losses on government
securities and temporary investments, while financial expenditures mainly represent interest on deposits and other liabilities from financial transactions and
contribution, and taxes on financial income. Net financial income for the years ended December 31, 1999 and 1998 includes Ps.35.6 million and Ps.54.0 million,
respectively, of capitalized interest resulting from the application of the referential rate to performing Pre-Restructuring Loans. For the year ended December 31,
1998, net financial income included Ps.30.4 million of accrued but not collected interest on non-performing loans. - (2) Insurance premiums minus insurance claims.
For the year ended December 31, 1998, insurance contribution included Ps.4.5 million of accrued but uncollected insurance premiums on non-performing loans. (3) Income from services other than insurance premiums, minus expenditures on services other than insurance claims. For the year ended December 31, 1998, other
income from services included Ps.5.4 million accrued but uncollected loan servicing fees with respect to non-performing loans - (4) Miscellaneous income minus
miscellaneous expenses. - (5) The Bank holds subordinated bonds and certificates of participation issued in connection with its securitization activities. - (6)
Excludes mortgage-backed obligations. - (7) Includes (a) an asset of Ps.478.8 million and Ps.250.6 million for 1999 and 1998, respectively, in connection with
amounts receivable under derivative financial instruments, and (b) a liability of Ps.475.1 million and Ps.251.2 million for 1999 and 1998, respectively, in connection
with amounts payable under derivative financial instruments. - (8) The Bank had secured certain debt with peso-denominated individual Pre-Restructuring Loans.
- (9) Net financial income divided by average interest earning assets. Included in financial income are net gains/losses on government securities. - (10)
Administrative expenses divided by the sum of net financial income plus insurance contribution plus other income from services, net. Excludes severance
payments and bonuses of an aggregate of Ps.17.1 million and Ps.17.2 million in the years ended December 31, 1999 and 1998, respectively. - (11) Payments over gross
premiums. - (12) Non-performing loans include consumer loans classified under Central Bank regulations as Deficient Performance, Difficult Collection,
Uncollectible and Uncollectible for Technical Reasons and, in the case of commercial loans, classified under Central Bank regulations as Problematic, High Risk of
Insolvency, Uncollectible and Uncollectible for Technical Reasons. - (13) Total loans include accrued interest and accrued interest and other of loans in trust pending
securitization. - (14) At December 31, 1999 and 1998, 150.0 million common shares were outstanding.
43
MANAGEMENT’S
DISCUSSION AND ANALYSIS
O F F I N A N C I A L CO N D I T I O N A N D R E S U LT S O F O P E R AT I O N S
SUSPENSION OF ACCRUAL OF INTEREST AND
FEES ON NON-PERFORMING LOANS
The Bank’s policy prior to January 1, 1999, was to add
accrued interest which the borrower is not required to
pay in cash on non-performing loans to the outstanding
principal balance of such loans and to maintain reserves
for loan losses against the amounts so capitalized.
Effective January 1, 1999, the Bank discontinued the
accrual of cash and non-cash interest, insurance
premiums and commissions in respect of nonperforming loans. The Bank’s financial income continues
to include non-cash interest reflecting capitalization of
the difference between the "referential" rate and the
44
cash interest rate payable in respect of performing
loans. As a consequence of the Bank’s newly adopted
policy in respect of non-performing loans, the effect of
not accruing interest on such loans during the year
ended December 31, 1999 reduced the Bank’s financial
income by Ps.31.4 million. The effect of not accruing
insurance premiums and commissions on nonperforming loans during the year ended December 31,
1999 reduced the Bank's net contribution from
insurance by Ps.3.6 million and income from services by
Ps.1.0 million.
THE YEARS ENDED DECEMBER 31, 1999 AND 1998
The following table sets forth the principal components of the Bank’s net income for the years ended December 31,
1999 and 1998.
1999
YEAR ENDED DECEMBER, 31
% CHANGE
1998
1999/1998
(in millions of Pesos, except for percentages)
Financia income (1)
Financial expenditures
Net financial income
Provision for loan losses
Net contribution from insurance (2)
Other income from services (3)
Other expenditures on services
Administrative expenses
Miscellaneous income, net (4)
Income tax
Net income
Met interest margin (5)
Net interet spread (6)
Average rate of interest on mortgage
loan portfolio (7)
Ps. 463.2
(201.6)
261.6
(12.0)
50.5
33.0
(18.7)
(140.6)
(5.2)
(21.0)
Ps. 147.5
Ps. 435.8
(135.1)
300.7
(20.9)
49.9
30.4
(21.1)
(144.7)
17.0
(10.0)
Ps. 201.3
6.3
49.2
(13.0)
(42.7)
1.1
8.6
(11.4)
(2.8)
(130.8)
109.6
(26.7)
5.82%
0.05%
7.23%
1.65%
(141) bps
(160) bps
9.79%
10.06%
(27) bps
(1) Financial income for each years includes capitalized interest resulting from the difference between the 9% "referential" rate and the cash interest rate payable
in respect of performing Pre-Restructuring Loans. For the year ended December 31, 1998, financial income includes Ps.4.3 million of capitalized interest resulting
from the difference between the "referential" rate and the cash interest rate payable in respect of non-performing Pre-Restructuring Loans and Ps. 26.1 million past
due cash interest in respect of non-performing Pre-Restructuring and Post-Restructuring Loans, none of which are included in the comparable 1999 period.
(2) Insurance premiums less insurance claims paid. Net insurance income includes accrued but uncollected insurance premiums on non-performing PreRestructuring and Post-Restructuring Loans during 1998, which are not included in 1999.
(3) Other income from services includes accrued but uncollected servicing fees on non-performing Pre-Restructuring and Post-Restructuring Loans during 1998,
which are not included in 1999.
(4) Miscellaneous income minus miscellaneous expenses.
(5) Net income earned divided by average interest-earning assets. Net income earned is financial income less interest on deposits and other liabilities from financial
transactions.
(6) Average rate earned on interest-earning assets less interest paid on interest-bearing liabilities.
(7) Total interest earned on average Pre-Restructuring and Post-Restructuring Loans.
45
NET INCOME
#
46
The Bank’s net income for the year ended December 31,
1999 decreased 26.7% to Ps.147.5 million from Ps.201.3
million for the year ended in 1998. This decrease
mainly resulted from: (i) the suspension of accrual of
interest resulting from the difference between the
"referential" rate and the cash interest rate payable in
respect of non-performing Pre-Restructuring Loans
and interest accrued on non-performing PreRestructuring and Post-Restructuring Loans from
January 1, 1999, (ii) a 49.2% increase in financial
expenditures to Ps.201.6 million in 1999 from Ps.135.1
million in 1998 due to increased external financing
and higher interest rates resulting from adverse
conditions in the international capital markets, (iii) a
109.6% increase in income tax to Ps.21.0 million in
1999 from Ps.10.0 million in 1998, as income from loans
originated after the Bank’s privatization became
subject to such tax, (iv) an increase in provisions for
collection risk and write off of miscellaneous
receivables and (v) Ps.5.2 million accrued for the capital
stock appreciation program related with the
compensation plan for directors and senior
management. These factors were partially offset by (i)
a 6.3% increase in financial income to Ps.463.2 million
in 1999 from Ps.435.8 million in 1998 primarily due to
the increase of interest earned on Post-Restructuring
Loans as a result of larger origination of loans and (ii)
a 2.8% decrease in administrative expenses to Ps.140.6
million in 1999 from Ps.144.7 million in 1998 as a
consequence of a reduction in severance payments
and in advertising and publicity expenses.
FINANCIAL INCOME
The following table sets forth the principal components of the Bank’s financial income, average interest-earning asset
balances and average rate for the years ended December 31, 1999 and 1998.
YEAR ENDED DECEMBER, 31
1999
1998
% CHANGE
1999/1998
(in millions of Pesos, except for percentages)
Financial income (1)
Pre-reestructuring loans (1)
Post-reestructuring loans (1)
Government securities
Warehousing Facility
CMOs (2)
Cash and due from banks
Other receivables (3)
Ps. 463.2
163.8
241.5
0.2
17.3
11.7
1.0
27.7
Ps. 435.8
203.3
179.7
1.6
15.7
12.7
0.4
22.4
6.3
(19.4)
34.4
(85.3)
10.2
(8.2)
163.9
23.6
Average asset balances
Pre-reestructuring loans
Post-reestructuring loans
Government securities
Warehousing Facility
CMOs (2)
Cash and due from banks
Other receivables (3)
Ps. 4,699.8
2,147.9
1,990.6
1.5
162.0
53.4
19.4
324.9
Ps. 4,304.6
2,262.9
1,546.1
19.1
122.2
42.8
6.7
304.8
9.2
(5.1)
28.8
(92.0)
32.6
25.0
189.1
6.6
Average rate
Pre-reestructuring loans
Post-reestructuring loans
Government securities
Warehousing Facility
CMOs (2)
Cash and due from banks
Other receivables (3)
9.86%
7.63
12.13
15.04
10.70
21.84
5.04
8.53
10.12%
8.98
11.62
8.22
12.87
29.74
5.52
7.36
(0.26)
(1.35)
0.51
6.82
(2.17)
(7.90)
(0.48)
1.17
(1) Financial income includes non-cash interest reflecting capitalization of the difference between the "referential" rate and the cash interest rate payable in respect
of performing Pre-Restructuring loans for 1999 and 1998. It also includes non-cash interest related to the capitalization of the difference between the "referential"
rate and the cash interest rate payable in respect of non-performing Pre-Restructuring Loans and the cash interest rate payable in respect of non-performing PreRestructuring and Post-Restructuring Loans in 1998. As a consequence of the Bank’s newly adopted policy in respect of non-performing loans, the effect of not
accruing interest on such loans during the year ended December 31, 1999 reduced the Bank’s financial income by Ps.31.4 million.
(2) Represents income from certificates of participation and subordinated bonds issued by the Bank under financial trusts.
(3) Includes interbank loans, amounts receivable under reverse repurchase agreements, equity swap and other loans.
47
Effective January 1, 1999, the Bank suspended the
accrual of interest resulting from (i) the capitalization of
the difference between the "referential" rate and the
cash interest rate payable in respect of non-performing
Pre-Restructuring Loans and (ii) cash interest on nonperforming individual Pre-Restructuring and PostRestructuring Loans. For the year ended December 31,
1999 and 1998, financial income includes Ps.35.6 million
and Ps. 54.0 million, respectively, of non-cash interest
resulting from the difference between the "referential"
rate and the cash interest rate in respect of performing
Pre-Restructuring Loans. In 1998, financial income
included Ps.4.3 million of non cash-interest resulting
from the difference between the "referential" rate and
the cash interest rate in respect of non-performing PreRestructuring Loans, and Ps.26.1 million of cash interest
payable on non-performing loans.
48
The Bank’s financial income increased 6.3% to Ps.463.2
million in 1999 from Ps.435.8 million in 1998. This
increase was primarily the result of (i) a Ps.61.8 million
increase in financial income from Post-Restructuring
Loans, (ii) Ps.1.6 million from collections on PostRestructuring Loans transferred to the Warehousing
Facility which the Bank entered into on January 6,
1999 with Credit Suisse First Boston Mortgage Capital
LLC, pursuant to which the Bank may, from time to
time, sell debt securities to Credit Suisse First Boston
in an aggregate principal amount not to exceed
US$150.0 million ("the Warehousing Facility") under
which no amounts were outstanding as of December
31, 1999 and (iii) a Ps.5.3 million increase in incomes
from Other Receivables. This increase was partially
offset by a reduction in interest from Pre-Restructuring
loans, mainly due to the suspension of the accrual of
interest on non-performing loans.
Income from Post-Restructuring Loans increased 34.4%,
to Ps.241.5 million in 1999, from Ps.179.7 million in 1998
primarily as a result of a 28.8% increase in the average
balance of Post-Restructuring Loans to Ps.1,990.6 million
in 1999 from Ps.1,546.1 million in 1998, and to a lesser
extent due to an increase of 51 bps. in the average
interest rate earned on those loans, to 12.13% in 1999
from 11.62 % in 1998. The increase of 28.8% in the
average balance of Post-Restructuring Loans mainly
resulted from loan originations under the “Acceso
Inmediato” (Immediate Access) line and construction
project loans. The Bank originated Ps.304.2 million in
individual Post-Restructuring Loans and Ps.131.3 million
in Post-Restructuring Loans for construction projects in
1999. The increase in average Post-Restructuring Loans
resulting from originations was offset by transfers of
loans by the Bank to the Warehousing Facility in 1999, of
Ps.162.0 million in 1999, and Ps.122.2 million in 1998,
under which no amounts were outstanding as of
December 31, 1999 and 1998. The increase in average
interest rates on Post-Restructuring Loans to 12.13% in
1999 from 11.62% in 1998 was the result of higher rates
on loans originated by the Bank and was partially offset
by the Bank’s suspension of accrual of interest on nonperforming loans effective January 1, 1999. The average
outstanding balance of Post-Restructuring Loans
represented 44.2% of the Bank’s average loan portfolio
for 1999 and 36.7% for 1998.
Income from Pre-Restructuring Loans, including
capitalized interest and capitalized and accrued
interest on non-performing loans for 1998, decreased
to Ps.163.8 million in 1999 from Ps.203.3 million in
1998. This was the result of a reduction in average
balances of Pre-Restructuring Loans to Ps.2,147.9
million in 1999 from Ps.2,262.9 million in 1998,
together with a reduction of the average interest rate
on such loans (due to the suspension of capitalization
and accrual of interest on non-performing loans in the
year ended December 31, 1999), to 7.63% in 1999 from
8.98% in 1998. The reduction in the average balance of
Pre-Restructuring Loans resulted from the normal
repayment of loans and a Ps.51.2 million charge-off in
December 1998 of loans more than 30 months past
due. The reduction in the average balance of PreRestructuring Loans was slightly offset by an increase
of Ps.35.6 million in the principal balance of PreRestructuring Loans due to the capitalization of
interest related to the referential rate on performing
loans. The average outstanding balance of PreRestructuring Loans represented 47.6% of the Banks
average loan portfolio for 1999, and 53.7% for 1998.
Although the average rate earned by the Bank on loans
for the year ended December 31, 1999 and 1998 reflects
the accrual of the 9% "referential" rate on most PreRestructuring Loans to individuals, the average cash
interest rate paid on such loans during 1999 and 1998
was 6.9% and 6.3%, respectively.
Income from CMOs decreased 8.2% to Ps.11.7 million in
1999 from Ps.12.7 million in 1998 as a result of lower
income from subordinated bonds and certificates of
participation retained by the Bank in connection with
the BHN I, BHN II and BHN III Trust securitizations.
49
FINANCIAL EXPENDITURES
The following table sets forth information regarding the Bank’s financial expenditures, the average balances of the
Bank’s interest-bearing liabilities and the average interest rates paid for the years ended December 31, 1999 and 1998.
YEAR ENDED DECEMBER, 31
1999
1998
% CHANGE
1999/1998
(in millions of Pesos, except for percentages)
Ps. 201.6
146.7
Ps. 135.1
82.4
49.2
78.1
7.4
3.2
16.3
11.8
12.5
3.7
6.3
10.4
19.9
10.5
2.3
3.4
19.0
(69.1)
(18.1)
12.4
7.2
Average Balances
Bonds and short-term notes
Borrowing under repurchase agreements
collateralized by mortgage loans (1)
Borrowing secured with mortgages loans
Borrowing from banks (2)
Time deposits
Other (3)
Ps. 1,934.8
1,384.2
Ps. 1,471.1
897.0
31.5
54.3
94.3
42.8
169.7
146.2
97.6
90.2
139.1
220.7
25.5
98.6
4.6
(69.3)
(23.1)
NM
(1.0)
Average Rates
Bonds and short-term notes
Borrowing under repurchase agreements
collateralized by mortgage loans (1)
Borrowing secured with mortgages loans
Borrowing from banks (2)
Time deposits
Other (3)
9.81%
10.60
8.47%
9.18
1.34
1.42
7.89
7.52
9.63
8.54
3.77
6.93
7.48
9.04
8.84
3.48
0.96
0.04
0.59
(0.30)
0.29
Financial Expenditures
Bonds and short-term notes
Borrowing under repurchase agreements
collateralized by mortgage loans (1)
Borrowing secured with mortgages loans
Borrowing from banks (2)
Contribution and taxes on financial income (3)
Time deposits
Other (4)
50
(1) Includes reverse repurchase agreements in connection with the transfer of mortgage loans to a funding trust in anticipation of future securitizations.
(2) Includes (i) interest on debt to Banco Nación to finance an extraordinary income distribution to the Argentine government in connection with the conversion
from Banco Hipotecario Nacional to Banco Hipotecario S.A. and (ii) interest on interbank loans.
(3) Contributions and taxes on financial income are not included in the calculation of average rates.
(4) Includes savings accounts, checking accounts, other deposits and an equity swap.
The Bank’s financial expenditures increased 49.2% to
Ps.201.6 million in 1999 from Ps.135.1 million in 1998. The
increase in financial expenditures resulted from an
increase in the average interest-bearing liabilities to
Ps.1,934.8 million in 1999 from Ps.1,471.1 million in 1998
and an increase in average interest rates of 134 bps. to
9.81% in 1999 from 8.47% in 1998. The increase in average
balances resulted from the issue of bonds and floating
rate notes and time deposits which was partially offset
by a reduction in average balances of mortgage bonds
secured with mortgage loans. The increase in average
rates resulted from higher rates on the new issue of
bonds and floating rate notes and higher rates of the
Banco Nación debt and other debt from banks.
Interest on borrowings from banks decreased 18.1% in
1999 to Ps.16.3 million from Ps.19.9 million in 1998 as a
result of lower average balances of the debt with
Banco Nación and other interbank loans to Ps.169.7
million in 1999 from Ps.220.7 million in 1998 partially
offset by an increase in the average rate of such debt
to 9.63% in 1999 from 9.04% in 1998. The higher
average rate resulted primarily from the renegotiation
by the end of 1997 of a note in the amount of Ps.270.0
million payable to Banco Nación to finance the
remaining balance of a distribution of Ps.280.0 million
to the Argentine government required by the
Privatization Law, that was rescheduled in September
1998, and funding requested to others banks. On
October 16, 1998 the Bank refinanced the Banco
Nación loan through a US$135.0 million bank loan
repayable in 36 monthly installments, accruing an
interest rate of 3.5% over the average interest rate
published by the Central Bank for short-term dollardenominated time deposits.
Interest expense from bonds and floating rate notes
increased 78.1% to Ps.146.7 million in 1999 from Ps.82.4
million in 1998 as a result of a 54.3% increase in the
average balance, to Ps.1,384.2 million in 1999 from
Ps.897.0 million in 1998. This effect was associated with
an increase of 142 bps. in the average interest rate to
10.60% in 1999 from 9.18% in 1998. Both effects resulted
from the issuance of an aggregate face value of
US$580.9 million in notes.
Interest on borrowings secured with mortgage loans
decreased 69.1% to Ps.3.2 million in 1999 from Ps.10.4
million in 1998 due to the redemption of face value
Ps.69.0 million of Series 1 mortgage bonds in November
1998 pursuant to the Bank’s peso-denominated
securitization program and the repurchase in July 1999
of Ps.73.6 million, corresponding to the outstanding
amount of Class A Senior Bonds of Series 1 and 2.
Interest on reverse repurchase agreements increased 19.0%
to Ps.7.4 million in 1999 from Ps.6.3 million in 1998 due to
the transfer of mortgages to the Warehousing Facility.
During 1999 the Bank obtained new financing resources
through time deposits. Interest in time deposits
increased to Ps.12.5 million in 1999, from Ps. 2.3 in 1998
and the average balance increase to Ps.146.2 million in
1999 from Ps.25.5 million in 1998.
The increase in financial expenditures in 1999 also reflects
the increased level of contributions and taxes on financial
income. Contributions and taxes increased 12.4% to Ps.11.8
million in 1999 from Ps.10.5 million in 1998. This increase
was primarily due to higher gross revenue taxes resulting
from higher financial income from loans.
51
NET FINANCIAL INCOME
The Bank’s net financial income decreased 13.0% to
Ps.261.6 million in 1999, from Ps.300.7 million in 1998.
This decline was primarily the result of (i) an increase in
financial expenditures related to external financing
under the Note Program, (ii) a reduction in income on
Pre-Restructuring Loans mainly due to the suspension,
effective January 1, 1999, of the accrual of non-cash
interest between the "referential" rate and the cash
interest rate payable on non-performing loans and the
suspension of cash interest accrued on non-performing
Pre- and Post-Restructuring Loans. This decrease was
partially offset by an increase in income from PostRestructuring Loans.
PROVISION FOR LOSSES ON LOANS
The following table sets forth the Bank’s provision for loan losses for the years ended December 31, 1999 and 1998.
1999
YEAR ENDED DECEMBER, 31
1998
% CHANGE
1999/1998
(in millions of Pesos, except for percentages)
Reserve for emergency economic conditions
Other
TOTAL
Charge-offs
Ps. 4.0
7.9
Ps. 2.9
18.0
37.8
(55.8)
12.,0
20.9
(42.7)
Ps. 38.3
Ps. 108.3
(64.6)
52
Under the Bank’s prior charter and under the
Privatization Law the Bank is required to set aside 2.0%
of its annual cash interest income to subsidize the
repayment of loans for borrowers adversely affected by
emergency economic conditions. The provision in
connection with this requirement amounted to Ps.4.0
million in 1999 and Ps.2.9 million in 1998.
NET CONTRIBUTION FROM INSURANCE
The following table sets forth the principal components
of the Bank’s net contribution from insurance for the
years ended December 31, 1999 and 1998.
1999
YEAR ENDED DECEMBER, 31
1998
% CHANGE
1999/1998
(in millions of Pesos, except for percentages)
Insurance premiums
Life
Property damage
Unemployment
Ps. 37.5
20.7
2.9
Ps. 34.7
21.1
1.8
7.8
(1.8)
59.7
TOTAL PREMIUS
Ps. 61.0
Ps. 57.6
5.9
Insurance claims paid
Life
Property damage
Unemployment
Ps. (8.5)
(0.9)
(1.1)
Ps. (6.9)
(0.4)
(0.4)
23.2
125.6
198.7
Ps. (10.5)
Ps. (7.7)
37.2
Ps. 50.5
Ps. 49.9
1.1
TOTAL CLAIMS PAIS
Net contribution from insurance
The Bank’s net contribution from insurance increased 1.1%
to Ps.50.5 million in 1999 from Ps.49.9 million in 1998.This
increase was primarily the result of increased premiums
across the Bank’s entire range of insurance products and
a larger proportion of premiums related to PostRestructuring Loans.This increase was partially offset by a
37.2% increase in insurance claims to Ps.10.5 million in
1999 from Ps.7.7 million in 1998, principally due to higher
life insurance claims. During the years 1999 and 1998, the
Bank set up reserves in the amount of Ps.1.3 and Ps.6.2
million, respectively, to cover the Superintendency of
Insurance’s requirements for incurred but not reported
claims, outstanding claims and unearned premiums.
Effective January 1, 1999, the Bank suspended the accrual
of insurance premiums on non-performing loans. The
effect of not accruing insurance premiums on nonperforming loans during 1999 reduced the Bank’s net
contribution from insurance by Ps.3.6 million.
Net contribution from insurance in 1998 included Ps.4.5
million of accrued but not collected insurance premiums
on non-performing loans. During the year ended
December 31, 1998, the Bank allocated a portion of its
reserve for loan losses against such accruals rather than
charging them to income.
OTHER INCOME FROM SERVICES
The following table includes the principal components of
the Bank’s other income from services rendered for the
years ended December 31, 1999 and 1998.
53
1999
YEAR ENDED DECEMBER, 31
1998
% CHANGE
1999/1998
(in millions of Pesos, except for percentages)
Commissions
Loans servicing fees from third parties
AFIP commissions
FONAVI commissions
Other commissions
Ps. 8.8
3.3
4.2
0.8
8.4
5.0
4.9
1.0
5.0
(34.5)
(14.6)
(26.3)
TOTAL COMMISSIONS
17.1
19.4
(11.9)
Recovery of loan expenses
Others
13.9
2.0
9.2
1.8
51.1
10.6
TOTAL OTHER
15.9
11.0
44.5
Ps. 33.0
Ps. 30.4
8.6
TOTAL
54
The Bank’s other income from services increased 8.6%
to Ps.33.0 million in 1999 from Ps.30.4 million in 1998.
This increase was primarily caused by larger recoveries
of loan expenses from third parties as a result of
improved collection efforts, partially offset by lower
AFIP commissions due to the termination of the Bank’s
appointment as tax collector.
Effective January 1, 1999, the Bank suspended the
accrual of loan servicing fees on non-performing loans
which reduced income from services for the year ended
December 31, 1999 by Ps.1.0 million.
Other income from services in 1998 includes Ps.5.4
million of accrued but uncollected income from
services on non-performing loans. During 1998, the
Bank allocated a portion of its reserve for loan losses
against such accrual instead of making additional
charges to income.
OTHER EXPENDITURES ON SERVICES
The following table includes the principal components of the Bank’s other expenditures on services for the years
ended December 31, 1999 and 1998.
1999
YEAR ENDED DECEMBER, 31
1998
% CHANGE
1999/1998
(in millions of Pesos, except for percentages)
Commission
Structuring and underwriting fees
Bank Network originations
Collections
Banking services
Other
TOTAL
Contributions and taxes on income from services
TOTAL
The Bank’s other expenditures on services decreased
11.4% to Ps.18.7 million in 1999 from Ps.21.1 million in
1998. The main changes relate to lower commissions
paid in connection with originations from the Bank
Network and banking services partially offset by higher
bond structuring and underwriting commissions paid
as a result at higher external financing.
ADMINISTRATIVE EXPENSES
The following table sets forth the principal components
of the Bank’s administrative expenses for the years
ended December 31, 1999 and 1998.
Ps. 6.4
1.9
3.0
3.7
1.3
Ps. 4.7
4.1
2.7
4.4
2.7
35.0
(54.3)
10.2
(16.4)
(50.8)
16.3
18.7
(12.9)
2.4
2.4
(0.2)
Ps. 18.7
Ps. 21.1
(11.4)
55
1999
YEAR ENDED DECEMBER, 31
1998
% CHANGE
1999/1998
(in millions of Pesos, except for percentages)
Salaries and social security contributions
Severance payments
Bonuses
Advertising and publicity
Nonrecoverable VAT and other taxes
Fees and external administrative services
Maintenance and repair
Electricity and communications
Depreciation of bank premises and equipment
Amortization of organizational expenses
Other employees services
Insurance and security expenses
Other
TOTAL
56
The Bank’s administrative expenses decreased 2.8% to
Ps.140.6 million in 1999 from Ps.144.7 million in 1998,
primarily due to (i) a reduction in severance payments to
Ps.6.8 million in 1999 from Ps.16.6 million in 1998, as a
result of the restructuring process implemented by the
Bank since its privatization; (ii) a decrease in taxes
related to the portion of VAT fiscal credit charged by the
Bank to income in connection with lower expenses; and
(iii) lower expenses in advertising and publicity as a
result of decline in loan originations. This decrease was
partially offset by (i) personnel bonuses, included the
accrual of the deferred expense of Ps.5.2 million in the
Ps. 62.9
6.8
10.3
3.6
8.6
11.5
4.1
6.9
4.7
3.8
6.8
3.4
7.1
Ps. 64.0
16.6
0.7
10.4
11.5
10.1
3.9
5.5
3.4
1.7
4.9
3.3
8.7
(1.7)
(59.0)
NM
(65.4)
(24.7)
13.2
4.9
27.0
37.9
124.3
40.3
3.1
(18.6)
Ps. 140.6
Ps. 144.7
(2.8)
incentive compensation plan for directors and senior
management; (ii) higher fees paid to third parties due to
the Bank’s privatization in the first quarter of 1999; and
(iii) an increase in employees’ training and other related
expenses.
MISCELLANEOUS INCOME
The following table sets forth the Bank’s
miscellaneous income for the years ended December
31, 1999 and 1998.
1999
YEAR ENDED DECEMBER, 31
1998
% CHANGE
1999/1998
(in millions of Pesos, except for percentages)
Penalty interest
Rental income
Reversal of reserve for loan losses
Reversal of reserve for contingencies and miscellaneous receivables
Loan loss recoveries
Other
TOTAL
Ps. 9.8
1.3
7.9
3.3
6.0
Ps. 12.1
1.3
4.6
1.6
9.4
2.1
(19.6)
(2.8)
73.8
NM
(65.0)
184.3
Ps. 28.3
Ps. 31.1
(9.0)
The Bank’s miscellaneous income decreased 9.0% to
Ps.28.3 million in 1999 from Ps.31.1 million in 1998
primarily as a result of lower penalty interest charged on
mortgage loans as a consequence of improved collections
by the Bank in 1999, and the decrease in loan loss
recoveries and the reversal of reserve for contingencies
and miscellaneous receivables.
MISCELLANEOUS EXPENSES
The following table sets forth the principal components
of the Bank’s miscellaneous expenses for the years ended
December 31, 1999 and 1998.
1999
YEAR ENDED DECEMBER, 31
1998
% CHANGE
1999/1998
(in millions of Pesos, except for percentages)
Provision for insurance contingencies
Provision for lawsuits contingencies
Provision for other contingencies and miscellaneous receivables
Gross revenue tax
Other
TOTAL
Ps. 1.3
3.8
18.7
0.9
8.8
Ps. 6.2
2.1
0.8
1.1
3.9
(78.8)
81.9
NM
(15.3)
124.9
Ps. 33.5
Ps. 14.1
138.5
The Bank’s miscellaneous expenses increased 138.5% to Ps.33.5 million in 1999 from Ps.14.1 million in 1998. This
increase was primarily the result of (i) Ps.14.8 million increase during 1999 in provision for collection risk and write off
of miscellaneous receivables to cover old outstanding balances; and (ii) the creation of provisions for lawsuit
contingencies due to the filing of certain labor lawsuits against the Bank. This increase was partially offset by a
decrease in provision for insurance contingencies.
57
INCOME TAX
The following table sets forth the principal components of the Bank’s income tax for the years ended December 31,
1999 and 1998.
1999
YEAR ENDED DECEMBER, 31
1998
% CHANGE
1999/1998
(in millions of Pesos, except for percentages)
TOTAL INCOME BEFORE TAXES
Taxable income
Income taxes
Income taxes as a percentage of:
- TOTAL TAXABLE INCOME
- TOTAL INCOME BEFORE TAXES
Income tax increased in 1999 principally due to
taxable income over loans originated or funded
pursuant to commitments after October 23, 1997
which are subject to income tax.
58
Non-taxable net income totaled Ps.108.4 million and
Ps.182.6 million for 1999 and 1998, respectively. This
income for both years includes the following items: (i)
financial income from Pre-Restructuring Loans of Ps.164.1
million and Ps.196.5 million, respectively, (ii) financial
income from Post-Restructuring Loans of Ps.127.1 million
and Ps.157.3 million, respectively, (iii) financial income from
CMOs of Ps.9.4 million and Ps.14.2 million, respectively, (iv)
net contribution from insurance of Ps.49.7 million and
Ps.27.8 million, respectively, less (v) approximately Ps.372.3
million and Ps.289.6 million, respectively, in expenses not
directly attributable to non-taxable revenues.
Ps. 168.5
Ps. 211.3
(20.3)
60.1
21.0
28.7
10.0
109.6
109.6
35.0%
35.0%
-
12.5
4.8
770 bps
For the purposes of calculating taxable income, all
expenses that are not directly attributable to exempt or
non-exempt taxable revenues, including funding costs
and overhead expenses, are allocated and applied to
exempt and non-exempt revenues in the same
proportion as such exempt and non-exempt income
represents in the Bank’s overall income, while expenses
that are directly attributable to exempt or non-exempt
taxable income are allocated accordingly.
FUNDING
The Bank finances its lending operations mainly
through the issuance of bonds, floating rate notes,
commercial papers, repos of mortgage trust certificates
of participation in the international and domestic
capital markets; and medium term deposits from
institutional investors.
Bank raised funds in the international and domestic capital
markets for a total aggregate amount close to Ps. 1 billion,
through the issuance of bonds by Ps.256 million, floating
rate securities by Ps.100 million, interbank loans by Ps.110
million, commercial papers by Ps.225 million, Ps.201 million
in medium term institutional time deposits and Ps.135
million through repo transactions of mortgage trust
certificates of participation.
Besides, the Bank has established a pass-through
securitization program, under which transferred since
1996, through off-balance sheet structures, Ps.305.0
million of individual post-restructuring mortgage loans.
Additionally, on March 2000 the Bank issued its fourth
mortgage trust (BHN IV) with approximately US$195
million of individual post-restructuring mortgage loans.
During February and March 2000, the Bank issued two
Corporate Bonds. On February 17, 2000 a 12.625% note
due 2003 for an aggregate amount of US$125 million;
this represents the first medium term issue from an
Argentine corporate in US dollars issuer since June 1999,
and on March 16, 2000 a Euro100 million, 9% interest
rate bond due 2002.
Funding increased 4.0% to Ps.1,988.4 million as of
December 31, 1999 compared to Ps.1,912.0 million of the
same period of the previous year.
In addition, during November 1999 and January 2000,
the Bank repurchased Ps.30.4 million of different notes
due or with a put option in favor of the Noteholders
exercisable in 2000 in the open-market. This decision
improved the debt maturity profile and reduced the cost
of funding of the Bank.
During 1999, in spite of the financial crisis that has directly
affected emerging market issuers since August 1998, the
1999
YEAR ENDED DECEMBER, 31
1998
% CHANGE
1999/1998
(in millions of Pesos, except for percentages)
Deposits
Bonds
Borrowings collateralized by mortgage loans
Borrowings from banks and international entities
Floating rate notes
TOTAL
Ps. 324.8
1,468.5
132.7
62.4
Ps. 206.4
1,089.5
111.2
241.7
263.2
57.4
34.8
NM
(45.1)
(76.3)
Ps. 1,988.4
Ps. 1,912.0
4.0
59
Set forth below are the maturities of the Bank's sources of funding at December 31, 1999, without
consideration of the redemption options which may be exercised on August 8, 2000 and December 3, 2001
in respect of Series 3 Euro Medium-Term Note ("EMTN") Program Notes and Series 4 Global MTN Program
Notes, respectively.
2000
2001
2002
2003
THEREAFTER
(in million of Pesos)
Bonds
Borrowings from banks and international entities
Floating rate repurchase agreements
collateralized by mortgage loans
Deposits
Ps. 455.1
99.0
Ps. 343.9
33.7
Ps. 99.1
-
Ps. 298.0
-
Ps. 272.5
-
62.4
264.8
60.0
-
-
-
TOTAL
Ps. 881.2
Ps. 437.6
Ps. 99.1
Ps. 298.0
Ps. 272.5
ASSET & LIABILITY MANAGEMENT
60
A principal objective of the management of assets and
liabilities is to control the Bank's exposure to market
risks including interest rate, currency and risks. The
Bank’s asset and liability structure is designed to
optimize long and short-term net financial income,
while minimizing market risks and associated
earnings volatility. Following the ongoing worldwide
financial instability, the asset and liability
management of the Bank has been focused on
preventing any mismatches and seeking to meet the
Bank’s cash flow needs. The Bank's finance committee,
which is chaired by the Bank’s Chairman and
comprised of two Executive Directors and the Chief
Financial Officer, meets weekly to monitor positions on
an on-going basis and implement the policies set by
the Bank’s Board of Directors.
#
INTEREST RATE SENSITIVITY
A key element of the Bank’s assets and liability policy is
the management of interest rate sensitivity. Interest
rate sensitivity measures the change in net financial
income as assets and liabilities reprice following a
change in market interest rates. An asset and liability
structure is matched when an equal amount of assets
and liabilities reprice as a result of a change in interest
rates. Any difference between repricing assets and
liabilities results in a gap or mismatch and a change in
net financial income when interest rates change. As a
result of the adverse effects of the worldwide financial
instability on the Bank’s ability to access the capital
markets and the adverse effects that such instability
may have on the Bank’s cost of future funding, the Bank
has increased borrowers aggregate financial cost for
new loans by approximately 150 bps. through an
increase in administrative fees and insurance premiums
on new originations after December 1998.
62
#
The Bank faces interest rate sensitivity due to the fact
that a significant portion of its borrowings from other
banks and international entities will mature in three to
five years and its loan portfolio consists of mortgage
loans with longer maturities. Although no assurance
can be given as to the Bank’s interest rate sensitivity, the
Bank believes that this risk is reduced to some extent by
its equity base, the expected increase in the cash
interest rate payable on Pre-Restructuring Loans at the
"referential rate", and the average maturity of its
portfolio of individual Post-Restructuring Loans.
The following table shows the Bank’s interest-earning
assets and interest-bearing liabilities positions by
repricing period as of December 31, 1998. The table
shows that an increase in short-term interest rates (less
than twelve months) results in a reduction in the Bank’s
net interest income as a higher amount of liabilities
than assets reprice, while a decrease in short-term
interest rates has the opposite effect.
In million of Pesos, except for percentages
AS OF DECEMBER 31, 1999
IMMEDIATLY 1 THROUGH 6 6 THROUGH
MONTHS
12 MONTHS
1 THROUGH 3 3 THROUGH 5
YEARS
YEARS
5 TO 10
10 TO 15
15 TO 20
NON
YEARS
YEARS
YEARS
RATES
TOTAL
SENSITIVE
Interest-earning assets
Cash and due from banks
Government securities
Loans (net of reserves)
Pre-reestructuring
loans-individual mortgage
Pre-reestructuring
loans-construction projects
Pre-reestructuring
loans-individual mortgage
Pre-reestructuring
loans-construction projects
Other loans
Loan Trust
Other receivables
from financial transactions
93,4
62,4
-
-
-
-
-
-
-
15,3
-
108,7
62,4
7,9
39,4
46,9
189,7
189,4
461,4
397,9
513,2
-
-
-
-
-
-
-
-
5,3
26,5
33,3
148,2
160,2
389,6
241,8
119,5
33,7
75,7
2,7
72,2
3,0
13,5
39,9
5,1
16,8
96,2
24,5
74,4
11,6
83,1
33,8
230,7
24,5
152,0
15,0
35,2
86,1
2,1
328,0
193,2
610,4
-
-
-
16,0
-
-
36,3
22,6
21,5
96,4
TOTAL INTEREST
EARNING ASSETS
281.1
154.6
142.1
548.9
444.2
1.115.5
852.6
705.5
Cumulative interest
earning assets
281.1
435.7
577.8
1,126.7 1,570.8
2,686.4
3,538.9
26,8 1.872,7
6,7
6,7
2,3 1.126,8
160.8 4.405.2
4,244.4 4,405.2
Interest-Bearing liabilities
Bonds
Floating rates notes
Other banks and
international entities
Deposits
-
275,0
-
189,0
63,0
739,5
-
-
275,0
-
-
-
-
1.478,5
63,0
3,8
151,5
20,3
35,4
75,0
77,9
33,8
60,0
-
-
-
-
-
132,8
324,8
TOTAL INTEREST
BEARING LIABILITIES
155,3
330,6
404,9
833,3
-
275,0
-
-
- 1.999,0
Assets/liabilities gap
125.8
(176.0) (262.9)
(284.4)
444.2
840.5
852.6
705.5
160.8 2,406.1
Cumulative gap
125.8
(50.2) (313.0)
(597.4) (153.2)
687.3
Ratio of cumulative gap to
cumulative total interest
earning assets
63
45%
(12)%
(54)%
(53)%
(10)%
26%
1,539.9 2,245.3 2,406.1
44%
53%
55%
-
-
The Bank’s exposure to foreign currency fluctuations
arises from its foreign currency-denominated assets
and liabilities. At December 31, 1999, the Bank’s total
foreign currency- denominated liabilities were
Ps.2,354.2 million, all of which were U.S. dollar
obligations or had been swapped into U.S. dollar
obligations, while the Bank's U.S. dollar-denominated
assets were Ps.2,433.2 million.
LIQUIDITY
The Bank’s general policy is to maintain liquidity
adequate to meet its operational needs. The Central
Bank’s liquidity regulations require that a liquid reserve
of 10.0% to 20.0% of liabilities with a maturity of less
than one year be maintained at any time.
64
The Bank’s liquidity ratio (liquid assets, comprising
cash and due from banks and government securities
to deposits as of December 31, 1999 was 51.81% which
the Bank believes is adequate. Due to the Bank’s low
level of deposits, the Bank believes that a comparison
of such liquidity ratio with that of typical commercial
banks is not appropriate. At December 31, 1999, the
Bank’s deposits amounted to Ps.330.3 million and its
liquid assets consisted of cash and due from banks of
Ps.108.7 million and Argentine government securities
of Ps.62.4 million.
The Bank’s principal uses of cash relate to the
disbursement of new loans, interest payments on the
Bank’s debt and administrative expenses. The Bank’s
most important sources of cash are loan collections and
revenues from its insurance and servicing activities. At
December 31, 1999, the Bank had an aggregate of
Ps.881.2 million of maturities due within twelve months,
including Ps.264.8 million of deposits maturities, and an
additional Ps.100.0 million subject to put at the option
of note or bond holders.
CAPITAL EXPENDITURES
In 1999, capital expenditures amounted to Ps.8.0
million compared to Ps.17.3 million in 1998. In 1999,
principal investments related to improvements being
made to and the purchases of equipment and furniture
for the Bank's new headquarters building and to
complete ongoing Post-Restructuring construction
projects. In 1998, the Bank had capital expenditures of
Ps.17.3 million related primarily to improvements being
made to and the purchase of equipment and furniture
for its new building.
Capital expenditures during 1999 and 1998 were
financed by the Bank’s operations.
The amounts of expenditures for each principal
investment were as follows:
AT DECEMBER, 31
1999
1998
(in million of Pesos)
New headquarters building
Completion expense of construction projects in default (1)
OTHER
PS. 2.4
1.0
4.6
PS. 8.7
2.6
6.0
TOTAL
PS. 8.0
PS. 17.3
(1) These capital expenditures relate to disbursements on construction projects assumed by the Bank after default by the borrower. These projects are in the final
stages of construction and the bank intends to sell the housing units to individual purchasers.
ASSET QUALITY
The ratio of non-performing loans in the individual postrestructuring portfolio improved 90bps and to 3.1%,
compared to 4.0% as of December 31 1998
The ratio of non-performing loans in the prerestructuring portfolio decreased 220bps to 21.1% from
23.3% as of December 31, 1998.
The non-performing loans ratio for the postrestructuring construction projects portfolio was 29.2%,
compared to 10.0% as of December 31,1998. This
increase reflects the policy established by the Board of
Directors to downgrade those projects that could have
difficulties in selling the units.
remaining almost unchanged from 14.5% as of
December 31, 1998, while the ratio of total non
performing financing to total financing improved 10bps
to 14.5% from 14.6% at December 31, 1998.
The significant improvements in the asset quality of the
pre-restructuring and post-restructuring individual
portfolios, which represent almost 90% of the loans
recorded on balance sheet, are a consequence of the
active delinquency management policy put into effect
during this year and the new information systems by
the Bank.
The level of coverage of reserves for loan losses over
non-performing loans amounted to 59.9% as of
December 31, 1999, compared to 67.3% as of December
31, 1998.
Furthermore, the total ratio of non-performing loans
over total loans as of December 31, 1999 was 14.6%,
YEAR ENDED DECEMBER, 31
1999
% CHANGE
1998
1999 / 1998
(in millions of Pesos, except for percentages)
4,612,649
4,470,416
3,18 %
TOTAL NON-PERFORMING LOANS
672,741
649,691
3,55 %
NON-PERFORMING LOANS / TOTAL LOAN PORTFOLIO
14.58 %
14.53 %
5 bps
21.1 %
23.3 %
(220) bps
9.1 %
5.2 %
390 bps
3.1 %
4.0 %
(90) bps
29.2 %
10.0 %
1920 bps
(437,334)
(529,294)
(17.37) %
(4,034)
38,299
(16,355)
108,315
(75.33) %
(64.64) %
(403,069)
(437,334)
(7.83) %
59.9 %
8.7 %
67.3 %
9.8 %
(740) bps
(110) bps
TOTAL LOAN PORTFOLIO (before reserves)
Non performing pre-restructuring loans /
Total pre-restructuring loan portfolio
Non performing post-restructuring loans /
Total post-restructuring loan portfolio
Non performing post-restructuring loans-individual mortgages /
Total post-restructuring loan portfolio-individual mortgages
Non performing post-restructuring loans-construction projects /
Total post-restructuring loans - construction projects
RESERVE FOR LOAN LOSSES (at the begging of the year)
Provisions charge to income*
Write offs
RESERVE FOR LOAN LOSSES (at the end of the year)
Reserve for loan losses / Total non-performing loans
Reserve for loan losses / Total loan portfolio
* Net of reversal for loan losses
65
SENIOR MANAGEMENT
EDUARDO SERGIO ELSZTAIN (*)
CHAIRMAN
Mr. Elsztain studied economics at the University of
Buenos Aires. He has been engaged in the real estate
business for more than 10 years and has been Chairman
of the Board of Directors of IRSA since 1991. He has also
served as a director of several other real estate companies.
He founded Consultores Asset Management S.A. and has
served as its President since 1989. He is also Chairman of
the Board of Cresud and Alto Palermo S.A. ("APSA"), as well
as a Director of Brazil Realty S.A. Empreendimentos e
Participações ("Brazil Realty").
66
CLARISA DIANA LIFSIC
DIRECTOR / VP CONTROLLER
Ms. Lifsic holds a degree in economics from the University
of Buenos Aires and a master of science in management
from the Massachusetts Institute of Technology. She has
held various financial positions in private sector
companies since 1985. She has worked for Banco de
Crédito Argentino, Citibank New York, Roberts Capital
Markets and IRSA. She is presently a Managing Director of
Consultores Asset Management S.A. and a Director and
Chief Financial Officer of Cresud.
ROBERTO APELBAUM
HAROLD JOSEPH FREIMAN (*)
VICE CHAIRMAN / CEO
Mr. Freiman has 19 years of experience in financial
business. He worked for Citibank and the Bank of
America in different countries from 1978 until 1988. In
addition, from 1994 to 1997, he was a Director of Italian
Leather. Mr. Freiman, holds a Bachelor of Arts degree in
Philosophy and a Master of Business Administration
from New York University.
VP PROJECT FINANCING
AND ADMINISTRATION
Mr. Apelbaum obtained a degree in civil engineering
(construction) from the Universidad de Buenos Aires in
1980. Since then, he has been involved in a substantial
number of private real-estate and commercial projects.
Among other positions, he has been the general
manager of the Abril Project in Berazategui, Province of
Buenos Aires.
(*) On January 6, 2000, the Board accepted Mr. Pablo Rojo’s resignation as Chairman of the Bank’s Board of Directors and Chief Executive Officer.
Mr. Eduardo Elsztain, Chairman of IRSA and Vice Chairman of the Bank, is currently performing Mr. Rojo’s duties as Chairman of the Board. Mr. Harold Freiman,
the Bank’s Deputy CEO, is the new CEO of the Bank.
GUSTAVO DANIEL EFKHANIAN
JAMES PETER SCRIVEN
VP DELINQUENCY
CHIEF FINANCIAL OFFICER
Mr. Efkhanian served as Executive Director of the Bank from
1997 to 1999, Director since 1993 and has served in various
capacities at the Bank since 1991. Previous thereto, Mr.
Efkhanian served as a government appointed advisor to the
Bank in connection with the 1989-1993 Restructuring. Mr.
Efkhanian has also served as an Alternate Director of BICE.
From 1988 to 1991, Mr. Efkhanian was an Economist for the
Instituto de Estudios Económicos de la Realidad Argentina y
Latinoamericana. Mr. Efkhanian received a degree in
economics from the University of Córdoba.
Mr. Scriven joined the Bank in 1995, originally as Assistant
to the General Business Manager and was primarily
responsible of the structuring and implementation of
the Bank’s securitization programs. Since 1995 he has
been a member of the financial committee of the Bank.
Since March 1997, he has been the Bank’s Chief Financial
Officer. Before joining the Bank, he was the Capital
Markets Officer at Banco UNB S.A. Mr. Scriven has
received a masters in financial administration from
CEMA University Institute and a degree in business
administration from the Argentine Catholic University.
67
ERNESTO VIÑES
JEFFREY SCOTT HOBERMAN
VP GENERAL COUNSEL
INSURANCE MANAGER
Mr. Viñes obtained a degree in law from the Universidad
de Buenos Aires. He has been an alternate director for
Alto Palermo S.A. since 1994 and is a partner at the law
firm of Zang, Mochón, Bergel & Viñes. He is also been a
member of the board of directors of IRSA and an
alternate director of Cresud, among other companies.
Before his appointment as Insurance Manager in 1997, he
was an Assistant to the Chairman and, in such capacity,
co-directed the Bank’s first U.S. dollar-denominated
mortgage-backed security transaction (BHN I Mortgage
Fund). Prior to joining the Bank in 1994, Mr. Hoberman
held positions as a World Bank consultant for the Ministry
of Economy. Mr. Hoberman received his law degree from
Harvard Law School in 1992 and a bachelors in economics
and political science from Yale University in 1989. He has
also studied at the London School of Economics.