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Fair Value Quantitative And Qualitative Disclosures

12 Months Ended

Dec. 31, 2020

Fair Value Quantitative And Qualitative Disclosures

12.	FAIR VALUE QUANTITATIVE AND QUALITATIVE DISCLOSURES

The fair value is the amount at which an asset can be exchanged, or at which a liability can be settled, in mutual independent terms and conditions between participants of the principal market (or the most advantageous market) who are duly informed and willing to transact in an orderly and current transaction, at the measurement date under the current market conditions whether the price is directly observable or estimated using a valuation technique under the assumption that the Bank is an ongoing business.

When a financial instrument is quoted in a liquid and active market, its price in the market in a real transaction provides the most reliable evidence of its fair value. Nevertheless, when there is no quoted price in the market or it cannot be an evidence of the fair value of such instrument, in order to determine such fair value, the entities may use the market value of another instrument with similar characteristics, the analysis of discounted cash flows or other applicable techniques, which shall be significantly affected by the assumptions used.

Notwithstanding the above, the Bank’s Management has used its best judgment to estimate the fair values of its financial instruments; any technique to perform such estimate implies certain inherent fragility level.

Fair value hierarchy

The Bank uses the following hierarchy to determine and disclose the fair value of financial instruments, according to the valuation technique applied:

•

Level 1: quoted prices (unadjusted) observable in active markets that the Bank accesses to at the measurement day for identical assets or liabilities. The Bank considers markets as active only if there are sufficient trading activities with regards to the volume and liquidity of the identical assets or liabilities and when there are binding and exercisable price quotes available at each reporting period.

•

Level 2: Valuation techniques for which the data and variables having a significant impact on the determination of the fair value recognized or disclosed are observable for the asset or liability, either directly or indirectly. Such inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical instruments in inactive markets and observable inputs other than quoted prices such as interest rates and yield curves, implied volatilities, and credit spreads. In addition, adjustments to level 2 inputs may be required for the condition or location of the asset or the extent to which it relates to items that are comparable to the valued instrument. However, if such adjustments are based on unobservable inputs which are significant to the entire measurement, the Bank will classify the instruments as Level 3.

•

Level 3: Valuation techniques for which the data and variables having a significant impact on the determination of the fair value recognized or disclosed are not based on observable market information.

The following tables show the hierarchy in the Bank’s financial asset and liability fair value measurement, as of December 31, 2020 and 2019:

CATEGORIES OF FINANCIAL ASSETS AND LIABILITIES

AS OF DECEMBER 31, 2020


Item	Amortized cost		Fair value with changes in other comprehensive income		Fair value with changes in P/L		Fair value hierarchy
Item	Amortized cost		Fair value with changes in other comprehensive income		Fair value with changes in P/L		Level 1		Level 2		Level 3
FINANCIAL ASSETS
Cash and deposits in banks
Cash		25,422,664
Financial institutions and Correspondents		104,539,560
Other		5,262
Debt securities at fair value through profit or loss						54,982,465		54,604,015		6		378,444
Derivative instruments						989,478				7,232		982,246
Repo transactions
Central Bank of the Argentine Republic		39,421,705
Other financial assets		18,280,848				605,442		579,263				26,179
Loans and other financing
To the non-financial government Sector		3,614,614
Other financial institutions		1,824,600
To the non-financial private sector and foreign residents
Overdrafts		17,611,869
Documents		27,339,195
Mortgage loans		25,410,608
Pledge loans		3,325,554
Personal loans		70,258,760
Credit cards		64,266,490
Financial leases		118,562
Other (1)		43,650,943
Other debt securities		31,113,789		178,005,144				115,417,483		62,587,661
Financial assets delivered as guarantee		13,596,610		695,748				695,748
Equity Instruments at fair value through profit or loss						5,218,299		9,855				5,208,444

TOTAL FINANCIAL ASSETS		489,801,633		178,700,892		61,795,684		171,306,364		62,594,899		6,595,313

FINANCIAL LIABILITIES
Deposits
From the non-financial government sector		73,565,424
From the financial sector		696,415
From the non-financial private sector and foreign residents
Checking accounts		65,401,102
Savings accounts		138,844,482
Time deposits and Investment accounts		181,767,558
Other		28,466,382
Derivative instruments						230		230
Repo transactions
Other financial institutions		618,572
Other financial liabilities		49,215,887
Financing received from Central Bank and other financial entities		919,103
Issued corporate bonds		4,926,901
Subordinated corporate bonds		34,300,292

TOTAL FINANCIAL LIABILITIES		578,722,118				230		230

(1)	Includes the total allowances to the non-financial private sector and foreign residents.

CATEGORIES OF FINANCIAL ASSETS AND LIABILITIES

AS OF DECEMBER 31, 2019


Item	Amortized cost		Fair value with changes in other comprehensive income		Fair value with changes in P/L		Fair value hierarchy
Item	Amortized cost		Fair value with changes in other comprehensive income		Fair value with changes in P/L		Level 1		Level 2		Level 3
FINANCIAL ASSETS
Cash and deposits in banks
Cash		26,563,255
Financial institutions and Correspondents		110,498,075
Other		5,100
Debt securities at fair value through profit or loss						7,725,991		6,543,684		72,681		1,109,626
Derivative instruments						838,493		43,012		25,991		769,490
Repo transactions
Other financial entities		1,481,096
Other financial assets		7,889,031				502,535		471,221				31,314
Loans and other financing
To the non-financial government Sector		8,781,948
Other financial institutions		5,380,555
To the non-financial private sector and foreign residents
Overdrafts		56,276,823
Documents		28,085,343
Mortgage loans		28,053,169
Pledge loans		5,536,821
Personal loans		77,326,738
Credit cards		57,392,877
Financial leases		312,495
Other (1)		33,584,820
Other debt securities		24,004,210		63,824,735				50,355,730		13,469,005
Financial assets delivered as guarantee		14,530,739
Equity Instruments at fair value through profit or loss						3,562,427		12,842				3,549,585

TOTAL FINANCIAL ASSETS		485,703,095		63,824,735		12,629,446		57,426,489		13,567,677		5,460,015

FINANCIAL LIABILITIES
Deposits
From the non-financial government sector		23,906,675
From the financial sector		427,702
From the non-financial private sector and foreign residents
Checking accounts		54,625,032
Savings accounts		123,517,591
Time deposits and Investment accounts		144,401,841
Other		10,987,601
Derivative instruments						1,046,556				1,046,556
Repo transactions
Other financial institutions		1,364,825
Other financial liabilities		30,181,836
Financing received from Central Bank and other financial entities		3,057,451
Issued corporate bonds		7,521,820
Subordinated corporate bonds		33,098,040

TOTAL FINANCIAL LIABILITIES		433,090,414				1,046,556				1,046,556

(1)	Includes the total allowances to the non-financial private sector and foreign residents.

Instruments measured as level 3 mainly include equity instruments at fair value through profit or loss which comprise Prisma Medios de Pago SA (see note 21). Its Fair Value was calculated on the basis of independent appraisers’ valuations, who relied on a future discounted cash flow method embracing an income approach.

On the other hand, the Bank includes in Level 3 the put option taken for the abovementioned participation in Prisma Medios de Pago SA which fair value was calculated by the same appraisers abovementioned. The result of the assets measured at fair value on the basis of unobservable data is recognized in “Net gain from measurement of financial instruments at fair value”. For the measurement of this instrument, a valuation technique based on the binomial method has been used by creating an equivalent portfolio with identical conditions to the put and taking into account different scenarios. The valuation model considers the projected value of the company’s cash flows and financial debt of the exercise date (34 months after the closing of the contract). Expected cash flows are discounted using WACC (Weighted Average Cost of Capital) discount rate.

Additionally, the other instruments measured as level 3 include debt securities and certificates of participation in financial trusts, for which the construction of fair values was obtained based on the Bank’s own assumptions that are not easily available in the market. The most significant assumption was the placement cutoff rate of such instruments in the market at the end of the period, used to determine the actual value of cash flows.

Quantitative information about Level

3 Fair Value Measurements

Equity instruments at fair value through profit or loss

The fair value of the equity interest held in Prisma Medios de Pago SA was calculated with the assistance of independent appraisers’ using a discounted cash flow method by applying an income approach.

The most relevant unobservable input data include:

•

Projected EBITDA and Free cash flow (mainly determined by the expected evolution of the level of transactions and fees)

•

Minority discount rate (equivalent to 1 / (1 + Premium control) – 1)

•

WACC (Weighted Average Cost of Capital) of Prisma Medios de Pago SA.

•

g = growth factor for terminal value.

•

Capital expenditures assumptions.

Below is disclosed the sensitivity analysis for the valuation of the remaining 49% equity of Prisma Medios de Pago SA, still held by the selling shareholders. The sensitivity is related to the two following variables: the WACC and the growth level for future cash flows after 2023 that determines the terminal value:

Prisma Medios de Pago SA equity (49%) + minority discount

(9.09%) – US$ millions

g (terminal value growth – annual)


			2.00%		3.00%		4.00%
	97.5	%		370.9		391.8		416.5
WACC	100	%		366.2		386.8		411.1
	102.5	%		361.7		381.9		405.9

The scenario for the valuation considers WACC at 100% and g at 3%.

As Banco Macro SA holds an interest in Prisma Medios de Pago SA of 4.494083% the fair value accounts amounts to 4,975,977, which is within a range of 4,652,478 and 5,357,416 according to the calculated sensitivity.

Derivative financial instruments

As previously mentioned, the Bank recognized the put option taken related to the participation in Prisma Medios de Pago SA. These instruments were measured using a valuation technique based on a binomial option pricing model.

The most relevant unobservable input data used in the pricing model include:

•

Monthly volatility (sensitivity to volatility ranging from 10%, 12% and 15%).

•

The theoretical exercise price for the option. This price is 7 times the expected EBITDA for the third year. This EBITDA is calculated considering the expected cash flows of the business as well as the financial indebtedness, considering Cash and Banks and Short-term investments, and financial indebtedness projected for the option exercise date.

•

Dividend yield.

•

Underlying asset (that arises from making the relation between estimated Equity Value with the numbers of shares and the WACC (Weighted Average Cost of Capital).

Below is disclosed the sensitivity for the valuation of the put option per share, based on the level of implied volatility and the theoretical exercise price of the share price:

Sensibility - US$

Volatility


			10.0%		12.0%		15.0%
	95	%		1.08		1.16		1.26
EBITDA	100	%		1.26		1.31		1.42
	105	%		1.43		1.48		1.58

The scenario considered for the valuation considers EBITDA at 100% and volatility at 12%. Banco Macro SA has a position of 8,910,878 shares of Prisma Medios de Pago SA. Therefore, the fair value of the put is 982,246, which is within the range of 944,755 and 1,072,222 according to the calculated sensitivity.

Debt securities

The following table provides quantitative information about the valuation techniques and significant unobservable inputs used in the valuation of the main of debt securities of financial trusts for which the Bank uses an internal model.

Fair value of

Range of inputs

Level 3

Assets

Valuation

Significant
unobservable

12/31/2020

Technique

inputs

Range of inputs

Low

High

Unit

Debt Securities of Financial Trusts Provisional

376,090

Income approach (discounted cash flow)

Discount rate in pesos

43.84

47.60

Fair value of

Range of inputs

Level 3
Assets

Valuation

Significant
unobservable

12/31/2019

Technique

inputs

Range of inputs

Debt Securities of Financial Trusts

259,482

Income approach (discounted cash flow)

Discount rate in pesos

48.50

74.06

Debt Securities of Financial Trusts Provisional

847,773

Income approach (discounted cash flow)

Discount rate in pesos

39.27

44.97

The table below describes the effect of changing the significant unobservable inputs to reasonable possible alternatives. Sensitivity data were calculated using a number of techniques including analyzing price dispersion of different price sources, adjusting model inputs to analyze changes within the fair value methodology.


	12/31/2020					12/31/2019
	Favorable changes		Unfavorable changes			Favorable changes		Unfavorable changes
Debt Securities of Financial Trusts							5,654		(5,000	)
Debt Securities of Financial Trusts Provisional		450		(439	)		1,083		(1,057	)

Changes in fair value levels

The Bank monitors the availability of information in the market to evaluate the classification of financial instruments into the fair value hierarchy as well as the resulting determination of transfers between levels 1, 2 and 3 at each period end.

As of December 31, 2020 and 2019, the Bank has not recognized any transfers between levels 1, 2 and 3 of the fair value hierarchy.

Financial assets and liabilities not recognized at fair value

Next follows a description of the main methods and assumptions used to determine the fair values of financial instruments not recognized at their fair value in these consolidated financial statements:

•

Instruments with fair value similar to the carrying amount: financial assets and liabilities that are liquid or have short-term maturities (less than three months) were deemed to have a fair value similar to the carrying amount.

•

Fixed and variable rate of financial instruments: the fair value of financial assets was recognized discounting future cash flows at current market rates, for each fiscal year, for financial instruments of similar characteristics. The estimated fair value of fixed-interest rate deposits and liabilities was assessed discounting future cash flows by using estimated interest rates for deposits or placings with similar maturities to those of the Bank’s portfolio.

•

For public listed assets and liabilities, or those for which the prices are reported by certain renown pricing providers, the fair value was determined based on such prices.

The following table shows a comparison between the fair value and the carrying amount of financial instruments not measured at fair value as of December 31, 2020 and 2019:


	12/31/2020
	Carrying amount		Level 1		Level 2		Level 3		Fair Value
Financial assets
Cash and deposits in banks		129,967,486		129,967,486						129,967,486
Repo transactions		39,421,705		39,421,705						39,421,705
Other financial assets		18,280,848		18,280,848						18,280,848
Loans and other financing		257,421,195						239,959,333		239,959,333
Other debt securities		31,113,789		10,559,766		22,210,308		148,327		32,918,401
Financial assets delivered as guarantee		13,596,610		13,596,610						13,596,610

		489,801,633		211,826,415		22,210,308		240,107,660		474,144,383

Financial liabilities
Deposits		488,741,363		243,062,751				245,400,493		488,463,244
Repo transactions		618,572		618,572						618,572
Other financial liabilities		49,215,887		47,879,138		1,331,299				49,210,437
Financing received from the BCRA and other financial entities		919,103		323,872		585,643				909,515
Issued corporate bonds		4,926,901				4,120,798				4,120,798
Subordinated corporate bonds		34,300,292				29,103,736				29,103,736

		578,722,118		291,884,333		35,141,476		245,400,493		572,426,302


	12/31/2019
	Carrying amount		Level 1		Level 2		Level 3		Fair Value
Financial assets
Cash and deposits in banks		137,066,430		137,066,430						137,066,430
Repo transactions		1,481,096		1,481,096						1,481,096
Other financial assets		7,889,031		7,889,031						7,889,031
Loans and other financing		300,731,589		424,388				264,176,063		264,600,451
Other debt securities		24,004,210		2,127,361		22,652,005		1,660,974		26,440,340
Financial assets delivered as guarantee		14,530,739		13,064,394						13,064,394

		485,703,095		162,052,700		22,652,005		265,837,037		450,541,742


	12/31/2019
	Carrying amount		Level 1		Level 2		Level 3		Fair Value
Financial liabilities
Deposits		357,866,442		200,293,229				157,881,650		358,174,879
Repo transactions		1,364,825		1,364,825						1,364,825
Other financial liabilities		30,181,836		28,680,171		1,489,374				30,169,545
Financing received from the BCRA and other financial entities		3,057,451		2,501,414		481,284				2,982,698
Issued corporate bonds		7,521,820				1,878,785		3,619,745		5,498,530
Subordinated corporate bonds		33,098,040				24,967,325				24,967,325

		433,090,414		232,839,639		28,816,768		161,501,395		423,157,802