Executive Summary / Key Takeaways

• The Core Tension: Banco Macro is deploying its industry-leading capital base to capture Argentina's severely underpenetrated credit market (loans/GDP below 10%), but the 69% year-on-year loan growth through Q3 2025 has driven consumer non-performing loans to 4.3%—a threefold increase from late 2024. The investment case hinges entirely on whether management's credit tightening can slow deterioration before macro headwinds accelerate it.

• Fortress Balance Sheet as Strategic Weapon: With a Tier 1 capital ratio of 29.2% and ARS 3.3 trillion in excess capital, BMA holds roughly double the buffer of most peers. This isn't just defensive; it enables aggressive market share gains while competitors retrench, funds potential M&A in a consolidating sector, and supports the stock through a buyback program that management halted only because the price "skyrocketed" post-election.

• Asset Quality Inflection Point: Management has pinpointed October-November 2025 as the NPL peak, expecting cost of risk to normalize near 5% in 2026 versus 6.5% in Q3. If correct, the Q3 loss of ARS 33.1 billion represents the cyclical trough. If wrong, credit losses could overwhelm the bank's margin expansion and delay ROE recovery well beyond the targeted 20% by 2027.

• Valuation Reflects Binary Outcome: At $86.44 per share, BMA trades at 21.2x earnings and 16.9x book value with a 6.1% ROE—pricing in a successful credit cycle turn. The discount to historical mid-cycle multiples implies skepticism, but the premium to tangible book reflects the scarcity value of its capital position in a volatile macro environment.

• Two Variables Determine Everything: (1) The trajectory of real interest rates and their impact on borrower cash flows, particularly given the government's policy of holding wage growth below inflation; and (2) The execution capability of an incoming CEO who must manage credit tightening while sustaining growth in an election-year policy environment.

Setting the Scene: Banking in Argentina's Parallel Universe

Banco Macro S.A., founded in 1966 and headquartered in Buenos Aires, operates a universal banking model that looks familiar on paper but functions in a macroeconomic environment that defies conventional analysis. Argentina's loan-to-GDP ratio sits below 10%, a figure that would signal crisis in any developed market but here represents massive untapped demand. The problem isn't lack of borrowers—it's that lending in Argentina requires navigating a landscape of 117.8% annual inflation (2024), real interest rates of 6-7% on consumer loans, and a government explicitly pursuing a policy of wage suppression to break inflationary psychology.

This context explains BMA's strategic pivot. Since 2020, the bank has reported under hyperinflation accounting (IAS 29 ), which strips out the illusionary profits that nominal growth creates. The Central Bank's regulatory whiplash—terminating repos in July 2024, replacing them with LEFIs , then terminating LEFIs in July 2025—has forced banks to constantly reprice assets and liabilities. Through this chaos, BMA has built what CFO Jorge Scarinci calls "the best capital in the Argentine banking sector," with Tier 1 ratios hovering near 30% while peers operate closer to regulatory minimums.

The bank's moat isn't technological but geographic and structural. With 466 branches concentrated in Argentina's interior provinces, BMA accesses a deposit base that is stickier and cheaper than the Buenos Aires-focused banks. Transactional accounts represent 49% of deposits, allowing the bank to pay below-market rates on nearly half its funding. This cost advantage—combined with the capital buffer—has enabled BMA to grow private sector loans 67% year-on-year while competitors struggle to match either the pace or the profitability.

Financial Performance: When Growth Becomes a Liability

BMA's Q3 2025 results expose the dark side of aggressive expansion. The bank reported a net loss of ARS 33.1 billion, a ARS 191.5 billion swing from Q2, driven by three forces that directly stem from its growth strategy. First, provisions for loan losses surged 45% quarter-on-quarter to ARS 156.8 billion as the non-performing loan ratio hit 3.02%. Second, administrative expenses jumped 12% due to ARS 23.6 billion in early retirement provisions—an extraordinary cost of restructuring the workforce to handle a loan book that has nearly doubled in size. Third, income from government securities collapsed 24% as inflation-linked bonds repriced, squeezing the securities portfolio that funds 20% of loan growth.

The consumer portfolio tells the most alarming story. Non-performing loans in this segment reached 4.3% in Q3, up from 1.44% in Q4 2024—a 300 basis point deterioration in just nine months. This isn't random noise; it's the mechanical outcome of growing personal loans 69% in real terms while real interest rates exceed 6% and wage growth lags inflation. Borrowers' debt service burdens are rising even as their real incomes shrink. Management's response—tightening credit lines since late Q1 2025—came too late to prevent the Q3 loss but may stem the bleeding into 2026.

Commercial loans, representing 35% of the book, show more resilience with NPLs at 0.85%. This divergence matters because it reveals where BMA's risk management works and where it failed. Commercial lending benefits from relationship banking and collateral, while consumer lending relied on scoring models that couldn't adapt fast enough to a 500 basis point swing in real rates. The implication: BMA must either accept lower consumer growth or build entirely new underwriting capabilities, neither of which supports the 35% loan growth target for 2026.

Capital Allocation: Deploying a War Chest in a War Zone

BMA's ARS 3.3 trillion excess capital isn't a safety net—it's ammunition. In Q2 2025, the bank issued $530 million in corporate bonds to bolster dollar funding, then paid $240 million in dividends in May. In October, it launched a share buyback program, only to suspend it as the stock "skyrocketed" after Argentina's midterm elections. This sequence reveals management's confidence: they believe the stock is undervalued at levels that would have been unthinkable months earlier, but they're disciplined enough not to overpay.

The capital position creates three strategic options that peers lack. First, BMA can fund loan growth entirely through deposits and internal capital, avoiding the dilutive equity raises that weaker banks will need. Second, it can acquire competitors as the sector consolidates—Scarinci expects "news in the next 12 to 18 months" on M&A. Third, it can absorb credit losses that would cripple less-capitalized banks, effectively buying market share through the cycle.

This advantage is quantifiable. BMA's 29.2% Tier 1 ratio compares to GGAL (GGAL)'s implied ratio in the mid-teens and BBAR (BBAR)'s in the low 20s. Every 100 basis points of capital advantage translates into roughly ARS 100 billion in additional lending capacity without raising equity. In a market where loan demand is growing 35-60% annually, this capacity premium is worth billions in present value—if BMA can price risk correctly.

Competitive Positioning: The Interior Banker's Edge

Against Grupo Financiero Galicia (GGAL), BMA's interior focus is a double-edged sword. GGAL's 13.2% loan market share and diversified insurance operations provide stability, but its urban concentration forces it to pay higher deposit rates and compete directly with fintechs. BMA's 9% loan share and 7.4% deposit share are smaller, but its cost of funds is materially lower—Scarinci notes the bank pays "relatively lower interest rates compared to competitors that are more based in Buenos Aires." This cost advantage shows up in net interest margins that, while compressed in Q3, remain above peers on a risk-adjusted basis.

Versus BBVA Argentina (BBAR), BMA's disadvantage is digital capability. BBAR's global parent provides technology that BMA can't match, but this comes with higher funding costs and less flexibility in local decision-making. BMA's 1,779 ATMs and branch network in underserved regions create switching costs that pure digital players can't replicate. When inflation hits 6% quarterly, customers value physical cash access—a moat that looks archaic but functions effectively.

The indirect threat from fintechs like Ualá and Mercado Pago is more existential. These players captured 90% of digital banking users by offering instant, low-cost services. BMA's response has been to emphasize transactional deposits (49% of total) and SME lending, segments where relationship banking still matters. The risk is that fintechs eventually attack these strongholds through embedded finance, forcing BMA into a costly digital transformation that its capital base can fund but its culture may not execute.

Outlook and Guidance: A Recovery Story Built on Assumptions

Management's 2026 guidance is ambitious but grounded in macro assumptions that deserve scrutiny. The forecast of 35% real loan growth assumes GDP expansion of 3% and inflation cooling to 20%. More critically, it assumes the "new normal" for NPLs is 2-2.5%—double historical levels but manageable at a 5% cost of risk. Scarinci's comment that "we should accustom to see the past due loans ratio in other levels" is either realistic or rationalizing; the difference determines whether BMA earns its cost of equity.

The NIM trajectory illustrates the execution challenge. Q2 2025's 23.5% margin is the benchmark, but Q3 compressed to an implied 21.6% year-to-date average. Management expects Q4 to rebound to Q2 levels, then decline to "mid-teens" by 2027 as loan growth outpaces deposit repricing. This path is plausible if the Central Bank cuts rates as inflation falls, but it assumes no further reserve requirement hikes or bond portfolio losses. The securities book, at 27% of assets in Q4 2024, is being run down to 20% by year-end—each percentage point shift frees ARS 100 billion for loans but removes a hedge against inflation.

The ROE recovery path—8% in 2025, low teens in 2026, 20% by 2027—requires flawless execution. Achieving 20% ROE on a 29% capital base implies sustainable earnings of ARS 600 billion annually, nearly triple the ARS 224 million TTM net income. The math only works if NPLs peak as forecast, margins stabilize, and the bank avoids dilutive M&A. The incoming CEO, whose appointment is "expected in the short future," inherits a high-stakes transition where any misstep in credit policy could derail the entire trajectory.

Risks and Asymmetries: Where the Thesis Breaks

The class action filed November 28, 2025, alleging erroneous application of the Impuesto PAIS tax on foreign currency transactions, is more than a nuisance. The plaintiff seeks not just repayment but a declaration of illegal practice and civil fines. With $95 million in Q3 dollar deposits and growing, BMA's FX operations are a profit center under regulatory attack. A ruling against the bank could force system-wide changes to tax withholding, compressing margins on dollar cards and potentially triggering a run on dollar deposits if customers perceive operational risk.

Credit risk remains the dominant threat. The government's policy of holding salary growth below inflation—while economically rational for breaking inflation—directly impairs borrowers' ability to service debt. Real interest rates of 6-7% on personal loans mean debt burdens grow even for performing borrowers. If inflation doesn't fall to the 20% target, or if the Central Bank keeps rates elevated to defend the peso, the NPL peak could extend into 2026, pushing cost of risk above 6% and making 2025's 8% ROE target unattainable.

The regulatory environment adds another layer of uncertainty. The Central Bank's July 2025 termination of LEFIs, after just a year, shows policy can shift abruptly. If the government reverses its inflation-targeting stance post-election, BMA's inflation-linked bond portfolio—18% of assets—could suffer mark-to-market losses that dwarf the Q3 securities losses. Scarinci's comfort with "high exposure on inflation-linked bonds" is a hedge against equity erosion, but it becomes a liability if inflation expectations become unanchored.

Valuation Context: Pricing a Turnaround in Real Time

At $86.44 per share, BMA's $6.1 billion market capitalization trades at 21.2x trailing earnings and 16.9x book value. These multiples appear reasonable for a bank targeting 20% ROE, but current ROE is just 6.1%—a gap that reflects either opportunity or illusion. The price-to-book premium over BBAR (5.1x) and discount to GGAL (17.4x) suggests the market views BMA as a higher-quality franchise than BBVA's local operation but less proven than Galicia's diversified model.

Key banking metrics tell a more nuanced story. The 67% liquid assets-to-deposits ratio provides exceptional funding stability, while the 3.02% NPL ratio—though elevated—remains below the 5% threshold that typically triggers regulatory intervention. The 120.87% coverage ratio indicates adequate provisioning, but the 6.5% cost of risk is unsustainable; every 100 basis point reduction adds approximately ARS 100 billion to pre-tax income.

Peer comparisons highlight BMA's relative positioning. GGAL's 13.1% ROE and 2.32% ROA reflect a more mature, diversified operation, but its -12.86% operating margin in Q3 shows restructuring costs that BMA avoided. BBAR's 7.19% ROE is closer to BMA's current level, but its 8.78% operating margin suggests better cost control that BMA must match. The valuation gap between BMA's 21.2x P/E and GGAL's 8.2x reflects growth expectations; whether BMA delivers 35% loan growth in 2026 will determine if that premium is justified.

Conclusion: A Bank Built for the Cycle, Not the Moment

Banco Macro's investment thesis distills to a single question: Can a bank with the best capital position in Argentina grow loans at 35% annually while managing credit losses in an environment of 6% real interest rates and wage suppression? The answer depends on two variables—the timing of the NPL peak and the new CEO's ability to execute a credit tightening that doesn't stall growth.

If management's forecast proves correct and NPLs peak in late 2025, the Q3 loss represents the earnings trough. The combination of margin recovery, securities portfolio stabilization, and continued loan growth could drive ROE toward the 20% target by 2027, justifying the current valuation and providing upside as the multiple rerates toward peer levels. The capital fortress would then become an offensive weapon for M&A, potentially consolidating market share as weaker banks struggle with legacy NPLs.

If the forecast proves optimistic—if real rates stay elevated, if wage policy continues depressing borrower capacity, or if the new CEO misjudges credit policy—then BMA's growth strategy becomes a value trap. The 29% Tier 1 ratio provides survival certainty but not earnings power, and the stock could trade sideways for years as credit costs consume margins.

For investors, the asymmetry is clear: downside is cushioned by excess capital and a 2.2% dividend yield, while upside requires flawless execution in Argentina's most volatile macro environment in decades. The next two quarters will reveal whether BMA is a bank built to capitalize on a generational credit cycle or simply the best-capitalized victim of it.