Report on Banks, March 2023

• In March, financial intermediation with the private sector exhibited a heterogeneous performance: while time deposits in pesos went on growing like in the past few months, the stock of loans to the private sector stabilized in real terms. Within this framework, the ensemble of financial institutions kept high liquidity and solvency levels.

• So far this year, electronic means of payment went on expanding and became more relevant in the economy. This dynamic reflects the rising demand from users, as well as the BCRA´s incentives and the acceptance by stores, financial institutions and payment service providers (PSPs). It is estimated that transactions carried out through the most relevant retail electronic means of payment (annualizing Q1-23) represented an amount equal to the local GDP, increasing 15 p.p. and 29 p.p. of GDP against one and two years ago, respectively.

• In March, the real stock of loans to the private sector in domestic currency exhibited no significant changes against February. Promissory notes went up during the month, which was partly explained by the Credit Line for Productive Investment (Línea de Financiamiento para la Inversión Productiva, LFIP) for micro-, small- and medium-sized enterprises (MSMEs). The stock of the LFIP totaled ARS1.4 trillion as of March, accounting for 13.4% of the total stock of loans to the private sector (+1.5 p.p. y.o.y.), with 43.8% being allocated to investment projects. Within the framework of the LFIP, as from mid-May, a maximum interest rate of 76% APR and 88% APR was established for financing investment projects and working capital, respectively. In order to expand the financing alternatives for MSMEs, the BCRA implemented the regulation of the system for the open transfer (sistema de circulación abierta, SCA) of electronic credit invoices for MSMEs (facturas de crédito electrónicas MiPyMEs, FCEMs) through banks.

• At the end of the first quarter, the non-performance ratio of loans to the private sector stood at 3.2%, decreasing 0.7 p.p. y.o.y. The delinquency rate of loans to companies slightly decreased to 3.2% (-0.9 p.p. y.o.y.), and that of households slightly increased to 3.3% (-0.5 p.p. y.o.y.). Provisioning of loans to the private sector stood at 4%, and that of the non-performing portfolio, at 126.1% as of the end of the first quarter of 2023.

• The stock of private-sector deposits in pesos decreased 1.1% in March in real terms (+2.9% y.o.y. in real terms). This decrease was mainly explained by sight accounts, as the stock of time deposits rose in the period. The monthly performance was affected by the rise in minimum nominal interest rates set by the BCRA. Against this backdrop, during March some institutional investors migrated from interest-bearing sight deposits to time deposits.

• By mid-May, the BCRA raised again the interest rate on 28-day liquidity bills (LELIQs) and the minimum interest rate on natural persons’ time deposits in pesos up to ARS30 million. The new floor is 97% APR (90% APR for all other time deposits). Moreover, the BCRA reduced the interest rate charged on unpaid credit card balances for natural persons (decreasing as of June from 88% to 86% APR).

• By the end of the first quarter of 2023, broad liquid assets in the financial system reached 77.2% of deposits (74.6% in domestic currency and 92.2% in foreign currency), a figure slightly above that of February and rising 10.5 p.p. y.o.y.

• The solvency indicators of the sector posted a slight monthly increase. Financial institutions' regulatory capital (RC) compliance stood at 31.4% of risk-weighted assets (RWAs), increasing 3.8 p.p. y.o.y. The leverage ratio (according to Basel) reached 16.3% at systemic level as of the end of the first quarter, exceeding the minimum regulatory requirement (3%) in all financial institutions.

• In the first quarter, the financial system recorded a total comprehensive income in constant currency equal to 2.2% (annualized) of assets (ROA), a figure similar to that observed in the previous twelve months.

Report (full text)

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May 17, 2023

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