Report on Banks, December 2023

• The BCRA established a new monetary and foreign exchange framework by mid-December 2023, and published the objectives and plans concerning monetary, financial, lending and foreign exchange policies for 2024 by the end of the year in line with the new national administration's economic program presented by the Ministry of Economy.

• The cornerstone of the economic program is to remove both fiscal deficit and its funding through money issuance. It is also essential to remove regulations, restrictions and bureaucratic hindrances, and to correct relative prices, in particular, the exchange rate. The program also seeks to rebuild international reserves by bringing foreign trade flows back to normal. In December, the BCRA started to consolidate monetary policy tools with a view to reaching monetary stability and reducing inflation. The monetary policy rate is now the reverse repo rate set by the BCRA (100% APR). Moreover, the BCRA no longer resorts to liquidity bill (LELIQ) auctions. Instead, it draws on reverse repo transactions as an instrument for absorbing monetary surpluses. The issuance of LELIQs has come to a halt, which is likely to encourage financial institutions to resume their role as financial intermediaries by taking deposits to provide credit.

• In December, the stock of financing in pesos to the private sector decreased in real terms across financial institutions and credit lines. The stock of loans to the private sector in domestic currency decreased 23.7% y.o.y. in real terms.

• The non-performance ratio of loans to the private sector totaled 3.7% in 2023, increasing 0.5 p.p. y.o.y. The delinquency rate of loans to companies reached 4.4% in December, while those channeled to households totaled 2.8%.

• The stock of private sector deposits in pesos increased month-on-month in real terms, mainly due to the seasonality of sight accounts. However, it accrued a 22.8% reduction in y.o.y. terms at constant prices.

• By the end of 2023, the liquidity indicators of the aggregate financial system continued being high. Broad liquid assets in the financial system reached 88.6% of total deposits in December, going up in monthly and in y.o.y. terms.

• The solvency indicators of the financial system also remained high by the end of the year. Financial institutions' regulatory capital compliance stood at 32.4% of risk-weighted assets (RWAs) in December, up against November and in y.o.y. terms. The capital position (regulatory capital compliance - requirement) of the financial system totaled 302.7% of the regulatory requirement in December, and 60.2% of the stock of loans to the private sector net of provisions.

• The financial system ended 2023 with a total comprehensive income in constant currency equal to 5.4% of assets (ROA) and 27.6% of the net worth (ROE). These levels are higher than those recorded in the previous three years.

• In 2023, retail electronic payments grew due to technological advances, higher demand, and the actions implemented by the BCRA. Instant transfers grew 36.5% in traded value in real terms, and 118% in the number of transactions carried out over the year.

Report (full text) - in Spanish -

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February 21, 2024