Report on Banks

Executive summary

• In August, the financial system maintained relatively high liquidity and solvency coverage against the risks assumed. The levels of financial intermediation with the private sector decreased during the period, while the means of electronic payment remained very dynamic.

• Immediate transfers (TI) accumulated an increase of 105.7% YoY in quantities and 24.7% YoY in real amounts. This year-on-year performance was driven by a generalized increase in its components, highlighting IT in which accounts in payment service providers (PSPs) intervene from and/or to CVU. The latter segment increased its share of total IT: to 54.3% in quantities (+12.6 p.p. y.o.y.) and 21.6% in amounts (+6.1 p.p. y.o.y.). Operations through ECHEQs have also been showing significant growth, and gained relevance in the total clearing of checks (+11.1 p.p. y.a. to 31.5% in amounts and +12.4 p.p. y.a. to 57.4% in amounts).

• In August, the real balance of credit in pesos to the private sector decreased by 3.4% (+3.3% nominal), remaining without significant changes in a year-on-year comparison. The financing line for productive investment in MSMEs (LFIP) continued to be one of the main tools for accessing credit, reaching some 304,600 companies with accumulated disbursements of $3.1 billion since its implementation until September. The current credit balance of the LFIP is estimated at $900,695 million as of August, accounting for one eighth of the credit balance to the private sector.

• The non-performing loan ratio to the private sector totaled 3.1% in the month, unchanged from July and 2.2 p.p. below the level recorded a year ago. The level of forecasting of credit to the sector continued to be comfortable, covering 3.7% of the total portfolio of the private sector and 119.4% of that in an irregular situation.

• The balance of private sector deposits in pesos fell by 3.4% in real terms (+3.3% nominal), reflecting the performance of demand accounts and, to a lesser extent, of time deposits. In a year-on-year comparison, the balance of deposits in national currency of the private sector accumulated an increase of 3.4% in real terms (+75% nominal).

• In August, the liquid assets of the financial system totaled 69.8% of deposits, 0.7 p.p. and 1.2 p.p. above the record for July and the same month of 2021. In the period, the indicator for items in pesos stood at 66.1% (+0.7 p.p. monthly) and 92% for those corresponding in foreign currency (1.2 p.p. monthly).

• The integration of regulatory capital (RPC) of the aggregate of financial institutions stood at 27.9% of risk-weighted assets (RWA) in August (-0.4 p.p. mom and +1.6 p.p. y.o.y.). The capital position – RPC net of the minimum regulatory requirement – totaled 247% of the regulatory requirement at the systemic level (-6 p.p. monthly and +23.2 p.p. y.o.y.). For its part, the excess of regulatory capital in August stood at 37.8% of the balance of credit to the private sector net of forecasts for the entities as a whole, well above the average of the last 10 years (16.5%).

• In the cumulative figure for the first 8 months of 2022, the financial system accrued a comprehensive total result in homogeneous currency equivalent to 1.2% annualized (y.) of assets (ROA) and 6.8% y. of net worth (ROE), levels slightly higher than the records of the same period of 2021 but lower than the cumulative figure for the first 8 months of 2020. Considering the accumulated of the last 12 months to August 2022, the ROA of the financial system stood at 1.2% (-0.1 p.p. y.o.y.) and ROE at 7.5% (-1 p.p. y.o.y.).

I. Financial intermediation activity

During August, financial intermediation activity with the private sector was reduced. Considering the items denominated in pesos – in homogeneous currency – in the month there was a fall in financing to the private sector, and to a lesser extent, in liquidity in the broad sense. These movements were mainly offset by a reduction in the real balance of private sector deposits. In the foreign currency segment, the monthly dynamics were similar to that mentioned for the items of the balance sheet in national currency. In addition, financing to the public sector in foreign currency increased in the month, this variation being partly offset by the reduction in credit to this sector in national currency (with and without CER adjustment)¹.

The balance of credit in pesos to the private sector decreased by 3.4% in real terms in August (+3.3% nominal)². The monthly performance was reflected in all groups of financial institutions and in almost all credit assistance, with the exception of assets in financial leases and pledges³. In a year-on-year comparison, the balance of financing in national currency did not show significant changes (-0.8% real or +76.8% nominal, see Graph 1). When distinguishing by credit segment and considering homogeneous currency, in the last twelve months pledge loans and commercial loans (financial assets, documents and advances) increased, while the rest of the financing lines were reduced.

Part of the positive year-on-year performance of commercial loans was explained by the Financing Line for Productive Investment of MSMEs (LFIP). Through this instrument, almost $3.1 billion has been disbursed since its implementation until the end of September, covering more than 304,600 companies. In terms of balances, the estimated LFIP credit totaled $900,695 million in August (see Graph 2; equivalent to 12.5% of the total credit balance to the private sector). 40.5% of the LFIP balance was channeled to investment projects, 34.3% was allocated to working capital financing, and the remaining 22.8% was granted in the form of discounts on checks and/or invoices. Public financial institutions accounted for almost half of the total balance of the LFIP. In this framework, with the aim of continuing to promote financing for MSMEs, in September the BCRA decided to extend the LFIP until the end of March 2023, preserving the current conditions⁴.

On the side of the segment in foreign currency, in August the balance of credit to the private sector in this denomination fell 0.8%⁵. The total financing balance (including domestic and foreign currency) to the private sector decreased 3.3% in real terms compared to July (+3.5% nominal) and 6.7% in real terms in the last twelve months (+66.4% nominal).

With regard to the funding of all financial institutions, in August the balance of deposits in pesos of the private sector fell by 3.4% in real terms (+3.3% nominal, see Graph 3). Most of this monthly decrease was explained by demand accounts, with a fall of 6.1% in real terms (+0.5% nominal), while time deposits fell by 0.7% in real terms (+6.3% nominal). After a remarkable growth in the first seven months of the year, in August the balance of UVA deposits saw a drop of 7.8% in real terms for pre-cancelable deposits and 9.5% in real terms for those that do not have an early cancellation option. On the other hand, traditional fixed-rate time deposits increased 3.5% in real terms compared to last month.

The positive performance of traditional fixed-rate time deposits was partly driven by the increases in minimum interest rates ordered by the BCRA in recent months (see Chart 4). As part of the process of normalization of the interest rate structure, in September this Institution set at 75% the TNA of the 28-day LELIQ and the minimum guaranteed interest rate on 30-day fixed terms of up to $10 million for individuals (66.5% TNA for the rest of the private sector’s fixed-term deposits)⁶.

The balance of foreign currency deposits of the private sector decreased 0.8% in August⁷. As a result, total private sector deposits (in domestic and foreign currency) fell by 3.2% in real terms compared to July (+3.5% nominal) and by 7.2% in real terms year-on-year (+65.6% nominal).

In the last twelve months, the balance of deposits in national currency of the private sector fell by 1.9% in real terms (+75% nominal). For their part, public sector deposits accumulated a fall of 5.4% real y.o.y. (+68.8% nominal y.o.y.). When considering the total of sectors, in August deposits in pesos decreased 2.1% y.o.y. real (+74.7% y.o.y. nominal). Thus, total deposits (currencies and sectors) fell 6.6% YoY in real terms (+66.6% YoY in nominal terms).

II. Evolution and aggregate composition of the balance sheet

The size of the sector’s balance sheet shrank in real terms in August: the total assets of the financial system decreased by 1.7% in real terms in the month (+5.2% nominal) and 4.6% in real terms in a year-on-year comparison (+70.1% nominal).

In relation to the composition of the total assets of the group of entities, in August the weighting of the balance of the current accounts in pesos that the entities have in the BCRA and of credit to the private sector in the same denomination was reduced. For its part, the main item that increased its relative weight in the month was credit to the public sector (see Graph 5). Considering assets by currency, in August the weighting of items denominated in pesos with and without CER or UVA adjustment clauses was reduced (to 72.9% and 10.7%, respectively), while those denominated in foreign currency increased their relative importance in the total (to 16.5%)⁸.

Regarding the composition of the total funding of the sector aggregate, in the month the weighting of the sector’s demand accounts in pesos was reduced. Meanwhile, net worth, time deposits in pesos in the private sector and deposits in national currency in the public sector increased in relative importance (see Chart 6). When considering the total funding by currencies, liabilities in pesos with and without an adjustment clause by CER (or in UVA) slightly reduced their weighting in the month.

As mentioned in the previous section, in August the national government exchanged bonds and bills in pesos (with and without adjustment for CER) for new dual-currency instruments⁹. In this context, in the month the spread between assets and liabilities in foreign currency stood at 25% of regulatory capital at the systemic level (+11.9 p.p. monthly and +17 p.p. y.o.y.). On the other hand, in the period the positive spread between assets and liabilities with capital adjustment by CER (or in UVA) totaled 53.9% of the PRC at the aggregate level (-6.8 p.p. monthly and +1.1 p.p. y.o.y.)

III. Portfolio quality

In August, the gross exposure of the financial system to the private sector (including domestic and foreign currency) fell by 0.5 p.p. of assets to 30.1% (-0.7 p.p. y.o.y., see Chart 7). The monthly dynamics were mainly due to the performance of financing in pesos, an indicator that stood at 27.7% in the period (-0.5 p.p. monthly and +1.1 p.p. y.o.y.) and was mainly reflected in foreign banking financial institutions. Meanwhile, the weighting of credit to the private sector in foreign currency in the total assets of the financial system remained around 2.4% (-1.7 p.p. y.o.y.).

The irregularity ratio of credit to the private sector totaled 3.1% in the month, unchanged from July and 2.2 p.p. below the level recorded a year ago. The NPL indicator of the portfolio of loans to households reached 3.1% in August (-0.1 p.p. monthly and -1.9 p.p. y.o.y.). The year-on-year decrease in non-performing loans in this segment was mainly explained by the lines destined for consumption (see Graph 8). For its part, in the period the irregularity ratio of credit to companies stood at 3.2% (+0.1 p.p. monthly and -2.5 p.p. y.o.y.). The year-on-year performance of the quality of the corporate portfolio was mainly driven by the improvement in the credit performance of companies linked to industry and construction (see Chart 8)

In August, the forecast for the sector continued to be comfortable, covering 3.7% of the total portfolio of the private sector (unchanged from the previous month and -2 p.p. y.o.y.) and 119.4% of that in an irregular situation (-1.2 p.p. monthly and +11.1 p.p. y.o.y.). In the period, the net forecasts of those that regulatorily correspond to the portfolio in situation 1 and 2 (following the criteria of the minimum regulatory forecasts for uncollectibility risk) were around 86.9% of the irregular portfolio, at a systemic level

IV. Liquidity and solvency

In August, the liquid assets of the financial system totaled 69.8% of deposits, 0.7 p.p. above the July record. Disaggregated by currency, the indicator for items in pesos stood at 66.1%, and at 92% for those corresponding in foreign currency (+0.7 p.p. and +1.2 p.p. monthly, respectively, see Chart 9). In terms of the composition of liquidity in national currency, between the end of the month the share of public securities of the National Treasury admitted for the integration of minimum cash and net passes with the BCRA increased, while the relative importance of the balance of the current accounts that the entities have in this Institution decreased. In a year-on-year comparison, ample liquidity (in pesos and foreign currency) increased 1.2 p.p. of total deposits.

From high levels, in August the sector’s solvency indicators were slightly reduced. The integration of regulatory capital (RPC) of the aggregate of entities stood at 27.9% of risk-weighted assets (RWA), 0.4 p.p. below the previous month’s figure (+1.6 p.p. y.o.y., see Chart 10)¹⁰. Almost 96% of the PRC was accounted for by Tier 1 capital, with a greater capacity to absorb potential losses. The capital position – CPR net of the minimum regulatory requirement – totalled 247% of the regulatory requirement at the systemic level, 6 p.p. less than in July (+23.2 p.p. y.o.y.). On the other hand, at the systemic level, excess regulatory capital in August stood at 37.8% of the balance of credit to the private sector net of forecasts, well above the average of the last 10 years (16.5%).

Regarding the sector’s profitability indicators, in the first 8 months of 2022, the financial system accrued a total comprehensive result in homogeneous currency equivalent to 1.2% annualized (a.) of assets (ROA) and 6.8% y. of net worth (ROE), levels slightly higher than the records of the same period in 2021. although lower than those of that part of 2020 (see Graph 11).

Considering the accumulated of the last 12 months to August, the ROA of the financial system stood at 1.2% (-0.1 p.p. y.a.) and ROE at 7.5% (-1 p.p. y.a.). In the year-on-year comparison of the accumulated profitability in 12 months of the sector, higher expenses for interest paid and an increase in losses due to exposure to monetary items were observed. These effects were almost entirely offset by higher results from securities.

V. Payment system

In September, immediate transfers (TI) increased in amounts (+4.9%), operating practically the same amounts as in August (measured in constant currency)¹¹. IT accumulated an increase of 105.7% in quantities and 24.7% in real terms in amounts in the last twelve months. This performance was driven by a generalized increase in its components, highlighting IT where accounts in payment service providers (PSPs) intervene from and/or to CVU¹². Thus, the latter operations continue to gain share in the total IT: representing 54.3% in quantities (+12.6 p.p. y.o.y.) and 21.6% in amounts (+6.1 p.p. y.o.y.)¹³. It is estimated that the amount of IT operated in the last three months (annualized) represented 48.8% of GDP (+10.4 p.p. compared to the same month of the previous year, see Chart 12).

In September, transfer payments (PCT) initiated through interoperable QR codes increased compared to the previous month, both in amounts and in real amounts (+12.8% and +11.2% respectively, see Chart 13). As of August (latest available information), the number of these operations accounted for 12.6% of the total PCT (5.1% in amounts)^.14

Partly due to seasonal reasons, debit card transactions decreased in August compared to the previous month: 8.6% in amounts and 16.4% in real amounts¹⁵. However, in year-on-year terms, purchases with debit cards grew (+21.2% in amounts and +5.8% in real terms in amounts). This performance was fully reflected by the increase in face-to-face operations. It is estimated that the amount of debit card transactions in the last three months (annualized) represented 8.4% of GDP (0.7 p.p. more than in the same month of the previous year).

In September, check clearing decreased compared to the previous month, both in amounts (9.6%) and in real amounts (4.5%), although it increased in year-on-year terms (+2.5% and 8.2%, respectively). Operations through ECHEQs continued to increase their share in the total clearing of documents¹⁶: in September they represented 31.5% in quantities (+11.1 p.p. y.a.) and 57.4% in amounts (+12.4 p.p. y.a.)¹⁷. It is estimated that the amount of checks cleared in the last three months (annualized) was equivalent to 27.4% of GDP (+1.9 p.p. y.o.y.). For its part, the ratio of rejection of checks due to lack of funds in terms of the total compensated remained at moderate levels (0.66% in amounts and 0.54% in amounts), similar to those of the previous month and slightly higher in a year-on-year comparison.

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References

¹ It should be noted that during August the National Government exchanged bonds and bills in pesos (with and without adjustment for CER), delivering new bonds in dual currency maturing in 2023 (yield in pesos that arises from the greater variation between the CER plus a coupon of 2% per year and the peso-dollar exchange rate). For more detail see “https://www.argentina.gob.ar/noticias/llamado-conversion-de-lecer-lepase-ledes-y-boncer-por-bono-dual”.

² Includes principal adjustments and accrued interest.

³ According to the results of the “Credit Conditions Survey” (ECC) for the third quarter of 2022, the recent performance of credit to the private sector occurred in a context in which no significant changes were observed in the lending standards at the aggregate level. On the demand side, for the third quarter, financial institutions perceived a lower demand for credit from companies and an increase (with different intensities) in most lines of financing to households.

⁴ Communication “A” “7612”.

⁵ Expressed in currency of origin.

⁶ Communication “A” “7605” and “Press Release of 9/15/22”.

⁷ Expressed in currency of origin.

⁸ This effect was mainly due to the exchange of bonds carried out during the period (see Section I of this Report).

⁹ For more details see footnote 1.

¹⁰ The monthly decline in the indicator occurred in a context in which the increase in RWAs (+2.7% in real terms) was higher than the real increase in the PRC (1.1% in real terms).

¹¹ During September, the average value of IT among financial institutions was $41,000 and that of IT where a CVU of $9,500 is involved.

¹² In the last year, these transactions grew 167.8% in quantities and 73.2% in real terms in amounts.

¹³ IT between accounts opened in financial institutions (via CBU) expanded 61.2% YoY in amounts and 15.7% YoY in real amounts, highlighting the increase in transactions through Mobile Banking (+145.4% YoY in amounts and +68.1% YoY in real amounts).

¹⁴ During September, the average value of PCTs with interoperable QR was $2,200.

¹⁵ During August, the average value of debit card transactions was $3,400.

¹⁶ For more detail, see “Monthly Retail Payment Report.”

¹⁷ During August, the average value of physical and electronic check transactions was $254,000 and $745,500, respectively.