Report on Banks

Thisreport analyzes the situation of the Argentine financial system on a monthly basis.

Summary

• In August, the total credit balance (in domestic and foreign currency) to the private sector grew 1.8% (22.9% YoY), mainly explained by loans in pesos, which increased 2% in the period (22% YoY). In both monthly and year-on-year terms, much of the increase in total loans to the private sector resulted from the behavior of financing to companies, expanding 2.3% compared to July and 25.1% in the last 12 months. For its part, the balance of financing to families registered a nominal variation of 1.2% in the month and 20.5% y.o.y.
• In mid-September, the National Government implemented the “Ahora 12” program through which products and services can be purchased with a credit card in twelve interest-free installments and thus stimulate local consumption. To promote the implementation of this initiative, the BCRA established as of October a reduction in the minimum cash requirement by an amount equivalent to 16% of (i) the loans that financial institutions grant through the aforementioned program and (ii) the loans at an interest rate of 0% that banks channel to non-financial companies that issue credit cards, to the extent that these firms have adhered to to this program. It was also provided that the credits indicated in point (ii) may be assigned to partially complete the quota of the fifth stage of the Credit Line for Productive Investment (LCIP) – second half of 2014.
• The non-performing loan ratio of loans to the private sector granted by the financial system increased slightly in the month to 2.1%, accumulating a slight international increase of only 0.2 p.p. Despite this monthly evolution, all financial institutions continue to register low levels of non-performing loans in their loan portfolio, both in historical terms and with respect to other economies. The coverage with accounting forecasts of the portfolio in an irregular situation stood at 137.2% in August.
• Private sector deposits in pesos grew 1.3% (29.4% YoY) in August. Within this segment, the relative monthly increase in time deposits exceeded that of demand accounts. On the other hand, placements in foreign currency by the private sector increased in the period (4.2% YoY in foreign currency). In the month, the balance sheet of public sector contributions was recomposed after the decrease evidenced last July. Thus, total deposits (in domestic and foreign currency, from the public and private sectors) expanded 3.3% (26.6% YoY) in August.
• To promote retail savings in national currency, since October 8 the BCRA established a minimum limit for the interest rate on fixed-term deposits in pesos of individuals. In particular, to the extent that the amount placed in a fixed term does not exceed the coverage of the deposit guarantee insurance, the rate may not be lower than that arising from the product between the last “reference passive interest rate” (simple average of the 90-day LEBAC cut-off rates) and the corresponding coefficient according to the original term of the imposition. At the same time, the BCRA decided to increase the amount of deposit guarantee coverage from $120,000 to $350,000 per holder. Given this higher level of coverage, it was decided to increase the monthly contribution made by financial institutions to the Deposit Guarantee Fund. Finally, the BCRA increased interest rates for passes with financial institutions.
• In August, the liquidity indicator (considering items in domestic and foreign currency) of the aggregate financial system increased by 2.1 p.p. of deposits, to represent 25.1%. In the same sense, the broad liquidity indicator (including pesos and foreign currency, with holdings of LEBAC and NOBAC) increased 1.2 p.p. in the month, reaching 43.8% of deposits (growing 6.3 p.p. compared to the level observed twelve months ago).
• The net worth of the consolidated financial system expanded 3.1% in the month (44.2% YoY), mainly due to accrued profits. Capital integration of the banks as a whole stood at 14.3% of total risk-weighted assets (RWA) in the period, while Tier 1 capital integration accounted for 13.3% of RWAs. For its part, in August the excess of capital integration over the regulatory requirement (capital position) reached 84%, accumulating a year-on-year increase of 13 p.p.
• In August, the ROA of the financial system stood at 4.6%y, increasing 0.2 p.p. compared to last month, mainly due to the improvement in the financial margin. Thus, in the accumulated of the last twelve months, the financial system accrued profits equivalent to 4.5% of assets.