Report on Banks

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

Summary

• In order to continue promoting access to housing and protecting savings, in mid-September
2016 the BCRA regulated the expansion of long-term credit and savings
instruments. In particular, the UVI (Housing Unit) was designated as the instrument to update
mortgage loans and deposits based on the Construction Cost Index published by INDEC.
On the other hand, the already existing instruments that were updated based on inflation (CER), changed
their denomination from UVI to UVA (Purchasing Value Units upgradable by “CER”). On the other hand, in order to make banking management more efficient, by enabling a reduction in administrative costs, from November the BCRA will allow the deposit of checks electronically. Finally,
seeking to stimulate credit for consumption and production, at the end of September the National Government decided to extend the “AHORA 12” Plan until January 31, 2017, incorporating new products.
• In August, the balance of bank financing in foreign currency to the private sector showed an
outstanding performance, growing 10.6% compared to July and 70.2% YoY (in home currency). Meanwhile
, the balance of credit in pesos to the private sector increased 1% in the month and accumulated a nominal
year-on-year increase of 20.9% (-14.6% in real terms1
).
• In August, the NPL ratio for loans to the private sector stood at 1.9% of the total portfolio,
remaining unchanged in magnitude from the July level. The level of irregularity of
financing to families stood at 2.8% in the month, while that corresponding to
loans to companies remained at 1.3%. Accounting forecasts represented 136% of the non-performing portfolio.
• In line with the evolution of recent months, foreign currency deposits of the private
sector continued to increase, 3.1% monthly and 54.4% y.o.y. in August —considering the currency of origin—.
However, these impositions have a low relative importance in total funding (9.2% of the total).
For its part, the balance of private sector deposits in pesos grew 0.9% in the month and 26.3% y.o.y. (-
10.7% y.o.y. adjusted for inflation), a variation mainly explained by term deposits.
• The financial system continued to present high liquidity indicators in August. Liquid assets
– in domestic and foreign currency, excluding LEBAC – totaled 29.9% of total deposits
in the period, slightly below the July figure, but 8 p.p. above the same period
in 2015. Considering the holdings of monetary regulation instruments, the broad liquidity
indicator stood at 47.8% of deposits in August.
• In August, the solvency indicators of the financial system remained high. The capital integration ratio
for the banks as a whole remained at 16.6% of risk-weighted
assets (RWA) in the month. Tier 1 equity accounted for 15.5% of RWAs. For its part, the aggregate excess of capital integration represented 93% of the regulatory requirement, in line with the level of last month
and the same period in 2015.
• In August, the sector’s gains in terms of assets (ROA) were 3.2% y/y, 1 p.p. less than
last month (24.8% y/y in terms of net worth (ROE)). The monthly
decrease in accounting results was verified in all groups of financial institutions and was mainly explained by the reduction in the financial margin (lower gains from securities and share price differences). The ROA for the accumulated in eight months of 2016 was 4%y. (ROE of 31.9%y).
• The estimated implicit interest rate obtained by the financial system for loans, government securities
and LEBAC in pesos, as a whole, was reduced compared to the levels of the second
quarter of 2016. This fall exceeded the decrease in the implicit funding cost estimated by deposits in national currency, thus generating a narrowing of the differential between these concepts. This
differential was slightly below the record at the end of 2015.