Report on Banks

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

Summary

• In order to continue with local convergence to International Financial Reporting Standards (IFRS), in September the BCRA ordered the adaptation of a set of local technical and prudential provisions. In terms of access to bank financing for small and medium-sized enterprises, guarantees and letters of credit issued by multilateral development banks were admitted as preferred collateral, provided that certain requirements are met. To continue improving the security and quality of the cash in circulation, in October this institution put into circulation a new $20 legal tender bill. In addition, this institution began to publish on a daily basis a survey of the interest rates paid for fixed-term deposits for amounts of $20 million or more with terms of 30 to 35 days (TM20), considering all the entities (a rate for term placements of US$20 million or more is also beginning to be published).

• The total credit balance to the private sector increased 3.8% in August (2.4% in real terms), led by public and foreign private banks. In the month, both the foreign currency and peso segments presented a similar performance. In year-on-year terms, total financing to companies and families accumulated an increase of 47.8% or 19.6% when adjusted for inflation. Loans with real collateral (mortgages and pledges) and, to a lesser extent, commercial lines, showed the highest real year-on-year growth rates.

• In August, the NPL ratio for loans to the private sector fell slightly to 1.9%. With data as of July – the latest information available – the level of irregularity of financing to households stood at 3%, while that corresponding to loans to companies remained at 1.1%. Accounting forecasts represented 136% of the non-performing portfolio.

• The balance of total deposits in banks increased by 1.8% in August, a variation mainly explained by the public sector’s foreign currency deposits. Private sector deposits in dollars increased 2.7% – in currency of origin – while those arranged in national currency did not show any changes in magnitude in the month. Thus, in year-on-year terms (y.o.y.), total deposits increased 42% (14.9% y.o.y. adjusted for inflation).

• From high levels, liquidity in all groups of banks was reduced in August, due to the need to supply the rising demand for credit. The broad liquidity indicator – including LEBAC holdings – for the financial system stood at around 44.5% of total deposits in the period, decreasing for the fifth consecutive month. The current level of this ratio – the lowest since the end of 2015 – is 3.3 p.p. below that observed a year earlier.

• In August, the banks as a whole verified a regulatory capital integration of around 16.6% of risk-weighted assets (RWA), slightly below the previous month. Meanwhile, the excess of regulatory integration represented 92% of the requirement. The system’s net worth increased 2.3% in August (0.9% in real terms), being mainly explained, as in previous months, by the accounting profits of the entities.

• The results of the financial system stood at 3.2% y/y of assets in August, with a monthly decrease of 0.5 p.p. The monthly variation was particularly explained by a reduction in the financial margin – especially due to lower differences in share prices. Between January and August 2017, the profits of financial institutions increased by 11.4% in nominal terms compared to the same period in 2016, totaling 3.1% in terms of assets (4% y/y in the same period of 2016).