Report on Banks

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

Summary

• The monthly growth of the balance of credit in pesos to the private sector accelerated at the end of the year, with an improvement of 3.8% in December (3.4% considering national and foreign currency). This performance is partly explained by seasonal factors as well as by the effect of the official stimulus programs for productive financing (completion of the fourth stage of the Credit Line for Productive Investment) and consumption (“Ahora 12”, PRO. CRE. AUTO, among others. Cards and documents drove the increase in credit in the month. It should be noted that, in the fourth quarter of the year, credit in pesos to the private sector increased at an annualized rate (y.) of 40%, practically in line with the record for the same period in 2013. This quarterly growth was driven by loans to households, mainly for consumption. Throughout 2014, the balance of credit to the private sector increased by 20.2%.
• At the end of 2014, the BCRA implemented a new stage of the Credit Line for Productive Investment (LCIP) for the first half of 2015. For this new tranche, 6.5% of the deposits of the non-financial private sector in pesos as of November 2014 of the entities reached were taken as a reference, 1 p.p. more than in the previous tranche. This will generate an amount equivalent to $37,400 million to be allocated to the financing of MSMEs, 34% more than in the second half of 2014. The financing will have a fixed interest rate of up to 19% (0.5 p.p. less than in the previous stage) for at least the first three years. For this new tranche, a mechanism was foreseen to favor smaller companies and regions with less economic development.
• In December, non-performing loans to the private sector remained at 2% of the portfolio, remaining largely unchanged since May 2014. These levels of irregularity are reduced both in historical and international comparison. In addition, the coverage of the non-performing loan portfolio with accounting forecasts continued to be comfortable, reaching 139.6% of loans in this situation for the aggregate of the financial system and exceeding 100% for all groups of banks.
• Deposits in pesos of the private sector increased 5.4% (30.4% y.o.y.) in the last month of the year, a variation mainly explained by demand accounts that partly reflect the effect of seasonal factors. Placements by households and companies in foreign currency expanded —in currency of origin— 4.1% (7.7% y.o.y.) in the period. Thus, the balance of total deposits in the private sector grew 5.3% (31.3% YoY) in December. The BCRA continued to promote measures to encourage savings in the financial system, both in local and foreign currency.
• Liquid assets – considering pesos and dollars – closed the year at 26.2% of deposits, 0.2 p.p. less than last November due to the reduction in transfers with the BCRA and the dynamism of deposits. Similarly, the broad liquidity indicator – which includes holdings of monetary regulation instruments – decreased in the month to 45.4% of deposits. Despite this reduction in the margin, in 2014 the broad liquidity ratio increased by 6.9 p.p. of deposits and changed its composition, with a greater participation of monetary regulation instruments.
• The mismatch of foreign currency in the financial system was reduced by 1.2 p.p. of the Computable Patrimonial Liability (CPR) in December to 21.8%, being the lowest level in the last 10 years. Thus, the indicator accumulated a decrease equivalent to almost half of the PRC in 2014 as a result of the measures opportunely implemented by the BCRA. The banks as a whole continued to show a low level of dollarization of their balance sheets: as of December, assets denominated in foreign currency represented only 11.8% of the total and liabilities in dollars stood at 9.3% of the total.
• The net worth of the consolidated financial system increased 2.1% in December (38.4% YoY), mainly due to earned earnings. In the month, total capital integration represented 14.7% of risk-weighted assets (RWA), with 93% of the PRC composed of the capital with the greatest capacity to absorb eventual losses (Tier 1). On the other hand, the excess capital integration of all financial institutions represented 90% of the regulatory requirement at the end of the year, 14 p.p. above the end of 2013.

• Monthly accounting profits grew slightly compared to last November to 3% of assets. In 2014, the financial system accrued an ROA of 4.1%, 0.7 p.p. above the 2013 record, mainly due to higher gains from securities. In recent months, there have been some signs of moderation in the financial system’s profits, mainly due to lower results associated with the exchange rate. In particular, ROA for the fourth quarter of 2014 was more in line with pre-peak records in late 2013 and early 2014.