Report on Banks

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

Summary

• Seeking to facilitate the exchange of banknotes between entities that tend to be collectors and those that
deliver more banknotes to their customers given the demand for them, at the beginning of February the BCRA approved
the creation of an electronic platform for the online negotiation of cash. This measure aims to
significantly reduce the costs of handling and moving cash, both for the BCRA and for the
entire financial system. Thus, the provision of cash to the branches most geographically
distant from the regional agencies of the BCRA will be streamlined. In turn, it generates incentives to replace cash operations with banked transactions, reducing informality. In order to continue promoting private investment, the opening of special investment accounts for non-residents was made more flexible and the destinations of the lending capacity in foreign currency were expanded, including the financing of livestock production, which has been registering increases in its export levels. In order to continue providing clear and
detailed information, at the beginning of 2017 the BCRA established that the total financial cost of credit operations will be
expressed in the form of an annual effective rate (instead of an annual nominal rate, as was provided until now).
• The monthly profitability of the financial system grew by almost 1 p.p. of assets in December compared to the previous month,
reaching 3.3% on an annualized basis (a), driven in part by lower interest expenses and
higher net income from services. Beyond the punctual performance of December, in recent quarters
the system’s accounting earnings observed a downward path. The sector’s return on assets (
ROA) reached 2.8% y/y in the last quarter of 2016, falling throughout the year, placing it 0.9
p.p. and 1.9 p.p. below the levels of the previous quarter and the same period of 2015, respectively. In
general terms, this lower profitability was explained by the reductions in interest charged on loans and
in the results of securities. Throughout 2016, the accounting profits of the financial system accumulated $74,560 million, observing a nominal increase of just over 24% compared to 2015. This is the
lowest annual growth in the last 8 years, during which the average increase was almost 42%, with
peaks of 66%, 58% and 50% in 2009, 2014 and 2013, respectively.
• In December, the total credit balance (in domestic and foreign currency) to the private sector increased
by 4.4% or 3.1% in real terms1 (32.1% YoY and -3.3% YoY adjusted for inflation). Thus, credit to
the private sector grew in real terms for the fifth consecutive month, accumulating an expansion of 10.3%
since August. Moreover, financing to the private sector closed the last quarter with a real quarterly increase of 28%a. This positive performance was reflected in both loans to businesses and households.
• In line with the BCRA’s objective of promoting immediate transfers as an alternative means of payment to cash, throughout 2016 the value of these operations accumulated a real expansion of 20.4%
compared to 2015, and 31.2% in terms of the number of operations.
• Non-performing loans to the private sector remained unchanged in December, standing at around 1.8%
of the portfolio. In the first part of the year, a slight increase in this indicator was observed, which was partially
reversed during the second half, thus accumulating an increase of close to 0.1 p.p. between peaks in 2016. The irregularity ratio
of financing to households stood at 2.7% in the month, while that corresponding
to loans to companies stood at 1.2% (both without significant monthly variations). At the end of the year, the pension balance of the
financial system reached 136% of the portfolio in an irregular situation.
• The balance of private sector deposits grew 6.4% in the last month of the year, with contributions from placements
in dollars (8.1%, in the currency of origin) and in pesos (5.8%). In the last twelve months, private sector
deposits expanded 44% (5.4% in real terms), with a greater relative dynamism of the segment in
foreign currency (111%). The growth of private sector deposits in pesos in 2016 reached 26.7% (-
7.3% adjusted for inflation) and was driven by public banks.
• Bank liquidity closed the year at high levels. As of December, liquid assets – in domestic and
foreign currency – accounted for 34.7% of deposits, above the record for November and the end of 2015.
On the other hand, as the holding of LEBAC decreased in the month, the broad liquidity ratio fell slightly to
49.1%, although it was 2.4 p.p. higher than that evidenced at the end of 2015.
• In the month, the capital integration of the banks as a whole represented 16.7% of risk-weighted
assets (RWAs), a level slightly below the November figure and higher than at the end of 2015. The excess
capital integration of the financial system reached 94% of the requirement at the end of the year, slightly
below the level of the previous month, but 15 p.p. above the figure for December 2015. All bank groups
had a surplus capital position in the period.