Report on Banks

Executive summary

• The aggregate financial system has high liquidity and solvency margins, with indicators that show values above the minimum required according to internationally recommended regulatory standards. On the one hand, the capital integration (RPC) of all financial institutions accounted for 21.4% of risk-weighted assets (RWA) in February (latest available information), increasing 0.4 p.p. compared to the previous month and 4.8 p.p. in a year-on-year comparison (y.o.y.). The regulatory capital position or excess (RPC minus minimum capital requirement) of the system reached 147% of the requirement.

• Liquidity in the financial system, measured in broad terms (availability, integration of minimum cash and BCRA instruments, in domestic and foreign currency), stood at 63.8% of total deposits in February (61.7% for items in pesos and 70.3% for the foreign currency segment). The level of this broad liquidity ratio increased by 1.6 p.p. compared to January’s figure and by 6.2 p.p. y.o.y.

• The balance of deposits in pesos in the private sector increased 2.3% in real terms in February (+4.3% nominal), driven by both demand accounts (+2.2% real, +4.3% nominal) and time placements (+2.1% real, +4.2% nominal). Private sector deposits in foreign currency decreased 0.7% in the month – in source currency. In this context, private sector deposits accounted for 58.7% of the total funding (liabilities and net worth) of the financial system, 0.5 p.p. more than in the previous month and without significant changes in a year-on-year comparison.

• In February, the balance of bank financing in pesos to the private sector decreased by 0.7% in real terms (+1.3% nominal). Credit in foreign currency fell 3.6% in the month – in the currency of origin. Bank financing to the private sector represented 36.7% of total assets, 0.8 p.p. below last month’s value and 3.5 p.p. y.a.

• The non-compliance ratio of financing to the private sector stood at 6.1% of the total portfolio in February, increasing slightly compared to January (+0.1 p.p.) and 2.3 p.p. y.o.y. The balance of total accounting forecasts represented 86.5% of loans to the private sector in an irregular situation in the month, without significant changes compared to January. For its part, the estimated balance of the forecasts attributable to the irregular portfolio stood at 70.2% of said portfolio.

• In February, the financial system obtained gains equivalent to 1.3% annualized (y) of assets (ROA) and 8.7% y. of net worth (ROE), reducing compared to the first month of the year. Considering the accumulated in the first two months of 2020, the ROA of the banks as a whole reached 3.2%y, while the ROE stood at 21.3%y.

I. Financial intermediation activity

In terms of the estimated flow of funds in February for items in^pesos1, the increase in the balance of deposits in the private and public sectors was the main source of resources for the financial system in the month. These funds were mainly channeled to increase the holdings of BCRA instruments (see Chart 1). All the groups of banks verified these origins and uses of resources in pesos in the month. For its part, in February, the foreign currency items of the balance sheet of the financial system presented limited variations. Thus, in the month there was a decrease in both credit and private sector deposits in foreign currency, movements that were reflected in all groups of banks.

In this context, in February the total assets of the financial system increased 0.9% in real terms (+3% nominal).

Considering the aforementioned variations, in February the foreign currency assets in the aggregate balance sheet of the banks as a whole reached 23.5% of total assets, and liabilities in the same denomination reached 22.1% of total funding (liabilities and equity), slightly below the January 2020 records. The spread between these bank assets and liabilities in foreign currency – including forward foreign currency purchase and sale transactions – totaled 9.3% of regulatory capital in the month, slightly higher than in January (see Chart 2).

In relation to operations carried out through the National Payment System, during February immediate transfers increased 7% in amounts compared to January, although they decreased 2% in real amounts (considering daily average of operations). Compared to the same month of the previous year, immediate transfers grew 21% and 7% in amounts and in real amounts, respectively. For its part, check clearing continued to decline in February, in line with the trend of recent years (see Chart 3). In February, the number (and amount) of rejections due to lack of funds in terms of the total compensated reached 0.81% (and 0.68% in amounts), 0.12 p.p. (and -0.04 p.p.) less than in January. However, within the framework of the development of the COVID-19 pandemic, during March the rejection of checks due to lack of funds in terms of the total compensated increased, up to 2.74% in amounts and 2.19% in amounts.

II. Deposits and liquidity

In February, the balance of deposits in pesos in the private sector increased 2.3% in real terms (+4.3% nominal), both due to the performance of demand accounts (+2.2% real, +4.3% nominal), and time placements (+2.1% real, +4.2% nominal). Private sector deposits in foreign currency fell 0.7% – in source currency – between the peak of the month. For their part, public sector deposits grew 3.2% in real terms (+5.3% nominal) in February. In this context, the balance of total deposits in the financial system increased by 1.9% in real terms (+3.9% nominal).

In the last 12 months to February, private sector deposits in pesos decreased 1.1% in real terms (+48.6% YoY nominal), with a 13.4% YoY drop in term placements (+30.2% YoY nominal) and a 13.3% YoY increase in demand balances (+70.2% YoY nominal). For their part, private sector deposits in foreign currency fell 37.3% – in source currency – in a year-on-year comparison. The balance of total deposits in the public sector also decreased in real terms in the same period. Thus, the balance of total deposits fell by 15.4% YoY in real terms (+27.1% YoY in nominal terms) compared to February 2019.

In this context, the weighting of private sector deposits in total funding – total liabilities plus net worth – increased by 0.5 p.p. in February, to 58.7% (unchanged in a year-on-year comparison, see Chart 4).

The liquid assets of the financial system continued at high levels and even increased in February. The broad liquidity^{indicator 2} reached 63.8% of total deposits in the month (61.7% for the segment in pesos and 70.3% for items in foreign currency), 1.6 p.p. above January (1.2 p.p. more for the indicator in pesos and 2.9 p.p. for the foreign currency indicator, respectively, see Chart 5). In the month, there was evidence of a change in the composition of liquid assets, with a reduction in the current accounts of financial institutions at the BCRA (after the end of the December-January bimonthly period for the integration of minimum cash) and with an increase in the LELIQ. Compared to February 2019, the broad liquidity indicator grew by 6.2 p.p. (+3.4 p.p. y.o.y. for items in local currency and +14 p.p. y.o. for the foreign currency segment).

III. Credit and Portfolio Quality

The balance of bank financing in pesos to the private sector decreased 0.7% in real terms in February compared to January (+1.3% nominal). This monthly drop was mainly driven by credit card financing. For its part, the credit balance in foreign currency fell by 3.6% in the month – in the currency of origin – (see Chart 6).

Compared to February 2019, credit in national currency to the private sector accumulated a 14.2% real fall, mainly explained by pledged and personal credit lines. Financing in foreign currency fell by 38.7% YoY (in source currency).

In February, the balance of credit to companies (in domestic and foreign currency) fell by 1.7% in real terms (+0.3% nominal)³3. In a year-on-year comparison, this financing decreased 23.7% in real terms. For their part, bank loans to households fell 1.1% in real terms in the month (+0.9% nominal), a performance mainly explained by credit and personal card credit. In year-on-year terms, loans to households contracted 15.4% in real terms.

Bank financing to the private sector represented 36.7% of total assets, 0.8 p.p. below last month’s value and 3.5 p.p. less than in the same month of the previous year.

In February, the non-compliance ratio of financing to the private sector stood at 6.1% of the total portfolio, increasing slightly (+0.1 p.p.) in the month and 2.3 p.p. y.o.y. The monthly performance of this indicator was similar in the different groups of banks, while the year-on-year variation highlights the increase recorded in public banks (see Graph 7) – mainly driven by the behavior of the level of irregularity of financing to companies.

The non-performing loan ratio for companies reached 8.1% in February, increasing 0.3 p.p. in February and 4.6 p.p. y.o.y. For its part, the delinquency of total financing to families was 4.3% in the month, without significant changes compared to January (+0.1 p.p.) or in a year-on-year comparison (-0.2 p.p.). The indicator of irregularity of mortgage loans to families did not present significant variations in February: 0.68% in the UVA segment and 0.97% for the rest.

In February, the balance of total accounting forecasts (regular and irregular portfolio) represented 86.5% of loans to the private sector in an irregular situation in the financial system (see Chart 8), with no significant changes compared to January. For its part, the estimated balance of forecasts attributable to the irregular portfolio stood at 70.2% of said portfolio, in line with the previous month’s record.

In the period, the exposure of the financial system to the public sector represented 9.4% of total assets, 0.3 p.p. less than in January and 0.9 p.p. below the level of a year ago. Both the monthly performance and the evolution with respect to the previous year were mainly explained by the public banks

IV. Solvency

The solvency indicators of the financial system increased slightly in February. Capital integration (CPR) totaled 21.4% of risk-weighted assets (RWA) in the month, 0.4 p.p. more than in January and 4.8 p.p. higher in a year-on-year comparison (see Chart 9)⁴. More than 90% of total integration continued to be accounted for by Tier 1^{5 capital.} The capital position (RPC minus regulatory requirement) of all financial institutions represented 147% of regulatory requirement in the month.

In February, the financial system obtained gains equivalent to 1.3% y/y of assets (ROA) and 8.7% y/y of net worth (ROE)⁶, reducing compared to the first month of the year (see Chart 10), mainly due to a lower financial margin and a reversal of “other comprehensive income” (ORI). Considering the accumulated in the first two months of 2020, the ROA of the banks as a whole reached 3.2% and the ROE stood at 21.3% as of⁷.

It should be clarified that, in view of the changes in the accounting criteria introduced at the beginning of 2020, certain concepts, such as the aforementioned profitability ratios, are not directly comparable with those verified in previous periods (not expressed in homogeneous currency). Only when financial institutions present their quarterly financial statements could a comparison be made, as there will be items expressed in homogeneous currency.

The financial margin totaled 11.5% y/y of assets in February, falling 3.3 p.p. compared to the January level. Monthly reductions in pass premiums, interest income (from loans) and CER adjustments were partially offset by a decrease in interest outflows (from deposits), and by slight increases in securities results and exchange rate differences (positive). The financial margin fell monthly in all groups of banks. So far this year, the sector’s financial margin represented 13.9% of assets⁸.

In February, results for services in the financial system reached 1.9% y/y, 0.4 p.p. less than in January. All bank groups saw a monthly decline in net service revenue. In the cumulative two months of 2020, this concept in the income table was equivalent to 2.1% of assets.

Bad debt charges for banks as a whole accounted for 1.8% of assets in the month, 0.6 p.p. more than in January, mainly due to the performance of public banks. In the cumulative two months of 2020, uncollectibility charges at the aggregate level totaled 1.5%y. of assets.

In February, the administrative expenses of the financial system reached 7% of assets, 0.2 p.p. less than in January. The monthly variation was mainly explained by private banks. Taking into account the accumulated in the first two months of the year, these expenses represented 7.1% of assets.

The banks as a whole accrued losses in ORI equivalent to 2.3%a. of assets in February, reversing a slightly positive result recorded in January. Most of the monthly change in this concept was explained by results derived from financial instruments at market value, mainly in foreign public and private banks. In the first two months of 2020, the ORI of the financial system was negative and equivalent to 1% of assets.

References

¹Considering differences between February and January of balance sheet balances expressed in homogeneous currency.

²Availability, integration of minimum cash and BCRA instruments, in national and foreign currency.

³Information extracted from the Debtors’ Central (national and foreign currency). Loans to residents abroad are not included. Adjustments in principal and accrued interest are considered. Business financing is defined here as that granted to legal entities and commercial financing channeled to individuals. On the other hand, loans to families are considered to be those granted to individuals, unless they are for commercial purposes.

⁴In the year-on-year comparison of this indicator, the effect of the entry into force of a set of modifications in the accounting criteria at the beginning of 2020 (for more information, see Report on Banks January 2020 Edition) should be considered.

⁵Composed primarily of common stock and earnings.

⁶These indicators consider the monetary result and the other comprehensive income (ORI) item. All the concepts included for the calculation of the indicators are considered to be expressed in homogeneous currency (February 2020 pesos).

⁷The numerator of the accumulated ROA and ROE for two months of 2020 considers the accumulated results to February, expressed at prices of that month. To construct the denominator of both indicators, the average of assets and net worth respectively is taken, both at February prices.

⁸In this case and in the remainder of this Section, provided that it refers to indicators accumulated in the year, a similar detailed methodology is used to calculate ROA and ROE indicators.