Report on Banks

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

Summary

• At the beginning of 2011, banks continued to increase the levels of intermediation with the private sector and develop their function of providing means of payment for the economy. Although the depth of financial intermediation has been gradually increasing, it still has potential for development. The expansion of activity has led to a certain expansion of the operational structure of all financial institutions in recent months, with increases mainly in employment (in the fourth quarter of 2010 it grew 2.6% YoY) and in the number of ATMs (15% YoY).
• The balance sheet of credit to the private sector grew 2.7% in January. With the exception of documents, all credit lines increased in the month, highlighting export financing, advances and pledges. Foreign private banks verified the greatest monthly dynamism in financing to the private sector, especially in commercial loans, in a framework in which all groups of financial institutions exhibited increases in the balance of loans. In year-on-year terms, financing to the private sector increased 42%, 34 p.p. more than the record observed 12 months ago. Loans to companies led the annual expansion of credit, growing at a rate of 47% YoY.
• The dynamism of financing to the private sector occurs in a context of limited levels of credit risk. As a sign of this, the non-compliance ratio of financing to the private sector fell by 0.1 p.p. in January, reaching a new record low of 2%. In the last 12 months, the level of non-performing loans fell by 1.5 p.p., a situation that was verified in all homogeneous groups of financial institutions. The irregular portfolio of the financial system continued to show a high level of coverage with forecasts (168%).
• Within the framework of the Bicentennial Productive Financing Program, the BCRA recently held the fourth auction of resources for the funding of financial institutions for the placement of credits for productive investment. On this occasion, out of a total of $260 million auctioned, $231 million were awarded among six banks. The interest rate to be paid by each financial institution was set at 9% nominal per annum, while the total financial cost for the respective borrowers will be 9.9%. The financing must be denominated in pesos and have an average term equal to or greater than two and a half years. Accumulating the four auctions, the total awarded by the BCRA among 9 entities reached almost $1,260 million, with a participation of two-thirds of the public banks. Currently, the Program already has about 100 projects approved by the evaluation units of the Ministries of Industry, Economy and Agriculture.
• Total deposits in the financial system increased 1.6% in January, accumulating a growth of 38.2% YoY. The monthly increase was driven by both public sector (2.3%) and private sector (1.2%) placements. Public sector deposits showed greater relative dynamism year-on-year (62.2%), this increase being mainly explained by time deposits, which gained participation in the total aggregate funding of all financial institutions.
• The liquidity indicator of banks, which includes items denominated in domestic and foreign currency, increased 0.6 p.p. of deposits in the month, to 28.6%, mainly due to the greater integration of minimum cash by the entities. The broad indicator of liquidity of the financial system (which includes bills and notes not linked to passes with the BCRA) grew 1 p.p. of deposits in January, to 45.5%. In year-on-year terms, this last ratio verified a slight increase, driven mainly by public banks.
• The mismatch of foreign currency of banks, including purchases and forward sales of currency in suspense accounts, fell 4 p.p. of equity in January, to 27.5%.
• The net worth of the consolidated financial system increased 2.6% in January, accumulating an expansion of 19.5% YoY. Accounting gains and capital contributions boosted the solvency of the sector at the beginning of the year. Accounting earnings reached 3% annualized (y) of assets in the month, slightly lower than at the end of last year, but higher than those of January 2010. On the other hand, a foreign private bank and, to a lesser extent, a national private bank received capitalizations for a total of $215 million at the beginning of the year.
• The capital integration ratio of the banks as a whole remained stable compared to the end of 2010, at around 17.7% of risk-weighted assets (RWA). The excess capital integration of the financial system grew slightly in terms of regulatory requirements during the month to 88%.