Report on Banks

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

Summary

• At the beginning of 2013, banks expanded the levels of intermediation with the private sector, with growth in loan and deposit balances. The sector’s operational infrastructure continues to expand, with increases in employment (in the fourth quarter of 2012 it grew 1.5% year-on-year) and in the number of ATMs (7.2% YoY). The creation of jobs in the financial system in 2012 was relatively higher than that observed in the economy at the aggregate level.
• In January, the balance of total deposits (in domestic and foreign currency) in the financial system increased by 1.6% (27.7% YoY). Private sector placements grew 1.8% in the month (31.4% YoY) and those in the public sector grew by 1% (19.5% YoY). The monthly expansion of total deposits was driven by the private sector’s time accounts in pesos, which increased 6% in the period (49.8% YoY).
• Within the framework of some slack for the integration of the quarterly requirement of the Minimum Cash regime (December 2012-February 2013), in the month there was evidence of a change in the composition of liquid assets, reducing the share of availabilities and increasing both the holdings of LEBAC and NOBAC and the balance of passes with the BCRA. Given the increase in deposits, the liquidity ratio fell by 1.7 percentage points (p.p.) in January and stood at 25.1% of total deposits, while the broad liquidity indicator (which includes LEBAC and NOBAC holdings) stood at 38.6%.
• The coverage of short-term liabilities – up to 1 month of residual maturity – with more liquid assets reached 47.8% at the aggregate level at the end of 2012 (latest available data), registering an increase of 4.7 p.p. compared to the end of 2011.
• In January, and following the typical seasonality, total financing to the private sector increased in the month by 1.1%. This behavior was mainly evident in loans in national currency. On the other hand, loans in foreign currency showed a slight monthly increase, after several months of declines. In the last 12 months, the balance of credit to families and companies increased 30.8%, driven by financing in pesos (41.6% YoY). Thus, the balance of credit to the private sector in terms of GDP stood at 16.6% at the beginning of 2013, 1.6 p.p. above the value observed 12 months ago. Although the level of bank financing has been growing in the last 10 years, its depth continues to be low in comparison with other economies, marking a high potential for development.
• The NPL ratio for financing to the private sector increased slightly in January to 1.8%, mainly due to the performance of private banks. Despite its slight increase, non-performing loans continue to be at relatively low levels. It should be noted that the coverage ratio of irregular loans to the private sector with accounting forecasts reached 139% in the month, far exceeding the entire non-performing portfolio.
• The net worth of the consolidated financial system increased 2.5% in January (30% YoY), driven by accounting gains. The capital integration ratio of banks as a whole to credit risk-weighted assets (RWA) decreased slightly in the first month of the year to 16.9%. The excess of capital integration over the total regulatory requirement during the month reached 57%. At the beginning of the year, the modification of the minimum capital regime for financial institutions began to take effect in order to strengthen the financial system, stimulate the granting of credit to sustain the growth of the economy and adapt local regulation to international standards. As of February 2013, these changes will begin to be reflected in the regulatory capital position of the institutions.
• At the beginning of 2013, the accounting profits of the financial system were equivalent to 3.3% annualized (y) of assets, increasing 0.2 p.p. compared to the level of the previous month and 0.7 p.p. compared to that observed in January last year. The increase in monthly ROA compared to last December was mainly due to higher interest results and the positive result of the holding of securities, and was mainly concentrated in public banks. In the last 12 months, the accounting profits of the financial system accumulated 2.9% of assets.