Report on Banks

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

Summary

• The local macroeconomic environment has been favoring the expansion of the activity of the financial system. In this context of greater credit dynamism, the liquidity indicators of the financial system remain at high levels. The growth of bank loans has been funded mainly by the capture of deposits from the private sector, being driven mainly by the corporate sector, in a context of a decrease in the balance of loans in an irregular situation. The growing activity of the entities translates into an expansion of the operational infrastructure of the financial system (with increases in the number of personnel employed, in the number of ATMs and in subsidiaries), highlighting the number of branch openings in the least banked areas of the country, while at the same time there are improvements in terms of the efficiency and productivity of the sector. These developments take place in conjunction with the consolidation of bank solvency levels.
• As part of the policy promoted by the Central Bank aimed at expanding the population’s access to financial services, in recent months a series of measures have been implemented to facilitate the making of bank transfers. As of November 2010, the BCRA defined a significant reduction in transfer costs, mainly in the segment with lower amounts, and since the end of April 2011 banks began to offer transfers with immediate credit. From the entry into force of the measure aimed at reducing costs until August 2011, there was a 33% increase in the total number of transfers for amounts of less than $10,000. In addition, by August 2011 the number of immediate transfers made through the networks exceeded one million (for $4,100 million), increasing 29% compared to May.
• These measures, together with the relaunch of the Cancelling Check (ChC) and the implementation of the Universal Free Account (CGU), make it possible to increase the security and practicality of the population’s transactions by making it possible to replace cash with the use of other means of payment. In particular, the number of CGU holders continued to grow (reaching 77,300 by mid-September of this year), as did the amount and number of transactions with ChC (since its implementation, 1,962 checks in national currency for $136 million and 3,225 documents in foreign currency for US$177 million were accumulated).
• The balance sheet of credit to the private sector increased by 4.2% in July, with a significant dynamism in leasing and documents (mainly single-signature). In the last 12 months, financing to the private sector grew 50%, driven mainly by financing to companies (54% YoY). Thus, the year-on-year increase in credit to the corporate sector continued to outpace the pace of expansion in loans to households for the thirteenth consecutive month. In the last 10 months, and for the first time since the pattern of credit growth was recovered after the 2001-2002 crisis, the rate of increase in financing to companies is greater than that corresponding to consumer loans. Industry stood out as the activity with the highest participation in the year-on-year growth of financing to the corporate sector, followed by the services sector and primary production.
• Within the framework of the Bicentennial Productive Financing Program, the BCRA held the seventh and eighth auctions between the end of August and mid-September, awarding $835 million and $253 million, respectively. Thus, the total amount awarded reached almost $2,920 million, with the participation of 12 banks.
• The non-compliance ratio of financing to the private sector fell 0.1 p.p. in July and, in this way, reached an all-time low of 1.6%. Compared to July 2010, this indicator decreased by 1.2 p.p., also showing a fall in the absolute balance of loans in an irregular situation. The coverage ratio with forecasts of irregular financing to the private sector stood at 159%, 37 p.p. more than a year ago.
• The balance sheet of total deposits of the group of banks increased 1.6% in July, driven by both private and public sector loans. In the last 12 months, total deposits accumulated a growth of 34.5% (almost 6 p.p. more than the record of July 2010). This increase was led by private sector placements, which registered a growth of 35.7% YoY.
• In the context of the sustained increase in credit to the private sector, the broad liquidity indicator of the banks as a whole (which includes items in pesos and foreign currency, as well as the bills and notes of this Institution) decreased 1.1 p.p. of total deposits in July to 41.6%, mainly due to the reduction in the holdings of Lebac and Nobac. which was tempered by slight increases in cash in banks and net transfers with the BCRA. For its part, the liquidity indicator of the set of financial institutions, which excludes the portfolio by own holding of Lebac and Nobac, increased slightly in the month and reached 24.6%.
• The net worth of the consolidated financial system expanded 2.2% in the month (22.5% YoY), mainly due to accounting profits. The banks as a whole continue to show high solvency indicators. In July, capital integration stood at 16.4% of risk-weighted assets (RWA). Considering the level of integration of core or Tier 1 capital, the local financial system showed a record in line with the average of the region and slightly above the average of developed countries.
• In July, the ROA of the banks as a whole registered a monthly increase of 0.2 p.p. to 2.7%y, a variation mainly driven by a higher financial margin and lower administrative expenses. Throughout 2011, the financial system earned 2.5% of assets, in line with the record of a year earlier. Financial institutions exhibited improvements in their efficiency indicators, particularly through increases in the coverage of administrative expenses with the most stable revenues.