Report on Banks

Monthly report that analyzes the situation of the Argentine financial system.

 

About the use of inclusive language in this publication

The use of language that does not discriminate and that makes all gender identities visible is an institutional commitment of the Central Bank of the Argentine Republic. This publication recognizes the influence of language on ideas, feelings, ways of thinking and evaluation schemes.

This document has sought to avoid sexist and binary language. However, for ease of reading, resources such as “@” or “x” are not included.

 

 

Executive summary

• Within the framework of the policy actions implemented by the BCRA to face the pandemic context, in July positive behaviors were observed both in intermediation (growth in loans and deposits) and in the provision of payment services by the financial system. All financial institutions maintain relatively high levels of liquidity and solvency.

• Credit in pesos to the private sector grew in real terms for the fifth consecutive month, with a variation of 1.4% monthly and 8.8% year-on-year (y.o.y.). This performance was partly explained by the set of credit assistance designed by this Institution, which provides beneficial financial conditions for both firms and families. In particular, the special line for MSMEs and Health Service Providers at an annual nominal interest rate of 24%, accumulates disbursements of almost $469,700 million at the end of September. For its part, with the MSME Plus line, almost $2,500 million were disbursed (amount distributed among 5,658 companies).

• Within the framework of the new financial assistance programs for those who carry out their work tasks as single-payers and/or self-employed, through the Zero Rate credit line, more than 543,700 loans were granted for a total of $64,490 million (94% of which has already been credited) at the end of September. In addition, 240,512 new credit cards were issued and 698 demand accounts were opened for this purpose. For its part, through the Zero Rate Culture Credit line, 1,424 loans have already been granted for a total amount equivalent to $151 million.

• In the context of the measures adopted to encourage savings in pesos, in July the balance of private sector deposits denominated in this currency increased by 2% in real terms compared to June (30.9% YoY), mainly due to the real increase of 5.2% in time placements.

• The BCRA has been adopting a set of measures to strengthen and streamline the operation of the payment system in the current context of the pandemic. In recent months, the use of digital payment channels has been stimulated and, for those cases in which cash must be used, the aim was for people to be able to get it, always trying to reduce their exposure to COVID-19. In this context, the dynamism in the use of debit cards for electronic payments, immediate transfers, as well as ECHEQs stands out, while there is a lower frequency of cash withdrawals by ATMs (for higher average amounts per operation).

• Conditioned by the financial relief mechanisms and changes in the parameters for classifying debtors implemented by the BCRA since March (in order to mitigate the adverse economic effects of the pandemic), the irregularity ratio of credit to the private sector for the system remained without significant changes in July at around 5%. Recently, the BCRA decided to extend the aforementioned measures until 12/31/2020. The accounting forecasts represented 116.6% of the credit to the private sector in an irregular situation of the system.

• The financial system maintains adequate liquidity and solvency margins, both in comparison with previous years and in terms of internationally recommended standards. In July, the median Liquidity Coverage Ratio (LCR) for all obligated entities totalled 2.3, above the regulatory minimum set at 1. For its part, the median of the Stable Net Funding Ratio (NSFR) reached 1.8 among all the entities that must verify this ratio in June (median of latest available information), exceeding the minimum of 1.

• The sector’s solvency indicators increased in July. The system’s capital integration grew by 0.3 p.p. of RWAs (Risk-Weighted Assets) on a monthly basis to 22.9%. This level is high from both a local and international perspective. The sector’s capital position stood at 168% of the regulatory requirement in July, 3.1 p.p. more than last month.

• In the first 7 months of the year, the financial system obtained results equivalent to 2.7% of assets (ROA) and 18.8% of net worth (ROE). In terms of partial profitability indicators, it is estimated that while the nominal implicit lending interest rate for the June-July 2020 two-month period fell by almost 18.9 p.p. compared to the end of 2019, the nominal implicit funding cost fell by 12.3 p.p. in the same period. These behaviors resulted in an estimated contraction of the implied rate differential of 6.7 p.p. in the period considered.

I. Financial intermediation activity in pesos

Throughout July, the positive effects of the tools designed by the BCRA to mitigate the adverse economic effects triggered by the COVID-19 pandemic continued to deepen. As a result, financing to companies (especially MSMEs) and households increased again in the period, a performance accompanied by an increase in time deposits in pesos in these sectors.

Considering the estimated flow of funds for the aggregate of the financial system on items denominated in^pesos1, in July the increase in private sector deposits was the main source of resources. These funds were mainly applied to increase the liquidity of financial institutions in the broad sense and to expand financing to the public and private sectors.

The balance of credit to the private sector in national currency increased by 1.4% in real terms in July (3.3% in nominal terms) (see Graph 1)², mainly due to the increase in credit card financing and documents. Public financial institutions, and to a lesser extent, domestic and foreign private financial institutions drove this growth.

Credit to the private sector in pesos granted by the financial system grew in real terms for the fifth consecutive month in July. This performance was partly explained by the set of credit assistance programs implemented by the BCRA in recent months, promoting better financial conditions for both firms and households. Among them is the special line for MSMEs and Health Service Providers at an interest rate of 24%^{nominal annual3}, which has accumulated disbursements of almost $469,700 million at the end of September (11.5% of which were made with a guarantee from FoGar) (see Graph 2, left panel). It is estimated that so far around 290,000 assistance has been granted to companies through this instrument, resources channeled mainly to the coverage of deferred checks, to finance the payment of salaries, as well as to supply other working capital needs of MSMEs. Distinguishing by group of financial institutions, national private institutions accounted for 40.1% of total disbursements, while foreign ones accounted for 31.2% and public ones for 28.6% (see Graph 3)⁴.

According to the information as of July (latest available), it is estimated that almost 29% of the legal entities in debt in the financial system were reached by the special line for MSMEs and Health Service Providers at an interest rate of 24% TNA (see Graph 4)⁵. In particular, it is estimated that the regions of Patagonia and the NEA had the highest relative incidence in terms of the number of debtor legal entities that received this credit assistance since its implementation⁶. On the other hand, when considering the total balance of financing channeled to these debtors (not only through the special line for MSMEs)⁷ in terms of the estimated regional gross domestic product (GDP)8, the highest quotient would be in the NOA, Central and NEA regions of the country.

The legal entities that accessed the special line for MSMEs have a greater representativeness in the industry and commerce sectors in terms of the number of legal entities that are financed in the financial system, while in terms of credit balances of these debtors (not only by the special MSME line), its share of trade and construction loans stands out (see Graph 5).

For its part, through the so-called MSME Plus⁹ line – which offers financing to those micro, small and medium-sized enterprises that do not have current credit in the financial system – almost $2,500 million were disbursed until the end of September, which were distributed among 5,658 firms (see Graph 2, right panel)¹⁰. National private entities were the main promoters of this credit segment, granting almost 70% of the total amount (19.8% of it was channeled by public entities and the remaining 10.5% by foreign private entities).

In addition, in August the BCRA implemented a new line of financing at subsidized interest rates to assist companies in the payment of their workers‘ salaries 11. These credits are available to those companies enrolled in the “Emergency Assistance Program for Work and Production” (ATP). In this framework, from the launch of this line until mid-September, a total of $1,790 million had been granted, channeling more than 90,000 workers.

In this context, the scope of the Zero Rate credit line launched last April, which focuses on assisting those who carry out their work tasks as monotributistas and/or self-employed¹², continued to be deepened. Through this program, more than 543,700 loans were granted until the end of September for a total equivalent of $64,490 million (94% of it has already been credited) (see Graph 6). The implementation of these loans is carried out through advances on the credit card of the beneficiaries. In the case of not having a card, the financial institution must issue one or open an account for purchases in stores, thus generating a higher level of financial inclusion. In this way, so far 240,512 new credit cards have been issued and 698 demand accounts have been opened for this purpose.

Complementing this last initiative, in August the BCRA regulated the Zero Rate Culture Credit line for those single-tax taxpayers and self-employed workers who carry out activities related to culture. These financings are also credited to the applicant’s credit card, in three equal and consecutive monthly installments. The financing has an annual nominal interest rate of 0%, has a grace period of one year from its first accreditation, being repaid in 12 equal and consecutive monthly installments¹³. By the end of September, 1,424 loans had been granted through this credit line for a total amount equivalent to $151 million (of which 39% had already been credited).

Within the framework of this positive performance observed by the subsidized lines promoted by the BCRA, the real balance of credit in pesos to the private sector grew in July for the third consecutive month in year-on-year terms. In this way, financing in pesos to companies and families accumulated an increase of 8.8% real y.a., a dynamic that was led by foreign and national private entities. Commercial lines (documents and, to a lesser extent, advances) and card financing showed the highest real year-on-year increases.

Influenced by the weak performance of financing in foreign currency, in July the balance of total loans to the private sector (in domestic and foreign currency) accumulated a variation of +0.1% compared to June and -9% YoY in real terms.

On the funding side of the aggregate financial system, the balance of deposits in pesos of the private sector increased 2% in real terms (4% nominal) in July, mainly due to the 5.2% increase in time placements (7.3% nominal) (see Chart 7). The positive performance of private sector time deposits reflects, in large part, the effect of the policy of minimum interest rates adopted by the BCRA that encourage savings in local currency.

In this regard, since mid-April, the BCRA has established minimum interest rates for time deposits in pesos, gradually including the different placements of individuals and legal^{entities 14}. In order to deepen the positive performance of time deposits, since August the BCRA introduced an increase in the minimum interest rate for fixed-term deposits in pesos of up to $1 million constituted by individuals and that are captured by entities of Group “A” and by G-SIBs not belonging to this group. bringing it to 87% of the LELIQ rate (resulting in 33.06% TNA or 38.5% TEA)¹⁵. In addition, the coefficient that determines the fixed interest rate for prepayment of deposits with an early cancellation option in UVA was raised, increasing this interest rate from 26.6% to 28.5% nominal annual¹⁶.

It should be noted that the path of sustained growth in time deposits observed in recent months is being driven by the different groups of financial institutions (see Graph 8), with a relatively more marked dynamic in domestic and foreign private institutions. In particular, since the beginning of this year, these time deposits channeled by private banks increased their participation in the total balance by 5 p.p., to represent 57.7% in July.

The balance of demand accounts in national currency of the private sector did not show a significant variation in real terms in July (+1.9% nominal). Thus, given the positive performance of time deposits, the ratio between these placements and private sector demand accounts in pesos continued to increase, reaching an estimated ratio equivalent to 86% at the end of September (see Chart 9).

In July, public sector deposits in national currency increased by 2.8% in real terms (4.8% nominal). Thus, the balance of total deposits in pesos increased 2.1% in real terms (4.1% nominal) compared to last month.

In year-on-year terms, in July the balance of private sector deposits in national currency grew 30.9% in real terms (86.4% nominal YoY), with an increase in both demand accounts and time deposits. In the last 12 months, public sector deposits in pesos increased by 7.8% YoY in real terms (53.5% YoY in nominal terms). Thus, the balance of total deposits in pesos increased 25.1% y.o.y. real (78.1% y.o.y. nominal) compared to the value of July 2019.

II. Aggregate composition of the balance sheet

During July, the balance sheet of financial institutions as a whole grew. The sector’s total assets increased 1.7% in real terms in the month (3.7% in nominal terms), with a greater relative increase in private entities.

Since the beginning of the pandemic, the total assets of the financial system have been expanding, accumulating an increase of 13% in real terms between the end of February and July 2020. In addition to the dynamics of credit in pesos in recent months (see previous section), most of the aforementioned increase in assets was due to the net incorporation of BCRA instruments (LELIQ and passes). In this regard, it should be recalled that this Institution contributed to the financing of the extraordinary programs to support businesses and families promoted by the National Government aimed at mitigating the economic and social impact of the health^{emergency 17}. In this context, transfers from the BCRA to the National Treasury were, throughout the preventive and mandatory social isolation, one of the main factors in the expansion of the monetary base. In order to avoid pressures on monetary stability, part of the issuance of pesos was sterilized through passes and LELIQ, instruments that financial institutions keep in their assets.

Considering the composition of total assets, as of July, the balance of credit to the private sector in national currency and the balance of BCRA instruments (LELIQ and passes) continued to show the largest shares, reaching 28.2% and 24.7%, respectively (see Chart 10). Compared to June, among the segments in national currency, the relevance of the BCRA’s instruments decreased and the relative importance of the current account balance increased, while the weighting of credit in national currency remained stable. Among foreign currency assets, the weighting of credit to the private sector decreased in the month and the share of liquidity increased. In a year-on-year comparison, credit to the private sector in pesos and liquidity¹⁸ in the same denomination increased their relative weight in total assets. Considering the items in foreign currency, with respect to July 2019, the weighting of the balance of credit to the private sector and liquidity was reduced.

In relation to the total funding (liabilities and net worth) of the financial system, in July private sector deposits in national currency on demand and time were the main components, reaching weightings of 27% and 21%, respectively (see Chart 11). During the month, the increase in the relative importance of time deposits in pesos in the private sector was highlighted, as well as a certain reduction in the weighting of the demand accounts of this sector in the same denomination. Compared to the same month in 2019, the funding structure was modified mainly due to a lower relative importance of private sector deposits in foreign currency and an increase in the share of private sector demand and term accounts in local currency and equity.

From the aforementioned composition of assets and funding, where the relative weightings of loans and deposits are highlighted, the type of traditional intermediation with a low degree of complexity carried out by the aggregate of financial institutions is exposed. This characteristic, added to its low depth and scope in the economy, constitute relatively historical features of the Argentine financial system. In this regard, it is currently estimated that the balance of credit to the private sector in terms of GDP stands at around 12.6% (July), while deposits in this sector reach 22.3% of GDP. These values continue to be significantly low when compared to those of the rest of the countries in the region and other emerging and developed economies (see Figure 12), providing some indication of the development potential it has to increase its role in channeling savings and financing to the private sector.

This challenge of increasing the role of the financial system in the economy is transversal, in general terms, to all regions of the country. Thus, although total loans channeled to companies and households continue to predominate mainly in the Central region of the country²⁰ (approximately 80% of the balance as of July), it can be observed that their scope in terms of activity is relatively low in all regions (see Graph 13). It is estimated that this area also had the highest ratio between the credit balance and its product (equivalent to 14%), followed by the NOA (12%) and the NEA (10.8%).

Finally, from a macroprudential perspective, it is relevant to see the behavior and evolution of the balance sheet denominated in foreign currency. In general, this segment has been reducing its importance in the aggregate balance sheet of the financial system. As of July, foreign currency assets totaled 19.8% of total assets (-0.1 p.p. monthly and -10 p.p. y.o.y.), while liabilities represented 18.6% of total funding (no significant changes in the month and -10.6 p.p. y.o.y.). When including forward purchase and sale of foreign currency transactions (off-balance sheet), the spread between foreign currency assets and liabilities of the financial system totaled 8.9% of regulatory capital (CPR) as of July, 1.4 p.p. and 1 p.p. below the level of last month and July 2019, respectively (see Chart 14).

III. Portfolio quality

The financial system’s exposure to the private sector represented 33.8% of total assets as of July (see Chart 15), 0.6 p.p. below last month, a level that is almost 2 p.p. lower when the forecasts for the private portfolio were netted. The foreign currency segment mainly explained this decline, while the balance of credit in pesos to the private sector remained relatively stable in its weighting of total assets (around 28.2%).

The concentration of private sector debtors in the financial system remains moderate²¹. The participation of the main debtors (legal and human) in the total portfolio has been gradually decreasing, after the maximum reached in August 2019. In particular, the top 100 and 50 private sector debtors in the financial system aggregate accounted for 18% and 13.8% of the total credit balance as of July 2020 (see Chart 16), 4.8 p.p. and 4.1 p.p. below the peak evidenced the previous year.

Within the framework of the modification of the parameters for classifying debtors that has been in force since March, with the aim of mitigating part of the adverse economic effects of the pandemic on them, in addition to the financial relief mechanisms promoted by the BCRA for the same purpose²², the irregularity ratio of credit to the private sector for the aggregate financial system remained without significant changes in July around 5% (slight fall in private financial institutions and increase in public ones, see Graph 17). In particular, the irregularity ratio of the total financing of those debtors that have participated in the special line for MSMEs and Health Service Providers, reached a level of 1.2% as of July²³.

At the regional^{level 24}, the irregularity ratio continued to show some heterogeneity, mainly reflected in the corporate financing segment. In July, the greatest irregularity in credit to the private sector was observed in the Cuyo region, with a total level that reached 7.6% (see Graph 18, left panel), while the best performance was verified in Patagonia with a level of only 3.3% for the same period.

In July, the non-performing loan ratio for companies in the aggregate of entities stood at 6.8%, slightly higher than in June and 2.2 p.p. above the value of a year ago (see Graph 18, right-hand panel). In year-on-year terms, the ratio of irregularity of financing to companies grew relatively more in the Cuyo region (+6.1 p.p. to 12.9%, higher regional value), while in Patagonia it fell (-0.3 p.p. to 4.6%, lower regional value). For its part, in July the non-performing loan ratio to households stood at 3.1% (see Graph 18, middle panel), slightly above last month’s value and 1.7 p.p. below the same month of the previous year. This decrease was generalized among the different regions, especially the performance in the NEA and the NOA.

In July, the balance of accounting forecasts (originating in both the regular and irregular portfolios) represented 116.6% of credit to the private sector in an irregular situation in the system, with no changes in magnitude with respect to the previous month (see Chart 19)²⁵.

The gross exposure of the financial system to the public sector represented 10.1% of total assets in July, 0.2 p.p. more than in the previous month (+0.7 p.p. y.o.y.). For its part, the system’s exposure to this sector net of the balance of public sector deposits continued to be negative, equivalent to 1.4% of total assets in the month.

IV. Liquidity and solvency

The aggregate financial system maintains adequate liquidity and solvency margins, both in comparison with previous years and in terms of internationally recommended regulatory standards.

In July, the broad liquidity^{indicator 26} reached 66.4% of total deposits (62.8% in the peso segment and 80.6% for foreign currency items), 0.5 p.p. above the level recorded in June (-0.1 p.p. and +3.2 p.p. for the peso and foreign currency ratios, respectively, see Chart 20)²⁷. Compared to July 2019, ample liquidity increased by 5.6 p.p. in deposits, mainly due to the performance of the segment in foreign currency.

The banks as a whole continue to comfortably exceed the internationally recommended minimums in terms of liquidity indicators. In July, the Liquidity Coverage Ratio (LCR)²⁸ amounted to 2.3 (median of the entities obliged to comply with this requirement²⁹), compared to a minimum required (in line with Basel standards) of 1. All financial institutions required to verify this liquidity requirement comply with the regulations. For its part, in June (latest available information) the Stable Net Funding Ratio (NSFR) totaled 1.8 for entities obliged to comply with this requirement³⁰. All entities exceeded the minimum required of 1, in line with international recommendations.

In relation to the sector’s solvency rating, in July the aggregate regulatory capital ratios of all institutions increased (see Chart 21). In the month, the capital integration (RPC) of the financial system increased by 0.3 p.p. of risk-weighted assets (RWA) to a total of 22.9% (+0.3 p.p. to 24.5% for private entities and +0.2 p.p. to 20% for public entities). The capital position (RPC net of the minimum regulatory requirement) of the aggregate of financial institutions stood at 168% of the requirement in July, growing 3.1 p.p. compared to June (+3.4 p.p. to 198% for private entities and +2.1 p.p. to 117% for public entities).

In addition, the financial system considered in an aggregate manner amply verified the additional capital margins established in local regulation (2.5% of RWA, which is increased by 1 p.p. for systemically important entities). The maintenance of sectoral solvency levels in the face of the emergence of the COVID-19 shock is partly a reflection of the micro and macroprudential policies that this Institution has been adopting in recent months (in line with those implemented by other Central Banks to face the pandemic scenario). In particular, the possibility of distributing dividends^was postponed until the end of 2020 31.

It is worth mentioning that the solvency indicators of the local financial system (in line with the international recommendations of Basel III, as well as with financial reporting standards) remain at high levels in relation to the levels observed in other economies. According to the latest available information, the capital integration ratio in terms of RWAs of local entities as a whole was among the highest in the region, also exceeding the median of a sample of other emerging and developed economies (see Chart 22). This occurs in a context in which the participation of level 1 capital (with greater capacity to absorb eventual losses) in total capital in Argentina presents one of the highest levels from an international^{perspective 32}. Moreover, this type of capital represents approximately 12% of the total exposures assumed by institutions (taking into account both unweighted items of assets and certain off-balance sheet items), well above the international recommendations on the subject (Leverage Ratio) and what has been observed in other economies³³.

In terms of internal capital generation, it is worth mentioning that in the first 7 months of the year the financial system obtained comprehensive results in homogeneous currency equivalent to 2.7% of assets (ROA) and 18.8% of net worth (ROE). The accumulated ROA in the year was 1.9% yr. for public banks (ROE of 16%y) and 3.3%y. for private banks (ROE of 20.5%y).

The accumulated financial margin in 7 months of 2020 totaled 11.6% of the assets for the aggregate of the entities. Among the main revenues, interest charged on loans (9% y/y of assets) and results on securities (8.3% y/y. of assets) stood out, while interest paid on deposits (8.5% y/y of assets) were the most important outflows of the financial margin. The results for services were another relevant source of income in the profitability table of the financial system so far this year (2% y.a. of assets). For its part, in 7 months of 2020, uncollectibility charges accumulated 1.7% of assets and administrative expenses totaled 6.8% of assets.

In order to be able to compare some “partial” indicators of the profitability structure with respect to previous^{periods 34}, it is relevant to estimate implicit interest rates in national currency (active and passive) and their differentials³⁵. In this sense, the estimated nominal implicit lending interest rate for the system – in pesos – for the last two months to July was 0.8 p.p. lower than that of the previous two months (see Chart 23), while the estimated implicit nominal funding cost increased slightly in the same period. As a result, it is estimated that the implied rate differential decreased by 2.2 p.p. in the July-June two-month period compared to the previous^{2 months 36}.

Compared to the end of 2019, the estimated nominal implicit lending interest rate – in pesos – for the last two months to July of this year saw a marked drop of 18.9 p.p.. This occurred in a scenario in which the estimated implicit nominal funding cost totaled a reduction of 12.3 p.p. in the same period. Thus, the estimated implied rate differential observed a contraction of almost 6.7 p.p. in the July-June two-month period compared to the level at the end of 2019³⁷.

V. Payment system

The BCRA has been actively working to minimize the impact of the pandemic on the Argentine payment system, promoting measures that facilitate transactions for families and companies, without losing sight of the necessary health protection measures. In particular, in recent months, the use of digital payment channels has been stimulated and, for those cases in which cash must be used, it was sought that people can get hold of it in an attempt to reduce their potential exposure to COVID-19.

In August (latest available information), among debit card operations, there was a significant participation of e-commerce, reaching 28% of the number of transactions with this instrument and 30% in terms of the amounts operated, well above what was observed at the beginning of the year (see Graph 24)

In relation to cash withdrawals through ATMs, in August (latest available information) the frequency of withdrawals and the average amount of each transaction decreased compared to the previous month, although the latter continued to be higher than the average for 2019 (see Chart 25). Compared to the beginning of 2020 and last year’s average, there are fewer withdrawals for a higher average amount for each transaction. It should be noted that, in order to deepen the measures adopted to reduce the mobility of people as a health prevention measure, the BCRA recently decided to extend the suspension of the collection of fees to operate at ATMs until the end of 2020³⁸.

With regard to the clearing of checks, there was also an increase in electronic transactions. The clearing of digital checks (ECHEQs) increased 18.7% for amounts and 7.3% for real amounts in August compared to July. Total transactions with checks decreased in the month (6.6% in amounts and 5.8% in real amounts), an evolution driven by the format of physical checks (see Chart 26). For its part, the ratio of rejection of checks due to lack of funds over the total compensated decreased again in August, both in amounts (-0.28 p.p. to a level of 0.79%), and in amounts (-0.2 p.p. to 0.72%). Also in the month, the rejection rate of ECHEQs (considering all the reasons for rejection) was reduced over the total ECHEQs compensated, in quantities (-0.41 p.p. to 0.52%) and in amounts (-0.26 p.p. to 0.62%). Thus, the current level of the ratio of rejection of total checks due to lack of funds over the total compensated is already below the August 2019 record (see Graph 27).

Like the electronic payment mechanisms featured throughout the section, immediate fund transfers have also gained momentum in recent months. This performance was reflected in all the channels used by the population to make immediate transfers, being more accentuated in mobile banking and internet banking (see Graph 28).

References

¹Differences in balance sheet balances expressed in homogeneous currency.

² Includes principal adjustments and accrued interest.

³ Communication “A” “6937” and amendments.

⁴ At the time of publication of this Report, some $7,633 million had been approved through this line that have not yet been disbursed, with additional requests pending for approximately $6,700 million.

⁵ The special line for MSMEs and Health Service Providers at an interest rate of 24% TNA has been granted to both legal entities and individuals with some type of productive activity. It is estimated that the largest proportion of financing has been channeled to the former.

⁶ Location of debtors according to their tax domicile.

⁷ In view of the difficulty of identifying more precisely the assistance received by these debtors, the balance of all the financing taken by the aforementioned legal entities (through the special MSME line and others) in the entities that granted them the special MSME line is included.

⁸ The regional GDP is estimated based on the economic structure by provinces published by INDEC for the base year 2004, then considering the performance of each of the branches of activity proportionally to each jurisdiction.

⁹ Communication “A”“7006” and amendments..

¹⁰ Moreover, as of September 24, an additional $195 million had been approved with disbursements pending implementation, with additional applications pending for almost $10 million

¹¹See Communication “A” “7082” and Communication “A” “7102”.

¹²See Communication “A” “6993” and amendments.

¹³See Communication “A” “7082”.

¹⁴See Communication “A” “6980”, Communication “A” “7000”, Communication “A” “7018” and Communication “A” “7027”.

¹⁵The other entities may choose to offer this new minimum interest rate, in the case of deposits with the aforementioned characteristics.

¹⁶See Communication “A” “7078”.

¹⁷For more details, see the latest edition of the “Monetary Policy Report (IPOM)”.

¹⁸Liquidity considers the balance of the current accounts that financial institutions have at the BCRA, monetary regulation instruments (LELIQ and passes), as well as cash holdings in financial institutions.

¹⁹The regional GDP is estimated on the basis of the economic structure by provinces published by INDEC for the base year 2004, considering the performance of each of the branches of activity in proportion to each jurisdiction.

²⁰Using information from the Debtors’ Center, classifying debtors by their address based on the tax registration (AFIP).

²¹It should be considered that the Argentine regulatory framework has a set of rules that seek to promote the diversification of the debtor portfolio of financial institutions. In this way, the aim is to avoid situations of excessive exposure of a bank to individual customers that could markedly increase the levels of credit risk assumed and, potentially, adversely affect its capital. See Consolidated Text on “Large exposures to credit risk” and Section 5 of the “IEF” for the Second Half of 2019.

²²Communication “A” “6938” and Point 2.1.1. of the Ordered Text “Financial Services in the Framework of the Health Emergency Provided for by Decree No. 260/2020 CORONAVIRUS (COVID-19)”. In this regard, it should be mentioned that the BCRA recently decided, through Communication “A” 7107, to extend until December 31, 2020 a large part of these measures.

²³All financing taken by the aforementioned debtors is included, not only those promoted by the BCRA to face the economic effects of the COVID-19 pandemic.

²⁴Using information from the Debtors’ Center, classifying debtors by their address based on the tax registration (AFIP).

²⁵In turn, the estimated balance of regulatory forecasts attributable to the non-performing portfolio (following the criteria of the minimum forecasts for bad debt risk, without using the IFRS criteria for entities A) stood at 96.7% of such loans in July, 0.5 p.p. above the value of June. It is estimated that unfunded financing not covered by forecasts attributable to this portfolio totalled only 0.4% of the PRC in July.

²⁶It considers availability, integration of minimum cash and BCRA instruments, in national and foreign currency, in terms of total deposits.

²⁷As of July, regulatory modifications began to be in force regarding the integration of minimum cash. On the one hand, the unified calculation of minimum cash positions in pesos for the periods July/August and December of one year/January of the following year was annulled (see Communication “”A” “7046”). On the other hand, the extension of the deduction of minimum cash in pesos for financing granted at an interest rate of up to 24% came into force, including a special tranche for large companies that invest in capital goods produced by national MSMEs (see Communication “A” 7054″).

²⁸ The LCR assesses the liquidity available to face a potential outflow of funds in the event of a possible stress scenario in the short term. See Ordered Text —TO— “Liquidity Coverage Ratio”.

²⁹Entities belonging to Group “A”, according to Communication “”A” 6835″.

³⁰The NSFR seeks to ensure that entities have a stable term funding structure, in line with the terms of the businesses to which it applies. See TO “Stable Net Funding Ratio”.

³¹Communications “A” “6939” and “”A” 7035″.

³²Better-quality capital, comprised primarily of common stock and earnings.

³³See “Report on Banks” and the “IEF” of November 2019.

³⁴It should be recalled that as of 2020, banks make the adjustment for inflation in their balance sheets, that is, they present information in homogeneous currency (see Communication “A” 6651″ for more details). This means that the information for 2019 (and previous years) is not comparable to the current one. That is why the construction and monitoring of certain alternative profitability indicators, such as those based on implied rates, although they are still partial, facilitate a certain comparability over time.

³⁵For a detailed description of the methodological construction of implicit rates, see footnotes 29, 30, 31 and 32 of the “Report on Banks” of June 2020.

³⁶It should be noted that these implied nominal interest rates were estimated for periods with different levels of inflation. When estimating the calculations of interest rates in real terms, it is observed that the differential between them also narrowed in the margin.

³⁷A similar movement to the one detailed in the previous footnote is observed when comparing the July-June two-month period with the one corresponding to the end of 2019.

³⁸Through “Communication “A” 7107″ it was established that financial institutions may not charge charges or commissions for any of the operations (deposits, withdrawals, consultations, among others) carried out through all ATMs enabled and operated by them in the country.