Report on Banks

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

Summary

• In the first half of 2011, the financial system consolidated its financial intermediation activity with the private sector. At the end of the first half of the year, financing to companies and households accounted for the largest share of total bank assets in the last 10 years. The pattern of credit expansion, which showed relatively more significant growth in the case of financing to the productive sector, occurred in a context of limited counterparty risk as well as high liquidity and solvency indicators for all financial institutions.
• Since the end of April 2011, banks began to implement the “immediate” transfer modality promoted by the BCRA in order to promote a greater degree of banking penetration of the population. In July 2011, the number of immediate transfers made through the networks exceeded one million operations (for an amount of $3,900 million), increasing 22% compared to May. This provision of the BCRA was added to the measure that promoted a significant reduction in the costs of transfers, mainly in low-amount ones. In the first 9 months of the aforementioned regulation (from November 2010 to July 2011) there was a 24% increase in the total amount of transfers for amounts less than $10,000.
• In addition, this Institution continues to promote the use of new financial tools. As of the fourth quarter of 2010, the BCRA created the Universal Free Account (CGU), a means that financial institutions must make available to individuals who do not have another account, at no cost and whose only requirement for authorization is the presentation of the DNI. By mid-August, the number of UGC holders reached 74,300. In addition, with the aim of preserving security in financial operations, the BCRA reintroduced the Cancelling Check (ChC). From its inception until July 2011, operations with ChC denominated in pesos were accumulated for $123 million (1,835 checks) and denominated in foreign currency for US$150 million (2,770 checks).
• Credit to the private sector increased by 4.6% in June (47.1 YoY), with an outstanding performance of documents, pledges and advances. In the first half of 2011, the balance of credit to the private sector on the balance sheet of all financial institutions grew by 44% annualized (y), driven mainly by loans to companies. The latter accumulated an increase of 45% year-on-year so far this year, exceeding the pace of growth in loans to households for the second consecutive semester. Industry was the sector that contributed the most to the six-month expansion of the total balance of financing to companies. Within the framework of the Bicentennial Productive Financing Program, the BCRA held the sixth auction of resources in July, awarding $292 million. In this way, the total amount awarded by the BCRA so far reached almost $1,830 million, distributed among 12 financial institutions.
• The balance sheet of total deposits of the banks as a whole increased 2.2% in June, driven mainly by private sector loans, which grew 4.2%. In the first half of 2011, total deposits increased by 30.1%, led by private sector loans, which registered a growth of 34.7% in the first half of the year. In this context, the liquidity indicator of the financial system, which only includes items denominated in pesos, reached 17.4% of deposits, 2.6 p.p. less than in May. The liquidity indicator that considers items denominated in both domestic and foreign currency fell 2.6 p.p. of deposits in the month to 24.5%, a movement verified in both public and private banks. The broad liquidity indicator (with Lebac and Nobac not linked to passes) decreased 2.3 p.p. of deposits in June and reached 42.7%.
• The irregularity of financing to the private sector verified a decrease of 0.1 p.p. in June (and accumulated a reduction of 0.4 p.p. in the semester), reaching a new historical low of 1.7% of total financing. The coverage ratio of the portfolio of financing to the private sector in an irregular situation with forecasts stood at 155%, 12 p.p. above the end of 2010.
• The consolidated financial system’s equity increased 2.2% in June (or 22.9% YoY), driven mainly by accounting earnings and, to a lesser extent, by capital contributions. Half-yearly capitalizations accumulated $540 million, thus exceeding the capital contributions received in all of 2009 and 2010 (in absolute terms and in relation to equity). In the context of the expansion of credit to companies and households, the capital integration ratio of the financial system fell slightly in the month to 16.5% of risk-weighted assets (RWA). Excess integration represented 72% of the requirement as of June. The profitability of the financial system stood at 2.6% y/y of assets (ROA) during June, thus closing the first part of the year with an ROA of 2.5%y/y, 0.2 p.p. more than in the first half of 2010. The higher results during the first part of the year were mainly explained by the accrual of lower costs (administrative expenses and charges for uncollectibility) as well as by higher results from securities.