Report on Banks

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

Summary

• The total credit balance (in domestic and foreign currency) to the private sector grew 1.9% in June (26.4% YoY), boosted by commercial and card loans. It is estimated that in mid-2014 bank credit represented 13.6% of GDP, slightly below the figure at the end of 2013, although it accumulated an increase of more than 4 p.p. since 2009.
• So far this year, financing to companies was partly driven by the Credit Line for Productive Investment (LCIP). For the fourth tranche of the LCIP – corresponding to the first half of 2014 – 91% of the target quota would have already been agreed by May, with 64% channeled to the MSME segment. In order to continue with this positive performance, the BCRA renewed this tool for the second part of 2014, increasing by $28,000 million the bank resources allocated to finance productive projects.
• In June, lending rates operated in pesos were reduced in most credit lines and in almost all groups of banks. The rates agreed for personal and pledge loans showed the largest relative reductions in the month, a performance that occurred within the framework of the measures implemented by the BCRA in order to regulate interest rates for financing of individuals.
• The NPL ratio of credit to the private sector stood at around 2% during the month, the same value as last May. In the first half of 2014, the non-performing loan ratio increased by 0.3 p.p. as a result of the fact that the growth in the balance of non-performing loans was relatively higher than the increase in the total balance of loans. In year-on-year terms, this indicator registered a smaller variation, of only 0.1 p.p. The financial system maintained comfortable levels of forecasting, with a coverage of the non-performing portfolio that reached 138%.
• The balance of total deposits in pesos increased 2.1% (25.1% YoY) in June, with a 4.2% increase in private sector deposits (30% YoY). On the other hand, placements in national currency by the public sector fell 4% in the period (+10.9% YoY). The monthly variations in deposits were influenced by the accreditation of the complementary annual half salary. In the month, the estimated funding cost for the operations of time deposits of the private sector in pesos fell. The reduction reached all groups of banks.
• The broad liquidity indicator (with LEBAC and NOBAC and including national and foreign currency) of the financial system reached 43% of total deposits in June, after increasing 0.2 p.p. compared to last May and 6.2 p.p. in a year-on-year comparison. The liquidity ratio (domestic and foreign currency) increased 0.4 p.p. of deposits in the month, to 24.5%. This ratio grew slightly in relation to the level of twelve months ago.
• The net worth of the consolidated financial system grew 1.3% in June, mainly due to accounting gains, while certain entities applied results from previous years to the distribution of dividends. The integration of regulatory capital from all banks in terms of total risk-weighted assets (RWAs) remained at levels similar to those of last month, at around 14%. For its part, in June the excess of capital integration over the regulatory requirement (capital position) stood at 82% of the regulatory requirement.
• The profitability of the financial system totaled 3.6% of assets in the month, being slightly lower than the level of May. ROA for the second quarter of the year reached 3.4%y, 0.8 p.p. higher than the figure for the same period in 2013, mainly due to the increase in equity gains. All bank groups increased quarterly ROA on a year-on-year basis.