Macroeconomic and Monetary Policy Report

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

Summary

• In June 2015, the total credit balance to the private sector (including domestic and foreign currency)
  grew 3.9%, above the variations of the previous months. This performance was mainly driven
  by commercial lines on which seasonal factors had an impact and compliance
  with the sixth stage of the Credit Line for Productive Investment (LCIP). In a year-on-year comparison, financing to companies and families increased 28.3% in nominal terms, exceeding the value recorded at the end of 2014 by more than 8 p.p. This improvement in the pace of growth was
  reflected in a greater relative importance of bank credit in the total assets of the financial system.
• In July, the BCRA decided to renew the LCIP for the second part of 2015. In this seventh stage, the
  target amount will be about $52,000 million to channel credits mainly to MSMEs, exceeding the goal set for the previous tranche by 39%. In addition, the interest rate was reduced to 18% nominal per annum. More recently, the BCRA decided to include in the LCIP loans for the purchase of agricultural, road and industrial machinery, as well as financing granted to victims in areas affected
  by natural factors, such as floods, earthquakes and droughts.
• The irregularity ratio of financing to the private sector fell in the month, to
  1.9%. The decline was driven mainly by the performance of loans to households,
  while the non-performing loan ratio to companies remained stable. The financial system closed the first half of the year with a high coverage with forecasts of loans to the private sector in an irregular situation.
• The balance of total deposits in pesos grew 4.6% in June, driven by the 5.9%
  increase in private sector deposits – both demand (+8.3%) and term (+3.7%) placements –
  and, to a lesser extent, by the increase in public sector accounts of 0.5%. The behavior of
  deposits in June was influenced by the accreditation of the complementary annual half salary. The year-on-year increase in private sector deposits in pesos (39.5%) was mainly
  explained by term deposits, which increased 44.1% YoY in June. This increase boosted
  total deposits in national currency, which grew 34% YoY in mid-2015.
• To continue stimulating savings in national currency, since the end of July a
  new floor was established for interest rates on fixed-term deposits, expanding the scope of the measure from $350,000 to deposits of less than $1 million. Likewise, not only the
  savings of individuals but also that of legal entities were included within the measure. In addition,
  it sought to encourage placements with a longer relative term.
• The liquidity indicator for the financial system (considering national and foreign currency, without LEBAC holdings) fell 0.7 p.p. of total deposits in June to 22.4%. Similarly, the
  broad liquidity ratio (with LEBAC holdings) decreased slightly in the period to 44.2%.
  However, the systemic liquidity indicator that includes LEBAC holdings remains
  high, standing 1.2 p.p. above the level of mid-2014.
• The net worth of the consolidated financial system grew 2% in the month mainly due to
  accounting profits. The integration of regulatory capital of all banks in terms of total risk-weighted assets (RWA) remained at levels similar to those of last month, at around
  14.5% (13.6% in the case of Tier 1). On the other hand, the excess of capital integration over the regulatory requirement
  (capital position) remained at 90% of the regulatory requirement.
• In June, the profitability of the financial system totaled 2.9% of assets, being slightly higher than the
  level of May, mainly due to the recomposition of results from securities and higher
  net income from services. These effects were tempered in the period by the increase in
  administrative expenses given the entry into force of the new wage agreement for the sector.
  Thus, in the first half of 2015 the cumulative ROA reached 3.7%a.
• In order to continue promoting a higher degree of banking penetration, the
  BCRA recently applied two measures. On the one hand, the criteria for authorizing the installation of branches were modified in order to deepen the stimulus in the areas of the country with less available financial infrastructure. On the other hand, to encourage access to financial services for lower-income
  sectors, the maximum amounts of accreditations and maximum balances for Universal Free Accounts
  (CGU) were updated.