Report on Banks

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

Summary

• In March, the balances of credit and total deposits of the private sector grew 42.8% YoY and 28.3% YoY, respectively, showing somewhat more moderate performances compared to those observed in 2011. Liquidity levels have increased so far in 2012, reflecting the effects of increases in the position in passes with the BCRA and in the financial institutions’ own LEBAC portfolio. The solvency of the financial system remained high, with an increase in accounting profits in a year-on-year comparison.
• Financing to the private sector expanded 1.6% in March (42.8% YoY), driven by public banks and foreign private banks. Financing to households increased by 2.1% (43.8% YoY) in the month, while credit to companies increased by 1.1% (42.1% YoY). The dynamics of financing to the corporate sector was mainly explained by the behavior of public banks. Lending rates fell in all groups of financial institutions, leading to a gradual reduction in spreads.
• The expansion of credit to the private sector was reflected in higher levels of indebtedness, although these remain below those observed in other emerging and developed economies. In particular, it is estimated that the total indebtedness of companies at the end of 2011 reached 23% measured in terms of output (both with the local financial system and with non-residents). In recent periods, there has been a gradual increase in the weighting of resources from local banks to the detriment of external indebtedness.
• The non-performing ratio of financing to the private sector remained at a low and stable level in March, at around 1.5%. This indicator accumulated a decrease of 0.3 p.p. year-on-year. The financial system exhibited a high level of forecasting, standing at 158% of the irregular portfolio, 5.4 p.p. above the value of a year ago.
• In March, total deposits in the financial system expanded (1.6%), a variation explained by private sector placements (3.5%), especially those with time deposits (5.1%), while public sector deposits decreased (-3% in the month). The year-on-year growth in total deposits was mainly driven by the performance of private sector deposits. Since the end of 2011, private sector time deposits have shown greater dynamism compared to demand loans.
• In the first quarter of the year, the liquidity indicator (considering items in domestic and foreign currency, excluding holdings of LEBAC and NOBAC) increased 0.4 p.p. of deposits, to 26.3%. In March, banks’ holdings of LEBAC and NOBAC remained virtually unchanged, with the ample liquidity indicator increasing only 0.1 p.p. of deposits to 40.2%.
• The net worth of the consolidated financial system expanded 2.5% in March, mainly due to the gains earned by the entities. The net worth of the financial system grew 28.3% in the last 12 months, thus registering the highest year-on-year variation since the end of the 2001-2002 crisis. Banks’ leverage continued to fall in March, accumulating a fall of 0.3 p.p. compared to the same month in 2011. The capital integration ratio reached 15.9% of risk-weighted assets (RWA), increasing 0.4 p.p. year-to-date.
• In the month, the banks as a whole recorded profits equivalent to 3.4% of assets (ROA), 0.7 p.p. above the February figure. For the first quarter, the profitability of the financial system reached an ROA of 2.9%y, 0.3 p.p. more than a year ago. Both private and public banks improved their cumulative profitability year-on-year. Interest earnings further explained the year-on-year increase in quarterly results.