Report on Banks

Summary

• In the new monetary policy framework implemented by the BCRA, and given the persistence of a high inflation rate, in March it was decided to increase the 35-day LEBAC cut-off interest rate by 6.9 p.p. In the
  period, a new increase in the interest rates of the passes was also determined. Interest rates on private sector deposits in pesos partially accompanied the increase in reference interest rates. The active interest rates traded in the month presented a mixed performance, with marked increases in certain lines, such as in advances, and decreases in others, such as in pledges. As of the third week of May, with new information available on price indicators, the BCRA implemented reductions in the policy interest rate, although the contractionary bias was maintained
• In line with the rise in interest rates, in March private sector time deposits in national currency
  increased 3.1%, driving the 1.4% increase in the balance of placements in pesos in the sector.
  For its part, the balance – in foreign currency – of private sector deposits in foreign
  currency expanded 3.2% compared to February and accumulated an increase of 50.9% YoY, within the framework of the measures adopted by the BCRA since the end of December 2015 to normalize the functioning of the foreign exchange market. Thus, from moderate levels, dollar deposits gradually gain relevance in the total funding of the sector. Total private sector deposits grew 43.4% YoY in the period (6.2% YoY when adjusted for
  inflation using the IPCBA), this variation being slightly lower than last month’s.
• The liquid assets (in pesos and foreign, excluding LEBAC holdings) of all financial institutions represented 26.2% of total deposits at the end of the first quarter, 3.8 p.p. more than in February. This
  increase was due to the greater integration of minimum cash and, to a lesser extent, to transfers made by banks
  with the BCRA. Considering the monthly reduction in bank holdings of monetary regulation instruments, the broad indicator of liquidity of the financial system did not show significant changes in the period,
  standing at 47.1% of deposits. This indicator slightly exceeded the level of March 2015.
• In the month, the balance of total financing to the private sector grew by 0.4%, thus observing a further slowdown in the year-on-year rate of increase to 33.5% (slight fall in real terms). The balance of loans in pesos
  increased 0.5% in the period, while loans in foreign currency expanded at a good pace, exceeding February’s figure by 5.8% – in currency of origin – partly due to the process of normalization of the
  foreign exchange market and, more recently, due to the regulatory changes promoted by the BCRA. The latter
  were aimed at expanding the uses of the lending capacity of deposits in foreign currency and generating
  a greater availability of loanable resources in this currency, through the reduction of the minimum cash requirement
  .
• In mid-May, the BCRA extended the Financing Line for Production and Financial Inclusion
  (LFPIF) for the second part of 2016. The entities covered by the regulation must maintain
  in the second half of the year a credit balance of at least 15.5% of the deposits of the non-financial private sector in pesos corresponding to May 2016. At least 75% of the quota must be agreed with MSMEs. For this
  tranche, the interest rate will remain at 22% for MSMEs and the total term may not be less than three years.
• The ratio of irregularity of financing to the private sector did not present changes in magnitude with respect to
  February, remaining at 1.8%. Non-performing loans to families stood at 2.4% in the month, while
  the non-performing loan ratio of loans to companies remained at 1.3%. At the end of the first
  quarter, accounting forecasts represented 146% of loans to the private sector in an irregular situation.
• Within the framework of the reduction ordered by the BCRA of the positive limits for the position (global and forward) of
  foreign currency that banks must verify and the monthly fall in the nominal peso-dollar exchange rate, in
  March the foreign currency mismatch of all financial institutions was reduced by 7.7 p.p. of the Computable Patrimonial Liability (CPR) compared to the previous month. to stand at 14.7%. The fall in this
  indicator was widespread in all banking groups.
• In March, the excess capital integration of all financial institutions in relation to the regulatory requirement
  – capital position – reached 86%. Tier 1 capital integration accounted for 14.9% of the financial system’s risk-weighted assets (RWAs), and continued to account for more than 90% of total integration.
• The monthly gains recorded by the financial institutions as a whole in terms of their assets
  (ROA) reached 3.3%a.a., falling 2.5 p.p. compared to February, mainly because the decrease in the
  exchange rate had an impact on the differences in quotation and on the adjustments for forward operations in foreign currency. In addition, gains from securities also fell in the period. Thus, in the first
  quarter of 2016 the ROA stood at 4.5%, in line with the record for the same period last year.