Report on Banks

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

Summary

• The main source of funding for the financial system in May was the collection of deposits in national currency, most of which were used to grant credit in pesos to the private sector. The financial system maintains high levels of liquidity. Accounting gains and, to a lesser extent, capital injections, kept solvency indicators high.
• In the month, the balance sheet of total deposits grew 1.9%, accumulating a year-on-year expansion (YoY) of 21.1%, driven by the dynamism of private sector time placements in pesos, which increased 39.1% YoY. Private sector deposits increased 0.5% in May, due to the performance of both demand and term accounts in pesos, in a context of falling dollar deposits.
• The broad liquidity indicator (in domestic and foreign currency, with holdings of LEBAC and NOBAC) reached 40.7% of total deposits in May, falling 0.4 p.p. in the month and 4.3 p.p. compared to May 2011. The monthly reduction was explained by a lower integration of minimum cash, mainly in foreign currency. The liquidity indicator (excluding LEBAC and NOBAC holdings) also declined slightly in May, to 26.3% of deposits. In terms of items in national currency, this liquidity indicator decreased by 0.3 p.p. compared to the previous month, although it remained 1.6 p.p. above May 2011.
• The balance of credit to the private sector grew 1.9% in the month, with a 2.8% increase in financing in pesos that was partially offset by a fall in loans in dollars. In year-on-year terms, total credit to the private sector grew 37.5%, showing a 41.8% YoY increase in financing in national currency. Almost all credit lines in national currency increased in May, with cards, advances and personal loans being the most dynamic. Credit to households increased 3.6% in the month (41.4% YoY), while financing to companies increased 0.5% in May (34.2% YoY). The year-on-year growth in credit to the productive sector was driven by public banks, which accounted for more than half of the increase in the balance.
• Within the framework of the Bicentennial Productive Financing Program, the BCRA has awarded a total amount of $4,610 million through 13 auctions. Until mid-2012, the participating banks credited the companies with more than 65% of the total amount awarded. With the aim of continuing to stimulate financing for productive investment, the BCRA recently approved the implementation of a new line of credit that must be granted by financial institutions that have more than 1% of total deposits and entities that operate as financial agents in the provinces. Banks will have to allocate 5% of the total balance of private sector deposits to this new line as of June 2012. The loans will be at a fixed interest rate and for a minimum term of three years.
• In May, the ratio of irregularity of financing to the private sector remained at low levels, both in an intertemporal comparison and with respect to other economies in the region. This indicator increased 0.1 p.p. to 1.7%, mainly due to the performance of consumer lines granted by private banks. The coverage of loans in an irregular situation with accounting forecasts reached 146% in the month.
• The consolidated financial system’s net worth expanded 1.6% in May, driven by accounting earnings. The capital integration of the banks as a whole remained stable in the month, at around 16.3% of risk-weighted assets (RWA), with an increase in the indicator of all bank groups so far this year.
• The monthly profitability of the financial system fell 0.3 p.p. of assets to 2.2% annualized (y), mainly due to higher administrative expenses, given the entry into force of the new wage agreement for the sector. Over the course of the year, cumulative earnings stood at 2.7% y/a, 0.2 p.p. above the first 5 months of 2011. The year-on-year increase in cumulative profits was led by private banks.