Report on Banks

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

Summary

• In October, the financial system continued to go through a process of gradual expansion, represented by the growth of credit to the private sector and deposits, in a framework of limited repayment risk. The operational infrastructure of the banking sector continued to progress, with increases in employment, the number of ATMs and branches, while the sector prolonged the obtaining of accounting profits and maintained high liquidity and solvency indicators.
• Credit to the private sector grew 3.6% in the month (52.5% YoY). All lines of financing saw an expansion in October, highlighting the dynamism of cards, leasing, pledges and advances. The positive monthly performance was mainly driven by public banks and foreign private banks. For its part, financing to companies accumulated an expansion of 54% y.o.y. by October and continued to exceed the dynamism of loans to households. Most productive sectors exhibited a higher year-on-year rate of increase in financing than a year ago, with industry, primary and construction standing out.
• The irregularity ratio of financing to the private sector remained at low levels in October (1.4%). In the last 12 months, this indicator accumulated a reduction of 1 p.p., an evolution that was evident in all groups of financial institutions. In October, the proportion of financing to the private sector with preferred guarantees represented 15.8% of the total. The ratio of irregularity of loans to the private sector without such guarantees remained at low levels and similar to the record of total financing to the private sector. The coverage ratio of the non-performing portfolio with forecasts stood at 172% in the month, 38 p.p. more than a year ago. All groups of financial institutions maintained a comfortable coverage of their non-performing loans with forecasts.
• Private sector deposits grew 1.6% in the month (32.5% YoY) and, in this way, more than compensated for the decrease in public sector deposits (-3.4%). The expansion of private sector deposits in the month was mainly explained by term placements (2.3%).
• In the context of the expansion of credit to the private sector, the broad liquidity indicator of the financial system (which considers items in pesos and foreign currency, as well as the bills and notes of this Institution) decreased 1.4 p.p. of total deposits in October to 38.4%, mainly due to the monthly reduction in the holdings of Lebac and Nobac and cash in banks. The liquidity indicator, which includes only items in pesos (excluding Lebac and Nobac not linked to passes with the BCRA), verified a reduction of 0.8 p.p. in deposits in national currency in the month to 17.7%.
• The net worth of the consolidated financial system expanded 3.7% in October (22.7% YoY), mainly due to accounting gains and, to a lesser extent, capital contributions. The capital integration ratio remained stable in the month, at around 15.8% of credit risk-weighted assets (RWA). All banking groups maintain an excess capital position with respect to regulatory requirements.
• In October, the gains accrued by the financial system stood at 4.3% of assets. Higher profits in terms of financial margin mainly explained the monthly increase in profitability. All homogeneous groups of financial institutions earned profits in the month. In the first 10 months of the year, the financial system recorded an ROA of 2.6%y, slightly lower than the figure for the same period in 2010.
• In line with the performance of financial intermediation with the private sector, the operational infrastructure of the financial system continued to expand in recent months. The sector’s staffing continued to increase to the highest level since the beginning of 2001. In addition, the number of ATMs and the number of subsidiaries (branches and other dependencies) has been increasing. It should be noted that, despite the fact that at the regional level there is a certain heterogeneity in the provision of financial services, in recent years the gap between the levels of banking infrastructure available in the different Argentine provinces has been reduced considering the number of ATMs per capita.
• The broad mismatch of foreign currency and, in general, the level of dollarization of the aggregate balance sheets of the financial system remain at moderate levels. It should be noted that, unlike what was evidenced more than a decade ago, credit to the private sector in foreign currency remains at low levels, being granted to subjects with income in foreign currency. This characteristic constitutes a factor of significant strength for the local financial system by minimizing the effect of the volatility of the peso-dollar exchange rate.