Report on Banks

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

Summary

• In October, the financial system experienced growth in credit to the private sector and deposits, while liquidity and solvency continued to consolidate. The infrastructure for the provision of financial services continued to progress gradually, with increases in employment, the number of ATMs and branches.
• Credit to the private sector – in domestic and foreign currency – grew 2.7% in October (26.4% YoY), driven by lines in pesos, which expanded 3.4% in the month (36.9% YoY), while loans in foreign currency decreased in the period. In the last 12 months, public banks registered an increase in credit to the private sector of 38.8% YoY (48.3% YoY for financing in pesos), increasing their participation in the total balance of loans to 31.6%. Credit to companies grew 1.8% in October (22% YoY), while credit to households grew by 3.2% (32.4% YoY). Financing to industry accounted for 46% of the increase in the balance of loans to companies between June and October. Although lines with a shorter residual maturity continued to predominate, in 2012 the share of loans with greater relative maturity increased slightly.

• This increase in the terms of loans is in line with public initiatives aimed at increasing the production of goods and services. Since the implementation of the Bicentennial Productive Financing Program, the BCRA has carried out 19 fund tenders, awarding $5,784 million among 14 entities, which credited companies with a total of $3,790 million. In addition, through the “Credit Line for Productive Investment” – Communication “A” 5319 – between July and December 17 (latest preliminary information available) the banks disbursed $13,648 million, an amount equivalent to 91% of the $14,930 million to be placed. Of the total disbursed, the main recipient was the industrial sector and 52.4% corresponded to MSMEs. It is estimated that the total number of credits that will be channeled through this line will exceed by 15% the originally established amount, given the disbursements expected for the second half of December and the amount expected for the first half of 2013 of operations scheduled with more than one disbursement. In this context, in order to deepen this tool, the BCRA decided to renew the “Credit Line for Productive Investment”, taking as a reference the 5% of private sector deposits in November 2012. Loans must be granted before June 30, 2013, and may be extended until December 2013 if there is more than one disbursement.
• The non-performing loan ratio to the private sector remains at historically low levels, standing at 1.8% in the month. The coverage of the irregular portfolio of the private sector with forecasts continued at comfortable levels for the banks as a whole, reaching 140% in October.
• In October, the balance of total deposits (in domestic and foreign currency) in the aggregate of the financial system grew 2.5% (23.4 y.o.y.). Public sector deposits increased 3.3% in the month (22.8% YoY) and those of the private sector, 2.2% (23.9% YoY). The expansion of deposits was driven by time placements in pesos by the private sector, which increased 4.1% in the month (52.2% YoY).
• The broad liquidity indicator for the financial system (in domestic and foreign currency, including holdings of LEBAC and NOBAC) increased slightly in October to 39.2% of total deposits, while the liquidity indicator that excludes the holding of LEBAC and NOBAC stood at 25.9%. The coverage of short-term liabilities – up to 1 month of residual maturity – with more liquid assets reached 46.5% in the third quarter of the year (latest available data), registering a slight increase in 2012.
• In October, the new reserve requirements came into force with the aim of promoting access to financial services in areas with less relative development and stimulating credit to micro, small and medium-sized enterprises. In a first stage, the application of a system of differential reserve requirements in pesos by geographical areas began in the month. The regulation establishes that the reserve requirement is lower for less developed areas, considering the localities in which the operational houses that captured the deposits are located. At the same time, the allowable deduction from eligible cash began to be gradually reduced.
• The net worth of the consolidated financial system expanded 1.7% in the month, mainly due to accrued profits. In the last 12 months, net worth continued to grow at a sustained pace, exceeding expansion rates of 30% YoY. The capital integration of the banks as a whole stood at 16.9% of credit risk-weighted assets (RWA), 1.3 p.p. more than at the end of 2011. All groups of entities presented a surplus capital position in the month.
• In October, banks accrued positive results equivalent to 2.2% of assets, with this indicator falling compared to September due to lower gains on securities, a behavior reflected in all groups of banks. So far in 2012, cumulative earnings increased year-on-year by 0.3 p.p. of assets to 2.9%a.a., mainly due to higher interest earnings.