Report on Banks

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

Summary

• In a context of persistent international volatility, in September the local financial system continued to deepen its levels of intermediation and maintained an adequate position in terms of liquidity and solvency. At the end of the third quarter, bank credit to the private sector continued to increase, while deposits increased. The quality of the loan portfolio showed improvements in the month.
• In September, financing to the private sector grew 4.4% (52.2% year-on-year), with a generalized increase among credit lines. Credit to companies increased 4.8% in the month, and accumulated a 53.1% annualized increase (y.) in the first 9 months of the year, exceeding the growth rate of loans specifically intended to finance consumption. Financing to companies accounted for more than 61% of the expansion of the balance of financing to the private sector so far in 2011.
• The non-compliance ratio of financing to the private sector fell from 0.2 p.p. in September to 1.4%, a movement mainly driven by public banks. Throughout 2011, this indicator decreased by 0.7 p.p. In particular, 42 banks (with 69.5% of lending) had an irregularity ratio of less than 1.5% in September, while at the end of 2010 only 26 banks (with 25% of lending) had a ratio below that value. The coverage ratio of financing to the private sector in an irregular situation with forecasts stood at 169%, 26 p.p. more than at the end of 2010.
• The balance sheet of total deposits increased 1.3% in September, driven mainly by private sector loans (1.4%) and, to a lesser extent, by those from the public sector (1.3%). In the first 9 months of 2011, the balance of total deposits of financial institutions accumulated an increase of 27.4%, driven by private sector placements. The latter were driven mainly by demand accounts (they contributed 56% of the expansion of the private sector deposit balance in 2011) and, to a lesser extent, by term deposits. In a context of sustained growth in credit to the private sector, in September there was a relative reduction in banks’ liquidity surpluses: the broad liquidity indicator (items in pesos and foreign currency, as well as the holdings of Lebac and Nobac) totaled 39.7% of total deposits in September, with a gradual monthly decrease.
• In the month, the net worth of banks grew 1.2% (21.5% in year-on-year terms), mainly driven by accounting profits and, to a lesser extent, by capital contributions. The capital integration of the banks as a whole fell slightly in September, reaching 15.7% of risk-weighted assets (RWA). Thus, at the aggregate level, the financial system continued to show an excess of around 65.5% in the integration of regulatory capital with respect to the regulatory requirement.
• The profits accrued by the banks as a whole in September reached $630 million (1.3% y/y. of assets), being lower than in August mainly due to the decrease in gains from securities. Thus, in the third quarter of the year, financial institutions recorded an ROA of 2.2%y, which was below the figure for the previous quarter and that corresponding to the same period in 2010.
• The Central Bank has been implementing a financial policy that seeks to increase the banking penetration of the population. Thus, this Institution implemented the Universal Free Account (CGU), relaunched the Cancelatory Check (ChC) and stimulated bank transfers. Taking into account that there is a significant regional disparity in the availability of financial services, since 2011 it has been established that in the face of requests to open branches in areas with greater banking penetration, the BCRA would prioritize those requests that contain a proposal for the simultaneous opening of branches in areas with insufficient infrastructure for the provision of financial services. As a result of this regulatory change, in the first 9 months of 2011 the BCRA approved the opening of 53 branches in areas with a lower relative level of banking penetration, more than double the number that had been enabled in the same period of 2010.
• Argentina has a robust financial system. Liquidity levels far exceed those evidenced in the mid and late nineties, in a context of sustained growth in the loan portfolio in recent years. The adequate solvency position, the low levels of dollarization of loans (which can only be channeled to debtors with incomes in the same currency), the low default rates and the low dependence on external funding complete the picture of the main strengths of the sector. Looking ahead to the end of 2011 and the beginning of 2012, the depth of the financial system is expected to continue to increase.