Informe de Estabilidad Financiera

This semi-annual report presents recent developments and prospects for financial stability in Argentina.

Executive summary

The financial system remains solid at the beginning of 2017, in line with what was observed in the latest edition of the Financial Stability Report (FSR)1. Faced with an external and domestic context with changes that tended to be favorable, the sector maintains significant levels of liquidity and solvency as well as a low to moderate exposure to the different risks inherent to the activity, showing a considerable degree of resistance to possible stress events. In the current operating framework, the main challenge of the sector remains in force in terms of sustaining adequate levels of profitability and capital over time, in such a way as to allow progress in the necessary deepening and greater financial inclusion. The international situation tended to improve in recent months (see Chapter 1). There was less volatility in international financial markets – allowing debt placement in foreign markets to be dynamic – and improvements in the economic activity of the country’s main trading partners. The external context is expected to remain favorable, although the possibility of episodes of abrupt changes in risk appetite at the global level is not ruled out, with a potential impact on emerging markets (which could affect Argentina through the commercial and financial channel). At the local level, the beginning of a phase of gradual expansion of the level of activity (although the evolution was not homogeneous between sectors) stands out, with slight improvements in the labour market. Given the most recent evolution of the general price level, in April the BCRA had to increase the monetary policy rate, reaffirming its commitment to the disinflation process initiated in 2016. The outlook remains positive, in line with what has been observed for different leading indicators of the economy, REM expectations and valuations in the financial markets. In the face of the general context of disinflation and greater competition that began in 2016, banks’ profitability continued to decline in recent quarters (see Chapter 2). In line with expectations, the financial margin and results for services were reduced. In this sense, the main challenge that the local financial sector has to face in the short and medium term continues to be present. In particular, with lower levels of inflation, as expected to consolidate in the coming months, financial institutions will continue to lose the benefit derived from funding with transactional deposits and lending at relatively high nominal rates. In order for the expected scenario not to impact the solvency and intermediation activity of the sector, the entities will have to carry out a significant readjustment of business models and policies, seeking to increase production efficiency and operational scale (see Section 2). The BCRA is accompanying this process, implementing measures aimed at reducing operating costs and promoting greater use of new technologies (see Chapter 5). With respect to the recent evolution of the levels of financial intermediation with the private sector, there was a more moderate rate of improvement than that observed at the time of the publication of the last IEF. There was greater relative dynamism on the deposit side (see Chapter 2), largely explained by the greater channeling of funds given the normalization of the foreign exchange market and the progress in the Fiscal Sincerity process. On the other hand, the increase in credit to the private sector in real terms moderated for both firms and households, partly due to seasonal factors. However, the growth of mortgage loans denominated in Purchasing Value Units (UVA) was highlighted. Credit is expected to continue to be boosted, based on the recomposition of credit demand, given the improvements in employment, real wages and economic activity. Banks’ funding should be consolidated in the coming periods, reflecting the effects of factors such as the consolidation of the trend towards positive real interest rates for depositors, the development of new instruments in UVA, the creation of a yield curve in local currency and the use of strategies for securitizing mortgage loans. Compared to the last edition of the IEF, the general exposure of the financial system to the risks inherent to its activity remained at low levels (see Chapter 3 and Section 4). The sector retains high relative levels of coverage, in terms of liquid assets, regulatory capital and forecasts, in a framework of prudential supervision and regulation that is in line with international standards. On the other hand, the possible sources of systemic vulnerability (leverage, interconnection, concentration of risk factors, etc.) remain limited. In relation to credit risk, the levels of non-performing loans continue to be particularly low, while different stress exercises carried out show the resilience of the financial system to events (with a very low probability of occurrence) related to its materialization. With respect to system mismatches, both exposure in foreign currency and in inflation-adjusted instruments remained at low levels, although in the latter case there was an increase in the net position. The situation of banks therefore presents a significant margin for expanding the channelling of credit to companies and households, while at the same time starting from relatively low levels of leverage for debtors (see Section 1). In the future, the process of increasing the intermediation scale could imply changes in the margin on the risks assumed, for example, liquidity, credit risk or term and currency mismatches (particularly in the UVA segment). In this regard, the BCRA supports the updating of the regulatory framework, maintains adequate monitoring of the aforementioned variables, and promotes measures so that banks have tools to manage their risks. The BCRA maintains its commitment to promote the development of the payment system, a higher level of banking penetration and a lower use of cash. In particular, the new electronic payment methods launched in mid-2016 began to be operational in many of the financial institutions, while it is expected that the incorporation of new alternatives will continue to take hold in the coming months (see Chapters 4 and 5). On the other hand, measures were implemented with the aim of reducing the costs faced by users of financial services to carry out transactions (both economic and in terms of the time involved). The incorporation of a greater offer of operational infrastructure for the provision of financial services throughout the country has also been promoted.