Report on Banks

Executive Summary

In May, the financial system showed a slight recovery in total credit to the private sector in an operating environment characterized by the maintenance of adequate coverage levels in terms of liquidity and solvency against assumed risks.

The real balance of credit to the private sector in pesos increased by 0.3% in May (+5.1% y.o.y.), after 4 months of declines. Performance during the period was mainly driven by commercial lines and those with real guarantees. The balance of credit to the private sector in foreign currency increased by 2.6% month-over-month —in original currency— (+52.1% y.o.y.). In this context, the total real credit balance to the private sector (in national and foreign currency) increased by 0.8% (10.8% y.o.y. real).

The real balance of private sector deposits in pesos decreased by 0.9% in May (-1.3% y.o.y.), mainly due to the performance of time deposits. Sight deposits showed differentiated behavior during the period: an increase in remunerated accounts and a decrease in non-remunerated ones. The balance of foreign currency deposits from the private sector remained without significant changes compared to April (-0.2% monthly and +27.8% y.o.y. —in original currency—).

The non-performing loan ratio for private sector financing rose to 7.7% in May, 0.4 p.p. higher than the previous month. The delinquency ratio for household financing was 12.8% in May, showing a moderation in its monthly growth rate in recent months, a dynamic explained by a lower rate of change in the real non-performing balance. The non-performing loan indicator for corporate credit totaled 3.5% in May. Regarding coverage, during the period, the balance of loan loss provisions totaled 86.3% of the non-performing portfolio and 6.6% of the total financial system portfolio. Evidencing the high capacity of the financial system to absorb potential losses associated with credit risk (considering delinquency, loan loss provisioning, and regulatory capital jointly), in May, non-performing credit net of provisions represented only 2.2% of regulatory capital.

In May, the systemic liquidity indicator, which considers only available funds in pesos, stood at 11.9% of deposits in the same denomination (-0.9 p.p. monthly). If public securities intended for minimum cash integration and net short-term active operations in pesos remunerated with the BCRA are included, the liquidity indicator reached 32.7% of national currency deposits in the month (+1.2 p.p. monthly). Meanwhile, liquid assets in foreign currency represented 50.9% of deposits in the same denomination in the month (-0.9 p.p. compared to April).

The financial system presents high levels of solvency. In May, capital integration (regulatory capital) stood at 30.7% of risk-weighted assets (RWA), while the excess capital integration –capital position– represented 280.3% of the regulatory requirement. In turn, in May, the capital position was equivalent to 37% of private sector credit net of provisions.

Considering the accumulated three months to May, the profitability of the financial system in terms of assets (ROA) reached an annualized 2.2%. Meanwhile, the accumulated ROA for the last 12 months stood at 1.1%.