Report on Banks

Executive Summary

In May, the financial system posted a slight recovery of the total stock of loans to the private sector while maintaining adequate liquidity and solvency levels in relation to the risks undertaken.

The real stock of financing to the private sector in pesos increased 0.3% in May (+5.1% y.o.y.), following four consecutive months of contractions. The performance of the period was mainly driven by business credit lines and secured loans. The stock of loans to the private sector in foreign currency grew by 2.6% month-on-month (in original currency) (+52.1% y.o.y.). Thus, the total stock of loans to the private sector (in domestic and foreign currency) improved 0.8% in real terms (10.8% y.o.y. in real terms).

The real stock of private sector deposits in pesos decreased 0.9% in May (-1.3% y.o.y.), mainly explained by time deposits. Sight deposits posted differentiated performances in the period: an increase in interest-bearing accounts and a decrease in non-interest-bearing accounts. The stock of private sector deposits in foreign currency remained unchanged against April (-0.2% monthly and +27.8% y.o.y., in original currency).

The non-performance ratio of loans to the private sector reached 7.7% in May (+0.4 p.p. against April). The non-performance ratio of loans to households stood at 12.8% in May, moderating its monthly expansion pace. This was explained by a lower change rate of the non-performing stock in real terms. The non-performance ratio of loans to companies totaled 3.5% in May. Regarding hedging, the stock of provisions totaled 86.3% of the non-performing portfolio and 6.6% of the total portfolio of the financial system. Exhibiting the financial system’s strong capacity to absorb potential credit-risk losses (considering jointly delinquency, loan loss provisioning and regulatory capital), the non-performing portfolio net of provisions represented only 2.2% of the RC.

In May, the systemic liquidity indicator considering only peso-denominated liquid assets stood at 11.9% of deposits in the same currency (-0.9 p.p. monthly). If government securities used for compliance with minimum cash requirements and net short-term interest-bearing repo operations with the BCRA are included, the liquidity indicator reached 32.7% of domestic currency deposits in the month (+1.2 p.p. monthly). Meanwhile, liquid assets in foreign currency represented 50.9% of deposits in the same currency during the month (-0.9 p.p. against April).

The financial system posted high levels of solvency. In May, the financial system’s regulatory capital compliance stood at 30.7% of risk-weighted assets (RWAs), while the surplus of regulatory capital—capital position—represented 280.3% of the regulatory requirements. In addition, in May, the capital position totaled 37% of financing to the private sector net of provisions.

In the past three months to May, the financial system’s profitability was 2.2% annualized in terms of assets (return on assets, ROA). In turn, the ROA accumulated in the past twelve months stood at 1.1%.