This week the Central Bank of Argentina (BCRA) issued a new Financial Stability Report. The report highlights, amongst other relevant trends, the marked decrease in profitability suffered by the financial sector since early 2016. Annualized return on assets (ROA) has fallen from 4.8% in the last quarter of 2015 to a -2.7% in the first quarter of 2017.
According to BCRA, this drop in returns is mainly consequence of tighter financial margins. Interest revenue from credit assets and securities (as a percentage of net asset value) fell 4.6 percentage points to 13.6% between 2016 and the first quarter of 2017. On the other hand, interests paid on deposits only decreased 1.9 percentage points during the same period, representing 5.4 of net asset value.
Falling active interest rates, as well as signs of a recovering economy in a number of sectors and policy measures that have eased access to credit for some segments, have given way to a significant rise in the growth rate of the value of total loans given, which has reached, once again, levels between 22% and 25%. Growth in USD loans has been particularly strong, seeing its share of total credit rise by 10 percentage points over the last one and a half years.
The share of different types of credit has remained relatively stable over the last two years. Personal loans and signature loans have seen their stake rise by 3.3 and 4.3 percentage points respectively, while current account overdrafts (-2.3 p.p), mortgages (- 1.1 p.p) and other loans (-5.9 p.p) have seen their contribution decline.
At first sight, the fact that mortgages have seen their share of total credit decline might prompt us to question whether recent policies such as the release of inflation-adjusted mortgage loans have had the desired effect. Looking further into the data, we can clearly see that mortgage loans have acquired significant dynamism over the past six months, with year-over-year growth rates nearing 30%. Given its current low share of total credit (slightly below 6%), recovering its past relevance will require total mortgages to grow at a rate significantly above total credit for a sustained period of time.
Let us now turn our focus to deposits, which have seen significant growth in real terms in the past few months, averaging a yearly increase close to 40% since mid-2016. This rise is mostly due to the increase in the volume of cash held in savings accounts, which have seen their share of total deposits rise by 10 percentage points due to the influx of USD into the formal financial circuit originated by the fiscal amnesty.
Finally, we must mention that while credit has seen its growth rates recover in spite of BCRA’s sterilization efforts, the stock time deposits has progressively become stagnant as there are far more attractive alternatives, such as bills issued by the Central Bank, commonly known as “Lebacs”