After 'undoing' in 2020, banks begin to lose profitability

Juan Manuel Barca

05/06/2021 10:15

• Clarín.com

• Economy

Updated 05/06/2021 10:15

It was one of the star sectors.

And in the midst of the pandemic, it withstood the impact of restrictions like few others thanks to the use of the home office, home banking and ATMs.

Despite these advantages,

the profitability of the banks fell again in the first quarter

of the year due to the impact of inflation, regulated rates and regulatory measures.

According to the Central Bank, financial entities registered an annual increase of 0.9% in February in their Operating Results on Assets (ROA) and 6.1% in relation to equity (ROE). Although it represents an improvement compared to January, the first two months was lower than all the quarters of 2020 and March would not modify the trend, since a similar panorama is expected in the sector.

The data reinforces a

scenario of lower profits

that has been taking place since the second quarter of last year, when the financial sector began to apply the adjustment for inflation in its balance sheets. "Inflation makes it more difficult for banks to maintain the value of their assets, with maximum and minimum rates unchanged,"

Marcelo de Gruttola

, vice president and senior analyst at

Moody's

, told

Clarín

.

In April, the rating agency

improved the rating

of Argentine banks by changing its perspective

from "negative" to "stable",

but also warned that in the medium term they continue to be

affected by imbalances

, with an expected inflation of 50% in 2021, since expansionary monetary policy in response to the pandemic added "new monetary and inflationary pressures."

In this scenario, financial activity faced a margin squeeze at the start of this year due to the

impact of regulated rates

. Since 2019, when the reference rate was around 60%, the Central Bank has been reducing it until it reaches the

current 38%

, a level lower than the price increase predicted by economists and consultants, who already consider the goal to have failed. 29% official.

According to the official report on banks,

the financial margin of the sector rose

to 11.5% of assets in the last 12 months since February.

Regarding income, results from securities reached 8.7% of assets and interest from loans 8.1%.

Repo premiums, price differences, and adjustments to CER items also added resources.

And on the side of expenses,

deposits continued at 9%.

Within securities,

Leliq (

Liquidity Letters) and

CER bonds

are one of the main instruments that

allow banks to maintain a still positive profitability

.

Passive repos (Leliq and passes) grew 76% in the last 12 months, but the Government seeks to reduce them

for the

ball of interest that it generates

, with a monthly issuance of the order of $ 80,000 million.

Banks take the funds from their clients and lend them to the Central in exchange for a nominal rate of 38% for the Leliq (45.44% effective) and between 32 and 36% for passive repos at 1 and 7 days .

A performance that is being affected by inflation in a framework of stable rates.

"

It is not the same to charge 60% than 38%

", they recognize in a first line bank.

Less credit to the private sector

Rate limits also have an impact on a

spread

that is seen as "illogical" in the sector. It is that while the entities receive a 36% interest for the current account advances, they pay 37% for the fixed terms. In this scenario,

total credit to the private sector registered an annual decrease of 2.6% in real terms in February

and total deposits accumulated an increase of 13.4%, according to the BCRA.

"Financial intermediation activity continued to show

a relatively weak performance

in the second month of the year, partly due to seasonal factors," the report said. And he added that "in February

the most relevant sources of resources

for the group of financial institutions

were the reduction of credit to the private sector

, and, to a lesser extent, of liquidity in a broad sense."

The

peso loans to the private sector

, however,

increased

in real terms driven by documents and, to a

lesser extent,

by cards

. Thus, the financial sector faced

lower income from commissions on cards

to merchants, which this year fell to 1.8% from the previous 3%. But now the banks announced a

second increase in commissions to individuals.

“The results for 2020 were relatively good based on the pandemic context, but in recent years we have seen a compression of margins due to inflation adjustment and the regulation of rates on deposits, loans and credits to SMEs.

For this reason,

our perspective is that the reduction of margins will continue

”, said de Gruttola.

In the Central, meanwhile, they attribute the lower profitability of the financial system to the

tax that the City applies to the Leliq

, which reduced the rate by 1.5 points.

The remunerated liabilities represent today between 25 and 30% of the assets of the banks.

"The BCRA took measures orienting the profitability of the financial system to improve the provision of services, banking and financial inclusion," they said from the entity.

According to the agency's data, administration expenses (6.5% of assets) and bad debt charges (1.5% of assets) were the most relevant expenses.

"

Banks can reduce the minimum cash

from improving the efficiency of ATMs and increasing electronic transfers, also when they grant loans to people who had never received a loan," they say in the Central.

NE

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