1.- The banking industry maintains record-high earnings, but with Leliq dependence
The Argentine banking industry posted a net gain of ARS 130.8 billion, 86% more than the profit obtained in the same period of 2018 (ARS 70.5 billion). In the first six months of the year, the industry earned an amount equivalent to 70% of FY18 net income. Such a result stemmed primarily from a 78% increment in the financial margin. However, this hides a heterogeneous behavior among the different concepts that compose the financial margin, in a context of a strong increase of interest rates fostered by the Central Bank to curb inflation.
2.- The financial intermediation business continued to lose weight; securities income saved the year
In terms of financial intermediation, the growth of financial expenses (199% YoY) greatly outpaced that of financial income (56% YoY), translating into a negative net interest income of over ARS 88 billion.
In contrast, the profit from the banks’ holdings of securities (mainly Leliq securities issued by the Central Bank) quadrupled in the last twelve months, climbing to more than ARS 378 billion. FX result (ARS 16.5 billion) declined 14% YoY.
If we were to eliminate securities income and FX result, 2019 first-half earnings would turn into a loss of over ARS 158 billion, while the same period of 2018 would lead to a loss of little more than ARS 17 billion. This helps understand the relative importance that both concepts had in the first semester of 2019.
3.- Private-sector credit grew below inflation, with a material increment in NPL
In a context of economic stagnation, private-sector grew only 15% in the last year, loosing against the annual inflation rate. Private deposits rose 56% in the same period.
In addition, there was a material worsening in terms of asset quality: the ratio of non-performing loans stood at 4.6% as of June 2019, compared to a ratio of 2.0% in the same month of 2018. The coverage of NPL with loan-loss reserves also dropped to 92% by June 2019, from a previous mark of 127% a year before.
4.- The efficiency ratio worsens
Net fee income rose 39% YoY, while administration expenses increased 51% YoY. This way, the efficiency ratio (defined as coverage of administration expenses with net fee income) declined from 34% to 31.5% between mid-2018 and mid-2019.