April 05, 2019

IMF published a staff report highlighting that the banking system in Argentina remains resilient. The report, which is part of the third review under the stand-by arrangement with Argentina, shows that loan provisioning is at high levels, with provisions for nonperforming loans (NPLs) at 87%. The assessment highlights that, despite a generally resilient banking system, there is room to strengthen supervisory practices.

In the banking sector, the system-wide tier 1 capital ratio is at 14.2%. Liquidity is ample due to high remunerated and unremunerated reserve requirements and a shrinking loan portfolio, with the liquid assets to deposits ratio rising to more than 50%. The banking regulator BCRA conducts regular stress tests on the banking system, yet the credit risk models are suited to assess exposure of large universal banks to shocks. However, work is underway to fine-tune stress testing models to better customize capital and liquidity requirements for smaller institutions, taking into account their funding structure and activities. These smaller institutions are non-systemic, account for 1.1% of the banking sector assets, and have a very small share of retail deposits (relying instead on wholesale funding and term deposits). Private-sector NPLs are rising but were only 3% in December, mostly concentrated in revolving credit to households and loans to construction firms. Mortgage defaults also remain at very low levels (0.3%).

The report notes that revisions to the BCRA charter would strengthen independence and operational autonomy of the central bank. The authorities have made good progress in designing amendments to the Central Bank Law, which establishes price stability as the first and fundamental mandate of BCRA and allows remuneration of commercial bank accounts held at the BCRA. The objectives of the new charter are to improve governance, internal oversight, and decision-making structures and to commit the central bank to the international standards of transparency and accountability. 

 

Related Link: Staff Report

Keywords: Americas, Argentina, Banking, NPLs, Stress Testing, Regulatory Capital, Credit Risk, BCRA, IMF

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