Argentina’s banks rue the loss of last year’s future
If Argentina’s financial crisis is going to turn into a banking crisis, as it did in 2001, that transmission will first be identifiable in the deposits data.
So far there are no signs of danger. Admittedly the economy is still in the early stage of its recession, but the other key banking metrics are showing predictable signs of distress.
For example, asset quality is deteriorating – sharply and worryingly in some segments, though not to systemically challenging levels. Loan growth has slowed and is falling in real terms (with local currency loans contracting by 2.9% year-on-year in real terms). New mortgage origination has slowed, almost to a stop.
Deposits, though, have so far been performing surprisingly well: an October 17 report from Credit Suisse pointed out that Argentine deposits were still running at 69.5% nominal growth, or a FX-adjusted annual real growth of 9.9%. With central bank securities generating returns of over 70%, the growth in deposit funding will help banks generate net interest income.
However, this boost to NII will be offset – probably completely – by increases in provisions (as NPLs grow) and the recent large increases in the reserve requirements (41% of deposits are now required to be parked at the central bank earning little or no yield, but would be available in the event of a sudden withdrawal of deposits – also lessening the risk of a full-blown bank run).