More than a quarter of banks’ assets are placed in Treasury securities

The weight of public sector financing in banks’ assets has grown strongly in recent months. In February, the holding of Treasury debt securities already exceeded a quarter of the total, according to data published this week by the Central Bank.

According to the latest Report on Banks of the BCRAin the second month of 2024 The participation of credit to the Treasury reached 26.5% of the assets of financial entities and exceeded the holdings of repos liabilities issued by the Central, which fell to 23.8% of the total.

The level reached in February implied a rise of almost 5 points compared to Januarywhen public securities represented 21.6% of banks’ assets, and almost 10 points compared to the same month of 2023, when they represented 16.9%.

The process is explained by the official policy of promoting a migration of bank holdings from remunerated debt of the BCRA to placements of the Ministry of Economy, as part of the strategy to reduce the stock of repos in real terms in order to generate the conditions to lift the exchange rate at some point during the year. A strategy that also includes the super negative rate policy established by the monetary authority.

The promotion of bank migration included the placement of puts or liquidity insurance for banks by the Central to support the Treasury’s debt tenders in pesos. These puts functioned as a guarantee for the entities that the BCRA would buy the insured public securities from them every time they wanted to get rid of them, although they generated a kind of latent debt for the monetary authority in the event of massive execution. This led officials to begin limiting the use of this instrument in recent months.

“Considering the composition of the sector’s assets, in the second month of the year The relevance of net repos with the BCRA was reduced and availability in foreign currency, while the relative weight of financing to the public sector and loans in pesos to the private sector increased,” stated the report from the entity chaired by Santiago Bausili.

The share of credit to the private sector had a slight monthly increase in February, going from 18.7% of banks’ assets to 19.4%. Although, if compared to the same month in 2023, it fell more than 5 points.

Besides, The real balance of financing in pesos to the private sector decreased 1.7% compared to the previous month and sank 30.1% year-on-year.

“The intermediation activity of the financial system with the private sector presented a weak performance in February. Taking into account the main items accounted for in pesos -measured in real terms- liquidity in the broad sense (mostly through repos) and the credit balance of the private sector were reduced in the period. As a counterpart, during the month the real balance of private sector deposits fell and the balance of financing to the public sector increased (in pesos with a CER adjustment clause),” the official report explained.

Regarding this last point, the BCRA clarified that part of the increase in holdings of public securities with CER adjustment registered in February had as a counterpart a decrease in the balance of credit to this sector in foreign currency (mainly bonds in dual currency).