Argentina's major banks posted a modest year-over-year improvement in their combined earnings for the second quarter of 2017, as strong growth in net interest income offset higher operating expenses amid continued inflation woes.
Cumulative net income for the country's three largest listed banks — Grupo Financiero Galicia SA, Banco Santander Río SA and Banco Macro SA — came to 5.10 billion Argentine pesos in the second quarter, 12.3% higher than the 4.54 billion pesos recorded in the year-ago period.
The bulk of the total earnings were attributable to Galicia and Banco Macro, which posted year-over-year profit growth of 33.5% and 12%, respectively. This was enough to outpace an 8% decline in Santander Río's net profit, which the company blamed in part on integration costs associated with its acquisition of Citibank Argentina. All told, operating expenses at Santander Río spiked 76.1% year over year.
More broadly, however, expenses weighed on the group overall, with operating expenses jumping by 50.9% to 15.19 billion pesos and asset write-downs more than doubling to 2.58 billion pesos.
Higher inflation continued to hound banking costs in the second quarter. The Argentine central bank decided to raise its benchmark interest rate by 150 basis points in April, citing an expected acceleration in inflation amid utility price hikes and salary renegotiations.
However, the earnings of the banking majors were also buoyed by solid net interest income, which grew 92.3% annually to 11.60 billion pesos in the second quarter, as the high interest-rate regime continued to anchor interest-earning loans.
At Galicia, average interest-earning assets grew 38.3% yearly, primarily due to a 42.2% rise in the average portfolio of loans to the private sector. Meanwhile, interest on loans accounted for 77% of Banco Macro's financial income in the quarter, driven by growth in its private loan portfolio.
Argentina's high interest rates also boosted net interest margins among the banks — particularly for Galicia, which saw its NIM expand to 7.03% from 5.84% in the linked quarter and 4.22% in the year-ago period. Although Santander Río and Banco Macro also showed year-over-year expansions in their NIMs, both were lower when compared to the previous quarter.
In terms of profitability, the return on average equity deteriorated across the board both yearly and quarterly, with the exception of Galicia, whose ROAE ticked to 32.27% from 30.27% in the first quarter.
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As of Aug. 23, US$1 was equivalent to 17.19 Argentine pesos.