Report on Banks

This report analyzes the situation of the Argentine financial system on a monthly basis.

Summary of the month

• Driven by the sustained expansion of credit to the private sector, decreasing exposure to the public sector and increase in fixed-term deposits, in August banks showed a new increase in their volume of financial intermediation. The positive results obtained in the month, in a framework of competition, combined with new capitalizations, contributed to strengthening the solvency of the sector.
• Through the BCRA’s financial policy, the financial system was able to deepen its financing to the private sector and increase its independence from the government’s financial needs. Private credit reached 27.8% of total assets, exceeding public sector exposure by 3 p.p., which fell 0.9 p.p. in August to a level of 24.8%. In perspective, in the same month of 2004, exposure to the public sector was close to 41% of assets, while private loans only accounted for approximately 19% of assets.
• Loans to the private sector increased by 2.9% in August, reaching an expansion of 40% in 2006. Financing channeled to companies continues to focus on the most dynamic productive sectors (industry and the primary production of goods channel 59% of financing to companies), in a context of a longer average maturity period of the new commercial financing granted (more than 18 months on average, almost 16% longer than in the same month of 2005).
• Private sector time deposits registered a significant growth of 6.4% in August, a movement mainly driven by the BCRA’s regulations that encourage the migration of savings constituted in demand accounts to time deposits. For the first time since the crisis, in 2006 time deposits grew faster than sight deposits.

• The liabilities of the financial system sustain their normalization process: while in August financial institutions made payments to the BCRA for $125 million within the framework of matching, between September and October these disbursements reached $397 million. Currently, 22 banks have paid the total of the rediscounts, while the only 2 that maintain debts not only amortize what was scheduled monthly but also made voluntary advance payments for considerable amounts each.
• As part of an acquisition process, a national private bank received a capital contribution of approximately $830 million in August. In addition, two foreign financial institutions received capitalizations for almost $82 million in total. Thus, since October 2004, capitalizations of $7,930 million have been accumulated, which contributes to consolidating the robustness of the banking sector.
• In August, accounting profits (1.2% y/y of assets) and new capitalizations strengthened the solvency of the financial system. Thus, the net worth of banks increased by 3.8% in the month (1.2% if consolidated among financial institutions), reaching an expansion of 16.5% (14.1% consolidated) between January and August 2006. For its part, the integration of normative capital in August represented 16.4% of its assets (weighted by credit risk).
• The main sources of banking resources were the increase in private deposits ($3,100 million) and the reduction in exposure to the public sector ($2,000 million). The expansion of financing for the private sector ($1,950 million), the increase in banks’ liquid assets ($1,500 million) and the increase in the holding of Lebac and Nobac ($1,270 million) were the main applications of resources from the financial system.