Report on Banks

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

Summary of the month

• In August, the greater turbulence in the international financial markets did not prevent banks from continuing to consolidate their process of asset normalization. Based on the financial policy defined by the BCRA, our financial system practically canceled the rediscounts for illiquidity granted five years ago, it has steadily reduced financing to the public sector and can only lend dollars to those who demonstrate the ability to repay in that currency. This evident strength of banks in Argentina allows them to face the volatility of the new international context without setbacks both in terms of liquidity and solvency.
• In August, deposits continued to grow, consolidating themselves as the main source of funds in the financial system. In the month, total deposits grew by $4,100 million (2.1% or 23.5% YoY), due to the equal contribution of public and private placements. In this context, the balance sheet of banks’ availabilities and active passes, in terms of deposits, increased 0.2 p.p. in the month to 22.2%.
• The favorable dynamics of credit to the private sector continued in the month: the balance sheet of private financing increased 4.2% in August (41.1% YoY). The lines that presented a better performance in the month were credit cards, documents and personal loans. On the other hand, mortgage lines increased by 38.6% in 2007.
• In this context of sustained growth in credit to the private sector, non-performing loans continued to fall. In fact, irregularity stood at 3.6% of private financing in August, 0.1 p.p. below July, 0.9 p.p. lower than at the end of 2006. This improvement in the quality of the portfolio in 2007 was mainly explained by financing for companies. The irregularity of families, although it showed a slight annual increase, still remains at low levels.
• Exposure to the public sector fell by 0.7 p.p. of assets in the month, to 16.3%, accumulating a contraction of 5.3 p.p. in 2007. For its part, private banks showed, for the first time since the crisis, a level of exposure to the public sector of less than 10%. The monthly dynamics were mainly driven by the amortization of the capital quota of the Boden 2012.
• Although to a lesser extent than in July, the turbulence in the international financial markets impacted the results of the banking sector in August. The monthly improvement was partly linked to the measures implemented by the BCRA aimed at preventing transitory movements in the prices of public securities from adding volatility to the profitability of financial institutions. In particular, in August the financial system recorded an accounting loss of $20 million or 0.1% of assets, 0.7 p.p. of assets better than last month. Recurring revenues continue to strengthen: service results exceeded pre-crisis values for the first time. During the first eight months of 2007, the financial system accrued profits of more than $2,000 million.
• Banks’ net worth registered a slight decrease in August explained by the losses for the month and by the adjustments for unrealized valuation differences arising from the fall in the price of securities. In particular, the net worth of banks fell 0.6% in August. Despite this monthly movement, in the last twelve months there was an increase in equity of 14.1%.
• Encouraged by the good prospects for financial activity, there has been a sustained growth in the banking operational structure: there are increases in the level of employment, in the number of branches and ATMs. In recent years, progress has been made in geographical areas with less coverage, mainly in terms of access to financial services through ATMs.