Report on Banks

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

Summary of the month

• The financial system has overcome the recent episodes of tension without being considerably affected by the intermediation process. In this sense, the policy strategy implemented by the BCRA generates the conditions to strengthen the levels of liquidity and solvency of banks, providing an adequate framework to face a global context of growing uncertainty. The solvency of the financial system thus reflects the effects of the process of asset normalization promoted by the BCRA in recent years: a sharp reduction in exposure to the public sector, a sustained expansion of credit to the private sector with historic lows in its levels of irregularity, the recovery of deposits as the main source of funding, the near disappearance of rediscounts due to illiquidity and a drastic reduction in currency mismatches. Thus, the net worth of banks practically doubled in the last four years, given the recovery of profitability and capital contributions received.
• Financing to the private sector continued to expand in August (2.3%), although it softened its growth rate. The advances and documents observed the greatest dynamism, in a context in which all productive sectors increase their financing. Credit to the private sector stands at 38% of total assets, 19 p.p. more than in 2004 and in line with what was observed at the beginning of 2001, practically tripling exposure to the public sector.
• In August, the reduction in banks’ exposure to the public sector continued, reaching 13.2% of assets, 0.5 p.p. less than in July, mainly due to the capital amortization of Boden 2012. After accumulating a decrease of 27.4 p.p. since the end of 2004, it is already below the levels of early 2001 (17%). This trend, combined with the sustained increase in official deposits in the financial system, led to the public sector becoming a net creditor of banks.
• Total deposits increased in August by more than $4,000 million in the month, driven by public sector placements ($2,200 million) and private sector placements ($1,800 million). The expansion of private sector deposits was explained by time placements, both retail and wholesale. In perspective, deposits continue to gain share in bank funding, currently representing more than three-quarters of total liabilities, denominated almost entirely in national currency.
• Currency mismatches continue at limited levels and present a downward trend. Currently, a small fraction of loans to the private sector are denominated in foreign currency (16 per cent, compared with more than 70 per cent at the beginning of 2001), and are funded exclusively with foreign currency liabilities, while practically all foreign currency debtors have foreign currency income. In terms of the overall mismatch, in August banks continued to reduce the difference between total assets and liabilities in foreign currency, reaching 19% of net worth (compared to 79% and 56% at the beginning of 2001 and the end of 2004).
• The financial system continues to preserve adequate levels of liquidity, reflecting prudent behavior in the face of high financial volatility. Liquid assets increased by $900 million in the month, mainly due to increases in the current account balance held at the BCRA and in cash at banks, in a context of a decrease in the position of passes with the BCRA. The liquidity indicator at the systemic level stood at 25.8% of total deposits in August (slightly above the level at the beginning of 2001), a value that extends to almost 41% when considering the position of Lebac and Nobac.
• The irregularity of financing to the private sector stands at an all-time low of 3% of the total portfolio, with a reduction of 0.2 p.p. over the course of 2008 (16 p.p. and 13 p.p. less than 4 years ago and at the beginning of 2001, respectively). The evolution of 2008 is mainly driven by credit lines to companies, while households continue to increase their non-performing loans slightly, a movement that mainly reflects the effect of consumer financing.
• The financial system continued to strengthen its solvency as a result of obtaining profits. Net worth expanded by more than $200 million in the month, accumulating an increase of $3,550 million YoY. Banks show adequate levels of capital integration, accounting for 16.7% of risk assets, while excess capital integration reaches 87.2% of the requirement, a level that is 35 p.p. higher than at the beginning of 2001. Earnings totaled $300 million in the month (1.1% y/y. of assets), accumulating $3,100 million in 2008 (1.6% y/y. of assets), approaching closing the fourth consecutive year with accounting profits