Report on Banks

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

Summary of the month

• Local economic activity continues to show signs of gradual recovery, in a framework in which the countercyclical policy implemented by the BCRA ensured two fundamental public goods, monetary and financial stability. Financial institutions have exhibited a high degree of resilience since the beginning of the international financial crisis, sustaining small mismatches and considerable liquidity and solvency buffers. Financial intermediation with the private sector shows signs of recovery, a situation that, combined with the greater dynamism of the economy, reduces the credit risk of households and the levels of rejection of compensated documents by companies.
• In order to deepen the dynamics of bank credit to the private sector, the BCRA took measures, together with the Electronic Open Market (MAE), to boost and make operational the interest rate futures market. In this way, it seeks to generate a reference for the temporary structure of interest rates in national currency, stimulating the granting of fixed-rate loans with longer terms than the current ones. In addition, the BCRA approved a series of measures aimed at making access to credit more flexible, particularly for SMEs, addressing in general the issue of the information required by entities.
• Total deposits in the non-financial sector increased 1.8% in August (9.4% YoY), mainly due to private sector placements (2.8%) both in demand and time, mostly in local currency. During the year, the increase in private sector deposits is mainly directed to public banks, followed by private banks with national capital.
• In August, liquid assets increased due to the increase in cash, partially offset by the decrease in the stock of net passes with the BCRA. The total liquidity indicator (with items in domestic and foreign currency) increased in the month to 30.7% of deposits. Ample liquidity (which includes the holding of Lebac and Nobac not linked to pass operations) reaches 42.5% of deposits.
• The credit of the financial system to the private sector, adjusted for the issuance of trusts, increased by almost $400 million (0.3%). The monthly issuance of financial trusts with loan portfolios originated by banks is the largest so far this year and is mainly explained by the securitization of mortgage loans. In 2009, lending to the private sector was mainly driven by the evolution of larger residual loans to the corporate sector.
• The credit risk of the private sector faced by the financial system remains at limited levels. The irregularity of credit to companies and households has stabilized at around 3.8% in recent months. The degree of coverage of irregular financing with forecasts continues to be high (117%).
• Accounting profits drive the monthly increase in the consolidated net worth of the financial system, which accumulated an expansion of 17%a. in the first 8 months of the year, higher than in previous years. The capital integration of all financial institutions stands at 17.9% of risk-weighted assets, exceeding both local requirements and international recommendations. The excess of capital integration in terms of the requirement stands at 93% at the systemic level.
• The monthly accounting earnings of the financial institutions as a whole fell to 2.1% of assets, mainly due to the lower accrual of net interest and service income, and despite the reductions in administrative expenses and charges for uncollectibility. In the second part of the year, the volatility of the sources of income of the financial system continues to decrease, highlighting the performance of the items traditionally with greater variability. So far in 2009, if items directly related to the variation in the exchange rate are excluded, the profitability of the financial system would be reduced by half, showing levels similar to those observed in the same period of the previous year.