Report on Banks

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

Summary of the month

• During August, the process of expansion of the intermediation activity of financial institutions with companies and families continued, in a context of improvement in the main indicators of the financial system. It should be noted that recently, with the aim of facilitating access and stimulating greater use of banking services, the BCRA regulated the so-called “Universal Free Account” as well as a reduction in the costs of bank transfers.
• The balance sheet of total deposits in the financial system increased 3.7% in August, mainly reflecting the effect of higher public sector placements. The balance of deposits in the non-financial private sector expanded 2.6% in the month (24.6% YoY), driven mainly by term deposits.
• In August, the liquidity ratio of banks (considering items in domestic and foreign currency) increased slightly to 29.5% of deposits, accumulating a decrease of 1.2 p.p. compared to the same period in 2009, mainly due to the decline recorded in private banks. The broad liquidity indicator (including Lebac and Nobac not linked to passes with the BCRA) stood at 45.6% of total deposits.
• The balance sheet of financing to households and companies increased 2.8% in August (25% YoY), mainly driven by financial assistance for exports and consumer loans (cards and personal). Thus, total credit to the private sector grew 28% annualized (y) in the first 8 months of 2010, far exceeding the record for the same period in 2009. So far this year, bank financing to companies has increased its rate of expansion compared to the same period in 2009, mainly due to the performance of the industry, trade and services sectors. Financing channelled to households also showed greater dynamism throughout the year, mainly due to lines for consumption. In this context of growth in financing to the private sector, in recent months there has been a downward trend in the spreads of the lines in pesos with the highest volume traded.
• The irregularity ratio of financing to the private sector remained stable at around 2.8% in August. Non-performing loans to companies and households accumulated a reduction of 0.7 p.p. throughout 2010, driven mainly by the EFNBs and private banks, based on the better performance of their consumer loan portfolios. Consumer financing for relatively smaller households had the highest irregularity ratios, although they showed a significant improvement in their performance so far this year. The irregular portfolio of the financial system continues to show a high level of coverage with forecasts (144%).
• The foreign currency mismatch of the financial system (which includes the net purchase of foreign currency in futures without delivery of the underlying currency) fell in August for the third consecutive month to 32.4% of net worth. This variation was explained by the decrease in forward purchases of foreign currency, mainly in private banks.
• The consolidated net worth of the financial system grew 2.3% (16.4% YoY) in the month, mainly due to earned earnings. Capital integration in terms of risk-weighted assets declined slightly in August to 17.8%, while the capital position remained stable at 88% of regulatory requirements.
• Bank profits accounted for 2.6% of assets, lower than in July, although they remained above the monthly average for the year. All bank groups earned profits in August. The lower results for securities and interest explained the monthly drop in profitability. In the year to date, ROA stood at 2.5%y, 0.4 p.p. above the figure for the same period in 2009, mainly due to lower uncollectibility charges accrued, which were more evident in private banks.