Report on Banks

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

Summary of the month

• During 2004, the financial system showed clear signs of consolidation of the normalization process initiated after the 2001-2002 crisis. The expansion of private credit, the significant recovery in asset quality, the substantial improvement in profitability and the significant capitalizations made are all factors that form a firm basis on which to continue strengthening the solvency and stability of the system.
• The financial system recorded profits again in December, with a result of $170 million (1% y/y of assets). Thus, 2004 closes with a significant increase in profitability: without the effects of the amortization of injunctions and the valuation adjustments of public sector assets – which allows a better approximation to the current profitability conditions – the adjusted result for the year is a gain of $1,700 million (0.9% of assets). Even without these adjustments, the final result for the year (-$530 million, ROA of -0.3%) improved 2.6 p.p. in terms of assets compared to 2003.
• Private banks earned $90 million in the month (0.9%y), while the number of banks with positive results increased (8 more than in November). The results for 2004 show an annual gain of $630 million (0.5% of assets) if the amortization of amparos and valuation adjustments are excluded. Final ROA without adjustments shows a marked improvement compared to the previous year (up 1.8 p.p. to –0.7%).
• The advances in December’s results reflected an improvement in the financial margin (differences in share price and increases in the adjustment for CER and in results for assets), an increase in results for services, an adjustment in income tax and a significant growth in miscellaneous results. These developments made it possible to offset the seasonal increase in the cost structure (administrative expenses and uncollectible charges).
• The recovery of the profitability of the financial system achieved in 2004 was led by the recovery of the financial margin, lower forecasting and growing results from services. The financial margin was mobilized, in the second half of the year, by higher interest income derived from the expansion of private credit. It is hoped that this will continue to be the basis for further progress in terms of expected results for 2005.
• In December, capitalizations of almost $840 million were made in the financial system, accumulating in the fourth quarter of 2004 an approximate amount of $1,600 million (equivalent to 7% of net worth at the end of September). Of this total, private banks accounted for 70%.
• In line with the ongoing recovery, the assets of the financial system increased by 8.3% in 2004. Credit from the financial system to the private sector increased 25% in the year (39% excluding mortgages), thanks to the action of both private and public banks. There was significant growth in consumer loans and those linked to commercial operations. In December, the growth of credits linked to export financing was significant: they rose almost 22%.
• The quality of the portfolio for the private sector continued to improve. For the system as a whole, irregularity fell by 1.4 p.p. in December to a level close to 19%, closing 2004 with a cut of almost 15 p.p.. In the case of private banks, the monthly cut was 1.3 p.p. (to 15.4%), showing a fall for the whole year to half of its level at the end of 2003. The engine of the improvement in both the month and the year was the commercial portfolio, which in December reached an irregularity of 18.4% for private banks. Its consumer portfolio, with an irregularity of 10%, already shows a level similar to that of mid-1998.
• Private sector deposits grew 3.5% in December, while public sector loans fell 9% due to fiscal measures adopted at the end of 2004. In the course of 2004, private deposits increased by 13% and public deposits almost doubled, inducing a variation in total deposits in the financial system of 26%. At the end of 2004, the amount of deposits adjusted by CER was equivalent to 7 times the amount recorded in December 2003, totaling $4,900 million.