Report on Banks

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

Summary of the month

• In line with the 2005 and 2006 observations, sustained growth in credit to the private sector continued to be the driver of banking activity in 2007. In a context of low credit risk, and in the midst of a context of global turbulence, this growth in financing was mainly funded by the capture of deposits from the private sector. This dynamic made it possible to sustain a picture of positive banking results that, together with capital contributions, continued to strengthen the solvency of the sector. For 2008, it is expected that banks will continue to expand their levels of intermediation, facing a volatile international scenario.
• The policies implemented by the BCRA to deal with the context of high volatility in international financial markets managed to preserve adequate levels of bank liquidity, thus avoiding an interruption in the growth process of financial intermediation. Thus, credit to the private sector closed 2007 expanding at a rate of more than 40% for the third consecutive year, reaching a share of 12.5% of GDP, 1.6 p.p. more than in 2006 and 5 p.p. above the post-crisis low. Credit lines for companies and households grew by 34% and 55% throughout 2007, maintaining the dynamism of recent years. Likewise, the reappearance of mortgage loans stands out, which increased 41% in the year.
• The weighting of credit to the private sector in the portfolio of banking assets (38.2%), more than doubled that of credit to the public sector (15.8%), which fell by 24 p.p. in the last three years (5.8 p.p. in 2007). In particular, private banks achieved a higher share of credit to the private sector in their assets (46.6%) and a reduced exposure to the public sector (9.1%).
• The expansion of credit to the private sector occurred in a context of limited credit risk. The irregularity of the private portfolio closed 2007 at an all-time low of 3.2% (1.3 p.p. below the end of 2006). Most of the annual improvement in portfolio quality was observed in corporate financing.
• The securitization of the loan portfolio generated by financial institutions continues to grow (17% in 2007), making it possible to develop instruments for obtaining funds and for better risk management, thus taking advantage of the benefits of the complementarity between the financial system and the capital market.
• In line with the incentives established by the BCRA, private sector deposits were consolidated as the main source of bank funding. In 2007, total private sector deposits increased by 25.6% ($31.6 billion), while fixed-term deposits increased by 21.4% ($11.6 billion), with similar behavior observed in both public and private banks.
• As signs of the normalization of assets, certain items associated with the 2001-2002 crisis are close to disappearing from the banks’ balance sheets. On the asset side, the accumulated amortization of amparo by the financial system reached 87% of the amparo activated, subtracting amparo by only 0.5% of total assets. For their part, the rediscounts granted by the BCRA during the crisis currently represent only 0.5% of total liabilities.
• The solvency of the financial system continues to strengthen. The net worth of banks accumulated a growth of 11.7% in 2007, mainly due to accounting profits (driven by more stable sources of income) and new capital contributions. Banks’ capital integration in terms of risk assets reached 16.8% at the end of 2007, levels similar to those at the end of 2006 and higher than both local requirements and international recommendations.