This report analyzes the situation of the Argentine financial system on a monthly basis.
Summary of the month
As a result of the prudential policies implemented in a timely manner by the BCRA, the financial system is in a position of greater relative strength than in the past, both in terms of solvency, liquidity and credit quality. This situation allowed banks to overcome the episode of volatility that began in September without major difficulties, providing an additional line of defense to protect the economy from the scenario of growing international uncertainty.
The balance sheet of total deposits in the non-financial sector fell 1.4% in December, mainly due to the reduction in public sector placements, derived from debt maturity service. The monthly increase in private sector taxes was mostly driven by demand accounts. In 2008, private sector loans increased by 13.4% YoY.
Financial institutions close the year with high levels of liquidity. The liquidity indicator of the financial system remained at the same level as in November (28.1%), being 5.1 p.p. higher than at the end of 2007, in line with the monthly reductions in both liquid assets ($1,000 million) and in the balance sheet of total deposits. The broad liquidity indicator (including the holding of Lebac and Nobac not linked to pass operations) stands at 40.2% of total deposits.
The balance sheet of loans to companies and households of all local financial institutions remained stable in December, increasing by 20.1% in 2008.
The evolution of financing to the private sector continues to develop within a framework of limited credit risk. In fact, despite a slight increase in total irregularity in the last 4 months, the non-performing loan ratio of the private portfolio continues to accumulate a year-on-year drop, standing at around 3%. Financing to the corporate sector continues to show improvements in its performance, while the quality of the portfolio of loans to households shows slight signs of deterioration, particularly in consumer loan lines.
Despite the increase in volatility in international financial markets, the local financial system maintains adequate levels of solvency. Capital integration remained at 16.8% of risk assets, in line with the figure at the end of 2007. The consolidated net worth of the financial system increased 1.1% in December, accumulating an improvement of 11.7% in 2008. Throughout the year, there was evidence of an improvement in the composition of banks’ net worth.
The return on assets of the financial system (ROA) stood at 1.3%y. in December, led to a greater extent by public banks. This implies a slight decrease compared to previous months, reducing profits for the whole of 2008 to 1.5% of assets, similar to those of the previous year. More stable revenues (earnings from services and interest) boosted profitability performance, gaining share of the banking sector’s total revenue streams.
