This report analyzes the situation of the Argentine financial system on a monthly basis.
Summary of the month
In the first two months of 2007, the financial system consolidated the collection of longer-term private deposits and managed to expand financing to the private sector in a context of low credit risk. Based on the incentives established by the BCRA, banks continued to reduce their exposure to the public sector. Although profitability showed a monthly drop, the positive accounting results were reflected in an improvement in solvency levels.
Credit to the private sector continued on the positive path in February. While the evolution of commercial loans reflected the effects of the lower economic activity characteristic of the beginning of the year, lines to companies were driven by primary production and services.
In 2006, the penetration of private financing grew in the country’s least accessible geographic regions. Although credit to the private sector at the regional level is still concentrated in the City of Buenos Aires, the growth experienced in the last year was slightly more uniform than in 2005.
The growth of loans to the private sector continues to occur in a context of declining credit risk: while the NPL ratio of companies fell by 0.3 p.p. in 2007 to 4.9%, that of households remained stable at 3.5% in the same period. As a result, the private sector irregularity ratio stands at 4.3%. The good relative credit quality of new financing is noteworthy, both in debtors incorporated in the last two years and in those who already participated in the financial system.
In line with the measures established by the BCRA, the financial system continues to deepen its independence from the financial needs of the public sector. In February, exposure to the public banking sector fell 0.7 p.p. of assets, to a level of 19.9%, a movement that was led by private financial institutions.
In February, an expansion of the most mature placements was observed. Private sector fixed-term deposits increased by 0.9%, while private demand deposits registered a slight decrease. • Banking ROA reached 1.3% y/y in February and ROE 9.3%y/y, with lower profits from the holding and trading of financial assets and net interest income than in the previous month. These movements were partly offset by lower charges for uncollectibility and the decrease in tax accrual.
The net worth of the financial system reached a year-on-year increase (y.o.y.) of 23.2% in February. Capital integration in terms of risk assets grew 0.2 p.p., to a level of 17.5%, doubling the capital requirement.
The increase in non-financial deposits (almost $1,400 million), the fall in exposure to the Government ($1,100 million), and the reduction in liquid assets ($700 million), were the main sources of funding, while the expansion of financing to the private sector ($2,000 million) and the increase in the holding of BCRA securities ($1,900 million) were the most prominent applications.
