Report on Banks

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

Summary of the month

• The financial system continues to register adequate levels of liquidity and solvency, a situation of strength that is reinforced by the liquidity windows implemented by the BCRA. Thus, banks still maintain a significant degree of resilience to deal with possible additional episodes of stress. In a context of high uncertainty, since the international crisis, the slowdown in the growth of the volume of local financial intermediation continues, affecting the profitability of the banks.
• The balance sheet of total deposits in the non-financial sector increased 10.2% YoY in February, with lower growth rates than in previous months. In February, there was an increase in private sector taxes, while those in the public sector saw a certain drop. The balance sheet of private sector deposits was mainly driven by term placements ($2,580 million or 3.5%), while demand deposits saw a monthly decrease.
• Financial institutions maintain adequate levels of liquidity. The liquid assets of the financial system reached 29.6% of deposits, with a year-on-year increase of 4.7 p.p. The broad liquidity indicator, which includes the holding of Lebac and Nobac not linked to pass operations, stood at 41.2% of deposits, in line with the value of the same month in 2008.
• The balance sheet of credit to the private sector grew 1.1% ($1,550 million) in February ($1,700 million if the balance is adjusted for the monthly issuance of financial trusts), after the transitory fall in January. The monthly increase was driven by credit for companies, which thus reached 23.6% of the net assets of banks, 1 p.p. above the level recorded in the same month of the previous year. In February, foreign private banks recorded the highest relative growth in the balance of loans to the private sector.
• The level of financing to the private sector in an irregular situation increased in February, accumulating a variation of 0.6 p.p. in the last 5 months, reaching a level of 3.4%. This deterioration is mainly driven by the behavior of financing to households and, to a lesser extent, by those granted to companies. In particular, the decline in the quality of loans to households is mainly explained by the behavior of consumer credit lines.
• The consolidated net worth of the financial system increased 1.1% or 11.3% y.o.y. in February. Capital integration stands at 17.2% of risk assets, 0.2 p.p. more than in the first month of the year. The excess between the regulatory capital shown by the entities and the total requirement in accordance with the regulation established by the BCRA, grew slightly in the month, reaching 86% of the latter.
• In February, the financial system recorded a reduction in accounting profits compared to the previous month, as a result of the decrease in net interest and securities income. In the first two months of 2009, all financial institutions obtained lower accounting results compared to the same period in 2008, also reflecting the impact of an increase in charges for uncollectibility. The decline in results is expected to be accentuated, without compromising the solvency of banks, as the gradual increase in non-performing loans to the private sector continues.