This report analyzes the situation of the Argentine financial system on a monthly basis.
Summary of the month
At the opening of 2007, banks continued to build on the gains made in 2006. With private sector lending expanding (and lower levels of non-performing loans) and government exposure falling, banks are able to diversify their portfolio and improve their exposure to credit risk. Obligations with the BCRA are close to disappearing (if a bank is left with pending rediscounts). This favorable performance, in a scenario of sustained competition, contributes to strengthening the solvency of the sector.
Longer-term funding is consolidated. Unlike the previous month, in January there was a notable growth in fixed-term placements by the private sector ($3,000 million), above private demand deposits ($800 million). The monthly expansion of total deposits was led by the growth of private sector deposits ($4,100 million), followed by the increase in public sector deposits ($1,450 million).
The normalization of banks’ obligations to the BCRA is accelerated. One of the two financial institutions that had liabilities for matachín at the end of 2006, recommended all its obligations between January and March, disbursing $2,610 million. Thus, at the beginning of March only one bank maintained rediscounts due to illiquidity (of the initial 24), for a capital of $2,568 million. Thus, based on the instruments generated by the Central Bank since the end of 2004, the financial system has cancelled about 86% of the stock owed since the end of 2004.
Primary production and industry were the sectors that boosted bank financing for companies at the beginning of 2007. In particular, trade lines for exports and advances showed the greatest dynamism in January. Personal loans continued to show a positive evolution. In this scenario, the non-performing loan ratio of private financing was at a historically low level: 4.4%.
The independence of the monetary-financial system with respect to the needs of the Government is deepened. The financial system’s exposure to the public sector fell 0.2 p.p. of assets in January, to 21.5%, placing it 8 p.p. below the weighting of credit to the private sector.
Solid increase in the financial margin of the banks during January, reaching 7.8% y/y of assets. As a result, the profitability of the financial system in January reached 3.3% y/y of assets or 24.5% y/y. of net worth, values that compare favorably with those of the same month in 2006 (2.7%y/y. and 20.7%y/y, respectively). In the month, the increases in the results of interest, financial assets and differences in exchange rates, were accompanied by a contraction in the structure of administrative costs of the banks.
The net worth of banks grew 2.2% in the first month of 2007, showing a year-on-year expansion of 23.7%. In January, a foreign bank will receive a capitalization of $20 million. Solvency indicators remained stable and above local requirements.
