Report on Banks

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

Summary of the month

• In July, the financial system continued to improve its equity situation while managing to increase financial intermediation operations with the private sector, both behaviors were stimulated by the BCRA through its financial policy. Financing to the private sector increased in a context of limited credit risk and, simultaneously, the maturity of funding was expanded given the expansion of private fixed-term deposits. Banks continued with the process of consolidating their solvency levels.
• Financing to the private sector registered an increase of 4% in July (39.8% YoY). Thus, credit to the private sector came to represent 33.5% of assets, almost doubling exposure to the public sector, which (falling 0.1 p.p. in the month) stood at 16.9%. The irregularity of the private portfolio fell 0.1 p.p. in the month and accumulated a fall of 1.7 p.p. in the last 12 months, standing at an all-time low of 3.8%.
• In addition to the expansion of private financing and progress in its credit quality, progress has been made in two other dimensions: the expansion of its maturity, together with greater penetration at the regional level.
• Following the trend of normalization of balance sheets, deposits are consolidated as the main source of resources for the financial system. In line with the incentives established by the BCRA, longer-term funding is consolidated, with fixed-term funds registering a higher growth than demand accounts.
• Deepening the progress made in the last three years, the banks practically eliminate the debt with the BCRA from their liabilities within the framework of the matching scheme. The only one of the 24 financial institutions that received assistance for illiquidity from the BCRA in the 2001-2002 crisis made, as in June, an early cancellation, totaling payments of $875 million in the month.
• Associated with the context of volatility in international financial markets, bank profitability registered an ROA of –0.8%y. However, during the first seven months of 2007, financial institutions as a whole recorded an ROA of 1.4% y/y and an ROE of 10.1% y/y. In addition, despite this negative external shock, the financial system continued to significantly expand its recurring revenue streams in July: interest earnings and net service income.
• Capital increases increased the solvency of the financial system in July, more than offsetting the losses recorded in the period. In this context, the net worth of banks expanded by $500 million (1.4% or 19.1% YoY) in the month. This movement was mainly explained by the issuance of shares for $800 million, being the maximum monthly expansion so far in 2007. In perspective, the improvement in the profit-generating capacity achieved in the last 3 years, together with the capitalizations received, place the banking sector in a good relative position to absorb the negative effects of the current international context.
• The financial system continues to resize its operating structure in a context of sustained increase in the number of employees. In particular, the sector added 6,500 employees in the last 12 months (7.3% YoY).