Report on Banks

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

Summary of the month

• The BCRA’s risk management approach, which has generated a solid financial system in its liquidity and solvency levels, is currently being complemented by a more positive economic context. The data for the month of July seem to indicate an incipient stabilization of the credit risk of the private sector in the Argentine financial system. In this regard, the decrease in the rejection of checks and the softening in the evolution of the irregularity of bank loans stand out.
• As part of its countercyclical action, in July, for the first time in its five years of implementation, the BCRA lowered interest rates on passes by 50 bps. Given the better performance of the money market, in August the Central Bank decided to further reduce interest rates by 50 bps.
• Total deposits in the non-financial sector, according to bank balance sheet data, grew 0.7% in July, reflecting the performance of public sector loans. Private sector deposits fell slightly in the month as a result of the decrease in demand loans, and despite the increase in term loans (up $2,500 million). In the first 7 months of 2009, private sector deposits accumulated an increase of 13.3%y, mainly highlighting the evolution of time deposits.
• The liquidity indicator for the aggregate of the financial system (items denominated in pesos and foreign currency) remained at around 30% of deposits in the month (4 p.p. above the figure for the same month in 2008). The holding of Lebac and Nobac increased in July, leading the broad liquidity indicator to remain at around 41% of deposits.
• Bank financing for families and companies grew at 10% year-on-year. In the last year, public banks accounted for more than three-quarters of the total increase in financing to the private sector, gaining share in the credit market. In July, credit to the private sector decreased slightly.
• The irregularity of financing to the private sector has remained at around 3.8% in recent months, standing 0.9 p.p. above the minimum reached in September 2008, mainly due to the performance of the lines granted to families. The forecast stands at 119% of irregular financing, a coverage ratio that has fallen slightly so far this year.
• The trend of gradual increase in the number and volume of documents cleared by the financial system so far this year continues, while the number of rejected checks as a proportion of the total cleared has decreased.
• The consolidated net worth of the financial system increased 2.1% in the month. Public banks and, above all, private banks show an improvement in their capital in July. The capital integration ratio of the financial system grew slightly in the month to 17.6% of risk-weighted assets, in a context in which there is a generalized excess of capital integration among financial institutions. Banks’ accounting profits represented 2.9% y/y of assets in July, showing a monthly improvement mainly due to the reduction in uncollectibility charges and administrative expenses, in a context of increased results for services. In the first 7 months of 2009, the ROA of the financial system amounted to 2.1%a. If items directly linked to the evolution of the exchange rate were excluded, accounting profits would be reduced by one third in the cumulative figure for 2009, below the same period of the previous year.