Report on Banks

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

Summary of the month

• During July, the dynamism of deposits and loans to the private sector continued to increase, consolidating the growth rate of financial intermediation between banks and companies and households in a context of a gradual fall in non-performing loans in the financing portfolio. The operational structure of the financial system continues to increase gradually. The number of bank employees grew 2.2% year-on-year (y.o.y.), with this variation mainly explained by private financial institutions.
• The foreign currency mismatch of the financial system (which includes the net purchase of foreign currency in futures without delivery of the underlying) fell in July, to 37.2% of net worth. In addition, the shares of both financing and deposits of the private sector denominated in foreign currency continued at relatively low levels (only 15% and 20% of the respective totals), with the former being mainly directed to tradable sectors.
• The balance sheet of financing to the private sector increased 2.2% in July, driven by trade lines. Export financing was the most dynamic, followed by leasing and documents. Thus, total credit to companies and households grew 27% annualized (y.) in the first 7 months of 2010, comfortably surpassing the record of the same period last year (5%y). In the first months of the year, bank financing to the corporate sector increased its rate of expansion compared to the same period in 2009, reflecting the effects of an increase in credit granted to almost all economic sectors. Financing to households also showed greater dynamism so far this year, mainly due to consumption lines.
• The irregularity of credit to the private sector stood at 2.9% of financing in June (latest available data), accumulating a fall of 0.6 p.p. in 2010. This development was mainly driven by EFNBs and private banks, based on the better performance of their consumer loan portfolios. The irregular portfolio of the financial system continues to show a high level of coverage with forecasts (139%).
• In July, the liquidity ratio of banks (with items in domestic and foreign currency) fell slightly to 28.8% of deposits, due to the lower integration of minimum cash and, to a lesser extent, due to the decrease in the net balance of passes with the BCRA. The broad liquidity indicator (with Lebac and Nobac not linked to passes with the BCRA) stood at 43.5% of total deposits.
• The balance sheet of total deposits in the financial system fell slightly (-0.4%) in July, reflecting the effect of the decline in public sector loans. The balance of deposits in the non-financial private sector expanded 1.5% compared to June (24.8% YoY), driven mainly by term deposits.
• The consolidated net worth of the financial system expanded 2.6% in July, mainly due to monthly accounting profits. The capital integration ratio increased slightly in the month, to 17.8% of risk-weighted assets.
• Earnings accrued in July (3.8%y/y of assets) were higher than in June, mainly due to the increase in equity and interest earnings. All groups of banks increased their monthly profits, highlighting the performance of foreign private banks. In the year to date, accounting profits were equivalent to 2.5% of assets, 0.4 p.p. above the first 7 months of 2009. Compared to last year, there was a certain increase in the leverage of the financial system, as a result of the greater relative growth of assets over net worth. Thus, the ROE of the financial system totaled 21.2% y.a. between January and July, exceeding by 3.5 p.p. the figure for the same period in 2009.