Report on Banks

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

Summary of the month

• A particularly positive semester closes: for the first time since 2001, half-yearly profits are obtained and portfolio irregularity is already at levels similar to those of pre-crisis. With increasing levels of intermediation, further gradual advances in profitability are expected and, in this way, a progressive recovery of the solvency of the financial system. Declining public sector exposure and less currency mismatch also contribute to the normalization of banks’ balance sheets.
• The financial system obtained profits of $165 million or 1.0% of assets in June. In the first half of 2005, a gain of $405 million (0.4% ya.) was accumulated, which becomes $1,550 million (1.5% yr.) if the amortization of injunctions and adjustments to the valuation of public sector assets are excluded from the calculation.
• Private banks recorded profits of $70 million (0.7% y/y) in June, accumulating a result of $30 million (0.1%y) in the first half of the year. Adjusting to exclude the amortization of injunctions and valuation adjustments in the portfolio destined to the public sector, a half-year gain of $710 million (1.2%a) is obtained. Public banks computed profits of almost $90 million this month, accumulating a result of $350 million or 0.9% of assets in the first half of the year (2.0% y/y adjusting for amparos and adjustments).
• The better profitability of private banks in June reflects higher results from permanent shares, offsetting seasonal increases in bad debt charges and administrative expenses and an increase in adjustments to the valuation of public sector assets. The financial margin remained stable, although with changes in its composition (higher results by assets and differences in share price).
• The accumulated earnings of private banks in the second quarter, combined with the capitalizations received in the period, generated a 3.3% growth in the net worth of this group of entities. Likewise, there was a slight quarterly reduction of almost 0.2 p.p. in the leverage ratio (assets/equity) of this group of banks, reaching a level of almost 7.9 times. Finally, the growth in assets led to capital integration in terms of risk-weighted assets increasing by 0.3 p.p. in the period, reaching a level of 15.9%.
• In June, the assets of the financial system grew 0.1%, with an increase of 4.4% (67%y) in loans to the private sector. In the second quarter of the year, there was a significant expansion (9.3% or 43%y) in the total balance of loans to the private sector, especially driven by commercial lines, which grew 16.9% (87%y), while consumer loans saw a quarterly increase of 10.8% (51%y).
• The improvement in portfolio quality accelerated in June, with a 1.1 p.p. cut in the irregularity of the financial system (to 13.2%). For private banks, the irregularity is 10.5% (12.5% in the commercial portfolio and 6.6% in the consumer portfolio). For the system as a whole, the irregularity in the segment of smaller loans is close to 5%.
• The exposure of the financial system to the public sector in June saw a reduction of 0.9 p.p. to 35.1% of total assets, accumulating a fall of almost 3.1 p.p. in the second quarter of the year. The monthly reduction was driven by private entities, which saw a 1.4 p.p. drop in their exposure to the public sector, to 34.3% of their assets, totaling 4 p.p. of reduction in the quarter.
• The balance sheet of total deposits in the financial system grew 0.9% in the month, with an increase of 5.9% in the second quarter of the year. The quarterly performance was led by private sector loans, which grew 4.5% thanks to the dynamism of demand deposits (they expanded 6.6% or 29.5%y).
• Private bank funding in June was led by the reduction in exposure to the public sector ($1,675 million), the increase in private deposits ($880 million) and the decrease in liquid assets ($640 million). The funds were mainly used for the acquisition of BCRA securities and the placement of new loans ($1,840 and $1,450 million, respectively).