Report on Banks

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

Summary of the month

• At the end of the first half of 2006, the volume of local financial intermediation continued to expand, especially driven by the dynamism of private credit. This growth in loans was consolidated as one of the main drivers of the financial system’s profitability margins, helping to strengthen the level of solvency of banks in a framework of competition and prudent risk management.
• In 2006, the profitability of the financial system accelerated its recovery rate since the 2001-2002 crisis. Until 2004 the banking sector recorded losses, while in 2005 it showed annual gains for the first time after the crisis. Currently, the sources of profitability are being consolidated and are being far surpassing last year’s performance. The financial system obtained profits of almost $360 million in June (1.9% y/y) of assets), accumulating positive results of more than $1,800 million (1.7% y/y. of assets) during the first part of 2006, an amount that already exceeds the profits of the whole of 2005 ($1,790 million, 0.9% of assets). In turn, private banking recorded profits of almost $280 million in the month and exceeded $1,100 million in the first half of the year, almost doubling the positive results of 2005 ($650 million, 0.5% of assets).
• Hand in hand with the profits and capital contributions during 2006, the solvency of the financial system was strengthened. In June, net worth grew 3.1%, accumulating an increase of 10.5% so far in 2006. In this context, during June a public entity of magnitude accounted for a capitalization of approximately $760 million. At the end of June, capital integration in the financial system reached 16.5% of risk-weighted assets.
• For the first time since the 2001-2002 crisis, in June credit to the private sector surpassed financing to the public sector, consolidating the crowding-in process of the private sector. In this way, the gap between public and private credit was reversed, going from 24.4% to -0.5% in the last two years, a variation of 24.9 p.p. in that period. This phenomenon occurred mainly due to the joint action of the advances in regulatory matters of the BCRA and the macroeconomic framework. On the one hand, since January 2006 a limit of 40% (of total assets) was imposed for the position in public sector assets, and then this ratio was adjusted to 35% as of July 2007. On the other hand, a set of measures was established to encourage private credit in general and some lines in particular aimed at productive investment, microcredit and the purchase of housing.
• Loans to the private sector continue to grow at a rapid pace: they increased 4% in June, accumulating an increase of 40% in the first half of 2006. The growth in financing instrumented through the discount of documents (5% Û $680 million) and in personal loans (5.9% Û $540 million) stood out in the month. Mortgage financing increased 1.5% in the month, exhibiting the highest growth rate since the 2001-2002 crisis. In June, the balance of leasing financing reached $1,860 million, 4% higher than the previous month. This financing tool already reaches 40% of the total mortgage and pledge loans to companies.
• The main sources of resources of the financial system in the month were associated with the increase in private placements (1.8%, almost $2,000 million) and the public sector (3%, close to $1,200 million). In the first half of the year, the growth rate of time deposits (12.9%) was higher than that recorded in demand loans (9.8%). The recent measures adopted by the BCRA contribute to deepening the previous trend. On the other hand, the application of funds with the highest weighting was financing to the private sector (loans, financial trusts and leasing) with an amount close to $2,800 million.