Report on Banks

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

Summary of the month

• Anchored in the BCRA’s financial policy, the banking sector consolidates its equity normalization in a context of great dynamism. Maintaining a limited credit risk, private financing is consolidated as the main application of the resources of the financial system. The increase in traditional financial intermediation allows for improved results, which together with capital contributions, have been strengthening the solvency of the sector.
• These events are in line with the sustained improvement that the system has been showing over the last 3 years. In this period, banks made significant progress, which has allowed it, in a regional comparison, to be in line with the rest of the financial systems in Latin America. The normalization of liquidity levels, the reduction in public sector assets, the rate of growth in credit to the private sector, the contraction of the irregularity of the private sector, the recovery of profitability levels and the degree of capitalization led the local financial system to be close to what has been verified in the rest of the countries of the region.
• In June, credit to the private sector grew 2.6% (38.1% YoY). The expansion was generalized, highlighting personal and mortgage documents. In line with the incentives established by the BCRA, the increase in lending in 2007 was accompanied by an extension in the maturity of operations, mainly due to the acceleration in the growth rate of mortgage loans with relatively longer maturities, which grew by 28% y.o.y. in June.
• In this context of sustained credit expansion, the private sector continues to reduce its non-performing loans. The contraction in the irregularity of the private portfolio in June was 0.1 p.p., reaching 3.9% and accumulating a fall of 1.5 p.p. in the last 12 months, highlighting the improvement in the quality of financing to companies.
• In a context of sustained normalization of the liabilities of the financial system, private deposits are systematically the main source of resources. In particular, in June deposits grew 1.4% (22.7% YoY), mainly due to the contribution of private placements that increased 1.3% (25.1% YoY), and to a lesser extent due to the rise in public sector deposits. The increase in private deposits in June was driven by demand deposits.
• The financial system continues to reap the benefits of complementarity with the capital market. In fact, in June, three private banks made new placements of negotiable obligations (ON) with a term of between three and five years, in pesos at a fixed interest rate for an amount close to $1,000 million. In the first half of 2007, financial institutions placed bonds totaling $1,900 million.
• The rediscounts for illiquidity granted in the 2001-2002 crisis are close to disappearing. In June, the only bank with pending rediscounts made an early cancellation that, added to the matching fee for the month, totaled payments of $898 million. Between July and August, this financial institution added additional payments of almost $950 million.
• The solvency of the financial system continues to strengthen: net worth grew 1.1% in the month (19.5% YoY), reflecting the effect of June earnings and a positive adjustment of results from previous years made by a public bank. The gains accrued in June by the financial system reached 1.2% of assets (9.3% of equity). In the first half of 2007, bank profitability reached 1.8% of assets, similar to that verified in the same period of the previous year.