Report on Banks

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

Summary of the month

• In June, private sector deposits resumed their upward trend, after the reduction experienced during the previous month, thus consolidating themselves as the main source of funding for banks. In the month, financial institutions increased their liquid assets, becoming the most prominent application of resources in June. On the other hand, financing to the private sector saw a softening in its pace of expansion, in a framework of limited credit risk. Hand in hand with these developments, the financial system obtained accounting profits in June that allow it to improve its solvency levels.
• Private sector deposits expanded by $1.7 billion in June (1% or 16.5% YoY), in a context of increased demand accounts and time placements. The financial institutions most affected by the fall in private sector deposits during May began to recover their placements in June. The upward trend in private sector impositions continued in July.
• Liquidity levels increased in the month. The liquid assets of the financial system verified a monthly increase of $4,700 million in June. Thus, liquidity stood at 24.7% of deposits (1.7 p.p. more than in May and 2.6 p.p. above the same period of the previous year) or 39.6% including the position of Lebac and Nobac (0.8 p.p. above May).
• Credit to the private sector increased in June, although there was a slight slowdown in its year-on-year growth rate. In fact, financing to the private sector registered an expansion of $800 million (0.6%) in the month. Personal loans, credit cards and mortgages drove the monthly increase. Documents and export credits declined in June. Thus, credit to households and companies registered an increase of 37% YoY by mid-2008.
• The irregularity of the private sector portfolio remained at a level of 3.3% in June, verifying a fall of 0.6 p.p. in the last 12 months. In a context of historically good levels of compliance, the quality of the portfolio of financing to households has deteriorated to some extent: non-performing loans stood at 3.9% of the total in May (0.5 p.p. more than at the end of 2007). This evolution is mainly driven by household consumption lines (personal and credit cards), whose irregularity grew 0.7 p.p. throughout the year to a level of 4.3%, this performance being generalized among the financial institutions that participate in this business segment. In this context, banks continue to present a level of forecasting that is almost 22 p.p. higher than the portfolio in an irregular situation.
• The net worth of the financial system increased by $270 million (0.7% or 9.2% YoY) in June, accumulating an expansion of more than $1,900 million throughout 2008. Capital integration stood at 16.5% of risk-weighted assets in the middle of the year (with a monthly reduction of 0.4 p.p. driven by the largest risky assets), comfortably exceeding both local requirements and international recommendations. This excess of capital integration in the financial system reached 82% of the total requirement in mid-2008.
• The increase in the net worth of the financial system was mainly driven by the positive monthly results. Banking profits reached $370 million in June (ROA of 1.5%y), verifying a lower level than that observed the previous month, in the context of higher charges for uncollectibility. In this way, the financial system completed three and a half years with accounting profits. In particular, in the first half of 2008 the banking sector accumulated profits of $2,400 million (ROA of 1.6%y), with an increasing share of net interest and service income.