Report on Banks

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

Summary of the month

• During May, the financial system was able to withstand the transitory reduction in private sector deposits, maintaining robust liquidity levels. In particular, private sector placements fell 3.4% in the month, mainly due to the performance of demand accounts and, to a lesser extent, due to term loans. In view of this situation, although the liquidity indicator decreased by 1.2 p.p. in the month to 23% of deposits, it continued to exceed the level of the end of 2007 and that of the same month last year. It should be considered that during June private sector deposits recovered their upward trend.
• Financing to the private sector expanded by 1.6% in May, maintaining a year-on-year growth rate of around 40%. The most dynamic loans in the month were pledges and personal loans. Thus, in May, credit to the private sector came to represent 41.2% of the net assets of banks (7.2 p.p. more than 12 months ago), fundamentally gaining the space occupied by financing to the public sector.
• In the last year, there was evidence of a generalized expansion of financial services in all regions of the country, although there is still a high degree of heterogeneity between jurisdictions. In the last 12 months, credit to companies and families expanded in all provinces, showing outstanding dynamism in 15 of them (41.5% of the population and 24.9% of credit), with growth rates above the country’s average (40% year-on-year). On the other hand, 6 jurisdictions registered growth rates in line with those evidenced at the national level (48.6% of the population and 21.5% of total credit to the private sector), while 3 were below the average. Along these lines, in recent years there has been a sustained improvement in the distribution network of banking services in the different jurisdictions, in terms of ATMs and branches per inhabitant.
• The increase in resources channelled to companies and households has been registered in a framework of limited credit risk. An example of this is that the irregularity of the loan portfolio to the private sector remained at a level of 3.3%, verifying a year-on-year fall of 0.7 p.p. This trend is mainly explained by financing to the corporate sector (irregularity of 2.9% in April, almost 1.6 p.p. less than in the same period of the previous year), while the non-performing loan portfolio to households stood at 3.8%. Another sign of the banks’ good position in the face of private sector credit risk is the degree of coverage with forecasts of total irregular financing, which stood at 123% during the month.
• The net worth of the financial system grew by $320 million in May (0.8% or 11.2% y/y in 2008), mainly due to the accounting gains verified in both private banks and official banks. This movement was also contributed by the cash capitalization received by a non-bank financial institution (NBSF) in the month ($30 million), thus accumulating new injections of resources of approximately $200 million in the course of 2008 (especially channeled to the NBSCs and foreign private banks).
• This monthly expansion in banks’ net worth occurred in a context of an increase in risky assets, given the growth in the flow of resources destined to financing the private sector, thus generating a slight decrease in capital integration to 16.8% of risk-weighted assets. Thus, the surplus of capital of the banks stood at 81% of the total demand in the month.
• The financial system accrued accounting gains of approximately $390 million in May (ROA of 1.6% y/y and ROE of 13.5%y), exceeding the values of the previous month ($260 million or 1% y/y. of assets) and accumulating profits of $2,000 million (1.7% y/y. of assets) so far this year. This monthly increase was mainly explained by the increase in the most stable sources of income (net interest and service income) and by the recomposition of results by securities.