Report on Banks

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

Summary of the month

• The local financial system showed significant progress in the first eleven months of 2004, indicating the path towards full normalization after the 2001-2002 crisis. On the one hand, the increase in funding from private deposits was reinvigorated, a clear symptom of the increase in confidence in the system. On the other hand, the growth of credit lines linked to productive activity, such as those associated with private consumption, is restored. At the same time, the quality of the portfolio is close to pre-crisis values. These factors, together with the capitalization processes of several entities, led to a notable improvement in the solvency of the system.
• The result of the financial system in November was -$190 million or -1.2% y. of assets. The final result for the first eleven months of 2004 is a loss of $700 million (-0.4%a) – one-sixth of that recorded in the same period of the previous year. This accumulated result is transformed into a gain of $1,360 (0.8% yr.), when purified of the influence of the main factors derived from the gradual recognition of the costs of the crisis (amortization of injunctions and valuation adjustments of public sector assets), thus providing a certain approximation to the profitability conditions of the current banking business.
• For private banks, the monthly losses were $251 million (-2.6% y/y. of assets). The number of entities with profits remained stable compared to the previous month (34.56% of the total). In the first eleven months of 2004, private banks recorded a loss of almost $900 million (-0.8%y), verifying a significant advance in terms of the results obtained in the same period of the previous year (-$3,090 million, -3%yr.). Adjusting for amortization of injunctions and valuation adjustments, a gain of more than $400 million (0.4% yr.) is recorded for 2004.
• The results for the month markedly reflected the effect of the acquisition of the main assets and liabilities of one private entity by another, recognizing losses derived from this operation. In addition, for the aggregate of private banks, lower earnings were verified due to differences in exchange rates and higher charges for uncollectibility, overshadowing the progress made in terms of net income both from interest – due to the growth of private loans – and from services.
• The solvency indicators for the aggregate of private banks verified an improvement based on the capitalization observed in the period, carried out mainly through a debt swap of a group of foreign entities ($ 720 million). In this sense, the net worth of private entities increased 3.2% in November, reaching a level similar to that recorded twelve months ago.
• The assets of the consolidated financial system maintained the rate of expansion of the previous month in November, growing 15% y/y, with a year-on-year variation of 7.3%. Towards the end of 2004, credit from the financial system to the private sector continued to grow, mainly to commercial lines, which grew by 3.5% in the month (50%y), and consumer lines, which increased by 5% (77%y). Lines associated with export financing and pre-financing stand out, with a growth of 4.3% (66%y).
• The irregularity of private portfolios of private banks fell by more than 1 p.p. to 17%, led by the commercial portfolio, which registered a decrease of almost 2 p.p. in its irregularity. The ratio of total financing in an irregular situation not covered with forecasts as a percentage of assets improved by almost 1 p.p. -falling below 5%-, as there was a certain increase in coverage with forecasts and given the increase in assets.
• In November, both public sector (5%) and private sector (1.6%) deposits grew. The channeling of deposits from the public sector to public banks was accentuated this month, along with an increase in private sector deposits in private banks. Adjustable term deposits by CER increased 10.5% in the month, exceeding $4,700 million.