This report analyzes the situation of the Argentine financial system on a monthly basis.
Summary of the month
The financial system closes the best post-crisis year. Both the increase in private deposits and loans, the record in credit quality, the decrease in exposure to the public sector and the accelerated payment of rediscounts with the BCRA underpin these results. This positive performance, in a context of increasing competition, allows banks to consolidate their levels of profitability and thus their solvency, a pattern that is expected to continue throughout 2007.
In November, banks raised funds mainly through the expansion of non-financial sector deposits ($5.1 billion), while the decline in exposure to the public sector played a minor role. With these funds, financial institutions continued to boost private financing ($2,600 million), while obligations in dollars ($1,300 million) were canceled, there was an increase in liquid assets ($800 million) and a greater position in Lebac and Nobac ($400 million).
Both the growth of official ($2,900 million) and private ($2,200 million) placements drove the increase in total deposits in November. In line with what has been evidenced in recent months, the increase in private time deposits continued to exceed demand placements, strengthening the migration towards more mature funding. The previous behavior was driven by different measures adopted by the BCRA.
The normalization of bank liabilities with the BCRA is accelerated. The new mechanisms implemented by the BCRA in the last 2 years allowed 71.6% of the original debt to be cancelled due to illiquidity during 2005 and 2006. This value extends to 80.5% considering a cancellation of magnitude made in January 2007. Thus, the remaining capital balance currently reaches $3,611 million.
Private loans continued to rise in November (3.3%), with an increase of 43% y/y throughout 2006. Among the new loans to companies, medium and long-term loans are gradually gaining share. Non-performing loans on private loans fell 0.1 p.p. in the month to 4.7%. While financing to companies reaches an irregularity of 5.6%, that destined to families totaled 3.6%.
Based on the measures established by the BCRA, banks’ exposure to the public sector fell 0.4 p.p. in November to 23.1% of total assets, representing a decrease of 16.4 p.p. in the last 2 years. Thus, the share of private financing in banks’ portfolios exceeds public sector exposure by 5.9 p.p. of assets.
Similar to the previous month, in November the accounting gains accrued by the aggregate of financial institutions totaled $460 million (2.3% y/y of assets, 17.1% y/y. of equity), with a performance that reached 1.8% y/y of assets (13.8%y/y) in 2006. Thus, banks’ net worth grew 1.1% in November, accumulating an expansion of 22.9% in 2006, while capital integration in terms of risk assets grew 0.6 p.p. in the month to 17.1%, above the minimum capital requirements established by the BCRA.
