Report on Banks

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

Summary of the month

• Another year of consolidation for the financial system is being confirmed. In 2007, asset normalization deepened on both the asset and liability sides of banks. Private sector financing expanded steadily in a context of limited credit risk, while banks maintained adequate levels of liquidity and continued to reduce exposure to the public sector. At the same time, private sector deposits are affirming themselves as the main source of funding for the financial system and, practically, all the rediscounts granted by the BCRA in the last crisis have already been returned. In a context of growth in financial intermediation, the solvency levels of banks were nourished by positive results and new capital contributions.
• Particularly in November, credit to the private sector grew 2.7%. The most dynamic lines in the month were documents, advances and title loans. In this way, the trend of credit to the private sector observed in the last 3 years is consolidated, registering a growth rate of close to 40% per year. The non-compliance ratio of private financing remained stable at 3.4%, sustaining a reduction of 1.1 p.p. in 2007.
• Driven by BCRA regulations, mortgage lending expanded by 42.2% YoY in November. Initiatives such as the relaxation of capital requirements for mortgage lines, incentives for the standardization and securitization of mortgages, and regulatory advances related to the extension of the term of liabilities are some of the components of the BCRA’s financial policy to encourage mortgage lines. Along with the growth of mortgage credit, there is an increase in the average term of these operations.
• Financing granted by the financial system to companies grew at a year-on-year rate of 30% in November. In addition, in the first 11 months of 2007, credit lines for companies denominated in pesos and with a longer relative term, closely linked to productive investment, expanded with respect to the same period of the previous year, accounting for a greater proportion of the amounts operated with this sector.
• During the month, the financial system expanded its liquidity levels. The increase in liquid assets ($3,450 million) was associated with the greater integration of minimum cash by financial institutions, with the aim of covering the bimonthly position (October-November). In this context, the liquidity ratio grew 1.3 p.p. in the month to 22.3% of total deposits. Despite this demand for additional liquidity in November, the 1-day call market interest rate ended the month at levels similar to the October average.
• As another sign of the normalization of assets, the accumulated amortization of the activated amparos reached 86% of the total, subtracting from the balance sheet of the banks activated amparos by only 0.5% of the total assets as of November. In the month, the amortization of injunctions was $700 million, promoted by an official financial entity.
• In line with the improvements on the bank liability side, total deposits expanded again in the month (2.1%), mainly due to the increase in private fixed-term placements. Showing the effectiveness of the prudential measures implemented by the BCRA in the face of external turbulence, the monthly growth of private time deposits (3.3%) more than doubled that of demand deposits (1.6%) in November.
• The net worth of the financial system grew by $180 million or 0.5% in November, accumulating an expansion of 11.2% in the last 12 months. Earnings for the month (driven by the consolidation of more stable revenue streams) and a capital contribution ($20 million from a non-bank financial institution) were partially offset by valuation adjustments.