Report on Banks

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

Summary of the month

• Looking ahead to the end of 2006, banks are strengthening their deposit collection and lending to the private sector, reducing their exposure to the public sector. The growing normalization of assets allows them to consolidate their fundamental pillars of profitability, interest and service earnings, while gains from public securities remain significant. In this way, the strength of the banking sector continues to consolidate in the face of negative shocks.
• The main sources of funds in the financial system during October were the increase in deposits in the non-financial sector ($3,100 million), the decrease in exposure to the public sector (about $1,200 million) and the increase in foreign exchange obligations to be settled ($1,500 million). On the other hand, the expansions in financing to the private sector and in liquid assets of similar magnitude (approximately $2,800 million each), made up the largest applications of resources by banks in the month.
• In line with the reserve requirement policy established by the BCRA, in October the migration from private demand placements to time deposits accelerated. The higher balance of total deposits ($3,100 million) was mainly associated with the increase in private deposits ($2,150 million). For its part, the fixed-term loans segment grew at a higher rate (2.6%, $1,400 million) than demand deposits (1.3%, $750 million). So far in 2006, the sustained growth in fixed-term deposits (31%yr) is almost double that recorded in demand loans (17%yr.).
• Loans to families maintain their dynamism: while personal loans increased by $700 million in October, credit card financing grew by $450 million. Among the commercial lines, current account advances stood out (increased by $420 million), in a context in which financing to companies of all sizes continues to expand. On the other hand, mortgages presented in October the highest growth rate of the post-crisis period ($270 million) with longer maturity periods for new loans.
• The irregularity of financing to the private sector is below the average value in Latin America. In October, the level of non-performing loans fell by 0.1 p.p. to 4.9% of private financing. In accordance with the dynamics observed throughout 2006, commercial financing showed a greater decrease in its irregularity with respect to consumption lines.
• Loans granted by banks to households and companies gain a share of the banks’ assets. In October, private credit reached 28.4% of the total assets of the financial system, exceeding exposure to the public sector by more than 5 p.p., which fell 1.3 p.p. to 22.9% of total assets.
• The accounting profits verified by the financial system in October reached $450 million (2.3% y/y. of assets), accumulating profits of $3,270 million (1.8% y/y. of assets) in the first 10 months of the year. Monthly earnings were particularly led by higher results by assets and interest.
• The net worth of the financial system increased 1.4% in October, led by the sector’s higher gains. In a context of positive balance sheets and good prospects for the coming periods, the trading volume and share prices of listed banks are growing, positively influencing their market capitalization.