Report on Banks

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

Summary of the month

• In October, the financial system deepened its process of asset normalization. Private sector deposits saw a new expansion in the month, while financing to the private sector grew in a context of limited credit risk. The measures implemented by the BCRA helped to reduce the volatility of interest rates in the interbank market, despite the turbulent international context. In turn, hand in hand with recurring revenues, banks obtained profits in the month, which helped to strengthen their solvency levels.
• The measures adopted by the BCRA to provide liquidity to the local financial system were effective in avoiding excessive volatility in the interest rate of the interbank market in October. In this way, the interest rate of the overnight call remained stable during the month.
• Credit to the private sector grew 2.9% in October, sustaining its year-on-year growth rate of around 40%. The most dynamic credit lines in the month were financing through credit cards and collateral loans. In October, the non-performing loan ratio of the private portfolio remained stable at 3.5% (it fell 1 p.p. in 2007), maintaining a historically low level. Lending to the private sector increased its share by 1 p.p. of assets in October to 36.3%, exceeding by more than 20 p.p. exposure to the public sector, which, falling 0.1 p.p. in the month, stood at 16% of total assets.
• The issuances of financial trusts made with loan portfolios generated by financial institutions registered in October the highest monthly value of 2007 ($375 million). During the year, most of the financial trusts issued by financial institutions used loans intended for household consumption as underlying assets (90% of the total securitized).
• Consolidating the process of normalization of the liabilities of the financial system, so far in 2007, total deposits grew steadily, resulting in the rate of increase in fixed-term deposits being greater than that of demand deposits. In October, private sector deposits increased by $850 million (0.6% or 23.1% YoY), mainly due to the growth in demand loans.
• At the consolidated level, the net worth of the financial system grew by $270 million or 0.8% in October, accumulating an increase of 14.4% in the last 12 months. The accounting profits for the month, which reached $250 million (ROA of 1.1%y), explained the rise in net worth. The benefits of the financial system continue to be driven by recurring revenue streams. The results showed a decline compared to the previous month, mainly due to adjustments in an official bank. If this operation is not considered, earnings would be in line with those of the first half of the year. Cumulative earnings in the first ten months of 2007 amounted to $2,850 million (ROA of 1.3%y).
• In October, a merger by acquisition between two private banks was finalized. Despite the gradual process of resizing the financial system that has been observed, concentration levels remain relatively low and stable.
• In this positive framework for the development of financial activity, the operational structure of the banking sector continues to expand: in the last 12 months, the number of staff grew by 9% (7,800 employees), the number of ATMs by 14.6% (1,050 units) and the number of branches by 1.5% (net opening of 60 units). Likewise, the efficiency of the financial system continues to improve, although for certain indicators there is still some way to go