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 was able to face a transitory drop in deposits during October that was not caused by changes in the fundamental variables of the banks, while exhibiting adequate indicators of liquidity, solvency and business performance. Even in a context of marked volatility in local and international financial markets, bank financing to households and companies continued to increase in the month, although at a more moderate pace, within limited credit risk levels. Within this framework, this Institution continues to develop tools to consolidate bank liquidity levels and ensure the normal development of financial intermediation.
• Total deposits in the financial system fell by $2.4 billion (-1%) in October, mainly due to the performance of private sector placements in pesos. This fall was mainly verified in demand accounts and, to a lesser extent, in time deposits, driving a certain rise in passive interest rates. In November, there was a recovery in deposits, mainly due to private sector impositions.
• During October, systemic liquidity levels remained relatively stable, being higher than in recent years. The liquidity indicator of the banks stood at 25.5% of total deposits, 4.4 p.p. more than in the same period of 2007.
• The balance sheet of total financing to the private sector registered an increase of $3,050 million (2.3% or 28% YoY) in October, smoothing its pace of expansion across the board by type of line. The increase in total credit to the private sector was mainly driven by public banks, which showed greater relative dynamism throughout 2008. Loans in pesos to the private sector increased by $1,450 million (1.3%) in the month, highlighting the dynamism of card financing and collateral loans, while advances showed a setback. Thus, credit to the private sector reached 40.1% of total banking assets in the month (3.7 p.p. more than 12 months ago), more than tripling exposure to the public sector, which stood at 13.1% in October (3.2 p.p. less than in the same month of 2007).
• The irregularity of financing to the private sector is at an all-time low of 2.8% of the portfolio, with a reduction of 0.4 p.p. so far in 2008. This decline is driven by the corporate sector. For its part, the irregularity ratio of financing to families stabilised at around 4.1% in the last quarter.
• The solvency of financial institutions continued to consolidate at the beginning of the last quarter of the year. In October, the net worth of the financial system increased by $450 million (1.1% or 12.9% YoY), mainly driven by accounting profits. Capital integration reached 17.1% of risk-weighted assets in October, 0.1 p.p. and 0.2 p.p. above last month and the end of 2007, levels that exceed the minimum standards recommended internationally as well as those required locally. The excess of capital integration stood at 92% of the total requirement in October (3 p.p. more than in the previous month), verifying a surplus situation of all sub-groups of financial institutions.
• Accounting profits amounted to $610 million or ROA of 2.3%a. in October, 0.7 p.p. of assets more than in September, mainly as a result of the higher earnings accrued due to the difference in quotation and the increase in results for services, movements partially offset by the fall in profits from the holding and trading of securities. Thus, in the first 10 months of 2008 the banks earned $4,100 million or ROA of 1.6%y, exceeding the value of the same period in 2007 by 0.2 p.p. of the assets.