Report on Banks

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

Summary of the month

• At the end of the third quarter of 2005, the financial system continued to deepen its intermediation activity, a dynamic that would continue in the coming months. Several factors (reduction in exposure to the public sector, improvement in the quality of the private sector financing portfolio, contraction of debts with the BCRA and consolidation of an environment of positive results) help the balance sheets of the entities to continue with a progressive improvement, allowing the growth observed to operate on a more solid basis.
• The financial system posted results of $283 million (1.7% y/y. of assets) in September, accumulating profits of $1,190 million (0.8%y/y) so far in 2005. Unlike previous months, the monthly evolution of profitability was led by private entities, with gains of $167 million or 1.7% of their assets, while official banks reflected positive results of approximately $106 million or 1.5% of assets.
• The advance of private banks in terms of profitability this month was mainly explained by higher results by assets, in addition to growing results by interest. This more than compensated for the fall in contribution differences and CER adjustments and the seasonal increase in the cost structure (administrative expenses and charges for uncollectibility). There was also an increase in miscellaneous profits and tax burdens.
• Higher profitability collaborates with the continuous improvement in the solvency of the financial system. Capital contributions act in the same way: although in September a contribution of a small amount was computed, the financial system has accumulated injections of more than $11,700 million since the beginning of 2002. The aggregate net worth of private banks increased by 0.9% in September, accumulating growth of 9.3% so far in 2005. In regulatory terms, the integration of capital from private banks saw a slight increase in the month, to 17% of their risk-weighted assets.
• Although during September the balance of loans to the private sector grew by 2.4% or 33% (driven by commercial lines), the assets of the consolidated financial system ended up showing a slight decrease (-0.6%), mainly due to the application of resources to the early cancellation of liabilities with the BCRA.
• The quality of the private sector financing portfolio maintained its pattern of improvement in September, with a 0.8 p.p. cut in irregularity for the financial system as a whole, to a level of 10.6% (8 p.p. lower than the ratio recorded in December 2004).
• The financial system’s exposure to the public sector fell by 1.3 p.p. in September to 32% of total assets, accumulating a reduction of 7.5 p.p. during 2005. The monthly movement was again explained by private banks, which registered a drop of almost 1.5 p.p. in their exposure to 29.7% of assets.
• The balance sheet of total deposits in the consolidated financial system expanded by 0.8% (10.7%y) in September, mainly due to private sector loans (up 1.1% or 14.6%yr.). The latter were mostly destined for fixed-term deposits (they grew 1.6% or 21%y).
• The normalization of the financial system’s liabilities made significant progress in September, as a result of a significant pre-cancellation of obligations due to rediscounts with the BCRA: a large private bank cancelled all its liabilities with this institution, leaving only 9 entities with outstanding liabilities at the end of September (at the beginning of November this amount had been reduced to 6 entities).
• It is estimated that the main sources of resources for private banks in September were the contraction of the entities’ liquid assets by almost $1,650 million, the increase in private deposits by $1,210 million and a new cut in exposure to the public sector ($1,200 million). Most of the resources raised were destined to the accelerated reduction of liabilities with the BCRA ($2,000 million), although a significant portion of resources were also used to increase the position of LEBAC and NOBAC ($1,260 million) and expand loans to the private sector ($930 million).