Report on Banks

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

Summary of the month

• Immersed in a context of growing financial volatility and uncertainty about global economic developments, the local financial system continues to carry out its intermediation function, without neglecting the maintenance of adequate levels of liquidity and solvency. In this context, the BCRA continues to promote multiple tools that contribute to preserving local financial stability. In September, financing to the private sector continued to increase, although it slowed its year-on-year rate of expansion. This performance occurs in a context of limited credit risk, with the increase in deposits being the main source of funding for banks in the month. As a result, banks continue to show improvements in their solvency levels, as a result of both the capital contributions received and the accounting profits.
• Bank financing to the private sector continued to increase in September (2% or $2,600 million), although showing some moderation in its annual growth rate. In an international context that is more hostile to emerging economies in general, the slowdown in credit expansion is a characteristic of most of the financial systems of the countries of the region. Documents and credit cards were the most dynamic lines in the month. Credit to the private sector stood at 38.5% of total assets, slightly above the August figure and 3.2 p.p. more than 12 months ago.
• Thus, within the framework of the incentives established by the BCRA to consolidate the crowding process of financing to families and companies, the equity exposure of the financial system to the private sector is practically three times that of the public sector. In particular, banks’ exposure to the public sector decreased by 0.3 p.p. in September, reaching 12.9% of total assets. This monthly reduction was mostly driven by private banks.
• Banks continue to register adequate levels of liquidity, as a reinsurance against a scenario of greater volatility. Liquid assets increased by $2,450 million in September, hand in hand with the growth of the current account balance held at the BCRA and cash in banks, which was partly offset by the decrease in the position of passes with the BCRA. Thus, the liquidity indicator stood at 26.3% of total deposits in the month, exceeding 41% if the position of Lebac and Nobac is included.
• The irregularity of financing to the private sector is at an all-time low of 2.9% of the portfolio, with a reduction of 0.3 p.p. so far in 2008. This decrease is driven by the corporate sector, being generalized for all segments of productive activity.
• Total deposits grew by $4.7 billion in September, as a result of the increase in placements by the private sector ($3.8 billion) and, to a lesser extent, official placements ($900 million). Both the rise in demand accounts and time deposits explained the dynamics of private sector placements in the month. In a context of worsening financial turbulence, during October there was a fall in private deposits in pesos.
• During September, the financial system continued to strengthen its solvency, mainly due to the capital contributions received and, to a lesser extent, accounting profits. In the month, the net worth of the banks grew by $825 million (2.1% or 9.9 YoY), mainly driven by the receipt of a capitalization by an EFNB equivalent to US$175 million. In turn, the accounting profits accrued by the financial system in September reached $410 million (1.6% y/y) of assets, presenting an increase compared to last month. Thus, the third quarter of 2008 closed with profits of almost $1,150 million (1.5% y/y) of assets), accumulating $3,500 million (1.6% y/y. of assets) in the first 9 months of 2008. Capital integration increased 0.3 p.p. of risk-weighted assets in September, reaching 17%.