Report on Banks

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

Summary

• At the end of the third quarter of 2010, the intermediation process of financial institutions became more dynamic. This trend was favored by a context of greater economic activity, in which financial stability and positive prospects for the coming periods prevail. Credit to the private sector continued to increase its growth rate, being funded mainly through the growth of deposits in this sector. Financial institutions maintained adequate levels of solvency and the non-performing loan ratio of the portfolio continued to fall.
• The balance of total deposits in the financial system grew 3.1% in September, mainly reflecting the effect of the increase in public sector placements. The balance of deposits in the non-financial private sector expanded 2.8% in the month (27.4% YoY), driven mainly by time placements. In order to facilitate access and encourage greater use of banking services, in September the BCRA regulated the so-called “Universal Free Account”. By mid-November, the number of accounts opened already exceeded 9,400, while the number of inquiries received from banks more than tripled this value.
• During September, the liquidity ratio of the financial system, considering items in domestic and foreign currency, fell 1.4 p.p. of deposits to 28.1%. Ample liquidity (including holdings of bills and notes from the BCRA) verified the same behavior. The evolution of the broad liquidity ratio was mainly driven by private banks.
• Financing to the private sector according to balance sheet data increased 3.8% in September (29% YoY), exceeding for the first time in the year the year-on-year expansion of funding by private deposits. All credit lines increased in the month, highlighting documents and pledges. During the third quarter of the year, financing to companies and families registered an annualized expansion of 41%, practically returning to the dynamics evidenced prior to the international crisis. Loans to companies showed a slightly higher quarterly rate of expansion than loans to households, gaining a share of the total balance of credit to the private sector.
• With the aim of increasing the supply of longer-term credit in national currency to finance investment, in early October the BCRA held the first auction of loan funds within the framework of the Bicentennial Productive Financing Program. The total amount of resources auctioned amounted to $230 million, receiving bids that exceeded this figure.
• The irregularity ratio of financing to the private sector reached a historic low of 2.5% in September, after a reduction of 0.3 p.p. in the month. Throughout 2010 the level of non-performing loans decreased by 1 p.p., both due to the fall in the balance in an irregular situation and due to the greater dynamism of the total balance of financing. This reduction in the irregularity ratio was driven mainly by the EFNBs and private banks, mainly from the better performance of their consumer loan portfolios. The irregular portfolio of the financial system continued to show a high level of coverage with forecasts (146%).
• The broad mismatch of foreign currency in the financial system increased slightly in September to 33.1% of net worth. However, in the last 12 months, the broad foreign currency mismatch of the banks as a whole fell by 12.5 p.p. in terms of net worth.
• In September, there was an expansion of 2% (14.2% YoY) in the consolidated net worth of the financial system. All groups of financial institutions observed an increase in their net worth, highlighting the greater relative increase of public banks. This evolution is in line with accounting profits, which grew slightly in September compared to the previous month, standing at 2.9% y/y of assets. National public and private banks mostly accounted for the monthly increase in profitability. Thus, the banks as a whole closed the third quarter of the year accruing profits equivalent to 3.1% of assets, in line with those of the same period in 2009. For its part, the capital integration ratio fell slightly in the month, to 17.7% of risk-weighted assets (RWA), remaining relatively stable in the last three years at around 18% of RWA, in a context of expansion of credit to the private sector.