Boletín Monetario y Financiero

The magnitude of the events observed in the domestic economy relegated to the background the events that occurred in the international context that could have affected the local economic system. The national economic crisis arises in line with political instability, the sustained deterioration of the fiscal condition of the National Government and the reduction of productive activity.

In this context, a deep distrust of economic agents was consolidated, characterized by the outflow of deposits and the flight of local public securities. As a result of the events, the State tried to soften the considerable decrease in consumption and tax collection. However, the growing uncertainty about the future of the deposits caused a significant outflow from them, causing the need to establish restrictions on their extraction. The latter, plus the growing and sustained increase in unemployment, aggravated the social situation, already deteriorated, leading to the resignation of the then President of the Nation.

The evolution of the main monetary variables reflected the context in which the financial system had to operate. Thus, a fall in the demand for monetary aggregates was observed, which was due to the aforementioned local factors. As for deposits that remained within the banking system, a preference was observed for those denominated in dollars. Likewise, the net holding of domestic financial assets decreased, especially due to the purchase of dollars, which caused a reduction in the stock of international reserves. On the other hand, the fall in deposits led to a growth in passive interest rates, which reached levels higher than those of the July 2001 crisis.

In the acute context of illiquidity that has arisen, the BCRA had to establish new measures in terms of assistance to entities with possible liquidity problems.

In this context, bank risk levels grew widely. The deterioration in the quality of the loan portfolio was a direct consequence of the reduction in the stock of financing and the increase in non-performing loans, which in turn are mainly derived from the fall in economic activity and the increase in lending rates. Consistently, the evolution of profitability was strongly driven by bad debt charges, generating extraordinary quarterly losses. The decrease in the results derived from the holding of financial assets and the increase in administrative expenses due to seasonal circumstances contributed significantly to the negative result. While regulatory solvency indicators improved due to the decrease in the total capital requirement, the implicit risk of bank assets grew. An alternative analysis of the solvency status of private banks shows a high exposure of banks to counterparty risk, especially retail entities, to a combined default of the public and private sectors.