Executive summary
The change in exchange rate policy in Brazil led to downward revisions of growth forecasts for Latin America during the first quarter of 1999. In Argentina, the recession deepened, with a significant drop in the level of industrial production and investment.
Although the local capital market was negatively affected – country risk and devaluation expectations increased significantly – by the middle of the quarter the financial impact was significantly reduced. Debt placements were not substantially affected, and there was an increase in the assets managed by the FCIs and AFJPs.
Despite the adverse context that characterized the first quarter of the year, monetary variables responded positively, although they showed a slower development than in the same period in previous years. Deposits and loans increased significantly, and while interest rates rose significantly at the beginning of the crisis as a result of rising sovereign risk, they declined rapidly thereafter. The working capital held by the public showed a fall – even in seasonally adjusted terms – that influenced the evolution of international reserves, which experienced a slight drop in the period under analysis. On the other hand, the integration of minimum liquidity requirements increased, accompanying the growth of deposits.
During the first quarter, there was a slight advance towards greater consolidation of the banking sector. The largest entities increased their share of total net assets. The pace of growth in the sector, although moderate, was significant given the adverse macroeconomic context. During this period, the profitability of the banking sector improved substantially. Private banking led the increase in net profits in the sector, mainly due to higher interest margins. Although the indices of irregularity of the aggregate portfolio increased slightly for the entire system, for the group of private banks they remained stable. However, while the quality of the commercial portfolio improved, that of the consumer portfolio continued to deteriorate. A substantial improvement was observed in the solvency indicators of the sector, especially of private banking.
