Executive summary
External and internal factors conditioned the evolution of the Argentine economy during the second quarter of 1999, resulting in a fall in the level of economic activity.
Despite this, the capital market performed highly favorably in the first half of the period, with an increase in capital flows, increases in stocks and securities, and falls in sovereign risk. The change in monetary policy in the United States combined with domestic factors determined a negative change in the behavior of these variables as of mid-May.
The quarter ended with an increase in deposits and a slight increase in loans, although with a lower level of international reserves in the financial system, associated with a fall in both working capital demand and the excess integration of liquidity requirements. The largest increase in deposits occurred in time placements, which showed a significant degree of dollarization.
The banking sector continued its weak growth rate during the second quarter of this year. The sector’s performance was characterized by a moderate increase in deposits, mainly applied – given macroeconomic conditions – to increase the holding of liquid assets and to cancel other types of debt. The sector’s profitability decreased slightly, reflecting the effects of lower service revenues and higher charges for uncollectibility. The deterioration in the quality of the loan portfolio observed in the quarter was concentrated in financing granted for consumption and housing. Finally, it should be noted that the high level of solvency that has been characterizing the sector remained unchanged in magnitude in the period under analysis.
