Report on Banks

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

Summary of the month

• In April, the financial system continued to show signs of a sustained and gradual recovery process. With traditional intermediation growing progressively (private sector deposits and loans expanding), exposure to the public sector decreasing, portfolio quality for the private sector improving and a falling foreign currency mismatch, the outlook for the sector is favourable. In this context, the calculation of positive results in April collaborates with the recomposition of the sector’s solvency.
• The financial system recorded accounting gains in April close to $145 million (0.8% annualized of assets), reversing much of the loss of the previous month. If the amortization of injunctions and the valuation adjustments of public sector assets are excluded, an adjusted monthly profit of $370 million (2.2%y) is recorded. In the first four months of 2005, the financial system accumulated a profit of $140 million (0.2% yr.), with a notable recomposition in relation to the losses of the same period in 2004 (-$1,310 million, -2.1% yr.).
• More than half of the gains in the financial system in April were explained by private banks ($78 million, 0.8% y/y.), although there were no significant changes in the number of entities with positive results. Private banks’ earnings were driven both by the significant improvement in the financial margin, based on higher results per asset, and by a decrease in costs, with cuts in bad debt charges and administrative expenses.
• Despite the fact that dividend distributions were verified, the profits of private banks allowed their net worth to grow 0.4% in April. The capital integration ratio of these banks rose slightly to 15.8% of risk-weighted assets.
• The assets of the financial system grew 1.8% in April, driven by loans to the private sector, which increased 3% for the total system. There was a significant dynamism in commercial credit, which increased 4.6% in the month. For its part, exposure to the public sector continued to fall in April, with a cut of almost 1 p.p. to 37.2% of assets, accumulating a fall of 6.5 p.p. in the last twelve months.
• The amount of mortgage loans granted during the first four months of the year ($520 million) grew 120% compared to the same period in 2004, consolidating credit to families, while lines of more than 15 years are reviving. However, these positive signs persist factors that condition the sustained growth of this credit segment.
• In a context of declining credit risk, credit expansion to the private sector resulted in a monthly improvement in the quality of the financing portfolio, which fell by about half a percentage point for the financial system and private banks (to 14.4% and 12.2% respectively). This movement was led by the commercial portfolio, with an irregularity of 14.4% for private banks, although delinquencies also fell for consumer financing (up to 8%).
• The balance of deposits in the financial system increased 3.2% in April, with positive variations for both public sector deposits (10%) and private sector deposits (1%). In the latter, the increase in fixed terms (2.6%) stands out.
• With a smaller portfolio of liquid assets in dollars, private banks reduced their foreign currency mismatch in April: it fell 2 p.p. to 35.2% of assets (33% of NP for the total system).