Report on Banks

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

Summary of the month

• In August, the financial system managed to rebuild its profitability and obtained profits of $140 million. Without the amortization of injunctions and valuation adjustments of public assets, the system reached a profit of $320 million in August and accumulated a positive result of $1,100 million in 2004, equivalent to 0.8% of assets in annualized terms (a.). This compares favorably with the adjusted losses of $3,300 million observed in the same period of the previous year (-2.7% y/y. of assets).
• Private banks earned $65 million (0.7% y/y of assets). 70% of private banks (42 out of 61) had positive results (5 more than in July). So far in 2004, private banks have accumulated a loss of 0.7%yra, which translates into a gain of 0.7%y. if the amortization of injunctions and adjustments in the valuation of public sector assets are excluded.
• In August, the better results reflected a lower impact of extraordinary adjustments; Unlike the situation observed in July, this month there were no significant portfolio sales at prices below the book value or significant adjustments in the activated compensations.
• The main items of income and expenditure of private banks remained stable, evidencing a consolidation of the progress made in recent months. Of note is the performance of charges for uncollectibility, which remains at low levels (0.4% y/y. of assets), and the slight increases in earnings by assets and by differences in contributions. A new advance was made in terms of efficiency: the ratio of revenues to operating costs went from 119% to 140%.
• Private sector deposits represented the main source of funding for private banks in August. Fixed terms increased by almost $700 million, reflecting an increase in deposits in unadjusted pesos ($370 million) that exceeded for the first time in the year those adjustable by CER (they grew by $270 million).
• So far this year, total deposits in the consolidated financial system have accumulated an increase of 21%, with a strong increase in public sector deposits. In particular, deposits in pesos increased 16% in the same period. For the group of private banks, there was an annual increase of 13%, with more than 70% of the growth explained by placements from the non-financial private sector.
• Given the lower credit risk perceived by banks, in August loans to the private sector were the main application of funds by private banks ($475 million). Commercial loans were the engine of growth, with $280 million placed. So far in 2004, these loans have increased by 29 per cent, while the total has increased by 15 per cent.
• The quality of financing to the private sector continued to recover. Irregularity in private banks fell to 19.6%, with a fall of 0.8 p.p. compared to the previous month and 11 p.p. compared to December 2003. Both the commercial and consumer portfolios showed less irregularity. The commercial portfolio continues with more marked variations, although its irregularity is greater (23.3%, almost 10 p.p. above that corresponding to consumption)
• The potential impact on private banks’ equity of additional losses due to private sector uncollectibility is significantly limited. In this regard, equity exposure to credit risk remains low (3.5% of assets).