Informe Sobre Bancos

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

Summary of the month

The financial policy pursued by the BCRA significantly strengthened the financial system in 2006. On the one hand, rediscounts due to illiquidity are practically disappearing and deposits are growing in size and term; On the other hand, financing to the private sector exceeds that of the public sector, consolidating the profits of banks (with profits for the second consecutive year), strengthening the solvency of the system.

1. Driven by BCRA regulations, banks’ exposure to the public sector fell by 9.1 p.p. of total assets in 2006, to a level of 21.7%, freeing up financial resources for companies and households. For the first time since the crisis, in 2006 the weighting of credit to the private sector in banking assets exceeded exposure to the government. During the last two years, the share of public sector assets fell by almost 18 p.p.. This generates a monetary-financial system that for the first time in decades is independent of the needs of the public sector.
2. Growth in credit to the private sector exceeded 40% per year (28% in real terms), reaching a share of close to 11.1% of GDP, 1.4 p.p. more than at the end of 2005.
3. The expansion of private credit was accompanied by a significant improvement in the quality of financing, with levels of irregularity at an all-time low (4.5% of private financing) and below the Latin American average.
4. In line with the regulatory incentives established by the BCRA to extend the maturity of bank funding, for the first time since the crisis, in 2006 private fixed-term loans grew more (27%) than private demand deposits (20%).
5. In 2006, the financial system continued to advance the quotas of the matching schedule, making almost 40% of the total payments made since the beginning of the scheme during the year. Of the 24 original financial institutions, currently only 2 remain within the matching, having canceled 81% of the initial debt since 2005, an evolution driven by the mechanisms developed by the monetary authority.
6. The set of financial institutions maximize accounting profits since the crisis (2% of assets and 14.8% of equity). These profits added to the capitalizations led to the consolidation of bank solvency. In the course of the year, however, the strong increase in intermediation, the growth of net worth (23.4%) drove the recovery of solvency indicators, reaching levels that comfortably exceeded the minimum requirements established by the BCRA.
7. An increase was observed in the most stable sources of income: interest and service earnings. The growing role of the local capital market is reflected in the results of the financial system through the increase in income from the holding and negotiation of financial assets.
8. The longer-term lines are gradually reappearing. Mortgage loans grew 17% in the year, while among the new lines granted to companies, the participation of those with longer terms is increasing.
9. The benefits of complementarity between banking and the capital market are beginning to be seen, such as the development of instruments that enable more efficient risk management. In 2006, the outstanding and continuous growth in the securitization of bank assets (about $3,000 million) was an example of this.
10. In line with the significant evolution observed in the volume of banking intermediation in the course of 2006, and given the expected scenario of local growth, a favorable framework for banking activity is projected in 2007. A sustained consolidation of the most stable sources of income is expected, such as the results of the credit and transactional activities.