Report on Banks

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

Summary of the month

• Within a context of greater uncertainty, in the last year the financial system has been showing a gradual slowdown in the process of financial intermediation with the private sector. Financial institutions currently maintain adequate levels of liquidity and solvency, which, together with the liquidity windows generated by the BCRA in the last quarter, guarantee buffers against a possible greater impact of new episodes of tension.
• The balance sheet of total deposits in the non-financial sector increased 10.8% YoY in January, below the growth rates of previous months. The monthly increase is driven by placements from the private sector and, to a lesser extent, from the public sector. Deposits maintain their participation in the total funding of the financial system (liabilities and equity), accounting for three quarters of the latter aggregate, with an increase in the weighting of demand deposits and a relative fall in time placements. With respect to the latter in the private sector, since mid-2008 there has been an increase in the share of deposits with a maturity of up to 2 months (from 6 p.p., to 59% of the total).
• Banks start 2009 with liquidity levels similar to those observed at the beginning of 2008. The liquid assets of the financial system increased by $3,500 million in January due to the constitution of passes with the BCRA that is partially offset by the decrease in cash. According to balance sheet information, the liquidity indicator in pesos stands at 22% of total deposits in pesos, 0.8 and 0.9 p.p. more than in December and January 2008, respectively. The broad indicator of total liquidity (including the position of Lebac and Nobac) reached 40.4% of total deposits in January, 1.5 p.p. higher than the previous month but 0.8 p.p. lower than that observed a year earlier.
• The balance sheet of credit to the private sector fell slightly in January (-0.7%), partly due to the lower seasonal dynamism characteristic of the summer season. This reduction was mainly driven by private banks (both domestic and foreign), as public banks increase their loans to the private sector in the month. Official financial institutions continue to increase their participation in the total stock of financing to families and companies, significantly reducing the gap with national and foreign private banks in the last 12 months.
• Although it still remains at historically low levels, the irregularity of financing to the private sector has grown by 0.5 p.p. in the last 4 months to a level of 3.3%, breaking the downward trend observed in recent years. Currently, the evolution of this indicator is showing increases in the irregularity of both loans granted to families and financing to the corporate sector.
• During January, the exchange of Guaranteed Loans was carried out, generating a reduction in the mismatch of items adjustable by CER faced by the financial system (lower exposure of banks to real interest rate risk) in line with the equity normalization process.

• In January, the consolidated net worth of the financial system registered a new increase (1.5% or 11.3% YoY). Capital integration in terms of risk-weighted assets remains stable, at levels that exceed local requirements and minimum international recommendations. For financial institutions as a whole, the excess regulatory capital reaches 85%. Nominal accounting profits for January are lower than those observed in the same month of 2008 and 2007. Although since 2005 all financial institutions have obtained accounting gains in nominal terms, the profitability in recent years has become negative if adjusted for the effect of the variation in the prices of public sector assets in the institutions’ portfolios. Thus, local banks are currently registering profitability levels below those observed in most emerging economies.