Informe Sobre Bancos

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

Summary of the month

• A favorable outlook persists for the progressive recomposition of financial intermediation. With deposits and loans to the private sector on the rise, portfolio quality clearly improving and various distortions (exposure to the public sector, mismatch in foreign currency) on a path of reduction, banks can improve their results and their capital base. The recovery evidenced in the fixed income markets is an additional boost for the improvement of financial institutions’ balance sheets.
• The assets of the financial system increased 0.5% (5.7%y) in July, mainly driven by the increase in loans granted to the private sector. Particularly notable was the growth in commercial credits (up 4.1% or 61%y), in the context of the encouraging prospects present in the macroeconomic context. For its part, almost two-thirds of financing to companies was concentrated in the two sectors that have shown the greatest dynamism in recent years: industry and primary production.
• In line with the trend observed throughout 2005, in July the exposure of the financial system to the public sector fell by 0.4 p.p., reaching a level of 34.4% of assets. Private entities led this movement, reducing their exposure to the Government by 0.7 p.p., to 33.1% of assets. This translates into a growing availability of resources in the entities that can be used to finance companies and families.
• The balance sheet of total deposits in the financial system grew 1.4% in the month, led by public sector placements, which increased 4.6% (71%y), while private deposits showed an expansion of 0.3% (4%y). In the latter, the growth of fixed-term deposits (1.2% or 15.7%a) stands out.
• The improvement in the quality of the financing portfolio for the private sector deepened in the month, with a fall of 0.7 p.p. in the irregularity of the financial system (to almost 12.3%). Irregularity fell 1.4 p.p. for official entities (to 18.1%) and 0.5 p.p. for private banks (reaching 10%). The commercial portfolio continues to register the largest falls in irregularity, while industry and the primary production of goods represent the best quality financing. · The flow of funds from private banks in July was mainly explained by the increase in private sector deposits (almost $465 million) and the reduction in exposure to the public sector ($430 million). Two-thirds of the funds raised were channeled to the placement of new loans to the private sector ($880 million).
• In July, the financial system recorded profits ($214 million or 1.3% y/y. of assets) for the fourth consecutive month, accumulating a result of $642 million (0.5% yr) in 2005. Private banks earned $113 million in July (1.1% y/y) and accumulated a result of $170 million (0.2% y/y) in the year. For public banks, profits for the month were $98 million (1.5% yr.), accumulating $449 million (1% yr) in 2005.
• The better results of private banks were driven by gains on government securities. With an increase in the financial margin, increasing results for services and lower charges for uncollectibility, it was possible to more than offset a certain increase in administrative expenses, lower differences in quotation and the movement of results from permanent interests towards their current levels (after the non-recurring increase recorded in June).
• In July, the solvency of private financial institutions continued to recover, both in terms of profits obtained and capital contributions. As a result, the net worth of the private banking group grew 0.6% in the month, accumulating an increase of 6.8% so far this year. The capital integration ratio of this group of entities grew 0.4 p.p. in the month, to a level of 16.3% of risk-weighted assets.