Report on Banks

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

Summary of the month

• Thanks to the measures implemented by the BCRA to rebuild the liquidity of the system, in July there was a new increase in financial intermediation activity with the private sector. The increase in credit to households and businesses occurred simultaneously with the strengthening of banks’ liquidity levels. These movements were mainly funded by the increase in time deposits from the private sector. In this context, the financial system continues to obtain accounting benefits that allow it to strengthen its solvency indicators.
• The deepening of financial intermediation activity continues to drive the expansion of the sector’s operational structure. Staffing grew by 1.8% (1,700 employees) in the first half of the year, slightly exceeding the values of December 2001, both in public and private banks. The number of ATMs rose by 7.2% (600 units) in the first half of 2008, while the number of branches increased at a more moderate pace.
• The increase in deposits from the private sector was the main source of funding for banks in July. In the month, these placements grew by $3,000 million (1.9% or 16.8% YoY), driven by term deposits (5.1% or 18.3% YoY), both retail and wholesale. This increase in private sector time deposits was widespread in July, with two-thirds of financial institutions (with 94% of such deposits).
• Bank liquidity levels continued to improve during the period. The liquid assets of the financial system increased by $3,800 million, mainly due to the increase in the position of passes with the BCRA, in the context of the fall in the current account balance held by financial institutions in this Institution and in cash in banks, given the end of the bimonthly integration period (June/July) of minimum cash. Thus, the liquidity indicator at the systemic level stood at 25.8% of total deposits in July, 1.1 p.p. more than in the previous month and 3.8 p.p. above the record for the same period in 2007.
• Credit to households and businesses continued to expand, albeit at a more moderate pace. In July, financing to the private sector grew by $860 million (0.7% or 32.6% YoY), with export and mortgage loans being the most dynamic. Thus, credit to the private sector accumulated a 22%a. increase in the first 7 months of 2008, while in the same period of the previous year it had increased 39%a. With regard to financing to companies, although there is a certain slowdown, the increase continues to be generalized and gradually more homogeneous among all tranches.
• The evolution of bank financing is taking place in a framework of limited credit risk. As a sign of this, the irregularity of credit to the private sector stood at 3.1% in July, accumulating a reduction of 0.1 p.p. and 0.6 p.p. in the first 7 months of 2008 and with respect to the same period last year, respectively. This improvement is explained by corporate sector financing, as there is a certain deterioration in household loans.
• In July, the financial system continued to strengthen its solvency indicators. Banking net worth expanded by $400 million (1% or 8.6% YoY) in the month, driven by positive results. At the same time, levels of capital integration continue to be recorded that exceed the minimum standards recommended internationally, as well as those required locally. In particular, the capital integration ratio stood at 16.6% of risk-weighted assets in July, 0.1 p.p. above last month.
• Accounting gains amounted to $440 million or ROA of 1.7%y. in July, 0.4 p.p. of assets more than in the previous month, as a result of higher results for services and lower expenses accrued due to charges for uncollectibility and administrative expenses. Thus, in the first 7 months of the year, the financial system accumulated profits of $2,800 million or ROA of 1.6%y, 0.2 p.p. of assets above the record for the same period last year.