Report on Banks

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

Summary of the month

• Despite registering a temporary erosion in its profitability in March, the financial system continues to show signs of a progressive normalization in its activity. In a context of considerable remaining liquidity, a positive quarter closes in terms of credit expansion, improvement in portfolio quality, regularization of funding, recovery of results and progress in solvency, given the capital contributions made.
• In March, the financial system computed losses of $41 million (-0.2% y/y. of assets), reflecting an extraordinary negative result of a particular private bank (without this entity, the profit is 0.5%y), and adjustments in the cost structure of the entities expected at the end of the quarterly balance sheets, rather than offsetting the advances achieved in terms of interest and services earnings. Without amortization of injunctions and valuation adjustments of public sector assets, in March the total financial system obtained a positive adjusted result of $121 million (0.7%y).
• The financial system closed the first quarter of 2005 with a profit of $110 million or 0.2% y.a., while adjusted profit reached $600 million or 1.2% y.o.y. For their part, private banks recorded a loss of $91 million (-0.3% y/y) in the quarter, which compares favorably with that of the same period in 2004 (-$630 million, -2.2%y). In terms of adjusted profit, private banks show a profit of $221 million (0.7%y). These figures confirm the trend of gradual recomposition of banking profitability, a process not without volatility, although at a declining level.
• The losses of private banks in March were more than offset in the aggregate by the capital contributions made in one entity; Thus, the assets of this group of entities increased by 0.5%, while their capital integration ratio remained relatively stable (15.6% of risk-weighted assets). In the first quarter of the year, capitalizations of $2,000 million were accumulated for the entire financial system.
• In March, the assets of the financial system registered a contraction of 1.9%, mainly induced by the reduction of liquid assets of a public entity of magnitude to face the withdrawal of funds from the National Public Sector (intended for debt payment). However, in year-on-year terms, there was a 10.2% growth in the net assets of the financial system. Credit to the private sector ended the first quarter with a growth of 29%.
• During March, private banks continued to reduce their exposure to the Public Sector, registering a level of 38.9% of total assets (0.3 p.p. less than in February). So far in 2005, this indicator has contracted by 2.1 p.p.
• The recomposition in the quality of the financing portfolio for the private sector accelerated this month, with a fall of 1.5 p.p. in the irregularity of the financial system (to almost 16%) and 1 p.p. in that of private banks (to 12.8%). The commercial portfolio continues to be the one that registers the greatest drop in its irregularity. Public banks and national retailers mobilized the improvements in the quarter.
• The balance sheet of total deposits in the financial system grew 10.6%y. in the first quarter, boosted by the increase in private sector loans (up 32.1%y). The quarterly increase in total private sector deposits was led by fixed-term loans, increasing by 45.4%y.
• In March, private banks received additional funding due to the increase in private deposits by $1.875 billion. These entities also obtained resources through the realization of Public Sector securities for $1,175 million and the reduction of liquid assets for $475 million. On the side of the application of funds, most of the resources raised were channeled to the cancellation of negotiable obligations and commercial lines abroad for $1,500 million, to the increase in loans to the private sector for $905 million and to the payment of rediscounts with the BCRA for $765 million.