Report on Banks

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

Summary of the month

• In the first quarter of 2006, the financial system strengthened its income base through traditional financial intermediation, in a context of continued equity normalization (lower exposure to public sector risk, expansion of credit to the private sector, better quality of the loan portfolio for the private sector and rapid reduction of liabilities with the BCRA) and growing solvency position (both due to the consolidation of earnings and higher capitalization flows received).
• Exposure to the public sector of banking continues its downward trend: in March it fell to represent 28.3% of total assets (24.9% for private banks), with a cut of 11.2 percentage points (p.p.) since the beginning of 2005 (16.2 p.p. for private banks). The fall in exposure to the public sector has had as a counterpart the expansion of credit to the private sector. Thus, private financing came to represent about 26.2% of total assets, implying a growth of 6.5 p.p. since the beginning of 2005.
• While in March the financial system made payments of $2.644 billion in rediscounts, between April and May these expenditures reached $636 million, deepening the process of normalization of the balance sheet of financial institutions, which has already accumulated payments of $15.15 billion since the beginning of 2005.
• In March, banks recorded profits of $201 million or 1.1% annualized (a) of their assets, driven both by the positive results of private financial institutions ($116 million or 1.1% y/y. of their assets) and by those verified in public banks ($79 million or 1.1% y/y. of their assets). Thus, the first quarter of 2006 closed with positive results of $983 million or 1.9% of assets, reaching the highest profitability since mid-1997. The increase in net income from services and interest was highlighted in the month, strengthening the income base of the banking sector with less inherent volatility.
• In the third month of 2006, three financial institutions made capitalizations for a total of $530 million. Since 2002, the financial system has received capital injections of close to $13.1 billion, accumulating almost $6.1 billion since the end of 2004. The capitalizations received in March, combined with the consolidation of earnings, generated an increase in the solvency indicators of the financial system. The net worth of banks increased 2.7% in the month (accumulating an expansion of 21% since the beginning of 2005). In private banks, net worth grew 3.4% in March (22% since the end of 2004).
• The irregularity of portfolios destined for the private sector of the financial system continued its downward trend. In particular, in March the portfolio irregularity ratio fell 0.3 p.p. to 6.8%. In public banks, the level of non-performing loans fell by 0.5 p.p. to a historically low level of one digit (to 9.7%). For their part, in private entities the level of irregularity decreased 0.3 p.p. (to 5.7%).
• In a context of growing levels of financial intermediation, in March total deposits in the financial system grew 1%. All of this increase was explained by private sector placements (they grew 1.8%). In particular, the monthly growth of 2% in fixed-term deposits was notorious. For their part, loans to the private sector grew 1.2% in March.
• For private banks, the increase in the balance of private sector deposits ($1,720 million), the reduction in exposure to the public sector ($960 million) and capitalizations received ($500 million) constituted the main sources of funds in the month. The payment of outstanding debts due to rediscounts to the BCRA ($1,480 million), the increase in liquid assets ($1,010 million) and the expansion of the balance of loans to the private sector ($750 million) made up the main applications of resources during March.