Report on Banks

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

Summary of the month

• The intermediation activity of financial institutions with the private sector continued to grow during the first quarter of 2010, in a context in which adequate levels were maintained for the main indicators of soundness. The gradual increase in the volume of cleared checks persists, together with a reduction in the ratio of rejections due to lack of funds in terms of the total cleared.
• The balance sheet of total deposits increased by 6.3% in March (20.9% YoY), mainly reflecting the effects of the increase in public sector loans. The balance of private sector deposits grew 3.2% in the month, driven mainly by demand deposits. In the last 12 months, business and household loans expanded by 18.5%, with public banks (22.4% YoY) registering the greatest relative dynamism.
• The liquidity levels of financial institutions remain high. The liquidity ratio (considering items denominated in domestic and foreign currency) stood at 32% of total deposits in the month, 2.3 p.p. more than in February and 1.2 p.p. higher than the figure for a year ago, mainly due to the behavior of items denominated in foreign currency. The broad liquidity indicator (which includes the holding of Lebac and Nobac) stood at 45.8% of deposits, registering the highest value in the last twelve months.
• The balance sheet of financing to the private sector grew 2.4% in March, ending the first quarter of the year with an increase of 12%y, 5.6 p.p. higher than that verified in the same period of 2009. The quarterly expansion was mainly explained by foreign private banks and was mainly channeled through consumption lines. On the other hand, credit to companies continued to increase at a moderate pace at the beginning of the year, highlighting the growth of the financing tranche with lower residual balances.
• The non-compliance ratio of financing to the private sector fell slightly in the month to 3.3%, mainly due to the behavior recorded in private banks. This indicator fell by 0.5 p.p. from the peak reached in mid-2009, mainly due to the performance of household consumption lines (whose ratio went from 6.4% to 5%), in a context in which the balance in an irregular situation stopped growing in private banks and EFNB. The level of coverage of the irregular portfolio of the private sector with forecasts stood at 133% at the systemic level, 10 p.p. more than in March 2009.
• The financial system improved its solvency indicators. The consolidated net worth of the financial system increased 2% in the month (20.8% YoY), driven by accounting profits. Capital integration stood at 19% of risk assets, approximately double the regulatory requirement. The situation of capital slack in terms of regulatory requirements is widespread among financial institutions.
• Accounting gains represented 2.8% of assets in March. In the month, the growth in the financial margin (mainly driven by equity results) and net income from services was partially offset by higher administrative expenses within the framework of the entry into force of salary agreements in the sector. Thus, the results of the banking sector accumulated 2.3% of assets in the first quarter of 2010, slightly higher than those of the same period of the previous year. The year-on-year increase in profitability reached all homogeneous groups of entities.