Report on Banks

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

Summary of the month

• Near the end of 2005, the financial system maintained its pattern of equity consolidation. While financial intermediation continues to grow significantly, the exposure of the financial system to the public sector is reduced and the reduction of liabilities with the BCRA is accelerating. In addition, the trend of gradual recovery of profitability and solvency of the financial system is strengthened.
• The net assets of the consolidated financial system expanded in November, mainly due to the growth in the balance of loans to the private sector (4.2% or 63%y). Consumer loans showed the greatest relative dynamism in the month (5.2%), although commercial lines (4.2%) drove almost half of total loans in November. New mortgage loans reached $2,150 in the period January-November 2005, showing a growing prolongation in their maturity with respect to previous periods.
• The improvement in the quality of the financial system’s portfolio continued in November, with a 0.8 p.p. cut in irregularity (up to 9%). For private banks, the irregularity is 7.7% (9.1% in the commercial portfolio and 5% in consumer loans). Among the financing to companies in the financial system, the largest tranches (mainly associated with large and medium-sized companies) are those with the lowest levels of irregularity.
• In November, the exposure of the financial system to the public sector fell by almost 1.5 p.p., reaching a level of 30.9% of total assets. The monthly reduction was once again led by private entities, a subgroup that registered a drop of almost 1.8 p.p. in its exposure, to 27.9% of total assets.
• The balance sheet of total deposits in the consolidated financial system increased by 0.9% (11.1% y) in November, a movement led by private sector deposits (1.5%). The latter were mainly allocated to demand placements (3.1%), in a context of higher seasonal liquidity needs.
• Between January and December 2005, there was an active normalization of the liabilities of financial institutions with the BCRA. Of the 24 entities originally framed in the matching scheme at the beginning of 2004, only 1 concluded their debts that year, while 18 did so in 2005. In line with the new tools implemented by the BCRA to facilitate the regularization of these liabilities, financial institutions made payments of $9,430 million in 2005, a value that compares favorably with the $2,110 million disbursed in 2004.
• In terms of the estimated cash flow for private banks in November, the reduction in credit to the public sector by $1,210 million and the increase in private deposits by $1,080 million were the main sources of additional funds for the month. For its part, almost 70% ($1,780 million) of the resources raised was destined to the expansion of the balance of loans to the private sector.
• In November, the financial system obtained profits of $170 million (1% y/y) of assets, accumulating a positive result of $1,730 million (0.9% y/y.) in the first 11 months of 2005. While public banks verified profits of $102 million this month (1.5%y), private entities did so for almost $44 million (0.4%y). The lower profits recorded in November by private banks were mainly due to the decline in results due to differences in share prices. On the other hand, there were increases in interest earnings, net adjustments for CER and in service earnings.
• The new injections of capital into the financial system, combined with the growing positive results, are reflected in better indicators of bank solvency. During November, the financial system received new capital contributions: the headquarters of foreign entities and private banks made capital injections of $230 million. Thus, throughout 2005 capitalizations of $1,745 million were accumulated. The net worth of the financial system increased 1.2% in November, accumulating an expansion of 12.5% so far in 2005.