Report on Banks

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

Summary of the month

• The financial system recorded accounting losses of $70 million in October, equivalent to -0.4% of assets in annualized terms (a). In the last three months, a gain of 0.2% a year has been accumulated, well above the loss of the same period in 2003 (-1.6% a year). So far this year, although the result is a loss of $510 million (-0.3%y), without the effect of the amortization of injunctions and adjustments to the valuation of public sector assets, a gain of $1,400 million (0.9%y) is reached.
• Private banks recorded a negative result of $105 million this month (1.1% y/y. of assets), accumulating in the last three months a profitability of –0.2% a that compares favorably with the same period in 2003 (-2.1% yr.). In 2004, they accumulated a loss of $640 million (-0.7%y), although excluding the effect of the injunctions and valuation adjustments, a gain of a similar amount is obtained.
• The increase in losses for the month of private banks reflected a lower profit not related to current intermediation operations (basically less disaffection of forecasts compared to September). Despite the erosion in the final result, there was an improvement in the financial margin, driven by the change in the accrued contribution differences, and a fall in uncollectibility charges. With stable administrative expenses, the monthly improvement in the financial margin of private banks allowed the ratio of administrative expenses to revenues to grow from 98% to 114%.
• In October, the assets of the consolidated financial system returned to growth, reflecting the effect of the increase in loans to the private sector. The growth of credit to the non-financial private sector is consolidated in both consumer and commercial lines. So far this year, the main consumption lines grew 54%y, with public banks playing a dynamic role; while those fundamentally related to a commercial destination increased 50%y, led by private institutions. Loans with real collateral continue to show no growth. In the increase in loans to companies, the growing contribution of loans granted for small and medium-sized amounts stands out.
• Portfolio irregularity continued to fall in October: in the financial system it fell 1.6 p.p. to 22%, while in private banks it fell by 1 p.p. to 18.5%. Although the improvements were generalized by type of portfolio, the performance of the consumer portfolio of private banks stands out, whose delinquency is already at pre-crisis levels. Irregular financing net of pensions, as a percentage of equity, fell to 6.1% for private banks.
• Deposits in the financial system maintained their upward trend in October, both due to the growth of private deposits (channeled into private banks) and the increase in public sector deposits. In particular, fixed terms in pesos of private banks grew 6% in the month, including a 14% increase in those adjustable by CER. AFJPs continue to play a prominent role in the behavior of time deposits with CER (they hold 43% of the total).
• For private banks, 40% of the funds raised in October, mainly from private sector deposits ($1,000 million) and to a lesser extent from credit cancellations to the public sector ($130 million), were applied to loans to the private sector ($490 million). The rest of the resources obtained by the sector were used to increase the position in LEBAC and NOBAC, cancel CEDRO and rediscounts with the BCRA. Part of the month’s operations led to the consolidation of the downward trend for the mismatch of foreign currency (assets minus total liabilities), accumulating a 42% drop in the year measured in dollars.