Report on Banks

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

Summary of the month

• Towards the tenth month of 2005, the financial system continues to show signs of a progressive improvement in its equity position. Financial intermediation continues to expand, the distortions generated during the last crisis in the composition of assets and liabilities are gradually reduced, the recovery in asset quality continues and profitability maintains its growth pattern, underpinning progress in solvency.
• During October, the net assets of the consolidated financial system resumed their growth path, expanding 0.9%. The balance of loans to the private sector grew 2.7% in October, mainly driven by commercial lines (they grew 2.9%). Consumer loans also continue to show a dynamic performance (they increased 6.5%).
• The quality of the financing portfolio for the private sector continued to improve, with an irregularity that fell to 9.9% for the total financial system and 8.3% for private banks. In the latter case, the behavior of specific lines such as financing through credit cards, loans with collateral, advances and personal loans stands out, with levels of irregularity below 6%.
• The financial system’s exposure to the public sector remained at around 32% of total assets. In the last 12 months, this exposure has accumulated a fall of 7.1 p.p..
• The balance sheet of total deposits in the consolidated financial system grew by 2% in October, driven by both private sector loans (up 1.9%) and public sector loans (up 2.3%).
• In October, the process of normalization of the financial system’s liabilities continued, with new contractions in debt with the BCRA. A group of entities carried out pre-cancellations of magnitude within the “matching” scheme, so that at the end of October only 8 banks had liabilities for these rediscounts with the BCRA. In this context, the financial system accumulated payments of almost $8,400 million in the first ten months of 2005. It can be seen that this process continues: at the beginning of December, only 5 entities had this type of obligation with the BCRA.
• The estimated flow of funds for private banks in October had as its main sources of resources the increase in private sector deposits ($900 million), the reduction in credit to the public sector ($405 million), the reduction in the position of LEBAC and NOBAC and the sale of financial trusts (for $370 and $150 million respectively). More than half of the additional resources for the month were allocated to new loans to the private sector ($1,130 million), while payments to the BCRA for outstanding debts due to rediscounts ($540 million) and the increase in liquid assets ($365 million) complete the picture of the main applications of funds.
• In October, the financial system recorded profits of $360 million (2.1% y/y) of assets, accumulating a result of close to $1,550 million (0.9% y/y) so far in 2005. Public banks recorded profits of $140 million this month (2.1%y), while in private banks they amounted to $210 million (2.1%y).
• The improvement in the results of private banks recorded this month was, in large part, explained by expected falls in costs (charges for uncollectibility and administrative expenses). The margin showed some growth, with differences in share price and CER adjustments that offset some decrease in interest and asset earnings.
• The growing profitability of financial institutions, as well as new capital contributions, contribute to improving the solvency of the financial system. With the capital injection observed in October (approximately $26 million), during 2005 contributions of almost $1,510 million were accumulated. Thus, the net worth of the system increased by 1.4% in October, accumulating a growth of 11.2% during 2005.