Report on Banks

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

Summary of the month

• The financial system made a profit of $15 million in September. The third quarter of 2004 ended with a profit of $136 million, equivalent to 0.3% of assets in annualized terms (y), almost 2.5 p.p. higher than in the same period of the previous year. It is the second consecutive quarter with gains. Although so far in 2004 there has been a loss of $500 million, equivalent to 0.3%a.y., excluding the amortization of injunctions and adjustments to the valuation of public sector assets, gains (adjusted profit) of $1,260 million (0.9%y) are verified.
• Private banks recorded a loss of $32 million in the month and closed the quarter with a result of –0.1% y/a. of assets, improving almost 1.5 percentage points (p.p.) compared to the same period in 2003. In 2004 they have accumulated a loss of $540 million (–0.6%), but the adjusted result is transformed into a gain of $615 million (0.7% y/y. of assets).
• The erosion of private banks’ earnings in September was mainly due to losses accrued by the appreciation of the peso against the dollar. The financial margin also showed some deterioration, mainly due to the lower accrual of CER and individual adjustments in interest income.
• Despite the 0.2 p.p. increase in earnings from financial services, the decrease in the financial margin caused the coverage of administrative expenses to fall slightly below 100% this month, although for the third quarter the indicator reaches an average level of 120%.
• In September, deposits in the financial system continued to rise, more than half of which were explained by the behavior of private placements. For private banks, the increase in deposits from the non-financial sector represented a flow of funds of $1,100 million in September. Fixed-term placements again had the largest increase ($240 million) within the total deposits of private entities. New deposits in pesos exceeded for the second consecutive month those in pesos adjustable by CER.
• Credit to the private sector continues on the growth path that began at the end of the previous year. For the financial system as a whole, these loans have accumulated an increase of 22% so far in 2004. In September, private banks applied more than half of the deposits taken to private loans ($600 million), both for commercial lines and for consumption. Private sector loans from private banks rose 28% y/y in the third quarter and 25% y/y in the year.
• The liquid assets of private banks experienced a monthly increase of $770 million, with a significant increase in the balance of the current account at the BCRA. A large part of the variation occurred in dollar items, thanks to the behavior of financing from abroad: for the first time since the 2001-2002 crisis, private banks obtained funds for this concept.
• In September, the irregularity of loans to the private sector saw an additional cut of half a percentage point for private banks, reaching a level of 19%, following the fall in the irregularity of the consumer portfolio (0.7 p.p.). In the quarter, private banks showed a 2 p.p. drop in this indicator, led by nationwide retail banks. So far in 2004, irregularity in the private sector has fallen by 11.5 p.p., mainly reflecting the decrease in irregularity in the trade portfolio (–16 p.p.).