Report on Banks

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

Summary of the month

• In September, the financial system deepened the levels of traditional financial intermediation: deposits were taken and applied to finance the private sector in a framework of low credit risk. This process is· leading banks to strengthen their most stable sources of income, registering positive results in a competitive framework. This, added to the new capitalizations, drives the continuous improvement in the solvency of the financial system.
• Again, the effects of the BCRA’s policy in encouraging the crowding-in process of private credit were observed. In September, loans to the private sector reached 28.4% of the total assets of the financial system, exceeding exposure to the public sector by more than 4 p.p., which fell 0.3 p.p. to 24.2% of total assets.
• In September, private sector deposits increased 0.8% ($940 million). The increase in interest rates paid over longer terms is contributing to the migration of savings funds in demand accounts to fixed-term ones. Private banks recorded an expansion of private time deposits of 2.2%, explaining almost all of the increase in private placements. Public sector placements increased by almost $1,700 million (4%) in September.
• The financial system continues to improve the quality of its liabilities: while in September financial institutions made payments to the BCRA for $273 million within the framework of matching, between October and November these disbursements reached $249 million. In perspective, during 2005 and so far in 2006 the financial system has cancelled more than 70% of the original amount of rediscounts for illiquidity granted during the crisis.
• Loans to the private sector increased by 3.4% in September, accumulating an expansion in 2006 of 41%a.a. The services and trade sectors were the main recipients of credit in the month ($400 million each). Most of these commercial lines were constituted in the form of documents ($700 million). Personal loans maintained their marked growth trend ($600 million), while mortgage loans expanded by about $130 million in the month (accumulating 10% so far in 2006).
• The increase in the credit exposure of the financial system to the private sector occurred in a context of decreasing credit risk. The ratio of irregularity of financing to the private sector fell 0.3 p.p. in the month, to a historic low of 5%. The general improvement in the portfolio quality of the financial system was driven by both public and private banks. In the last 12 months, this improvement has meant that the irregularity ratio of the financial system has been reduced by half.
• In this scenario of recovery of financial intermediation operations, the accounting profits accrued by the financial system in September reached $332 million (1.7% y/y of assets). Thus, the third quarter of 2006 closed with profits of almost $1,050 million (1.8%y), registering an annual cumulative of $2,850 million (1.7%y). This process of recovery of results reaches 88% of financial institutions, which represent 98% of the assets of the financial system.
• Especially linked to these benefits, the financial system achieved a 1% expansion in its net worth. The above phenomenon helps solvency indicators, despite the growth in financial intermediation, to remain stable and at adequate levels: capital integration was 16.4% of risk assets.