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By: Ken Parks

BUENOS AIRES -(Dow Jones)- Argentina's banking industry saw its net profit surge 75% on the year in January thanks to higher revenue from lending and fees.

Net profit rose to 1.20 billion pesos ($297.3 million), up from ARS686 million in January 2010, according to preliminary data published late Tuesday by the Central Bank of Argentina.

The banking industry's return on equity--a measure of profitability--was 26.5% in January, up from 18% in the year-ago period.

Argentina's banks are set to benefit from another year of strong economic growth with the central bank forecasting an expansion in gross domestic product of at least 6% in 2011.

The industry's financial margin--the difference between what banks pay on their deposits and earn from loans and securities holdings--increased 50.8% to ARS3.30 billion on the back of loan growth and gains on their holdings of government bonds.

Fee income increased 29.5% to ARS1.49 billion, while loan loss provisions rose 10.2% to ARS291 million.

Administrative expenses rose 28.3% to ARS2.64 billion. The union representing banking industry workers is expected to demand steep increases in wages and bonuses this year in the face of double-digit inflation that most private sector economists say is close to 25%.

The banking system's total assets rose 33.1% to ARS522.8 billion at the end of January, with loans to the private sector rising 41.8% to ARS204.5 billion. Banks' holdings of public sector bonds and notes climbed 35.9% to ARS121.4 billion.

Asset quality improved in January, with the percentage of non-performing private sector loans to total private sector loans easing to 2% from 3.5% in January 2010.

Deposits increased 38.2% to ARS382.3 billion, led by growth in public sector deposits.

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