Bank solvency in Argentina: Analyzing determining factors through structural equation modeling

Abstract

Solvency is essential for economic stability, especially in a volatile environment such as Argentina's. This study analyzes bank solvency in Argentina, taking into account the determining factors over three periods: the global financial crisis (from 2007 to 2011), a period without crisis (from 2012 to 2017), and the covid-19 pandemic (from 2018 to 2021). This study seeks to identify the most significant factors affecting bank solvency using the PLS-SEM structural equation model, evaluating constructs based on CAMELS criteria. A quantitative approach was used. Specifically, the balance sheets of 53 Argentine banks were used to estimate, using PLS-SEM, a structural equation model aimed at evaluating the relationship between financial indicators and bank solvency. Latent variables such as capital, assets, management, profitability, liquidity, and sensitivity were used. The results indicate that the most relevant factors for solvency vary depending on the period analyzed. During the global financial crisis, assets, management, liquidity, and earnings were decisive. In the non-crisis period, capital became important due to the adoption of the Basel III principles. Finally, throughout the pandemic, management and liquidity stood out due to increased digitization and the creation of liquidity bills. These findings underscore the need for dynamic strategies to manage bank solvency in changing economic contexts.