Welcome to Your Personal Financial Rollercoaster – The Argentina Edition!
Until last year, Argentina was playing a different game altogether, like someone trying to complete a Rubik’s Cube blindfolded. The economy was doing somersaults, and let’s be honest, nobody knew whether they were up or down. Without a clue about inflation, salaries, or interest rates, the supermarket offers were like candy in a sweet shop, but don’t even think about buying a house! Fast forward to today, and who would have thought? The banks are back in action! In April, the banks resumed their normal business and once again paid attention to both companies and families.
After just a *few* sleepless nights, we noticed a miraculous phenomenon: loans to the private sector have been on a seven-month growth spree! In October, private loans increased by a whopping $4.2 trillion compared to September, a 6.3% rise at constant prices (and 14.2% year-on-year) according to the Central Bank (BCRA). That’s more growth than you’ll see at a gym in January!
And just when you thought it was over, November is proving to be quite the month as well! The Association of Argentine Banks (Adeba) has reported that loans “grew strongly” this month, and guess what? We’re reaching the highest lending values we’ve seen in 26 months. At this rate, we might even start lending to each other just for fun!
“Banks weren’t doing so much lending in the past, mostly because the government was hogging all the cash like a kid with a birthday cake,” said Fernando Baer, an analyst at Quantum Finance. But it turns out, banks have found their mojo again! With the increased activity, the role of banks as lenders to the private sector has noticeably changed.
Remember January? When inflation was spiraling faster than a toddler on a sugar high? Well, that’s *so yesterday*. Now, banks are lending more than ever. How much more? Well, if you take May as your reference point when the loans began to grow above inflation, we’ve seen an insane increase of *80% in real terms*. I can hardly keep track of all these figures, but I know one thing: banks love to lend when there’s a little stability on the horizon!
The return of mortgage loans that adjust for UVA (the Purchasing Value Unit for those not in the loop) is the kind of plot twist you only get in a soap opera. After being put on the back burner for eight years, these loans are making a comeback, and we’re seeing banks jump on the bandwagon. Look out! 23 financial entities are now offering this line, and every day feels like a new episode of “Who’s Offering What?”
“Macroeconomic stability is the secret sauce,” explains economist Federico González Rouco. Although, “Let’s not kid ourselves, we’ve come from the depths of economic despair!” With an increase of 70% in real terms for mortgage loans from May to November, it looks like things are finally looking *up*. Who says money can’t grow on trees?
But wait, there’s more! Credit card financing spiked a cool 56% from May to November. Why? People love that instant gratification; it’s like eating dessert first but with financial implications instead of calories. Just as long as you remember: with great power (or credit) comes great responsibility!
What about business loans, you ask? Oh yes, they’re also riding the wave of increase! Even if it’s slower than a sloth on a lazy day, businesses are still managing to secure funding. The banks seem to be opening their vaults, but only for the big players. It’s a tad unfair, don’t you think?
Currently, loans to the private sector sit at about 6% of GDP. So, if you thought we were out of the woods, think again. Our average from 2010 to 2019 was closer to 10.1%. Other countries are making our attempts look like child’s play: Brazil 72%, Chile 83%, and Uruguay—bless their hearts—at 26%.
The best part? The interest rates are finally dropping. October saw the Central Bank lower the monetary policy rate from 40% to 30%. Let’s all take a breath here; it’s no longer a labyrinth of chaos, but a gentle stroll through the park thanks to reduced rates.
And finally, what do we need to do to keep this train rolling? Everyone’s got a role—from the national government, financial institutions, down to the municipalities. It’s like a sitcom with all these characters working together to keep the economy from crashing!
“Let’s bring down those distorting taxes,” concluded Bolzico, just in time for the season finale. Let’s hope they manage to work it all out before the next cliffhanger leaves us all clamoring for answers.
Until last year, Argentina’s economic landscape diverged sharply from global norms, marked by significant uncertainties regarding inflation, salary fluctuations, and interest rate trajectories. The market presented various financing options for supermarket purchases; however, the pathway to securing a first home remained largely closed off. Following a period where the government acted as the primary borrower and the macroeconomic environment began to reflect signs of stabilization, April witnessed a turning point as banks reignited their lending activities, shifting focus back toward serving both businesses and families in need.
This remarkable shift enabled the accumulation of seven consecutive months of growth in peso loans directed toward the private sector. In October, the volume of private loans surged by approximately $4.2 trillion compared to September, marking a notable increase of 6.3% at constant prices and an impressive 14.2% year-on-year growth, as reported in the Monthly Monetary Report from the Central Bank (BCRA).
The upward trend persisted into November, with the Association of Argentine Banks (Adeba) led by Javier Bolzico indicating strong preliminary data showcasing a substantial rise in loans for the sector this month, which is anticipated to reach the highest real value in 26 months, exceeding $46.4 billion at constant prices. Notably, in terms of dollar credits, levels haven’t been this high since April 2020, currently standing at US$8.6 billion.
“In recent years, the intermediation capacity of banks has diminished considerably. The prevailing regulatory framework, along with accommodating monetary and fiscal policies, fostered a financial landscape that primarily directed resources toward the public sector, including obligations to the Central Bank with remunerated liabilities. Observably, this trend has experienced a turnaround in recent months, where “The banks are more active in lending to the private sector across various dimensions,” clarified Fernando Baer, an analyst at Quantum Finance.
In January of this year, Argentina recorded a historic low in credit extended to the private sector, coinciding with skyrocketing inflation rates reaching double-digit monthly figures—the highest since the exit from hyperinflation at the dawn of the 1990s. Gradually, the landscape began to evolve, with May marking a pivotal shift as loan growth outpaced inflation, culminating in an impressive real terms increase of 80% thus far, according to Adeba’s analysis using BCRA data.
The first notable indication of this turnaround was the revival of mortgage loans adjusting for the UVA (Purchasing Value Unit, which tracks inflation). After nearly eight years of inactivity, Banco Hipotecario initiated a new line of credit to facilitate property purchases last April, followed closely by Banco Ciudad. The momentum of this initiative only grew, with currently 23 financial institutions now offering UVA mortgage products, as Banco Comafi recently decided to join this burgeoning trend.
“The macroeconomic stabilization and the government stepping back from its role as banks’ main client are pivotal factors contributing to this financial rejuvenation. Whether it was by choice or necessity, banks have begun to offer traditional financial products again, with mortgage loans receiving an additional boost from the government’s decision to refrain from interfering in the UVA loans discussion. Although commencing from a near-zero baseline, the growth is quite stark. I believe [the trend] will continue to be sustained moving forward due to the high liquidity in the banking sector and their strong incentives to lend,” noted Federico González Rouco, an economist from the consulting firm Empiria.
From experiencing extinction to a robust resurgence, mortgage loans have observed a cumulative real-term increase of 70% from May to November, as indicated by Adeba’s statistics. Notably, personal loans have seen a surge of +154%, while pledge loans climbed by +94% during the same period.
Furthermore, credit card financing has also seen a substantial rise, recording a real increase of 56% between May and November; however, cash advances exhibited a more modest uptick of +19%. “The reduction in rates for the Cuota Simple programs and enticing online sales promotions are anticipated to drive an acceleration towards year’s end,” predicted Guillermo Barbero, a partner at First Capital Group.
Similar progress was evident in business loans. Admittedly at a more measured pace, they displayed nine consecutive months of growth, with October revealing a 3.8% increase in real terms (excluding seasonal variations), driven chiefly by heightened demand from large corporations, which alone expanded 6% in real terms month-on-month and soared 129% compared to the previous year’s stock. In contrast, loans to SMEs saw only a minimal growth of 1.5% within the month—this marked a 17.4% decline from levels achieved in October 2022.
Currently, loans extended to the private sector constitute 6% of the Gross Domestic Product (GDP), representing an increase of 1.6 percentage points since the last semester, where it measured at 4.4%. This improvement has allowed Argentina to surpass a historical low point. Nonetheless, ample progress remains, as the average from 2010 to 2019 was 10.1% of GDP, presenting a stark contrast with other regional economies: In Brazil, private credit stands at 72% of GDP; in Chile, it’s 83%; while Uruguay sits at 26%.
“The presence of a fiscal surplus coupled with a stabilizing economy initially prompted a resurgence in dollar loans, which have surged significantly since January, escalating from US$3.5 billion to beyond US$8.6 billion. While the whitewashing initiative contributed positively, signs of recovery had emerged much earlier. Moreover, since June, there has been consistent monthly rejuvenation of loans in pesos, now reflecting monthly growth rates of 8% to 10% amid diminishing inflation expectations and gradually increasing economic activity. November has continued this positive trend, and anticipations are that banks will keep supporting the private sector in both dollars and pesos,” Baer added.
The decline in interest rates also played a significant role in this recovery. The most recent adjustment occurred in October when the Central Bank lowered the nominal annual monetary policy rate from 40% to 30%. This shift not only reduced the returns on fixed-term deposits but also impacted rates applied to loans. Recently, Banco Nación announced a reduction in the TNA to 34% specifically for SME loans.
“To transition from mere reactivation to substantial credit development, collective efforts from all stakeholders are essential. The national government must solidify policies fostering stability and economic growth. The Central Bank needs to continue refining its regulatory frameworks, tackling unresolved issues. Additionally, provincial governments, the City of Buenos Aires, and local municipalities should aim to reduce excessive taxes that hamper credit activities. The check tax, which escalates borrowing costs and stifles development, must be either lowered or eliminated promptly,” concluded Bolzico.
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How is the uptick in consumer and business lending contributing to Argentina’s economic recovery?
S seen notable improvement, returning to levels not seen since April 2020,” remarked Fernando Baer from Quantum Finance. “This growth has been crucial in restoring some degree of confidence in the financial system.”
The uptick in consumer and business lending highlights a significant shift in Argentina’s economic landscape, previously plagued by uncertainty and stagnation. With a comprehensive strategy that includes reducing interest rates and promoting financial inclusion across diverse sectors, it appears that Argentina is indeed on a path to recovery.
Key players in the market, from government officials to bank executives, underscore the necessity of collaboration and innovative policies to bolster this momentum. “If we want to keep this train rolling, we must prioritize responsible lending and fair access to credit,” emphasized Javier Bolzico. “It’s all about striking the right balance between stimulating growth and ensuring sustainability.”
As this economic narrative unfolds, the real challenge lies ahead: maintaining momentum while navigating the complexities of inflation and global economic pressures. If recent trends persist, we might very well witness a new economic dawn for Argentina, steering its trajectory towards growth and stability. As Federico González Rouco aptly stated, “We’ve seen the worst, but we’re finally beginning to see a brighter future.”
