Argentina’s banks see strong credit demand as their model shifts

Source: Euromoney
By: Rob Dwyer
8/22/2017

The growth in credit demand in the country is being led by the corporate sector, but the recovery is broad-based. There is a burgeoning increase in mortgages – albeit from a practically non-existent base – while other retail lending is also seeing positive trends. Sergio Grinenco, Banco Galicia Sergio Grinenco, CEO of Banco Galicia, says recent results show that the long anticipated demand for credit is now playing out. “The system is now showing a good performance in lending,” he says, adding that deposit growth is lagging due to the liquidity in the system, with many Argentines preferring to invest in mutual funds or buy central bank securities, such as Lebacs. According to Credit Suisse analysts, Galicia’s strong results – net income rose 34% year on year, unadjusted for inflation that is around 22% – were driven mostly by growing demand for credit. “We note significant acceleration in lending volumes [with] annual growth rate of 26.3% implying significant acceleration in real growth from 7% to 21%,” they wrote. “Strong growth for Galicia is an indication credit in Argentina is picking up faster than anticipated and seems to be sector-based.” Rodrigo Park, head of economics research for Santander Rio, a privately held company, confirmed that the largest bank in the country is also benefiting from this phenomenon, saying: “We have started to see credit demand growing and there is going to be a big difference between the past drivers of bank profits.” Many banks in Argentina have made profits from investing deposit funds – inflation meant deposits have negative interest rates – into central bank securities. The level to which the banks have relied on securities income is uneven, but most have boosted results through this passive investing technique.

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