Bank lending to the private sector in Argentina could grow 26% this year to Ps34bn (US$11.7bn), local think tank Fundación Capital (FC) believes.
The forecast is based on the strong loan growth that the Argentine financial system registered during March and April this year when private sector lending grew 2% and 3%, respectively over the same months last year.
Argentina’s central bank is also upbeat on loan growth this year but more conservative than FC with its private sector loan forecast of 18% annual growth.
FC went as far to say in the report that under an “extremely good scenario” the annual loan expansion could hit 40% to 37.5bn pesos in Argentina this year.
The think tank pointed out that the Argentine loan market is still dominated by short-term consumer loans, although longer-term mortgage and commercial loans are slowly returning as the economy continues to recover from the crisis.
The country’s devastating economic and financial crisis in late 2001 and 2002 practically wiped out the entire loan market until mid-August 2003 when banks began lending again on a very limited scale.
FC said it expects the strong demand for loans in Argentina to force the banks to offer the public higher interest rates on time deposits in order to sustain the rapid loan expansion.
Interest rates for time deposits are currently at historically low levels and there has been a significant migration from time deposits to demand deposits, which has deteriorated the banks’ funding base and made it increasingly difficult for the banks to match their assets and liabilities, FC said, noting that less then 50% of total deposits in Argentina today are held in time deposits.
The upswing of the ongoing deposit migration is that customers are not withdrawing their time deposits because of distrust in the banks but because they demand a higher return on their savings, the think tank added.
The strong loan recovery this year shows that Argentine banks are gradually returning to their traditional role as financial intermediaries, a high ranking foreign bank executive claims.
The executive says that the past two years of press reports on Argentine banks almost giving up on traditional banking and switching to transactional banking are proving to be exaggerated by the latest loan figures.
Increased transactional banking during the crisis was necessary for many banks to stay in business. However, it was never a highly profitable business for the banking sector, which wanted to return to lending as soon as possible, he adds.
Current market conditions have allowed banks to grant increasingly more loans to the private sector, which is key to sustain Argentine economic recovery in the long run, the executive says.