Banks challenged to narrow loan-GDP ratio gap through longer-term credit - Deloitte

Wednesday, February 2, 2011

The Argentine banking system's main challenge is finding a way to spur demand for medium- and long-term credit to come closer to the 24% loan-to-GDP ratio it had before the 2001 crisis, Marcos Bazan, partner at Deloitte's Buenos Aires corporate finance division, told BNamericas.

"The banking system is still small compared to the size of the economy, and that remains the main pending issue. Today, the loan-to-GDP ratio stands at 13-14%. The dilemma is how to do it, since there are a lot of alternatives," he said.

Lending to the private sector grew 34.6% to 190bn pesos (US$47.7bn) in the 12 months through November and 3.3% compared with end-October, according to the latest central bank BCRA report.

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Most of this growth is explained by short-term loans, such as consumer lending and credit cards, so the challenge is to get SMEs and corporates on board to grow along with the economy and finance investments mainly by offering working capital loans, Bazan said.

"Long-term funding is scarce for banks, and their CFOs cannot risk growing at the risk of mismatches. That is the balance that must be achieved, and that will take some time," Bazan said.


According to a Raymond James (NYSE: RJF) report, lending is poised to grow 30-33% in 2011 in nominal terms, slightly below last year's 39% projection.

Banks saw earnings jump 45% to 10.5bn pesos in January-November compared with the same period in 2009, on the back of strong gains in their government debt holdings, which grew 30% to 12.4bn pesos in the period, according to BCRA.

The country's sovereign spread declined 300 bps during 2H10, reaching 500 bps in December 2010, leading to huge bond gains for banks, given that they are strong holders of government debt.

According to Bazan, Argentina's banking system is expecting another good year in 2011, in line with the country's expected economic expansion. He also does not see any risks coming from the presidential election in October.

"It will be difficult to repeat last year's growth in 2011, because the system climbed one step and it will be difficult to keep that pace. But everyone is very optimistic about 2011, and no one is thinking of putting on the brakes," he said.