Change is in the air for the financial system in Argentina. The model developed after the 2001 economic crisis, basically consisting of loans at high interest rates focused on consumption and cheap funding due to negative real interest rates on deposits, is fading.

The Argentine central bank's attempts to rein in inflation, the expected reduction in spreads between interest rates on loans and deposits, and the promotion of greater competition in the banking sector are forcing banks to adjust their business models. To offset the pressures of this new scenario on profitability, banks will seek to take advantage of greater demand for credit expected in the coming years. The potential is high: loans in Argentina at the end of 2015 were equivalent to 14.7% of GDP, less than a third of the average in Latin America.

Reducing operating costs, incorporating technology to expand the customer base and further consolidation in a still highly segmented market will emerge as strong trends in Argentina's banking industry in the coming years. The new scenario will also mean changes within loan portfolios: unlike what happened between 2005 and 2015, consumer loans will no longer be the only ones performing positively, as corporate and mortgage loans are set to play a more prominent role.

Figure: Domestic Credit to Private Sector


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