After posting their worst returns in 13 years, Argentina’s banks are blaming part of their losses on the government’s pandemic measures and asking the Central Bank to ease the squeeze.
Officials from Argentina’s four biggest banking industry groups, which include foreign and local institutions, held several meetings, calls and message exchanges over the past weeks with central bank chief Miguel Pesce and Production Minister Matías Kulfas, asking them to eliminate or modify some of the regulations, according to people with direct knowledge of the matter.
The banks are complaining about measures taken in 2020 to support the economy in the middle of the pandemic, such as mandating that financial institutions give out loans with rates lower than inflation, eliminating commissions for certain services and deferring loan payments. The government is reluctant to eliminate these measures as it seeks to revive economic activity ahead of midterm elections, the people said.
A Central Bank spokesman did not confirm the meetings, but said that while banks have to be profitable, they will not be allowed to have exorbitant interest rates. Bank chambers ABA, ABE, Adeba and Abappra declined to comment. A spokesman for the Production Ministry said that talks are ongoing.
The Argentine banking sector closed 2020 with the lowest return on equity since 2007, according to data from the Central Bank. Collectively, banks lost more than 50 billion pesos (US$546 million).
Banker requests
In the meetings with regulators, the country’s top bankers demanded that Pesce eliminate or reduce the minimum rate on certificate deposits.
Bankers also want authorities to rein in the “Ahora 12” programme that compels lenders to allow consumers to make payments in three, six, 12 or 18 monthly installments at rates lower than expected inflation. Plans with 12 installments and up are also allowed a three-month grace period. Six out of 10 credit card purchases made in installments used the plan in 2020, according to data by payments processing firm Prisma Medios de Pago.
Argentina’s banks also asked officials to curb a programme that calls for loans to small and medium businesses with rates between 30 percent and 35 percent annually; to end a deferral on loan repayments; and to be able to charge commissions again on ATM withdrawals, which had been frozen since the start of the pandemic.
Several key demands remain unresolved, according to people with direct knowledge of the matter. For example, the programme that gives a minimum rate on loans was extended until June 30.
Still, Pesce relented on the issue of ATM fees, announcing this month that certain charges will once again be allowed. A Production Ministry spokesman said the government is in talks with the banks to include some adjustments that may offer relief for the banks, such as the elimination of the grace period for the installments programme.
To be sure, the country’s economy has made it a tough operating environment regardless of the change in rules. Persistent inflation is expected to compound problems for an economy that’s been devastated by a recession now in its third year, rising bad debt and shrinking demand for new loans.
Earnings defence
Still, bank executives blamed the government programmes for their lacklustre fourth-quarter results and warned that they would continue to wreak havoc. Grupo Financiero Galicia officials estimated that return on equity could fall to 10 percent in 2021, even lower than its 2020 figure of 16 percent.
Meanwhile, Grupo Supervielle executives cautioned that non-performing loans may grow in the second and third quarters once the Central Bank’s grace period on loans ends. BBVA Argentina also pointed to official regulations to explain why its net interest income in the fourth quarter of 2020 fell 18 percent.
by Ignacio Olivera Doll & Jorgelina do Rosario, Bloomberg
Comments