The warning signs for Argentina’s banks are piling up as the economy collapses around them and the government struggles to avoid yet another messy default.
Profits in the financial system tumbled 20 percent in February from the month earlier, even as inflation reached 48 percent, according to data published by Central Bank. Things could be about to get much worse.
“We expect the already challenging operating conditions for Argentine banks, coupled with the ongoing sovereign debt crisis and the economic impact of the coronavirus, to drive further deterioration in banks’ fundamentals,” Marcelo De Gruttola, an analyst at Moody’s, said in an interview.
There are at least four indicators that concern the sector.
As the economy shrinks and the coronavirus lockdown goes on, companies and households are finding it harder to keep up with their debt payments.
“The growth of non-performing loans is what worries us the most,” said Mariela Díaz Romero, senior economist at consulting firm Econviews in Buenos Aires. “Payment arrears are at very high levels and will continue to rise because the economy will contract 6.5 percent this year.”
The Central Bank has ordered lenders to pay a minimum 26.6 percent on savings accounts known as retail time deposits, while also placing a ceiling of 24 percent for the yield on loans to small and medium-sized companies. Spot the problem?
“If maximum rates are set for credit, while deposits are forced to pay out a higher yield, results will deteriorate,” says Juan José Ciro, CFO of Banco CMF.