Argentina Economy: Private Sector Credit Falls Amid Crisis and Rising Defaults – First Quarter Analysis

In an economy in crisis, with default levels rising and fewer and fewer pesos on the street, credit to the private sector continues to fall. During the first quarter of the year, the stock of financing to the private sector grew only 20.3%, well below the inflation of the period, which will be around 50%.

The slowdown in the economy, which will continue to be present at least throughout the year, does not suggest any chances of recovery. “Even with very low interest rates, a scenario of greater recession can also lead to a further weakening of credit demand. Not only are investment projects postponed, but consumption is also affected due to uncertainty about future income,” said Quantum Finanzas.

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This situation shows the strong financial disintermediation, that is, that banks were losing their primary function of taking deposits to fund loans. This process took years and the high rate policy of the Central Bank was one of its bases, since financial entities chose to lend to the entity instead of granting loans to companies and families.

Argentina has the worst relationship between credits to the private sector and GDP in the region. (Photo: Quantum Finance).

A calculation by Quantum Finance showed that, based on this situation, loans to the private sector in Argentina represent 6% of GDP, while the average for the region is 47%. “Less than a seventh of what was registered in the region and the financial surpluses of the banking entities are allocated to financing the public sector,” he explained.

In Uruguay, the ratio of loans to GDP reaches 26%; in Brazil it reaches 72%; and in Chile there is a maximum of 83%. With this scenario, the consultant proposed: “To the extent that fiscal balance is achieved, the public sector should stop displacing the private sector as a recipient of credit, as long as a process of reactivation of the economy and the rate of interest is at levels that allow for longer-term savings.”

How each line of credit fared in the first quarter

When disaggregating the official loan data published by the Central Bank, it is observed that practically no line managed to avoid the fall in real terms. In the first three months of the year, credit to families advanced much less than inflation:

• Stock borrowed with credit cards rose only 21.5% nominally.
• Financing in collateral loans increased only 11.7% nominally.
• Personal loans advanced 23.8% nominally.
• Mortgage lines continued to stagnate and only moved 0.2% nominally in the quarter.

In loans to companies, advances had the best performance, with a nominal advance of 64% in three months. Although the inflation data for March will be published next week, it is likely that this very short-term line (the overdraft) has gained a few points in real terms since prices would have risen a little more than 50% in the first three months of the year.

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For its part, the discounting of checks and promissory notes barely grew 8.2% nominally in the quarter and was the second line with the worst performance of the period, just behind mortgages.

2024-04-06 22:47:29
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