Credit: $50 out of $100 that banks lend go to finance the state

Loans to the private sector are not picking up in Argentina. The president himself central bank (BCRA), Miguel Pesceacknowledged a few days ago that credit represents only 8 points of GDP in the country compared to 35% or 40% of other economies in the region.

“The bone ready in pesos to the private sector has declined in real terms over the past three months and accumulated a 5% decline in the first quarter compared to December 2021. With the exception of corporate advances and pledges, all credit lines have declined in real terms so far this year,” summarizes a report from the consultancy sales.

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The state takes the weight

According to the specialists of this firm, several factors explain this retraction. One of them has to do with banks are lending more and more to the stateeither by buying treasury bonds – which they can use to meet reserve requirements – or BCRA debt.

Peso deposits shorten their time in banks, making it difficult to channel funds into long-term loans. (Photo: Balance).

“The bone banks -especially the private ones- were standing significantly their public debt holdingsand the integration of reserves via Treasury instruments increased from 4% of deposits last December to 5.9% in April,” a cabinet report points out.

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Although part of this increase is explained by the fact that the entities got rid of the debt of the BCRA (Leliq, mainly), the consultant pointed out that the increase in the holding of Treasury bills is much more faster than placing loans to the private sector.

Credit: $50 out of $100 that banks lend go to finance the state

“In the first four months of the year, for every $100 loaned/financed by the banking sector$50 went to the private sector (as loans), $35 to Central Bank (via Leliq and cols) and $15 to treasure (through the integration of the reserve requirements of Treasury instruments and the purchase of bonds with their own assets)”, he explained. sales.

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By way of comparison, he added that in the first quarter of 2020, for every $100 lent by banks, $58 (on average) was intended to finance the private sector. The Treasury will have to continue to resort to the banks to cover part of its expenditure if it wants to reduce emissions currency, as promised to the IMF. So, sales anticipated that it is difficult to reverse the current dynamics of credit to the private sector.

The stock of public sector debt exceeds the amount of stock of loans held by banks.  (Photo: Balance).
The stock of public sector debt exceeds the amount of stock of loans held by banks. (Photo: Balance).

Besides the possibility for banks to meet minimum liquidity requirements by buying treasury bills (which suits them because reserves offer no rate, while government securities pay a yield), the report points to another reason for the increase in the amount of public debt in the hands of financial entities: the growth of UVA fixed durations.

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The consultant indicated that inflation-indexed deposits (CER) has increased by 25% in real terms from December 2021 to today. “The greater participation of this type of investment makes banks prefer to hedge buy indexed debt (Treasury CER Letters), at the expense of freeing up financing for loans”, underlines the report.

Rates, short term and inflation: the other reasons for the fall in credit

In addition to this chance “competition” between the State and the private sector obtain a bank loan, sales identified other reasons for the withdrawal of funding to families and businesses.

  • The new interest rate levels: With the various adjustments made by the BCRA, some costs were higher than expected inflation and others were not. These correspond to the most dynamic lines, such as current account overdrafts.
  • Very short-term deposits: savers have reduced the average time they leave their pesos in the bank, which sales calculated in 57 days. This short residence time complicates the granting of loans to the private sector, especially those with longer repayment terms.
  • Credit card limits: the outbreak of inflation has reduced the purchasing power of credit cards, since the maximum funding limits are not updated automatically but by decision of each bank. “That would be one of the reasons why credit card lending has fallen in real terms so far this year (4.2% from December 2021),” he said. sales.
  • Consumer behavior after the pandemic: The peak in sales of durable goods during the pandemic, combined with the increase in financing costs, anticipates a decline in purchases of goods financed by credit cards or personal loans.