By Guido Nejamkis
Argentine banks are reluctantly complying with state orders to make cheaper, longer-term loans to small businesses, but they worry about shrinking profits and more aggressive government meddling down the road.
President Cristina Fernandez has beefed up intervention in Latin America’s No. 3 economy since winning re-election in October, imposing currency and capital controls, import curbs, and new bank lending requirements.
The country’s financial institutions thrived during a nearly nine-year economic boom thanks to consumer lending that outpaced inflation of 20 percent to 25 percent a year.
But as the economy slowed sharply, Fernandez told banks in July to lend nearly 15bn pesos (about $3.3bn) by year’s end to finance investment in production. Half the loans must go to small- and medium-sized businesses, which have a harder time coming up with collateral.
The loans must span at least three years and carry a maximum annual interest rate of 15 percent - well below inflation. Private banks lent companies about 35.5bn pesos last year with small- and medium-sized firms getting only a 7 percent share, official data shows.
Many banks are renegotiating loans with their current clients at lower rates to meet the new requirements without taking a chance on new companies. And some may seek to raise other fees they charge to compensate for lending at a loss.
Banking officials fear the government could impose more obligatory lending in the future. If that happens, as it has in Venezuela, profits and solvency would be affected and historically low loan default rates could rise.
“Forcing banks to lend below market rates has an impact on profits and later on investment. It means their equity could deteriorate,” said Federico Sturzenegger, the president of Banco Ciudad, run by the opposition-led city of Buenos Aires.
The government requirements target 5 percent of deposits at the country’s 20 largest banks and 11 other institutions.
But bankers’ alarm bells sounded when Deputy Economy Minister Axel Kicillof, a close presidential aide and architect of the controversial state takeover of energy company YPF earlier this year, recently urged banks to offer mortgages at “half the rate and double the term” during a public speech.
Kicillof says banks serve a social function and should not only pursue financial gain.
“Later they’ll say you have to lend 15 percent of the total (deposits), and then 20 percent, and then they’ll say to which companies. In the context of increasing intervention in the economy, the next big chapter is the banks,” Sturzenegger said.
Central bank officials have been calling private bankers to get them to speed up lending under the new scheme, an executive at a foreign-owned bank said on condition of anonymity.
“They’re pressuring banks, calling them and rushing them to make the loans and saying if they don’t meet their quota, they could have problems,” the executive said.
Under the central bank’s charter, revamped earlier this year, the lender has broad powers to steer credit. If banks fail to meet the new requirements, they could face disciplinary action, fines or even have their operating licenses revoked.
“On a scale of 1 to 8 we see Argentina’s financial system at 8, the riskiest level,” said Sergio Garibian, a banking analyst at Standard & Poor’s credit rating agency. “Brazil, Mexico and Peru are all on level 4.”
Argentina’s banks recovered well after a disastrous 2001-2002 financial crisis in which the government froze dollar deposits and devalued them. But most savers will only deposit their money short term, which makes long-term lending riskier - particularly in a country with a history of hyperinflation.
Loans to the private sector represent just 16.4 percent of gross domestic product, similar to countries like Lesotho and Zambia, according to Fitch Ratings.
This compares with Brazil’s 65.5 percent of GDP and Chile’s 90.2 percent rate.
The dearth of bank credit hinders investment. And this is compounded by limited corporate access to capital markets since Argentina staged a massive sovereign debt default in 2002.
After nationalising private pension funds in 2008, Fernandez instructed the state pensions agency to lend money to small businesses at rates of about 10 percent a year. But more financing is needed to keep up with robust economic growth.
The central bank said in July that the banks subject to the new credit rules had excess lending capacity of 95bn pesos. But by early September, only 11 percent of the state-ordered loans had been disbursed, Fernandez announced.
Reuters
