Arturo Méndez heaved a sigh of relief after slapping about $300,000 in hundred dollar bills on the table to pay for a house. Carrying all that cash around the streets of Buenos Aires was now someone else’s problem.
“Why couldn’t I have just got a mortgage like in any normal country?” asks Mr Méndez rhetorically — well aware that affordable mortgages scarcely exist in Argentina thanks to its chronically volatile economy. As a result, most are obliged to pay for their homes upfront, and often in dollars because of the historic instability of the peso.
But hopes are rising that the situation is starting to change. The country’s economic recovery remains tepid, but with inflation and interest rates falling, some analysts are confident the year-old government of Mauricio Macri will gradually succeed in restoring normality to Argentina’s crisis-prone economy. If this happens, such transactions could become a distant memory as trust in the local banking system returns.
Although private sector credit shrank in 2016 overall in real terms, there are signs of a pick-up. Peso loans grew 2.7 per cent in October, by 3.2 per cent in November and 5 per cent in December. The strongest growth has been in consumer lending on credit cards, says Walter Stoeppelwerth, head of research at Balanz Capital, a local investment bank. Leading banks, including HSBC, have predicted that lending could triple by 2020 as economic sentiment improves.
Analysts say the nascent credit growth could serve as one of the pillars of the long-awaited recovery in the country’s economy. “Credit expansion is the growth potion that Macri’s team was looking for,” says Mr Stoeppelwerth.
He expects peso loans to grow this year by more than 30 per cent in nominal terms at Argentina’s largest private banks and as much as 40 per cent at state banks, which have “tonnes of lending firepower”.
Private sector lending remains tiny by international standards. It represents just 12 per cent of gross domestic product, compared with an average of 51.6 per cent in Latin America and 89.6 per cent across emerging markets, according to the International Monetary Fund.
Traditionally, bank lending in Argentina has been hobbled by a mismatch between the needs of savers and borrowers, says Mario Blejer, vice-president of Banco Hipotecario. While borrowers may need decades to repay a loan, in Argentina’s inflationary environment savers typically want to keep their money in banks as briefly as possible.
Aversion to banks has been deepened by the periodic tendency of governments to expropriate banking assets or render them worthless through devaluations. That helps explain why Argentines last year held an estimated $400bn outside the local banking system, whether in overseas accounts or under their mattresses.
“People still remember the corralito,” says Mr Blejer, referring to the government’s decision to freeze almost all bank accounts in 2001, just before Argentina’s historic default on about $100bn of debt.
But an end to that default, after the government settled a legal dispute with a group of bondholders last year, and a successful tax amnesty that has so far seen more than $100bn of Argentines’ overseas assets declared, are giving local banks a boost.
“It will be a slow process,” says Jorge Morgenstern, an economist at HSBC in Buenos Aires. “But if [officials] keep their promise of maintaining positive real interest rates, the financial system is going to start deepening.”
Last year, lending was hampered by efforts to tame inflation. After the new management at the central bank ramped up interest rates, it became attractive for banks simply to buy the low-risk but high-yielding short-term paper issued by the monetary authority.
Those working in the capital markets are all basically government shills. They need optimism to be able to sell
But as monthly inflation subsides — from 4.5 per cent a year ago to about 1.5 per cent now — interest rates have also fallen, making lending to the private sector a viable alternative.
So far this year, US-listed shares in Banco Macro, Argentina’s largest private bank, have risen by 18.2 per cent amid optimism about new lending — although the benchmark KBW bank index has seen just a 1.2 per cent rise.
Indeed, no one expects Argentina’s banking culture to change overnight. Solid economic growth and clear signs of political continuity are preconditions for lasting change. Important midterm elections in October will provide a key indication of the Macri administration’s political future.
Meanwhile, observers advise caution regarding the rosiest forecasts. They argue that the banking system will not enjoy sustained growth without at least a decade of stability and ideally the elimination of Argentina’s chronic fiscal deficit.
“We see the same kind of optimistic analysis from salesmen every time there is a change,” says one. “It happened with [the government of Carlos] Menem in the 1990s, but with the first gusts of wind from abroad everything collapsed.”
Alluding to the possible impact of Donald Trump’s presidency on emerging markets, he warns: “As soon as you can’t raise debt, it’s game over.”