Loans grow less on rate hike

BCRA head Martín Redrado

Financial crisis has also started to be felt in Argentine private credit development. During the first fortnight of September, the amount lent by banks plummeted 0.2 per cent, particularly in advances in current account.

For the time being, it's too soon to say this reduction constitutes a trend, since some seasonal matters may also have an impact. All the same, it's clear that several entities have decided to slow down and act more cautiously.

For that reason, financing limits have been reduced and, in several cases, granting of new loans has been suspended, as in the case of mortgage loans. However, this situation may come up only at the end of the month, since they are still giving loans approved in August and July.

On the other hand, the public also moved more cautiously in view of rate rise.

The president of a national bank illustrated current banking situation and explained why rate increase can be justified: "We are like a supermarket, but, instead of selling butter, we sell money. If getting money has become more expensive, it's natural that we should charge more."

Caution

Banks have no possibility nowadays of getting cheap financing with debt issues. Entities like Santander Río, Macro, Hipotecario and Comafi had obtained funds through debt placements in market at fixed rate in pesos, ranging between 10.5 per cent and 12 per cent, with five-year durations. This alternative is not available today, reason why there's greater caution when having to lend.

In interannual terms, expansion is still remarkable, since increase reaches to 38.7 per cent. However, in almost all banks, this rhythm has decreased drastically during the last months of the year.

In parallel to sharp short-term rate cut, the cost of funding by banks also fell. The strategic BADLAR rate (that paid by entities for more-than-ARG$1-million time deposits) slid from 14.6 per cent annual at the beginning of the week to 11.9 per cent by close, and it may continue with this trend in the following days.

In this way, liquidity injection policy of Argentine Central Bank (BCRA, in its Spanish acronym) is beginning to bear fruits. The idea of pumping ARG$1 billion daily through active repos at 11 per cent annual caused a substantial reduction of interbank rate, which moved from 14 per cent to 8 per cent in only three days. The intention is to reset the other terms, already observed in 30-day time deposits of wholesale sector. For the general public, banks have opted for not rising rates beyond 10 per cent for 30-day terms.

Next, you will find other factors which show financial market decompression, though it does not reflect yet in credit cost decline.

Till mid September, BCRA had an active repo stock of almost ARG$1.2 billion. However, late relaxed atmosphere has caused it to tumble to just ARG$800 millions, further collapsing in the following days.

Reserves have kept on decreasing in the last days. However, such decline is not explained by BCRA sales, rather by payments to multilateral organizations. The stock reached to $43 billions on Friday, around $1.3 billions less than at the end of July.