Bank loans: from reactivation to development

The year 2024 will end with a growth of credit banking of approximately $20 billion (+60% in real terms), thus reversing the process of reducing the degree of banking (loans/GDP) started in 2019. The long-demanded conditions began to be met so that “banks can work as banks.”

We are going through the first stage, the reactivation of credit. At this stage, part of the loanable capacity of the banks which the State absorbed to finance its fiscal deficit and began to be available to the private sector. The loanable capacity of the system did not increase, only credits were redirected towards the private sector, an effect that economists call “crowding-in”.

In 2025 it will be necessary to begin moving through the second stage; that of credit development. This requires macroeconomic, monetary and regulatory conditions that allow the growth of deposits, access to funding in the capital markets and the generation of bank money, which are the raw material for credit.

Measures that helped reactivate credit

In 2024, the Milei administration and the BCRA have taken measures that created a favorable context for the reactivation of credit.

First of all, The reduction of spending and fiscal balance stands out. This allowed the Government to stop being a “vacuum cleaner” of the lending capacity of the banking system and generated the climate of economic confidence so that the demand for credit appears.

There was progress in removing bad regulations by the BCRA. Among many other changes, the elimination of most of the regulated rates, both active and passive, and credit management policies stand out.

Towards the development of credit and other financial services

In the coming years we must move on to credit development. Credit is one of the pillars of economic and social development, to which all Argentines aspire. This will require the current administration to consolidate the progress made and advance on issues still pending, many of them a consequence of decades of mismanagement of public affairs. It is a precondition to have macroeconomic stability based on consistent fiscal, monetary and exchange policies.

Listed below are some of the issues that the Government, the different political expressions and society as a whole must address to generate the foundations for development and stability of the financial system.

Improvement of the regulatory framework for financial activity. The regulatory framework of the financial system has improved substantially in 2024; However, there are important opportunities for improvements that must be materialized.

CENTRAL BANK 1500

There was progress in removing bad regulations by the BCRA.

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Among the regulatory changes that the BCRA must address in the coming years, the following stand out:

Treatment of financial activities carried out outside the regulated banking system. It is known as “shadow banking” (shadow banking) to the set of banking and financial activities carried out by actors without a banking license. When hehadow banking reaches systemic dimensions, it constitutes a threat to the financial and economic stability of a country. This was seen in the financial crisis that began in 2006 in the United States, where problems with mortgages sub-prime They were generated outside the regulated financial system, but then impacted the entire economy. In Argentina, financial and banking activities (raising funds from the public, loans, investment funds, transfers, etc.) carried out by unlicensed entities are already of systemic importance. According to a work by Econviews from November 2024 based on BCRA data, the deposits captured by the fintech They are equivalent to 3% of the total, size equivalent to the 7th. private bank of the country.

Current restrictions on foreign currency loans. Currently, it is the BCRA that tells banks which sectors can be lent in dollars and which cannot. This regulation arose from the 2001 crisis and constitutes a relevant limitation for access to credit and the competitiveness of many companies that, properly evaluating their risk, would be eligible to obtain financing in dollars. This regulation must be critically evaluated, taking into account good practices in risk management and preserving the stability of the system.

Cost of liquidity requirements policy. The current scheme of liquidity requirements needs to be reviewed and made consistent with financial development and stability. The reserve structure of recent decades, both in pesos and dollars, exceeded the foundations of a prudential policy and was transformed into a type of tax on financial intermediation, collected by the BCRA. This affects both the volume and interest on deposits and loans.

Elimination of distorting taxes on financial activity. Much of Argentina’s low banking use is explained by the exorbitant tax burden on users of the financial system at the three levels of government. It is necessary to lower consolidated public spending to values ​​that can be financed with non-distortive taxes.

Legal security.The financial system must be able to attract medium and long-term resources to finance loans. This requires trust in institutions, respect for contracts and private property. This is a responsibility shared by the three branches of government. Laws that interfere with contracts between private parties or rulings against the payment of bank debts contracted, They threaten the increase in deposits and the development of credit.

Final considerations

Times of great challenges are coming. However, these challenges come with the opportunity to begin, once and for all, the path of development. The countries that have progressed and reduced poverty are those that have adopted a market economy and respected democratic institutions.

President of ADEBA