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Demand for State financing grows and private loans fall

Demand for State financing grows and private loans fall

The high demand for financing shown by the national public sector is making a dent in the credit available to the private sector. What is called “crowding out”, the displacement of companies and individuals by the State in the loan market, has reached record levels so far this year.

Consulting firm GMA Capital estimates that Financing to the public sector explains more than 53% of the assets of the banks in the system. This is made up of 36% invested in Leliqs and Central Bank Passes, and another 17% exposure to what is called “Treasury risk”, that is, the “collaboration” that they are providing to the Secretary of Finance, Eduardo Setti, by participating in the monthly bidding for bills and bonds in pesos. At the end of 2019, the banks’ assets had only 29% loans to the State.

The study maintains that, on the other hand, credit to the private sector fell below the levels between 2016 and 2019. “Measured as a percentage of assets, private lending averaged 44% between 2016 and 2019. Since January 2020 it has never abandoned a downward trend, and by March 2023 came to represent only 27.2% of the assets of the financial system”, indicated the consultant.

Private analysts warn that this increase in the participation of the public sector in financing generates risks of transmission of a crisis through the financial system.

Due to that process, credit to the private sector decreased in terms of GDP. “The last peak was in 2018 with 16% of GDP. The current photo is less favourable, with 10.5% of GDP in March 2023”, says the GMA report.

What happens with the dynamics of financing the public sector is like a merry-go-round that spins faster and faster. The BCRA issues to finance the Treasury and, endogenously, through interest on remunerated liabilities. As the demand for pesos does not match the supply, the monetary entity absorbs the pesos through more Leliqs.

The consultancy LCG estimated that in the last month the interest generated by remunerated liabilities reached $1 trillion, which represents 35% of what was issued during that period. The consultant points out that the market for loanable funds does not seem to be working very well either. Deposits in banks grow in real terms at a rate of 2.1% in the interannual measurement, but loans fall 12.5%. The demand for credit has not been able to recover and this leads to an increase in remunerated liabilities of the BCRA.

LCG maintains that “financing to the Treasury will increase as the year goes by and the needs for pesos derived from the fiscal deficit cannot be met in the debt market, which already has its challenge in refinancing the public debt in pesos that matures in the coming months”.

According to information from the Congressional Budget Office, the National Public Sector will have to obtain the equivalent of u$s54,587 million in the local market until the end of the year just to meet debt maturities.

Source: Ambito

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