Argentina has one of the capital markets youngest in the region and the level of Bank loans in the country places it at the bottom of the continental table, according to a report by First Capital Group.
The analysis highlights that the Argentine market capitalization It is one of the smallest in the world in terms of Gross Domestic Product (GDP), that is, everything the country produces in a year.
“While the Latin American average is around 50%, the capital market in the United States reaches 159% of GDP, Chile 73%, Brazil 63% or Colombia 43%. In Argentina, the size of the capital market is only 9% in relation to GDP,” the letter details.
Why Argentina has the smallest market in the region
Regarding the lack of expansion of the sector, the CEO of the consulting firm Miguel Arrigoni remarked that the uncertainty specific to the economic context and electoral contest with the runoff between Javier Milei and Sergio Massa clouds the outlook.
“Argentina 2023, what is being talked about? Will there be or will there not be a Central Bank? How much will the dollar be worth? Will the debt be paid? How is inflation going to go down, is it going to go down? While all these unknowns appear on the covers of the newspapers, in Argentina the population cannot save, invest or grow,” he said.
Analysis of the banking sector
The analysis of the Bank loans measured on the GDP in Argentina, it timidly reaches 11%. It is one of the lowest in the world. Comparing this ratio with our neighbors highlights the disparity; Thus we will see that Chile leads the region with 83%, followed by Brazil, which reaches 76%, Paraguay 51% and Peru 48%.
If we analyze the number of banks In our country, we see that the trend is downward. In the last 40 years there has been a drop of around 70% (from 236 to 77 banks today).
The global trend indicates that countries with a more developed financial system have 1 bank for every 70,000/100,000 inhabitants. However, in our country there is hardly 1 bank per 500,000 inhabitants. To cite some relevant examples from the region, we can mention that the United States has 1 bank for every 70,000 inhabitants, while Brazil has 1 for every 100,000 inhabitants.
In this context, Argentina should QUINTUPPLE the number of financial entities by inhabitants to join the global trend and even develop regional, provincial, retail financial entities and even specialized banking by industries in conjunction with a modernization of central bank regulations.
At the same time, we observe the upward trend of rates of financial institutions, which currently already exceed the 130%.
Consequently, the immediate implementation of a modern asset financing system is necessary. He Cash flow Lending, is an interesting alternative to evaluate. That is, financing through the flow of active funds; where instead of banks lending against equity, a future flow of funds from the borrower is analyzed to understand the possibility of real repayment. This form of financing would open doors to people and start-ups that do not have high capital backing but do indeed have a future.
“This quick x-ray of the banking sector with: a weak bank loans/GDP ratio, a decrease in the number of banks and rates that exceed 130%, highlights the need for modernization. The lack of financing to improve our quality of life, to invest , to increase productivity and to boost the growth of Argentina, alerts us to seek a reconstruction of the Argentine financial system to be able to build and prosper,” he assured. Miguel Arrigoni, CEO and Partner of First Capital Group.
As for the institutional investors, We notice a high participation in the public sector, that is, a notable tendency towards investment in public securities (government debt), dismissing its participation in private investments or infrastructure.
In this sense, the proposal aims to create a new tax relief regime tax and incentives along with a division of public and private investment.