Transformation, the great challenge for banks
It happens that this segment of the economy is experiencing a strong transformation and that is one of the challenges it must face. They come from a model in which they were the main allies of the public sector. They made strong profits with the interests that the Central Bank guaranteed them through the Liquidity Letters (Leliqs). Thus, they supported the regulated rate that they paid for fixed terms to savers. In addition, financial institutions were large buyers of Treasury bonds. Now, the Government proposes a new scenario and, Despite the manifest support that many entities give to Luis Caputo’s economic program, the disarmament of that model represents a complex process for the banks..
“The The lower rate also lowered the spread of the banks and there is its profitability, but also today the growth of credits in the banking system improves said spread because the credit rate is widely higher than the monetary policy rate,” he explains to Scope the economist Christian Butler. However, he points out that “to the extent that they manage to transfer the money placed in the Central Bank (BCRA) to credit operations, their profitability will improve.” It clarifies in this sense that, although the volume of credit today cannot replace what is placed in the monetary regulator, that volume is growing steadily.
For market analyst Marcelo BastanteFor its part, what is happening with the banks can actually be read as a more macro issue. And it points out that “It is not only the lowering of rates, but the fall in inflation It reduces all the margins of companies, which have to gain competitiveness.” He explains that this was clear in the 1990s, when inflation fell as a consequence of the implementation of Convertibility.
“Inflation is a distorting phenomenon that covers up all the inefficiencies and, when it falls, the underlying problems of the economy flourish, such as low competitiveness and the strong incidence of distortive taxes,” says Bastante. And he anticipates that Argentina has an enormous challenge now because companies, including the financial system, will have to compete and gain efficiency “These are the challenges of living without inflation, a scenario in which the profitability of companies stops being in the spreads, that is, in the prices and they have to start earning by volume,” he argues. Quite.
Despite the enthusiasm, not everything is rosy in the banks
In that context, from the consulting firm Delphos, headed by Leonardo Chialvaissued a report a few days ago in which they highlighted that, “although things look good in the long term, not everything is rosy in the immediate term” and they explain that “the lowering of interest rates results in lower income for banks, partially offset by lower funding costs.”
It is worth remembering that when Santiago Bausili arrived at the BCRA, the monetary policy rate was 133% and he lowered it to 32% in one year. Likewise, deregulated fixed terms and banks can freely set the yield who pay savers for these instruments. Thus, financial entities have to compete by rate to attract liquidity to meet the demand for credit, a market that they are interested in developing by 2025 in line with lower rates.
However, in this scenario, Delphos maintains that the credit expansion process is not immediate. And they warn that, although it will be “very positive for both the sector and the economy, the banks’ leverage remains very low, and there is still a cushion of public securities to be replaced before any growth in the loan portfolio. translates into higher profits.” Likewise, some voices in the city explain that Many entities do not have enough instruments in their possession, such as Leliq, that allow them to respond to a growing need for financing by clients.
A source from the banking sector points out in this sense that, “With the decline in inflation, interest rates and evaluation rates have to fall, since they are three macro variables that have to move together“and hopes that, to the extent that the economy is more organized, the monetary policy rate can be accommodated a little above inflation. That, he indicates, “will allow the financial system to grow and begin to have a dynamic more similar to that of the rest of the world and that the ratio of loans and deposits in relation to the Gross Domestic Product (GDP) is more normal, in line with other countries”.
The path to a business change
In that context, does not rule out, however, that there is an accounting differentialbetween what clients pay them for loans and what they pay for deposits, lower than until now. “It happens that the volume of loans has to grow a lot as well as the transactionality and that will keep our profitability reasonable for the service we provide,” says the banking source.
Likewise, he considers that the result of this business will be genuine and, therefore, for the shareholders and the market value of the banks is better. “That is to say, regardless of whether profitability rises or falls in the long run for the profitability and sustainability of the financial system, it is good to go towards a market with a more genuine business result and not so leveraged in the public sector,” he maintains.
In the meantime, “it is observed in the compression of the return on assets and equity of the banks as a whole,” describes the consulting firm. Thus, despite the optimism regarding the long-term fundamentals, they consider that, in the short term, it is best to be cautious, for example, when taking a position in banks in the capital market and waiting for a greater delivery to put the focus back on the financial industry.
The point is that, as Delphos points out, This adaptation process takes time and it is seen that it will be marked by a tendency towards market concentration, among other elements, as Federico Tomasevich, president of Puente, explained to this medium. “There is a global phenomenon of deglobalization that is seen, especially in the business of retail banks, investment banks and fund managers, which consists of the fact that global banks are not created that cover the world as in the 90s, when it was seen a proliferation of this type of entities and countries have more and more concentration,” he said. And he pointed out that, on the other hand, niche entities are growing: banks that are experts in consumption, others, in foreign trade or in financing capital goods. In that sense, he considered that “Argentina has a concentration ahead because it has many players in the industry.”
Other debates about the banking business: dollar loans, cryptos and the fintech sector
Furthermore, one of the elements that is at stake today on the board of the financial business is the Government’s plan to make loans in dollars more flexible leveraged by a part of the more than US$15,000 million contributed by money laundering. This would require a regulatory change that makes the possibility of lend dollars to a broader universe of clients than what is contemplated today.
And, at this time, the hysteresis means that not all market actors are in favor of the initiative: the Argentine capital entities grouped in the Association of Banks (ADEBA) support, but foreign and public companies reject it because they fear that it will produce a mismatch similar to the one that occurred more than 20 years ago in Argentina and that ended in the famous “corralito” and the crisis of 2001.
“Let’s prevent what we learned from being forgotten, for us people’s dollars have to be used to lend to those who produce dollars; Please do not stress the system, trust is built every day,” said the president of the Association of Banks of Argentina (ABA) in this regard. Although many say that the real reason for the rejection is that foreign banks today handle most of the foreign trade operations in Argentina and given that this is the only sector that today can access credit in dollars, it would not change their business if modification in the regulation. The opposite applies to nationals, who see an opportunity in such an initiative to expand their credit business.
And finally, another element that banks follow very closely is regulation of the fintech and crypto market. They want to be allowed mediate in the cryptocurrency sector with appropriate regulation in the medium term and trust that this Government will advance in that directionon the one hand.
And, on the other They have reservations regarding the condescending or similar position of the current government with some businessmen in the Payment Service Providers (PSPs) sector.so, although they welcome a deregulation of the financial market in some aspects, on the other they fear that the field will tilt too much in favor of other actors, such as Mercado Pago or other competitors that, with much less international regulation that limits Their much more flexible operations and structures can take advantage of greater regulatory laxity.
Source: Ambito
