The Argentine banks returned to acting as banks. That is what is explained by the JPMorgan, in a recent report on the financial transformation process that Argentina is undergoing. The fact is that local entities are no longer in charge of financing the State, but have begun to do so with private entities. through the granting of credits. In this context, the US bank’s analysts weighed up the main listed entities and chose their favourite.
“While banks should continue to work well as a group, We still have a relative preference for Galicia, as the best vehicle to capitalize on credit growth, followed by Banco Macro with N rating (Neutral, good capital cushion)”, the analysts noted.
However, in the case of Supervielle, is rated “underweight,” reflecting a more cautious stance towards this entity due to the greater challenges it faces in adapting to this new credit environment,” the analysts said.
For them, the expected growth of private credits almost at 2017 levels requires challenges: as they migrated their assets from public securities to loans, faced increased pressure on their risk indices.
Credit boom?: JPMorgan’s diagnosis
JPMorgan’s thesis is that banks are returning to what they should have always been: lenders. At one point in the report, analysts noted that lending had reached between 5% and 6% of GDP, historically low levels relative to other countries such as Brazil, Chile and Mexico, with ratios higher than 40%.
During Mauricio Macri’s presidency, this ratio peaked at 15%, and JPMorgan estimates that the banking system could return to those levels or even exceed them in the long term. According to JPMorgan, in June 2024, loans in Argentina grew by 8% month-on-month for the entire banking system and 11% for private banks.
What risks do banks face?
Argentine banks must comply with capital requirements established by the Central Bank of the Argentine Republic (BCRA))based on international agreements such as BaselThese include maintaining a minimum capital divided into levels (Tier 1the bank’s strongest capital base, being the highest quality in terms of its ability to absorb losses without compromising its solvency; and Tier 2: subordinated debt, provisions for credit losses and certain types of reserves), a solvency ratio of 8% on risk-weighted assetsand additional reserves according to the credit risk profile.
Despite the optimism surrounding a possible recovery in credit, JPMorgan warns of the risks associated with this change. One of the main ones is the increase in capital requirements that banks will face to support their new loan portfolios.
On the other hand, loans typically have a risk weighting of 75% to 100%, which generates a significantly greater need for capital. However, he confirms his interest in Galicia, as the best place to invest.
Source: Ambito
