Gaucho Holdings Logo

Source: Financial Times
By: Benedict Mander

Arturo Méndez heaved a sigh of relief after slapping about $300,000 in hundred dollar bills on the table to pay for a house. Carrying all that cash around the streets of Buenos Aires was now someone else’s problem. 


Why couldn’t I have just got a mortgage like in any normal country?” asks Mr Méndez rhetorically — well aware that affordable mortgages scarcely exist in Argentina thanks to its chronically volatile economy. As a result, most are obliged to pay for their homes upfront, and often in dollars because of the historic instability of the peso.  


But hopes are rising that the situation is starting to change. The country’s economic recovery remains tepid, but with inflation and interest rates falling, some analysts are confident the year-old government of Mauricio Macri will gradually succeed in restoring normality to Argentina’s crisis-prone economy. If this happens, such transactions could become a distant memory as trust in the local banking system returns.  


Although private sector credit shrank in 2016 overall in real terms, there are signs of a pick-up. Peso loans grew 2.7 per cent in October, by 3.2 per cent in November and 5 per cent in December. The strongest growth has been in consumer lending on credit cards, says Walter Stoeppelwerth, head of research at Balanz Capital, a local investment bank. 


Leading banks, including HSBC, have predicted that lending could triple by 2020 as economic sentiment improves. Analysts say the nascent credit growth could serve as one of the pillars of the long-awaited recovery in the country’s economy. “Credit expansion is the growth potion that Macri’s team was looking for,” says Mr Stoeppelwerth. He expects peso loans to grow this year by more than 30 per cent in nominal terms at Argentina’s largest private banks and as much as 40 per cent at state banks, which have “tonnes of lending firepower”.  


Private sector lending remains tiny by international standards. It represents just 12 per cent of gross domestic product, compared with an average of 51.6 per cent in Latin America and 89.6 per cent across emerging markets, according to the International Monetary Fund.  Traditionally, bank lending in Argentina has been hobbled by a mismatch between the needs of savers and borrowers, says Mario Blejer, vice-president of Banco Hipotecario. 


While borrowers may need decades to repay a loan, in Argentina’s inflationary environment savers typically want to keep their money in banks as briefly as possible.  Aversion to banks has been deepened by the periodic tendency of governments to expropriate banking assets or render them worthless through devaluations. That helps explain why Argentines last year held an estimated $400bn outside the local banking system, whether in overseas accounts or under their mattresses.