Argentinas Banking Sector

The Argentine economy is currently in a deep recession as evidenced by declining industrial production and construction numbers. In addition, it is projected that the current private consumption levels will fade through the remainder of 2010 and unemployment will rise. So with commercial and consumer spending trending downward, the 3 year outlook for the Argentine banking sector is not currently optimistic. The banking industry in Argentina is highly competitive. There are over 67 major Commercial banks in the marketplace, 55 private and 12 government owned. The major private banks (which account for 57% deposit, 64% loans) are Banco Santander Ro, Banco de Galicia y Buenos Aires, Banco Macro Bansud, and HSBC Bank Argentina. The major public banks (which account for 37% deposits, 28% loans) are Banco Nacin, Banco de la Provincia de Buenos Aires, and Banco Ciudad de Buenos Aires. The level of competition that exists limits any one banks ability to obtain significant market share. The banking system is regulated by the central bank, Banco Central de la Repblica Argentina (BCRA). This bank was established by law in the Financial Institutions Act of 2003. The Banking sector has a trade association that many banks are members of, named Asociacin de Bancos de la Argentina (ABA). Argentina is atypical of other developed nations in that the total banking industry assets, compared to GDP, are small. Also unique is that the amount of consumer loans compared to deposits is low (see Exhibit 1). Compared to the region, Argentina has by far the lowest amount of loans compared to GDP (see Exhibit 2). For the year end 2008, this ratio amount was just 31%. A growing trend is the increase in loan volume originated by the public sector banks. Currently 75% of new loans are originated from state run banks. There is concern that these large increases in loan growth mean that state banks are tolerating higher levels of risk than in the past. Therefore, Argentina should in turn be prepared for a rising percentage of non-performing loans. Past events of this decade have had a substantial impact on the current banking sector. The industry had record deposit levels and a wide variety of foreign banks in early 2001. However, loans were largely issued in US Dollars while deposits were in pesos. This was not an issue until the Argentine peso began massive inflation and the currency mismatch proved devastating. During 2001 and 2002, Argentina had a run on all banks, Craig Freese 2/25/2010 Page 1

Argentinas Banking Sector

and all financial institutions in the industry were technically bankrupt as a result. Argentina was forced to suspend deposits, and further devalue the peso. This action was known as the Corralito. Because of these events investors have a low confidence in the Argentine banking system, and foreign banks have exited the market. Exhibits

Exhibit 1

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Argentinas Banking Sector

Exhibit 2

Questions 1. Argentina has implemented several drastic regulations in the past decade that place a significant burden on the banking industrys ability to profit. Given its past history for enacting consumer friendly policies, what will it take for foreign banks to return to the market? 2. Are loan volumes in Argentina lower than most countries in the region due to strict bank credit policies? Was Argentina able to avoid any of the issues in the current global recession due to tighter risk tolerance and less loose credit policy? 3. The growth rate of deposits over the past 5 years was +20%; was this increase explained by the low deposit levels and deposit freeze of earlier in the decade, or as a result of sound business decisions and/or favorable economic conditions? Bibliography Argentina Commercial Banking Report; Q1 2010, p26-28, 3p Argentina Commercial Banking Report; Q4 2009, p25-27 & p31-33, 6p, 5 charts BBVA Banco Francs S.A. SWOT Analysis; Dec2009, p1-7, 7p Craig Freese 2/25/2010 Page 3