|
COPYRIGHT 2006 Financial Times Ltd.
(From Retail Banker International)
Argentina's banks have weathered the worst of the country's 2001 to 2002 financial crisis and are now well on the way to recovery. Deposits and loan volumes are up, as is profitability - though mortgage lending has some catching up to do. Justin Bandy reports Argentina's banks are beginning to recover from the 2001 to 2002 crisis that severely dented confidence in the country's financial sector. According to the central bank Banco de La Republica de Argentina (BCRA), the financial system's net return on equity stood at 6.45 percent in November 2005, up from a horrendous -19.42 percent in December 2003. Over the same period, return on assets improved to 0.77 percent in November 2005, up from -3 percent in December 2003.
Consumer confidence in the banking sector fell to an all-time low during the crisis: Argentines who anticipated the devaluation of the peso withdrew their savings in dollars; after devaluation, many more withdrew their savings amid worries that banks would become insolvent and unable to repay depositors. Banks were unjustly seen by many as responsible for the country's financial collapse and hundreds of thousands of Argentines sued banks - usually successfully - for converting dollar-denominated accounts into pesos.
As a result of improving confidence, stability and economic conditions, the retail banking sector has posted impressive results in many areas. Between December 2003 and November 2005, deposits in savings accounts grew by 70 percent while the public sector deposit base more than doubled. The Argentine Banking Association has recently reported that total credit extended to the private sector increased by 30 percent in 2005, brought about by growing consumer demand and falling interest rates on credit products.
The resurgence of both loans and deposits has been welcome news for the retail banking industry, but critical issues still remain, not least the question of how banks can increase retail lending given the weakness of the mortgage market. Following a sharp decline during the financial crisis, mortgage loans granted by banks and other lenders continued to fall from ARS9.3 billion ($3 billion) in December 2003 to ARS8.8 billion in November 2005.
Although some lenders are painting a rosy short-term forecast for mortgage lending - Rio de La Plata Bank, for example, is forecasting 56 percent growth for its mortgage lending business in 2006 - serious structural constraints are likely to limit the long-term growth potential of this sector.
Unlike many developing countries, Argentina has neither a high rate of population growth nor high rates of migration into urban areas. These are forces that traditionally stimulate mortgage lending in developing countries.
In addition, after the crisis, property values recovered much faster than salaries. As the once-thriving Argentine middle class all but disappeared, the majority of Argentines could not afford to take on a mortgage, which typically requires a down payment of at least 40 percent of the property's value. As a result, mortgage lending is concentrated among the wealthier segments of the population, inhibiting its growth...
Read the full article for free courtesy of your local library.
|
Bookmark this article
Print this article
Link to this article
Email this article
Digg It!
Add to del.icio.us
RSS
