MercoPress. South Atlantic News Agency

Argentine banks enjoy bonanza after debacle

Former Deputy Economy minister Orlando Ferreres

Just a few years after its worst financial debacle in history, Argentina is going through a surprising banking bonanza and experts say it is highly to continue, at least in the short- to mid-term.

Deposits, lending, revenues, capital injection, credibility â€" all are pointing north, according to figures provided by the Central Bank and the Argentine Banks Association (ABA), which represents foreign institutions operating in the country. "Positive overall revenues coupled with capital injection from stockholders are boosting the financial institutions' solvency and consolidating the system's stability," ABA's chairman MarioVicens wrote in a recent column. "The year 2006 saw a banking sector whose lending activity has grown sustainably and which has returned to normalcy in virtually all areas. The financial system's solvency has consolidated, with banks capitalizing earnings and foreign debts, and also injecting fresh funds to the system," he added. Private sector lending has been growing at an annual clip of 40 percent plus over the past two years, reaching 67.5 billion pesos (21.77 billion dollars) in 2006, and is expected to continue to expand this year, although at a somewhat more subdued pace. Mortage loans rose by a whopping 84 percent during the first half of 2006. More amazing still, people are flocking to the banks to drop their savings just a few years after their dollar deposits were frozen, turned into devalued pesos, and returned after they were worth just a fraction of their original value. Those who did get their full money back had to go to court and wait up to five years. Yet, incredible as it seems, confidence in the banking system is back and, according to analysts consulted by MercoPress, will likely continue as long as the current conditions remain in place. "As far as banks are concerned, everything's alright," said former Deputy Economy Minister Orlando Ferreres. "There are no banks in trouble â€" they all have solid positions, with lots of liquidity, and good results and revenues." The main reason behind this is four years in a row of nearly a yearly average of nine percent economic growth. "When a country is doing well, with high growth rates, consumption picks up, and consumption creates demand for credit, which is precisely the banks' core business," Ferreres explained. "The fact that people have returned so quickly to the financial system is a small miracle," said economist Rafael Ber. "Was this just a coincidence or the result of a carefully-crafted plan? Actually, a blend of the two things." Propping up the peso value through constant greenback purchases by the Central Bank has made investment in dollars a bad deal, so people tend to save in pesos, he explained. At the same time, solid economic growth depends to a good extent on factors beyond the government's control such as high international prices for grains and other commodities that Argentina produces, he argued. Then there's also another element at play, said Ber â€" with consumption virtually non-existent during the crisis years, the cumulative unsatisfied demand for consumer goods has generated a strong demand for consumer credit over the past couple of years. But will it last? "No miracle can last for long," said former tax agency Director General Raúl Cuello. While it is true that strong consumer demand and record exports of 46.6 billion dollars last year are helping the country grow at Asian rates, there are other factors, such as rising inflation, which could eventually hamper economic expansion, he said. A 10 percent consumer prices rise may not appear that much, but this rate was only made possible by strong government intervention in several key sectors, including natural gas and electricity, argues Cuello. "You can only put a cap on energy rates for some time," said the economist. After a while, those sectors stop being lucrative and investment comes to a halt. This in turn leads to short supplies, and that pushes prices up. "It's only a matter of time," warned the economist. MercoPress â€" Guillermo Háskel â€" Buenos Aires