Spanish banks are the most exposed to Argentina, with around $24bn in total claims, according to data from the Bank for International Settlements.
Banks from Spain have increased their presence in the South America country, outpacing US lenders in the past 20 years. US banks’ exposure is now more in line with that of the UK and Brazil.
Meanwhile, financial and credit pressures are expected to intensify for Argentina’s banking system, according to Fitch. The sector outlook for national lenders is deteriorating as the operating environment remains challenging. This year, the country’s inflation is expected to surpass 100%, with economic growth estimated at 0.3%. The government is working to complete construction of a gas pipeline which will allow the country to heavily reduce gas imports and put it back on the path to financial stability.
Total credit extended by the financial system has contracted in recent years, following a long recession which has reduced demand for credit and banks’ appetite to lend.
Bank profitability will remain under pressure due to slow loan growth, higher credit costs and additional margin pressure. Operating costs are also expected to increase due to sustained high inflation and currency depreciation.
A potential restructuring of domestic debt by the government should not affect domestic banks given their good levels of capitalisation and low exposure to the federal government.
