Argentina’s banking industry continues to endure volatile economic conditions, which have been exacerbated by the pandemic. The economy is gradually recovering after a contraction of almost 10% in gross domestic product in 2020, but at an uneven pace amid intermittent lockdowns and a slow vaccination rollout.
During 2020, despite increasing provisions due to the pandemic and implementation of international standards, banks generated profitability in real terms on the back of low funding costs and holdings in central bank securities and associated instruments, according to S&P Global.
However, the rating agency expects compression in profits this year given the impact of direct lending of part of the loan portfolio and minimum interest rates for time deposits. “Profitability continues to be heavily influenced by results from holdings of central bank securities and the trajectory of inflation,” says Ivana Recalde, an analyst at S&P Global.
The effect of Argentina’s tricky business environment, which has been characterised by periods of soaring inflation, can be seen in the return on equity (ROE) at the country’s leading banks in recent years.
At Banco de la Nación, the country’s largest lender, RoE has swung from 21% in 2018 to 5.4% in 2019, before rising to 10.2% in 2020. Other leading banks all saw drops in ROE last year, with Banco de Galicia recording the steepest drop to 14.8% from 45.2% in 2019, according to The Banker Database.
Trends identified using The Banker Database, an online database providing comprehensive financial data and insight for 4000 of the world's leading banks in 190 countries. Contact us.
