Interview : Eduardo Escasany
What factors are contributing to the confidence and trust that is being rebuilt in the banking sector?
EDUARDO ESCASANY: In recent decades Argentina has gone through various episodes of crises and hyperinflation, both of which left the banking system in a difficult position. This undoubtedly had a significant impact on the level of trust and confidence customers had in their banking institutions. Trust is slow-growing and is based on three fundamental pillars: government policy, macroeconomic consistency and the overall health of local banks. Today, Argentina’s banking institutions appear to be in a solid position, both in terms of solvency and liquidity; however, the level of loans to GDP ratio remains very low at around 14%. That said, the upside potential of the Argentine banking system is significant. If we compare it to the region, banking activity could double or triple in coming years, and this is where we anticipate challenges as we move forwards. To prepare for growth we must invest in technology and improve internal operations. The goal is to offer better products and services.
The central bank has opened the market to promote competition, which has intensified with the emergence of financial technology (fintech) companies. There was a discussion between fintech firms and the banks in order to level the playing field as the former are not regulated in traditional banking terms. We have come to realise that this competition is an opportunity for growth. The key is to seek greater associations and collaborations to accommodate the demands of current clientele. At Banco Galicia approximately 90% of transactions are now digital, and we expect this number to continue increasing in the coming years.
How does informality in the Argentine economy affect small and medium-sized enterprises (SMEs)?
ESCASANY: Informality is an obstacle that continues to limit our capacity to evaluate credit requests within the regulatory framework of the central bank. Currently, the informal sector represents between 35% and 40% of the economy, which causes complications in regards to SME financing due to associated risks and higher interest rates. Although the incorporation of SMEs into the formal financial system is essential, we also understand that informality will gradually be reduced. It is a long process and will require a change in mentality from the business community. This will not take place unless there are greater incentives from the authorities to promote formal employment and tax obligations.
In what ways are deposits evolving to finance long-term investment projects?
ESCASANY: The main activity of banks in Argentina has been, and in many cases continues to be, transactional. This means that little internal savings are generated to finance long-term projects, with people’s savings tending to be elsewhere. Deposits have traditionally been short-term, so the ability to lend money has been limited on our part. In 2017 loans grew by 44%, while deposits grew by 32%; these proportions are not sustainable over time. Although there are steps being taken in the right direction, more needs to be done to promote greater savings in Argentine pesos. Until two years ago, Argentina did not have access to international lines of credit, which complicated our work in promoting business activities. The situation was changing until the turmoil in the second quarter of 2018, but we think it will gradually get back to the previous trend. The government’s policies have afforded us the possibility to receive lines of credit from multilateral organisations and it has allowed banks to increase capital in international markets, converting financial investments into productive investments for long-term development projects. The Productive Financing Law will boost long-term savings in the local financial system, encouraging activity in the retirement and life insurance segments. The mechanisms to allow Argentina’s banking sector to be involved in the regional market appear to be in place.
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