Loan Demand Shrinks In Argentina Post-Bailout

After a record $56 billion bailout — and interest rates that are now close to 70 percent — loans rates are down in Argentina.

According to Bloomberg, President Mauricio Macri’s goal is to pull cash out of circulation, which would curb inflation and boost a currency that lost half its value this year.

But while the currency stabilized in the first month of the plan, and time deposits rose, it’s still hard for banks to find creditworthy borrowers during a recession. And financial institutions need those borrowers in order to turn a profit, especially since they’re currently paying above 50 percent on time deposits.

The country’s central bank is trying to help by allowing banks to keep part of their reserves in seven-day notes known as Leliqs, which are risk-free and currently pay above 68 percent. The central bank has even guaranteed that the rate won’t go below 60 percent until at least the end of the year.

But that isn’t good news for businesses like CC Agro y Tec, an importer of consumer electronics. Its financial director said it was getting closed out of the credit system.

“The banks are faced with the choice of putting funds to work on an investment with virtually no risk, or lending it to companies at a time when consumption is falling,” said Diego Valguarnera. “They choose the first.”

And for small businesses, the outlook is even worse. In Argentina, SMBs’ preferred form of financing is with checks, which allows customers to pay anywhere from 30 to 90 days. Now, that timeframe could be as many as 150 days — and companies must pay a growing interest penalty for cashing early.

“It’s a suffocating combo,’’ says Pedro Cascales, a spokesman for the Chamber of Small and Medium Enterprises. “Companies can’t pay their providers because sales dropped, or clients are delaying their payments.”

These companies might have to hold on a bit longer, though. Moody’s just predicted that Argentina is not expected to return to growth until 2020.