Analysis: Argentine banks get squeezed by state lending campaign

Mon Sep 24, 2012 1:13am EDT
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By Guido Nejamkis

BUENOS AIRES (Reuters) - Argentine banks are reluctantly complying with state orders to make cheaper, longer-term loans to small businesses, but they worry about shrinking profits and more aggressive government meddling down the road.

President Cristina Fernandez has beefed up intervention in Latin America's No. 3 economy since winning re-election in October, imposing currency and capital controls, import curbs, and new bank lending requirements.

The country's financial institutions thrived during a nearly nine-year economic boom thanks to consumer lending that outpaced inflation of 20 percent to 25 percent a year.

But as the economy slowed sharply, Fernandez told banks in July to lend nearly 15 billion pesos (about $3.3 billion) by year's end to finance investment in production. Half the loans must go to small- and medium-sized businesses, which have a harder time coming up with collateral.

The loans must span at least three years and carry a maximum annual interest rate of 15 percent - well below inflation. Private banks lent companies about 35.5 billion pesos last year with small- and medium-sized firms getting only a 7 percent share, official data shows.

Many banks are renegotiating loans with their current clients at lower rates to meet the new requirements without taking a chance on new companies. And some may seek to raise other fees they charge to compensate for lending at a loss.

Banking officials fear the government could impose more obligatory lending in the future. If that happens, as it has in Venezuela, profits and solvency would be affected and historically low loan default rates could rise.

"Forcing banks to lend below market rates has an impact on profits and later on investment. It means their equity could deteriorate," said Federico Sturzenegger, the president of Banco Ciudad, run by the opposition-led city of Buenos Aires.   Continued...