The Challenges of Argentina’s Banking System

Argentina’s banking system has several characteristics that may distort competition and earnings. In this article, we will explore these challenges in more detail.

Distortion of Competition and Earnings

Government-Owned Banks: A Dominant Presence

• The largest bank in the country, government-owned Banco Nación, held about 23% of the system’s deposits and 16% of loans as of March 2019.
• Competitive advantages: Government-owned banks tend to have cheaper funding due to captive clients and deposit guarantees from their respective local governments.

Funding Structure: A Source of Risk

Dependence on Deposits

• The banking system’s main source of funding is deposits, which represented about 83% of total liabilities as of May 2019.
• Deposits are volatile: Deposits have been volatile in the past in Argentina, which can pose a risk to banks’ stability.

Growing Presence of Foreign Currency Deposits

• Total deposits have remained relatively stable despite the currency’s sharp depreciation, with a significant proportion of deposits held in foreign currency.
• Growth of deposits: Deposits grew 60% year on year on nominal basis in 2018 due to greater deposits in dollars and the impact of the weakening peso.

Conclusion

The Argentine banking system faces challenges related to its funding structure, including the volatility of deposits and the presence of government-owned banks with competitive advantages. Addressing these challenges will be essential for maintaining stability and promoting competition in the country’s banking sector.