Top private bank Galicia expects lending business to surge

Argentina’s largest private bank expects loans this year to surge in its portfolio, an incipient sign of economic recovery as President Javier Milei stamps out triple-digit inflation.

Within Grupo Financiero Galicia SA’s banking division, executives see total loans to consumers and businesses making up 40 percent of its total assets by the end of this year, up from roughly 30 percent in 2023. For further gains, Chief Executive Officer Fabián Kon says Milei’s administration needs to continue cooling price increases while dismantling regulations and capital controls that he sees holding back investment and growth.

“Over the next 10 months, the government needs to get rid of restrictions in the economy. For example, controls on imports and allowing people to obtain foreign currencies,” Kon said in an interview Friday. “If all of that goes well, we’ll see inflation fall and credit increase.”

Mortgages in particular represent a key opportunity for Argentina’s top banks to expand their lending portfolios after going dormant in 2018 at the start of the country’s economic crisis. Outside of a brief spike before the downturn, home loans haven’t existed for decades for most prospective buyers, who tend to pay for properties in stacks of US dollar bills.

Galicia started offering up to 30-year mortgages this May at a measure of inflation plus 5.5 percent interest for its customers.

“We’re discovering that we’re solving an issue for the first time in Argentina: Someone with a formal job can buy a property,” Kon said of the home loans, adding that 70 percent of the people who have taken out mortgages are below the age of 40.

Galicia is enjoying the renewed wave of optimism in Argentina from Milei’s economic overhaul. Its US-listed shares have delivered 216 percent in returns to investors so far this year, outperforming more than a dozen other Latin American banks with American depositary receipts over the same span, according to data compiled by Bloomberg.

It also tapped international debt markets this year for the first time since 2016, selling US$325 million in bonds at a 7.87 percent yield, well below Argentina’s sovereign risk level near 1,100 basis points above benchmark US Treasury notes.

A sustained demand for loans coupled with a stronger economy, Kon added, would push Galicia to issue even more debt in capital markets locally or abroad. Galicia, which acquired HSBC Holdings Plc’s operations in the country earlier this year, is Argentina’s largest private bank measured by total assets, currently over US$15 billion, according to Central Bank data.

Kon’s outlook underscores Milei’s efforts to get lenders to stop relying on earnings from government debt and return to their traditional role of issuing loans to individuals and industry. It’s just one of many tools for the president’s team to dig the economy out of a deep recession with over half of Argentines living in poverty.

Capital controls

Lending aside, analysts say a key driver for growth in the banking sector over this year and next will be when Milei decides to lift capital controls, a set of regulations locally known in Spanish as “el cepo.” So far, Economy Minister Luis Caputo says there’s no timeline to eliminate the controls.

Kon said he agrees with Caputo’s direction and that announcing a schedule for nixing such regulations is a delicate matter that requires a stable exchange rate and enough reserves in the central bank for authorities to defend the peso.

“It’s hard to set a deadline,” he said. “The cepo is not just one measure, it’s a series of rules that the government has to lift item by item.”

The 66-year-old executive doesn’t see Argentina officially switching currencies from the peso to the dollar as Milei has pledged in the past. But he anticipates that the two currencies will co-exist as legal tender in Argentina as Milei tries to encourage more legal transactions in greenbacks.

“The dual currency regime should exist with freedom, that people should choose in which currency they want to save, in which currency they want to transact,” Kon said. “If they want to pay in pesos, dollars. Let them have free convertibility from pesos to dollars in their account.”