Argentine banks are gradually decreasing their exposure to the public sector, with current figures showing a drop to 38.7% of total assets, down from 51.3% in April. This shift reflects a 3.5-point reduction from the previous month and indicates a significant improvement in the financial system's credibility.
The decline in public sector exposure comes as the country transitions away from a high-risk environment, previously exacerbated by a large fiscal deficit that necessitated extensive bond issuance. The latest report from Econviews highlights that public banks still hold the largest share of public sector assets, while foreign capital banks show minimal involvement.
In contrast, private sector credit is on the rise, fueled by declining inflation expectations and lower interest rates. Both loans and deposits have outpaced inflation, with the financial system's total assets growing by 8.7% month-on-month in real terms. However, the overall asset size remains 3.2% smaller than a year ago, and nearly 20% below the peak seen in August 2018.
Bank officials have noted a liquidity shortage in pesos, despite an abundance of dollar liquidity attributed to recent financial reforms. There are discussions about potentially expanding the use of dollar-denominated loans to sectors like real estate, although this poses risks due to currency mismatches.
The increase in bank stock prices, with gains around 250% expected in 2024, signals a recovery in bank balances, driven by measures from the Central Bank of Argentina (BCRA) and improvements in public finances. As banks increase lending, they are also selling off parts of their holdings, particularly LEFIs, which are being settled in pesos by the BCRA.
This strategic shift aims to continue reducing public sector exposure while enhancing the overall stability of the banking sector.