Policy problems will raise banking risks in Argentina

Significance

Banking liquidity, capital, and portfolio quality indicators were positive. Nevertheless, some foreign banks have departed amid doubts over instability, the lifting of capital controls, and the government’s ability to meet 2025 debt repayments. In this context, banks’ sovereign exposure has increased with the migration of Central Bank debt to the Treasury.

Impacts

• Bank credit to the non-financial private sector remains low (at 4.4% of GDP) even by regional standards, creating potential for growth.
• Macroeconomic instability and weak rule of law remain important obstacles that have already driven the departure of foreign players.
• If capital controls remain in place, the government will continue crowding out funds for the private sector given debt-service requirements.