Banks in Argentina experienced their most challenging outcomes since the pandemic, coinciding with President Javier Milei’s aggressive efforts to stabilize the currency ahead of the midterm elections. Private banks suffered losses in the third quarter alongside a significant rise in the nation’s loan delinquency rate — now at its highest point in over 15 years — driven by elevated interest rates implemented by Milei’s Central Bank before the October 26 election. The squeeze has forced bankers to adjust strategies, sharply reducing lending that may remain constrained through 2026, a period in which Milei needs credit to support economic growth. Naranja X is among the lenders that have pulled back. “We began to restrict new loan origination to safeguard the balance sheet,” said Hernán García. The weakest quarter for bank earnings since Covid is only now becoming clear, with delinquencies among Naranja X clients rising 11 percent in September — an unprecedented jump, though still below the national average of 18.4 percent for non-bank lenders, according to the reports.
The outcomes reflect the consequences of Milei’s intense effort to prevent a peso depreciation while securing congressional votes. The government adopted a stringent monetary policy, raising interest rates to triple digits and requiring banks to maintain reserves exceeding 50 percent of deposits, enforced daily rather than monthly. “A very tight monetary policy characterised by unsustainably high real interest rates and historic reserve requirements ahead of the elections had a severe impact on economic activity and particularly the entire banking sector,” said Julio Patricio Supervielle. Return on equity for major banks like Supervielle has fallen to about minus seven percent from roughly 18 percent in 2023 before Milei took office and around 12 percent at the end of last year. Deposits became more costly, large portions of balance sheets became immobilized at the Central Bank with little or no real return, and loan demand collapsed as credit risk rose.
Even major foreign banks with a strong regional presence — including local units of Spain’s Banco Santander SA and Banco Bilbao Vizcaya Argentaria — reported that Argentina weighed down their otherwise solid third-quarter regional performance. “Argentina is worse than what we expected,” said Onur Genç, “With real rates at these levels, it’s really impossible to make money. Lending in pesos in Argentina in this market today presents challenges due to the prevailing real rates, and the deployment of credit is hindered by the cost of funding and the current rate environment.” The regulatory framework allows little flexibility: credit card issuers cannot raise interest rates to control demand and instead must shrink their borrower pool. Banks’ risk teams have tightened metrics, using inferred income, repayment capacity, and the Central Bank’s debtor registry to restrict credit for less-solvent borrowers. This contraction occurs as Argentines adjust to a new macroeconomic environment following years in which 50%+ inflation eroded credit-card balances; now, with activity stagnating and interest rates above inflation, that implicit subsidy has vanished.
Wages have failed to keep pace with rising prices, interest rates remain high, and economic conditions look weak, driving delinquencies sharply higher. Banks report write-offs at their highest levels since the pandemic and household non-performing loans at their highest share in more than 15 years, coinciding with the beginning of the Central Bank’s statistical series, with some portfolios showing double-digit delinquency in September. “Certain institutions exhibited excessive leniency in 2024 regarding the extension of credit lines, and this year they faced an increase in delinquencies that adversely impacted their results. On top of that, with higher interest rates and reserve requirements, funding costs went through the roof,” said Ignacio Sniechowski. Bank executives have expressed frustration to Central Bank officials for months, expecting rapid easing after elections. The response has been limited: real rates have fallen, improving the outlook for credit and defaults, but reserve requirements remain high. The Central Bank has reduced the one-day repo rate to 20 percent from 25 percent, slightly loosened the daily compliance rule to 95 percent from 100 percent, and allowed part of reserves to be held in government bonds instead of cash. For bankers, this is insufficient, and most expect strain on balance sheets to persist as the real economy recovers slowly, with real wages needing time to recover from losses following the post-election devaluation. “We are still not observing a stabilization in delinquency levels, which are rising each month,” said Marcelo De Gruttola.