Argentina: Galicia’s Grinenco looks through the regulatory lens

Rob Dwyer
Published on:

The outside world is still happy to see the market-based reforms in Argentina through rose-tinted glasses, but the country’s banks are battling a poor economy and tough regulatory challenges. Banco Galicia’s chairman, Sergio Grinenco, has a pragmatic view of the outlook for Argentina’s banks.

Sergio Grinenco-400

Illustration: Pete Ellis

The view from the top of Banco Galicia’s tower is changing, but only slowly. Much of what can be seen has been the same for decades, but there are pockets of obviously recent development. 

The tower where Galicia’s chairman Sergio Grinenco sits dates from the turn of the millennium, when stringent dividend regulation favoured capital investment strategies. Now the forecast is for more orthodox investment that will drive new economic growth. Some investment has begun, but game-changing levels of it have yet to materialize.

The new administration inspired a recession. It had to, given the need to dismantle the many distortions and imbalances it inherited. Economic growth may be coming, but the country is still waiting for unambiguous signs of a breakthrough.

While it waits, the banks face a difficult path to normalization. The macroeconomic situation has created an environment of negative real loan growth, rising unemployment and pressure on (admittedly high) net interest margins (NIMs). More surprising is the persistent negative impact of regulatory risk. President Mauricio Macri has dismantled some of the core regulatory frustrations of the banking sector but maintained – and in some cases even increased – others. 

Is Grinenco surprised about this regulatory obstacle to improvement, despite the administration’s reputation as business-friendly?

"Well, the government is pro-business, but it is not so pro-bank," he responds with a resigned laugh. "Everybody hates us. The general public are not fans [of the banks], and so anything that is against the banks – and is publicized – goes down pretty well."

However, during his conversation with Euromoney Grinenco paints a picture of a more reasonable dialogue being established between the sector and the central bank, the antitrust commission and the finance and economy ministries than was the case under the administration of Cristina Kirchner. The main banking bugbear – the floors and caps on interest rates for deposits and loans – have been largely removed. But new regulations that cut into banks’ revenues have come in, and others are being proposed. 


The one with the biggest impact for Galicia is the proposed cut on credit- and debit-card fees. The senate voted unanimously on a bill that would lower to 1.5% from 3% the maximum fee credit-card companies can charge to merchants and to 0% from 1.5% for debit cards. Galicia has a large exposure to these fees. According to UBS research in September, bank card fees generate 40.9% of total net fees and 17.8% of total net revenues. UBS estimates that the new regulation on card fees would lower Galicia’s 2017 earnings per share by 8%.

However, Grinenco expects there to be changes to the current draft bill that will lessen the impact on his bank. He points to the proposed 0% charge on debit cards as evidence that the current bill is not rational.

"It doesn’t make any sense – it would make it something that is provided free – like air." 

He says the current provisions to cut fees by half are "very unreasonable" and were clearly drafted on behalf of the retailers. He predicts some push-back, but admits that the end-result will likely be less bank-friendly than the current situation.

"The fees we charge on credit cards are pretty similar to Brazil, but in Argentina 95% goes to the [card] issuer and 5% to the acquirer – while in Brazil the ratio is closer to 70/30," he says. "We accept that there will be a reformulation of the industry, but let’s make it rational and done in a way that reflects the market reality. We do have costs from providing a payment system, and this is a key issue."

Thinly veiled threat

Much has been made of the Visa system’s monopolistic position (it is owned by 15 Argentine banks), but Grinenco says its 55% market share is a deserved result of 25 years of development and investment in the country. He also makes a thinly veiled threat about the negative impact that the banks could have on the economy if they feel that the new card fees are unfair to the issuing party.

"Let’s assume that the average charge to the issuer after the merchant’s discount is 2.8%," he says. "We spend at least 1.2% on promotions. So clearly, if this [fee income] goes away [from the banks], that is a negative for the future of the development of the payment system. If we drastically cut these promotions then clearly the whole commerce environment will suffer, and that’s something that no one wants."

Another negative is change to the 'Linea Productiva’, regulated and directed lending to the small and medium-sized enterprise sector. It was brought in by the Kirchner administration to force banks to lend to small businesses at a subsidized rate. Analysts thought this would be dismantled – and it still may be – but in the short term it is being extended. Between November 1 and June 30, the government will require banks to channel 18% of October’s average deposits to the segment at an interest rate of 17%, while annual inflation is somewhere near 40%.