Argentine banks face competition from all sides
The Peronist playbook is back in force: Argentina’s monetization of fiscal deficits relies on the banking system buying central bank and government securities. This time around the movie has a new subplot: credit growth in both the corporate and retail sectors is increasingly taking place outside the traditional banking sector.
When Central Térmica Ensenada de Barragán, a joint venture between Pampa Energía and YPF, wanted to raise capital to finance its 567-megawatt natural gas power plant, it didn’t turn to the Argentine banks. And it couldn’t tap the international markets either.
Instead, the company attracted orders of $170 million for a $96 million three-year dollar-linked zero coupon note in the domestic market. That was partly thanks to this being buoyed by a new source of liquidity: corporate treasuries.
Many corporates in Argentina are flush with cash and have little appetite to invest in an economy with insipid growth and inflation approaching 50%. Government restrictions prevent them from paying dividends. There are also restrictions against them purchasing dollars or dollar bonds and, with the official exchange rate heavily overvalued, companies want dollar hedges.
“Companies aren’t finding interesting investment opportunities; the traditional alternative is buying government paper, but corporate treasurers are looking at the massive amount of treasury maturities over the next two years and seeing risk there,” points out Juan Pazos, chief economist at TPCG Valores.
Another traditional route for spare cash – buying certificates of deposit from banks – also doesn’t work as a risk diversification tool. This is because those deposits are increasingly stored in central bank or government debentures.