The lack of domestic capital markets will limit Argentine bank prospects
There are key differences between the growth outlook for Argentina’s banks today and that of Brazil’s banks from 2003 to 2008.
With Argentine banks struggling to adapt to the evaporation of credit demand as recession and very high interest rates have followed the country’s recent currency crisis, investors are trying to reevaluate the sector’s longer-term outlook.
The rapid growth in the Argentine bank stocks in the pre-crisis years – Galicia’s CEO Fabian Kon points to the “crazy” ride of its shares from $50 in September 2017 when it conducted a $550 million follow-on equity transaction to $73 a couple of months later only to fall to $20 after last August’s crisis to a recovery of around $40 today – was largely fuelled by optimism in the structural opportunity.
Many investors saw similarities for Argentine banks with the growth of the Brazilian banking system between 2003 and 2007. Credit Suisse’s banking analyst Marcelo Telles was one of those who drew parallels with the period in which annual loan growth reached as much as 26% per year in real terms and the leading private sector banks consistently traded at elevated multiples of around 3.5 times book value and 15 times price-to-earnings.
The very low level of credit in the country was another factor in the optimistic view on the Argentine banks, with total loans at around 15% of GDP – compared to over 90% for Chile, 50% for Colombia and around 47% for Brazil.