Argentine banks tighten lending amid record defaults despite rising credit demand

Argentine banks are bracing for a rise in credit demand this quarter, yet they plan to adopt more stringent criteria for issuing new loans. This cautious approach is driven by a backdrop of record-high loan defaults, particularly affecting consumer credit lines and small to medium-sized enterprises (SMEs).

A recent study by a public bank revealed a critical insight: two out of three individuals who fell behind on payments in the past two years did so not because they borrowed excessively, but due to a decline in their ability to pay. This finding underscores a significant shift in the underlying causes of financial distress among the population.

The findings are based on the Credit Conditions Survey (ECC) conducted quarterly by the Central Bank (BCRA), which polls senior credit executives from major financial institutions representing about 90% of private sector lending. While banks reported stable lending conditions for companies in the second quarter, they now foresee a "slightly restrictive" trend in approval standards for the current quarter, with SMEs expected to be most affected.

Simultaneously, banks project an increase in credit demand following a slowdown in April-June, with large corporations expected to be the primary drivers of this recovery. However, this anticipated uptick in demand will be met with a more selective lending policy compared to the earlier phase of financing recovery for the private sector.

Loan delinquency reached its highest point since the end of the convertibility period in May, with families experiencing a particularly sharp deterioration. The irregularity rate among households hit 12.8%, with personal loans and credit cards showing the most significant issues, while mortgage loans maintained lower default levels. This trend suggests a widespread erosion of payment capacity across various segments of the Argentine economy.