High default rates hinder credit reactivation in Argentina, report warns

Argentina faces a significant challenge in reviving its credit market due to persistently high levels of loan defaults, a new report from consultancy MAP Latam reveals. The accumulation of overdue debts acts as a major brake on financing, with the irregularity of payments remaining elevated and expected to take considerable time to normalize. Although the banking system's solvency prevents a systemic risk, the high default rates are directly conditioning the reactivation of credit. The core issue, according to the report, lies not in the banks' financial health but in the consequences for lending: more indebted households and more cautious banks are reducing the scope for a swift recovery in financing. MAP Latam's data indicates that after 19 consecutive months of increases, private sector defaults (over 90 days past due) peaked at 7.7% in May, affecting 5.9 million individuals. Within households, the default rate reached 12.8%, primarily concentrated in consumer loans and credit cards, which together account for 73% of irregular balances. This debt burden has severely impacted household budgets, with loan payments now representing nearly a quarter of household wage income, limiting consumption and the ability to qualify for new credit. The situation is particularly critical for non-financial credit providers, including fintech and virtual wallets, where the default rate hit 29.6% in May. This brings the country's aggregate default rate to 14.7%, meaning almost one in three pesos financed by these entities is irregular, compared to less than one in ten for traditional banks. While banks still hold the majority of the total irregular debt due to their larger portfolios, the fintech sector is facing a severe crisis.

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The irregularity continues at high levels and its normalization will take time. Although the high solvency of the banks prevents it from translating into systemic risk, it conditions the reactivation of credit.