Bad loans keep piling up in Argentina, dashing hopes that the economic pain unleashed by President Javier Milei’s harsh austerity programme had already crested.
Milei has slashed inflation from triple-digit levels and returned Argentina’s economy to growth since he took office in 2023. His overhaul plan has won the country a series of sovereign credit upgrades, with the latest coming Tuesday from Moody’s Ratings, while leaving it deep in speculative territory.
The government was counting on a revival in consumer credit to help broaden an export-led recovery through stronger household spending, in time to boost Milei’s chances heading into a tough re-election battle next year.
Instead, spurred by a surge in interest rates last year, delinquencies on consumer loans – including for credit cards, cars and other assets – have risen for 17 consecutive months, reaching a two-decade high of 12.1 percent in April, the latest data from the Central Bank show.
Local consulting firm 1816 Economía & Estrategia estimates that over a quarter of borrowers are no longer considered creditworthy, keeping consumers from becoming a bigger economic driver, as they are in regional peers like Brazil.
“You’ve run out of policies to stimulate the economy,” said Miguel Kiguel, a former Argentine finance undersecretary, who’s now executive director of consultancy EconViews. “Fiscal stimulus is off the table because there’s no money, and credit is being held back precisely because of delinquencies.”
Central Bank officials expect that delinquencies may have peaked in June, in part after interest rates stabilised in recent months, according to a presentation late last month. But economists and bankers expect only a gradual recovery, arguing that household credit is unlikely to become a meaningful engine of economic activity before the October 2027 vote.
Banks, which expanded lending aggressively as economic conditions stabilised starting in Milei’s first year in office, have seen that credit boom backfire. Non-performing consumer loans haven’t been this high since the aftermath of Argentina’s 2001-2002 crisis. That’s contributing to one of the sector’s weakest years for profitability since the pandemic and is weighing on financial shares.
“It’s a logical consequence because last year banks started acting like banks again,” Economy Minister Luis Caputo said at an event this month. “Before, they simply took deposits and lent them to the Treasury or the Central Bank. In this new role, credit expanded rapidly, and as part of that, delinquencies rose because interest rates last year were very, very high.”
Banks initially saw the deterioration as temporary. But they have repeatedly pushed back expectations for when credit quality will improve, while becoming increasingly selective about whom they lend to.
“We still see that those segments are bad,” Grupo Financiero Galicia Chief Financial Officer Gonzalo Fernández Covaro said on an earnings call in May, citing stagnant household income as a reason for the sluggish recovery. “The expectation is that during the year, as inflation continues to go down and the economy grows,” he added, “we could start lending to different segments. But so far, we are not seeing that.”
The issue has become important enough that officials have begun encouraging banks to refinance troubled borrowers. State-owned Banco Nación and Banco Ciudad have launched restructuring programs extending maturities and lowering borrowing costs, while Caputo, the economy minister, has publicly praised similar efforts by private lenders.
Economic transition
Economists say the household strains reflect more than a temporary increase in missed payments. Argentina is undergoing a rare transition from a financial system shaped by chronic inflation and government financing to one in which banks once again earn profits by evaluating credit risk and lending to consumers and businesses.
For decades, rampant inflation discouraged lending in Argentina, leaving the country with one of Latin America’s least credit-intensive banking systems. Much of banks’ earnings came from fee income and financing the public sector rather than extending credit to families and businesses.
While annual inflation of roughly 30 percent in Argentina is still high relative to the US at around 3.5 percent, it’s down from over 200 percent as recently as 2024. For borrowers used to loans rapidly depreciating in value over time, that’s required a major adjustment.
“Lower inflation has a significant effect on how quickly debts lose their value, which is very different from what happened over much of the past several years,” said Marcelo De Gruttola, an analyst at Moody’s Ratings in Buenos Aires. “There was a very rapid and significant change in the macroeconomic environment, and that changed borrowers’ behaviour in ways that were difficult to anticipate.”
Heavily indebted Argentines tend to live far from Buenos Aires City, a wealth hub where only 16 percent of adults are behind on loans. Several interior provinces have a rate double that level, according to consulting firm Equilibria.
Weak wage growth and a soft labor market have made it harder for many households to repay their debts, while banks have tightened lending standards and shifted new loans toward lower-risk corporate clients. That has left consumer credit playing a much smaller role in the recovery than many economists expected.
Even after nearly doubling since Milei took office, credit still amounts to only about 12 percent of gross domestic product. In Brazil, the biggest economy in Latin America, it’s closer to 80 percent.
Investors have long viewed Argentina’s banking system as one of the biggest beneficiaries of the country’s macroeconomic stabilisation, based on the view that there’s ample room for lending to expand once household balance sheets recover.
That optimism has faded. Argentine banks have trailed the nation’s broader, energy-heavy Merval Index as investors weigh the headwinds from deteriorating credit quality and the looming elections.
“Banks tend to be more sensitive to macroeconomic and political noise,” said Ola El-Shawarby, an equity portfolio manager at VanEck in New York. “While our long-term view remains constructive, for now, we see stronger opportunities in the resource sector.”
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by David Feliba, Bloomberg
