Buenos Aires – Dollar-denominated lending in Argentina experienced a significant surge in January , a reversal of the stagnation seen in the latter half of . Financing in foreign currency reached US$19.768 billion at the end of last month, representing a monthly increase of 7% overall and a 5.3% average increase throughout the month, according to data from the Central Bank.
The monthly improvement marks the strongest performance in ten months. Dollar-denominated credit had begun to slow in April and effectively stalled in the final months of the year, a period characterized by electoral uncertainty.
Commercial Loans Lead the Expansion
Commercial loans accounted for the bulk of the increase, representing more than 71% of the total stock of dollar-denominated credit. These loans saw average variations of 6.1% for advances and 4.4% for documents.
Banks consulted for this report indicated that the agricultural sector was the primary driver of demand for dollar financing in January. “Demand was concentrated mainly in the financing of agricultural inputs and working capital loans, although a growing interest in financing investment projects and the acquisition of capital goods is beginning to be observed,” a banking source stated.
The expansion of dollar-denominated credit is being driven by the interest rate differential, a trend observed throughout . Companies with access to dollar financing – particularly those in the export sector – are opting for it due to its lower cost compared to peso-denominated loans.
The oil and energy sectors also demonstrated a strong appetite for dollar-denominated credit. Financing wasn’t limited to working capital, but also supported new investment projects and included syndicated loans, guarantees, and access to capital markets.
Pre-export financing requests are also on the rise, encompassing various sectors of the economy.
One bank noted that demand for dollar loans from the agricultural sector was focused on financing inputs and working capital, but also increasingly for investment projects and capital goods.
Impact on Government Revenue and Policy
The increase in commercial loans has a positive correlation for the government, as it contributes to sales volume in the official market. The requirement to settle balances in the foreign exchange market enables the Central Bank to purchase dollars without straining the market, potentially bolstering net reserves, according to a report from LCG.
Credit Card Spending in Dollars Rises with Tourism
In addition to commercial loans, credit card spending in dollars increased by 20.8% in January, driven by seasonal factors related to summer vacations abroad. What we have is currently the only form of dollar financing available to individuals, as families have not had access to dollar-denominated loans or installments since the crisis.
Guillermo Barbero, a partner at First Capital Group, noted that purchases abroad and foreign tourism contributed to the increase in credit card balances to levels comparable to those of the previous year.
Current regulations, stemming from decrees issued in and subsequent legislation, restrict banks to lending dollars only to clients with regular income derived from foreign trade or related activities.
The government of Javier Milei has already implemented some deregulation, allowing banks to lend their own funds – not those deposited by customers – in dollars to anyone, based on their own risk assessment.
According to Bloomberg, the Milei administration is considering further deregulation, potentially seeking to repeal the rules that limit dollar lending to those who generate the currency. The Ministry of Economy reportedly aims to achieve greater flexibility before the end of the year. However, analysts and the Argentine Banking Association (ABA), representing international banks, have expressed concerns about the initiative, deeming it risky.
The recent surge in dollar-denominated lending signals a shift in Argentina’s financial landscape, driven by a combination of factors including reduced political uncertainty, favorable interest rate differentials, and a growing demand for investment capital. The government’s potential further deregulation of the lending market will be a key factor to watch in the coming months, as it could significantly impact access to credit and the overall economic outlook.
