ARGENTINA-FINANCE: Foreign Banks on Shopping Spree

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Jun 1 1997 (IPS) - With their growth potential of 20 percent per year, private banks in Argentina have emerged as a tempting investment for foreign banks.

On Friday, stock exchange transactions finalised the sale of the Banco Roberts – the sixth largest private bank – which is now under the control of the Hong Kong and Shanghai Banking Corporation, which also bought up Brazil’s Bamerindus bank.

But the biggest change so far this year has been the sale this week, of the Argentine Banco Rio to the Spanish Santander group. The leading Spanish bank swallowed up the second largest local company at a cost of 600 million dollars and six percent of the shares in Santander Chile.

Previously, Banco Bilbao Vazcaya, Spain’s second largest bank, acquired Banco de Credito Argentino, the second big move by the Bilbao enterprise which acquired the Banco Frances, another solid private entity, in October.

Now, all eyes are on Banco Galicia, another of venerable Argentine institution and also Banco Quilmes and Bansud. The alternatives to sales to foreign investors would be for this trio to amalgamate their operations, market analysts said.

Analysts foresaw sales and fusions continuing because of competition and market conditions, but the dizzying speed of the he changeovers has surprised many financial observers.

One leading consultant, who asked to remain anonymous, told IPS the Argentine Banks, which represented 57 percent of the Gross Domestic Product (GDP) in 1945, had seen their share fall to eight percent in 1989, due to the loss in value of the currency, devaluations, inflation and the low level of deposits.

Successive inflationary crises, the lack of growth and confidence together forced the local banks to an all-time low. They only began to recover in the 1990’s with liberalisation, stability and the privatisation of business.

Since then, the banking sector has represented 18 percent of the GDP, which means it could grow by 20 percent per year over the next few years, a level of profitability only dreamt of by the foreign banks, which are accustomed to much lower profit margins.

The temptation for greater profits goes hand in hand with the capital needs of the local banks. The minimum capital requisiteds of the Argentine Central Bank are higher than those of Basel, a demand which also promotes the concentration of assets.

Banking restructure began nearly 20 years ago in Argentina. Since then, the number of financial entities has fallen from 692 to 135. However, the strongest adjustment happened in 1995, following the ‘tequila effect’ of the Mexican crisis.

The foreign banks coming into the Argentine market with great impetus, assure that the frameworks and services offered by the entities taken over will be maintained, with only the addition of more advanced technology to lower costs.

With this process, the observers predict the number of banks will fall to fewer than 100, and even foresee the big State banks, the Nacion and Provincia could also go on sale.

The main problem then will be that of the small and medium sized companies, who have already warned that this concentration of the banking market will make their access to soft loans considerably more difficult, pushing them further into the economic margins.