The Long Road Back

Aug 1, 2003

Argentine banks are still suffering from weak lending, diminished asset and loan quality, and a steep decline in profitability. Deposits are growing but the banking sector's recovery remains slow and tenuous.

Eighteen months after the Argentine financial crisis, considerable uncertainties exist in the country's macroeconomic environment and banking sector that continue to impede the sector from restoring normal operations. Questions over the sustainability of economic growth and exchange rate stability, as well as the failure of the government to define its stance on bank compensation for losses incurred during its deposit freeze remain critical variables in the banking system's recovery. The renegotiation of government debt also is a critical factor, accounting for around 50% of the banking sector's assets. Some of that debt is currently performing, but whether or not it will be included in the restructuring process remains to be seen. The speed with which these issues are resolved will affect the banking system's recovery and, therefore, its ability to play an active role in supporting the credit necessary for sustainable growth.

Nonetheless, since mid-2002, Argentina banks have been experiencing...

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