The Argentine government doesn¹t make it easy for banks. Although they mostly remain in good shape, a slowing economy has thrown up yet another challenge for the country¹s financial institutions.
The government forecasts growth of 3.4% in 2012, down from 8.9% last year, while output in 2013 as a growing number of forecasters now predict could be still slower.
Banco Santander Río is the biggest bank in the country and the strongest in retail lending, which remains the largest business line for the country¹s banks. Its $10.65 billion in assets as of year-end 2011 grant it a cushion that leaves it well positioned to deal with a deteriorating economic climate.
³In the past two or three years Santander Río has been the best performer in terms of growth, profitability and cost efficiency,² says Santiago Gallo, an analyst at Fitch.
Retail lending has been the focus for the bank¹s growth. Commercial lending is growing too, but uncertainties facing the private sector are a challenge.
³In the coming years most of the growth in Argentina will be in retail lending,² Gallo says. ³The government¹s economic model is based on strong local demand and consumption. That fosters retail lending.² Santander Río has the largest private-sector loan portfolio (8.8% market
share) and deposit base (9.7% market share) in Argentina. During 2011, Santander Río says the bank accounted for 36% of the total system¹s expansion in new branches.
The bank¹s net income in 2011 was $406 million, up 5% year-on-year. It is also the most profitable with a return on equity of 43%. Santander Río continues to be the most efficient private-sector bank compared to peers with a cost-to-income ratio of 46%.
³Banks in Argentina are in good shape,² Gallo says. ³The risk mainly comes from the economy, from the government and the political environment.² So far there have been no adverse effects from any troubles from its Spanish parent. Santander plans to float part of its profitable Argentine operation just as it did with its Mexican unit in September in an operation that appears to have been successful so far. Santander Río¹s connection to Santander has also allowed it to have one of the top capital markets operations in the country.
Argentina¹s economic slowdown could lead to a deterioration in asset quality, though Gallo says Santander Rio¹s strengths leave it in a strong position to face these risks, and historically it has always maintained a high asset quality.
Gallo points out there are some factors benefitting the country¹s economy, such as a high soy price. Nobody is expecting a crisis, but Santander Río is again the best prepared to face any challenges ahead. LF