President Javier Miley is sticking strictly to the slogan he launched in the election campaign: “Let the banks act as banks.”
Translated into facts, it means that its job is to seize deposits and provide loans to the private sector, rather than the state being its main client through the purchase of treasury and central bank bonds.
The Argentine financial system began to make less money
The Argentine financial system is the only one in the region that between June 2024 and the same month of 2025 saw its profitability decline compared to the previous year, according to a report by the Federation of Latin American Banks (Felaban). Indeed, the net profits of Argentine banks fell from 3,301 to 1,409 million dollars in the period analyzed, which does not include the third quarter in which the negative factors worsened.
The report notes that during Miley’s term credit, as measured against GDP, doubled to close to 12%. It also shows the limited depth of loans in Argentina, the country with the worst credit/GDP index in the region, which averages 50%.
Meanwhile, the parent companies of Santander and BBVA, the two main foreign banks operating in Argentina, have warned that they have stopped granting credit in the country and will be very cautious with the Argentine market. The reasons for the decision, in both cases, were high interest rates, dollar volatility, and political uncertainty. “With real interest rates at these levels, it is really impossible to make money,” Santander CEO Hector Gresi told Infobae.
Where has profitability evaporated? “In recent months, banks have lost more from the trading desk than from credit defaults,” said Diego Pizzoli, CEO of IOL Inversiones.
He added: “The banks in the past have made a lot of money, all in all. And if you look at the return on equity of the banks, it is less than half of what it was at the time they lent to the state. They have gone from 30 or 35% to less than 10%.”
“The government left real interest rates very high to discourage any kind of evasion, and it achieved that in the end,” Pezzoli explained, considering that the government put reducing inflation before any other goal.
In the third quarter, defaults were added, Pizzoli said: “All the prices went up and that led to defaults. People aren’t paying you because they lost their jobs.”
According to Juan Pablo Grisolia, Senior Partner for Financial Services at EY Argentina, the decline in bank profitability was linked to the impact of “more restrictive measures implemented by the regulator to contain inflation and exchange rate tensions, in a scenario of increasing uncertainty ahead of the elections.”
Changes in reserve requirements raise interest rates, with two outcomes: credit “suddenly” stops, and financing costs increase. This has also affected default levels, “upending the financial business”. Pre-election tensions also caused public securities prices to decline, contributing to the negative numbers.
“The exposure of each bank to these instruments explains another part of the decline in the entities’ results,” Grisolia added, without failing to highlight that the system remains “strong, solvent and liquid.”
Meanwhile, consultant and former director of the Central Bank of the Argentine Republic (BCRA), Pablo Curat, estimated that banks accumulated a loss of more than 25% on net worth (ROE) between July and October, which “neutralized previous gains.”
Curat identified the beginning of the “perfect storm” that began in July when the Lilik disarmament was implemented and dollar volatility deepened.
In this context, he explained to Infobae the difficulties faced by banks:
- Reserve requirements increase with daily needs,
- Passive rates rise above active rates,
- Sudden decline in demand for credit,
- Increase in delinquencies in consumer loans, and
- Increase provisions for bad debts.
Curat also highlighted the decline in public securities in pesos and “The highest inflation rate since the May bottom, which had an impact on salary spending and the cash outcome.
In addition to the macroeconomic situation, the market factor was added, namely “the greater prevalence of paid salary accounts (Banco Nación, Supervielle, Ualá) to compete with virtual wallets.”
Pablo Curat also stated that the current outlook for the sector aims to “close 2025 with zero annual profitability in the best case, and we hope that the new liquidity framework, with lower rates and moderation of country risks, will create the necessary conditions for the eventual recovery of credit and profitability in 2026.”
High interest rates have the worst impact on the quality of the credit portfolio. When the cost of money rises, “good payers rush to cancel their debts and lower-quality debtors stay in the system,” Curat adds.
While analyst Guillermo Barbero, from First Capital, considered loan irregularities as one of the reasons for the deterioration in banks’ performance.
“On the one hand, the increase in delinquencies prevented the accumulation of interest on many loans. On the other hand, the deterioration of credit quality forced entities to increase provisions for bad debts, which affected the negative result of their balance sheets,” he told online media.