Argentine Banks Slump After Central Bank Caps Loan Rates

Argentine banks fell in New York trading after the central bank capped consumer interest rates yesterday, potentially damping profits for lenders.

Grupo Financiero Galicia SA’s American depositary receipts sank 7.2 percent to $13.97 at 1:55 p.m. in New York, the biggest decline since January, while Banco Macro SA retreated 5.2 percent and BBVA Banco Frances SA lost 5.1 percent. The benchmark Argentine Merval fell 0.2 percent.

After calls from Argentina’s Economy Minister Axel Kicillof and Cabinet Chief Jorge Capitanich to end “usury” by lenders, the central bank led by Juan Carlos Fabrega decided to regulate rates on personal loans and credit cards. The government is trying to reactivate lending amid sluggish growth in South America’s second-largest economy, which is forecast to expand at the slowest pace in the hemisphere after Venezuela, according to the International Monetary Fund.

“The new rules are negative for the profitability of banks under coverage, particularly in a recessive economic environment, in which delinquency rates are poised to increase,” Raymond James Argentina analysts Federico Rey-Marino and Santiago Ruiz Guinazu wrote in a report today.

Galicia and Macro may see profit eroded the most, since credit lines targeted under the new rules account for about 60 percent of their loan portfolios, according to Raymond James. The figure is 50 percent for Banco Frances.

Peso Slide

Bank loans to the private sector rose 29 percent in April from a year earlier, a slower pace than the 42 percent increase from in the same period a year ago. Banco Macro’s first-quarter profit quadrupled to 1.19 billion pesos from a year earlier, after a devaluation of the peso in January boosted the value of its foreign-exchange holdings.

Interest on personal loans can’t exceed 1.25 to 2 times the rate of the central bank’s 90-day notes, known as Lebacs, according to resolutions published yesterday. Lebacs yield about 26.9 percent. Caps will result in rates of 34 percent for car loans, 39 percent for personal loans and 49 percent for credit cards, Raymond James said.

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