Inflation and high rates explain why credit remains flat compared to a year ago

Bank lending to businesses and households is usually a activity indicator. In May, with inflation estimated at around 5%, credit to the private sector grew less with respect to the increase in prices to the economy and, if we look at the annual evolution. it advanced in line with inflation, so in real terms it remains practically frozen.

According to Central Bank data in the latest Monthly Monetary Report, loans to the private sector in May contracted 1.4%, the fourth consecutive monthly decline. With the exception of pledged loans and discounted documents, which companies use to finance themselves, all lines, those linked to consumption and commercial ones showed decreases.

“Currently, the loans account for just 60% of the May 2018 value, last peak before the financial crisis that hit the country. As mentioned, a certain recovery began to be observed in them starting from last September, which was interrupted in January. It remains to be seen whether new credit enhancement policies will be applied in the future as a policy to support the recovery, “they indicated in the consultancy firm LCG.

Households have reduced the use of typical consumer credit lines: The stock of pesos in credit cards fell by 0.5% in real terms compared to April and by 12.1% compared to May 2021. Personal loans also decreased compared to what they saw a year ago.

Inflation, which erodes the purchasing power of wages, explains this phenomenon to a greater extent. Furthermore, the slow but persistent increase in the cost of credit due to the Central Bank’s rate hike policy: last month, the effective annual rate of personal loans reached 77.8%.

Guillermo Barbero, of First Capital Group, explained: “The latest rate hikes slow down the demand for new loans, in addition to having higher principal payments and higher interest rates, a limit is placed on the amount of the loan due to the installment / income” .

In the Quantum Finances advisory they agreed: “High uncertainty and relatively high interest rates are some of the factors that portray the demand for credit from the private sector.”

Therefore, the reduction in credit can be partly explained by a decline in demand from households and businesses. But also, for the decline in banking supply. “Banks find themselves with excess liquidity turning to Treasury and BCRA debt placements on terms that have been extended over time (debt adjustable by Treasury CER and BCRA Notaliqs),” they added in Daniel’s advice. Marx.

Data from the Central Bank’s latest Monthly Monetary Report shows that banks’ liquidity reached 67.1% of deposits last month. This targeted Central Bank debt instruments, such as Leliq and Notaliq.

“Although banks are able to expand lending to the private sector, a major portion of the lending capacity is allocated to placements in government treasury and BCRA debt,” they added in Quantum.