BUENOS AIRES (Dow Jones)–Following a pair of big acquisitions in the last year, Argentina’s banking sector is unlikely to see more headline-grabbing deals in the near future as political concerns and an uncertain outlook for the economy limit investor appetite.
«Credit penetration in Argentina is probably one of the lowest in Latin America. So there is definitely a lot of room for growth. But the concern in the short term is the political situation and economic policy,» Deutsche Bank equity analyst Tito Labarta said in an interview.
Bank loans represented just 15% of gross domestic product in 2009, compared with 72% in Chile and 44% in Brazil, according to Deutsche Bank.
But high inflation and speculation the government might allow for a swifter depreciation of the peso are strong deterrents to potential buyers, he said.
President Cristina Kirchner is expected to easily win re-election in October after receiving 50% of the votes in last Sunday’s primary election.
Analysts view Kirchner’s stunning victory as a mandate to continue with her current economic policies, which include price controls, generous subsidies, and heavy spending on social programs.
Argentina’s economy is expected to log its second consecutive year of growth above 8% in 2011. But inflation that most economists say is north of 20% and a slowdown in key trading partner Brazil will eventually weigh on economic growth.
For now, the economy is expanding at full throttle led by consumer spending. The boom has benefited banks, with lending to the private sector up 47% on the year at the end of June. Banks’ are also on track to post a return on equity similar to last year’s hefty 24.4%.
Argentina has 64 banks, though 77% of deposits are held by 10 institutions, according to the central bank. Spain’s Banco Santander SA (STD, SAN.MC), Citigroup Inc. (C), and HSBC Holdings PLC (HBC, HSBA.LN, 0005.HK) already have an important presence in the country.
Labarta thinks future consolidation will likely resemble locally owned Banco Macro SA’s (BMA, BMA.BA) acquisition of a tiny niche bank with two branches last year.
The banking industry witnessed a spat of mergers in the wake of Argentina’s 2001-2002 economic crisis, which spurred foreigners like France’s Credit Agricole SA (CRARY, ACA.FR), Bank of Nova Scotia (BNS, BNS.T), and Banco Nazionale del Lavoro SpA to exit the country.
More recently, banks controlled by the governments of Argentina’s top trade partners, Brazil and China, have been active buyers.
Industrial & Commercial Bank of China Ltd.’s (IDCBY, 1398.HK, 601398.SH) said earlier this month it will pay $600 million for 80% of Standard Bank Argentina, and Banco do Brasil SA (BDORY, BBAS3.BR) purchased a majority stake in Banco Patagonia SA (BPATL, BPAT.BA).
Sergio Garibian, a director of financial institutions ratings at Standard & Poor’s Ratings Services, said further deal making will likely be driven by banks looking to sell because they lack the scale to compete or means to grow.
But outside of acquisitions with a geopolitical tone, Garibian doesn’t see much appetite by foreign private sector investors at this time.
«I don’t know how many international players are prepared to enter Argentina knowing they might not be able to repatriate dividends. The rules of the game here are complex,» he said.
Source: online.wsj.com