Argentina's Cristina Fernandez to force banks into 'loss-making' loans



Argentine President Cristina Fernandez has said private banks will be forced to lend to local businesses at rates below inflation as she seeks to bolster flagging economic growth.

Latin America's third-largest economy grew 8.9pc in 2011 but growth is slowing sharply due to sluggish global conditions, slackening demand from top trade partner Brazil, and the impact of surging costs at home.

Fernandez, a center-leftist, is embracing increasingly unorthodox economic policies as she seeks to sustain activity, which analysts say is vulnerable to insufficient credit.

"We're going to tell the 20 principal banks... they have the obligation to lend for production and for investment," Fernandez said in a televised speech.

"The central bank's going to establish the conditions," she said, adding that state-run banks should not have to shoulder the entire responsibility for business loans.

She (SNP: ^SHEY - news) said the loans would carry a maximum interest rate of the Badlar reference rate, which was 11.9pc per year for private banks in June, plus 400 basis points. The minimum loan period would be three years.

Inflation is running at about 25pc per year, according to private estimates that more than double the government's discredited consumer price statistics.

The announcement will likely perturb bankers, who have long feared Fernandez's government could push for banks to lend to small- and medium-sized companies on terms they deem unprofitable.

"We'll have to see how the central bank frames this because it could imply running a loss," said Fausto Spotorno, an economist at the Buenos Aires-based Orlando Ferreres & Associates consulting firm.

"Forcing a private bank to take a loss is a tax, unless the central bank installs some kind of subsidy scheme," he said. "The way it's been laid out, it doesn't seem to fit for anyone. It could end up decapitalizing [the banks] and making them run risks."

Leading private banks in Argentina include Banco Macro (NYSE: BMA - news) , Banco Galicia, Banco Patagonia and Banco Santander Rio.

Lending levels in Argentina are among the lowest in Latin America. Many smaller companies do not qualify for state-subsidized bank loans because of tough requirements, and both deposits and loans tend to be short-term due to inflation and the country's volatile history.

Fernandez recently reformed the charter of the central bank, which is led by a close government ally, to allow the monetary authority to regulate and steer credit flows to target long-term productive investment.

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