Despite the cooling of the economy, financial activity continues to rise

September 24, 2018 - By Arturo Altman

In the second quarter, in the middle of the 4.2% drop in the economy, the financial line had a spectacular growth of 8.7%, according to INDEC data. Agro, fishing, industry, commerce, transport and communications and hotels and restaurants have gone back, but the “financial intermediation” category has once again stood out and moved forward with greater force.
It is a sector that includes all the banks, credit card companies, exchange houses, brokers, credit cooperatives, insurance companies and other financial agents. And to estimate their economic evolution, among others, their income is taken into account for commissions charged, the differences between the interest rate of loans and that of deposits, between the seller and buyer exchange rate, between the purchase and sale of all types of financial assets, such as government securities, shares, interest on credit and purchase cards, check discounts, credit evolution, loans of all types, balances of the insurance and reinsurance market.

“This decoupling between financial movements and productive activity illustrates the paradox of a stagnant and fragile economy, subject to financial volatility, whose financing needs of the public sector generates a reactivation of the financial sector, while productive activity has problems financing its working capital due to the rising cost of credit, “says Ariel Coremberg, professor of Economic Growth at the UBA.

Javier Alvaredo, director of the ACM consultancy, highlights that the year-on-year evolution of the credit was very positive, especially the UVA mortgage loans, and also those discovered in current account, the discount of checks, and personal and banking credits. However, he expects that “in the third quarter, financial activity will continue to show a positive evolution, but with a strong reduction in its growth rate.

Among the lines of credit, in the commercial segment the discount of checks was slowed down, being compensated this by a greater use of the discoveries in current account. On the personal credit side, card financing was accelerated and commercial credit was reduced in the margin.

In the case of cards, the sharp increase in rates and the financing of balances can play an important role in this slowdown “In summary, Alvaredo says that” the financial intermediation activity continues to show a rather favorable evolution, which in part it is explained by the very high nominality of the interest rates that remunerate the credit activity.

This conjuncture can observe complications as long as it is sustained over time, since such high levels of interest, in conjunction with the general retraction of activity, could result in a deterioration of the portfolio, through a higher rate of default or uncollectibility ” .

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