On creating opportunities in Argentina’s banking sector through digitisation To what extent can credit growth be spurred by small and medium-sized enterprise (SMEs) loans, and what expectations are there, in this regard, for the medium term?
Pecego: SMEs are a vital part of Argentina’s economy, as they represent 99% of the total number of companies and generate 70% of private employment, according to Ministry of Production figures. Typically, a company that trusts a bank once will stay with that same bank. Therefore, the key for the banking sector is to reinforce our commitment towards SME clients with better products and services while simultaneously ensuring our own financial growth.
At this point the challenge is to gain access to more liquidity and funding in order to be able to lend capital in the long term. We need greater access to long-term funding that is not yet available, and in order for this to happen, banks need to scale up, gaining more clients.
Moving forward, Argentina will remain competitive in the banking sector due to a low level of banking penetration. At only 18%, compared to an average of 45% in the region, there is significant potential.
What steps is Argentina’s regulatory framework taking to embrace digitisation, and how will this impact consumer behaviour?
Pecego: We are already seeing a lot of advances in the regulatory framework, particularly linked to the digitisation of banking processes. The vision of the central bank is to make the financial sector, a much larger part of the daily activities of Argentine society.
The implications of the digitisation of the banking sector, which ranges from internal processes to customer relationships, are enormous. In the long term, the benefits are a reduction in structural costs for banks and a reduction in the level of informality that exists in Argentina. The wider use of technology would give banking authorities enhanced tools to reduce black market numbers by having real-time information on operations and transactions. It would also prompt a reduction in labour costs, which, like many other sectors in Argentina’s economy, is high among banking institutions.
Another aspect of digitisation is the implementation of a cashless society, a process that started years ago in many countries around the world, but due to several episodes of turmoil in Argentina’s financial sector, the confidence and trust that the general population had in banks and everything related to cashless operations continue to be undermined. That is why, to this day, Argentines prefer to use cash for daily operations. The use of cash in Argentina is exceptionally high, almost a singularity in developing markets.
However, there are steps being taken by the government to implement a cashless economy, in part due to a desire to reduce the country’s high levels of informal labour. In order to reach that point of development, the private sector needs to invest heavily in adapting our current IT systems, with parallel efforts on training personnel.
How is Argentina’s economy impacted by a regional powerhouse such as Brazil?
Pecego: The comparison between Argentina and Brazil has changed radically in the last 50 years. Previously, the former was a more advanced economy, but due to several episodes of crises the tables have turned.
Today, it is estimated that 1% growth in Brazil’s GDP causes a 0.4% increase in Argentina’s economy, with the same applying during times of recession. The situation in Brazil’s economy can only lead to growth and expansion, after it has undergone one of the worst crises in the country’s recent history. We expect positive Brazilian GDP growth figures in 2018 and the following years, thus positively impacting Argentina’s economy.
The advantage of Argentina lies in its highly skilled human capital, which can be considered among the best in the region. The base exists, and should the necessary reforms continue along the path towards macroeconomic normalisation, I am confident we can expect long-term, inclusive and sustainable GDP growth in Argentina.
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