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05-07-2012 03:15:00

Argentina to Force Big Banks to Boost Lending

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BUENOS AIRES--Argentina's government will announce a plan Thursday to force the country's biggest private-sector banks to boost lending.

The plan, outlined vaguely by Argentine President Cristina Kirchner in a speech late Wednesday, aims to sustain investment levels at a time when economists are rapidly lowering their forecasts for economic growth.

Ms. Kirchner said private-sector banks have made a lot of money in Argentina and that it's time for them to do more to spur growth.

She said private banks need to catch up with Banco de la Nacion Argentina, a federal bank, which she said accounts for 22% of all loans.

"We're not going to ask any single bank to lend that amount, but yes, we're going to ask that 20 banks do in one year what one bank did in 4 1/2 years," she said. "We're going to ask them to help us sustain investment, which last year was almost 25% of gross domestic product."

The new lending rules will affect the Argentine subsidiaries of several large foreign banks, including Spain's Banco Santander SA (SAN, SAN.MC) and Banco Bilbao Vizcaya Argentaria SA (BBVA, BBVA.MC), HSBC Holdings PLC (HBC, HSBA.LN, 0005.HK), and Citigroup Inc (C).

An official at Argentina's central bank said the bank's board of directors will meet Thursday to determine how much each bank must lend under the new program.

The bigger the bank, the higher the percentage of its deposits it will be forced to lend, the official said.

For now, the idea is to require all banks holding more than 1% of total national deposits to boost lending for business investment.

"This is a credit line for investment," the official said. "We're talking about around 25 or 30 banks that will be obligated to do this."

The interest rate on the loans will be set at Badlar plus four percentage points. Badlar is the average interest rate on fixed-term deposits above one million pesos ($221,238). Based on data from June, that would put the annual rate for the new loans at around 15%.

That's far below the annual rate of inflation, which most economists say likely totals around 25%. In recent years, banks have been reluctant to lend below this level because of its inherent risk, and expectations for future inflation that have long been around 25% or 30%.

Ms. Kirchner said Wednesday that banks appeared to distrust businesses and haven't been lending to them because of this.

Whatever the case, the move to boost lending is the government's latest attempt to use the power of the state to spur economic growth.

Most economists say the economy is slowing largely because of unpredictable and cumbersome government policies, such as severe restrictions on the purchase of foreign currency.

But Ms. Kirchner has sought to shift the blame abroad, blaming problems in the U.S. and Europe for Argentina's own troubles.

Ms. Kirchner recently said the government would provide around ARS20 billion in lost-cost mortgages over the next four years as part of a plan to build 400,000 homes over that period. The program aims to stimulate demand in the construction industry, a key source of growth.

In May, total investment in Argentina was $7.4 billion, down almost 13% from the same month a year ago, according to an analysis by consulting firm Orlando J Ferreres & Asociados, or OJF. That put the investment-to-GDP ratio at 20.6%, according to OJF. Investment during the first five months of 2012 was down 8.5% on the year.

In its report, OJF warned the decline in investment boded poorly for economic growth, which "shows clear signs of deceleration."

Earlier this week, a key survey of leading economic indicators put the odds of a recession within the next six months at 99%.

A spokesman for one of Argentina's bank associations couldn't be reached for comment, while a spokesman for Ms. Kirchner didn't respond to a request for comment.

Write to Taos Turner at taos.turner@dowjones.com

(END) Dow Jones Newswires

July 04, 2012 21:15 ET (01:15 GMT)

Copyright (c) 2012 Dow Jones & Company, Inc.

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