Milei fails to boost lending as banks load up on government debt

President Javier Milei's administration's efforts to revitalize Argentine banks have hit a stumbling block, as lenders are increasingly relying on government bonds to generate profits, despite a slower economy and high delinquency rates affecting traditional lending. In July, commercial banks saw government securities contribute to 56 percent of their operating income, nearly three times the 17 percent generated by interest income from private-sector loans.

Juan José Vázquez, head of research at local brokerage Cohen, noted that banks are prioritizing liquidity in uncertain times, as holding liquid financial instruments allows them to react more quickly than a loan portfolio. Milei's tight monetary policy and high interest rates have led banks back into government debt as the economy slows, partly due to a lack of credit demand.

The promising trend of private-sector credit growth that emerged during Milei's first year in office has stalled over the past year. Net interest income for banks fell to just 3 percent of operating income in January and hovered at 17 percent in July, while earnings from government securities have accounted for more than half of operating income so far in 2026.

The credit boom is also showing signs of fatigue as the economy slows and household incomes struggle to keep up with prices. High interest rates discourage stronger borrowers and increase the risk for those eager to borrow but financially pressured. With limited international capital access, the government has relied on banks to refinance its peso debt, and the Central Bank has encouraged this demand by raising reserve requirements and allowing banks to meet additional requirements using government securities purchased at Treasury auctions.

While this helps create a captive source of demand for government debt, it also raises domestic money costs and adds another obstacle to credit expansion. Banks are more likely to keep pesos parked in public-sector securities, especially ahead of Argentina's next presidential election, as loans remain on balance sheets until borrowers repay them, while liquid securities can be sold quickly if conditions change.