President Javier Milei's push to get banks "banking again" is losing steam. With growth patchy and unemployment high, lenders are favoring liquid public debt over traditional loans as delinquencies climb. Fresh central bank figures show earnings from government securities accounted for roughly 56% of operating income in July, while net interest income on private lending stood at 17%.
"Banks are still prioritizing liquidity," noted Juan José Vázquez, who leads research at local brokerage Cohen. In uncertain conditions, he said, holding liquid instruments lets banks adjust far quicker than a portfolio full of loans.
After Milei took office, private credit initially jumped. Measured against GDP, bank lending to the private sector has roughly doubled, reaching about 12.5% of GDP today versus around 5.3% at the end of 2023, the central bank's figures show.
But the upswing faded. With delinquencies rising and losses increasing, net interest income narrowed to 3% of operating income in January, then was 17% by July. Throughout 2026, securities still generated over half of operating income. Tight money and high interest rates - meant to contain inflation and support the currency - are nudging banks back into government paper as activity slows, in part because credit availability has thinned.
"Credit is stagnant," said Marcelo de Gruttola of Moody's Ratings, where he serves as a vice president and banking analyst. "There are factors on both the supply and demand sides: Banks have tightened lending standards, while demand has also weakened."
When banks buy government bonds instead of lending, growth suffers. Market Briefs covers that tradeoff free every morning.
With international funding still expensive and hard to access, the Treasury has leaned on domestic investors and banks to roll over its peso debt. Policy moves have helped. In August 2025, the central bank lifted reserve requirements and let banks satisfy part of the extra buffer with government paper acquired at Treasury auctions. Regulators later widened the set of public bonds eligible to count toward those reserves.
Those steps create a steady buyer base for government debt, push up the cost of money at home, and further slow loan growth. They also give banks another reason to keep pesos in public securities. That logic grows stronger heading into Argentina's 2027 presidential election.
Loans stick on balance sheets until they are repaid, while liquid securities can be offloaded quickly if conditions turn. "The peso can be extremely volatile. We saw that even around last year's midterm election," Vázquez said.
"Ahead of a presidential election like the one we expect in 2027, it makes sense for banks to be even more cautious."
Right now, banks can earn more reliably with government bonds than by putting new loans on the books in a choppy economy. The early rebound in private lending was real, but momentum has stalled and securities are again doing the heavy lifting for profits. If rates stay lofty and rules keep rewarding bond holdings, that tilt likely persists. Watch policy signals and election season nerves - they will shape how much risk banks take with your deposits versus how much they park in the Treasury's paper.
Crowding out is one of the quieter costs of government borrowing. Get the free Market Briefs daily newsletter and follow it.
