Argentina's banks are lending to companies and households again. Private-sector bank credit in pesos reached 9.2% of GDP in July, up from 5.2% at the end of 2023, according to the central bank. Including foreign-currency lending, the total reaches 12.5% of GDP: still exceptionally low by regional standards.

The revival marks a profound change for a banking system that spent years allocating a large share of its balance sheet to central-bank and government instruments rather than the private economy. After Javier Milei took office in December 2023 promising to revive the ailing economy, attract investment and rein in spiralling inflation, his government began dismantling the monetary framework that had encouraged banks to hold remunerated liabilities and public securities. The shift was reinforced by a new IMF programme in 2025, which put rebuilding reserves and ending monetary financing at the centre of the stabilisation effort. As inflation fell and interest rates declined, lending to the private sector became increasingly attractive.

But the recovery has now entered a more complicated phase. Credit is still expanding, particularly to businesses, while household delinquency has climbed into double digits. The latest data suggest that Argentina is beginning to discover what happens when a banking system moves rapidly from financial repression and shallow credit markets into a genuine lending cycle.

From state financier to lender

The scale of the change is striking. In July, bank credit to the private sector in pesos stood at about 9.2% of GDP. Including foreign-currency lending, the ratio reached 12.5% of GDP, according to the central bank. Total private-sector credit in all currencies rose 10.1% year on year in real terms in June, while foreign-currency lending alone was up 53.2%.

Foreign-currency lending, which barely featured in the banking system in 2023, now accounts for a growing share of that total. Even so, the direction is unmistakable: Argentina's banking system is moving substantially more money into the private economy.

The change follows the dismantling of the monetary architecture that had made central-bank and government paper an important alternative to private lending. The LELIQ system was wound down under Milei, while the Treasury's LEFI instruments, introduced in 2024 as part of the transition away from BCRA remunerated liabilities, were eliminated in 2025.

It would be too simple, however, to say that the government "forced" money into the economy. The credit revival also reflects falling inflation and interest rates, improving bank funding conditions and a recovery in demand for loans. The BCRA says private-sector financial intermediation continued to deepen in the second quarter while banks retained substantial liquidity and capital buffers.

The result is a banking system that is increasingly behaving like a conventional lender rather than primarily a holder of government and central-bank paper.

A tiny market with room to grow

Even after the expansion, Argentina's credit market remains unusually shallow.

Bank credit to the private sector at roughly 12.5% of GDP is a fraction of the levels seen elsewhere in South America. Brazil is above 70% of GDP, while Chile is also around 70%; Bolivia is above 50%.

That gap is one reason Milei's economic team sees financial deepening as a potential source of growth. Argentina does not need to reach Brazilian or Chilean levels for the change to be economically significant. A few additional percentage points of GDP in bank lending would represent a large increase in financing for mortgages, consumer purchases, working capital and business investment.

The question is whether the banking system can expand without recreating the credit problems that accompany rapid lending growth.

The first signs of stress

There are already warning signs, particularly among households.

The BCRA reported that the delinquency ratio on household financing reached 12.8% in June, while the equivalent ratio for companies was just 3.5%. Overall private-sector credit delinquency was 7.6%. Importantly, the aggregate ratio actually edged down in June as real credit growth accelerated, suggesting that the deterioration in the existing loan book has not yet overwhelmed the expansion of performing loans.

The contrast between households and companies is significant. The credit boom is not producing uniform stress across the economy: consumer lending is showing much more pronounced deterioration, while corporate credit remains considerably healthier.

That pattern is also visible at the major banks.

At BBVA Argentina, the non-performing-loan ratio rose to 6.09% in the second quarter, from 5.60% in the first. The deterioration was concentrated in retail products, particularly credit cards and consumer loans. Commercial delinquencies remained comparatively contained.

Loan-loss provisions remain high as a result. BBVA's second-quarter loan-loss allowances rose 16.2% from the previous quarter, although the bank said the underlying level was broadly stable after adjusting for one-off effects in the first quarter.

This is the uncomfortable side of financial deepening: after years in which households had little access to bank credit, banks are now discovering how borrowers behave when consumer lending becomes widely available again.

Not yet a banking crisis

The deterioration in credit quality should not be confused with a systemic banking problem.

Argentina's banks entered the expansion with unusually large capital and liquidity cushions. The BCRA reported a system-wide capital ratio of 29.8% of risk-weighted assets at the end of June, while provisions covered 86.6% of irregular private-sector loans. The aggregate probability of default estimated by the central bank was just 2.6%.

Profitability has also held up better than the first-quarter numbers suggested.

Galicia's first-quarter earnings had fallen sharply as provisions increased and asset quality deteriorated. But by the second quarter the picture had improved considerably, with quarterly profitability recovering even as the group's non-performing-loan ratio climbed to roughly 10.6%.

BBVA tells a similar story from a different angle. Second-quarter net income reached ARS131.6bn (around $86mn), up 44.6% from the first quarter and 65.2% from a year earlier. Its real ROE rose to 12.2%, from 8.3% in the first quarter. Its net interest margin was 18.2%, only modestly below the 18.6% recorded in the first quarter.

The implication is important: rising defaults are eating into returns, but they have not yet prevented the major banks from generating healthy profits.

The end of the easy money trade

That matters because the economics of Argentine banking are changing.

For years, high inflation and financial repression created powerful incentives to hold liquid, high-yielding government and central-bank instruments rather than extend long-term loans into an economy with unstable prices, weak collateral values and uncertain creditworthiness.

Disinflation is removing that advantage.

Annual inflation stood at roughly 33.5% at the end of June, according to INDEC, while BBVA's second-quarter results show how falling inflation and interest rates are changing the composition of bank earnings. Its reported NIM remained high at 18.2%, but the bank noted that the decline in funding rates was increasingly affecting interest income.

The challenge for banks is therefore not simply to lend more. They must learn to price credit properly, control underwriting standards and manage defaults in an economy where nominal rates, inflation and the exchange rate are all undergoing rapid adjustment.

The monetary reset underneath

The transformation in banking is inseparable from the firebrand libertarian's monetary experiment.

The government has pursued fiscal surpluses and a sharp reduction in monetary financing of the Treasury, while the BCRA has moved away from the remunerated-liability structure that dominated the previous monetary regime.

In July, peso-denominated private-sector bank credit increased 1.2% in real, seasonally adjusted terms. Including foreign-currency lending, private-sector bank credit reached 12.5% of GDP. At the same time, transactional private-sector money continued to recover, suggesting that the process is increasingly being driven by a normalisation of money demand rather than simply by monetary expansion.

The exchange rate remains a source of uncertainty. The peso has traded within the government's managed exchange-rate band, while the BCRA's reserve accumulation and intervention strategy continue to shape expectations. The bank's July report said the monetary base expanded in real terms for the first time in ten months, while the private transactional M2 money supply grew 1.8% in real terms during the month.

The government's proposed reform of the BCRA charter is another part of the same project. But it is important to distinguish legislation from policy already in force: the proposed changes would further restrict monetary financing of the Treasury and strengthen the emphasis on monetary stability; they should not yet be described as an enacted rewrite of the central bank's mandate.

Argentina's banking story is therefore less straightforward than a simple credit boom.

The first phase was about freeing banks from a system in which public-sector instruments absorbed a large share of financial intermediation. The second is about turning that liquidity into private credit. The third, now just beginning, is about proving that the new lending can be sustained without a wave of losses.

So far, the evidence is mixed but not alarming.

Private credit is growing. Corporate lending looks considerably healthier than household lending. Delinquencies have risen sharply among consumers, but the system as a whole remains highly capitalised and liquid. And the large banks are still profitable.

That leaves Argentina with an unusual problem: after years of having too little credit, it now has to learn how to manage more of it.

For Milei, that may prove as important as the initial stabilisation. A shallow banking system can constrain growth; a rapidly expanding but poorly underwritten one can destabilise it. The success of Argentina's financial reset will ultimately depend on finding the narrow path between those two risks.

The credit revival has begun. Whether it becomes a durable engine of investment and consumption – rather than another source of financial stress – is the next test.