Galicia Considers Stock Issuance and Calls for Mortgage Securitization

Buenos Aires — Argentina needs to develop a mortgage securitization market similar to the Fannie Mae and Freddie Mac model in the United States to drive sustainable growth in this emerging credit segment, said Fabián Kon, CEO of Grupo Financiero Galicia (GGAL), in an exclusive interview with Bloomberg Línea.

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After completing the acquisition of HSBC Argentina, the country’s largest private bank by total assets has ruled out the possibility of further mergers and acquisitions (M&A) activity in 2025. However, Kon indicated that the bank might consider a new stock issuance around 2026-2027, provided that demand for credit in the private sector continues to recover. The bank would only take this step if Argentina’s current economic rebound proves to be sustainable over time.

“If capital levels were to come under pressure—it isn’t the case today, because banks still have plenty of capital—which could happen in a year or two, banks would need to raise capital, and we could do that by issuing shares,” the executive explained.

In Latin America, bank ROEs are between 10-20%. Those are normal for banks in Latin America, while in Europe they are somewhat lower. In the United States, they are also lower, because these are more stable, developed economies

Fabián Kon, CEO del Grupo Financiero Galicia

Kon highlighted Galicia’s US$650 million issuance in 2017, emphasizing the strong international appetite for Argentine banking assets during periods of macroeconomic stability: “We were offered more than US$2 billion, which means there is room for growth, to issue capital, and that would allow us to lend more and consolidate your position; I’m optimistic and hopefully we’ll be investing capital in a couple of years.”

“I don’t think it will happen in 2025, because we have a lot of capital, but in 2026-2027 it could be an alternative for us and for other banks,” he added.

The securitization of mortgage loans in Argentina

For mortgage lending to thrive in Argentina, Fabián Kon called for resolving “the issue of having someone, probably an investment fund or ANSES [National Social Security Administration],” to implement a “mortgage securitization” system.

Although Galicia’s mortgage loans grew by 136% year-over-year in real terms during the third quarter of 2024, they still account for only a small portion of the bank’s total loan portfolio. At ARS$117,391,000,000, this segment represents just 1.9% of total credits.

Kon explained that securitization would standardize loans in terms of duration and interest rates, allowing specialized institutions to purchase them and thereby create a long-term market for these assets. Institutions would buy mortgages from banks, convert them into bonds backed by the loans, and offer investors a secure income stream, guaranteed by real and diversified assets, which significantly reduces lending risks.

Kon stressed that securitization has the potential to free up lending capacity in banks, enabling them to issue more loans and inject life into the real estate market. These bonds are typically purchased by pension funds or other long-term investors, ensuring financial system stability, he added.

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While Argentina has not had private pension funds for years, “it’s necessary to seek long-term mechanisms that allow for the structuring of these types of instruments,” Kon said. To support this, he advocated for the creation of an intermediary institution that could promote access to housing and regulate the development of the mortgage market.

Addressing concerns about the existing UVA system—under which mortgage repayments are automatically adjusted to inflation—Kon expressed confidence: “Mortgages have been repaid even in high-inflation contexts. Therefore, in lower-inflation contexts,” there is even less risk of defaults.

Why mortgage rates are ticking up in Argentina

Argentina’s largest private sector banks—Santander, BBVA, Macro, Supervielle, and Galicia—have recently increased their UVA mortgage loan rates to a range of 5.5–8.5%, up from 4.5–6.5% at the start of 2024.

When asked about the reasons for these adjustments, Galicia explained that the bank’s initial rates had been set exceptionally low as a promotional measure, since the product had been inactive since 2018.

“We are convinced about continuing to support our clients in their dream of homeownership, and we want to do it sustainably, with banks eventually securitizing these 30-year credit lines. That’s why we believed a small adjustment was necessary, which did not affect client interest,” the bank stated.

Private sector loans are on the rise

Private credit in Argentina could reach approximately 9–10% of GDP by the end of the year, a significant increase from the 6% recorded at the close of 2023, Fabián Kon projected. This growth represents a turning point for the Argentine financial system, which had long prioritized holding government securities over lending.

“You’re talking about a 60–80% growth in real terms,” the executive noted.

Banks have axed public sector holdings

The Argentine financial system is undergoing a profound transformation, with banks gradually reducing their exposure to public bonds as a percentage of total assets. “If we started out at 100, you could say we have reduced our exposure to 70,” explained Kon regarding the restructuring of Galicia’s balance sheet.

The executive emphasized that banks are returning to their traditional role. “Banks are here to make life easier for companies, to make life easier for people. An entrepreneur needs a loan to develop their business, a person needs a loan to buy a car, to buy an apartment,” he stressed.

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Argentine bank ROEs should align with regional average

Regarding the profitability of Argentine banks, whose margins have narrowed in 2024, Kon stated that return on equity (ROE) levels should stabilize at levels similar to those in other countries in the region. “In Latin America, banks’ ROEs are between 10% and 20%. That is a normal ROE for a bank in Latin America, and in Europe, they are slightly lower. In the United States, also a bit lower, because they are more stable, developed economies,” he explained.

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The executive acknowledged that bank ROEs in Argentina have been volatile in recent years due to high inflation. “The ROEs of recent years looked like a cardiogram because they depended on very high rate numbers. If inflation was 25% and you had assets yielding 20%, you lost,” he explained.

Integration after HSBC Argentina acquisition

Galicia is in the process of integrating the operations of HSBC Argentina, which it recently acquired and has temporarily rebranded as Galicia Más. “The next step is integration, after which there will be only one bank, Galicia; this will happen in June,” Kon announced.

The process involves several technical and operational challenges. “Two things need to be done: first, merge the two banks fiscally and legally, and then integrate the client-facing technology,” the executive explained, emphasizing that “this must be done without causing inconvenience or annoyance to the client.”

Fintech spinoff Naranja X: Eight million users

In the digital arena, Galicia is facing growing competition from fintech companies and neobanks. Kon acknowledged the success of Nubank in Brazil, describing it as “probably the most successful digital bank in the world,” but noted that Argentina already has a similar case with Mercado Pago, which “is a very successful platform in Argentina; it’s not a bank… [although] they surely have plans to become one at some point.”

Galicia’s response has been multifaceted: in addition to its traditional platform, the group operates NaranjaX, which, according to Kon, “has nearly eight million active customers.” The executive emphasized that competition is evolving toward more sophisticated services: “It will be more focused on who helps people better manage their finances, not necessarily on remunerating an account.”

On the other hand, Kon highlighted that Galicia and other Argentine banks will remain resilient against the fintech advance due to the diversification of their business portfolios. Although fully digital competitors have seen significant growth in the retail segment, banks also have corporate, SME, and foreign trade businesses, among others.

Dollar-denominated loans take off

Regarding the growth of dollar-denominated loans, Kon explained that the increase in deposits due to a successful tax amnesty whitewash and the reduction in perceived risk have enabled the expansion of this portfolio. “Today, the risk of a dollar run seems more distant in Argentina,” he noted, although he cautioned that loans remain primarily short-term for precautionary reasons.

During periods of high uncertainty, “banks preferred not to lend dollars to ensure they could return them to depositors in the event of a currency run,” Kon explained. However, with reduced risk and a larger deposit base, financial institutions have started offering dollar loans, although they are mostly short-term for now.

The executive stressed the importance of caution, emphasizing that banks must respect currency and maturity matching to avoid risks from taking dollar deposits and lending in pesos or for long terms. He highlighted that Argentina must evolve toward a more robust capital market to finance long-term projects, with structures allowing companies to attract investment and refinance debt through stock issuance. “These transformations are key for the country’s future economic development,” he stated.

Galicia’s top priorities in 2025

Looking ahead, Kon identified three main objectives for 2025:

• “That Galicia clients and former HSBC clients have a smooth transition—’suave, sin ruido,’ as Americans say—and that they feel better off than before.”
• “That the team we have incorporated, now Galicia Más, integrates into a single culture.”
• “That we have the best digital tools in the market.”

The executive warned that the main challenge for the Argentine financial sector remains structural. “All countries worldwide, including those in Latin America, have changed and understood that fiscal discipline is non-negotiable,” he emphasized, adding that “fiscal health benefits those with fewer resources the most.”