Article

Argentines increase ATM usage in face of crisis

A government-imposed freeze on certain financial transactions has caused an uptick in ATM usage in Argentina. Analysts say the trend may or may not continue, depending on how the public, the government and the country's banks respond to the continuing economic crisis.

December 30, 2001

Argentina has in a matter of weeks become the hottest ATM market in Latin America due to its government's increasingly drastic measures to fight its way out of a seemingly hopeless economic crisis.

The government is trying to avoid an outright default on its staggering U.S. $155 billion debt (federal and provincial), which could drive the country and its banks into bankruptcy if it becomes reality.

On Nov. 30 – due to rumors that the government would freeze deposits in the face of a default – the public began withdrawing their money from the banks en masse. During that black Friday, the financial system was drained of U.S. $1.3 billion in deposits.

Because of the run on cash, former President Fernando de la Rua and his economy minister Domingo Cavallo on Nov. 31 made a controversial decision; for a 90-day period, individuals could withdraw only U.S. $1,000 per month in cash.

"It was a classic effect of snowballing lack of confidence. No banks were exempt from the risk (of insolvency)," Fitch ratings senior director for Latin American banks Peter Shaw said of the government's freeze.

As many of Argentina's impoverished began to protest against the government's attempts to appease the International Monetary Fund (IMF) and its creditors, Cavallo decided to jump ship and resigned on Dec. 19. The whole cabinet followed suit in the face of a political and economic situation that seemed increasingly out of control.

Indeed, the country has had four presidents in less than two weeks. Most recently, Adolfo Rodriguez Saa quit after complaining that his Peronist party had abandoned him. The government is currently in the hands of House majority leader Eduardo Camano. Ramon Puerta, the Senate leader who served briefly as president after de la Rua's resignation, quit on Dec. 30 to avoid inheriting the presidency again.

Effect on ATMs

The freeze on withdrawals put the focus on ATMs, as all payments that could be made through ATMs and other electronic channels were exempted from the freeze.

"In Argentina people can pay utilities such as water, gas, electricity and city hall taxes" via the ATM, said Hector D' Alessandro, executive vice president of alternative distribution channels at Banco Galicia, Argentina's largest private bank. Because of this, Argentines have increasingly turned to ATMs to pay as many of their bills as possible – in order to spend the $1,000 they can withdraw in cash on other needs.

The Argentine Bankers' Association (ABA) registered 34.6 million ATM transactions during the first 12 days of the freeze, a 68.4 percent increase compared to November's first 12 days. The ABA also reported that debit card transactions were up 748 percent and online banking was up 245 percent. Thousands of Argentines have also flocked to the banks to open accounts in order to gain access to ATM, debit and credit cards.

"The banks' systems have been somewhat saturated due to the rapid increase in ATM use and other electronic channels such as Internet and telephone banking," said S & P banking analyst in Buenos Aires Claudia Lopez.

"In the face of the magnitude of the 'bancarizacion' (increased bank penetration), one can expect that there will be determined problems that will translated into inconveniences for the public, until they can be resolved in their totality," ABA's general director Norberto Peruzzotti told local press.

Jose Luis Garofalo, partner of Deloitte & Touche Argentina's Corporate Finance division, said that the country's two ATM networks (Banelco and Link) have been overloaded with the increased transactions. However, he added, "The problems should be solved rapidly because in terms of technology there are no limits."

Yet the ATMs of the largest private banks have responded well to the almost brutal pace in transactions, according to Mario Iglesias, alternative distribution channel manager at Banco Rio (NYSE: BRS) and Banelco director.

"The largest private banks in the Banelco system have had a readiness of between 94 percent and 97 percent" in the period since the deposit freeze, Iglesias said. In fact, he said hardware-related problems accounted for 1.8 percent of the overall 3-6 percent of ATM downtime. Communication problems represented another 1.1 percent, with cash-out problems accounting for only 0.21 percent of downtime.

There have been reports of attacks against bank branches and ATMs by people angry over the government's freeze of their savings, but Iglesias said that there have only been a few such incidents.

Will the boom continue? "urn:schemas-microsoft-com:office:office" /><?xml:namespace prefix = o />

The question today is if Argentina's ATM boom is a temporary phenomenon, or if it will continue into the New Year and remain at the levels registered in the past few weeks.

"ATM transactions will continue to increase because many people who have recently opened a bank account have not received their ATM cards yet, and a lot of people who have accounts and have not used their ATM cards will begin to use them now," Galicia's Alessandro said.

Before the freeze, some 30 percent of Argentines had a relationship with a bank. That percentage will likely jump to 50 percent because of the forced bank penetration, according to Deloitte & Touche's Garofalo. While that figure bodes well for a continued increase in ATM transactions, Garofalo said banks will have to work to retain new clients when the government decides to lift restrictions on cash withdrawals.

"If the new clients will stay within the financial system depends fundamentally if the banks succeed in facilitating access to other banking products (other than accounts)," he said, adding that "we have to wait until the end of March to see if that happens."

He believes that many of the new bank clients will remain in the system because they are learning how to use ATMs and plastic cards and will become accustomed to conducting their daily financial affairs in a less cash-intensive way. "Before (the deposit freeze) one expected that educating the population on electronic and plastic banking would take several years but now that education has to be much faster," he said.

Will banks invest in ATMs?

Wall Street and local analysts believe Argentine banks will increase their investments in ATMs and related technologies to meet the increased demand for electronic banking. "They will have to adapt to the new situation to meet demand," said Lehman Brothers director of Latin American equity research Robert Lacoursiere.

Galicia's Alessandro agreed and noted that before the deposit freeze the Argentine banks' investments in ATMs had been at low levels due to the country's drawn-out economic recession.

Confident that it can handle the new situation with its present ATM capacity, Banco Rio does not have any plans to install new ATMs next year, Iglesias said. Rio has Argentina's largest private bank ATM network with some 700 NCR and IBM machines, representing 11 percent of the country's total ATM fleet.

Even if Rio does not go shopping next year, the largest ATM player plans to implement a strategic shift in its ATM locations from off-premise sites back to good old brick and mortar, Iglesias said. "We will relocate between 60 and 80 machines next year to places with a higher transactional level."

Rio has some 180 ATMs at off-premise locations but only between 5-10 percent of them show a satisfactory transactional level (6,000-plus a month). "ATMs at the branches have a higher transactional level, are less expensive to operate and safer for the customers," Iglesias said.

Galicia already expected to install more ATMs at off-premise locations, and Alessandro said that the freeze has so far not altered that plan. Galicia has the second-largest ATM network after Rio, with 663 NCR and Diebold machines. Galicia has 102 ATMs installed at Shell gas stations, and the bank will increase that number to 189 by the end of 2002, Alessandro said.

Uncertain future

ATM providers should bear in mind that even if increased bank penetration keeps ATM transaction levels high – and pushes future demand for machines – Argentina is drifting dangerously close to an outright default on its debt, which could break the back of many banks and damage the ATM market for years to come.

Most analysts believe that the government will not lift the deposit freeze until enough confidence has been restored to avoid another run on bank deposits – and that may take some time. And nobody knows what will happen when the government does lift the cash restrictions.

"The rules of the game are still not clear and we're looking at an uncertain future," said Deloitte & Touch's Garofalo

Included In This Story

---

Diebold Nixdorf

As a global technology leader and innovative services provider, Diebold Nixdorf delivers the solutions that enable financial institutions to improve efficiencies, protect assets and better serve consumers.

Request Info

Learn More