Federal banking regulators are upgrading the status of loans to Argentina in recognition of the progress that country is making in solving its international debt problems, banking sources said yesterday.
The regulators, who last fall classified as "substandard" the bulk of Argentine loans on the books of U.S. banks, have decided to upgrade those loans now that the debtor nation has reached an accord with the International Monetary Fund and has paid a substantial portion of its overdue interest.
The ruling will permit the banks to remove many of the Argentine loans from their problem lists and could be a shot in the arm to profits at many financial institutions.
About 320 banks around the world have made loans totaling about $25 billion to Argentina. U.S. banks hold about $8.5 of that amount. All told, Argentina has about $47 billion in outstanding foreign debts -- including loans from other governments and multinational institutions as well as debts incurred by its private companies.
Sources said the regulators will inform U.S. banks that they have decided to remove Argentine credits from the substandard classification in a letter that some banks could receive as early as today. Argentine government loans will be classified as "other transfer risk," a category that alerts banks to pay special attention to the loans but that does not require any other actions on the part of banks.
Most loans that regulators classified as substandard generally are placed on problem lists at banks. That usually cuts into the income they can declare for those loans.
Regulatory and banking sources said the upgraded status of Argentine loans might make it easier for Argentina and its major bank lenders to break down the resistance of smaller banks that have refused to lend the debtor nation any new funds in 1985.
Last month, Argentina's major lenders agreed to a plan that would pump $4.2 billion in new funds to Argentina and stretch out repayment of another $13.4 billion in loans that either have come due or will before the end of the year.
Banking sources said that about 95 percent of the $4.2 billion has been committed but that the final 5 percent is becoming very difficult to round up. The holdouts, for the most part, are smaller European banks and some U.S. regional banks.
Argentina generated much ill will among its worldwide contingent of bank lenders because it dragged its feet for nearly two years before coming to terms with both the IMF -- the international financial rescue agency -- and the bankers. Other major debtors, such as Mexico and Brazil, undertook stringent IMF programs and negotiated new repayment schedules with their bank lenders starting in early 1983.
As a gesture to the banks, Argentina recently paid $850 million of its roughly $1.2 billion in overdue bank interest payments and promised to have all its loans on a current basis by mid-year, even though it had not yet received new bank loans. Its interest payments are current through Nov. 4.
Argentina needs the new money not only to help it pay the interest it owes banks but to ease the strain on the country as it undertakes an "adjustment" program approved by the IMF. That program involves a clampdown on wage increases to help fight inflation, a devaluation of the Argentine peso to make exports more attractive and a reduction in spending by the Argentine government to reduce its need to borrow.