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Rating Action:

MOODY'S ASSIGNS RATINGS TO SIX ARGENTINE BANKS

17 Nov 1995
MOODY'S ASSIGNS RATINGS TO SIX ARGENTINE BANKS New York, 11-17-95 -- Moody's assigned long-term foreign-currency deposit ratings of B1, short-term foreign-currency deposit ratings of Not Prime, and Bank Financial Strength Ratings ranging from D+ to E+ to Banco de la Nacion Argentina, Banco de la Provincia de Buenos Aires, Banco de la Ciudad de Buenos Aires, Banco Roberts, Bansud (the entity resulting from the merger of Banco del Sud and Banco Shaw), and Banco Quilmes. Moody's also assigned B1 ratings for long-term foreign-currency bonds to Banco de la Nacion Argentina, Banco Roberts, Bansud, and Banco Quilmes. Not Prime ratings for foreign-currency commercial paper were assigned to Banco de la Ciudad de Buenos Aires and Bansud.

Moody's said that the effects which the Mexican peso crisis has had on Argentina served as a reminder how fragile investor and depositor confidence remains four years into the Convertibility Plan, which brought Argentina a monetary board-like foreign currency regime, good economic growth, and low inflation. The decrease of deposits in the banking system uncovered systemwide structural deficiencies and large pockets of weak banks. Various regulatory initiatives, including the establishment of a deposit insurance fund, have stabilized the banking system and facilitated the orderly exit or consolidation of weak banks. Depositor confidence has strengthened, but remains impaired, as depositors do not focus merely on the quality of individual financial institutions, but also on the possibility of government initiatives that may be taken in response to economic and financial crisis conditions. Depositors have not forgotten the forced rescheduling of domestic bank deposits under the BONEX plan in December 1989.

Moody's noted that there are several threats to the asset quality of Argentine banks. Real interest rates are high and are not likely to fall until the peso/dollar parity has become entirely embedded in market psychology. High rates pose a threat for the real economy which is in recession. Repeated challenges to depositor confidence could further increase real rates and reduce borrowers' capacity to repay debt. The recent surge of recession-induced bankruptcies among Argentina's small- and medium-sized companies is resulting in significant increases of nonaccrual loans. Peso parity with the dollar remains a crucial condition for the health of the banking system. Devaluation would result in a sharp increase of nonperforming loans, since most loans are denominated in U.S. dollars and are made to middle-market borrowers and households that do not have meaningful U.S. dollar income. Also, if deposit outflows were to resume at a significant pace, all banks in Argentina, including some of the relatively strong institutions rated by Moody's, could suffer from liquidity pressures.

These factors constitute potential threats to the financial strength of banks, and are reflected in the financial strength ratings assigned by Moody's to Argentine banks. Unlike Moody's deposit and bond ratings, Bank Financial Strength Ratings use a scale from A through E and do not consider support from owners, affiliates, guarantors, governments, or the banking system. These ratings also ignore foreign-currency transfer risks which cap the debt and deposit ratings of Argentine banks at the country's sovereign rating of B1. Bank Financial Strength Ratings focus on the defensability of a bank's franchise, the sustainability of its earnings, the quality of its assets, its levels of liquidity, reserves, and capital. Moody's considers high levels of liquidity, reserves, and capital to be of particular importance for Argentine banks, because they provide ready protection in the event of a sudden and severe deterioration of operating conditions. In addition, banks with superior capital and franchises will be in a privileged position when growth returns to Argentine credit markets where levels of financial intermediation have been moderate so far.

Banco de la Nacion Argentina (Nacion) has Argentina's largest branch network and is active in retail, middle-market, and corporate banking. Nacion is fully owned by the Argentine government which also guarantees the bank's obligations. The bank is one of the leading providers of trade finance in Argentina, part of its lending activities are subject to guidance by Argentine government policies. The bank's mission to provide banking services to all of Argentina's regions is rewarded by its ability to collect relatively stable deposits. Nacion's financial fundamentals reflect the special role that it plays as a very large public-sector institution. The net interest margin is one of the lowest, while overhead expenses relative to net revenue are comparatively high. Liquidity is good and capitalization is adequate. Non-accrual loans have been increasing for some time and the ratio of non-accrual loans to equity and reserves is high by Argentine standards, as well as by international standards. Moody's assigned a Bank Financial Strength Rating of D to Banco de la Nacion Argentina. Banco de la Nacion Argentina, headquartered in Buenos Aires, Argentina, had total assets of $12.2 billion as of June 1995.

Banco de la Provincia de Buenos Aires (Provincia) has an extensive banking franchise in Argentina's economically most important region. Provincia is owned by the Province of Buenos Aires which also guarantees the bank's obligations. The bank's financial fundamentals are sounder than those of other public sector banks in Argentina. The bank's strengths are its retail deposit collection capacity and its middle market lending. Provincia is improving internal monitoring and information systems which should lead to an improvement of internal controls and an increase of efficiency indicators which are average by Argentine standards. Net interest income is high, but so are credit expenses. While Provincia has restructured large portions of previously poorly performing older public sector exposures and has reduced its public sector lending, it continues to suffer from a quite elevated amount of nonperforming loans in its commercial and consumer loan portfolios. In addition, asset quality in Argentina has come under strong pressure due to the current recessionary environment. Reserve coverage is, however, good by Argentine standards and Provincia has shown a proactive approach towards keeping asset quality under control by charging off bad loans. This could hurt the bank's profitability and could lead to a slowdown in earnings retention, the bank's principal source of capital. Moody's assigned a Bank Financial Strength Rating of D+ to Banco de la Provincia de Buenos Aires. Banco de la Provincia de Buenos Aires, headquartered in Buenos Aires, Argentina, had total assets of $7.1 billion as of June 1995.

Banco de la Ciudad de Buenos Aires (Ciudad) has a well established banking franchise in Argentina's capital where it principally provides banking services to small- and medium-sized companies, as well as middle-income households. The bank is owned by the City of Buenos Aires which also guarantees Ciudad's obligations. Being Argentina's federal district, the City of Buenos Aires itself can count on assistance from the federal government. Ciudad's deposit collection capacity is enhanced by a monopoly on judicial deposits in Buenos Aires. The bank also provides banking services, including lending, tax collections, and payroll transfers for the City of Buenos Aires. Ciudad is suffering from high nonperforming loan amounts and low levels of operating efficiency. Net interest and fee income is somewhat below the average for large Argentine banks, operating efficiency is low, and credit costs are high due to a large amount of nonperforming loans. Since 1994, the bank has had net losses and the bank's capitalization has suffered as a consequence. The bank is undergoing a strategic redirection under new management which is designed to improve its financial performance in the future. Moody's assigned a Bank Financial Strength Rating of E+ to Banco de la Ciudad de Buenos Aires. Banco de la Ciudad de Buenos Aires, headquartered in Buenos Aires, Argentina, had total assets of $1.7 billion as of June 1995.

Banco Roberts, S.A. (Roberts) is one of Argentina's larger private banks. It has traditionally focused on providing a comprehensive range of disintermediation, credit, and other banking services to large companies and higher income households. The bank has built a valuable franchise with domestic and international customers by providing high quality services. At the same time, Roberts stands out as the most efficient of Argentina's larger banks with good cost control and comparatively optimal use of its small branch network. The bank's traditionally sound profitability could suffer from credit costs resulting from a marked deterioration of asset quality that began in the first quarter of this year. Reserve coverage, though lower than in previous reporting periods, is still good by Argentine standards. Capital is lower than is the case for most of Roberts' peers and could prevent the bank from taking advantage of future growth opportunities. Moody's assigned a Bank Financial Strength Rating of D+ to Banco Roberts. Banco Roberts, S.A, headquartered in Buenos Aires, Argentina, had total assets of $1.8 billion as of June 1995.

Bansud is the product of a merger of Banco del Sud (Sud) and of Banco Shaw (Shaw) (previously owned by Banesto, a Spanish bank). The merger was formally announced in March 1995 and is presently close to consummation. In the merged bank, Banamex, a Mexican bank, will indirectly hold the majority of shares and will assist Bansud in accomplishing post-merger synergies. While Sud is a regional bank with a comparatively weak share of deposits in its overall funding mix, Shaw is a Buenos Aires-based bank with good deposit collection capacity. The two institutions geographical coverage and funding structure therefore complement each other well. Apart from an improvement of the combined entity's franchise, the merger should also allow the realization of cost savings, supporting efforts to improve operating efficiency that is below average when compared to other large banks in Argentina. Prior to the merger, Sud outperformed Shaw in a number of respects, most notably with regards to profitability and credit quality. Bansud, the merged bank, is therefore likely to display average financial fundamentals during the period following the merger. The merger will be followed by a number of initiatives to improve Bansud's franchise, funding structure, operating efficiency, and credit quality. However, because of Argentina's difficult operating environment, Bansud is not likely to make rapid progress in the short run, and asset quality in particular may suffer further from recessionary economic conditions. Bansud's principal strength is a level of capitalization that presently is among the highest in Argentina. This should enable the bank to grow while maintaining good capital adequacy. Moody's assigned a Bank Financial Strength Rating of D to Bansud. Bansud, S.A, headquartered in Buenos Aires, Argentina, had total assets (based on combined assets of Banco del Sud and Banco Shaw) of $1.7 billion as of June 1995.

Banco Quilmes (Quilmes) is a medium-sized private bank with a well diversified countrywide franchise that traditionally has been serving private individuals, as well as small- and medium-sized companies. Both the bank's profitability and credit quality are below average compared to Argentina's larger banks. Capital and loan loss reserve levels are average. A number of poorly underwritten loans originated in the early 1990s prompted a review of internal controls and procedures. This process has gained momentum with the acquisition of a substantial share of capital by The Bank of Nova Scotia, a Canadian bank. The Bank of Nova Scotia actively participates in the management and strategic direction of Quilmes. The most significant change in strategy is the targeting of larger corporate and multinational borrowers that want to entertain banking relationships with a bank that is affiliated to The Bank of Nova Scotia. To support this plan, The Bank of Nova Scotia is committed to transfer its expertise in corporate lending, consumer credit, and other banking services to Quilmes. Moody's assigned a Bank Financial Strength Rating of D to Banco Quilmes. Banco Quilmes, S.A, headquartered in Buenos Aires, Argentina, had total assets of $1.1 billion as of June 1995.

The following ratings were assigned:

Banco de la Nacion Argentina: long-term foreign-currency deposits, B1; senior unsecured long-term foreign-currency bonds, B1; short-term foreign-currency deposits, Not Prime; bank financial strength rating, D.

Banco de la Provincia de Buenos Aires: long-term foreign-currency deposits, B1; short-term foreign-currency deposits, Not Prime; bank financial strength rating, D+.

Banco de la Ciudad de Buenos Aires: long-term foreign-currency deposits, B1; B1; short-term foreign-currency deposits, Not Prime; foreign-currency commercial paper, Not Prime; bank financial strength rating, E+.

Banco Roberts, S.A.: long-term foreign-currency deposits, B1; senior unsecured long-term foreign-currency bonds, B1; short-term foreign-currency deposits, Not Prime; bank financial strength rating, D+.

Bansud, S.A. (the entity resulting from the merger of Banco del Sud, S.A. and Banco Shaw, S.A.): long-term foreign-currency deposits, B1; senior unsecured long-term foreign-currency bonds issued by Banco del Sud, S.A., B1; short-term foreign-currency deposits, Not Prime; foreign-currency commercial paper issued by Banco del Sud, S.A., Not Prime; bank financial strength rating, D.

Banco Quilmes, S.A.: long-term foreign-currency deposits, B1; senior unsecured long-term foreign-currency bonds, B1; short-term foreign-currency deposits, Not Prime; bank financial strength rating, D.

No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.

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Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any rating, agreed to pay to Moody’s Investors Service, Inc. for ratings opinions and services rendered by it fees ranging from $1,000 to approximately $2,700,000. MCO and MIS also maintain policies and procedures to address the independence of MIS’s ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”

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MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

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