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Rating Action:

Moody's Latin America affirms ratings; changes to negative outlook on multiple Argentine banks, finance companies and securities firms; downgrades three firms' ratings

 The document has been translated in other languages

16 Jul 2019

Buenos Aires City, July 16, 2019 -- Moody's Latin America ACR S.A. has today affirmed ratings and assessments of 22 Argentine banks, finance companies and securities firms. At the same time, Moody's lowered the standalone assessments and downgraded the ratings assigned to Rombo Compañía Financiera S.A., GPAT Compañia Financiera S.A.U. and Balanz Capital Valores S.A.U. Moody's also changed to negative, from stable, the outlook on the ratings of 21 banks, finance companies and securities firms following the change in outlook to negative, from stable, on Argentina's B2 government bond rating announced on 12 July 2019. For additional information, please refer to the related press release: "Moody's changes Argentina's outlook to negative from stable; affirms B2 ratings, https://www.moodys.com/viewresearchdoc.aspx?docid=PR_403831 ".

Please click on this link https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_203948 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and identifies each affected issuer.

RATINGS RATIONALE

The rating actions were prompted by the change in outlook to negative, from stable, on Argentina's B2 bond rating, which reflects the increased uncertainty regarding continued fiscal consolidation needed to restore access to international capital markets and reduce the potential for currency shocks, and the risk of policy shifts which would trigger strong market volatility, either before or after the upcoming elections, causing exchange rate pressures that would further stress Argentina's credit metrics.

The exchange rate shocks have pushed inflation close to 60%, while interest rates have spiked, and will result in two consecutive years of falling economic output. Another sudden depreciation would impact credit metrics, push inflation higher and potentially affect economic recovery prospects, which would in turn continue to weaken the banks' asset quality, profitability, capitalization and business prospects.

In line with the affirmation and negative outlook on the sovereign ratings, Moody's affirmed the assessments and ratings of 22 banks, finance companies and securities firms, and changed the outlook on the ratings of 21 of those entities to negative, from stable, while it maintained the outlook on Banco Hipotecario S.A., which was already negative before this rating action. The rating actions take into account the high underlying inter-linkages between the banks' standalone credit risk profiles and that of the sovereign, in light of their direct and indirect exposure to the sovereign through sizable government and central bank securities holdings, and the fact that they remain highly exposed to a challenging operating environment.

Current economic conditions, including recession, high inflation and extraordinarily high interest rates are significantly reducing banks' business prospects, affecting their asset quality, increasing their funding costs and reducing their inflation-adjusted profitability, while subdued loan growth has prevented a larger drop on their capital metrics.

Partially offsetting these weaknesses and supporting the ratings affirmations, are the banks' ample liquidity buffers and a funding profile based on relatively stable, predominantly domestic currency core deposits. Additionally, capital buffers of most rated banks will likely be enough to withstand projected loan losses till year-end 2019 despite adverse market conditions.

Also, large banks with well-established businesses have the advantages of more creditworthy customers and large retail core deposit balances that will help keep their funding comparatively affordable. However potential adverse macroeconomic developments, which underpin the negative outlook on the sovereign and include potential continued economic recession, high inflation and pressure on the sovereign's funding profile, would in turn negatively affect banks' operating environment and therefore their credit profile.

Notwithstanding the negative outlooks on global scale ratings, the outlooks on most of the corresponding national scale ratings remain stable to reflect the likelihood that even if the global scale ratings are downgraded, the national scale ratings could still not be affected.

RATIONALE FOR THE DOWNGRADE OF ASSESSMENTS AND RATINGS OF THREE FIRMS

GPAT Compañia Financiera S.A.U.

Moody's downgraded the baseline credit assessment (BCA) of GPAT Compañia Financiera (GPAT) to b3 from b2, the long-term local currency deposit and the senior unsecured debt ratings to B2 from B1, and the long-term national scale deposit rating A1.ar, from Aa3.ar. The action reflects GPAT's weakened financial profile, resulting from significant decline in business volumes and deteriorating credit conditions that have eroded earnings generation. At the same time, GPAT's wholesale funding structure has been significantly impacted by the high interest rates in Argentina, directly affecting the firm's profitability. In addition, GPAT's short-term debt maturity profile constrains the firm's financial flexibility during a negative economic cycle, exerting pressures on the company's liquidity position.

Owned by Banco Patagonia S.A. (B3 negative), GPAT's captive franchise is limited to providing auto finance to high and medium income households, a strategy that benefits fromfavorable economic conditions. However, GPAT's loan origination volumes have contracted significantly since the end of 2018. The loan book declined by about 20% in nominal terms considering twelve months ended in March 2019, more than 50% in real terms. Conversely, capitalization remains adequate to absorb losses, favored by the moderation in balance sheet growth. In March 2019, Moody's tangible common equity ratio relative to risk weighted assets was strong at 13.2%.

Moody's also downgraded by one notch the local currency deposit and senior unsecured debt ratings assigned to GPAT, to B2 from B1, maintaining the moderate probability of parental support to be provided by its ultimate controlling shareholder, Banco do Brasil S.A. (Ba2, stable, ba2 BCA), in the event of stress.

Rombo Compañia Financiera S.A.

Moody's lowered the standalone assessment and supported ratings assigned to Rombo Compañía Financiera S.A. (Rombo) to b3, from b2, following the weakening credit profile under current challenging operating conditions. As the captive finance company of Renault S.A. (Baa3 stable), Rombo has faced rising funding cost, higher delinquencies and credit costs, that together with limited business volumes, have lowered their earnings on an inflation adjusted basis. The firm's standalone assessment incorporates its monoline business profile, typical of captive finance companies, which is centered on few products, limiting the scope for revenues generation. Rombo's characteristic wholesale funding profile, largely composed of debt issued in the domestic market, interbank loans, and deposits from financial institutions, tends to expose them to funding volatility and rising interest rates conditions. While Rombo's outstanding debts and deposits are quickly re-priced at higher rates, the new loan origination has been contracting since mid-2018 and remains subject to rising delinquencies -- nonperforming loans rose to 2.1% from 1.6% in June 2018, factors that have been constraining their earnings generation capacity. On the other hand, lower lending prospect will help preserve capital consumption and limit all funding needs.

Moody's downgraded the supported local currency deposit and debt ratings assigned to Rombo to B1 from Ba3, in view of the downgrade of its BCA to b3, from b2. However, the assessment of support from its parent company RCI Banque (Baa1, stable), continues to lead to a one notch uplift on the deposit and debt ratings of B1.

Balanz Capital Valores S.A.U.

Moody's downgraded Balanz Capital Valores S.A.U. (Balanz)'s issuer rating to Caa1 from B3 to reflect the weakening and volatile performance over the past quarters. . The ratings also incorporate the possibility that Balanz's extremely volatile results could give rise to losses that could demand incremental capital in order to help bolster its funding and liquidity profile. Balanz's exposure to the sovereign risk in the form of sizable holdings of government securities within its investments portfolio has added volatility to the company's earnings in light of the current market turmoil and explains its earnings performance. Balanz's ratings also incorporate its position as the largest non-bank fixed-income brokerage house operating in the Argentinean market. It was the leader in Bolsas y Mercados Argentinos S.A. (BYMA)'s fixed income market, the 5th largest player in BYMA's equity market, and it had a good position in in the Mercado Abierto Electronico (MAE).

Efforts to diversify its franchise and improve the quality of earnings generation has led Balanz to expand in recent years into trading activities for corporate and institutional clients, capital markets, corporate finance, international sales and more recently in the foreign exchange market. The ratings also take into account its continued high reliance on wholesale funding from the market, its shareholders' resources, interbank loans and senior debt in the domestic market.

FACTORS THAT COULD LEAD TO AN UPGRADE/DOWNGRADE

An upgrade is unlikely for most of the banks in Argentina, given the current negative outlook. However, the outlook could be changed to stable following a stabilization of Argentina's ratings outlook

A downgrade could be driven by a downgrade of Argentine sovereign, further deterioration in the country's operating environment, and/or a higher-than-expected deterioration of the entities' asset quality, that would lead to material decline in profitability levels, and thus, capital ratios, reducing their loss-absorption capacity during a negative credit cycle.

The principal methodology used in these ratings was Procedures Manual for Rating of Deposits, Debt Instruments and Shares of Financial Institutions published in January 2017. Please see the Rating Methodologies page on www.moodys.com.ar for a copy of this methodology.

Moody's National Scale Credit Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale credit ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".za" for South Africa. For further information on Moody's approach to national scale credit ratings, please refer to Moody's Credit rating Methodology published in May 2016 entitled "Mapping National Scale Ratings from Global Scale Ratings". While NSRs have no inherent absolute meaning in terms of default risk or expected loss, a historical probability of default consistent with a given NSR can be inferred from the GSR to which it maps back at that particular point in time. For information on the historical default rates associated with different global scale rating categories over different investment horizons, please see http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1174796.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.ar.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

For issuers domiciled in Argentina, the regulatory report related to this rating action is available on www.moodys.com.ar.

The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com.ar, for each of the ratings covered, Moody's disclosures on the lead rating analyst and the Moody's legal entity that has issued the ratings.

Please see www.moodys.com.ar for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com.ar for additional regulatory disclosures for each credit rating.

Maria Valeria Azconegui
Vice President - Senior Analyst
Financial Institutions Group
Moody's Latin America ACR
Ing. Butty 240
16th Floor
Buenos Aires City C1001AFB
Argentina
JOURNALISTS: 1 800 666 3506
Client Service: 1 212 553 1653

M. Celina Vansetti-Hutchins
MD - Banking
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Latin America ACR
Ing. Butty 240
16th Floor
Buenos Aires City C1001AFB
Argentina
JOURNALISTS: 1 800 666 3506
Client Service: 1 212 553 1653

No Related Data.
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