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Rating Action:

Moody's affirms ratings for Argentinean financial institutions; changes outlook to stable

29 Sep 2020

New York, September 29, 2020 -- Moody's Investors Service ("Moody's") has today affirmed all ratings and assessments assigned to Banco de Galicia y Buenos Aires S.A.U. (Galicia), Banco Hipotecario S.A. (Hipotecario), Banco Macro S.A. (Macro) and Banco Santander Río S.A. (Santander Río). The ratings assigned to Tarjeta Naranja S.A. (Naranja) were also affirmed. At the same time, Moody's assigned counterparty risk ratings to Galicia, Hipotecario, Macro and Santander Río. The outlook on all ratings was changed to stable from negative.

The rating actions follow the announcement by Moody's Investors Service, published on 28 September 2020, that it had affirmed the Ca ratings of Argentina's government bond rating and changed the outlook to stable from negative. For additional information, please refer to the related press release: " Moody's affirms Argentina's Ca rating, changes outlook to stable" (https://www.moodys.com/research/Moodys-affirms-Argentinas-Ca-rating-changes-outlook-to-stable--PR_432995).

Moody's Counterparty Risk Ratings (CRR) are opinions of the ability of entities to honor the uncollateralized portion of non-debt counterparty financial liabilities (CRR liabilities) and also reflect the expected financial losses in the event such liabilities are not honored. CRR liabilities typically relate to transactions with unrelated parties. Examples of CRR liabilities include the uncollateralized portion of payables arising from derivatives transactions and the uncollateralized portion of liabilities under sale and repurchase agreements. CRRs are not applicable to funding commitments or other obligations associated with covered bonds, letters of credit, guarantees, servicer and trustee obligations, and other similar obligations that arise from a bank performing its essential operating functions.

RATINGS RATIONALE

The rating action on these issuers was prompted by a similar action on Argentina's government bond rating, which was affirmed at Ca and had its outlook changed to stable, from negative. Moody's decision to change the outlook on the sovereign rating reflects a materially lower risk that future losses will exceed those implicitly incorporated in Argentina's current Ca rating in the aftermath of the recent debt restructuring. In affirming the sovereign ratings, Moody's mentioned the elevated credit risks that remain present unless the authorities address the fundamental macroeconomic problems that continue to undermine the sovereign credit profile, raising questions about Argentina's capacity to meet future debt obligations which are set to rise sharply after 2024.

Moody's affirmation, at ca, of Galicia, Hipotecario, Macro and Santander Rio's BCAs, in line with Argentina's government debt rating, reflect the assessment of a high correlation between the sovereign and the banks' standalone creditworthiness. The adjusted BCA of Santander Rio was affirmed at caa3 and continues to incorporate one notch of uplift from the bank's respective BCA, indicating Moody's assessment of the likelihood that the Argentinean subsidiary would receive support from its parent bank Banco Santander S.A. (Spain) (A2/A2 Stable, baa1) in the event of stress.

The banks' foreign currency deposit and debt ratings were affirmed at ca. The foreign currency ratings reflect potential transfer and convertibility risks, which could include restrictions on moving foreign exchange offshore, as well as restrictions on freely converting local currency to foreign currency in order to pay debt, or even deposit freezes. Some of these risks have materialized recently as the Argentinean Central Bank introduced measures that restrict the ability of private companies -including financial institutions- to pay both local and cross-border foreign currency debt.

The affirmation of the banks' local currency deposit ratings, at Caa1 for Santander Río, Caa2 for Galicia and Macro, and Caa3 for Hipotecario, and the Caa2 corporate family rating of Naranja reflects our view that the credit risk of the entities' local currency obligations, though still significant, is lower than that of their foreign currency obligations. Still, the banks' exposures to Argentinean sovereign risk remain significant and are the main drivers for the Caa-range local currency ratings. The linkages are driven by banks' sizable holdings of central bank debt, and their exposure to an increasingly challenging operating environment in Argentina. The latter imposes rising risks on entities' asset quality and profitability as business volumes remain low, companies and households' repayment capacity weakens in the context of continued economic recession, high inflation and rising unemployment, all exacerbated by the impact of the coronavirus pandemic.

Partly offsetting the risks, Argentinean banks currently have sizeable liquidity, which represents about half of their assets, while contained loan growth in recent years helps preserve their capital buffers. Additionally, Galicia, Macro and Santander Río have limited exposure to foreign currency funding risk and their overall dependence on market funding is low, as their funding is mainly sourced from local currency deposits.

Banco Hipotecario, on the other hand, has a higher reliance on market funds and a weaker asset quality profile, which drives its Caa3 local currency rating. Risks on Hipotecario's funding profile have materialized recently as the bank has engaged in an exchange offer for a foreign-currency cross-border debt that is due November 2020.

The newly assigned CRRs incorporate one notch of uplift from the banks' adjusted BCAs -subject to country ceilings- to reflect the lower probability of default of CRR liabilities. In Moody's view, secured counterparties to banks typically benefit from greater protections under insolvency laws and bank resolution regimes than do senior unsecured creditors, and this benefit is likely to extend to the unsecured portion of such secured transactions in most bank resolution regimes.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

A rating upgrade of the Argentinean financial institutions could occur if the sovereign ratings were upgraded, provided that the entities' main credit metrics remain stable or gradually improve.

A downgrade could be driven by a downgrade of the Argentinean sovereign ratings, by further deterioration in the country's operating environment, and/or a higher-than-expected deterioration of the financial institutions' asset quality, which could lead to material decline in profitability levels, and thus, capital ratios, reducing their loss-absorption capacity amidst a highly negative credit cycle.

METHODOLOGIES

The principal methodology used in rating Banco Macro S.A., Banco Hipotecario S.A., Banco de Galicia y Buenos Aires S.A.U., and Banco Santander Rio S.A. was Banks Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865. The principal methodology used in rating Tarjeta Naranja S.A. was Finance Companies Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187099. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

..Issuer: Banco de Galicia y Buenos Aires S.A.U.

Affirmations:

....Adjusted Baseline Credit Assessment, Affirmed at ca

....Baseline Credit Assessment, Affirmed at ca

....LT Counterparty Risk Assessment, Affirmed at Caa2(cr)

....LT Bank Deposits (Foreign Currency), Affirmed at Ca, Stable from Negative

....LT Bank Deposits (Local Currency), Affirmed at Caa2, Stable from Negative

....ST Counterparty Risk Assessment, Affirmed at NP(cr)

....ST Bank Deposits (Foreign Currency), Affirmed at NP

....ST Bank Deposits (Local Currency), Affirmed at NP

.LT Subordinated Debt (Foreign Currency), Affirmed at Ca

....LT Senior Unsecured MTN Program (Foreign Currency), Affirmed at (P)Ca

....LT Senior Unsecured MTN Program (Local Currency), Affirmed at (P)Caa2

New assignments:

....LT Counterparty Risk Rating (Local Currency), Assigned Caa2

....LT Counterparty Risk Rating (Foreign Currency), Assigned Caa3

....ST Counterparty Risk Rating (Local Currency), Assigned NP

....ST Counterparty Risk Rating (Foreign Currency), Assigned NP

Outlook Actions:

..Issuer: Banco de Galicia y Buenos Aires S.A.U.

....Outlook, Changed To Stable From Negative

..Issuer: Banco Hipotecario S.A.

Affirmations:

....Adjusted Baseline Credit Assessment, Affirmed at ca

....Baseline Credit Assessment, Affirmed at ca

....LT Counterparty Risk Assessment, Affirmed at Caa3(cr)

....LT Bank Deposits (Foreign Currency), Affirmed at Ca, Stable from Negative

....LT Bank Deposits (Local Currency), Affirmed at Caa3, Stable from Negative

....ST Counterparty Risk Assessment, Affirmed at NP(cr)

....ST Bank Deposits (Foreign Currency), Affirmed at NP

....ST Bank Deposits (Local Currency), Affirmed at NP

....LT Senior Unsecured Debt (Foreign Currency), Affirmed at Ca, Stable from Negative

....LT Senior Unsecured Debt (Foreign Currency) Series 4 proposed senior notes issuance, Affirmed at (P)Ca

New assignments:

....LT Counterparty Risk Rating (Local Currency), Assigned Caa3

....LT Counterparty Risk Rating (Foreign Currency), Assigned Caa3

....ST Counterparty Risk Rating (Local Currency), Assigned NP

....ST Counterparty Risk Rating (Foreign Currency), Assigned NP

Outlook Actions:

..Issuer: Banco Hipotecario S.A.

....Outlook, Changed To Stable From Negative

..Issuer: Banco Macro S.A.

Affirmations:

....Adjusted Baseline Credit Assessment, Affirmed at ca

....Baseline Credit Assessment, Affirmed at ca

....LT Counterparty Risk Assessment, Affirmed at Caa2(cr)

....LT Bank Deposits (Foreign Currency), Affirmed at Ca, Stable from Negative

....LT Bank Deposits (Local Currency), Affirmed at Caa2, Stable from Negative

....ST Counterparty Risk Assessment, Affirmed at NP(cr)

....ST Bank Deposits (Foreign Currency), Affirmed at NP

....ST Bank Deposits (Local Currency), Affirmed at NP

.LT Subordinated Debt (Foreign Currency), Affirmed at Ca

....LT Senior Unsecured Debt (Foreign Currency), Affirmed at Ca, Stable from Negative

....LT Senior Unsecured MTN Program (Foreign Currency), Affirmed at (P)Ca

....LT Senior Unsecured MTN Program (Local Currency), Affirmed at (P)Caa2

New assignments:

....LT Counterparty Risk Rating (Local Currency), Assigned Caa2

....LT Counterparty Risk Rating (Foreign Currency), Assigned Caa3

....ST Counterparty Risk Rating (Local Currency), Assigned NP

....ST Counterparty Risk Rating (Foreign Currency), Assigned NP

Outlook Actions:

..Issuer: Banco Macro S.A.

....Outlook, Changed To Stable From Negative

..Issuer: Banco Santander Rio S.A.

Affirmations:

....Adjusted Baseline Credit Assessment, Affirmed at caa3

....Baseline Credit Assessment, Affirmed at ca

....LT Counterparty Risk Assessment, Affirmed at Caa1(cr)

....LT Bank Deposits (Foreign Currency), Affirmed at Ca, Stable from Negative

....LT Bank Deposits (Local Currency), Affirmed at Caa1, Stable from Negative

....ST Counterparty Risk Assessment, Affirmed at NP(cr)

....ST Bank Deposits (Foreign Currency), Affirmed at NP

....ST Bank Deposits (Local Currency), Affirmed at NP

New assignments:

....LT Counterparty Risk Rating (Local Currency), Assigned Caa1

....LT Counterparty Risk Rating (Foreign Currency), Assigned Caa3

....ST Counterparty Risk Rating (Local Currency), Assigned NP

....ST Counterparty Risk Rating (Foreign Currency), Assigned NP

Outlook Actions:

..Issuer: Banco Santander Rio S.A.

....Outlook, Changed To Stable From Negative

..Issuer: Tarjeta Naranja S.A.

Affirmations:

....LT Senior Unsecured Debt (Foreign Currency), Affirmed at Ca

....LT Corporate Family Rating, Affirmed at Caa2

Outlook Actions:

..Issuer: Tarjeta Naranja S.A.

....Outlook, Changed To Stable From Negative

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.

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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

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

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com 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 for additional regulatory disclosures for each credit rating.

Marcelo De Gruttola
Asst Vice President - Analyst
Financial Institutions Group
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 Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
© 2020 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND/OR ITS CREDIT RATINGS AFFILIATES ARE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY'S (COLLECTIVELY, "PUBLICATIONS") MAY INCLUDE SUCH  CURRENT OPINIONS. MOODY'S INVESTORS SERVICE DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE MOODY'S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY'S INVESTORS SERVICE CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS ("ASSESSMENTS"), AND  OTHER OPINIONS INCLUDED IN MOODY'S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY'S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY'S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND  PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND  PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY'S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES  ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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