Buenos Aires City, May 14, 2019 -- Moody's Latin America Agente de Calificación de Riesgo (MLA) has
today downgraded Banco Cetelem Argentina S.A.´s (Cetelem)
global local and foreign currency deposit ratings to Caa1, from
B3 and its national scale local and foreign currency deposit ratings to
Ba3.ar, from Baa3.ar. In addition, Moody's
downgraded the standalone baseline credit assessment (BCA) to c,
from ca, the adjusted BCA to caa1, from b3, and the
long term Counterparty Risk Assessment (CRA) to B3(cr), from B2(cr).
The bank short term deposit ratings at Not Prime and the short term CRA
at Not Prime(cr) were affirmed. The outlook on the ratings was
changed to stable, from negative.
The following ratings assigned to Banco Cetelem Argentina S.A.
were downgraded:
Baseline credit assessment to c, from ca
... Adjusted baseline credit assessment to caa1,
from b3
... Long term local currency deposit rating to Caa1,
from B3; outlook changed to stable from negative
Long term foreign currency deposit rating to Caa1, from
B3; outlook changed to stable from negative
... Long-term Argentinean national scale local
currency deposit rating to Ba3.ar, from Baa3.ar;
outlook changed to stable from negative
Long term Argentinean national scale foreign currency deposit
rating to Ba3.ar, from Baa3.ar; outlook changed
to stable from negative
... Long term counterparty risk assessment to B3(cr)
from B2(cr)
The following ratings assigned to Banco Cetelem Argentina S.A.
were affirmed:
... Short term local currency deposit rating at Not
Prime
Short term foreign currency deposit rating at Not Prime
Short term counterparty risk assessment at Not Prime(cr)
Outlook:
....Outlook: changed to stable from
negative
RATINGS RATIONALE
The downgrade of Cetelem's ratings reflects the ongoing losses reported
in 2018 and early 2019, resulting from sharp rise in its delinquencies,
rising credit costs and high operating expenses. The bank's
BCA lowered to c also incorporates its fragile capitalization that relies
on frequent injections from shareholders, as well as its weak funding
structure, and very low levels of liquidity, which increases
the bank's vulnerability during the current economic downturn in
Argentina.
Given the rising inflation and already high levels of unemployment there
is a high probability that delinquencies will continue to rise in the
next quarters, which will likely require additional extraordinary
support from its parent bank BNP Paribas (Aa3, stable), to
limit capital deterioration, even if loan growth remains flat.
Over the past two years, Cetelem received material capital injections
from its parent bank, totaling ARS 732 million ($ 16.3
million), to offset the impact of credit and operating losses,
preventing capitalization to fall below the regulatory minima.
The bank's tangible common equity ratio increases to 50.8%
of adjusted risk-weighted asset as of December 2018 from 20.9%
in the previous year. Following a rapid expansion of Cetelem´s
loan book in 2017 and 1Q 2018, non-performing loans (NPLs)
jumped to 41.8% of gross loans as of December 2018,
from 26.9% in 2017, despite the sale of bad loans
made in the second half of 2018. In light of a continued deterioration
in asset quality, the bank increased reserve coverage level in 2018
to 71.2% of gross loans, from 50.2%
one year prior. Moreover, even if the bank continues to clean
up its balance sheet in the coming quarters, delinquencies are likely
to remain high.
Cetelem has a largely unsecured lending book offered to low and medium
income individuals, a segment that has been severely affected by
the ongoing rising inflation, eroding borrowers' repayment capacity.
Over the past two years, the bank's profitability has been
severely hurt by high provisions and operating expenses and also hiking
funding costs, pressures that will likely remain in the next 12
months. In 2018, Cetelem registered a net loss equal to 42.5%
of tangible assets, primarily resulting from increased credit costs,
equivalent to 29.7% of gross loans in 2018, up from
11.4% in 2017. Reliant on interbank loans,
Cetelem's outstanding obligations - except deposits - are
fully guaranteed by its parent BNP Paribas. Based on these signs
of strong commitment from the shareholder, including the frequent
capital injections, Moody´s continues to assess a very high
probability of support and dependence from BNP Paribas, which lifts
the bank's long-term GLC deposit ratings by four notches to Caa1
from its BCA of c.
Following the rating action, the outlook on Cetelem's ratings is
stable, since Cetelem's baseline credit assessment is now
at the bottom of the BCA scale, reflecting its extremely weak credit
profile, and Moody's does not expect any changes to the very
high probability of parental support.
WHAT COULD CHANGE THE RATING UP/DOWN
An indication of reduced willingness of parental support could put downward
pressure on Cetelem's deposit ratings. Downward rating pressures
could also arise if the bank continues to generate losses with further
erosion to its capital position, increasing the expected loss rate
at its financial obligations. Continued deterioration in Cetelem's
asset quality or reduced access to funding could also exert negative pressure
on its ratings. Conversely, upward pressure could arise from
a strong recovery in profitability levels that would be sufficient to
stabilize its capitalization, and material improvement in asset
risk metrics.
The principal methodology used in these ratings was Banks published in
August 2018. 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 https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1113601.
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.
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: 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: 800 666 3506
Client Service: 1 212 553 1653
