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Rating Action:

Moody's takes action on Argentine financial institutions' ratings; outlook negative

 The document has been translated in other languages

07 Apr 2020

New York, April 07, 2020 -- Moody's Investors Service (Moody's) has today downgraded the senior unsecured foreign currency debt ratings of Banco de la Ciudad de Buenos Aires, Banco Hipotecario S.A., Banco Macro S.A., Banco Supervielle S.A., and Tarjeta Naranja S.A. to Ca, from Caa2. Moody's also downgraded Banco de Galicia y Buenos Aires S.A.U. and Banco Macro S.A.'s foreign currency senior unsecured MTN program to (P)Ca, from (P)Caa2, and the banks' foreign currency subordinated debt ratings to Ca, from Caa3. In addition, the outlook on the ratings is now negative. This action concludes the review on the ratings initiated by Moody's on September 4, 2019.

The rating actions follow the announcement by Moody's Latin America A.C.R. S.A. (MLA) that it has taken a similar action on the banks' foreign currency deposit ratings (see press release " Moody's Latin America takes action on Argentine financial institutions' ratings; outlook negative" https://www.moodys.com/research/Moodys-Latin-America-takes-action-on-Argentine-financial-institutions-ratings--PR_422211). In turn, both rating actions follow the announcement by Moody's Investors Service, published on 3 April 2020, that it had concluded its review on the ratings and downgraded Argentina's government bond rating to Ca, from Caa2, changing the outlook to negative. Moody's also lowered Argentina's country ceilings for debt and deposits. For additional information, please refer to the related press release: "Moody's downgrades Argentina to Ca, changes outlook to negative" (https://www.moodys.com/research/Moodys-downgrades-Argentina-to-Ca-changes-outlook-to-negative--PR_419595).

The following debt ratings of Banco de Galicia y Buenos Aires S.A.U. were downgraded:

..Global Foreign Currency Subordinated Debt Rating to Ca from Caa3

..Global Foreign Currency Senior Unsecured MTN Program Rating to (P)Ca from (P)Caa2

....Outlook, Changed To Negative from Rating Under Review

The following debt ratings of Banco de Galicia y Buenos Aires S.A.U. were confirmed:

..Global Local Currency Senior Unsecured MTN Program Rating at (P)Caa2

The following debt ratings of Banco de la Ciudad de Buenos Aires were downgraded:

..Global Foreign Currency Senior Unsecured Debt Rating to Ca from Caa2, Negative from Ratings Under Review

....Outlook, Changed To Negative from Rating Under Review

The following debt ratings of Banco Hipotecario S.A. were downgraded:

..Global Foreign Currency Senior Unsecured Debt Rating to Ca from Caa2, Negative from Ratings Under Review

....Outlook, Changed To Negative from Rating Under Under Review

The following debt ratings of Banco Macro S.A. were downgraded:

..Global Foreign Currency Senior Unsecured Debt Rating to Ca from Caa2, Negative from Ratings Under Review

..Global Foreign Currency Subordinated Debt Rating to Ca from Caa3

..Global Foreign Currency Senior Unsecured MTN Program Rating to (P)Ca from (P)Caa2

....Outlook, Changed To Negative from Rating Under Review

The following debt ratings of Banco Macro S.A. were confirmed:

..Global Local Currency Senior Unsecured MTN Program Rating at (P)Caa2

The following debt ratings of Banco Supervielle S.A. were downgraded:

..Global Foreign Currency Senior Unsecured Debt Rating to Ca from Caa2, Negative from Ratings Under Review

....Outlook, Changed To Negative from Rating Under Review

The following ratings of Tarjeta Naranja S.A. were downgraded:

..Global Foreign Currency Senior Unsecured Debt Rating to Ca from Caa2;

....Outlook, Changed To Negative from Rating Under Review

The following ratings of Tarjeta Naranja S.A. were confirmed:

..Long-Term Corporate Family Rating at Caa2;

RATINGS RATIONALE

DOWNGRADE OF FOREIGN CURRENCY RATINGS

The downgrade of the foreign currency debt ratings to Ca is driven by the lowering of Argentina's country ceiling for foreign currency deposits to Ca, from Caa2, which in turn derives from the sovereign debt downgrade to Ca. In downgrading the foreign currency debt ratings to Ca, despite a foreign currency bond ceiling at Caa3, Moody's acknowledges the expectation that, in the event the banks face restrictions or are unable to respond to withdrawals of foreign currency deposits, they will likely face problems to also honor their foreign currency debt obligations. The foreign currency country ceilings 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.

As Argentina's government initiates the process of restructuring its market debt held by private investors, it is Moody's expectation that a combination of extension of maturities, lower interest rates and reductions on principal will drive substantial losses to investors, which will likely be consistent with a Ca rating and typically captures losses between 35% and 65%.

CONFIRMATION OF LOCAL CURRENCY RATINGS

The confirmation of the local currency ratings at their current levels despite the downgrade of their respective BCAs, reflects our view that the credit risk of their local currency obligations, though still significant, is lower than that of their foreign currency obligations. The potential negative events captured by the Ca foreign currency deposit ceiling would particularly affect foreign currency obligations, and we therefore believe local currency ratings remain adequately positioned at the Caa rating level. The main drivers of the differentiation between banks' local currency ratings and the sovereign rating is derived from the fact that banks' direct exposure to sovereign debt, while not negligible at less than 40% of their tangible common equity on average, would not by itself mean that the sovereign default will drive bank defaults.

However, banks' indirect exposures to Argentine sovereign risk remain significant and are the main drivers for the Caa-range ratings. The high underlying inter-linkages between the banks' standalone credit risk profiles and that of the sovereign are driven by their sizable exposures to central bank debt and central bank deposits, and the severe impact of the sovereign debt crisis on banks' operating environment. The latter imposes rising risks on banks' 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. In January 2020, the average problem loans of Argentine banks were 6.0% of gross loans, up from 3.1% as of 2018 year-end and 1.8% in 2017. Reserve coverage of problem loans has also deteriorated to 88% from 112% and 139% in the same period.

Partly offsetting the risks, Argentine banks currently hold sizeable liquidity buffers, which represent about half of their assets, and moderate capital positions. Additionally, Argentine banks have a limited exposure to foreign currency funding risk and their overall market funding exposure is low, as their funding is mainly sourced from local currency deposits.

NEGATIVE OUTLOOK

The negative outlook on Argentina's financial institutions reflects the negative outlook on the sovereign, as their ratings remain constrained by the sovereign ratings and country ceilings. It also incorporates the risk of more negative economic scenarios, including the tail risk of a disorderly government debt restructuring that would weaken financial conditions impacting banks' fundamentals. More importantly, the coronavirus pandemic, which we consider a social factor under Moody's ESG framework, will only compound the already deep economic and budgetary challenges facing the government, and the weak economic conditions, which we expect will significantly affect financial institutions' asset quality and profitability. Today's action reflects the impact on Argentine financial institutions of the breadth and severity of the shock, and the deterioration in credit quality it has triggered.

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

An upgrade is unlikely for banks in Argentina due to the negative outlook and the fact that their ratings are constrained by the sovereign rating and country ceilings of Argentina, which now carry a negative outlook. A downgrade could be driven by further downgrade of Argentine 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., Banco Supervielle S.A., and Banco de la Ciudad de Buenos Aires 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.

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.

At least one ESG consideration was material to one of the credit rating outcomes announced and described above.

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.

The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, 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 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
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

Ceres Lisboa
Senior Vice President
Financial Institutions Group
JOURNALISTS: 1 800 666 3506
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.
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