Oct 14, 2013
Buenos Aires, October 9th 2013 - The outlook for the Argentine banking system is negative, reflecting deteriorating business conditions that continue to weigh on banks financial fundamentals in 2013 and 2014, says Moody's Investors Service in its new report "Banking System Outlook: Argentina."
Moody's last changed the outlook to negative from stable in September 2011. "In recent years, the Argentine government has imposed a range of policies which have negatively affected business conditions and banks' financial strength, including dividend payment and foreign exchange market restrictions, caps on lending rates and fees, and lending requirements to targeted sectors," said Valeria Azconegui, a Moody's Assistant Vice President and author of the report.
"The cumulative impact of these measures, coupled with weaker external demand from trading partners, has led to a deceleration in economic growth, with real GDP expanding 1.9% in 2012 and expected to grow 3% in 2013, against 8.9% in 2011. Further, high inflation, resulting from continued expansionary monetary policies, has led to declining real income, constraining internal demand," added Azconegui.
Moody's expects further deterioration in the banks' asset quality. Moody's notes that while the system's aggregate nonperforming loan rate has risen only slightly, to 1.6% of total loans as of April 2013, slowing economic growth and entrenched high inflation will reduce borrowers' purchasing power and repayment capacity, leading to higher delinquency rates and associated credit costs.
Argentine banks do, though, appear to have sufficient capital and reserve cushions to absorb extraordinary losses and to support credit growth over the coming 12 to 18 months, says Moody's. Importantly, banks' capital levels have benefited from the regulation implemented by the central bank in 2012, which increased the minimum capital requirement to be allowed to pay dividends, added the rating agency.
Moody's expects Argentine banks to maintain high liquidity levels in local currency as peso deposits grow in response to restrictions on foreign currency purchases and savings. Nevertheless, depositor confidence remains weak as a consequence of recurrent stress and growing policy uncertainty. Banks' funding, therefore, is reliant on essentially short-term deposits, while high inflation means that deposit rates are deeply negative.
Re-disseminated by The Asian Banker