BUENOS AIRES, Argentina--(www.fitchratings.com.)--Following the sovereign downgrade, Fitch Ratings has downgraded five of Argentina's financial institutions' Local Currency Long-term Issuer Default Ratings (LC IDR), two bank's Foreign Currency Long-term IDRs and three Viability Ratings (VR). At the same time, the agency downgraded National Scale Ratings for a total of 16 financial institutions. Please click on the link below to view the complete list of affected ratings. Also, for more information about each bank listed in this Rating Action Commentary (full rating rationale, rating sensitivities and drivers, and updated financial information), please see their Rating Reports released today on
The rating action follows the downgrade of the Argentina Foreign Currency and Local Currency Sovereign rating to 'CC'/'B-, Negative Outlook (see 'Fitch Downgrades Argentina FC IDR to 'CC'; LC IDR to 'B-' with a Negative Outlook'; dated 27 Nov 2012 at www.fitchratings.com). Fitch's downgrade of Argentina local currency IDR reflects the sustained deterioration of its credit fundamentals; while the downgrade of the foreign currency IDR reflect that a default by Argentina is probable.
At the same time, Fitch has factored into its rating actions related to the financial institutions in Argentina concerns about continued and growing government intervention on the financial services industries and possible wider constraints on foreign currency access by private sector entities. As the economy has slowed significantly and the outlook for growth has diminished, Fitch acknowledges that the current good asset quality and profitability ratios of Argentine financial institutions may be hindered under a scenario of possible sustained lower economic growth, rise of inflation, and macroeconomic volatility.
During recent years, but especially in 2012, the government has imposed an array of controls and new regulations that mandate some of the activities of the financial sector (banks and insurance companies particularly) that limit the room for such entities to deal with changes in the operating environment, and/or impose rigidities on their business model. A recent imposition of a compulsory lending rule for large banks and financial agents of the government entities and compulsory investment rules for all insurance companies are some examples of such trend. Fitch recognizes that most of the financial entities' currently exhibit healthy profitability ratios underpinned by fast loan growth and relatively wide interest margins, good asset quality, and in some cases adequate income diversification, while capital levels remain mostly adequate and enhanced by current cash dividend restrictions imposed by the government. While direct exposure to government securities is limited, banks hold exposures to provinces backed by federal tax flows and there is concern about the possibility of compulsory investment rules in the future. Such strength may be undermined if economic growth keeps losing momentum and/or the volatility of the operating environment increases.
The downgrades to 'B-'/'b-' of the LC IDR and VRs of BBVA Banco Frances, Banco Santander Rio and Banco Macro, which were one notch above the sovereign local currency at 'B+'/'b+', reflect the opinion of the agency that the heightened risk of further intervention in the banking business limits the ability of banks to be rated higher than the sovereign - despite their exceptional franchise, solid funding base, management expertise and their overall superior financial profile. Such a rationale equally applies to the downgrade of their National Scale Ratings, which were downgraded to 'AA(arg)', a level similar to the one of the government owned banks. Also, the Rating Outlook on the LC IDR of these three banks was revised to Negative from Stable to be aligned with the Outlook of the sovereign. The Outlook on their National Scale Ratings also was revised to Negative from Stable.
The downgrades of Tarjeta Naranja and Tarjetas Cuyana's LC IDR to 'B-' from 'B' reflect the downgrade of the sovereign LC IDR, as their ratings are constrained by those of the sovereign; the Outlook of those ratings was revised to Negative from Stable, to align with the Outlook on the sovereign rating . In regard to their National Scale Ratings, both were affirmed at their current levels (Tarjeta Naranja 'AA(arg)' and Tarjetas Cuyanas 'AA-(arg)', similarly to Compania Financiera Argentina 'AA(arg)' and Tarshop S.A. ('AA-(arg)'), but their Rating Outlook was revised to Negative from Stable, similar to other highly rated financial institutions in Argentina. The ratings of these consumer credit card/consumer loan lenders are underpinned by their above-average profitability, adequate asset and liability management and good credit quality, while they also incorporate their respective market share in the credit card business.
The aforementioned greater expected government intervention in the financial sector may result in lower probability of support from highly rated foreign parents, which, despite their adequate financial strength may reduce their willingness to provide support to their Argentine subsidiaries. Consequently, the ratings of the latter are now at the most, aligned with the rating of the government-owned banks. As a consequence, the National Scale Ratings of Banco Itau Argentina, HSBC Bank Argentina, Mercedes-Benz Comapania Financiera Argentina and Standard Bank Argentina were downgraded to 'AA(arg)'. In the case of Banco de Servicios Financieros, Fiat Credito Compania Financiera, PSA Finance Argentina and Rombo Compania Financiera, their National Scale Ratings were affirmed at 'AA(arg)'. The Outlook was revised to Negative from Stable to reflect Fitch's concerns about possible further government intervention and deterioration of the operating environment.
The National Scale ratings of Banco de la Nacion Argentina and Banco de Inversion y Comercio Exterior were affirmed at AA(arg)/A1+(arg) reflecting their government owned nature and the expected support from the state if its required. The Rating Outlook was changed to Negative from Stable, aligned with the Outlook of the LC sovereign rating. In all these cases, even when the sovereign LC IDR was downgraded to 'B-', National Scale ratings were affirmed given that those only consider the relative differences of issuers within the local domicile (Argentina), being that the relative financial strength of the government compared to banks remain strong, especially given its capacity to impose economic and regulatory measures over private sector entities.
The fact that the maximum National Scale rating for Financial Institutions in Argentina currently stands at 'AA(arg)' results in some rating compression among the stronger rated entities. As such, Fitch affirmed the National Scale ratings of Banco Hipotecario ('AA(arg)'); Banco de San Juan ('AA-(arg)'), Nuevo Banco de Santa Fe ('AA-(arg)'), Nuevo Banco Entre Rios ('AA-(arg)') and Banco de Santa Cruz ('AA-(arg)'). All their Outlooks were revised to Negative from Stable, due to the deterioration of the operating environment and possible effects of further government intervention. The ratings of all these entities generally consider their relative franchise in their respective markets of operation, good capitalization and asset quality, while their funding is still considered healthy but less diversified than the other highly rated banks.
There have been multiple downgrades of certain stronger privately owned institutions to 'A+(arg)' and 'A(arg)' - again to reflect the Fitch's concerns about the possible effects of increased government intervention on the financial services business and also, a possible deterioration in the macroeconomic environment due the weakness of the sovereign. These include Banco Supervielle, Garantizar Sociedad de Garantias Reciprocas, Banco Comafi, Banco CMF and Banco Saenz. In all these cases, the entities still show a strong financial profile compared to other rated entities, but also show individual weaknesses that may be related to their relatively limited business niche, funding concentrations, and capital level below the average of their rating category. The Rating Outlook remains Stable for all the entities rated in the single 'A(arg)' range, while those entities rated in the 'AA(arg)' range were revised to Negative from Stable.
Some other financial institutions' Long-term National Scale ratings were affirmed or downgraded to the 'BBB(arg)' range (affirmed: CGM Leasing Argentina, Outlook revised to Stable from Positive; downgraded: Campo Aval SGR, SGR Cardinal). Those entities, with their inherent individual weaknesses and despite still showing an adequate financial profile, may experience greater volatility in their profiles in the case of deterioration of the macroeconomic environment and/or further government intervention in the financial industry. All rating Outlooks remain Stable. The short-term National Ratings of Credinea and CFN were downgraded to 'A3(arg)' from 'A2(arg)' due the exposure of its financial profile to changes in the operating environment .
With today's rating actions the Rating Watch Negative status in place since Nov.6, 2012 for the foreign currency IDR, long-term foreign currency and National long-term ratings on debt securities issued internationally and payable exclusively in foreign currency (largely U.S. dollars) of several Argentine financial institutions has been resolved. As such, the foreign currency IDR of Banco Macro and Tarjeta Naranja were downgraded to 'B-' from 'B', and a Negative Outlook is assigned. For Banco Macro, the senior unsecured issue ratings were downgraded to 'B-/RR4' and 'AA(arg)', aligned with its IDR, while its subordinated bonds were affirmed at 'CCC/RR6' and 'A+(arg)', reflecting its subordinated nature (i.e. below the current IDRs of the bank, and that, given the rating compression at the lower end of the scale these securities maintain a one-notch difference with the bank's IDR instead of the regular notching (-2) applied to these kinds of securities, considering that the entity is far from its point of no viability. A similar approach was applied to Banco Supervielle 'plain vanilla' subordinated notes, which were downgraded to 'CCC' and 'A(arg)'; while Banco Hipotecario's National long-term rating was affirmed at 'AA(arg)'.
Additional information is available at www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
In addition to the source(s) of information identified in Fitch's Master Criteria, these actions were additionally informed by information provided by the companies.
Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria' (Aug. 15, 2012);
--'Rating FI Subsidiaries and Holding Companies' (Aug. 10, 2012);
--'Rating Bank Regulatory Capital and Similar Securities' (Dec. 15, 2011).
Applicable Criteria and Related Research: Fitch Takes Rating Actions on Argentina Banks After Sovereign Downgrade
Rating Bank Regulatory Capital and Similar Securities
Rating FI Subsidiaries and Holding Companies
Global Financial Institutions Rating Criteria