Fitch Ratings has taken selected actions on five Argentine financial institutions (FIs) and two Uruguayan branches of Argentine FIs.
This review follows the recent sovereign rating action taken by Fitch (see 'Fitch Downgrades Argentina to 'CCC-'' dated Oct. 26, 2022, available at www.fitchratings.com).
The affected entities are the following:
Banco Santander Rio S.A. (Santander Argentina);
Banco BBVA Argentina S.A. (BBVA Argentina);
Banco Macro S.A. (Macro);
Banco Supervielle S.A. (Supervielle);
Tarjeta Naranja S.A.U. (TN);
Banco de la Nacion Argentina (Sucursal Uruguay) (BNAUY);
Provincia Casa Financiera (Provincia).
Today's actions are mostly downgrades of the Long-Term (LT) Issuer Default Ratings (IDRs) to 'CCC-' from 'CCC'. The review included Argentine FIs with Viability Ratings (VR) and Issuer Default Ratings (IDR) rated at the same level as the sovereign, as these ratings are sensitive to the deterioration of the operating environment (OE), or further sovereign actions. Furthermore, Fitch will not rate Argentine FIs higher than the sovereign rating, based on their intrinsic credit profiles. No action was taken on Banco Hipotecario S.A. since that bank's ratings are not currently capped by the sovereign ratings or country ceiling.
The rated entities are among the largest private-sector financial institutions in the country. The IDRs of Santander Argentina, BBVA Argentina, Macro, Supervielle are driven by their Viability Ratings (VRs), and in the case of TN, its standalone intrinsic financial profile. However, these are capped by the OE score of 'ccc-'.
In Fitch's view, regardless of their overall adequate financial condition, these entities' ratings are constrained by the low IDRs of Argentina and the still volatile economic and operating environment whose risks are clearly skewed to the downside. This underpins the agency's Negative Rating Outlook on the operating environment scores. Fitch's assessment of the operating environment directly affects these banks' ratings, and this is a high influence factor for all banks in this review. Very high inflation, market volatility, low loan growth, regulatory caps and floors or interest rates and fees, higher credit costs, and rising administrative expenses continue to weigh on financial profiles.
Most Argentine banks have increased their exposure to the public sector assets, mainly Central Bank securities and other sovereign bonds, given the lack of alternative profitable options to place their very ample liquidity. While some banks, mainly the foreign-owned, only invest in BCRA assets as they recognize these have significantly less risk than sovereign bonds. Other banks, largely the local entities, have more appetite for bonds of the federal government, although the weight in the total securities portfolio remains relatively low.
Key Rating Drivers
Santander Argentina / BBVA Argentina / Banco Macro
These banks' VRs and IDRs are highly influenced by Fitch's assessment of Argentina's operating environment at 'ccc-', and Argentina's sovereign rating, which currently constrains the ratings. The operating environment remains highly challenging as asset quality continues to be pressured by a steep recession. Additionally, low loan growth, regulatory caps and floors on interest rates and fees, and rising operating costs due to rising high inflation will negatively affect profitability.
Supervielle's VR and IDRs are highly influenced and constrained by the low sovereign rating of Argentina and the volatile operating environment. The ratings also consider the bank's moderate franchise and adequate capitalization and management of funding and liquidity, and its asset quality indicators. Profitability metrics have been under pressure given the challenging operating environment.
TN's IDRs are predominantly influenced and constrained by Argentina's volatile operating environment and low sovereign ratings. The ratings also consider TN's higher risk appetite relative to bank peers and its business concentration in credit cards targeting low- and middle-income segments, which has resulted in relevant asset quality deterioration and profitability pressures. TN's ratings also factor in its robust niche franchise as the largest credit card issuer in Argentina and one of the top credit card issuers in the region.
BNAUY is a branch in Uruguay of Banco de la Nacion Argentina (BNA) and part of the same legal entity. Its IDRs reflect Fitch's opinion on BNA's stand-alone credit profile, which does not take support into consideration due to the government's weak fiscal position. BNA is fully owned by the Argentine state, and its liabilities (including its branches abroad) are guaranteed by the sovereign. BNA's creditworthiness is highly influenced by Argentina's volatile operating environment. In addition, BNA has a leading franchise and systemic importance in Argentina as the largest bank in terms of loans and deposits.
Provincia is a Uruguayan branch of Banco de la Provincia de Buenos Aires (BAPRO) and part of the same legal entity. Provincia's IDRs therefore reflect Fitch's opinion of BAPRO's credit profile (SCP), which does not take support into consideration due to the Provincia de Buenos Aires's weak fiscal position. BAPROS SCP is highly influenced by the volatile operating environment in Argentina, and its leading franchise and systemic importance in Argentina and the Province of Buenos Aires as it is among the top four largest banks in terms of deposits and loans. Fitch also considers the bank's ample liquidity, as well as its low capital base and high exposure to the public sector.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Santander Argentina / BBVA Argentina / Banco Macro / Supervielle / TN / BNAUY / Provincia Casa Financiera
The IDRs and VRs of these banks, as well as the IDR of TN, would be pressured by a further downgrade of Argentina's sovereign rating or a deterioration in the local operating environment beyond current expectations that leads to a significant deterioration in their financial profiles;
Any policy announcements that would be detrimental to these financial institutions' ability to service their obligations, including additional tightening of capital controls to the extent that they restrict debt payments, would be negative for creditworthiness.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
The IDRs and VRs would benefit from an upgrade of Argentina's sovereign rating.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
Macro's subordinated debt's 'C'/'RR6' rating is two notches below the bank's VR, reflecting Fitch's base case notching for loss severity. These securities are plain vanilla subordinated liabilities, without any deferral feature on coupons and/or principal. The 'RR6' for subordinated debt reflects poor recovery prospects due to a low priority position relative to Macro's senior unsecured debt.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
Ratings on subordinated debt are primarily sensitive to any change in Macro's VR.
Santander Argentina / BBVA Argentina / Banco Macro / Supervielle
The implied Viability Rating of 'ccc' has been adjusted to 'ccc-' due to operating environment/sovereign rating constraint (negative);
The Operating Environment score of 'ccc-' has been assigned below the implied score of 'bb' due to the following adjustment reasons: Sovereign Rating (negative) and Macroeconomic Stability (negative);
Santander Argentina / Banco Macro / BBVA Argentina
The Business Profile score of 'ccc+' has been assigned below the implied score of 'bb' for Santander Argentina and Banco Macro and of 'b' for BBVA Argentina due to the following adjustment reason: Business Model (negative).
The Business Profile score of 'ccc' has been assigned below the implied score of 'b' due to the following adjustment reason: Business Model (negative).
BBVA Argentina and Banco Macro
The Earnings & Profitability Profile score of 'ccc' has been assigned below the implied score of 'bb' due to the following adjustment reason: Earnings Stability (negative);
The Capitalization & Leverage score of 'ccc+ has been assigned below the implied score of 'bb' due to the following adjustment reason: Historical and Future Metrics (negative).
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
Provincia is a Branch of Banco de la Provincia de Buenos Aires (Bapro) and part of the same legal entity. Therefore, Provincia's IDRs reflect Fitch's opinion on Bapro's SCP, which does not take support into consideration.
BNAUY is a Branch of Banco de la Nacion Argentina (BNA) and part of the same legal entity. Therefore, BNAUY's IDRs reflect Fitch's opinion on BNA's SCP, which doesn't take support into consideration.
Banco BBVA Argentina S.A., Banco Macro S.A., Banco Santander Rio S.A., Banco Supervielle S.A. and Tarjeta Naranja S.A. have an ESG Relevance Score of '4' for Management Strategy due to the current high level of government intervention in the Argentine banking sector. The imposition of interest rate caps can lead to inadequate loan pricing and, together with the imposition of interest rate floors on time deposits, puts significant pressure on banks' net interest margins. Also, restrictions on fee levels can negatively affect performance ratios. This challenges the bank's ability to define and execute its own strategy. This has a negative impact on the credit profiles, and is relevant to the ratings in conjunction with other factors.
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.