Fitch Ratings has affirmed Banco Supervielle's Foreign and Local currency Long-Term Issuer Default Ratings (IDRs) at 'CCC' and viability rating (VR) at 'ccc'.

Fitch has also withdrawn Supervielle's Support Rating of '5' and Support Rating Floor of 'NF' as these ratings are no longer relevant to the agency's coverage following the publication of its updated Bank Rating Criteria on Nov. 12, 2021. In line with the updated criteria, Fitch has assigned Supervielle a Government Support Rating (GSR) of 'ns' (No support).

Key Rating Drivers

In Fitch's view, regardless of its overall adequate financial condition, Supervielle's VR and IDRs are constrained by the operating environment and Argentina's low IDRs. Supervielle's assigned VR is in line with its implied VR.

Highly Challenging Operating Environment: The operating environment remains adverse as asset quality continues to be pressured by a long recession, which has been exacerbated by the coronavirus pandemic and severe political uncertainties. Additionally, significant margin pressure due to regulatory imposed interest rates caps and floors and increasing operating costs due to continued high inflation have significantly affected profitability.

Challenging Asset Quality: Supervielle's asset quality has historically been somewhat weaker than that of its peers, mainly due to its focus on SME and retail lending, in addition to its exposure to consumer finance (around 7% of gross loans in June 2022) through its subsidiary IUDU Compania Financiera S.A. (IUDU). However, even with the end of the regulatory forbearance and relief measures of the Central Bank in the first half 2021, the Argentine banks have improved asset quality indicators due to measures taken to strengthen collections and make originations more conservative, but also aided by high inflation.

As of June 2022, Supervielle's NPLs ratio reduced to 3.9% of gross loans, reflecting lower delinquencies in corporate loans and SME. The bank's loan loss reserve coverage fell to 102% of NPLs and 4.0% of total gross loans in June 2022. Additionally, 71% of the non-performing commercial loans had tangible collateral, and 61% of retail lending is in the form of payroll loans or financing to retirees.

Profitability Will Remain Under Pressure: In the first half of 2022, the bank's profitability deteriorated and the bank posted a net loss mainly reflecting increased losses at IUDU due to higher inflation and severance charges as well as still high credit costs in addition to the margin pressures mentioned above. As a result, the Supervielle's operating profit/risk weighted assets ratio fell to negative 2.3% at June 2022.

Since January 2020, Argentine banks' financial statements have been adjusted by inflation, following IFRS rules, so the figures are not comparable with periods before 2019.

Adequate Capitalization: Since its IPO (in 2016 and 2017), Supervielle raised a total amount of USD 623 million in capital, which significantly improved the bank's levels of capitalization. In June 2022, the bank's CET1 to risk-weighted assets ratio declined to 12.7%, from 13.7% a year earlier, mainly due to net losses in the period, despite the low loan growth over the past few years.

Satisfactory Funding and Liquidity Metrics: Supervielle is almost entirely funded through deposits, which accounted by 99.3% of its total funding as of June 2022. The bank's loan to deposits ratio has rapidly decreased to 49.2%, well below the 100%-110% range shown in recent years, given that deposit growth has been significantly stronger than that of loans.

The bank's liquidity levels are adequate, and the liquidity coverage ratio (LCR) remained above 100% at 108.4% in June 2022, with an NSFR of 155.9% at the same date. The immediate liquidity ratio (cash and equivalents plus short term central banks securities divided by total deposits) was high at 53.05% as of total deposits in June 2022, while only cash and equivalents represented 9.3% of deposits.

Rating Sensitivities

Factors that could, individually or collectively, lead to negative rating action/downgrade:

The IDRs and VRs of Supervielle would be pressured by a downgrade of Argentina's sovereign rating or a deterioration in the local operating environment beyond current expectations that leads to a significant deterioration in its financial profile;

Any policy announcements that would be detrimental to the bank's ability to service its obligations, 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.

VR ADJUSTMENTS

The Operating Environment score has been assigned below the implied score due to the following adjustment reason: Sovereign Rating (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

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