Fitch Ratings has today affirmed Banco Supervielle S.A.'s (Supervielle) Foreign and Local Currency Long-Term (LT) Issuer Default Ratings (IDRs) at 'CCC'.

Key Rating Drivers

Banco Supervielle's IDRs are based on its VR.

Key Rating Driver 1

IDRS AND VIABILITY RATING (VR)

Banco Supervielle's VR and IDRs are highly influenced and constrained by Argentina's volatile operating environment and low sovereign ratings (LT IDR; CCC). While the ultimate economic and financial market implications of the coronavirus pandemic remain uncertain, risks to Argentina's operating environment are clearly skewed to the downside. This underpins the agency's Negative Outlook on the operating environment and asset quality scores.

The operating environment remains highly challenging, as a long recession continues to pressure asset quality, which has been exacerbated by the coronavirus pandemic and the slow vaccination process. Profitability metrics have been under pressure in recent years due to very low loan growth since 2018, as well as higher loan loss provisions and administrative expenses. In addition, the net interest margin has been affected by some distorting regulations passed by the Central Bank in 2020, such as capping interest rates offered on loans, placing floors for deposit rates, and imposing restrictions on fee increases, among others. As a result, Argentine banks increased their exposure to the public sector, mainly Central Bank securities and, to a lesser extent, sovereign bonds, given the lack of other profitable alternatives to allocate their ample liquidity.

In 1H21 profitability (in real terms) deteriorated and the bank posted a net loss mainly affected by a narrower net interest margin due to the regulatory intervention, still low loan growth and higher inflation. Its ratio of Operating Profit/Risk Weighted Assets fell to -0.33% at June 30, 2021. However, Fitch expects profitability to gradually improve throughout the year given slowly growing credit demand, lower credit costs (as these were anticipated in 2020) and expectations for inflation in 2H21. 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.

Supervielle's delinquency ratios have deteriorated since 2017, given the adverse economic conditions and the effects of the pandemic, in spite of the bank's good credit risk management. However, asset quality ratios for the whole financial system significantly improved in 2020 and 1Q21, due to the Central Bank's regulatory forbearance and relief measures. Regulatory forbearance expired in January 2021 for credit card financing and in April 2021 for loans in instalments; therefore, the impact on NPLs will be reflected 90 days later (i.e. in April for the former and July for the latter).

As of June 30, 2021, Supervielle's NPLs accounted for 3.3% of gross loans, as the higher delinquency in credit card portfolio (given that forbearance had already expired) was offset by lower impaired commercial loans, still under forbearance. In 2020 and 1Q21 the bank made additional loan loss reserves (LLR) for a total of ARS2.8bln based on the expected loss of the portfolio due to the pandemic. LLR coverage increased to 215% of NPLs and 7.0% of total gross loans at end-June 2021. In addition, 82% of the non-performing commercial loans had tangible collateral, and 72% of retail lending is in the form of payroll loans or financing to retirees.

The securities portfolio has increased significantly (27.6% of total assets as of June 30, 2021) as the bank has followed the strategy to invest mainly in short term Central Bank securities (Leliqs) and, to a lesser extent, sovereign bonds to allocate its liquidity given the slump in loan growth. The total sovereign exposure accounted for 27.0% of total assets or 2.4x of equity. While this exposure is high, 66.9% of the total exposure corresponds to Central Bank securities, that are highly liquid and comparatively lower risk.

Banco Supervielle's capitalization significantly improved following the Supervielle Group's issuance of fresh capital the though an IPO in the New York and Buenos Aires stock exchanges for a total of USD623 million in 2016 and 2017. At June 30, 2021, the bank's core equity Tier 1 ratio to risk-weighted assets was an adequate 13.7%.

The primary source of funding is the bank's deposit base, which made up 96.8% of its funding as of June 30, 2021. The bank's loan to deposits ratio has rapidly decreased to 58.2%, well below the 100%-110% range shown in recent years, as deposit growth significantly outpaced loan growth. Liquidity levels are adequate, with a liquidity coverage ratio (LCR) that has remained above 100%; at June 30, 2021, the LCR was 122.7% and the net stable funding ratio 165%. The immediate liquidity ratio (cash and equivalents plus short-term central banks securities divided by total deposits) stood at a comfortable 33.8% as of June 30, 2021, while only cash and equivalents represented 10.4% 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.

OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS

SUPPORT RATING (SR) AND SUPPORT RATING FLOOR (SRF)

Supervielle's SR of '5' and SRFs of 'NF' reflect that, although possible, external support for this bank, as with most Argentine banks, cannot be relied upon given the ample economic imbalances. In turn, the sovereign ability to support banks is uncertain, as reflected by the low sovereign ratings.

OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES

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

SR AND SRF

Changes in the SRs and SRFs of Supervielle are unlikely in the foreseeable future.

Factors that could, individually or collectively, lead to positive rating action/upgrade:

SUPPORT RATING AND SUPPORT RATING FLOOR

Changes in the SRs and SRFs of Supervielle are unlikely in the foreseeable future.

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.

ESG Considerations

Fitch has changed Supervielle's score for Management Strategy to '4' from '3' which is the baseline score for this Governance issue assigned to all issuers globally. This reflects the 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 rates floors on time deposits, puts significant pressure on banks' net interest margins. Also, restrictions on fee levels can negatively impact on performance ratios. This challenges Supervielle's ability to define and execute its own strategy. This has a moderately negative impact on the rating 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.

RATING ACTIONSENTITY/DEBT	RATING		PRIOR
Banco Supervielle S.A.	LT IDR	CCC 	Affirmed		CCC
	ST IDR	C 	Affirmed		C
	LC LT IDR	CCC 	Affirmed		CCC
	LC ST IDR	C 	Affirmed		C
	Viability	ccc 	Affirmed		ccc
	Support	5 	Affirmed		5
	Support Floor	NF 	Affirmed		NF

VIEW ADDITIONAL RATING DETAILS

Additional information is available on www.fitchratings.com

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