Saturday , July 31 2021

Banks in Argentina bypass the currency crisis, but face a complex horizon

Banks in Argentina have managed to overcome the domestic currency crisis in 2018, far from the hectop that local financial institutions suffered in 2001-2002, but they will still have to face a complex horizon this year to begin.

The banking sector was put to the test in recent months, after the end of April it opened significant instability in the currency exchange, which caused a sharp depreciation of the Argentine peso.

With accelerated inflation, the Central Bank has established a contractionary monetary policy with high interest rates and increased reserve requirements, the portion of deposits that banks must retain immobilized to face the withdrawal of deposits by their customers.

"The shots experienced in 2018 were a good test for the system," he said at a recent meeting with reporters Claudio Cesario, president of the Association of Argentine Banks (ABA), which represents foreign banks with operations in the country. South America

For Caesar, "the good news is that the financial system proved to be solid, solvent and liquid, but, above all, it turned out to be reliable," and whoever wanted to withdraw his savings could do so.

"It was clearly proven that the problem is foreign currency rather than banking, and that it stems from it without recipes from the past, such as restrictions on the exchange or implementation of actions," said ABA chief at the meeting, attended by Efe.

According to the data of the sector, the delinquency rate among the banks' clients is 2.3%, while the profitability of the system is about 33%, which, although nominally positive, is becoming rather negative due to high inflation in Argentina (around 47% in 2018).

According to the latest Central Bank sector report, in October last year, the local financial system showed "a high level of liquidity and solvency and low delinquency".

However, rating agencies are cautious when assessing subjects and showing their concerns about prospects for 2019.

In a recent report, Moody's suggested that high inflation and economic recession (GDP decline of 2.5% in 2018 and 1.5% in 2019) "will result in a significant reduction in loan portfolio" and an increase in overdue loans, low levels.

However, according to Valeria Askonegi, a senior analyst at Moody's, banks' prospects for Argentina's banks are "stable" because high liquidity of entities and profits of good financing "will help neutralize risks arising from deterioration." in the quality of the portfolio, in capital and in profitability adjusted for inflation ".

"The solvency of the banks will remain solid," Azkoni said.

In the meantime, in terms of Standard & Poor's (S & P), banks in Argentina will continue to function in the coming quarters under unfavorable economic conditions due to the decline in GDP (-0.8% in 2019, according to S & P), monetary policy restrictive and still high interest rates as long as inflation does not begin to retreat.

"This situation has already affected the growth of loans in real terms and asset quality indicators," the agency said in a recent report.

In mid-November last year, S & P decided to keep the Argentine banking industry in what it calls "Group 8" (on a scale that goes from 1 – less risk – to 10 – higher risk), but as a result of the deterioration of economic environment, the note lowered the debt of banks to B (high speculative investment), by B +.

However, the rating agency noted that the deterioration of the indicators of the local banking system emerged from "healthy" levels and stressed that the entities are taking measures to contain losses.

"We expect the banking system to remain profitable, but with an income mix more in line with that registered in the previous administration and with higher charges in response to the increase in delinquency," S & P forecasts.

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