The report notes three main concerns for Argentinean banks: 1) the fragility of earnings that are increasingly dependent on accommodative but unsustainable government policies; 2) their vulnerability to depositor confidence; and 3) their exposure to political and event risks that could negatively affect their asset allocation, profitability and capitalization.
"In the context of high commodity prices, strong exports and low unemployment, expansionary fiscal and monetary policies are driving Argentina's economic growth, domestic consumption and inflation to levels that are difficult to sustain," says Vice President Maria Andrea Manavella. "The key credit issue for the country's banks is whether they can continue financing the consumption boom while preserving their currently stable financial fundamentals."
Banks are taking advantage of the currently strong demand for credit and have seen their loan books grow substantially since early 2010, although increasing consumer indebtedness could pose risks to banks' asset quality. Nevertheless, overall financial intermediation remains relatively low in Argentina, as do banks' loan to deposit ratios, which help their liquidity.
"The fragility of the system is associated to the growing vulnerability to macroeconomic adjustments or to interventionist measures. Many banks have managed themselves responsibility by focusing on transaction banking and short-term lending that may mitigate the challenges of an eventual adjustment, although profitability could eventually still weaken", concludes Mrs. Manavella.
The negative system outlook contrasts with the stable outlook for the stand-alone ratings for the Argentinean banks, which reflects the banks' well-established franchises and capitalization that could withstand situations of stress, as per Moody's scenario analysis.
The report is titled "Banking System Outlook: Argentina" and is available on moodys.com.