In the midst of the international banking crisis, Moody’s risk assessment agency has ensured that the financial system remains stable in four countries in the region. But has raised its alarms about projections for banks in Argentinawhose balance sheets could be affected by high inflation, which has already exceeded 100% annually, and by the greater exposure to public debt.
“We have changed our perspective on the Argentine banking system (Ca stable) to negative from stable to reflect deteriorating operating conditions due to the instability of macroeconomic performance, including a significant reduction in expected growth and persistently high inflation, which already exceeds 100% annually in early 2023,” the credit agency warned in a tough document for the entity of the country.
“Furthermore, the government’s and central bank’s large debt positions in banks expose their credit quality, funding, liquidity and ultimately their capital in the face of increasingly difficult sovereign financing conditions,” he said. the work, written after Sergio Massa last week promoted a forced debt swap within the public sector.
According to Moody’s, the situation of the entities, which have already started to register lower margins in recent years, partly supported by a greater exposure to public debt, will worsen over the course of 2023 due to electoral volatility.
“These challenges are partially offset by banks’ relatively strong fundamentals, with substantial capital buffers, record holdings of liquid assets, albeit made up of central bank and government bonds,” acknowledged Moody’s analysts, noting that Entity earnings “remain adequate despite inflation pressure and the regulation of interest rates”.
The document warns that the financial intermediation, the ability of banks to take deposits and place that money into loans is in sharp decline and that this scenario does not affect the balance sheets of the entities, precisely because of the profits they find in the public debt, from the rate hike.
“High interest rates will continue to support banks’ margins and profits through 2023“, assured Moody’s, while warning: “Earnings will be affected by the increase in provisioning needs as the quality of loans deteriorates and regulations in the form of caps on lending rates and minimums on lending rates remain in place “.
Therefore, Moody’s warns him if inflation continues to rise it could complicate banks’ balance sheets.
Source: Clarin
