Fitch Ratings has affirmed
Fitch has also withdrawn BBVA Arg's Support Rating of '5' and Support Rating Floor of 'NF' as these ratings are no longer relevant to the agency's coverage following the publication of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
Key Rating Drivers
In Fitch's view, regardless of its overall adequate financial condition, BBVA Arg's VR and IDRs are highly influenced by the operating environment and are constrained by the low IDRs of
The operating environment is constrained by the sovereign rating and remains highly challenging as asset quality continues to be pressured by a long recession, which has been exacerbated by the coronavirus pandemic and severe political uncertainties. Additionally, low loan growth (in real terms), rising nonperforming loans, significant margin pressure due to regulatory imposed interest rates caps and floors, and increasing operating costs due to continued high inflation will continue to affect profitability.
Diverse Business Profile: BBVA Arg is a universal commercial bank and one of the leading top-four private sector banks in
Asset Quality Indicators Remains Strong: Despite its large retail and middle market corporate portfolios, the bank has maintained strong asset quality indicators that compare well with its closest peers. The bank maintains an internal policy of exceeding regulatory loan loss reserve requirements. The bank's impaired loan ratio strengthened to only 1.3% at the end of
Pressured Profitability: In spite of the adverse operating environment, BBVA Arg has managed to post an acceptable level of profitability. For the first quarter ended
Comfortable Capitalization: Similar to other banks in the financial system, BBVA Arg's capitalization has continued to strengthen over the past few years given the low loan growth. Its Common Equity Tier 1 (CET 1) ratio was strong at nearly 23% at
Very Strong Liquidity: Like many other banks in the Argentine banking system, BBVA Arg's main funding source is deposits from its customer base. BBVA has a long track record of attracting and maintaining a stable customer base. As of
No Government Support: BBVAArg's GSR of 'no support' (NS) reflects Fitch's view that despite the bank's systemic importance, government support cannot be relied upon given constraints on the government's ability to provide support.
Fitch does not consider any potential support from its parent Banco Bilbao Vizacaya Argentaria (BBVA; BBB+/Stable) given the risk of government intervention in the Argentine financial system.
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
BBVA's IDRs and VR would be pressured by a downgrade of
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:
BBVA Arg's IDRs and VR would benefit from an upgrade of
VR ADJUSTMENTS
The Operating Environment score of 'ccc' has been assigned below the implied score of 'b' due to the following adjustment reason: Sovereign Rating (negative);
The Earnings & Profitability score of 'ccc' has been assigned below the implied score of 'bb' due to the following adjustment reason: Earnings Stability (negative);
The Capitalization & Leverage Score of 'ccc' has been assigned below the score of 'bb due to the following adjustment reason: Historical and Future Metrics (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 '
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
BBVA Arg's ESG score for Management Strategy of '4' 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. In addition, restrictions on fee levels can negatively affect performance ratios. This challenges the bank'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 ACTIONS
Entity / Debt
Rating
Prior
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
WD
Withdrawn
5
Support Floor
WD
Withdrawn
NF
Government Support
ns
New Rating
Page
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VIEW ADDITIONAL RATING DETAILS
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