Financial Services Advisor

Cynthia Cohen Freue, director and sector lead for financial institutions ratings at S&P Global in Buenos Aires: “We expect the currency depreciation, higher interest rates and inflation, and lower economic growth to impair banks’ asset quality. Weaker economic prospects will pressure the already struggling small- and mid-size enterprises (SMEs), while households will further struggle to cope with rising living costs, especially those with mortgages and personal loans denominated in UVA (an inflation-linked value unit). However, the low proportion of credit to GDP and banks’ low exposures to loans to SMEs and lower-income borrowers will mitigate asset quality deterioration. We consider deposit stability as a major risk, given the country’s recent history of unstable deposits. Total deposits have remained relatively stable in light of the recent sharp currency depreciation. However, further uncertainty about currency fluctuations could result in deposit withdrawals, which would pressure banks’ funding and liquidity positions. Banks have been increasingly providing dollar-denominated loans, although most of them are for borrowers that generate income in U.S. dollars, such as exporters, which alleviates the potential risk. We expect…”