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Decline in dollar deposits a credit negative for Argentine banks, Moody's says

The steep decline of dollar deposits at Argentine banks is credit negative for those institutions, but liquidity buffers provide ample room to withstand the drain, according to an Aug. 23 Moody's report.

Deposits denominated in the U.S. currency fell off sharply in Argentina following the results of the Aug. 11 presidential primaries, in which opposition candidate Alberto Fernández emerged as a clear front-runner for the October general elections. According to official data cited by Moody's, dollar-deposits declined by $400 million a day on average during the first post-election days.

The drop in dollar-denominated deposits in the first six days after the elections was estimated at $2.4 billion, or the equivalent to 7.3% of the total deposits in U.S. currency in the country. The weekly nominal decrease following the elections was the sharpest seen since the 2001-2002 crisis, and the largest in percentage terms since 2014.

However, deposits in Argentine pesos have remained relatively stable, Moody's noted, at least in nominal terms, as their use is mostly of a transactional nature, and due to the high yields in peso-denominated term deposits, which are supported by banks' investments in the central bank seven-day securities, or Leliqs.

According to a more recent report from El Cronista, private sector dollar-denominated deposits had fallen 8% by Aug. 20, from $32.58 billion before the presidential primaries to $29.85 billion.

Moody's underscored that "banks have ample liquidity to withstand significant pressure deposits," as they have been "building up liquidity buffers since May 2018, due to increased reserve requirements established by the central bank and the sharp decrease in their loan books."