Moody's on March 30 assigned a corporate family rating of B3 to Argentina's Tarjeta Naranja SA, with a positive outlook.
Tarjeta Naranja has a well-established business model and sound financial fundamentals, such as a strong position in Argentina's credit card market and a large number of merchant relationships, the rating agency said. It also has good profitability metrics, manageable asset risk, strong capitalization and a reasonably diversified funding structure.
However, these credit positives are offset by challenges in the environment and inherent risks in the business model, Moody's added. The company's ratings are constrained by Argentina's operating environment, which remains challenging despite market-friendly policies implemented by President Mauricio Macri. Tarjeta Naranja also has a single focus on consumer lending, which carries inherent risks.
Moody's added that Tarjeta Naranja's asset risk is moderate, with a nonperforming loan ratio falling between 4% and 4.5% over the last 3 years. The risk is offset by loan loss reserve coverage, which stands at 125% of problem loans.
Average funding costs at the company are high, even though over half of the company's total funding comes from accounts payable to merchants and stores, which do not accumulate interest. Despite this, diversification in Tarjeta Naranja's funding sources helps offset its weak liquidity.