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Moody's: Ruling on judicial deposit flows credit positive for Banco Ciudad

A ruling striking down a 2012 law that shifted the flow of judicial deposits to Banco de la Nación Argentina and away from Banco de la Ciudad de Buenos Aires is credit positive for the latter, Moody's said.

The decision made by Argentina's Federal Civil and Commercial Court of Appeals rendered the 2012 law unconstitutional and affirmed a 2015 decision that sent all new judicial deposits related to cases being tried in Buenos Aires courts to Banco Ciudad.

The new ruling will give Banco Ciudad access to stable, cheaper long-term deposits. Between the passage of the 2012 law and the court intervention in 2015, the bank had been forced to seek other funding sources such as issuing unsecured debt, significantly denting its profitability and causing a deterioration in the ratio of net income to tangible assets.

With the new ruling, Moody's expects the bank will continue to receive judicial deposits currently at 19 billion Argentine pesos, or 25% of its total deposits and 24% of total funding. It should also lower the bank's average cost of funding, Moody's said.

As for Banco de la Nación Argentina, the ruling is credit negative as it prevents it from regaining the deposits, Moody's added.

As of Oct. 6, US$1 was equivalent to 17.51 Argentine pesos.