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Moody's: Argentina's economic recovery buoys positive outlook for banking system

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Moody's: Argentina's economic recovery buoys positive outlook for banking system

Moody's on Oct. 11 said it has a positive outlook for the Argentine banking system.

The outlook reflects the country's improving operating environment and the government's potentially increased ability to provide support to banks if needed. It also reflects the positive outlook on Argentina's sovereign rating.

"The economic recovery will support stable asset quality and greater loan demand, helping to offset the effects of margin compression driven by falling interest rates," Moody's noted.

Among the upsides that support the outlook include improved institutional strength under President Mauricio Macri and manageable asset risks and adequate capital loss-absorbing capital. Moody's expects the Macri government's policy reforms will support a continued decline in inflation to 15% in 2018 from 40% in 2016.

However, banks' profitability will continue to shrink although it will remain the strongest in the region, the rating agency said.

Moody's also noted that banks' liquidity will remain ample despite slightly declining from very high levels. Funding costs, meanwhile, will increase in real terms due to rising competition for local currency deposits.