MercoPress. South Atlantic News Agency

Argentina blasts Moody’s for questioning soundness of the banking system

Mercedes Marcó del Pont said rating agencies were ‘irresponsible’ and tainted with ideological content

Argentina’s Central Bank’s Governor (BCRA) Mercedes Marcó del Pont said on Thursday that the Argentine banking system “is in its best historical levels of liquidity, solvency and default rates” referring to an earlier report from Moody’s rating agency.

“Today’s Argentine banking system has the lowest levels of delinquency in its history, and what’s important to understand is that although its not in the ideological conception of this rating agency, the strength of the financial system of this country has to do with the strength of the national economy,” Marcó del Pont stated.

The BCRA Governor underlined that this strength is based in the “pillars of growth, macro-economic balance, dynamics and huge profitability of companies which has enabled the recovery of peoples’ income and their capacity to take credits and pay for them”.

Moody's earlier on Thursday lowered its outlook for Argentina's banking sector to “negative” from “stable” adding that banks in Argentina were increasingly reliant on “unsustainable” government policies, citing high inflation and negative interest rates.

It also warned of a “growing vulnerability to political and event risks that could affect banks' asset allocation, profitability and capitalization”.

“I can’t believe the lack of responsibility and professionalism of these agencies that are being questioned at world-level for their co-responsibility in the global financial crisis,” she continued.

According to Marcó del Pont, “countries have to reach an agreement to regulate these private rating agencies that have been co-responsible of the international financial crisis”.

Regarding the statement on ‘vulnerability’ generated by the state’s intervention in the banking system, the governor of the Argentine central bank assured that “these statements are always tainted with ideological content.”

She said that “maybe what worries rating agencies is that they keep thinking in the free-market when Argentina and other Latin American countries have recovered the role of the State, the capacity of making public policies and intervention to guide the economic process towards real development and social inclusion”.

Argentina’s private ADEBA banking association also criticized the rating's agency outlook revision, saying the assessment had a “subjective and political basis, instead of objective and technical arguments”. Leading Argentine banks include Banco Galicia and Banco Macro.

According to the report ”Banking System Outlook: Argentina”, the change in outlook reflects “1) the fragility of banks' earnings as they are increasingly dependent on the continuation of accommodative yet unsustainable government policies that produce high inflation and negative interest rates; 2) the inherent vulnerability associated to the low level of depositor confidence; and 3) the growing vulnerability to political and event risks that could affect banks' asset allocation, profitability and capitalization.”

Furthermore, the report explains that “In the context of currently high commodity prices, strong exports and low unemployment, the continued expansionary fiscal and monetary policies are driving Argentina's economic growth, domestic consumption and inflation to levels that are difficult to sustain”, and adds”, “The macroeconomic dynamics are particularly vulnerable to a reversal in the terms of trade, including growth moderation of its main trading partner, Brazil”.