Thursday, August 25, 2011

Moody's outlook for Argentine banking system changed to 'negative'

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.”