Banco De Galicia Y Buenos Aires S.A.U.

The negative outlook on Banco Galicia reflects the multiple distortions in Argentina's economy, as well as volatilities, that could erode the solvency and liquidity of Argentine banks and their capacity to service debt. It also reflects the potential volatility in market prices and liquidity of money market instruments stemming from the concentration in sovereign bond maturities indirectly affecting financial entities. We could lower ratings if exchange-rate restrictions further intensify in the next 6-12 months or if there are difficulties in managing central bank debt (LELIQs). We could revise the outlook on both banks to stable in the next 12 months if the economic and business conditions in Argentina improve. Our assessment of Argentina's economic risk reflects significant strains among financial

...The sovereign ratings on Argentina (foreign currency: ###+/Negative/C; local currency: ###-/Negative/C) constrain the long-term rating on Banco Galicia. We rarely rate financial institutions higher than the sovereign where they operate, because we consider it unlikely that these institutions would remain unaffected by developments in domestic economies. Although recent developments at the sovereign level are increasing vulnerabilities for the domestic banks, including Banco Galicia, we think the bank has sufficient liquidity and regulatory capitalization metrics to cope with volatilities and that credit losses will be manageable. Its well-established brand and good presence in the Argentine financial system allow the bank to maintain stable operating revenue. This is despite the weak business conditions and many distortions present in the country's economy. However, high inflation, tighter margins, a loan portfolio contraction in real terms, and certain regulated fees are pressuring the...

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