Banco de Galicia y Buenos Aires S.A.U.

In December 2023, the central bank announced it will not continue to auction its securities (Leliqs). Passive repo operations became its main instruments to absorb monetary surpluses. Interest rates for such repos are below those of Leliqs and inflation rates. As a result, we expect the banking system's net interest margins, including Banco Galicia's, to compress in 2024, despite trading income and government bond interest. S&P Global Ratings' negative rating outlook on Banco Galicia reflects the one on the sovereign, as well as potential volatility in market prices and the liquidity of money market instruments. This volatility stems from the concentration in sovereign bond maturities that indirectly affects financial entities, including Banco Galicia. The outlook also incorporates the multiple distortions

...The sovereign credit ratings on Argentina (###-/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. We expect Banco Galicia's profitability will be constrained in the next 12 months but still show a return on average common equity of 11%-13%. The Argentine banking system's profitability remains influenced by high inflation (with an impact on results from net monetary exposure), interest rate dynamics, the evolution of government instruments (given their increasing weight among total assets), and the minimum rates for fixed-term deposits. Likewise, we expect still-high rates, lower demand for credit, and a conservative focus on origination will keep lending activity lower. In December 2023, the central bank announced it will not continue to auction its securities (Leliqs). Passive...

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