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Fitch Affirms Banco Macro's IDR at 'B'; Outlook Stable
October 17, 2017 / 4:08 PM / a month ago

Fitch Affirms Banco Macro's IDR at 'B'; Outlook Stable

(The following statement was released by the rating agency) NEW YORK, October 17 (Fitch) Fitch Ratings has affirmed Banco Macro S.A.'s (Macro) Foreign and Local Currency Long-term Issuer Default Ratings (IDR) at 'B' and its Viability Rating (VR) at 'b'. The Rating Outlook is Stable. A full list of rating actions follows at the end of this release. KEY RATING DRIVERS IDRS, VR AND SENIOR DEBT Despite recent improvements in Argentina's economic policy framework and improved access to international capital markets, the operating environment remains an important driver and constraint of Macros' VR and IDRs. In Fitch's view, a reduction in regulatory risk, a correction of macroeconomic imbalances and economic recovery, will take time to materialize. Macro's ratings also reflect the bank's higher risk appetite and growth strategy relative to peers, its ample capital cushion, as well as its diverse funding and ample liquidity. Macro focuses primarily on low- and middle-income individuals and small- and medium-sized companies, ranking fourth among private sector banks with a market share of 6% of the banking system by assets at June 2017. As of June 2017, Macro had the largest private-sector branch network with 449 branches, 1,425 ATMs, and 916 self-service terminals. Its strategy of acquiring regional banks over the last 20 years has given Macro a widespread geographic presence throughout the country. Macro's ample capitalization is supported by strong internal capital generation, earnings retention and a significant reduction in risk weighted assets since 2015. At June 2017, Fitch Core Capital increased to 22.14% of risk weighted assets from 17.2% at year-end 2016 thanks to a public offering of ordinary shares and American Depository Shares in the United States for a total of USD85.1 million to fund organic and inorganic growth. While the bank does not have a fixed capital target, over the longer term it estimates a decline in regulatory capital in line with year-end 2016. Macro has a diverse funding profile, reliant on a stable retail deposit base, complemented by demonstrated access to capital markets. As of June 2017, customer deposits accounted for 74.8% of total funding. Macro's financial agency services to provincial governments benefits its mobilization of public sector institutional deposits. In addition, the bank's payroll services to 2.3 million retail clients are a source of stable, low-cost funding. Macro has a relatively higher risk appetite than its closest peers due to its middle market, retail focus and growth strategy. Nevertheless, it demonstrates sound risk control. Non-performing loans (NPLs) have remained below 2% of gross loans since 2010, in line with the private sector peers. Like the banking system, Macro's loan quality has been supported by high credit growth, which in turn has been facilitated by elevated inflation (40.7% during 2016). Macro's nominal profitability compares favourably with the banking system average. At June 2017, Macro reported ROA of 5.1% compared to a system average of 3.2%. Its performance benefits from its diversified revenue base, an improving operating efficiency trend and relatively moderate provision expense despite its orientation to riskier consumer loans. SENIOR UNSECURED DEBT Ratings on Macro's senior unsecured issuance are in line with the bank's long term Local Currency IDR as the notes will rank pari passu with all other existing and future senior unsecured debt. The Recovery Rating of 'RR4' assigned to Macro's senior debt issuance reflects the average expected recovery in case of bank liquidation. SUPPORT RATING AND SUPPORT RATING FLOOR The Support Rating of '5' and the Support Rating Floor of 'NF' reflect that, although possible, external support for Macro cannot be relied upon given the sovereign's track record. SUBORDINATED DEBT The 'B-/RR6' rating of Macro's subordinated debt reflect the low expected recoveries for these bonds in case of bank liquidation. However, these are notched only once due to ratings compression arising from the low VR of the issuer. These securities are plain-vanilla subordinated liabilities, without any deferral feature on coupons and/or principal. RATING SENSITIVITIES IDRS, VR AND SENIOR DEBT Macro's IDRs, VR and senior debt ratings would likely move in line with a change in Argentina's sovereign rating. In addition, Macro's ratings could be affected in the event of a material deterioration in its financial profile. Fitch considers it unlikely that Argentine banks could be rated above the sovereign, making any upside potential in Macro's ratings contingent on positive developments in the sovereign rating. Macro's senior debt ratings are sensitive to a change in Macro's local currency IDR. SUPPORT RATING AND SUPPORT RATING FLOOR Changes in the SRs and SRFs of Macro are unlikely in the foreseeable future. SUBORDINATED DEBT AND OTHER HYBRID SECURITIES Given the 'RR6' Recovery Rating and the low expected recoveries for these bonds in the case of bank liquidation, a potential upgrade of the bank's VR will not necessarily result in a similar action on outstanding subordinated notes due to the current compression in the rating of Macro's subordinated issuances. Fitch has affirmed the following ratings: Banco Macro, S.A. --Foreign Currency Long-term IDR at 'B'; Outlook Stable; --Foreign Currency Short-term IDR at 'B'; --Local Currency Long Term IDR at 'B'; Outlook Stable; --Local Currency Short Term IDR at 'B'; --Viability Rating at 'b'; --Support Rating at '5'; --Support Rating Floor at 'NF'; --ARS denominated senior unsecured medium term notes at 'B/RR4'; --USD400 million Tier II subordinated medium term notes at 'B-/RR6'. Contact: Primary Analyst Mark Narron Director +1-212-612-7898 Fitch Ratings, Inc. 33 Whitehall St. New York, NY 10004 Secondary Analyst Santiago Gallo Director +56 2 2499 3320 Committee Chairperson Theresa Paiz Fredel Senior Director +1-212-908-0534 Media Relations: Benjamin Rippey, New York, Tel: +1 646 582 4588, Email: benjamin.rippey@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. 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