According to its annual report on the
Argentine banking industry, Moody\'s Investors Service says that the
ratings of the country\'s banks have a stable outlook. In general, Moody\'s
believes that the banks\' ratings are underpinned by the rebuilding of
both loans and deposits, and the increasing portion of private sector
assets in the banks\' balance sheets that have had a positive effect on
the banks\' earnings quality. The ratings are also supported by a relative
improvement in the macroeconomic scenario, which has allowed for growth
in financial intermediation.

Among the supporting factors for the outlook, the agency cites the
following: (a) double- digit loan growth for the past two years -- an
indication of recovering economy; (b) low interest rates, lighter
provisions, and better efficiency, which have boosted bank results in
2006 and 2007; (c) continuing improvement in asset quality and
provisioning; (d) the steady reduction in the Argentine banking system\'s
high public-sector exposure. Moreover, there has been steady support from
the monetary authorities, underpinning the deposit ratings.

The report\'s author, Andrea Manavella, says that the rated Argentine
banks, and the banking system as a whole, have done much to enhance
solvency and become financially viable. According to the analyst, the
banks\' gradually improving earnings, along with capital contributions,
are strengthening the financial system\'s solvency.

\"However,\" she states, the banks\' profitability is still influenced by
inflation and by negative interest rates. Profitability is also bolstered
by non-recurring gains and charges such as securities gains and legal
proceedings (\"amparos\"). Moreover, competition is also beginning to
pressure the spreads of various banking products.

Asset quality indicators continued to improve from their post-crisis
levels, as banks build up their loan books, and as the credit quality of
both corporate and consumers strengthens. Reserve coverage has also been
beefed up to reach levels in excess of 100%. \"Nevertheless,\" Ms.
Manavella says, \"the fast growth of the loan portfolios -- a trend
observed all across Latin America -- may result in asset quality
deterioration as loans season -- and therefore, loan growth is a point of
concern and will receive Moody\'s attention.\"

The analyst also points to certain other factors that could be negative
rating drivers for the system. She notes the following: (a) the
still-challenging operating environment constrains the evolution of
banks\' ratings, despite a favorable business cycle; (b) Competition
continues to intensify because most banks are targeting the same
segments; (c) deposit confidence is still lacking, so very short-term
deposit funding is preferred; and (d) changes in accounting rules and
forbearance create transparency issues, which may undermine the
assessment of banks\' true economic capital.