Mensajepor ramifur » Jue Sep 04, 2014 11:58 am
* Event: On September 3, the Argentine Central Bank announced it reduced the maximum FX exposure banks can maintain to 20% of their regulatory capital, from the previous level of 30%. The Central Bank had reduced the limits to 30% for on-balance positions and to 10% for off-balance positions in February 2014. Caps had been removed in 2005.
* Impact on Banks. As of June 30, 2014, the global net FX exposure of the Argentine banking system, including on-balance and off-balance instruments, accounted for 29% of the system's regulatory capital. We estimate that, for every one percentage point reduction in the net FX exposure, on a consolidated basis, banks should reduce positions representing approximately US$150-200 million. Market estimates point to a combined effect of around US$500 million, on a system basis. We believe the new limit reduces the entities' flexibility to protect, in hard currency terms, their net worth in the event of a currency devaluation, with the eventual side-effect of potential losses related to the need to sell FX positions to comply with the new caps. Prior to the introduction of new caps back in February 2014 (when limits were re-established at 30% for on-balance assets and 10% for off-balance instruments), local entities made material profits, in peso terms, based on the faster devaluation pace of the Argentine peso (13% devaluation in 4Q13, and 23% devaluation in 1Q14), in light of their net long position in foreign currency, which had reached ~70% of the system's regulatory capital (see Exhibit 1). Although we do not have information post-2Q14, our banks under coverage were complying, or close to complying with, the new caps as of June 30, 2014 (see Exhibit 2).
* Impact on FX Rate: Based on increasing devaluation expectations, the FX rate gap reached ~70%, after falling to 30/35% in April 2014. The population's acquisition of US dollars for saving purposes jumped to US$260 million in August 2014, from US$207 million in July 2014, and from an accumulated US$845 million during the first semester of 2014. During the first three days of September, daily operations approved by the local IRS have jumped to an average of approximately US$40 million. In our view, the failure to reach an agreement with holdouts would inhibit the government to tap the voluntary capital market (following closing agreements with the Paris Club and YPF, which, in our view, pointed in this direction), which would be key to strengthen the stock of international reserves and reduce FX tension. In this context, we believe the reduction of FX positions to be implemented by banks to comply with the new caps could help to supply US dollars and to contain the FX gap momentarily. However, in the mid-term, the reduction in the FX limits would reduce the Central Bank's firepower, particularly in the next six months, when the reduction of US dollar inflows related to seasonal factors (e.g. soy exports during the fourth quarter of the year usually represent 15-20% of annual exports), could increase FX tensions. It is worth noting the CB was capable of stabilizing the FX rate just after January's devaluation, in our view, thanks to a combination of material reductions in FX exposure caps (forcing banks to reduce their positions by 40 percentage points), and a marked increase in interest rates (10 percentage points), creating a "bridge" until April/May when agro dollar inflows usually increase.
