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250501.mbx T R O U B L E D C O M P A N Y R E P O R T E R L A T I N A M E R I C A Thursday, May 1, 2025, Vol. 26, No. 87 Headlines B R A Z I L BRAZIL: Official Optimistic for EU-Mercosur Deal Amid US Tariff War VOEPASS: Files for Bankruptcy Protection P A N A M A BANCO LA HIPOTERCARIA: Fitch Lowers Long-Term IDR to 'BB+' P A R A G U A Y RUTAS 2 AND 7: Fitch Affirms 'BB+sf' Rating on Series 2019-1 Notes U R U G U A Y BANCO DE LA NACION: Fitch Affirms 'CCC' Long-Term IDRs COMPANIA COOPERATIVA: Moody's Alters Outlook on 'Ba3' IFSR to Pos. PORTO SEGURO: Moody's Affirms 'Ba1' IFS Rating, Outlook Stable PROVINCIA CASA: Fitch Affirms 'CCC' Long-Term IDRs - - - - - =========== B R A Z I L =========== BRAZIL: Official Optimistic for EU-Mercosur Deal Amid US Tariff War ------------------------------------------------------------------- Peggy Corlin, writing for Euronews, and citing a Brazilian trade envoy, reports that Brazil is optimistic that the EU-Mercosur trade deal can be ratified despite some opposition, and believes the current US tariff situation will impel this. "We are very optimistic especially now that US has raised tariffs across the world," Jorge Vian, head of ApexBrasil, Brazil's Trade and Investment Promotion Agency, told Euronews, adding: "With the hostile environment that the world is facing right now we may collaborate to improve the implementation of the agreement." In December, the European Commission concluded a political agreement with the Mercosur countries - Argentina, Brazil, Paraguay and Uruguay - to establish one of the world's biggest free trade zones, encompassing 750 million people and about one-fifth of the global economy, recalls the report. The agreement now needs approval from EU countries before it enters into force. Euronews says some member states led by France have resisted the deal, however, citing concerns over unfair competition that could result from Mercosur exports of agriproducts and environmental standards in Mercosur countries. "What we have now is an objective situation: the Trump administration is damaging free trade and multilateralism; there's a need to adjust for everybody," the report quotes Jorge Vian as saying. "Europe exports more than 600 billion dollars' [worth of goods] to the US. If these exports suffer tariffs of around 20%, it will affect the life of agricultural producers, industrial producers and manufacturing sectors in Europe." Of French calls for so-called "mirror clauses" to be inserted into the agreement - designed to ensure that agricultural imports from Mercosur meet the same production standards applicable to EU farmers - he said that production conditions are too different to be mirrored, says the report. "In Brazil, you have a tropical-based production while in Europe it is a temperate-based production. These climatic structures are very different," Vian said, Euronews relates. He said that although food production remained a sensitive issue, "it can be solved with dialogue and cooperation". Brazil hopes to export not only critical raw materials, but also renewable energy to Europe, according to Euronews. In the industrial sector, Embraer, Brazil's aerospace giant, which already has a plant in Portugal, promised "billions of dollars of investment in Europe to produce components of aeroplanes," the official added. In the EU, advocates of the Mercosur agreement claim that the deal is necessary to counter Chinese influence in the region. "Obviously , the Chinese influence on all the continent is a reality," Vian said, notes Euronews. "Europe is a priority for us. China is Brazil's biggest trade partner not in term of quality but in term of quantity," he adds. About Brazil Brazil is the fifth largest country in the world and third largest in the Americas. Luiz Inacio Lula da Silva won the 2022 Brazilian general election. He was sworn in on January 1, 2023, as the 39th president of Brazil, succeeding Jair Bolsonaro. In October 2024, Moody's Ratings has upgraded the Government of Brazil's long-term issuer and senior unsecured bond ratings to Ba1 from Ba2, the senior unsecured shelf rating to (P)Ba1 from (P)Ba2; and maintained the positive outlook. S&P Global Ratings raised on Dec. 19, 2023, its long-term global scale ratings on Brazil to 'BB' from 'BB-'. Fitch Ratings affirmed on Dec. 15, 2023, Brazil's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'BB' with a Stable Outlook. DBRS' credit rating for Brazil was last reported at BB with stable outlook at July 2023. VOEPASS: Files for Bankruptcy Protection ---------------------------------------- Tim Brownlee, writing for Aerospace Global News, reports that Brazilian regional airline Voepass has filed for bankruptcy protection, citing financial difficulties that it says were worsened by its former codeshare partner, LATAM Airlines. Court documents reveal that Voepass, a privately owned carrier, is seeking judicial protection while dealing with debts totalling around BRL209.2 million ($36.78 million), notes the report. According to the report, the airline has struggled since August 2024, when one of its ATR aircraft crashed near Sao Paulo, resulting in the deaths of all 62 people on board. In its court filing, Voepass alleges that LATAM exerted significant influence over its operations and failed to meet key financial obligations under their partnership agreement, the report relates. LATAM responded in a public statement, firmly rejecting the accusations. "LATAM vehemently repudiates Voepass's claims attributing its financial crisis to LATAM," the company said, adding that it ended the commercial partnership largely due to the crash in 2024, adds the report. =========== P A N A M A =========== BANCO LA HIPOTERCARIA: Fitch Lowers Long-Term IDR to 'BB+' ---------------------------------------------------------- Fitch Ratings has downgraded Banco La Hipotecaria S.A.'s (BLH) Long-Term Issuer Default Ratings (IDR) to 'BB+' from 'BBB-' and maintained the Rating Watch Negative (RWN). Fitch has also downgraded Short-Term IDR to 'B' from 'F3' and removed the RWN. Fitch also downgraded the Shareholder Support Rating (SSR) to 'bb+' from 'bbb-' and maintained the RWN. Additionally, Fitch has affirmed BLH's Viability Rating (VR) at 'bb-'. Fitch has simultaneously withdrawn all international ratings for commercial reasons. At the same time, Fitch has downgraded BLH's Long-Term National Rating to 'AA+(pan)' from 'AAA(pan)', and maintained the RWN, also maintaining the Short-Term National Rating of 'F1+(pan)' on RWN. Fitch has also taken different actions on senior secured and unsecured debt in Panama and maintained on RWN. The rating downgrade reflects Fitch's view of the reduced strategic importance of BLH to its parent company, Grupo ASSA, S.A. (Grupo ASSA). This considering that Grupo ASSA announced the sale of its equity stake in La Hipotecaria (Holding), Inc., the holding company of BLH, to the Central American financial group Inversiones Cuscatlán Centroamérica, S.A. The RWN is maintained as Fitch expects Grupo ASSA to continue to provide support, which drives the IDRs, SSR and national ratings, as long as BLH remains under its ownership. The RWN also indicates Fitch's expectation that such support will no longer exist once the sale is completed, and the ratings would be downgraded to the level implied by its VR (i.e. 'bb-'), if these global-scale ratings had not been withdrawn. Key Rating Drivers Grupo ASSA Support: BLH's IDRs, SSR, national and senior debt ratings are still underpinned by the ability and willingness of its current parent Grupo ASSA (BBB-/Stable) to provide support to the bank if required. Fitch's support assessment weighs with high importance the fact that the strategic role of BLH within the group has been reduced following its sale. Therefore, Fitch considers it no longer a strategic operation for the parent company, which, in Fitch's opinion, implies that the rating could not remain equalized to that of Grupo ASSA. The bank's national ratings indicate Grupo ASSA's relative creditworthiness strength with respect to other rated entities in Panama. Intrinsic Creditworthiness: BLH's 'bb-' VR denotes the agency's expectation that the bank's standalone performance to remain consistent over the rating horizon, as no relevant structural, managerial, or strategic changes are anticipated in BLH. BLH's VR is driven by its specialized and recognized franchise, focused on the housing finance segment. It operates in different countries, with a four-year average total operating income of USD23 million. It also reflects its financial performance, with a relatively stable nonperforming loans (NPLs, stage 3), a profitability that, although pressured, has contained the effects of high funding costs. Likewise, the bank's reasonable capitalization, and diversified financing, also underpin its VR. Local Senior Debt: The senior unsecured debt is rated at the same level as the bank's Long- and Short-term National Ratings as the notes' likelihood of default is the same as BLH's. The National Ratings for secured tranches and negotiable obligations guaranteed by Grupo ASSA's collateral are rated at the same level as the issuer's national ratings, reflecting the same probability of default as BLH. National Ratings for tranches secured by a trust and on negotiable notes secured by a trust are one notch above the bank's long-term national ratings, reflecting the benefits of such guarantees. Rating Sensitivities Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade International Ratings: - Negative rating sensitivities are not applicable as the international ratings have been withdrawn. National Ratings: - BLH's national ratings and its issuances would be downgraded if, prior to the completion of the transaction, Grupo ASSA's IDRs are downgraded, or if Fitch perceives a decrease in its parent's willingness to support its subsidiary. - The bank's national ratings would be downgraded upon completion of the transaction, to a level that reflects the BLH's standalone credit profile. - A deterioration in the bank's financial performance that impacts the profitability, leading to a four-year average operating profit to RWA ratio consistently below 0.5%, and/or if the CET1-to-RWA remains steadily below 10%, could result in a downgrade of the national ratings. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade International Ratings: - Positive rating sensitivities are not applicable as the international ratings have been withdrawn. National Ratings: - The RWN on the bank's national ratings could be removed if that the sale does not close, in which case, the ratings would be affirmed at their current level with a Stable Outlook; - The RWN on the issuances would be removed in the event of the same rating action on BLH. VR ADJUSTMENTS Prior to the withdrawal, the following adjustments were made: - The Operating Environment score of 'bb+' has been assigned below the implied score of 'bbb' due to the following adjustment reason: International Operations (negative); - The Funding & Liquidity score of 'bb-' has been assigned above the implied score of 'b & below' due to the following adjustment reason: Non-Deposit Funding (positive). Public Ratings with Credit Linkage to other ratings BLH's ratings are based on the support from Grupo ASSA, if needed. EXTERNAL APPEAL COMMITTEE OUTCOMES In accordance with Fitch's policies, the issuer appealed and provided additional information to Fitch that resulted in a rating action that is different than the original rating committee outcome. ESG Considerations Following the withdrawal of BLH's international ratings, Fitch will no longer be providing the associated ESG Relevance Scores. Entity/Debt Rating Prior ----------- ------ ----- Banco La Hipotecaria, S.A. LT IDR BB+ Downgrade BBB- LT IDR WD Withdrawn ST IDR B Downgrade F3 ST IDR WD Withdrawn Natl LT AA+(pan) Downgrade AAA(pan) Natl ST F1+(pan)Rating Watch Maintained F1+(pan) Viability bb- Affirmed bb- Viability WD Withdrawn Shareholder Support bb+ Downgrade bbb- Shareholder Support WD Withdrawn senior unsecured Natl LT AA+(pan) Downgrade AAA(pan) senior secured Natl LT AAA(pan)Rating Watch Maintained AAA(pan) senior secured Natl LT AA+(pan) Downgrade AAA(pan) senior unsecured Natl ST F1+(pan)Rating Watch Maintained F1+(pan) senior secured Natl ST F1+(pan)Rating Watch Maintained F1+(pan) =============== P A R A G U A Y =============== RUTAS 2 AND 7: Fitch Affirms 'BB+sf' Rating on Series 2019-1 Notes ------------------------------------------------------------------ Fitch Ratings has affirmed the 'BB+sf' rating on the Series 2019-1 senior secured notes issued by Rutas 2 and 7 Finance Limited (the issuer), a special-purpose vehicle (SPV) incorporated in the Cayman Islands. The Rating Outlook is Stable. Entity/Debt Rating Prior ----------- ------ ----- Rutas 2 and 7 Finance Limited Series 2019-1 78319MAA1 LT BB+sf Affirmed BB+sf Transaction Summary The notes are fully backed by deferred investment payment obligations (PDIs) trust securities after the completion of all bond construction milestones. PDIs are deferred investment recognition payment rights vested upon completion of construction milestones (tramos) of Rutas 2 and 7 projects from the Republic of Paraguay (RoP). PDIs are public debt of the sovereign, and their budgeting process follows the same procedure as a sovereign bond's debt service. Fitch's ratings address the likelihood of timely payment of interest and principal on the notes. KEY RATING DRIVERS Rating Linked to Sovereign: Fitch has determined that the primary risk contributor for the transaction is the RoP, and therefore the transaction's rating is linked to the country's Long-Term Foreign Currency Issuer Default Rating (LT FC IDR) of 'BB+'/Stable. The rating reflects Fitch's view of the credit quality of deferred investment payment obligations (PDIs). Government Payment Obligation: After the availability period, Fitch assumes that payment on the notes will rely on the RoP's unconditional and irrevocable payment obligation regarding vested PDIs. Under Paraguayan law 1535, PDIs are considered external public debt of the RoP denominated in U.S. dollars. Additionally, pursuant to the PPP Trust Agreement, PDI payment right holders will have direct recourse against the country for failure to make timely payments. No Construction/Performance Risk: PDIs are Paraguayan-law governed, freely transferable payment rights. Once issued, they are not related to the Public-Private Partnership (PPP) Contract and therefore do not depend on the status of the construction or operation of the project. This eliminates construction and operating risk. Vested PDIs survive the termination or nullity of the PPP Contract for any reason. Construction Progress in 2025 - Completed: As of April 2025, the project has been completed and is currently in the operational stage of the concession agreement. All PDIs backing the 2019-1 notes were sold to the issuer in a timely manner and are 100% vested. Repayment of the PDIs relies solely on the payment obligation of the RoP. No Negative Carry Risk: All PDIs related to the 2019-1 notes have been sold to the issuer and are 100% vested. The transaction is no longer exposed to negative carry. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - The ratings on the transactions are linked to the LT FC IDR of RoP; hence, a downgrade of the country's FC IDR would trigger a downgrade of the rated notes in the same proportion. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - The ratings on the transactions are linked to the LT FC IDR of RoP; hence, an upgrade of the country's FC IDR would trigger an upgrade of the rated notes in the same proportion. USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS The ratings are linked to the credit risk of Paraguay as measured by its Long-Term Foreign Currency IDR. ESG Considerations Fitch does not provide ESG relevance scores for Rutas 2 and 7 Finance Limited. In cases where Fitch does not provide ESG relevance scores in connection with the credit rating of a transaction, programme, instrument or issuer, Fitch will disclose any ESG factor that is a key rating driver in the key rating drivers section of the relevant rating action commentary. ============= U R U G U A Y ============= BANCO DE LA NACION: Fitch Affirms 'CCC' Long-Term IDRs ------------------------------------------------------ Fitch Ratings has affirmed Banco de la Nacion Argentina's (Sucursal Uruguay) (BNAUY) Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'CCC'. Key Rating Drivers Branch of BNA S.A.: BNAUY is a branch of Banco de la Nacion Argentina (BNA S.A.), which has a leading franchise and systemic importance in Argentina. It also has international coverage through branches and representative offices in seven countries, primarily to address domestic needs related to intraregional foreign trade and support Argentina's commercial activity in the region. BNAUY is one of the smallest banks in Uruguay due to its narrow business focus. It is fully integrated with the head office's structure, strategies, corporate governance, practices, and risk management procedures, and it operates through one main office. BNAUY is the same legal entity as its head office BNA S.A. Therefore, its IDRs reflect Fitch's view of BNA S.A.'s Standalone Credit Profile in the absence of country risk constraints. BNA S.A. is 99.9% by the Argentine state (Estado Nacional) and its liabilities (including its branches abroad) are guaranteed by the sovereign. Fitch believes BNA S.A.'s creditworthiness is highly influenced by Argentina's operating environment. BNAUY has a strong liquid balance sheet, adequate capitalization, and asset quality, and continues to improve its profitability despite its limited lending activity. Low-Risk Assets: As of December 2024, BNAUY's gross loans represented 14% of total assets, and its securities represented another 50%. Its securities portfolio mainly comprises sovereign and corporate bonds from investment-grade countries outside Latin America. The bank's credit growth had been limited until recently due to its narrow business strategy. However, in 2023, the bank reversed this trend, with its credit portfolio increasing in size by 45%, although from a low base. During 2024, the credit portfolio increased by another 37%. Improved Profitability: As of December 2024, BNAUY's operating profit/risk-weighted assets (RWA) ratio was 4.1% in 2024, relatively unchanged from 4.0% in 2023, and supported its net income improvement. Prior to 2023, the bank maintained a narrow business profile that limited the size of its earning assets and its revenue generation ability. The main driver of revenue continues to be its investment portfolio, mainly in conjunction with placements in the financial sector, and the limited portfolio of credits to the private non-financial sector. Good Capitalization: The improved profitability in 2023 and 2024, continued to support BNAUY's capital ratios. As of December 2024, BNAUY's Fitch core capital/RWAs indicator remained satisfactory at 16.1%, compared to 18.1% a year earlier. The ratio was lower in 2024 mostly due to the 37% increase in RWA. Fitch expects BNAUY to maintain a satisfactory level of capitalization to support the continued growth of its RWA. High Liquidity: BNAUY's main funding source comes from its deposit base (mostly non-resident), which accounts for the bulk of the bank's total funding. The funding base was stable from 2021 to 2023, with over 95% of it coming from customer deposits, and the difference mostly attributable to deposits from banks. During 2024, the bank's funding diversified further as customer deposit funding decreased to a still-high 86%. The loans-to-deposits ratio remained low at 18.3% in December 2024, up from 15.0% in December 2023 and 10.0% in 2022, given the small size of the loan portfolio. The outcome of the rating committee would have been the same whether Fitch applied its methodology registered in Uruguay (from Sept. 28, 2023) or its new Bank Rating Methodology published on March 21, 2025. Rating Sensitivities Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - A downgrade of BNAUY's rating would be triggered by a downgrade of Argentina's sovereign rating. - The IDRs would also be pressured by a significant deterioration in BNA S.A.'s financial profile caused by a deterioration in the Argentine operating environment. - Any policy announcement in Argentina that would be detrimental to either BNA S.A. or BNAUY´s ability to service their obligations would be negative for their creditworthiness. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - The IDRs of BNA S.A. and, hence, BNAUY would benefit from an upgrade of Argentina's sovereign rating Public Ratings with Credit Linkage to other ratings The IDRs of BNAUY reflect Fitch's opinion of BNA stand-alone credit profile. ESG Considerations ESG does not apply as this is a branch of an Argentine bank that has its own ESG Entity/Debt Rating Prior ----------- ------ ----- Banco de la Nacion Argentina (Sucursal Uruguay) LT IDR CCC Affirmed CCC LC LT IDR CCC Affirmed CCC COMPANIA COOPERATIVA: Moody's Alters Outlook on 'Ba3' IFSR to Pos. ------------------------------------------------------------------ Moody's Ratings has affirmed the Ba3 insurance financial strength rating (IFSR) on Compania Cooperativa de Seguros Surco (Surco). At the same time, the rating outlook was changed to positive from stable. RATINGS RATIONALE The change in outlook to positive from stable reflects Moody's assessments that Surco's fundamentals have shown resilience despite negative profitability pressures in recent years. This includes managing large claims in the agribusiness segment in 2023 while maintaining adequate capital adequacy and liquidity. If the company's performance is sustained, it could lead to a credit profile consistent with a higher rating, thereby justifying the positive outlook. The affirmation of the company's Ba3 IFSR acknowledges its adequate product diversification across property & casualty (P&C) and life insurance products. Despite the company reporting lower profitability metrics than other rated peers in Uruguay, this diversification has allowed Surco to sustain the negative pressure from increased claims in some of its business segments -mainly agribusiness and automobile- while maintaining its capital adequacy. In the P&C segment, the company's product risk remains relatively low, involving atomized and highly granular risks, albeit with significant price competition. Nonetheless, Surco's involvement in agricultural coverages exposes it to climate-related events, such as the drought that impacted Uruguay in 2023, which can affect the company's results and capital. Another positive aspect is the high quality of Surco's investment portfolio, primarily composed of investment-grade rated instruments. These strengths are offset by Surco's small market presence and profitability levels that lag behind its peers. In addition, the company's pension segment portfolio, which is currently in runoff, faces longevity and reinvestment risks, though these are mitigated by an existing reinsurance contract and investments in wage-adjusted fixed income securities that reduce asset-liability mismatches. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING The following factors could lead to upward pressure on the rating: (i) a sustained underwriting and overall profitability performance, coupled with stable capital adequacy, signaling continued reliance to withstand shocks; (ii) an improvement in its overall profitability (with return on capital consistently above 15% and combined ratios below 100%); (iii) An improvement in capital indicators, with a ratio of shareholders equity to total assets consistently above 14%; (iv) a significant and sustained improvement in its market share and profitability. Although unlikely at this point due to the positive outlook, the following factors could lead to downward pressure on the rating or outlook: (i) deterioration in profitability metrics, with combined ratios consistently above 100%, (ii) a decline in capital adequacy, with shareholders' equity/total assets consistently below 8%, (iii) a significant reduction in its market share, (iv) a downgrade of the Government of Uruguay's rating or a deterioration in the country's operating environment. The methodologies used in this rating were Property and Casualty Insurers published in April 2024. PORTO SEGURO: Moody's Affirms 'Ba1' IFS Rating, Outlook Stable -------------------------------------------------------------- Moody's Ratings has affirmed the Ba1 insurance financial strength rating (IFSR) on Porto Seguro - Seguros del Uruguay S.A (Porto Uruguay). At the same time, the rating outlook remains stable. RATINGS RATIONALE The affirmation of Porto Uruguay's Ba1 IFSR reflects its strong market positioning in Uruguay, the high quality of its investment portfolio, and its adequate level of capitalization. The company benefits from relatively low product risk due to its involvement in lines of business characterized by high granularity and short-tail coverages. Despite reporting negative reserve developments in previous years, the company has improved its reserve adequacy significantly in the last four years. Additionally, the concentration of Porto Uruguay's business portfolio in automobile insurance poses challenges, given the high level of competition and underwriting losses in this segment, which impacts the company's ability to generate profits. The company has however been improving its diversification by growing in other property and casualty segments, especially home rental insurance. In 2024, the company has particularly benefited from an improvement in claims frequency in its automobile segment and profitable growth in home rental insurance coverages. This has resulted in a strong return on capital of 26% in 2024 and an average return of 19% over the last five years. In turn, Porto Uruguay's profitability has allowed for healthy replenishment of capital, leading to a gross underwriting leverage of 3.0x at the end of 2024, an improvement from 3.1x in 2023 and 3.5x in 2022. These developments underscore the company's ability to navigate competitive pressures and maintain robust financial health, which supports its current rating. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING The following factors could lead to upward pressure on the rating: (i) a sustained improvement in the company's underwriting results, with combined ratios persistently below 100%, (ii) greater product diversification, (iii) an improvement in capital adequacy, with gross underwriting leverage (GUL) persistently below 3.5x, (iv) an upgrade of Government of Uruguay's sovereign bond rating. Conversely, the following factors could lead to downward pressure on the rating: (i) profitability metrics worsen, with combined ratios consistently above 100%, (ii) weakening of its capital adequacy, with GUL consistently above 6.0x, (iii) a downgrade of Government of Uruguay's sovereign rating or a deterioration in the country's operating environment. The principal methodology used in this rating was Property and Casualty Insurers published in April 2024. PROVINCIA CASA: Fitch Affirms 'CCC' Long-Term IDRs -------------------------------------------------- Fitch Ratings has affirmed Provincia Casa Financiera's (Provincia) Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'CCC'. Key Rating Drivers Branch of Banco de la Provincia de Buenos Aires: Provincia is a branch of Banco de la Provincia de Buenos Aires (BAPRO) and part of the same legal entity. Provincia's IDRs reflect Fitch's opinion of BAPRO's standalone credit profile, which does not take support into consideration. BAPRO's credit profile considers its leading franchise and systemic importance in Argentina and the Province of Buenos Aires, as the bank is the second largest entity in terms of deposits and the third in terms of assets. Despite the bank's ample liquidity, Fitch also considers BAPRO's very weak operating environment in Argentina, as well as its low capital base, weaker asset quality relative to domestic peers and high exposure to the Argentine public sector. Owned by Province of Buenos Aires: BAPRO and Provincia are wholly owned by the government of the Province of Buenos Aires. BAPRO's liabilities (including those of its branches abroad) are guaranteed by the Province of Buenos Aires. Small Franchise in Uruguay: As of December 2024, Provincia represented less than 1% of the financial system's total assets. Provincia continued its credit activity in 2024 with a focus on serving Uruguayan and Argentine companies that have operations in both countries. Provincia has a single office and is highly integrated with its parent company in terms of strategy, corporate governance and risk management processes. Low-Risk Assets: As of December 2024, gross loans continued to represent 3.5% of total assets after the branch resumed commercial activity in 2023. The investment portfolio represented 81.3% of assets and consisted mainly of Uruguayan and U.S. sovereign instruments, as well as investment grade foreign banks. Volatile Profitability: The branch's profitability is volatile considering the balance sheet exposure to exchange rate and interest rate fluctuations. As of December 2024, operating income to risk-weighted assets (RWA) was 10.7%, well above the 2021-2024 average of 2.2%. The result benefited from higher fee income and foreign exchange income from the valuation of the investment portfolio. High Capitalization: As of December 2024, Provincia's Fitch Core Capital to RWA indicator reached a high 70.9%. Concentrated Funding and Ample Liquidity: Non-resident deposits represent almost all funding and are highly concentrated with the 10 largest depositors in the non-financial sector representing 99.9% of total deposits. Despite the concentration in deposits, the branch has ample liquidity with a consolidated liquidity coverage ratio of 583% at YE 2024. The outcome of the rating committee would have been the same whether Fitch applied its methodology registered in Uruguay (from Sept. 28, 2023) or its new Bank Rating Methodology published on March 21, 2025 Rating Sensitivities Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - The IDRs would be pressured by a downgrade of Argentina's sovereign rating or a significant deterioration in BAPRO's financial profile caused by a deterioration in the Argentine's operating environment; - Any policy announcement in Argentina that would be detrimental to either BAPRO or Provincia's ability to service their obligations would be negative for their creditworthiness. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - The IDRs of Provincia reflect Fitch's opinion of BAPRO stand-alone credit profile. Public Ratings with Credit Linkage to other ratings Provincia is a branch of Banco de la Provincia de Buenos Aires (BAPRO). Provincia's IDRs are aligned with those of BAPRO, because it is part of the same legal entity, and in absence of country risk constraints, therefore reflecting Fitch's opinion of BAPRO's stand-alone credit profile. ESG Considerations Fitch does not provide ESG relevance scores for Provincia Casa Financiera. In cases where Fitch does not provide ESG relevance scores in connection with the credit rating of a transaction, program, instrument or issuer, Fitch will disclose in the key rating drivers any ESG factor which has a significant impact on the rating on an individual basis. Entity/Debt Rating Prior ----------- ------ ----- Provincia Casa Financiera LT IDR CCC Affirmed CCC LC LT IDR CCC Affirmed CCC ********* S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter-Latin America is a daily newsletter co-published by Bankruptcy Creditors' Service, Inc., Fairless Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA, Marites O. Claro, Joy A. 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