Banking union's 29% wage increase credit negative for local lenders - Moody's

- Monday, May 30, 2011

Banking union's 29% wage increase credit negative for local lenders - Moody's

The recently announced 29% salary increase achieved by Argentina's banking union is credit negative for local banks because it will raise personnel costs and negatively affect efficiency ratios, ratings agency Moody's said in a report.

On May 24, the union announced it had secured the wage increase for bank employees as part of an annual salary negotiation. Wages represent 65% of banks' operating expenses on average, reflecting the impact of high inflation.

"This adjustment will affect large universal banks the most because of their broad consumer-oriented business model, which is employee intensive," Moody's VP and senior credit officer Andrea Manavella and analyst Valeria Azconegui wrote.

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"Although some of the 23.5% wage increase in 2010 was passed through to customers, even large banks will find that passing this year's 29% increase to clients is difficult in this year's more competitive market," the report reads.

To read the full report, go to this link