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Fitch: Gradual Improvement Expected for Uruguayan Banking System; S-T Rating Changes Unlikely

BUENOS AIRES, Argentina, Nov 12, 2010 (BUSINESS WIRE) -- According to a new special report, Fitch Ratings expects Uruguay's banking system to show a gradual improvement in performance in 2011 and 2012 and therefore does not foresee significant rating changes occurring over the short term.

Given the solid growth forecast for the Uruguayan economy during the next two years, Fitch expects credit to the private sector to continue increasing. This growth will be important in helping the financial system to continue consolidating and improving profitability. Nevertheless, it will be crucial to keep credit standards high during this strong growth period. Finally, as in recent years, the banks' net profits will continue to depend on exchange rate fluctuations and inflation.

The report also comments on the evolution of the Uruguayan banking system, with special focus on private-sector banks, which continue to consolidate the positive trend seen in recent years. After overcoming a brief period of stagnation in early 2009, domestic loans and deposits have grown solidly, and delinquency rates remain very low. Solvency has remained at adequate levels, and liquidity is ample.

In spite of this, private sector banks' profitability is low, having been hit hard by the reduction in spreads since 2008, by exchange rate fluctuations, and, since 2009, by inflation. As of June 2010, private sector banks' return on total assets and total equity was 0.6% and 6.6%, respectively. These levels of return are still quite low, although they are a significant improvement over the returns recorded in 2009 of negative 0.3% and negative 3.9%, respectively.

The system's solvency is adequate, and its liquidity continues to be one of its primary strengths; liquid assets cover 53.5% of deposits, which have been growing continually.

Fitch believes that the system's main weaknesses continue to be its high level of dollarization and the state-owned banks' high market share (the two public sector banks accounted for 46.8% of the banking system assets at March 31, 2010). While dollarization has declined in recent years as a result of measures taken by the Central Bank of Uruguay (BCU), Fitch does not foresee a substantial change in this aspect over the medium term due to the inherent nature of the country's economy.

The special report 'Uruguayan Banks: Annual Review and Outlook' is available at 'www.fitchratings.com'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research: Uruguayan Banks: Annual Review and Outlook http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=572725 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.

PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '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.

SOURCE: Fitch Ratings CONTACT: Fitch Argentina Calificadora de Riesgo S.A. Santiago Gallo, +5411 5235 8137 Director Sarmiento 663 - 7 piso - C1041AAM Capital Federal - Argentina or Dario Logiodice, +5411 5235 8137 Associate Director or Ana Gavuzzo, +5411 5235 8137 Senior Director or Peter Shaw, +1-212-908-0553 Managing Director Media Relations Brian Bertsch, +1-212-908-0549 brian.bertsch@fitchratings.com Copyright Business Wire 2010 -0- KEYWORD: United States

North America

New York INDUSTRY KEYWORD: Professional Services

Banking

Finance SUBJECT CODE: Bond/Stock Rating