Three Important Risk Metrics For Grupo Supervielle SA. (NYSE:SUPV) You Should Know

Credit risk is one of the biggest risk Grupo Supervielle SA. (NYSE:SUPV) faces as a small cap company operating in a heavily regulated financial services sector. The ability for borrowers to repay their loans depends on the stability of their salary and interest rate levels which is impacted by macroeconomic events and in turn impacts the profitability of small banks. This is because bad debt is written off as an expense and impacts Grupo Supervielle’s bottom line and shareholders’ value. I will take you through some useful measures of bad debt and liabilities in order to properly analyse Grupo Supervielle’s risk level before you invest in the stock. Check out our latest analysis for Grupo Supervielle

How Good Is Grupo Supervielle At Forecasting Its Risks?

Grupo Supervielle’s ability to forecast and provision for its bad loans relatively accurately indicates it has a good understanding of the level of risk it is taking on. If it writes off more than 100% of the bad debt it provisioned for, then it has inadequately estimated the factors that may have added to a higher bad loan level which begs the question – does Grupo Supervielle understand its own risk? With a bad loan to bad debt ratio of 88.28%, Grupo Supervielle has under-provisioned by -11.72% which is below the sensible margin of error, illustrating room for improvement in the bank's forecasting methodology.

What Is An Appropriate Level Of Risk?

Grupo Supervielle’s operations expose it to risky assets by lending to borrowers who may not be able to repay their loans. Total loans should generally be made up of less than 3% of loans that are considered unrecoverable, also known as bad debt. When these loans are not repaid, they are written off as expenses which comes out directly from Grupo Supervielle’s profit. With a ratio of 2.92%, the bank faces an appropriate level of bad loan, indicating prudent management and an industry-average risk of default.

Is There Enough Safe Form Of Borrowing?

Grupo Supervielle operates by lending out its various forms of borrowings. Customers’ deposits tend to carry the smallest risk given the relatively stable interest rate and amount available. The general rule is the higher level of deposits a bank holds, the less risky it is considered to be. Grupo Supervielle’s total deposit level of 72.72% of its total liabilities is within the sensible margin for for financial institutions which generally has a ratio of 50%. This indicates a prudent level of the bank's safer form of borrowing and a prudent level of risk.

Next Steps:

We've only touched on operational risks for SUPV in this article. But as a stock investment, there are other fundamentals you need to understand. Below, I've compiled three pertinent aspects you should look at:

• 1. Future Outlook: What are well-informed industry analysts predicting for SUPV’s future growth? Take a look at our free research report of analyst consensus for SUPV’s outlook.
• 2. Valuation: What is SUPV worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether SUPV is currently mispriced by the market.
• 3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.