MONTERREY, Mexico--(BUSINESS WIRE)--Fitch Ratings has affirmed the Long-Term foreign and local currency Issuer Default Ratings (IDRs) of Financiera Independencia S.A.B. de C.V. (Findep) at 'BB-', and the Short-Term IDRs at 'B'. National scale ratings have also been affirmed. The Outlook is Stable. A full list of rating actions can be found at this end of this rating action commentary.
KEY RATING DRIVERS
The affirmation of Findep's ratings is driven by its sound business franchise in the consumer finance sector, and its adequate funding and liquidity positions. The ratings also reflect strategic actions on underwriting and collection processes implemented for unsecured personal lending, later extended to group lending, which resulted in some improvements on Findep's portfolio quality, profitability and capitalization.
The ratings continue to be constrained by Findep's tight capital ratios, with a tangible equity to tangible assets ratio of 13.8% at YE13. Findep has not yet compensated the goodwill generated from the acquisitions of Apoyo Economico Familiar S.A. (AEF) and Finsol S.A.
In Fitch's opinion, executed strategic changes have enhanced Findep's ability to continue strengthening its financial performance in the foreseeable future. However, Fitch does not anticipate a return on assets (ROA) to historical levels in the near term (over 10%). Still, broad volumes, ample margins and tightened operational policies, together with AEF, AFI (Apoyo Financiero) and Finsol Brazil's good performance and projected growth, could underpin earnings; although increased competition could continue constraining the speed of the recovery. Capital ratios may only recover gradually and converge toward 18.0% over the next two years.
Findep's ratings could be downgraded if: the recently recovered operating ROA weakened to below 2%; the loan charge-off ratio had an unexpected increase above 20%; and/or the tangible equity to tangible assets ratio fell below 12%. A downgrade could also arise from negative changes on its funding profile. Findep's ratings could only benefit from a substantial enhancement of its tangible capital ratios and from a quicker than expected improvement on its overall performance.
Findep is recognized as one of the leaders in the unsecured personal lending sector. It has expanded its geographical and group lending niche presence mainly through the acquisitions of AEF, AFI, and Finsol in Mexico and Brazil.
Findep's ability to maintain and gradually increase its bank facilities results in a reasonable wholesale funding mix. Its well-balanced funding structure is made up of bank credit lines, and global and local market debt. Liquidity levels are good for 2014, and are sustained by its loan portfolio's high turnover. Nevertheless, the amount of global debt maturing in 2015 could challenge the entity's capacity to roll it over.
The strategic measures undertaken since late 2012, boosted by Findep's strong margins and broad volumes, rapidly reversed 2012's net losses. Profitability levels are sustainable in the medium term, while the entity should be able to continue strengthening its overall financial performance.
The enhanced underwriting and collection processes reduced impairments and charges-off to 24% of the total portfolio as of December 2013 (36% YE12). While strategic actions have somewhat reduced delinquency indicators, they still remain high compared to its peers. The entity expects to further improve on the asset quality indicators, and to maintain 100% loan loss reserve coverage.
While competition eased somewhat in 2013, the micro lending industry in Mexico continues to be pressured by low entrance barriers and less formal participants that increase the indebtedness of Findep's customer-base. The entity has taken solid steps to adapt its business model to a more competitive environment.
The rating actions are as follows:
Long-Term foreign and local currency IDRs affirmed at 'BB-'; Outlook Stable;
Short-Term foreign and local currency IDRs affirmed at 'B';
USD200m senior unsecured notes affirmed at 'BB-';
National-scale Long-Term rating affirmed at 'A-(mex)'; Outlook Stable; and
National-scale Short-Term rating affirmed at 'F2(mex)'.
Fitch has withdrawn the following rating:
National-scale Long-Term rating for local issues of senior unsecured debt (Findep 11), prepaid by Findep on February 27, 2014.
Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria' (Jan 31, 2014);
-- 'Finance and Leasing Companies Criteria' (Dec. 11, 2012);
-- 'National Scale Ratings Criteria' (Oct. 30, 2013).
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
Finance and Leasing Companies Criteria
National Scale Ratings Criteria