Fitch Upgrades GFNORTE and Banorte's Ratings to 'BBB+'; Outlook Stable

MONTERREY, Mexico--()--Fitch Ratings has upgraded the ratings for Grupo Financiero Banorte, S.A.B. de C.V. (GFNorte) and Banco Mercantil del Norte S.A. (Banorte) as follows:

--Viability rating (VRs) to 'bbb+' from 'bbb';

--Long term foreign- and local-currency Issuer Default Ratings (IDRs) to 'BBB+' from 'BBB';

In addition, Fitch affirms GFNorte and Banorte's Short-term foreign- and local-currency IDRs and Local currency short-term IDRs at 'F2'.

The Long-term National scale ratings for Banorte, as well as those of GFNorte's non-bank subsidiaries: Arrendadora y Factor Banorte, S.A. de C.V. SOFOM, E.R., Grupo Financiero Banorte (AyF Banorte), Almacenadora Banorte, S.A. de C.V., Organizacion Auxiliar del Credito, Grupo Financiero Banorte (Almacenadora Banorte) and Casa de Bolsa Banorte Ixe, S.A. de C.V., Grupo Financiero Banorte (Casa de Bolsa Banorte Ixe), were upgraded to 'AAA(mex)' from 'AA+(mex)'. The Short-term National scale ratings were affirmed at 'F1+(mex)'. Banorte's global and local hybrid securities were upgraded to 'BB' and 'AA-(mex)', respectively.

GFNorte's Support Rating was affirmed at '5'; while Banorte's Support Rating was affirmed at '2' and its Support Rating Floor at 'BBB-'.

A full list of ratings follows at the end of this release.

Banorte's VR, IDRs and national scale ratings

KEY RATING DRIVERS

The upgrade of Banorte's VR is driven by the material improvement in the bank's capital adequacy, which Fitch believes will be sustained over time. Capital ratios increased after the capital raise of 2013 and the mix continues shifting toward more core capital. The upgrade also considers the bank's strengthening franchise, gradually improving business diversification, and Fitch's expectations of continued increases in core profitability metrics.

Banorte's VR reflects the bank's growing franchise and competitive position, which has been gradually consolidating through organic and inorganic growth, as well as its adequate financial performance and revenue diversification. The bank's enhanced loss absorption capacity through a fast rebuild of its capitalization metrics; the challenges managing its moderate liquidity metrics; its deteriorated, but contained asset quality, especially its non-performing loan ratio (NPL) affected by its exposure to the troubled sector of home builders, are also factored into the rating. The bank's IDRs and national long-and-short term ratings are driven by its VR.

RATING SENSITIVITIES

Banorte's VRs and IDRs could be downgraded if the bank is unable to prevent further deterioration of its asset quality metrics (i.e. impairment ratio above 3.5%); or in the event of a material reversion of the recently improved capitalization levels (Fitch core capital to risk weighted assets below 12%) and operating ROA below 1.5%. Banorte's ratings could benefit over the medium term from further material consolidation of its franchise, competitive position, and business diversification, as well as material improvements to its liquidity profile and recovery of its asset quality metrics, coupled with maintaining an operating ROA above 2%.

GFNorte's VR and IDRs

KEY RATING DRIVERS

Factored into GFNorte's ratings are its consolidating franchise and improved business profile after several acquisitions made in recent years; the extinction of double leverage by YE13 after a capital raise; and the group's ongoing corporate restructuring in line with its strategic objective to simplify its operations and organizational structure. These rating drivers as well as the Stable Outlook are underpinned by GFNorte's major subsidiary, Banorte.

RATING SENSITIVITIES

GFNorte's IDRs are aligned with Banorte's. The group's VR could be positively affected by a potential upgrade of its main banking subsidiary (Banorte). However, an upgrade could also stem from further consolidation of its franchise, an enhanced liquidity profile, and an adequate and sustained performance of its subsidiaries. On the other hand, downside risk would stem from a material increase in double leverage (above 115%), the group's inability to sustain its improved capital metrics, and/or further deterioration of its asset quality metrics.

Support and Support Rating Floors

KEY RATING DRIVERS

Banorte's Support Rating and Support rating floor were affirmed at '2' and 'BBB-', respectively, given Banorte's systemic importance and its role as the largest domestically-owned bank in Mexico. Fitch's support rating floors indicate a level below which the agency will not lower the bank's Long-term IDRs as long as the assessment of the support factors does not change.

GFNorte's Support Rating and Support rating floors were affirmed at '5' and 'NF', in view of its position as a holding company; indicating that, although possible, external support cannot be relied upon.

RATING SENSITIVITIES

A potential upgrade or downgrade of Banorte's Support Rating and Support rating floor will be driven by a change in Mexico's sovereign rating and/or a change in the expected propensity of support from the Mexican government; both unlikely factors at present.

GFNorte's Support rating and Support rating floor upside potential is limited as a holding company. External support cannot be relied upon, although it is possible.

Subordinated Debt and Hybrid Securities

KEY RATING DRIVERS

Banorte's global junior subordinated debt is rated four notches below the bank's IDR, and its national subordinated debt is rated three notches below its National long-term rating. The ratings are driven by Fitch's approach to factoring degrees of subordination (-1 for the plain subordinated notes and -2 for the junior subordinated notes) and non-performance risk (-2 notches).

RATING SENSITIVITIES

Banorte's subordinated debt ratings will likely mirror any change in the bank's VR or national-scale ratings, since these are expected to remain the same relative to the bank's credit rating.

GFNorte's Subsidiaries

KEY RATING DRIVERS

The ratings of GFNorte's non-banking subsidiaries (AyF Banorte, Casa de Bolsa Banorte Ixe, and Almacenadora Banorte) are aligned with Banorte's national-scale ratings, and consider GFNorte's legal obligation to support its subsidiaries, as well as Fitch's perception that these remain core for the group's overall strategy and business profile.

RATING SENSITIVITIES

Any downside potential for GFNorte's non-banking subsidiaries (AyF Banorte, Casa de Bolsa Banorte-Ixe and Almacenadora Banorte), will be driven by any potential downgrade of Banorte's ratings; any changes in the legal framework which could alter GFNorte's support - a scenario that seems unlikely at present; and/or a change of each entity's strategic importance to the group.

Fitch rates the following:

GFNorte:

--Long-term foreign and local currency IDRs upgraded to 'BBB+' from 'BBB';

--Short-term foreign and local currency IDRs affirmed at 'F2';

--Viability rating upgraded to 'bbb+' from 'bbb';

--Support rating affirmed at '5';

--Support rating floor affirmed at 'NF'.

Banorte:

--Long-term foreign and local currency IDRs upgraded to 'BBB+' from 'BBB';

--Short-term foreign and local currency IDRs affirmed at 'F2';

--Viability rating upgraded to 'bbb+' from 'bbb';

--Support rating affirmed at '2';

--Support rating floor affirmed at 'BBB-';

--National-scale long-term rating upgraded to 'AAA(mex)' from 'AA+(mex)';

--National-scale short-term rating affirmed at 'F1+(mex)';

--National-scale long-term rating for a local issue of subordinated unsecured debt (BANORTE 09) upgraded to 'AA-(mex)' from 'A+(mex)';

--USD120 million 10-year junior subordinated securities upgraded to 'BB' from 'BB-';

AyF Banorte:

--National-scale long-term rating upgraded to 'AAA(mex)' from 'AA+(mex)';

--National-scale short-term rating affirmed at 'F1+(mex)';

--National-scale long-term rating for local issues of senior unsecured debt upgraded to 'AAA(mex)' from 'AA+(mex)';

--National-scale short-term rating for local issues of senior unsecured debt affirmed at 'F1+(mex)'.

Almacenadora Banorte:

--National-scale long-term rating upgraded to 'AAA(mex)' from 'AA+(mex)';

--National-scale short-term rating affirmed at 'F1+(mex)'.

Casa de Bolsa Banorte Ixe:

--National-scale long-term rating upgraded to 'AAA(mex)' from 'AA+(mex)';

--National-scale short-term rating affirmed at 'F1+(mex)'.

The Rating Outlook is Stable.

Additional information is available on www.fitchratings.com

Applicable Criteria and Related Research:

--'Global Financial Institutions Rating Criteria' (Jan. 31, 2014);

--'Finance and Leasing Companies Criteria' (Dec. 11, 2012);

--'Securities Firm Criteria' (Jan. 31, 2014);

--'Rating FI Subsidiaries and Holding Companies' (Aug. 10, 2012);

--'Assessing and Rating Bank Subordinated and Hybrid Securities' (Jan. 31, 2014);

--'National Ratings Criteria' (Oct. 30, 2013).

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=824621

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Contacts

Fitch Ratings
Primary Analyst (GFNorte, Banorte and Casa de Bolsa Banorte-Ixe)
Monica Ibarra
Director
+52 818 399 9150
Fitch Mexico S.A. de C.V.
Prol. Alfonso Reyes 2612
64920 Monterrey, Mexico
or
Primary Analyst (Almacenadora Banorte, Arrendadora y Factor Banorte)
Ricardo Aguilar
Analyst
+52 818 399 9175
or
Secondary Analyst (GFNorte, Banorte and Casa de Bolsa Banorte-Ixe)
Alejandro Garcia,CFA
Senior Director
+52 818 399 9146
or
Secondary Analyst (Arrendadora y Factor Banorte)
Veronica Chau
Director
+52 818 399 9169
or
Secondary Analyst (Almacenadora Banorte)
Angel Maass
Senior Director
+52 818 399 9148
or
Committee Chairperson
Franklin Santarelli
Managing Director
+1 212 908 0739
or
Media Relations
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst (GFNorte, Banorte and Casa de Bolsa Banorte-Ixe)
Monica Ibarra
Director
+52 818 399 9150
Fitch Mexico S.A. de C.V.
Prol. Alfonso Reyes 2612
64920 Monterrey, Mexico
or
Primary Analyst (Almacenadora Banorte, Arrendadora y Factor Banorte)
Ricardo Aguilar
Analyst
+52 818 399 9175
or
Secondary Analyst (GFNorte, Banorte and Casa de Bolsa Banorte-Ixe)
Alejandro Garcia,CFA
Senior Director
+52 818 399 9146
or
Secondary Analyst (Arrendadora y Factor Banorte)
Veronica Chau
Director
+52 818 399 9169
or
Secondary Analyst (Almacenadora Banorte)
Angel Maass
Senior Director
+52 818 399 9148
or
Committee Chairperson
Franklin Santarelli
Managing Director
+1 212 908 0739
or
Media Relations
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com