Fitch Rates Banco Inbursa's IDR 'BBB+'; Outlook Stable

MONTERREY, Mexico--()--Fitch Ratings has assigned the following ratings to Mexico's Banco Inbursa, S.A. (BInbursa).

--Viability Rating (VR) of 'bbb+',

--Issuer Default Ratings (IDRs) of 'BBB+'/'F2',

--National scale ratings of 'AAA(mex)'/'F1+(mex)'.

The Support Rating (SR) and Support Rating Floor (SRF) were also assigned at '3'/'BB+'. See the full list of rating actions at the end of this rating action commentary.

KEY RATING DRIVERS

Banco Inbursa's VR, IDRs, and National scale ratings are driven by its robust loss-absorbing capacity, adequate funding and liquidity profile, and its historically low and contained credit losses. These ratings also factor in BInbursa's strong and enhancing franchise, especially when assessed together with the other financial companies of its parent, Grupo Financiero Inbursa, and also given the strong synergies with other non-financial companies related to the controlling shareholders. The bank's sound and relatively stable earnings are also considered.

The VR, IDRs, and National scale ratings also consider the relatively higher than its peers business, risk, and funding concentrations, although these have continued to decline gradually. The relatively high and volatile contribution of trading revenues is also factored in, although this item is typically positive and highly influenced by the mark-to-market of the bank's hedging positions. Also, Inbursa is seeking to reduce the volatility of trading revenues by shifting the mix of its hedging positions.

The bank's SR and SRF are driven by its moderate systemic importance and the growing share of retail deposits, although this is still modest. If the bank were to need it, Fitch considers that there is a moderate probability of receiving sovereign support, which underpins the bank's SR and SRF. Fitch's SRFs indicate a level below which the agency would not lower the bank's long-term IDRs.

RATING SENSITIVITIES

The VR and IDRs could be upgraded over the medium term if business and risk diversification continues to improve steadily, when the longer-term assets are entirely funded with stable customer deposits and/or wholesale debt that completely offset tenor mismatches, and if the bank reduces earnings volatility driven by market-related revenues.

In turn, downside potential for these ratings and the National scale ratings would arise if the bank's capital adequacy metrics or internal capital generation deteriorate materially (Fitch core capital ratio below 15%), or in the event of a reversal in the improving trends in funding and liquidity, and/or business and revenue diversification.

Upside potential for the SR and SRF is limited, and can only occur over time with a material gain of the bank's systemic importance. These ratings could be downgraded if the bank loses material market share in terms of retail customer deposits.

Credit Profile

BInbursa is Mexico's sixth largest bank by loans, with 6.2% of the system's lending portfolio as of March 2014. It ranks seventh by deposits, with 5.9% of the sector's total. Initially oriented toward corporate banking, it has grown recently with a more diversified business mix among corporate, retail, infrastructure, and public sector loans. It is financed mostly through deposits and local issues of long-term debt.

BInbursa has a strong capital position and an ample loan loss reserve cushion that provide a high capacity to absorb losses. It also has sound profitability, driven by stable margins, outstanding operating cost efficiency, and well-contained credit costs. Its funding and liquidity profile is adequate and improving, while risk concentrations continue declining gradually, although these remain relatively high.

Fitch has assigned the following ratings:

Banco Inbursa, S.A.:

-- Long-term foreign and local currency IDRs 'BBB+'; Outlook Stable;

-- Short-term foreign and local currency IDRs 'F2':

-- Viability Rating 'bbb+';

-- Support Rating '3';

-- Support Rating Floor 'BB+';

-- National scale long term rating 'AAA(mex)'; Outlook Stable;

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

Additional information is available on www.fitchratings.com

Applicable Criteria and Related Research:

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

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

Applicable Criteria and Related Research:

National Scale Ratings Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=720082

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=831217

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Contacts

Fitch Ratings
Media Relations
Elizabeth Fogerty, New York
Tel: +1 212-908-0526
Email: elizabeth.fogerty@fitchratings.com
or
Primary Analyst
Alejandro Garcia, CFA
Senior Director
+52 818 399 9146
Fitch Mexico S.A. de C.V.
Prol. Alfonso Reyes 2612
64920 Monterrey, Mexico
or
Secondary Analyst
Alejandro Tapia
Director
+52 818 399 9156
or
Committee Chairperson
Franklin Santarelli
Managing Director
+1 212 908 0739

Sharing

Contacts

Fitch Ratings
Media Relations
Elizabeth Fogerty, New York
Tel: +1 212-908-0526
Email: elizabeth.fogerty@fitchratings.com
or
Primary Analyst
Alejandro Garcia, CFA
Senior Director
+52 818 399 9146
Fitch Mexico S.A. de C.V.
Prol. Alfonso Reyes 2612
64920 Monterrey, Mexico
or
Secondary Analyst
Alejandro Tapia
Director
+52 818 399 9156
or
Committee Chairperson
Franklin Santarelli
Managing Director
+1 212 908 0739