MONTERREY, Mexico--(BUSINESS WIRE)--Fitch Ratings has affirmed the Viability Rating (VR) at 'bbb' of Banco Compartamos S.A. I.B.M. (Compartamos), as well as the bank's foreign- and local-currency long-term Issuer Default Ratings (IDRs) at 'BBB' and the short-term ratings at 'F2'. Fitch also affirmed Compartamos' national scale long- and short-term ratings at 'AA+(mex)' and 'F1+(mex)', respectively. The Rating Outlook on the long-term ratings is Stable.
Fitch also affirmed Compartamos' Support Rating (SR) and Support Rating Floor (SRF) at '5' and 'NF'. A full list of rating actions follows at the end of this press release.
KEY RATING DRIVERS
VR, IDRs AND NATIONAL SCALE RATINGS
Compartamos' VR and IDRs are driven by its favorable risk-return profile, sound profitability that fairly surpasses its peer average, robust capitalization levels and its adequate liquidity profile. The ratings also consider its strong niche franchise for which the bank is recognized as a role model for the activity within the country. The bank's ratings are constrained by the low diversification of its funding structure driven by its very limited deposit base, its high reliance on market debt issuances and also tempered by asset quality pressures.
Compartamos' National Scale ratings are explained by the same factors that drive its VR, which result in a solid financial profile and prospects compared to other entities domiciled in Mexico.
Compartamos has proven its ability to balance sustained growth (18.2% on average from 2011-2014) and inherent risks of the business model with a strong performance. The bank has shown a good capacity to manage its above-average risk appetite, driven by the lower income segment of its customers and the product diversification strategy toward semi-urban and individual loans with higher impairments.
The bank's high profitability is underpinned by its steady volume growth, wide interest rate margins and reasonable efficiency. Compartamos' earnings have proven resilient even in the past years that have been challenging for the microfinance sector. Even though there are still some downside risks given the gradual portfolio shift to nongroup products and the prevailing market conditions, Fitch does not expect these factors to significantly erode the bank's solid earnings.
Compartamos has a wide buffer to absorb losses. The bank's capital quality and ratios are solid while sustained by its strong ability to generate internal capital. Given its niche orientation and high reliance on wholesale funding, capital needs to be strong. Loss absorption capacity is furtherly strengthened by the entity's strong loan loss reserves. The bank's management targets a regulatory capital ratio around 30%.
Despite its mostly nondeposit funding structure, the bank's good liquidity profile relies on its highly revolving portfolio, the bank's continuous access to wholesale long-term stable funding and the gradual migration from a monoline business (group lending) to a more diversified product base.
Delinquency indicators have increased in a monitored way during the past years mainly due to product diversification but also given some generalized pressures in group lending within Mexico. However, the bank's commonly outperforms its peers in terms of asset quality. The bank's NPLs plus 12-month written-off loans were 9.3% of the total loans plus charged-off loans as of March 2015.
SR AND SRF
The bank's SR and SRF are driven by its low systemic importance when measured by its market share of core customer deposits. Fitch considers that sovereign support for the bank in case of need, although possible, cannot be relied upon.
RATING SENSITIVITIES
VR, IDRs AND NATIONAL SCALE RATINGS
Given its current relatively high level, future upgrades on its VR and IDR's are limited given its current niche orientation and wholesale funding nature. Significant enhancement of Compartamos funding base with lower reliance on capital market funding jointly with the consolidation of its diversification plan may result in rating upgrades in the medium term.
The ratings could be downgraded if impairment charges exceed 30% of pre-impairment profits, operational expenses exceed 75% of operational income or capital metrics weaken materially (FCC below 25%). Although not a baseline scenario, sustained volatility or reduced funding access could also pressure ratings.
The aforementioned factors may also affect Compartamos' National Scale Ratings considering its relativities with other Mexican rated entities.
SR AND SRF
Upside potential for the SR and SRF is virtually non-existent in the foreseeable future, and can only occur in the long-term with a material gain of the bank's market share in terms of the system's core customer deposits.
Fitch has affirmed the following ratings:
--Long-term foreign and local currency IDRs at 'BBB', Outlook Stable;
--Short-term foreign and local currency IDRs at 'F2';
--Viability Rating at 'bbb';
--Support Rating at '5';
--Support Rating Floor at 'NF'.
--National-scale long-term rating at 'AA+(mex)', Outlook Stable;
--National-scale short-term rating at 'F1+(mex)';
--National-scale long-term rating for local issues of senior unsecured debt at 'AA+(mex)'.
Additional information is available on www.fitchratings.com
Applicable Criteria
Global Bank Rating Criteria (pub. 20 Mar 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=863501
National Scale Ratings Criteria (pub. 30 Oct 2013)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=720082
Additional Disclosures
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=985489
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.