Fitch Affirms IPAB's IDRs at 'BBB+'/'A-'; Outlook Stable

MONTERREY, Mexico--()--Fitch Ratings has affirmed the Long-Term foreign and local currency Issuer Default Ratings (IDRs) of Instituto para la Proteccion al Ahorro Bancario (IPAB) at 'BBB+'/'A-'. Fitch also affirms IPAB's Short-Term IDRs at 'F2', Support Rating at '2', Support Rating Floor at 'BBB+', and its Long- and Short-Term National Scale ratings at 'AAA(mex)'/'F1+(mex)'. An issuance of local senior unsecured debt was affirmed at 'AAA(mex)'. The Rating Outlook on the long-term ratings is Stable. See the full list of rating actions at the end of this release.

KEY RATING DRIVERS

IDRS AND NATIONAL RATINGS

IPAB's IDRs and Outlook reflect the high ability and propensity of Mexico's federal government to support IPAB if needed, given its key role in the local financial sector as a deposit-insurance entity, which helps to ensure public confidence in the banking system. Its IDRs are aligned with the sovereign's ratings. Fitch considers that even though IPAB does not rely on a specific sovereign guarantee, there are clear statements in its organic law that indicates the likelihood of the Federal Government to provide support. IPAB's National Ratings are at the highest on the ratings scale and also reflect support.

According to its organic law, the Mexican Congress will establish the criteria for the payment of guaranteed obligations and funding of supported financial institutions, if required. In addition, this law also contains a specific item in the Expenditures Decree, which indicates that the Congress will provide budgetary resources to the entity to face its corresponding financial obligations if needed.

IPAB relies on bond issues (Bonos de Proteccion al Ahorro, or BPAs), which benefit from a contingent payment mechanism, as its main liability. IPAB's financial agent, Mexico's central bank, can temporarily debit the Treasury's accounts to honor these bonds; according to the Revenues Law for 2016. This mechanism should be renewed annually and is applicable to all placed BPAS until their maturity. Fitch believes this mechanism further strengthens IPAB's debt servicing ability. Net liabilities as a percentage of Mexico's Gross Domestic Product (GDP) have steadily declined since the entity's creation. As of December 2015, these stood at 4.52% of estimated GDP, dropping from 11.60% at year-end 1999 (based on adjusted historical figures of GDP).

SUPPORT RATING AND SUPPORT RATING FLOOR

Fitch affirmed IPAB's Support Rating and Support Rating Floor (SRF) at '2' and 'BBB+', respectively, given its systemic importance as the banking system's deposit insurance entity in Mexico and willingness of the Mexican Congress to establish measures to support the entity if needed. Fitch's SRFs indicate a level below which the agency will not lower the entity's long-term IDRs as long as the assessment of the support factors does not change.

RATING SENSITIVITIES

IDRS AND NATIONAL RATINGS

Any changes to IPAB's ratings will be driven by changes in Mexico's sovereign ratings, which currently have a Stable Outlook, or changes in its legal framework and the likelihood of the Federal Government to reduce transfers of budgetary resources to IPAB that could alter its financial flexibly, which appears unlikely in the near future.

SUPPORT RATING AND SUPPORT RATING FLOOR

A potential upgrade or downgrade of IPAB's Support Rating and Support Rating Floor would 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.

Fitch affirms the following ratings:

-Long-term foreign currency IDR at 'BBB+';

-Long-term local currency IDR at 'A-';

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

-Support Rating at '2';

-Support Rating Floor at 'BBB+';

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

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

-Local senior unsecured debt issues at 'AAA(mex)'.

The Rating Outlook is Stable.

Additional information is available on www.fitchratings.com

Applicable Criteria

Global Non-Bank Financial Institutions Rating Criteria (pub. 28 Apr 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=865351

National Scale Ratings Criteria (pub. 30 Oct 2013)

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

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1004110

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1004110

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.

Contacts

Fitch Ratings
Primary Analyst
Tania Coello
Analyst
+52 818 399 9508
Fitch Mexico S.A. de C.V.
Prol. Alfonso Reyes 2612
64920 Monterrey, Mexico
or
Secondary Analyst
Monica Ibarra
Director
+52 818 399 9150
or
Committee Chairperson
CFA Alejandro Garcia
Managing Director
+52 818 399 9146
or
Media Relations:
Elizabeth Fogerty, New York, +1 212-908-0526
Email: elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Tania Coello
Analyst
+52 818 399 9508
Fitch Mexico S.A. de C.V.
Prol. Alfonso Reyes 2612
64920 Monterrey, Mexico
or
Secondary Analyst
Monica Ibarra
Director
+52 818 399 9150
or
Committee Chairperson
CFA Alejandro Garcia
Managing Director
+52 818 399 9146
or
Media Relations:
Elizabeth Fogerty, New York, +1 212-908-0526
Email: elizabeth.fogerty@fitchratings.com