Fitch Affirms Banco Ve por Mas' IDRs at 'BB'; Outlook Stable

MONTERREY--()--Fitch Ratings has affirmed the Long- and Short-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'BB' and 'B', respectively, of Banco Ve por Mas, S.A. Institucion de Banca Multiple (BBX+). Fitch also affirmed BBX+'s Viability Rating (VR) at 'bb' and its national scale ratings at 'A(mex)/F1(mex)'.

Simultaneously, Fitch has affirmed the national scale ratings of Casa de Bolsa Ve por Mas, S.A. de C.V. Grupo Financiero Ve por Mas(CBBX+) and Arrendadora Ve por Mas, S.A. de C.V. Sofom E.R. Grupo Financiero Ve por Mas(AXB+) at 'A(mex)' and 'F1(mex)', for the long- and short-term ratings, respectively.

The Rating Outlook on the long-term ratings is Stable. A full list of rating actions follows at the end of this press release.

KEY RATING DRIVERS

VR, IDRS AND NATIONAL SCALE RATINGS

BBX+'s IDRs and national scale ratings are driven by its 'bb' VR, which reflects the bank's sound asset quality, liquidity profile that compares better than its closest peers, and its good capital metrics despite the recent accelerated loan growth. BBX+'s ratings also factor in its weak profitability, which remains below that of its closest peers and is expected to stay so for the next three years since the bank's current expansion phase implies increasing operating expenses.

Despite the rapid loan portfolio growth, BBX+ maintains a good asset quality in both its banking and trading book. The bank's non-perming loan (NPL) ratio is low, and the loan loss reserves stand at reasonable levels. Risk concentration is better than its closest peers. As of March 2016, the NPL ratio including charge offs stood at 1.1% (1.3% for the average of the last three years), while the loan loss reserve stood at 1.2% of gross loans. At that time the 20 largest borrowers represented 2x the bank's Tier I equity. BBX+'s asset quality is also supported by its low risk profile on its trading book, 30.8% of total assets, mainly local government securities or bank securities with adequate credit quality.

In Fitch's view, BBX+'s good liquidity profile is supported by a stable and relatively diversified customer deposits base. As of March 2016, the bank's loan to deposit ratio stood at 142.6%, higher than its closest peers. The bank's liquidity profile also benefits from use of other long-term funds that helps the bank carefully manage its balance sheet. BBX+ has access to interbank fund and long- term debt in the local capital markets in order to match the tenure of its balance sheet.

As expected, BBX+'s capital ratios have declined due to the banks strategy of aggressive expansion (loan growth of 54.1% at YE 2015); nonetheless the actual ratios are still robust because of the shareholder's track record of supporting the bank's growth through capital infusions. At the end of March 2016, the bank's Fitch Core Capital (FCC) to risk weighted assets (RWA) stood at 13%. Fitch expects that BBX+'s capital ratios will tend to constrain as the growth strategy develops, with a FCC to RWA around 13%. The bank's main challenge will be to compensate the decline with growing income or more capital infusions.

As the bank is in the middle of the expansion strategy, its profitability metrics are weaker compared to its closest local and international peers. In 2015 the bank's operating profit to RWA was 0.7%. The results are pressured by growing operating expenses related to infrastructure expansion. Compensating for the high growth with higher profits will likely be challenging, and Fitch expects the bank's operating profit to RWA will remain under 1% for at least the next three years.

The national ratings for CBBX+ and ABX+ are derived from the support they would receive, if needed, from their ultimate parent, Grupo Financiero Ve por Mas (GFBX+); the group has a legal commitment with its subsidiaries according to local regulation. GFBX+'s creditworthiness is associated with its main subsidiary, BBX+, whose national scale rating stands at 'A(mex)' with a Stable Outlook. Both CBBX+ and ABX+ are core to the group, which is reflected in the operative synergies (crossed sales and integration) and in the strategic alignment.

SUPPORT RATING AND SUPPORT RATING FLOOR

BBX+'s Support Rating and Support Rating Floor of '5' and 'NF', respectively, reflects the bank's low systemic importance, indicating that, although possible, external support cannot be relied upon.

RATING SENSITIVITIES

BBX+'s ratings could be upgraded in the medium term if the bank achieves a sustained higher profitability maintaining its current good asset quality, adequate liquidity profile and reasonable capital metrics. Fitch believes that this process will likely take time as the development of those factors requires a consolidation period. Specifically, the bank's ratings would benefit from an operating profit to RWA consistently above 1.5% and a FCC to RWA ratio over 14%.

In turn, BBX+'s ratings can be affected negatively by a significant deterioration of its financial profile. Specifically, if the bank shows a FCC to RWA ratio consistently below 12% and operating profit to RWA ratio under 0.5%. A deterioration of its liquidity profile could also push the ratings down.

CASA DE BOLSA Y ARRENDADORA

CBBX+'s and ABX+'s ratings will be aligned to its ultimate parent (GFBX+), whose credit quality is reflected in BBX+. Any change in the bank's ratings would have a similar effect on the ratings of both CBB+ and ABX+.

SUPPORT RATING AND SUPPORT RATING FLOOR

Upside potential for the SR and SRF is limited and can only occur over time with a material growth of the bank's systemic importance.

Fitch has affirmed the following ratings:

BBX+

--Foreign currency Long-Term IDR at 'BB'; Outlook Stable;

--Foreign currency Short-Term IDR at 'B';

--Local currency Long-Term IDR at 'BB'; Outlook Stable;

--Local currency Short-Term IDR at 'B';

--Viability Rating at 'bb';

--Support Rating at '5';

--Support Rating Floor at 'NF';

--National Long-Term Rating at 'A(mex)'; Outlook Stable;

--National Short-Term Rating at 'F1(mex)';

--Senior Unsecured Long-Term Debt at 'A(mex)'.

CBBX

--National Long-Term Rating at 'A(mex)'; Outlook Stable;

--National Short-Term Rating at 'F1(mex)'.

ABX+

--National Long-Term Rating at 'A(mex)'; Outlook Stable;

--National Short-Term Rating at 'F1(mex)'.

Adjustment to Financial Statements:

BBX+: Pre-paid expenses were re-classified as intangibles and deducted from Fitch Core Capital.

ABX: Licensing fees and prepaid expenses were reclassified as other intangibles. Operating leasing was reclassified as other loans from 'other assets'.

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

Metodología de Calificaciones Nacionales (pub. 13 Dec 2013)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=727099

Metodología de Calificación de Instituciones Financieras no Bancarias (pub. 29 May 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=866614

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1005123

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1005123

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

Contact:
Primary Analyst
Ricardo Aguilar
Associate Director
+52 81 83999124
Fitch Mexico, SA de CV
Prol. Alfonso Reyes 2612, Edificio Connexity Piso 8
Col. Del Paseo Residencial
64920 Monterrey, N.L., Mexico
or
Secondary Analyst
Omar Rojas
Analyst
+52 81 83999100
or
Committee Chairperson
Claudio Gallina
Senior Director
+55 11 4504 2216
or
Media Relations
Elizabeth Fogerty
+1-212-908-0526
New York
elizabeth.fogerty@fitchratings.com

Contacts

Contact:
Primary Analyst
Ricardo Aguilar
Associate Director
+52 81 83999124
Fitch Mexico, SA de CV
Prol. Alfonso Reyes 2612, Edificio Connexity Piso 8
Col. Del Paseo Residencial
64920 Monterrey, N.L., Mexico
or
Secondary Analyst
Omar Rojas
Analyst
+52 81 83999100
or
Committee Chairperson
Claudio Gallina
Senior Director
+55 11 4504 2216
or
Media Relations
Elizabeth Fogerty
+1-212-908-0526
New York
elizabeth.fogerty@fitchratings.com