MONTERREY, Mexico--(BUSINESS WIRE)--Fitch Ratings has affirmed Banco Nacional de Mexico, S.A.'s (Banamex) Viability Rating (VR) at 'a' and Issuer Default Ratings (IDRs) at 'A'.
Simultaneously, Fitch has affirmed the national scale ratings of Banamex and Acciones y Valores Banamex, S.A. de C.V., Casa de Bolsa (Accival) at 'AAA(mex)' and 'F1+(mex)'. Additionally, the national scale ratings of the local debt issued by Citi Mexico Investments, S. de R.L. de C.V. (Citi Mexico Investments) was affirmed at 'AAA(mex)emr'. A full list of the rating actions follows at the end of this press release.
The Rating Outlook is Stable.
KEY RATING DRIVERS - VR AND IDRs
Banamex's local and foreign currency IDRs are driven by its VR of 'a', which reflects the bank's ability to sustain its ample loss absorption capacity, strong and resilient earnings, robust franchise, and sound liquidity and funding. However, the VR also factors in the lower than pre-crisis core earnings than its closest peers, above-average credit costs, and somewhat volatile trading revenues.
Banamex's capital position is a key strength and is enhanced by its sound and recurrent generation of earnings, and moderate dividend payments. As such, Banamex's capital position is not only ample but also make up solely on core equity, and negligible amounts of encumbered assets. The loss absorption capacity is further enhanced by an ample base of loan loss reserves. Banamex's Fitch Core Capital (FCC) to Risk Weighted Assets (RWA) ratio has quickly recovered from the losses resulting of Oceanografia's exposure, which affected its ratios at the end of 2013. As of June 2014, the FCC ratio reached levels of 15% from 13% showed at the end of 2013.
Banamex maintains a sound and consistent margins and diversified revenues. The profitability has remained below historical records, largely driven by its more conservative provisions, moderate operating efficiency, sizable portfolio of lower-yielding securities and recently by Oceanografia's exposure which in Fitch's opinion were successfully contained without affecting significantly the bank's loss absorption capacity. In Fitch Ratings' opinion, operating and net ROA will return gradually to the levels shown historically, above 1.5%.
Banamex has an ample, low-cost, domestic, and broadly diversified retail deposit base. Core customer deposits are Banamex's main funding source, accounting for 93% of traditional banking liabilities as of June 2014, and for over 100% of gross loans. The loans to deposits ratio stood at a reasonable 94% at the same date, although increasing steadily in line with loan growth. Demand account deposits funded 86% of loans.
Banamex's delinquency levels are good and compare favorably with its closest peers. Fitch expects that charge-offs and impairment ratios could potentially pick up in the foreseeable future given sustained recent and projected loan growth, especially in retail lending and SMEs. Reserve coverage and other asset quality metrics also are sound.
KEY RATING DRIVERS - NATIONAL RATINGS AND SENIOR DEBT
Banamex national-scale ratings are driven by its strong intrinsic profile, reflected in its relatively higher VR. Fitch rates at the same rating level the local debt issued by Banamex as the debt is senior unsecured.
In turn, the national-scale ratings of Accival, one of the largest brokerage firms in Mexico, have been affirmed because it is perceived by Fitch as a core entity of Banamex. Fitch believes that Accival is a core and highly integrated affiliate of the bank and its local parent company, Grupo Financiero Banamex (GFBanamex). In addition, GFBanamex is legally enforced to provide support to its subsidiaries. Therefore, the national scale ratings of the brokerage unit are aligned with the bank's ratings.
The local debt issued by Citi Mexico Investments, an indirect subsidiary of Citigroup, was affirmed at 'AAA(mex)emr' as a result of an irrevocably and unconditionally guarantee in favour of the bond holders provided by Citigroup.
KEY RATING DRIVERS - SUPPORT RATING
Banamex Support Rating (SR) of '1' reflects the extremely high probability of external support from Citigroup Inc (Citigroup). Fitch considers that Banamex is a core subsidiary of Citigroup (rated 'A'/Stable Outlook by Fitch; VR at 'a') and support should be forthcoming in case of need.
RATING SENSITIVITIES - VR
In Fitch's opinion, the upside potential of Banamex's VR is limited in the foreseeable future, since this rating is already two notches above Mexico's sovereign foreign currency rating.
Banamex VR may be negatively affected under a scenario of sustained weaker performance, expressed with a/or: a FCC ratio below 12%, operating ROAs below 1.5%, impairment ratios above 3% and credit costs (loan loss reserves and charge-offs) sustained above 6%. A negative action on Mexico's sovereign ratings could also potentially affect Banamex's VR.
RATING SENSITIVITIES - IDRs
An upgrade of Citigroup's IDRs could positively affect Banamex's IDRs, since the latter is considered core to the former, but Banamex's IDRs could be capped by sovereign and/or country ceiling considerations.
The downside potential for Banamex's IDRs and its national-scale ratings is currently low, since Fitch considers that Banamex is a core subsidiary of Citigroup. Even if Banamex's VR were eventually downgraded, its IDRs will likely remain aligned with Citigroup's IDRs.
RATING SENSITIVITIES - NATIONAL RATINGS AND SENIOR DEBT
Accival and Citi Mexico Investments' national scale ratings could only be negatively affected by a multi-notch downgrade of Banamex's or Citigroup' IDRs, respectively, or a change in their propensity to support these affiliates.
RATING SENSITIVITIES - SUPPORT RATING
Banamex's SR could be affected if Fitch changes its view of Citibank's ability or willingness to support the Mexican bank.
Fitch has affirmed the following ratings:
--Foreign Currency Long-Term IDR at 'A'; Outlook Stable;
--Foreign Currency Short-Term IDR at 'F1';
--Local Currency Long-Term IDR at 'A'; Outlook Stable;
--Local Currency Short-Term IDR at 'F1';
--Viability rating at 'a';
--Support Rating at '1';
--Long-term National-scale rating at 'AAA(mex)'; Outlook Stable
--Short-term National-scale rating at 'F1+(mex)';
--Long-term National-scale rating for local senior debt issuances at 'AAA(mex)'.
--Long-term National-scale rating at 'AAA(mex)'; Outlook Stable;
--Short-term National-scale rating at 'F1+(mex)'.
Citi Mexico Investments
--Long-term National-scale rating for local senior debt issuances at 'AAA(mex)emr'.
Additional information is available on www.fitchratings.com
Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria' (Jan. 31, 2014);
--'Rating Financial Institutions above the Sovereign' (Dec. 12, 2012);
--'Securities Firm Criteria' (Jan. 31, 2014);
--'Rating FI Subsidiaries and Holding Companies' (Aug. 10, 2012);
--'National Scale Ratings Criteria' (Oct. 30, 2013).
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
Rating Financial Institutions Above the Sovereign
Securities Firms Criteria
Rating FI Subsidiaries and Holding Companies
National Scale Ratings Criteria