MONTERREY, Mexico--(BUSINESS WIRE)--Fitch Ratings has affirmed Inversiones CrediQ Business, S.A.'s (ICQB) long-term Issuer Default Rating (IDR) at 'B' and its short-term IDR at 'B'. The Rating Outlook on the long-term IDR is Stable.
KEY RATING DRIVERS
ICQB's ratings are based on the financial strength of its main subsidiary companies in Costa Rica, El Salvador and Honduras. The companies have narrow profiles characterized by moderate franchises in the auto financing business. These challenges are balanced by the group's experience in the segment and the commercial synergies obtained from working together with its main shareholder: Grupo Q Holdings Limited (not rated), one of the most important auto dealers in Central America.
ICQB has good profitability metrics at a consolidated level with an ROAA above 2% for the last four years. The fundamentals of its financial performance are a good margin, which comes from the auto lending business, and a sound operative efficiency. The group's efficiency is underpinned by the synergies with Grupo Q, allowing it to operate with a relatively light infrastructure compared with the average retail lender.
ICQB's good performance is dependent on the stability of just one credit segment. In Fitch's view auto financing is prone to greater deterioration in economic downturns compared with other retail segments. The impact of a consumer credit crunch might be significant and would jeopardize the company's already limited liquidity profile.
The funding structure is a key factor in the financial profile of the group and represents its main weakness. As expected due to the non-banking nature and limited franchise of its subsidiaries, the group's funding relies on wholesale sources. Only Honduras is allowed to take deposits funding. The group's funding structure is vulnerable to creditor sentiment and it is less stable in a constrained credit scenario. The group has low liquidity buffers, and liquidity risk management is considered weak.
ICQB's debt coverage metrics are weak as of 2015. EBITDA represents 1.6x interest expenses; gross debt, however, represents about 7.7x EBITDA. This is above the company's goal of 6x, implying an intensified refinancing risk.
The credit portfolio shows good performance with delinquency levels remaining low in light of the retail nature of the portfolio. Nonetheless in 2015, some delinquency upsurge was experienced in El Salvador's subsidiary, related with the failure of the initial deployment of a new IT platform. The past due loans increased above 3% when in past years was close to 1%. In 2016, the Salvadoran operation is expected to improve its credit quality ratios.
Upside potential for ICQB's rating is limited and would be the result of material advances in funding flexibility that reduced asset encumbrance and short-term secured funding reliance, reduction of its exposure to foreign exchange risks, in non-dollarized economies, and improved debt service ratios for both the operative companies and the holding company. In contrast, a material deterioration in the subsidiaries' asset quality, funding and liquidity levels, and capitalization would lead to a negative rating action.
Additional information is available on www.fitchratings.com
Global Non-Bank Financial Institutions Rating Criteria (pub. 28 Apr 2015)
Dodd-Frank Rating Information Disclosure Form