MONTERREY, Mexico--(BUSINESS WIRE)--Fitch Ratings has assigned a 'BB-' rating to Consubanco, S.A., Institucion de Banca Multilpe (Consubanco). At the same time, Fitch has affirmed and withdrawn the ratings of Consupago, S.A. de C.V., a non-bank predecessor of Consubanco, following the migration of most operations into the bank. A full list of rating actions follows at the end of this press release.
Consubanco's Issuer Default Ratings (IDRs), viability, and national-scale ratings are driven by its strong capitalization, sound and recurring profitability driven by ample margins, well-contained provisions and strong efficiency levels, and reasonable asset quality and loan loss reserve coverage, that Fitch expects will remain roughly unchanged despite its conversion into a bank. However, the ratings also factor in the limited flexibility of its funding structure, the challenging operating and competitive environment in this sector, and portfolio concentrations by region and employer.
Material improvements on the profile, diversification and flexibility of Consubanco's funding mix, coupled with smaller asset liability tenor mismatches, could potentially trigger a revision of the above mentioned ratings; however, Consubanco's ratings could be downgraded if core and/or tangible common capital falls below 20% of total assets, and/or if asset quality weakens to an extent that materially diminishes its loss absorption capacity, and/or if core earnings decline materially (operative ROA below 5%).
In turn, Consubanco's support rating of '5' and the support rating floor of 'NF' reflect Fitch's opinion that external support for the bank in case of need, although possible, cannot be relied upon. Given the limited systemic importance of the bank, these ratings are unlikely to change in the foreseeable future.
Despite its conversion into a bank, Consubanco will focus on the current business model, as it does not plan in the near future to expand its array of financial products or attend different sectors, neither developing a network of bank branches, although a moderate portion of its funding will be sourced from customer deposits. Given the small size of the banking entity into which Consupago's activities are being transferred, Fitch does not expect a material change on the company's financial profile or performance upon its completion.
Strong and recurring net interest margin (NIM) of 51.45% and sound efficiency of 34.8% during the first nine months of 2012 are major drivers of its sound and ample core earnings. Fitch considers that Consubanco will maintain robust earnings, comfortably absorbing its high credit costs. Given its exceptionally high profitability and the slowdown in loan growth in recent years, the capital base is ample and has continued growing steadily. Fitch's measurement of core capital remained at a robust 44.3% of total assets as of September 2012.
Given the payroll deduction mechanism, effective credit losses are relatively moderate. The negative recent trends in impairment levels by lower charge-offs and a tough economic environment. Loans are diversified by borrower, although certain concentrations by regions and employers remain.
In Fitch's opinion, improving its funding structure is one of Consubanco's major challenges, which remains concentrated in a few secured banking facilities, as well as unsecured local and global debt issues that have shorter tenors than its loan portfolio; additionally, the sector is exposed to operational, political, and event risk related to the properly execution of the agreements with employers, and potential unwillingness or inability from the latter to timely or fully disburse retained collections.
Fitch rates Consubanco as follows:
--Long-term IDR 'BB-';
--Short-term IDR 'B';
--Long-term local currency IDR 'BB-';
--Short-term local currency IDR 'B';
--Viability rating 'bb-';
--Support rating '5';
--Support rating floor 'NF';
--Senior unsecured global debt for up to MX$750 million 'BB-';
--Long-term national-scale rating 'A-(mex)';
--Short-term national-scale rating 'F2(mex)';
--Long-term national-scale rating for MX$500 million local senior unsecured debt 'A-(mex)'.
The Rating Outlook is Stable.
Consupago's ratings have been affirmed and simultaneously withdrawn as indicated below:
--Long-term IDR at 'BB-';
--Short-term IDR at 'B';
--Long-term local currency IDR at 'BB-';
--Short-term local currency IDR at 'B';
--Senior unsecured debt for up to MX$750 million at 'BB-';
--Long-term national-scale rating at 'A-(mex)';
--Short-term national-scale rating at 'F2(mex)';
--Short-term national-scale rating for local MX$1,000 million senior unsecured debt at 'F2(mex)'.
--Long-term national-scale rating for local MX$500 million senior unsecured Debt at 'A-(mex)'.
Additional information is available at www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria' (Aug. 15, 2012);
--'National Ratings Criteria' (Jan. 19, 2011);
--'Finance and Leasing Companies Criteria' (Dec. 12, 2011).
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686181
National Ratings Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885
Finance and Leasing Companies Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=659834
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