MONTERREY, Mexico--(BUSINESS WIRE)--Fitch Ratings has today affirmed Banco Interacciones' (Interacciones) Viability Rating (VR) at 'bb', its long-term foreign and local currency Issuer Default Ratings (IDRs) at 'BB'; and its short-term foreign and local currency rating at 'B'. The long- and short-term national scale ratings of Interacciones and the non-bank subsidiary of Grupo Financiero Interacciones (GFI), Interacciones Casa de Bolsa, S.A de C.V., Grupo Financiero Interacciones (ICB), were affirmed at 'A(mex)' and 'F1(mex)', respectively. Fitch revised the Rating Outlook of Interacciones' IDRs and national scale ratings of both entities to Positive from Stable.
Interacciones' Support Rating was affirmed at '5' and Support Rating Floor at 'NF'. The bank's local issuances of subordinated securities were affirmed at 'BBB(mex)'. See the full list of rating actions at the end of this rating action commentary.
Interacciones
KEY RATING DRIVERS
Interacciones' VR, IDRs and national scale ratings reflect its solid and consolidated franchise in its core market, standing as one of the main leaders on government lending in Mexico; its historically very low level of loan impairments and ample cushion of loan reserves (around 3% of total loans); as well as its good financial performance (increasing operating ROAA from 1.3% in 2011 up to 2% in 1Q'14) driven mainly by the stability and recurrence of income streamed from net fees and commissions, low funding costs and improved operating efficiency. The bank's ratings also consider the high borrower concentrations of its main creditors (largest 20th loan exposures represented 5.4 times the bank's Fitch Core Capital as of March 2014), the significant asset-liabilities mismatches driven by restructures and the long-term nature of its loans, and the concentrations that are also present at the customer deposits base of the bank.
The Positive Outlook reflects Fitch opinion that the bank will be able to preserve its recently improved capital metrics based on higher than historic profits and conservative cash dividends; while the advances of the bank in terms of ALM and loan concentration may continue to materialize in the next 12 to 18 month. Fitch also recognizes the intention of the bank to keep exploiting its competitive advantage for government lending in Mexico, which calls for more cross selling and the introduction of new products to its business line; which may slightly reduce their concentrated loan portfolio. The stable and recently enhanced capitalization metrics, complemented by the recent IPO of GFI were also factored in.
Interacciones' Support Rating and Support Rating Floor were affirmed at '5' and 'NF', respectively, in view of the bank's low systemic importance, indicating that, although possible, external support cannot be relied upon.
The local subordinated hybrids of Interacciones are rated at 'BBB(mex)', three notches below the applicable anchor rating, the bank's long-term national scale rating of 'A(mex)'. The issue rating is driven by Fitch's approach to factor in its loss severity and non-performance risk. The notching for non-performance risk (-2) is typical for hybrids issued by Mexican banks, since Fitch considers that the triggers for coupon deferrals or cancellations are relatively high, according to applicable local regulations; and the notching for loss severity (-1) reflects that these securities are plain-vanilla subordinated debt (subordinated preferred, under the local terminology).
RATING SENSITIVITIES
Interacciones Positive Outlook could be materialized if the bank is able to maintain its recent profitability and capitalization levels, together with further declines on concentrations, not only at its loan portfolio but also at its customer deposit base; and significant and stable reductions of its assets and liabilities mismatches. On the other hand, the outlook will be reverted if the its concentrations are further increased and/or by a sudden deterioration of its impaired loans or deterioration of its stable financial performance and recent gains on capitalization metrics, like a FCC below 10% and tangible common equity below 5%.
A potential upgrade of Interacciones' Support Rating and Support Rating Floor is limited at present, since external support cannot be relied upon, although it is possible.
The bank's subordinated debt ratings will likely mirror any change in the bank national scale ratings, as these are expected to maintain the same relevance to Interacciones' credit rating.
ICB
KEY RATING DRIVERS
The ratings of ICB are driven by Fitch's view that these entities remain core for GFI's strategy and business model; especially given its position as funding mechanism for the bank. The ratings also consider the legal obligation of GFI to support its subsidiaries, according to local regulations. The credit profile of GFSI is associated with that of its main subsidiary, Interacciones.
RATING SENSITIVITIES
Any potential changes of ICB's ratings will be driven by any changes in Interacciones' ratings or in the legal framework that could alter the propensity of the group to support them, an unlikely scenario at present. A modification on the entity's strategic importance to GFI could also, lead to changes of its ratings.
Fitch affirms the following ratings:
Banco Interacciones, S.A.:
--Long-term foreign and local currency IDRs at 'BB', Outlook revised to Positive from Stable;
--Short-term foreign and local currency IDRs at 'B';
--Viability rating at 'bb';
--Support rating at '5';
--Support rating floor at 'NF';
--National scale long-term rating at 'A(mex)', Outlook revised to Positive from Stable;
--National scale short-term rating at 'F1(mex)';
--National scale long-term rating for local senior unsecured debt issues at 'A(mex)';
--National scale long-term rating for local subordinated debt issues at 'BBB(mex)'.
Interacciones Casa de Bolsa, S.A. de C.V.:
--National scale long-term rating at 'A(mex)', Outlook revised to Positive from Stable;
--National scale short-term rating at 'F1(mex)'.
Additional information is available on www.fitchratings.com.
Applicable criteria and Related Research:
--'Global Financial Institutions Rating Criteria' (Jan. 31, 2014);
--'Securities Firms Criteria' (Jan. 31, 2014);
--'Rating FI Subsidiaries and Holding Companies' (Aug. 10, 2012);
--'Assessing and Rating Bank Subordinated and Hybrid Securities' (Jan. 31, 2014);
--'National Scale Ratings Criteria' (Oct. 30, 2013);
--'2014 Outlook: Mexican Commercial Banks' (Dec. 13, 2013).
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732397
Securities Firms Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732556
Rating FI Subsidiaries and Holding Companies
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679209
Assessing and Rating Bank Subordinated and Hybrid Securities Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732137
National Scale Ratings Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=720082
2014 Outlook:Mexican Commercial Banks (Expected Partial Recovery of Asset Quality and Profitability Following a Tough 2013)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=726495
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=836545
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