MONTERREY, Mexico--(BUSINESS WIRE)--Fitch Ratings has affirmed Banca Mifel (Mifel)'s Viability Rating (VR) at 'bb-'. Fitch has also affirmed Mifel's other outstanding ratings, which are detailed at the end of the press release.
KEY RATING DRIVERS
Mifel's VR, IDRs and National scale ratings consider its gradually improved asset quality metrics through lower impairments and higher reserve coverage. The ratings also consider Mifel's adequate and relatively stable funding base, benefited from a well-positioned customer deposit base that has proven steady and recurring and its relatively weak, although recently enhanced capital position supported by capital injections in view of high loan growth.
The ratings are driven as well by the high concentrations still present among Mifel's main creditors, together with geographic and sector concentrations of the loan portfolio. However, these have been gradually easing in recent periods. Also factored into Mifel's ratings are:
--Mifel's historically low overall profitability metrics by year-end 2013 especially lower operating profits and efficiency in view of higher expenses associated mainly to recent banking enhancements and employee costs;
--Its constrained liquidity; and
--Somehow deteriorated loans to deposits ratio.
Mifel's 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.
Mifel's global subordinated securities are rated at 'B', two notches below the applicable anchor rating, Mifel's VR of 'bb-'. The issue rating is driven by Fitch's approach to factor in its loss severity and non-performance risk. Similar securities would typically be two notches lower for non-performance risk and an additional notch lower for loss severity. However, in the case of Mifel, the overall notching is limited to two notches, due to compression considerations (as per Fitch's existing criteria). This issue receives no equity credit under Fitch's approach, since these are dated securities without a loss absorbing feature that triggers before the point of non-viability.
RATING SENSITIVITIES
Mifel's VR and IDRs could benefit from significant and sustained improvements on its overall profitability, particularly its operating ROA and efficiency levels. Thus, a rating revision could be triggered by a cost to income ratio at around 55%, and an enhanced and sustained Operating ROA above 1%. A reduction of asset-liability mismatches and a contained non-performing loan (NPL) ratio are also expected to consider an upgrade. Conversely, Fitch may downgrade Mifel's ratings if there are material deteriorations of its asset quality metrics and additional pressures of its liquidity profile, together with a deterioration of its capitalization levels, with a Fitch core capital to risk weighted assets below 8%.
Potential for an upgrade of Mifel's 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's VR, as these are expected to maintain the same relativity to Mifel's credit rating. However, a wider notching from the anchor rating cannot be ruled out in the event of an upgrade of the VR, since the issue rating currently benefits from compression at relatively low levels.
CREDIT PROFILE
Mifel is one of the remaining locally owned banks in Mexico, which concentrates an important part of its activities in Mexico City. However, it has been gradually expanding to other major cities since 2005. Mifel's market penetration is low, less than 1% of the banking system's total assets and deposits as of March 2014.
Mifel is mainly focused on providing commercial and corporate banking services regionally, like SMEs, medium-sized real estate developers, and the agricultural and transportation business sector. Mifel also targets upper-middle income and upper-income customers. In recent years, mortgage loans have been gaining share of the total loan portfolio as Mifel participates in government mortgage programs. Mifel has historically benefited from a stable customer base through strong relationships with its clients.
Fitch affirms the following ratings:
Banco Mifel, S.A.:
--Long-term foreign and local currency IDRs at 'BB-';
--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)';
--National-scale short-term rating at 'F2(mex)';
--Long-term cumulative subordinated preferred notes at 'B'.
The Outlook for the long-term ratings is Stable.
Additional information is available on www.fitchratings.com
Applicable criteria and Related Research:
--'Global Financial Institutions Rating Criteria' (Jan. 31, 2014);
--'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
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=832362
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.