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Rating Action:

Moody's affirms Banobras, Nafin, and Bancomext's ratings; upgrades BCAs of Banobras and Bancomext

 The document has been translated in other languages

29 Jan 2020

Mexico, January 29, 2020 -- Moody's de México has today affirmed the senior debt and issuer ratings of Banco Nacional de Obras y Servicios Públicos (Banobras), Nacional Financiera, S.N.C. (Nafin) and Banco Nacional de Comercio Exterior, S.N.C. (Bancomext) at respectively A3 in the global scale and at Aaa.mx in the Mexican national scale. The global scale rating outlook remains negative, in line with the outlook on Mexico's sovereign rating.

In addition, Moody's upgraded Banobras's Baseline Credit Assessment (BCA) to ba1, from ba2, and Bancomext's BCA to ba2, from ba3.

The following assessments were upgraded:

Banco Nacional de Obras y Servicios Públicos (90400)

- Baseline Credit Assessment, to ba1, from ba2

- Adjusted Baseline Credit Assessment, to ba1, from ba2

Banco Nacional de Comercio Exterior, S.N.C. (704200)

- Baseline Credit Assessment, to ba2, from ba3

- Adjusted Baseline Credit Assessment, to ba2, from ba3

The following ratings and assessments were affirmed:

Banco Nacional de Obras y Servicios Públicos (90400)

- Long-term global local currency issuer rating of A3, negative outlook

- Short-term global local currency issuer rating of Prime-2

- Long-term global foreign currency issuer rating of A3, negative outlook

- Short-term global foreign currency issuer rating of Prime-2

- Long-term Mexican National Scale local currency issuer rating of Aaa.mx

- Short-term Mexican National Scale local currency issuer rating of MX-1

- Long-term global local currency senior unsecured debt rating of A3, negative outlook (BANOB 17X, BANOB 11U, BANOB 18, BANOB 11-2, BANOB 12, BANOB 19, BANOB 13, BANOB 13-2, BANOB 17-2X, BANOB 14-2, BANOB 18X, BANOB 19X, BANOB 19UX)

- Long-term Mexican National Scale local currency senior unsecured debt rating of Aaa.mx (BANOB 17X, BANOB 11U, BANOB 18, BANOB 11-2, BANOB 12, BANOB 19, BANOB 13, BANOB 13-2, BANOB 17-2X, BANOB 14-2, BANOB 18X, BANOB 19X, BANOB 19UX)

Nacional Financiera, S.N.C. (525100)

- Baseline Credit Assessment of ba1

- Adjusted Baseline Credit Assessment of ba1

- Long-term global local currency issuer rating of A3, negative outlook

- Short-term global local currency issuer rating of Prime-2

- Long-term global foreign currency issuer rating of A3, negative outlook

- Short-term global foreign currency issuer rating of Prime-2

- Long-term Mexican National Scale local currency issuer rating of Aaa.mx

- Short-term Mexican National Scale local currency issuer rating of MX-1

- Long-term global local currency senior unsecured debt rating of A3, negative outlook (NAFR 200403, NAFR 210423, NAFR 17S, NAFF 16V, NAFF 260925)

- Long-term Mexican National Scale local currency senior unsecured debt rating of Aaa.mx (NAFR 200403, NAFR 210423, NAFR 17S, NAFF 16V, NAFF 260925)

Banco Nacional de Comercio Exterior, S.N.C. (704200)

- Long-term global local currency issuer rating of A3, negative outlook

- Short-term global local currency issuer rating of Prime-2

- Long-term global foreign currency issuer rating of A3, negative outlook

- Short-term global foreign currency issuer rating of Prime-2

- Long-term Mexican National Scale local currency issuer rating of Aaa.mx

- Short-term Mexican National Scale local currency issuer rating of MX-1

- Long-term global local currency senior unsecured debt rating of A3, negative outlook (BACMEXT 17, BACMEXT 18, BACMEXT 12-3, BACMEXT 12-2, BACMEXT 13, BACMEXT 18-2, BACMEXT 14, BACMEXT 17-2)

- Long-term Mexican National Scale local currency senior unsecured debt rating of Aaa.mx (BACMEXT 17, BACMEXT 18, BACMEXT 12-3, BACMEXT 12-2, BACMEXT 13, BACMEXT 18-2, BACMEXT 14, BACMEXT 17-2)

RATINGS RATIONALE

The upgrade of Banobras's and Bancomext's BCAs, and the affirmation of Nafin's BCA, acknowledge the relative resilience of their capital and asset quality in the context of Mexico's economic activity and its government's fiscal position. The rating action also incorporates Moody's expectation that the development banks will maintain prudent risk management as they execute their respective public policy mandates of financing regional governments and infrastructure, exports, and small and medium size companies, as growth accelerates. Moody's notes that even in the event of increased demands on these banks' balance sheets to boost economic activity or higher dividend payouts to the government, their BCAs would be appropriately positioned at their current levels.

UPGRADE OF BANOBRAS'S BCA TO ba1

The upgrade of Banobras's BCA by one notch to ba1, from ba2, incorporates Moody's expectation that the bank will maintain adequate asset quality, supported by its core mandate of financing states, municipalities and infrastructure projects. Banobras's low nonperforming loan ratio of 0.6% as of 3Q2019, reflects the predominant share of low risk loans to regional governments, accounting for 63% of its total loans, and which benefits from federally funded repayment mechanisms, therefore, mitigating potential credit losses. Banobras's infrastructure financing, accounting for 31% of loans, also tends to be low risk as repayment is supported by the cash flows generated by the projects.

Banobras's ba1 standalone BCA also reflects its high capitalization ratio of 15.3% as of September 2019, which Moody's measures as tangible common equity (TCE) relative to adjusted risk weighted assets (RWA). Capital at current levels provides sufficient capacity for Banobras to further expand its balance sheet and to absorb any unexpected credit losses, were those to materialize. Banobras will continue to benefit from moderate profitability, historically below 1%, which reflects its development bank policy mandate. Similarly, the bank's reliance on wholesale funding and modest holdings of liquid assets are characteristic of non-deposit taking development banks.

UPGRADE OF BANCOMEXT'S BCA TO ba2

Bancomext's asset risks have traditionally been higher than Banobras's and Nafin's, reflecting its mandate of lending directly to corporations (86% of its loan book), without the benefit of government guarantees that the other two banks enjoy. Nevertheless, Bancomext's NPL ratio was moderate at 1.2% as reported in September 2019, reflecting the high quality of its borrowers and the bank's careful origination, in line with its mandate to promote the export sector, which recently has grown at a faster pace than other sectors in the Mexican economy. We expect Bancomext's asset quality to remain resilient, despite the relatively high industry and borrower concentrations in its loan book, which supports the upgrade of the bank's BCA to ba2, from ba3.

Furthermore, Bancomext's standalone BCA of ba2 also captures Moody's expectation that Bancomext will maintain good levels of capitalization (Bancomext's TCE/adjusted RWAs was high at 12.9%, as of September 2019). Bancomext will maintain a more modest profitability when compared to that of commercial banks, because of a focus on corporate lending in US dollars, and a mainly wholesale funding mix. Nonetheless, the bank's profitability will benefit from overall low operating and credit costs.

AFFIRMATION OF NAFIN'S BCA AT ba1

The affirmation of Nafin's BCA at ba1 incorporates the resiliency of the bank's capital and asset quality, which have been steady over the years. Nafin has traditionally maintained the lowest levels of nonperforming loans among the three rated development banks. NPLs are low, at 0.3% of gross loans as of September 2019, because the bank's promotion of micro, small and medium-sized companies (MSMEs) is made through indirect lending by way of domestic financial institutions (67% of loans); only 27% of loans are direct lending to corporates.

However, Nafin has begun to take on additional credit risk, more in line with direct lending to MSMEs, in its new guarantee program for banks intending to lend to MSMEs, which tend to have higher expected losses than loans to financial entities or corporate loans. The new guarantee program, whose aim is to boost commercial bank lending to the underbanked segment of MSMEs in Mexico, represents about a third of its loan book. While this guarantee program existed in the prior government administrations, under the new administration this program no longer benefits from a Federal government back-stop.

Nevertheless, Nafin's ba1 BCA will continue to be underscored by an ample loan loss absorption. Capitalization will remain largely in line with a TCE/adjusted RWAs of 15.2%, as of September 2019. Nafin's standalone strength will continue to be constrained by its high reliance on market funding, which increases its re-pricing risks.

AFFIRMATION OF ISSUER AND DEBT RATINGS

Moody's affirmed the issuer and debt ratings of Banobras, Nafin and Bancomext in line with the rating agency's assumption of a very high government support for the three development banks based on each banks' law.

Moody's assumes the government will support the banks' obligations with creditors and ensure timely payment of the banks' obligations. Consequently, the ratings and outlooks of Banobras, Nafin and Bancomext are in line with Mexico's sovereign rating and outlook.

WHAT COULD CHANGE RATINGS UP/DOWN

The development banks' ratings have limited upward pressure because their ratings are already at the level of the sovereign rating. However, their rating outlooks would be stabilized if Mexico's sovereign rating outlook is stabilized.

Banobras's BCA could benefit from sustained improvements in the bank's profitability and liquidity.

Nafin's BCA could benefit from sustained improvements in its profitability and lower single-borrower concentration. However, this would not affect the credit ratings, given our assessment of government support.

Bancomext's BCA could benefit from sustained improvements in bank's capitalization, profitability and liquidity buffers.

The development banks' ratings could be downgraded if the Mexican government bond rating is downgraded.

The development bank's BCAs could face downward pressure in case of a higher than expected deterioration in their asset quality and capitalization. However, this would not affect the development banks' senior debt and issuer ratings, given our assessment of government support.

Moody's believes Banobras, Nafin and Bancomext's exposure to environmental risks is low, consistent with its general assessment for the global banking sector. The banks' exposure to social risks is moderate, consistent with Moody's general assessment for the global banking sector. As well, governance risks are largely internal rather than externally driven. Moody's does not have any particular concerns with the three development bank's governance, and does not apply any corporate behavior adjustment to the banks.

The methodologies used in these ratings were Banks Methodology published in November 2019, and Government-Related Issuers published in June 2018. Please see the Rating Methodologies page on www.moodys.com.mx for a copy of these methodologies.

The period of time covered in the financial information used to determine Banco Nacional de Obras y Servicios Públicos's rating is between 1 January 2015 and 30 September 2019 (source: Moody's, as well as issuer's annual audited and quarterly unaudited financial statements).

The period of time covered in the financial information used to determine Nacional Financiera, S.N.C.'s rating is between 1 January 2015 and 30 September 2019 (source: Moody's, as well as issuer's annual audited and quarterly unaudited financial statements).

The period of time covered in the financial information used to determine Banco Nacional de Comercio Exterior, S.N.C.'s rating is between 1 January 2015 and 30 September 2019 (source: Moody's, as well as issuer's annual audited and quarterly unaudited financial statements).

Moody's National Scale Credit Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale credit ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".za" for South Africa. For further information on Moody's approach to national scale credit ratings, please refer to Moody's Credit rating Methodology published in May 2016 entitled "Mapping National Scale Ratings from Global Scale Ratings". While NSRs have no inherent absolute meaning in terms of default risk or expected loss, a historical probability of default consistent with a given NSR can be inferred from the GSR to which it maps back at that particular point in time. For information on the historical default rates associated with different global scale rating categories over different investment horizons, please see http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1174796.

REGULATORY DISCLOSURES

Information sources used to prepare the rating are the following: parties involved in the ratings, public information, and confidential and proprietary Moody's information.

The ratings have been disclosed to the rated entities prior to public dissemination.

A general listing of the sources of information used in the rating process, and the structure and voting process for the rating committees responsible for the assignment and monitoring of ratings can be found in the Disclosure tab in www.moodys.com.mx.

The date of the last Credit Rating Action was 7 June 2019.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.mx.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

This credit rating is subject to upgrade or downgrade based on future changes in the financial condition of the Issuer/Security, and said modifications will be made without Moody's de México S.A. de C.V accepting any liability as a result.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com.mx, for each of the ratings covered, Moody's disclosures on the lead rating analyst and the Moody's legal entity that has issued the ratings.

The relevant office for each credit rating is identified in "Debt/deal box" on the Ratings tab in the Debt/Deal List section of each issuer/entity page of the website.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on www.moodys.com.mx for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com.mx for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see our website www.moodys.com.mx for further information.

Please see www.moodys.com.mx for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

The ratings issued by Moody's de Mexico are opinions regarding the credit quality of securities and/or their issuers and not a recommendation to invest in any such security and/or issuer.

Please see the ratings tab on the issuer/entity page on www.moodys.com.mx for additional regulatory disclosures for each credit rating.

Felipe Carvallo
VP - Senior Credit Officer
Financial Institutions Group
Moody's de Mexico S.A. de C.V
Ave. Paseo de las Palmas
No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000
Mexico
JOURNALISTS: 1 888 779 5833
Client Service: 1 212 553 1653

M. Celina Vansetti-Hutchins
MD - Banking
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Jose Angel Montano
Vice President - Senior Analyst
Financial Institutions Group
JOURNALISTS: 1 888 779 5833
Client Service: 1 212 553 1653

Releasing Office:
Moody's de Mexico S.A. de C.V
Ave. Paseo de las Palmas
No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000
Mexico
JOURNALISTS: 1 888 779 5833
Client Service: 1 212 553 1653

No Related Data.
© 2020 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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