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Rating Action:

Moody's affirms Banorte's ratings and assigns first-time ratings to Ixe Banco and CB Banorte-Ixe

07 Sep 2012

Mexico, September 07, 2012 -- Rating Actions on Banorte and AyF Banorte

Moody's Investors Service has today affirmed all the ratings assigned to Banco Mercantil del Norte, S.A. (Banorte), including its C- standalone bank financial strength rating (BFSR) and baa2 baseline credit assessment, A3 and Prime-2 long- and short-term global local currency deposit and senior debt ratings, and Baa1/Prime-2 long- and short-term foreign currency deposit ratings. The outlook on all these ratings is stable.

In addition, Moody's de Mexico has affirmed Banorte's Aaa.mx and MX-1 long- and short-term deposit and senior debt ratings on the Mexican national scale. The outlook on these ratings is stable.

Moody's has also affirmed the A3 and Prime-2 long- and short-term local currency issuer ratings of Arrendadora y Factor Banorte, S.A. (AyF Banorte), as well as the issuer's (P)A3 and (P)Prime-2 long- and short-term local currency senior debt ratings. At the same time, Moody's de Mexico affirmed AyF Banorte's Aaa.mx and MX-1 issuer and senior debt ratings on the Mexican national scale. The outlook on these ratings is stable.

A complete ratings list is provided below.

Rating Actions on Ixe Banco and CB Banorte-Ixe

Moody's Investors Service has assigned a D+ standalone bank financial strength rating to Ixe Banco, S.A., which maps to a standalone baseline credit assessment of ba1. At the same time, Moody's has assigned long- and short-term global local currency deposit ratings of Baa1/Prime-2, as well as long- and short-term foreign currency deposit ratings of Baa1/Prime-2 to the bank. Additionally, Moody's de Mexico has assigned Aaa.mx/MX-1 Mexican national scale ratings to Ixe Banco. The outlook on these ratings is stable.

Moody's has also assigned Baa1/Prime-2 local currency issuer ratings to Casa de Bolsa Banorte-Ixe, S.A. (CB Banorte-Ixe), which derive from an standalone credit assessment of ba2 and takes into account parental support considerations. At the same time, Moody's de Mexico has assigned Aaa.mx/MX-1 issuer ratings to CB Banorte-Ixe. The outlook on these ratings is stable.

Ratings Rationale - Banorte

In affirming Banorte's standalone ratings, Moody's took into account the strong franchise value derived from the bank's growing market shares in loans and deposits, and broad access to customer deposits, in particular, which support net interest margins and liquidity stability. Banorte's consistent profitability and its relatively stable asset quality, continues to sustain capital and balance sheet growth.

Moody's also notes the improvements in the quality of Banorte's capital, as indicated by Tier 1 now comprising 84% of total capital as of 31 March 2012 compared with 71% at year-end 2009. This increase supports the bank's comfortable Tier 1 capital ratio of 11.6% as of 31 March 2012 (source: Banxico).

Asset quality metrics have been improving, with delinquency and coverage ratios reaching very good levels, of 1.12% and 228.9%, respectively, as of 30 June 2012 (source: CNBV). Nevertheless, the standalone rating is constrained by the bank's high growth and risk appetite, as evidenced by large single borrower concentrations relative to Tier 1 capital and exposure to related parties. Although the bank's loan granularity ratio (measured by its 20 largest borrowers to Tier 1 capital) has positively declined to almost 200% as of 31 March 2012 from close to 800% in 2008, it remains high relative to peers. In turn, exposure to related parties relative to Tier 1 capital, at 25%, is at the regulatory limit.

Banorte's expansion program over the past years has reflected in higher cost to income ratio, which increased to 55% from 50% (source: CNBV) in the 2008 -2011 period. The benefits of such process can already be observed in the larger share of retail deposits and loans and broader branch network. Moreover, as management concludes the operational and business integration of Grupo Financiero Banorte (GFNORTE) and IXE Grupo Financero, we expect gains of synergy to positively affect the group's performance.

Banorte is headquartered in Mexico City. As of June 2012, it had Mx$628.7 billion in assets.

Ratings Rationale -- AyF Banorte

AyF Banorte's A3 and Prime -2 issuer ratings incorporate a standalone credit assessment of ba2 and five notches of uplift due to parental support assumptions, given the company's strategic importance to GFNORTE and specifically to Banorte.

The ba2 standalone credit assessment reflects the fact that AyF Banorte is a small leasing and factoring company that complements Banorte's product offering. Although AyF Banorte is a subsidiary of GFNORTE, in effect it is managed as a line of business of Banorte. As such, its standalone franchise value is very limited due to its monoline business profile and modest earnings capacity. More positively, AyF Banorte's asset quality and profitability track record are adequate, as the company implicitly benefits from the operational platform, risk management and infrastructure of GFNORTE in terms of market position, cost synergies and potential for growth.

AyF Banorte is headquartered in Mexico City. As of June 2012, it had Mx$18.7 billion in assets.

Ratings Rationale -- Ixe Banco

Ixe Banco's ba1 standalone baseline credit assessment takes into account its good position in the high net worth deposit segment, as well as its defendable portfolio of corporate loans to large and medium-size companies. Particularly important is the bank's stable base of customer deposits, which has supported business expansion over time.

Ixe Banco is small, holding less than 2% of the system's deposits as of 30 June 2012 (source: CNBV). Its well-established niche bank strategy ensures that earnings generation is strong, although high funding costs and the expenses inherent to the business model substantially limit bottom line profitability. As a consequence; Ixe Banco's core earnings ratio (pre-provision income to risk-weighted assets) has averaged a small 0.8% for the past five years, which is lower than peers'.

Ixe Banco's delinquency and reserve coverage ratios have been strong, averaging 1.05% and 186.4%, respectively, between 2008 and Q2 2012. Asset quality however is challenged by high loan concentrations with largest borrowers representing a high 197% of Tier 1 capital.

The bank's capitalization is good, at 15.58% as of 30 June 2012 (source: Banxico), which is in line with that of large and diversified banks in the system. Ixe's capital composition tends to have a larger share of Tier 2 capital than most of its peers, with Tier 2 capital representing a high one-third of the total.

Although Ixe Banco's premium segment business remains separate from Banorte, it is now part of GFNORTE, a highly diversified retail-oriented banking group. As such, Moody's believes that by being integrated to GFNORTE, Ixe Banco will benefit from improved operational and funding conditions that should support its business potential, franchise value and future profitability.

The Baa1 global local currency deposit rating assigned to Ixe Banco is based on Moody's assessment of the probability of external support to the bank in case of stress. The deposit rating is three notches above the ba1 standalone credit assessment and the uplift reflects Moody's assumptions about the high probability of parental support given its relevance to GFNORTE.

Ixe Banco is headquartered in Mexico City. As of June 2012, it had Mx$88.5 billion in assets.

Ratings Rationale -- CB Banorte-Ixe

The Baa1 global local currency issuer rating assigned to CB Banorte-Ixe incorporates the brokerage house's standalone credit assessment of ba2 and Moody's assessment of the probability of parental support. The company was created from the merger of Ixe Casa de Bolsa, S.A. and Casa de Bolsa Banorte, S.A. in Q1 2012. The ba2 standalone credit assessment takes into account CB Banorte-Ixe's good brand name, market presence and business potential derived from Ixe Casa de Bolsa's good industry track record as well as Banorte's business potential. As such, CB Banorte-Ixe is well positioned to provide high net worth individuals and large and mid-size companies with a well-diversified palette of brokerage services and wholesale banking products. These include access to trading in capital and money markets, mutual funds, and private banking, corporate finance and financial advisory and research products.

CB Banorte-Ixe runs a low-risk operation; the brokerage house acts on behalf of its customers rather than focusing on trading in high-risk proprietary positions. As a consequence, nearly 88% of revenues are derived from fees and commissions, a risk profile that results in low capital consumption rates, which we view positively.

CB Banorte-Ixe is part of GFNORTE's recently created wholesale banking division and therefore implicitly benefits from the Banorte group's operational platform, risk management and infrastructure in terms of cost synergies, access to a broad customer base and potential for growth.

The ba2 standalone credit assessment nevertheless is constrained by CB Banorte-Ixe's modest profitability and small scale, as indicated by its ranking as the 9th player in capital markets operations among other Mexican brokerage houses.

The Baa1 GLC issuer rating assigned to CB Banorte-Ixe is four notches above the ba2 standalone credit assessment. The ratings uplift takes into account Moody's assessment of the high probability of group support in case of stress because the brokerage house plays a key role in GFNORTE's wholesale banking strategy.

CB Banorte-Ixe is headquartered in Mexico City. As of June 2012, it had Mx$87.4 billion in assets.

DETAILED RATINGS LIST

Banco Mercantil del Norte, S.A.

The following ratings were affirmed with stable outlooks:

- Standalone bank financial strength rating of C-

- A3 and Prime-2 long- and short-term global local currency deposit ratings

- A3 and Prime-2 long- and short-term global local currency senior debt ratings

- Baa1 and Prime-2 long- and short-term foreign currency deposit ratings

- Baa1 local currency subordinated debt rating

- Baa1 foreign currency subordinated debt rating assigned to subordinated cumulative foreign currency debt

- Baa2 local currency rating assigned to junior cumulative subordinated debt

- Ba1 foreign currency rating assigned to non-cumulative subordinated debt

- Aaa.mx and MX-1 long- and short-term Mexican national scale deposit ratings

- Aaa.mx and MX-1 long- and short-term Mexican national scale senior debt ratings

- Aaa.mx subordinated debt rating

- Aa1.mx junior subordinated debt rating

Arrendadora y Factor Banorte, S.A.

The following ratings were affirmed with stable outlooks:

- A3 and Prime-2 long- and short-term local currency issuer ratings

- (P)A3 and (P)Prime-2 long- and short-term local currency senior debt ratings

- Aaa.mx and MX-1 long- and short-term Mexican national scale issuer ratings

- Aaa.mx and MX-1 long- and short-term Mexican national scale senior debt ratings

Ixe Banco, S.A.

The following ratings were assigned with stable outlooks:

- Standalone bank financial strength rating of D+

- Baa1/Prime-2 long- and short-term global local currency deposit ratings

- Baa1/Prime-2 long- and short-term foreign currency deposit ratings

- Aaa.mx/MX-1 Mexican national scale ratings

Casa de Bolsa Banorte Ixe, S.A.

The following ratings were assigned with stable outlooks:

- Baa1/Prime-2 GLC long- and short-term global local currency issuer ratings

- Aaa.mx/MX-1 issuer ratings

The methodologies used in this rating were Moody's Consolidated Global Bank Rating published in June 2012, and Finance Company Global Rating Methodology published in March 2012, and Global Securities Industry Methodology published December 2006. Please see the Credit Policy page on www.moodys.com and www.moodys.com.mx for a copy of this methodologies.

Moody's National Scale 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 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 ".mx" for Mexico. For further information on Moody's approach to national scale ratings, please refer to Moody's Rating Methodology published in March 2011 entitled "Mapping Moody's National Scale Ratings to Global Scale Ratings".

The date of the last Credit Rating Action on Banorte was 15 May 2012 when Moody's Investors Service assigned a long-term Baa1 global local currency (GLC) subordinated debt rating to Banco Mercantil del Norte, S.A. (Banorte)'s proposed fifth issuance of non-convertible subordinated notes of up to Mx$3 billion, eligible for Tier 2 capital treatment.

The date of the last Credit Rating Action on AyF Banorte was 16 May 2012 when Moody's Investors Service assigned provisional long and short term global local currency (GLC) senior debt ratings of (P) A3/P-2 to Arrendadora y Factor Banorte, S.A. de C.V. (AF Banorte)'s Senior Debt Program of Certificados Bursatiles, of up to Mx$3 billion (the Program).

The period of time covered in the financial information used to determine Banorte's rating is between 31 December 2006 and 30 June 2012 (source: Moody's, Issuer's financial statements, CNBV and Banxico).

The period of time covered in the financial information used to determine AyF Banorte, Ixe Banco and CB Banorte-Ixe's rating is between 31 December 2008 and 30 June 2012 (source: Moody's, Issuer's financial statements, CNBV and Banxico).

The sources and items of information used to determine the ratings include 2011 and 2012 interim financial statements (source: Grupo Financiero Banorte); year-end 2011 audited financial statements (source: Grupo Financiero Banorte, audited by Deloitte Touche Tohmatsu Limited); financial statements and information on market position (source: CNBV); and regulatory capital information (source: Banxico).

Additional information on Rating Symbols and Definitions, issuer, lead analyst, ratings history, etc. can be found in Moody's local website www.moodys.com.mx.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.mx.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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 relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.mx.

The rating has been disclosed to the rated entity prior to public dissemination.

Information sources used to prepare the rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

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 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.

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 the Rating Process page 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 the ratings disclosure page on our website www.moodys.com.mx for further information.

Please see www.moodys.com 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.

David Olivares Villagomez
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: 001-888-779-5833
SUBSCRIBERS:52-55-1253-5700

Maria Celina Vansetti-Hutchins
MD - Banking
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 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: 001-888-779-5833
SUBSCRIBERS:52-55-1253-5700

Moody's affirms Banorte's ratings and assigns first-time ratings to Ixe Banco and CB Banorte-Ixe
No Related Data.
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