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Rating Action:

Moody's affirms Citibanamex's debt and deposit ratings; upgrades standalone BCA to baa1

 The document has been translated in other languages

25 Feb 2019

Mexico, February 25, 2019 -- Moody's de México ("Moody's") today upgraded Banco Nacional de México, S.A.'s (Citibanamex) standalone baseline credit assessment (BCA) and adjusted BCA to baa1, from baa2. Moody's also affirmed Citibanamex's long- and short-term global local and foreign currency deposit ratings of A3/Prime-2, long- and short-term Mexican national scale deposit ratings of Aaa.mx/MX-1 and all other ratings and assessments.

At the same time, Moody's upgraded Citibanamex Casa de Bolsa, S.A. de C.V.'s long-term global local currency issuer rating to Baa1, from Baa2, and long-term Mexican national scale issuer rating to Aa1.mx, from Aa2.mx, and affirmed its short-term global local currency issuer rating of Prime-2 and its Mexican national scale issuer rating of MX-1.

The rating actions conclude the review for possible upgrade on Citibanamex's adjusted BCA and Citibanamex Casa de Bolsa's issuer ratings that was initiated on 30 November 2018. The rating actions also follow the announcement by Moody's Investors Service that it had upgraded the ratings of Citigroup Inc. (A3 stable), the companies' ultimate parent bank (For more information, please see Moody's Press Release entitled "Moody's upgrades Citigroup to A3 from Baa1, outlook stable" in https://www.moodys.com/research/Moodys-upgrades-Citigroup-to-A3-from-Baa1-outlook-stable--PR_395306). The outlook on the ratings for Citibanamex and Citibanamex Casa de Bolsa is now stable.

List of affected ratings:

Banco Nacional de México, S.A. (Citibanamex, 600009991)

Upgraded Assessments

. Baseline Credit Asessment to baa1, from baa2

. Adjusted Baseline Credit assessment to baa1, from baa2

Affirmed ratings and assessments

. Long-term global local currency deposit rating of A3, stable outlook

. Short-term global local currency deposit rating of Prime-2

. Long-term foreign currency deposit rating of A3, stable outlook

. Short-term foreign currency deposit rating of Prime-2

. Long-term Mexican National Scale deposit rating of Aaa.mx

. Short-term Mexican National Scale deposit rating of MX-1

. Long-term global local currency senior unsecured debt rating of A3, stable outlook (BANAMEX 10-2)

. Long-term Mexican National Scale senior unsecured debt rating of Aaa.mx (BANAMEX 10-2)

. Long-term global local currency senior unsecured debt rating of A3, stable outlook (BANAMEX 18)

. Long-term Mexican National Scale senior unsecured debt rating of Aaa.mx (BANAMEX 18)

. Long-term Counterparty Risk Assessment of A3(cr)

. Short-term Counterparty Risk Assessment of Prime-2(cr)

Issuer level outlook action

.Outlook, changed to stable from under review

Citibanamex Casa de Bolsa, S.A. de C.V. (Citibanamex Casa de Bolsa, 821608738)

Upgraded Ratings

. Long-term global local currency issuer rating to Baa1, from Baa2, changed to stable from under review

. Long-term Mexican National Scale issuer rating to Aa1.mx, from Aa2.mx

Affirmed ratings

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

. Short-term Mexican National Scale issuer rating of MX-1

Issuer level outlook action

.Outlook, changed to stable from under review

RATINGS RATIONALE

The upgrade of Citibanamex's BCA acknowledges the marked improvement in asset quality, as evidenced by declining credit costs, and its entrenched granular deposit base that affords ample margins, which combined, support improved profitability and bring Citibanamex closer in line with its higher rated peers. Furthermore, Citibanamex's profitability stands to benefit from efficiency gains related to substantial investments in operations and digital strategies over the past years. Finally, Citibanamex's strong earnings generation capacity ensures that its capitalization remains robust.

Improvements in the bank's audit and risk management policies led to a substantial decline in write-offs and credit costs, which were more than halved to 2.9% of gross loans in 2018, down from 6.1% in 2014, although at the expense of contraction in loans in 2014 related to a 7% reduction in credit to companies. Credit to companies rose an average 21% in the period 2015-2017, but slowed to 2% in 2018. Moody's expects Citibanamex to expand loans moderately in 2019, a credit positive trend that will further support asset quality. Citibanamex's nonperforming loan (NPL) ratio is now in line with the banking system's 2.2% as of year-end 2018, despite the bank's large exposure to consumer financing, at 32% of gross loans, relative to the system's 20%. In fact, Citibanamex's 1.1% NPL ratio for its credit to companies, which represents 45% of its loan book, is almost 50 basis points below the system's 1.6% in 2018.

The bank's consistently high profitability, evidenced by net income to tangible assets of 1.5% during 2018, derives from its established large and inexpensive granular deposit base, a clear competitive advantage over its peers. While the rating agency expects only marginal further improvements in credit costs, Citibanamex's profitability over the next two years will benefit from efficiency gains related to investments in process optimization and a digital strategy that will lead to more efficient use of its large network of branches, ATMs and employees.

Citibanamex's tangible common equity (TCE) to risk-weighted assets is the highest among the large Moody's-rated banks in Mexico, a key credit positive, and a result of years of limited or no dividend distribution. While earnings generation ensures consistent capital replenishment to support the bank's future growth, the parent bank's long-term capital plan for the Mexican subsidiary will remain a critical rating consideration.

UPGRADE OF ADJUSTED BCA BENEFITTED FROM CITIGROUP UPGRADE

The upgrade of Citibanamex's adjusted BCA was also supported by the upgrade of the bank's ultimate parent, Citigroup, and the adjusted BCA of Citigroup's primary operating subsidiary, Citibank, N.A. (deposits Aa3 stable, BCA baa1). Moody's assesses a very high willingness on the part of Citigroup to support Citibanamex.

Despite the very high probability of affiliate support, the adjusted BCA does not benefit from any ratings uplift because Citibanamex's BCA and Citibank's adjusted BCA are at the same level, following their respective upgrades.

Moody's assessment of Citigroup's very high willingness to support Citibanamex is based on (i) Citigroup's resolution plan, in which it has identified Citibanamex as a material legal entity given its importance to the group in terms of net income and third-party assets; (ii) announcements by Citigroup since 2014 of investments in Citibanamex totaling $2.5 billion; and (iii) the recent rebranding of Citibanamex to better reflect Citigroup's ownership.

Citibanamex accounts for 3.4% of Citigroup's assets and 5.4% of its net income as of September 2018, based on Moody's estimates. While the bank had historically operated under the Banamex brand, it was rebranded beginning in late 2016. The shared brand aligns the reputational risks to Citigroup that would result from an unsupported failure of its Mexican subsidiary.

AFFIRMATION OF CITIBANAMEX'S RATINGS

Moody's affirmed Citibanamex' A3 debt and deposit ratings with a stable outlook to reflect their alignment to Mexico's sovereign ratings. Citibanamex's debt and deposit ratings now benefit from one notch of uplift from government support. Moody's assesses a very high likelihood that Citibanamex will receive support from the Mexican government in the event of stress. This assessment is based on Citibanamex's systemic importance, evidenced by its considerable deposit market share (13.4% as of year-end 2018) and the significant role it plays in the country's payments system.

UPGRADE OF CITIBANAMEX CASA DE BOLSA'S ISSUER RATINGS

The upgrade of Citibanamex Casa de Bolsa's issuer ratings reflects the similar action taken on Citibanamex's adjusted BCA.

Citibanamex Casa de Bolsa is effectively a booking entity for Citibanamex, its sister bank, which is not permitted by local regulations to engage in certain market-making activities, such as bond underwriting. Moody's deems Citibanamex Casa de Bolsa to be highly integrated and harmonized with Citibanamex because (a) it does not have separate money and capital markets desks, (b) it is heavily reliant on services provided by Citibanamex, and (c) there is little differentiation for its customers to indicate which entity is providing the services in question.

As such, Moody's considers the brokerage house to have the full support of Citibanamex, and its ratings are aligned with Citibanamex's adjusted BCA.

Unlike Citibanamex, the ratings of the brokerage house do not incorporate any uplift from public support. Moody's does not believe the government is likely to provide support directly to the brokerage house given its small size and lack of systemic importance, and in the event that the bank itself were the recipient of public support, it is unlikely that it would be permitted to share these resources with the brokerage house.

What could change the ratings up or down

Citibanamex's BCA could be upgraded if profitability continues to improve above current levels while maintaining similar levels of asset quality and capitalization. This would also put positive ratings pressures on Citibanamex Casa de Bolsa's issuer ratings. Nevertheless, further upgrade of the bank's BCA will not translate into upward pressures on the bank's deposits and senior unsecured ratings because they are currently aligned with Mexico's bond rating at A3.

Citibanamex's BCA could face downward pressures if asset quality deteriorates sharply, affecting the bank's earnings generation capabilities and capital buffers, or if capitalization weakens because of a material change in the bank's dividends distribution policies. Nevertheless, a downgrade of Citibanamex's BCA would not affect deposits or debt ratings given the current support assumptions of affiliate support from its ultimate parent Citigroup and support from the Mexican government.

Citibanamex Casa de Bolsa's ratings would not likely face downward pressure if Citibanamex's BCA were to be downgraded, given the very high affiliate support incorporated into Citibanamex's ratings, which would likely provide uplift for the bank's adjusted BCA of baa1.

The principal methodology used in rating Banco Nacional de Mexico, S.A. was Banks published in August 2018. The principal methodology used in rating Citibanamex Casa De Bolsa, S.A. de C.V. was Securities Industry Market Makers 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 México, S.A. and Citibanamex Casa de Bolsa, S.A. de C.V. rating is between 01 January 2014 and 30 September 2018 (source: issuer's 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 https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1113601.

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 entity 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 for Banco Nacional de México, S.A. was 11 Februrary 2019.

The date of the last Credit Rating Action for Citibanamex Casa de Bolsa, S.A. de C.V. was 30 November 2018.

For ratings issued on a program, series or category/class of debt, this announcement provides certain 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 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.

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

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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