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Rating Action:

Moody's affirms ratings of 3 Mexican banks; assigns counterparty risk ratings and maintains Citibanamex's ratings on review for downgrade

09 May 2022

New York, May 09, 2022 -- Moody's Investors Service ("Moody's") has today affirmed the baseline credit assessments (BCAs), adjusted BCAs, deposit ratings and counterparty risk assessments (CR Assessments) assigned to Banco Mercantil del Norte, S.A. (Banorte) and Banco Santander México, S.A., Institución de Banca Múltiple, Grupo Financiero Santander México (Banco Santander Mexico). Moody's also affirmed the BCA, adjusted BCA and issuer ratings assigned to development bank Banco Nacional de Comercio Exterior, S.N.C. (Bancomext). Moody's also affirmed the foreign currency debt ratings assigned to Banco Santander Mexico, Banco Mercantil del Norte, S.A. (Cayman I) (Banorte Cayman Branch) and Banco Nacional de Comercio Exterior, S.N.C. (CI) (Bancomext Cayman Branch).

Moody's also said today that the ratings assigned to Banco Nacional de México, S.A. (Citibanamex) remain under review for downgrade. The review was initiated on 16 January 2022.

Moody's also assigned CR Assessments to Bancomext and Bancomext Cayman Branch, as well as Counterparty Risk Ratings (CRRs) to Banorte, Banorte Cayman Branch, Banco Santander Mexico, Citibanamex, Bancomext and Bancomext Cayman Branch.

All the remaining ratings of these issuers, including debt ratings, were unaffected by this action.

The outlook of Banorte, Banorte Cayman Branch, Bancomext and Bancomext Cayman Branch remains negative in line with the negative outlook on the Government of Mexico (Baa1 negative). The outlook on Banco Santander Mexico remains stable.

A complete list of affected ratings can be found at the end of the press release.

RATINGS RATIONALE

Moody's has affirmed the ratings and assessments of three Mexican banks in line with the rating agency's expectation that bank financial fundamentals will remain sound over the next 12 to 18 months, supported by their strict underwriting standards and well-diversified portfolios, which will reflect into stable asset quality performance in 2022. These banks' recurring earnings generation will continue to provide consistent capital replenishment supporting a more moderate loan growth, while the phase-in of new capital requirements will help to enhance loss absorption capacity. Mexican commercial banks maintain ample pricing power and access to low-cost deposit funding, which will continue to result in strong net interest margins under a high interest rates environment. Strong liquidity and core deposit funding remain key credit strengths of Mexican commercial banks.

The negative outlook on some of the largest Mexican banks' deposit and issuer ratings reflects the negative outlook on the Government of Mexico's Baa1 sovereign debt rating. The Baa1 deposit ratings assigned to Banorte and the Baa1 issuer ratings assigned to Bancomext incorporate a high likelihood of government support in case the entities were to face severe financial stress, given their systemic importance. However, the Mexican government's capacity to provide support to Mexico's largest banks, including the development banks, is deteriorating, as indicated by the negative outlook on Mexico's Baa1 credit rating.

AFFIRMATION OF BANORTE'S RATINGS WITH A NEGATIVE OUTLOOK

By affirming Banorte's baa2 BCA, Moody's acknowledges the bank's historically robust profitability and strong capitalization metrics, as well as the benefits the bank draws from its broad access to core deposits and low reliance on market funds. The baa2 BCA also benefits from a disciplined risk management and a well-positioned franchise, which supports the bank's strong earnings diversification. The bank's BCA is nevertheless limited by higher funding costs relative to its large bank peers and strategic shifts in the past several years that exposed it to relatively riskier portfolios. The affirmation of Banorte's debt and deposit ratings of Baa1 considers the bank's baa2 BCA and a high likelihood of government support in case the bank were to face severe financial stress. Given Banorte's systemic importance and ample deposit base in the Mexican market, government support results in one notch of uplift from its baa2 BCA.

Moody's also affirmed the Ba2(hyb) rating of the Contingent Non-Convertible Capital Notes and Ba1(hyb) rating of the cumulative non-convertible subordinated notes, both issued through Banorte's Cayman Islands branch, in line with the affirmation of the bank's baa2 Adjusted BCA.

The negative outlook for Banorte's deposit and Banorte Cayman Branch's senior unsecured debt ratings reflects the negative outlook on the Government of Mexico's Baa1 sovereign debt rating.

AFFIRMATION OF BANCO SANTANDER MEXICO'S RATINGS WITH A STABLE OUTLOOK

The affirmation of Banco Santander Mexico's baa2 BCA reflects its good asset quality supported by prudent underwriting standards, higher business volumes and higher rates that will support profitability, coupled with Moody's expectation that the bank's capitalization will remain moderate and continue to be supported by core earnings generation. Substantial investments in products and services to strengthen and increase customer loyalty will allow Banco Santander Mexico to continue to increase customer retention amid a highly competitive market.

The bank's Baa1 deposit and senior debt ratings incorporate (1) a moderate probability of support from its parent, Banco Santander, S.A. (Spain) (Santander Spain, A2 stable, baa1), and (2) a high likelihood of public support, which, however, does not add any uplift to the deposit rating, because Banco Santander Mexico's Adjusted BCA of baa1 is already at the level of Mexico's sovereign rating.

Moody's also affirmed the Baa3(hyb) and Ba1(hyb) ratings assigned to Banco Santander Mexico's cumulative nonconvertible Tier 2 subordinated notes and perpetual subordinated non-preferred contingent convertible Additional Tier 1 capital notes, respectively, following the affirmation of the bank's Adjusted BCA at baa1.

The stable outlook on Banco Santander Mexico's deposit and senior debt ratings reflects Moody's expectation the bank will continue to benefit from prudent underwriting and earnings generation capacity that will balance the bank's moderate capitalization and a moderate probability of support from Santander Spain.

CITIBANAMEX'S RATINGS REMAIN ON REVIEW FOR DOWNGRADE

The ratings assigned to Citibanamex remain on review for downgrade since 16 January 2022, following Citigroup Inc.'s (Citigroup, A3 stable) announcement that it will sell its consumer segments in Mexico, as well as its small and middle market businesses in Mexico. Citigroup will retain ownership of Citibanamex's Institutional Clients Group (ICG) and its private bank, as well as its local brokerage house, Citibanamex Casa de Bolsa, S.A. de C.V. The review of Citibanamex's supported ratings and assessments incorporates the uncertainties that will come out of this divestiture and the implications on the bank's standalone credit profile. Moody's will also assess the bank's competitive environment, whether in the ICG segment or consumer segments in Mexico. During the review period, the appropriate levels of affiliate and government support will also be reassessed by Moody's.

AFFIRMATION OF BANCOMEXT'S RATINGS WITH A NEGATIVE OUTLOOK

The affirmation of the Baa1 issuer ratings of federal development bank Bancomext, and of Bancomext Cayman Branch's senior unsecured debt ratings, reflects the very high likelihood of government support, based on an explicit statutory support set in the bank's laws, as well as its public policy mandates. Bancomext promotes the export sector and those industries that attract foreign currency to Mexico, including tourism, and complements commercial banks' products, mainly in initial-stage projects, by offering US dollar long-term financing. Because the government's statutory support does not qualify for credit substitution, the ratings also consider the bank's ba2 BCA.

Bancomext's ba2 BCA captures the bank's good asset quality and moderate capitalization, as well as its conservative underwriting processes. However, the bank's BCA is limited by its sizable sector and single-borrower concentrations, modest profitability, and high reliance on market funding.

Moody's also affirmed the Baa3(hyb) rating assigned to the subordinated capital notes issued by Bancomext Cayman Branch following the affirmation of the bank's ba2 Adjusted BCA.

The negative outlook on Bancomext's issuer and senior debt ratings reflects the negative outlook on the Government of Mexico's Baa1 sovereign debt rating.

ASSIGNMENT OF COUNTERPARTY RISK ASSESSMENTS TO BANCOMEXT

The assigned long- and short-term Counterparty Risk Assessments (CR Assessment) of Baa1(cr) and Prime-2(cr) to Bancomext and to Bancomext Cayman Branch take into consideration the development bank's standalone strength as well as the very high likelihood of support from the Mexican government support in the event of need, reflecting the anticipated seniority of these obligations in the liabilities hierarchy. The CR Assessment also incorporates other steps authorities can take to preserve the key operations of a bank should it enter a resolution.

ASSIGNMENT OF CRRs TO FOUR MEXICAN BANKS

The Counterparty Risk Ratings (CRR) assigned to Banorte, Banorte Cayman Branch, Banco Santander Mexico, Citibanamex, Bancomext and Bancomext Cayman Branch are aligned to their CR Assessments.

In assigning CRRs to these four Mexican banks and their branches, Moody's took into consideration the banks' Adjusted BCAs and existing basic Loss-Given-Failure (LGF) approach, which provides one notch of uplift from the banks' Adjusted BCAs to reflect the lower probability of default of CRR liabilities.

The CRRs also incorporate governmental support, which resulted in additional uplift based on the Mexican government's Baa1 rating and Moody's assessment of the government's willingness to provide support.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

BANORTE AND BANCOMEXT

A rating upgrade for Banorte and Bancomext is unlikely, given their negative outlook. In addition, if Mexico's government bond rating is downgraded, Banorte's and Bancomext's supported ratings would be downgraded as well.

BANCO SANTANDER MEXICO

Upward rating pressure is limited because Banco Santander Mexico's ratings already benefit from the one-notch uplift resulting from Moody's assessment of moderate affiliate support from Santander Spain, whose BCA is only one notch above that of Banco Santander Mexico. The bank's BCA would increase if Banco Santander Mexico is able to sustain a higher profitability level, which would, thus, continue to support a stable capitalization that is now at comparable levels to those of its peers.

A downgrade of Banco Santander Mexico's ratings could be considered if asset quality deteriorates substantially in line with the weakening economic prospects, with negative impacts to profitability. Capital is also a key rating driver, and a fall in capital before the economic recovery takes hold would also lead to downward pressure on Banco Santander Mexico's BCA. A downgrade of Santander Spain's BCA of baa1 could also exert negative pressure to Banco Santander Mexico's supported ratings.

CITIBANAMEX

Citibanamex's ratings could be downgraded in line with a lower BCA that would result from higher asset risks without higher earnings generation, higher loan reserves and capitalization. A downgrade of Citibanamex's deposit ratings will also depend on Moody's reassessment of support from the Mexican government and affiliate support from Citigroup or the new owner of the bank.

Citibanamex's ratings would be confirmed at their current levels if following Moody's reassessment of the ratings, the rating agency concludes that the bank is able to maintain good asset quality that benefits from disciplined risk management and good corporate governance while maintaining a well-positioned franchise in Mexico that results in sound earnings generation capacity that lends support to capitalization, and if Moody's expects the bank to continue to benefit from existing levels of affiliate and government support.

List of affected ratings

Assignments:

..Issuer: Banco Mercantil del Norte, S.A.

.... ST Counterparty Risk Rating (Foreign Currency), Assigned P-2

.... ST Counterparty Risk Rating (Local Currency), Assigned P-2

.... LT Counterparty Risk Rating (Foreign Currency), Assigned Baa1

.... LT Counterparty Risk Rating (Local Currency), Assigned Baa1

..Issuer: Banco Mercantil del Norte, S.A.(Cayman I)

.... ST Counterparty Risk Rating (Foreign Currency), Assigned P-2

.... ST Counterparty Risk Rating (Local Currency), Assigned P-2

.... LT Counterparty Risk Rating (Foreign Currency), Assigned Baa1

.... LT Counterparty Risk Rating (Local Currency), Assigned Baa1

..Issuer: Banco Nacional de Comercio Exterior, S.N.C.

.... ST Counterparty Risk Assessment, Assigned P-2(cr)

.... LT Counterparty Risk Assessment, Assigned Baa1(cr)

.... ST Counterparty Risk Rating (Foreign Currency), Assigned P-2

.... ST Counterparty Risk Rating (Local Currency), Assigned P-2

.... LT Counterparty Risk Rating (Foreign Currency), Assigned Baa1

.... LT Counterparty Risk Rating (Local Currency), Assigned Baa1

..Issuer: Banco Nacional de Comercio Exterior, SNC (CI)

.... ST Counterparty Risk Assessment, Assigned P-2(cr)

.... LT Counterparty Risk Assessment, Assigned Baa1(cr)

.... ST Counterparty Risk Rating (Foreign Currency), Assigned P-2

.... ST Counterparty Risk Rating (Local Currency), Assigned P-2

.... LT Counterparty Risk Rating (Foreign Currency), Assigned Baa1

.... LT Counterparty Risk Rating (Local Currency), Assigned Baa1

..Issuer: Banco Nacional de Mexico, S.A.

.... ST Counterparty Risk Rating (Foreign Currency), Assigned P-2; Placed Under Review for Downgrade

.... ST Counterparty Risk Rating (Local Currency), Assigned P-2; Placed Under Review for Downgrade

.... LT Counterparty Risk Rating (Foreign Currency), Assigned A3; Placed Under Review for Downgrade

.... LT Counterparty Risk Rating (Local Currency), Assigned A3; Placed Under Review for Downgrade

..Issuer: Banco Santander México, S.A.

.... ST Counterparty Risk Rating (Foreign Currency), Assigned P-2

.... ST Counterparty Risk Rating (Local Currency), Assigned P-2

.... LT Counterparty Risk Rating (Foreign Currency), Assigned A3

.... LT Counterparty Risk Rating (Local Currency), Assigned A3

Affirmations:

..Issuer: Banco Mercantil del Norte, S.A.

.... Adjusted Baseline Credit Assessment, Affirmed baa2

.... Baseline Credit Assessment, Affirmed baa2

.... ST Counterparty Risk Assessment, Affirmed P-2(cr)

.... LT Counterparty Risk Assessment, Affirmed Baa1(cr)

.... ST Deposit Rating (Foreign Currency), Affirmed P-2

.... ST Deposit Rating (Local Currency), Affirmed P-2

.... LT Deposit Rating (Foreign Currency), Affirmed Baa1, Negative

.... LT Deposit Rating (Local Currency), Affirmed Baa1, Negative

..Issuer: Banco Mercantil del Norte, S.A.(Cayman I)

.... ST Counterparty Risk Assessment, Affirmed P-2(cr)

.... LT Counterparty Risk Assessment, Affirmed Baa1(cr)

....Junior Subordinated Regular Bond/Debenture (Foreign Currency), Affirmed Ba2(hyb)

....Junior Subordinated Regular Bond/Debenture (Foreign Currency), Affirmed Ba1(hyb)

....Senior Unsecured Regular Bond/Debenture (Foreign Currency), Affirmed Baa1 Negative

..Issuer: Banco Nacional de Comercio Exterior, S.N.C.

.... Adjusted Baseline Credit Assessment, Affirmed ba2

.... Baseline Credit Assessment, Affirmed ba2

.... ST Issuer Rating (Foreign Currency), Affirmed P-2

.... ST Issuer Rating (Local Currency), Affirmed P-2

.... LT Issuer Rating (Foreign Currency), Affirmed Baa1, Negative

.... LT Issuer Rating (Local Currency), Affirmed Baa1, Negative

..Issuer: Banco Nacional de Comercio Exterior, SNC (CI)

....Subordinate Regular Bond/Debenture (Foreign Currency), Affirmed Baa3(hyb)

....Senior Unsecured Regular Bond/Debenture (Foreign Currency), Affirmed Baa1, Negative

..Issuer: Banco Santander México, S.A.

.... Adjusted Baseline Credit Assessment, Affirmed baa1

.... Baseline Credit Assessment, Affirmed baa2

.... LT Counterparty Risk Assessment, Affirmed A3(cr)

.... ST Counterparty Risk Assessment, Affirmed P-2(cr)

.... ST Deposit Rating (Foreign Currency), Affirmed P-2

.... ST Deposit Rating (Local Currency), Affirmed P-2

.... LT Deposit Rating (Foreign Currency), Affirmed Baa1, Stable

.... LT Deposit Rating (Local Currency), Affirmed Baa1, Stable

....Junior Subordinated Regular Bond/Debenture (Foreign Currency), Affirmed Ba1(hyb)

....Subordinate Regular Bond/Debenture (Foreign Currency), Affirmed Baa3(hyb)

....Senior Unsecured Regular Bond/Debenture (Foreign Currency), Affirmed Baa1, Stable

Outlook Actions:

..Issuer: Banco Mercantil del Norte, S.A.

....Outlook, Remains Negative

..Issuer: Banco Mercantil del Norte, S.A.(Cayman I)

....Outlook, Remains Negative

..Issuer: Banco Nacional de Comercio Exterior, S.N.C.

....Outlook, Remains Negative

..Issuer: Banco Nacional de Comercio Exterior, SNC (CI)

....Outlook, Remains Negative

..Issuer: Banco Santander México, S.A.

....Outlook, Remains Stable

The principal methodology used in these ratings was Banks Methodology published in July 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1269625. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

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 provisional ratings, this announcement provides certain 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.

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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

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

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, 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 issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Please see the ratings tab on the issuer/entity page on www.moodys.com 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

Marianna Waltz, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 0 800 891 2518
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
© 2022 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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Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.

Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.

MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY100,000 to approximately JPY550,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

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