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Rating Action:

Moody's changes outlook to stable on seven Mexican banks and IPAB; affirms ratings

 The document has been translated in other languages

13 Apr 2018

Mexico, April 13, 2018 -- Moody's de México has today affirmed the senior debt, deposit, and issuer ratings of seven Mexican banks and the bank deposit insurer, Instituto para la Protección al Ahorro Bancario (IPAB), and changed their outlooks to stable from negative. These actions follow the change in outlook to stable, from negative, on Mexico's government bond rating of A3, on 11 April 2018. For additional information, please refer to the related announcement: "Moody's changes outlook on Mexico's ratings to stable from negative; A3 ratings affirmed."

Specifically, Moody's revised the outlooks and affirmed the local and foreign currency deposit and/or senior unsecured debt ratings of four commercial banks, including BBVA Bancomer, S.A., Banco Nacional de México, S.A. (Citibanamex), Banco Mercantil del Norte, S.A. (Banorte) and Banco Santander (México), S.A. (Santander); local and foreign currency issuer and/or senior unsecured debt ratings of three development banks, including Nacional Financiera, S.N.C. (Nafin), Banco Nacional de Obras y Servicios Públicos (Banobras), Banco Nacional de Comercio Exterior, S.N.C. (Bancomext); and the local and foreign currency issuer ratings of IPAB. At the same time, Moody's affirmed Banorte's baa2 baseline credit assessment (BCA) and adjusted BCA, as well as Banobras's Aaa.mx Mexican National Scale senior unsecured debt ratings. The above issuers' other ratings were unaffected by today's action.

Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_199060 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and identifies each affected issuer.

RATINGS RATIONALE

Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_199060 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and provides, for each of the credit ratings covered, Moody's disclosures on the following items:

[Principal Methodologies]

[National Scale Ratings]

The rating actions for the eight financial institutions were prompted by the change in outlook to stable, from negative, on Mexico's bond rating of A3, which Moody's uses to assess the government's capacity to provide extraordinary financial support to financial institutions in an event of stress. All the affected issuers' ratings benefit from an implicit expectation or explicit promise of support from the government. The stabilization of Mexico's sovereign outlook reflects (1) the receding risks to growth stemming from the NAFTA renegotiation; (2) a resilient economy supported by reforms, contributing to favorable fiscal outcomes and a moderate decline in debt ratios; and (3) an only low probability of an election outcome that undermines positive fiscal and economic trends and reduces the government's capacity to provide support. The same considerations also suggest lower tail risks that could have potentially impaired the affected banks' financial performance.

In addition to its capacity, the likelihood of government support is also a function of its willingness to provide such support. Moody's continues to assess a very high willingness from the government to provide support to the affected issuers. In the cases of BBVA Bancomer, Citibanamex, Banorte, and Santander, this is based on their importance to the country's payments system and considerable deposit market shares of 22%, 15%, 14% and 14%, respectively as of February 2018. In addition, this assessment considers the authorities' history of providing support when needed and the relatively small size of the banking system relative to GDP, which would make bailing out the banking system, should it ever be necessary, more affordable for the government.

For Nafin, Banobras and Bancomext, the assessment of the government's willingness to provide support as very high takes into account the Organic Laws of each development bank, which commit the government to fulfil the banks' financial obligations at all times. This statutory support reflects the banks' status as arms of the government and important public policy roles. The statutes do not represent blanket guarantees, and hence do not qualify as credit substitution according to Moody's methodology because they (i) only benefit Mexican and foreign institutions and Mexican individuals, but not non-Mexican individuals; and (ii) do not explicitly commit the government to timely payment. Notwithstanding these carve outs to its legal obligations, however, Moody's nevertheless believes the government is very likely to support all of the banks' creditors, including foreign individuals should there be any, and to ensure timely payment of the banks' obligations.

For IPAB, Moody's uses the Mexican government's bond rating to reflect the deposit insurer's financial strength because it is an integral part of the Mexican government and hence benefits from implicit sovereign backing of the deposit insurer's obligations.

AFFIRMATION OF BANORTE'S baa2 BCA

Moody's affirmation of Banorte's baa2 standalone BCA incorporates expectations that the bank's capitalization and profitability will remain strong following its anticipated merger with Banco Interacciones, S.A. (deposits Ba2 under review for upgrade, BCA ba3). Banorte's nonperforming loan ratio will remain among the lowest of Mexico's largest banks, despite challenges related to the increase in industry and borrower concentrations for the bank resulting from the announced merger together with its expansion into riskier asset classes, including consumer loans. In addition, Banorte will continue to exhibit a stable core funding mix that will support profitability going forward.

WHAT COULD CHANGE THE RATING -- DOWN/UP

Because of the very high willingness of the government to provide support to them, the affected banks' global scale ratings could face upward pressure if Mexico's government bond rating is upgraded. On the other hand, if Mexico's government bond rating faces downward pressures again in the future, the affected global scale ratings would be negatively pressured as well.

Banorte's ratings, which do not benefit from affiliate support, would also face downward pressure if the its core capitalization or profitability declines significantly or if asset quality deteriorates sharply due to the absorption of Banco Interacciones and/or rapid loan growth. While the standalone credit assessments of Bancomer, Citibanamex, and Santander would also face downward pressure if their financial fundamentals were to deteriorate, their ratings would not likely be affected as all three would likely benefit from implicit support from their foreign parents. Due to their government-ownership, the ratings of Bancomext, Banobras, and Nafin would not likely be affected either, by a deterioration of their financial fundamentals.

The long-term Mexican National Scale rating of Aaa.mx indicates issuers or issues with the strongest creditworthiness relative to other domestic issuers.

ENTITIES AFFECTED

1. Banco Nacional de Comercio Exterior, S.N.C.

2. Banco Nacional de México, S.A.

3. Banco Nacional de Obras y Servicios Públicos

4. Banco Mercantil del Norte, S.A.

5. Banco Santander (México), S.A.

6. BBVA Bancomer, S.A.

7. Instituto para la Protección al Ahorro Bancario

8. Nacional Financiera, S.N.C.

The period of time covered in the financial information used to determine Banco Nacional de Comercio Exterior, S.N.C.'s rating is between 01 January 2013 and 31 December 2017 (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 México, S.A.'s rating is between 01 January 2013 and 31 December 2017 (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 Obras y Servicios Públicos's rating is between 01 January 2013 and 31 December 2017 (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 Mercantil del Norte, S.A.'s rating is between 01 January 2013 and 31 December 2017 (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 Santander (México), S.A.'s rating is between 01 January 2013 and 31 December 2017 (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 BBVA Bancomer, S.A.'s rating is between 01 January 2013 and 31 December 2017 (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 Instituto para la Protección al Ahorro Bancario's rating is between 01 January 2013 and 31 December 2017 (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 01 January 2013 and 31 December 2017 (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 https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1113601.

REGULATORY DISCLOSURES

Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_199060 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and provides, for each of the credit ratings covered, Moody's disclosures on the following items:

• [Ticker]

• [Lead Analyst]

• [Releasing Office]

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 for Banco Nacional de Comercio Exterior, S.N.C. was 20 June 2017.

The date of the last Credit Rating Action for Banco Nacional de México, S.A. was 09 April 2018.

The date of the last Credit Rating Action for Banco Nacional de Obras y Servicios Públicos was 12 February 2018.

The date of the last Credit Rating Action for Banco Mercantil del Norte, S.A. was 30 October 2017.

The date of the last Credit Rating Action for Banco Santander (México), S.A. was 16 March 2018.

The date of the last Credit Rating Action for BBVA Bancomer, S.A. was 22 March 2018.

The date of the last Credit Rating Action for Instituto para la Protección al Ahorro Bancario was 4 April 2016.

The date of the last Credit Rating Action for Nacional Financiera, S.N.C. was 17 July 2017.

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.

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.

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
Vice President - 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.
© 2018 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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