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Rating Action:

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

 The document has been translated in other languages

07 Jun 2019

Mexico, June 07, 2019 -- Moody´s de México, ("Moody´s") 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, A3 negative), and changed the rating outlooks to negative from stable. These actions follow the change in outlook to negative, from stable, on Mexico's A3 government bond rating, announced on 5 June 2019. For additional information, please refer to the related press release: "Moody's changes Mexico's outlook to negative from stable; affirms A3 ratings."

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. (BBVA Bancomer, A3 negative, Baseline Credit Assessment (BCA) baa1), Banco Mercantil del Norte, S.A. (Banorte, A3 negative, BCA baa2), Banco Santander México, S.A. (Santander México, A3 negative, BCA baa2) and Banco Nacional de México, S.A. (Citibanamex, A3 negative, BCA baa1); the local and foreign currency issuer and senior unsecured debt ratings of three development banks, including Nacional Financiera, S.N.C. (Nafin, A3 negative, BCA ba1), Banco Nacional de Obras y Servicios Públicos (Banobras, A3 negative, BCA ba2), Banco Nacional de Comercio Exterior, S.N.C. (Bancomext, A3 negative, BCA ba3); and the local and foreign currency issuer ratings of IPAB. The above issuers' other ratings, including their Aaa.mx long-term Mexican national scale ratings, were unaffected by today's action.

The following ratings were affirmed:

BBVA Bancomer, S.A. (600012042)

.Long-term global local and foreign currency deposit rating of A3, outlook changed to negative from stable

.Long-term global local currency senior unsecured debt rating of A3, outlook changed to negative from stable (BACOMER 16, BACOMER 10U, BACOMER 17, BACOMER 10, BACOMER18V, BACOMER 17-2, BACOMER 19, BACOMER 18, BACOMER 07U, BACOMER 19-2)

Banco Mercantil del Norte, S.A. (600017135)

.Long-term global local and foreign currency deposit rating of A3, outlook changed to negative from stable

Banco Santander México, S.A. (600011987)

.Long-term global local and foreign currency deposit rating of A3, outlook changed to negative from stable

.Long-term global local currency senior unsecured debt rating of A3, outlook changed to negative from stable (BSMX 16-2, BSMX 11-3, BSMX 18, BSMX 19, BSMX 16-3, BSMX 19-2)

.Long-term global foreign currency senior unsecured debt rating of A3, outlook changed to negative from stable (BSMX 18D)

Banco Nacional de Mexico, S.A. (600009991)

.Long-term global local and foreign currency deposit rating of A3, outlook changed to negative from stable

.Long-term global local currency senior unsecured debt rating of A3, outlook changed to negative from stable (BANAMEX 18, BANAMEX 10-2)

Banco Nacional de Obras y Servicios Públicos (90400)

.Long-term global local and foreign currency issuer rating of A3, outlook changed to negative from stable

.Long-term global local currency senior unsecured debt rating of A3, outlook changed to negative from stable (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)

.Long-term global local and foreign currency issuer rating of A3, outlook changed to negative from stable

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

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

.Long-term global local and foreign currency issuer rating of A3, outlook changed to negative from stable

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

Instituto para la Protección al Ahorro Bancario (809050570)

.Long-term global local and foreign currency issuer rating of A3, outlook changed to negative from stable

Outlooks action:

.Outlook, changed to negative from stable on the following issuers:

.. BBVA Bancomer, S.A. (600012042)

.. Banco Mercantil del Norte, S.A. (600017135)

.. Banco Santander México, S.A. (600011987)

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

..Banco Nacional de Obras y Servicios Públicos (90400)

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

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

..Instituto para la Protección al Ahorro Bancario (809050570)

RATINGS RATIONALE

The rating actions for the eight financial institutions were prompted by the change in outlook to negative, from stable, 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 and/or explicit promise of support from the government.

Moody's decision to change the outlook to negative on Mexico's A3 ratings reflects the rating agency's concern that the policy framework is weakening in two key respects, with negative implications for growth and debt. First, unpredictable policymaking is undermining investor confidence and medium-term economic prospects. Second, lower growth, together with changes to energy policy and the role of Petróleos Mexicanos (PEMEX, Baa3), introduce risks to Mexico's medium-term fiscal outlook, notwithstanding the government's near-term commitment to prudent fiscal policy.

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, Banorte, Santander México and Citibanamex, this is based on their importance to the country's payments system and considerable deposit market shares of 21.0%, 13.3%, 13.7% and 13.3% respectively as of March 2019. Moody's 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. The ratings affirmation considers the following factors:

BBVA Bancomer, S. A.

The affirmation of BBVA Bancomer's A3 senior debt and deposit ratings reflect the bank's strong earnings generation that derives from a diversified loan portfolio and leading market shares in many asset classes and banking products that have cemented its position as the most profitable large bank in Mexico. BBVA Bancomer's ratings also incorporates its higher capitalization, despite consistently high dividend payouts, and improvements in asset quality. The strength of the bank's risk management over time is evidenced by a well-diversified loan portfolio and industry exposures, which have and should continue to limit the volatility of its asset quality indicators. Finally, the ratings benefit from one notch of uplift from BBVA Bancomer's baa1 standalone BCA in line with Moody's assessment of a very high willingness by the authorities to provide support in an event of financial stress, given its systemic importance.

Banco Mercantil del Norte, S.A.

Banorte's A3 supported ratings benefit from two notch of uplift from its baa2 standalone BCA in line with Moody's assessment of a very high willingness by the authorities to provide support in an event of financial stress, given its systemic importance. Banorte's ratings reflect the bank's robust profitability that has boosted capitalization. The bank's continued expansion into retail lending through credit cards and mortgages as well as into small and mid- size companies financing may increase asset risk but that will likely be moderate largely because the expansion is targeted to its roster of well-known clients of its group of companies. The ratings also incorporate the bank's still very low reliance on market funding, a credit positive, although Banorte's deposit franchise remains weaker than that of several of its large bank peers, as reflected in its higher funding costs.

Banco Santander México, S.A.

Santander México's A3 supported ratings reflect its good and stable asset quality, amid a robust profitability and improving capitalization. Non-performing loans have declined to levels comparable to the system thanks to a decline in delinquencies in the commercial loan book, which represents half of the bank's total credit portfolio. This has offset an increase in retail non-performing loans, as these have seasoned in an environment of rising interest rates and inflation. The robust asset quality has helped protect earnings, which benefited from a good control of operating expenses amid widening net interest margins from the lengthy monetary tightening. However, Santander México's profitability remains below its peers, because of higher funding costs as a result of its more expensive deposits mix, and its three year revamping project. Notwithstanding the latter, most of the bank's liabilities are composed of deposits, which helps mitigate refinancing risks, in addition to sizable liquidity buffers. Capitalization has improved driven by a focus on less risky commercial loans, and hence lower capital consuming, and a consistent retention of earnings.

The bank's baa2 BCA benefits from one notch of support from Santander México's parent company Banco Santander S.A. (Spain) (A2 stable, BCA baa1). The A3 rating also incorporates one notch of uplift from Santander México's baa1 adjusted BCA in line with Moody's assessment of a very high willingness by the authorities to provide support in an event of financial stress, given its systemic importance.

Banco Nacional de Mexico, S.A.

Citibanamex's A3 debt and deposit ratings benefit from one notch of uplift from the baa1 standalone BCA, in line with Moody's assessment of a very high willingness by the authorities to provide support in an event of financial stress, given its systemic importance. Citibanamex's ratings acknowledge the marked enhancements to its asset quality, as evidenced by a substantial decline in write-offs and credit costs. The bank also benefits from a large and inexpensive granular deposit base, a clear competitive advantage over its peers. The bank's lower credit costs and entrenched deposit franchise support Citibanamex's improved profitability, which is closer in line with that of 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. Citibanamex's strong earnings generation capacity ensures that tangible common equity to risk-weighted assets is the highest among large Moody's-rated banks in Mexico, a key credit positive, and a result of longstanding policy of limited or no dividend distribution.

Development banks

For Nafin, Banobras and Bancomext, the assessment of the government's willingness to provide support as very high considers the commitment by the government to fulfil the banks' financial obligations, as stated by law. However, the statute does not represent a blanket guarantee, and hence does not qualify as credit substitution according to Moody's methodology. This is because (i) the statute only benefits Mexican and foreign institutions and Mexican individuals, but not non-Mexican individuals; and (ii) it does not explicitly commit the government to timely payment. Notwithstanding these carve outs to its legal obligations, Moody's nevertheless believes the government is very likely to support all the banks' creditors, including foreign individuals should there be any, and to ensure timely payment of the banks' obligations.

Because the statutory support does not qualify for credit substitution, the ratings are also based on Moody's assessment of the standalone credit profiles of the development banks. Specifically, Banobras's ratings capture the bank's good asset quality, which derives from a loan portfolio that is predominantly secured by federal government transfers. The ratings are also supported by Banobras's resilient core capitalization. These strengths are balanced by the bank's modest intrinsic liquidity. In the case of Nafin, its ratings reflect the bank's strong capitalization, as well as its solid asset quality given its main focus on on-lending via other financial institutions, even though the ultimate borrowers are midsize and small companies, in addition to its ample reserve coverage. Asset risks are somewhat higher at Bancomext, which lends directly to corporates and grew very fast during the past government administration. The latter also explains its relatively lower core capitalization in comparison with its peers. However, Moody's notes that Bancomext's capitalization is adequate and has improved over the last two years.

Profitability of all three development banks is relatively moderate by Mexican standards, which is explained by these banks' public policy role and focus on narrow-margin customer segments. These banks do not take retail customer deposits and rely heavily on market funds, which increases their funding costs and repricing risks. At the same time, refinancing risks are mitigated by the banks' fluid access to capital markets in line with the sovereign backing. Furthermore, these development banks have high single borrower concentrations, although largest exposures are mostly represented by high quality borrowers. In addition, these banks may be called upon to provide support to other public entities or to boost lending to support economic growth.

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.

WHAT COULD CHANGE THE RATING -- DOWN/UP

Given the current ratings' negative outlook, at this time the probability of an upgrade is unlikely. 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 affected as well.

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

The principal methodology used in rating BBVA Bancomer, S.A., Banco Santander México, S.A., Banco Mercantil del Norte, S.A., and Banco Nacional de Mexico, S.A. was Banks published in August 2018. The principal methodologies used in rating Banco Nacional de Obras y Servicios Publicos, Nacional Financiera, S.N.C., Banco Nacional de Comercio Exterior, S.N.C., were Banks published in August 2018, and Government-Related Issuers published in June 2018. The principal methodology used in rating Instit.para la Protec.al Ahorro Bancario was 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 BBVA Bancomer, S.A.'s rating is between 1 January 2014 and 31 March 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 Santander México, S.A.'s rating is between 1 January 2014 and 31 March 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 Mercantil del Norte, S.A.'s rating is between 1 January 2014 and 31 March 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 Mexico, S.A.'s rating is between 1 January 2014 and 31 March 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 Obras y Servicios Publicos's rating is between 1 January 2014 and 31 March 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 2014 and 31 March 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 2014 and 31 March 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 Instit.para la Protec.al Ahorro Bancario's rating is between 1 January 2014 and 31 March 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 for BBVA Bancomer, S.A. was 21 May 2019.

The date of the last Credit Rating Action for Banco Santander México, S.A. was 27 March 2019.

The date of the last Credit Rating Action for Banco Mercantil del Norte, S.A. was 11 Feburary 2019.

The date of the last Credit Rating Action for Banco Nacional de Mexico, S.A. was 25 Feburary 2019.

The date of the last Credit Rating Action for Banco Nacional de Obras y Servicios Publicos was 17 May 2019.

The date of the last Credit Rating Action for Nacional Financiera, S.N.C. was 16 April 2019.

The date of the last Credit Rating Action for Banco Nacional de Comercio Exterior, S.N.C. was 22 May 2018.

The date of the last Credit Rating Action for Instit.para la Protec.al Ahorro Bancario was 13 April 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.

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.

Jose Angel Montano
Vice President - Senior Analyst
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.
© 2019 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 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 rating, agreed to pay to MJKK or MSFJ (as applicable) for ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY250,000,000.

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

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