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07 Apr 2011
Mexico, April 07, 2011 -- Moody's Investors Service downgraded Banco Autofin México,
S.A. (Banco Autofin)'s long term local and foreign
currency deposit ratings to B3, from B1. The bank financial
strength rating was affirmed at E+. At the same time,
Moody's de México downgraded Banco Autofin's long term
Mexican National Scale deposit rating to Ba2.mx, from Baa2.mx;
and its short term National Scale deposit rating to MX-4,
from MX-3. All ratings have a stable outlook.
The following rating actions were taken:
.Bank financial strength rating of E+, affirmed
.Long term local currency deposit rating to B3, from B1
.Long term foreign currency deposit rating to B3, from B1
.Long term Mexican national scale debt rating to Ba2.mx,
from Baa2.mx
.Short term Mexican national scale debt rating to MX-4,
from MX-3
RATINGS RATIONALE
Moody's downgrade of Banco Autofin's ratings reflects (i)
continued challenges the bank faces in its core business of car financing,
which pressure margins (ii) still untested changes in strategic direction,
as it moves into agribusiness financing, and (iii) continued dependence
from related party relationships. As a result, the bank's
E+ BFSR now maps to a baseline credit assessment of B3, from
B2 previously.
Moody's noted that Autofin's car finance operation continues
to face strong competition from much larger finance institutions,
with resulting margin compression and modest business volume origination.
Autofin has sought to increase its fleet dealer financing in response
to lower growth on individual car lending and on its taxi financing program
within the Federal District. Loans acquired from its sister-company,
Autofinanciamiento de México, S.A. have also
declined. These challenges are compounded by the bank's still
significant reliance on more expensive wholesale funding and by high expense
base, relative to that of its peers, which have contributed
to continued operating losses.
Management's decision to expand the bank's focus into agribusiness
commodity repos exposes Banco Autofin to transition and implementation
risks, because this line of business requires a very different know-how
than its core car financing business. Since mid-2010,
Banco Autofin's new commodities repos have increased to reach Mx$333
million, representing 15% of total assets as of year-end
2010.
One critical challenge to the ratings is Banco Autofin's large loan
exposures to related parties, especially those within an unrelated
industry, and to large single borrowers. In Moody's view,
related party exposures create conflicts of interest that are difficult
for the board or management to handle, and thus, increase
the bank's credit risk. Moreover, large loans could
experience fast deterioration and results in higher earnings volatility.
The downgrade of the bank's deposit ratings reflects the view that
parental support is difficult to assess given the limited publicly available
information on its controlling group, Grupo Autofin. The
deposit rating therefore, reflects Banco Autofin's standalone
B3 baseline credit assessment and does not benefit of any uplift of parental
support.
Though Moody's expects marginal improvements in Banco Autofin's
earnings, the nature of these earnings bear more risk and potential
volatility than the original retail-centered strategy. This
is because its funding has a high proportion of expensive deposits while
part of its earnings are sourced from agricultural commodity financing.
The bank's adjusted Tier 1 ratio continues to be adequately high
to absorb Moody's stresses on Banco Autofin's portfolio of
loans and securities within anticipated and stressed losses, especially
when incorporating higher expected losses related to the bank's
large exposure to related party loans. As of year-end 2010,
the unadjusted tier one ratio of the bank stood at 18.03%,
maintained by continued support from shareholders through capitalizations
in 2007, 2009, and 2010.
The principal methodologies used in rating Banco Autofin were "Bank Financial
Strength Ratings: Global Methodology" published in February 2007,
and "Incorporation of Joint-Default Analysis into Moody's Bank
Ratings: A Refined Methodology" published in March 2007, available
on www.moodys.com in the Rating Methodologies sub-directory
under the Research & Ratings tab. Other methodologies and factors
that may have been considered in the process of rating this issuer can
also be found in the Rating Methodologies sub-directory on Moody's
website
Banco Autofin is headquartered in Mexico City, Mexico. As
of year-end 2010, the bank reported Mx$2.219
billion in assets, Mx$1.726 billion in loans,
and Mx$540 million in equity.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information and confidential
and proprietary Moody's Investors Service information.
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Please see the ratings disclosure page on our website www.moodys.com
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Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Mexico
Felipe Carvallo-Mendoza
Asst Vice President - Analyst
Financial Institutions Group
Moody's de Mexico S.A. de C.V
JOURNALISTS: 001-888-779-5833
SUBSCRIBERS:52-55-1253-5700
New York
M. Celina Vansetti
Senior Vice President
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
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 downgrades Banco Autofin's deposit rating to B3, outlook is stable
No Related Data.
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