Mexico, March 10, 2022 -- Moody's de México (“Moody's”) has today assigned a Baa1 long-term global local currency global senior unsecured debt rating to Banco Nacional de Comercio Exterior, S.N.C., Institución de Banca de Desarrollo's (Bancomext) three proposed issuances of Certificados Bursátiles de Banca de Desarrollo (BACMEXT 22X, BACMEXT 22-2X and BACMEXT 22-3X). At the same time, Moody's also assigned a Aaa.mx long-term Mexican national scale rating to the three senior notes to be issued by Bancomext. The outlook on the global scale ratings is negative.
BACMEXT 22X, BACMEXT 22-2X and BACMEXT 22-3X will be denominated in Mexican pesos and will have maturities of three, five and ten years, respectively. BACMEXT 22X and BACMEXT 22-2X will have a floating coupon, while BACMEXT 22-3X will have a fixed coupon. The three issuances will be executed in parallel, and the target combined amount will be MXN5 billion, with the maximum combined amount of MXN10 billion.
LIST OF AFFECTED RATINGS
The following ratings were assigned to three proposed issuances of Certificados Bursátiles de Banca de Desarrollo (BACMEXT 22X, BACMEXT 22-2X and BACMEXT 22-3X) of Banco Nacional de Comercio Exterior, S.N.C. (704200):
• Long-term global local currency senior unsecured debt rating of Baa1, negative outlook
• Long-term Mexican National Scale senior unsecured debt rating of Aaa.mx
RATINGS RATIONALE
Bancomext's Baa1 senior unsecured debt ratings are in line with the Government of Mexico's sovereign rating and incorporate Moody's assessment of full backing from the Mexican government in case of need. The assessment considers statutory support from the Mexican government enshrined in Article 10 [1] of Bancomext's Organic Law, which commits the government to fulfilling the development bank's financial obligations at all times. This statutory support reflects Bancomext's status as an arm of the government with a public policy role to provide financing to the export sector and those industries that attract foreign currency to Mexico, such as tourism and industrial buildings. Bancomext also complements commercial banks' products, mainly in initial-stage projects, by offering US dollar long-term financing for investments, rather than short-term working capital in Mexican pesos.
However, the support statute is not a blanket guarantee, and, as a result, does not qualify for credit substitution, because (i) it only benefits Mexican individuals and both Mexican and foreign institutions, and explicitly excludes non-Mexican individuals; and (ii) it does not include an explicit commitment to ensure timely payment. Consequently, Moody's also assesses Bancomext's creditworthiness on a standalone basis, absent government support, which is captured by the bank's ba2 Baseline Credit Assessment (BCA).
The ba2 BCA incorporates the well-established corporate lending operation of Bancomext and disciplined origination guidelines that benefit from ample collateral. Nevertheless, the bank is exposed single-borrower and sector concentration, an intrinsic characteristic of its business model. As of September 2021, the bank's nonperforming loan (NPL) ratio had risen to 2.4%, from 1.18% a year earlier. However, the NPL ratio could have a further deterioration of about 100 basis points towards year-end related to high concentrations to single borrowers in the financial and telecommunications industries. The portfolio contracted 9.6% year-over-year ended in September 2021, because of large prepayments and fluctuations in the valuation of the US dollar portfolio, as well as disruptions related to the pandemic and supply chain issues. Bancomext's asset quality remained supported by good reserve coverage at 1.7x NPLs as of September 2021.
On the other hand, Bancomext's tangible common equity to risk-weighted assets (RWAs), our preferred capitalization measure, stood at 10.5% as of September 2021, modest compared to the average of Mexican banks. This capital ratio was impacted by the application of a 50% risk-weighting factor to the bank's Mexican government securities portfolio, an adjustment applied to the whole banking industry. Under regulatory capital measures, however, in September 2021, Bancomext's Common Equity Tier 1 (CET1) ratio remained high at 14.3%, up from 12.8% one year earlier, and the increase was driven both by a contraction in reported RWA and internal capital generation.
The ba2 BCA also incorporates the bank's modest core earnings generation in line with Bancomext's public-policy mandate, its focus on lower-margin commercial and US dollar lending, more expensive wholesale funding mix, and high holdings of low-margin short-term repo operations with government securities. The bank's net income stood at a modest 0.48% tangible assets as of September 2021, but up from 0.32% in the year earlier period, and reflected lower provisions that helped to offset the fall in the bank's net interest margin to 1.45%, from 1.55% in the same period in 2020. Bancomext also benefits from proven access to capital markets, which mitigates risks stemming from the bank's full reliance on wholesale funding and modest intrinsic liquidity, when excluding those securities held for repos.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
At this point, the outlook on Bancomext's ratings is negative, in line with the negative outlook on the Government of Mexico's sovereign rating, limiting the upward rating pressure. Bancomext's ratings could be downgraded if Mexico's sovereign rating is lowered.
The bank's ba2 standalone BCA could benefit from sustained improvements in the bank's capitalization, profitability, and liquidity profile, as well as lower concentrations. Conversely, the BCA could face downward pressure in case of a higher-than-expected deterioration in its asset quality and capitalization. However, given the government's backing of Bancomext's liabilities, changes in its BCA would not affect the bank's debt ratings.
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.mx for a copy of this methodology.
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 2018 and 30 September 2021 (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_1280297.
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.
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 was 08/10/2021.
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 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.
In compliance with regulatory requirements, Moody's de México has been informed by Banco Nacional de Comercio Exterior, S.N.C. that during the two-month period prior to the date hereof, no other credit rating agency has assigned a rating on the same securities referred to in this press release.
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 general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.
REFERENCES/CITATIONS
[1] Ley Orgánica del Banco Nacional de Comercio Exterior, 20-Jan-1986
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Felipe Carvallo
VP - Senior Credit Officer
Financial Institutions Group
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Ceres Lisboa
Associate Managing Director
Financial Institutions Group
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Mexico, DF 11000
Mexico
JOURNALISTS: 1 888 779 5833
Client Service: 1 212 553 1653
