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Fitch Affirms Banco Inbursa's VR at 'bbb+'and IDRs at 'BBB+'; Outlook Stable.

Monterrey: Fitch Ratings has affirmed Banco Inbursa, S.A., Institucion de Banca Multiple, Grupo Financiero Inbursa's (BInbursa) Viability Rating (VR) at 'bbb+' and Long-Term Issuer Default Ratings (IDRs) at 'BBB+'.

Fitch has also affirmed the national scale ratings on BInbursa and its financial subsidiary Sofom Inbursa, S.A. de C.V., Sofom, E.R., Grupo Financiero Inbursa (Sofom Inbursa). The Rating Outlook on the Long-Term IDRs and Long-Term National ratings is Stable. A full list of rating actions follows at the end of this release.



BInbursa's 'bbb+' VR drives its Local and Foreign Currency IDRs. The bank's robust loss-absorbing capacity, which is underpinned by ample capitalization ratios and further enhanced by sound levels of loan loss allowances, and its strong company profile highly influence its VR. BInbursa's ratings also consider the bank's sound and stable earnings and its reasonable funding and liquidity profiles.

In Fitch's opinion, BInbursa's capital adequacy is its major strength. As of March 2018 or 1Q18, the Fitch Core Capital (FCC) to Risk Weighted Assets (RWAs) ratio stood at 20.9% (2017: 19.7%), the highest among the seven largest Mexican banks. Furthermore, the bank's capital ratios compare favorably to regional peers (Latin American banks with VRs in the 'bbb' category) and Fitch expects capitalization to remain strength over our rating horizon. Fitch also notes that the bank's capital is comprised solely of core capital, comparing favorably to other G7 banks and regional peers which hybrid capital strength its capital ratios.

BInbursa was the seventh largest bank in the Mexican financial system and the second largest among locally owned entities as of May 2018. The bank has the sixth largest market share in corporate and commercial loans and transactional banking in the Mexican banking system. Furthermore, in recent years BInbursa has steadily gained market share in the retail segment, both in loans and deposits.

Though still in line with its current ratings, Fitch also considers BInbursa's moderate delinquency levels and the negative trend in consumer credit asset quality in its analysis. As of 1Q18, the NPL to gross loans ratio stood at 3.2% and, considering the adjusted NPL (NPLs plus charge-offs), the ratio reached nearly at 6.5%, an increase from the previous year (1Q17:3.5%), and comparing unfavorably to the system (1Q18:4.8%) and other G7 banks.

This deterioration mainly reflected the bank's rapid expansion into retail lending and its corporate focus where the risk concentrations are relevant and create significant movements in asset quality indicators. At 1Q18, the top 20 obligors accounted for nearly 52% of total loans and around 1.5x the FCC. Fitch believes that the bank's good collateral policies and improvements in its collection process could mitigate further asset quality deterioration.

The bank's operating profit to RWAs ratio stood at 3.2% and 4.1% at 1Q18 and YE17, respectively (2016-2014 average: 3.3%). BInbursa's profitability is usually variable and highly influenced by trading profits/losses; however, in recent years the bank has sought to reduce the volatility of its revenues by decreasing its position in some trading securities and has sought to make more efficient the use of its hedging practices. Growing interest margins, adequately diversified revenues, and outstanding operating efficiency continue to underpin BInbursa's sound earnings. Fitch expects profitability to remain relatively stable if the bank continues to seek stable income and contains its credit costs.

Fitch believes that BInbursa's funding and liquidity profiles are reasonable and generally stable. The bank's main funding source comes from customers deposits (around 54% of total funding), which have been steadily increasing (YOY 1Q18: 3.6%, YOY 2017:6.7%). The bank still has some reliance on wholesale-medium term funding, which includes debt issuances and interbank funding. However, in Fitch's view this is a positive for BInbursa because this type of funding serves to finance the bank's larger share of medium- and long-term loans and to control balance sheet liquidity and maturity mismatches.

BInbursa's loans to customer to deposits ratio, albeit gradually improving, is still weak relative to other large Mexican banks and regional peers. As of March 2018, this ratio stood at 195.7%, lower than the average of previous years (2014-2017: 229%). Concentrations at the bank's deposit base are low, as the top 20 depositors as of March 2018 comprised about 11% of its total customer deposits base. Liquidity is adequate, with a reported liquidity coverage ratio above (Basel III LCR) 100% in the recent periods (1Q18:262.6%).


The rating on BInbursa's senior notes reflects the fact that these are senior unsecured obligations that rank pari passu with other senior indebtedness and, therefore, align with the bank's Long-term IDRs of 'BBB+', which in turn are driven by the bank's VR of 'bbb+'.


The bank's support rating (SR) of '3' and Support Rating Floor (SRF) of 'BB+' are driven by its moderate systemic importance and its growing share of retail deposits, although this is still modest. Fitch believes there is a modest probability of receiving sovereign support if the bank were to need it, which underpins its current SR and SRF.


BInbursa's National scale ratings were affirmed since its IDRs are at the same level of those of the sovereign. National scale ratings are relative rankings of creditworthiness within a certain jurisdiction.

Sofom Inbursa's ratings are aligned with BInbursa's National scale ratings and consider GF Inbursa's legal obligation to support its subsidiaries. The ratings also consider Fitch's view that it remains core to the group's overall strategy and business profile.The 'AAA(mex)' and 'F1+(mex)' ratings of the local debt issued by Sofom Inbursa are aligned with BInbursa's national scale long-term rating, as these are senior unsecured debt obligations.



BInbursa's VR, IDRs and global note ratings could be downgraded if the bank's capital adequacy metrics deteriorate materially, specifically if the FCC to RWAs ratio is consistently below 18%, or in the event of a reversal in the improving trends in funding and liquidity, and/or business and revenue diversification. Materially asset quality deterioration and/or earnings volatility that results in a sustained decline in the bank's operating profits to risk weighted assets ratios below 2% could also be detrimental to the bank's ratings.

There is limited upside potential for BInbursa's VRs and IDRs, since Fitch does not expect to rate a bank with BInbursa's franchise and competitive position higher than the sovereign rating.


Upside potential for the SR and SRF is limited, and can only occur over time with a material gain of the bank's systemic importance. However, these ratings could be downgraded if the bank loses material market share in terms of retail customer deposits or from a multi-notch downgrade of the sovereign rating.


BInbursa's National scale ratings could only be negatively affected by a multi-notch downgrade of the bank's VR. In turn, any potential changes of Sofom Inbursa's National ratings will be driven by any changes in BInbursa' ratings.

Fitch has affirmed the following ratings:


--Long-Term Foreign Currency IDR at 'BBB+'; Outlook Stable;

--Short-Term Foreign Currency IDR at 'F2';

--Long-Term Local Currency IDR at 'BBB+'; Outlook Stable;

--Short-Term Local Currency at 'F2';

--Viability rating at 'bbb+';

--Support Rating at '3';

--Support Rating Floor at 'BB+';

--10-year 4.125% Senior Unsecured Notes at 'BBB+';

--10-year 4.375% Senior Unsecured Notes at 'BBB+';

--National scale long-term rating at 'AAA(mex)'; Outlook Stable;

--National scale short-term rating at 'F1+(mex)'.

Sofom Inbursa:

--National scale long-term rating at 'AAA(mex)'; Outlook Stable;

--National scale short-term rating at 'F1+(mex)';

--National scale long-term rating for a long-term senior unsecured debt issuance at 'AAA(mex)';

--National scale short-term rating for a short-term portion of a senior unsecured debt program at 'F1+(mex)'.
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Publication:Daily the Pak Banker (Lahore, Pakistan)
Date:Oct 26, 2018
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