OREANDA-NEWS. S&P Global Ratings said today that it revised its long-term global scale rating outlook on 12 Mexican financial institutions (see rating list) to negative from stable, including six commercial private banks, five government-related entities (GREs), and the sole Mexican clearinghouse. At the same time, we affirmed the global and national scale issuer credit and issue-level ratings (where applicable). The outlook on the national scale ratings remains stable. The rating action on these entities follows our outlook revision on Mexico (see "Mexico Outlook Revised To Negative; 'BBB+/A-2' Foreign Currency Ratings Affirmed," published Aug. 23, 2016). The change in outlook reflects an at least one-in-three possibility of a downgrade in the next 24 months if a continued increase in the government's direct debt burden, combined with our future assessment of potential contingent liabilities (especially from non-financial public enterprises) were to result in a worsening debt assessment. Net general government debt was 42% of GDP in 2015, and we expect it will reach 45% in 2016 and approach 47%-48% of GDP in 2018 and 2019. The debt ratio has risen steadily from only 28% of GDP in 2005, reflecting the impact of continued moderate fiscal deficits amid low GDP growth during this period. Although Mexico's debt burden is moderate, the government has less fiscal room to maneuver than it had a decade ago. The ratings on Mexico reflect its track record of cautious fiscal and monetary policies, which has contributed to limited government deficits and low inflation, as well as moderate external debt. The combination of predictable economic policies and a flexible economy has allowed Mexico to adjust to changing global conditions, including a sharp drop in the price of oil and a depreciation of the Mexican peso, while maintaining stable growth and low inflation. The country's independent central bank enjoys broad political support, based on its ability to maintain low levels of inflation. The peso is a floating currency and, by our criteria definition, an actively traded currency. The ratings also reflect Mexico's per capita GDP of just below $9,000 in 2016. All things being equal, if we downgrade the sovereign in the next 18-24 months, we would take the same rating action on the six commercial private banks even if their stand-alone credit profiles (SACPs) and/or group status remain unchanged. Such a potential rating action on these banks would reflect our belief that if a financial institution has exposure to the country of domicile of more than 50%, we generally consider it highly likely that the entity would fail a stress test associated with a sovereign foreign currency default. The bulk of these six commercial banks' exposures are in Mexico. As a result of the five GREs' link--and roles--to the Mexican government, if we downgrade the latter in the next 18-24 months, we would take the same rating action on these entities. This stems from our view that GREs are typically more subject to country risk, in the form of government intervention, than their private-sector peers. GREs usually have direct links to governments, and thus we cap the ratings on the former to the foreign currency rating on the latter. Our global scale long-term rating on Asigna is higher than the 'BBB+' foreign currency rating on Mexico. This is because we believe Asigna is potentially resilient to a hypothetical default of Mexico. In our opinion, the stress test results demonstrate the likely significant capacity of Asigna's financial safeguards package to absorb a substantial portion of all uncovered losses in the event a clearing member defaults. However, if we downgrade the sovereign in the next 18-24 months, we would also downgrade Asigna. This is because even though our criteria would allow us to rate Asigna up to two notches above the long-term foreign currency rating on Mexico, in view of the results of our stress test, we consider it appropriate to limit the differential to one notch. Therefore, even if the company's SACP remains unchanged at 'a-', we would maintain a one-notch differential with the sovereign ratings. The negative outlook on 12 Mexican financial institutions reflects our view that if we downgrade the sovereign in the next 18-24 months, we could take the same action on these entities. This is because we rarely rate financial institutions above the sovereign long-term rating because, during sovereign stress, the latter's regulatory and supervisory powers may restrict a bank's or financial system's flexibility, and because banks are affected by many of the same economic factors that cause sovereign stress. On the other hand, if we were to revise the outlook on the sovereign ratings to stable, we would take a similar action on these entities.