Fitch Affirms GFNorte and Banorte's Ratings at 'BBB '; Outlook Stable
GFNorte's Support Rating was affirmed at '5'; while Banorte's Support Rating was affirmed at '2' and its Support Rating Floor at 'BBB-'.
The Rating Outlook for the long-term ratings is Stable.
A full list of rating actions including GFNorte's non-banking subsidiaries follows the end of this rating action commentary.
KEY RATING DRIVERS - Banorte's VR, IDRs and national scale ratings
The affirmation of Banorte's VR considers the bank's strong and stable franchise, supported by organic and inorganic growth together with a clear and effectively executed strategy that has positioned the entity as one of the largest banks in the Mexican banking system; its improved revenue diversification, and the bank's adequate financial performance even under times of stress. Although general profitability as ROAE, was moderately affected by higher tax expense and loan provisions (year-end 2014 [YE14]: 13.72% vs. YE13: 16.77%), the bank delivered strong core earnings and operating profits; as an operating ROA consistently above 1.71% since 2011 (average operating ROAA 2011-2014: 1.76%).
Banorte's strengthened capital base was also considered for this affirmation. Capital ratios increased after a capital raise in 2013, however, in 2014 these were supported in addition by lower than expected loan portfolio growth and the bank's recurring income generation. Banorte's Fitch core capital stood by YE14 at 16.52% of risk weighted assets. Although Fitch believes capitalization metrics could be strained by higher loan growth in the upcoming periods, these will remain adequate.
Banorte's VR also reflects the bank's moderately improved asset quality, reducing its impairment loan ratio to 2.91% by the end of December 2014 (December 2013: 3.07%). Impairments were particularly affected in 2013 by the bank's exposure to the troubled sector of home builders. The VR considers too the challenges regarding liquidity, as asset and liabilities mismatches are considerable especially in long-term buckets, where the bank lacks sufficient funding to match its long-term loan portfolio. However, Fitch considers this risk is partially mitigated by the bank's stable and growing customer deposit base, and the improved mix between current and term deposits. The bank's IDRs and national long- and short-term ratings are driven by its VR.
RATING SENSITIVITIES - Banorte's VR, IDRs and national scale ratings
Banorte's VRs and IDRs could be downgraded if the bank is exposed to higher credit losses as net charge-offs above 3% of average gross loans that could alter its improved asset quality metrics; or in the event of lower operating profits, as an operating ROA below 1.5% and/or a Fitch core capital below 12% of risk weighted assets, consistently. Banorte's ratings could benefit over the medium term from sustained consolidation of its franchise, substantial enhancements of its business mix, and material improvements of its liquidity profile and financial performance, including the maintenance of an operating ROA above 2%.
Fitch considers there is limited upside potential for Banorte's VR and IDR at present, in line with the expectations of the Mexican sovereign ratings and its operating environment.
KEY RATING DRIVERS - GFNorte's VR and IDRs
GFNorte's ratings reflect its growing franchise and improved business diversification after several acquisitions made in recent years; and the group's adequately performed corporate restructuring in line with its strategic objective to simplify its organizational structure. Double leverage is inexistent at present at the holding company level, an element that is factored in Fitch's affirmation as well. These rating drivers as well as the Stable Outlook are underpinned by GFNorte's major subsidiary, Banorte.
RATING SENSITIVITIES - GFNorte's VR and IDRs
Considering GFBanorte current VR and IDR are in line with Mexico's sovereign rating, positive changes to GFNorte ratings are limited. A significant improvement in the funding profile of the group to better match the growing tenor of its assets; jointly with an increase of its profitability above its peers and preserving capitalization levels may positively affect its ratings.
The group's IDRs are aligned with Banorte's. GFNorte's VR could also be positively affected by a potential upgrade of its main banking subsidiary (Banorte). On the other hand, the group's VR could be negatively affected by the group's inability to sustain its improved capital and asset quality metrics, and double leverage above 115%.
KEY RATING DRIVERS - Support and Support Rating Floors
Banorte's Support Rating and Support rating floor were affirmed at '2' and 'BBB-', respectively, given Banorte's systemic importance and its role as the largest domestically-owned bank in Mexico. Fitch's support rating floors indicate a level below which the agency will not lower the bank's long-term IDRs as long as the assessment of the support factors does not change.
GFNorte's Support Rating and Support rating floors were affirmed at '5' and 'NF', in view of its position as a holding company; indicating that, although possible, external support cannot be relied upon.
RATING SENSITIVITIES - Support and Support Rating Floors
A potential upgrade or downgrade of Banorte's Support Rating and Support Rating Floor will be driven by a change in Mexico's sovereign rating and/or a change in the expected propensity of support from the Mexican government; both unlikely factors at present.
GFNorte's Support Rating and Support Rating Floor upside potential is limited as a holding company. External support cannot be relied upon, although it is possible.
KEY RATING DRIVERS - Subordinated Debt and Hybrid Securities
Banorte's global junior subordinated debt is rated four notches below the bank's IDR. The ratings are driven by Fitch's approach to factoring non-performance risk (-2 notches) and degrees of subordination (-2).
RATING SENSITIVITIES - Subordinated Debt and Hybrid Securities
Banorte's subordinated debt ratings will likely mirror any change in the bank's VR, since these are expected to remain the same relative to the bank's credit rating.
KEY RATING DRIVERS - GFNorte's Subsidiaries
The ratings of GFNorte's non-banking subsidiaries (AyF Banorte, Casa de Bolsa Banorte Ixe, and Almacenadora Banorte) are aligned with Banorte's national scale ratings, and consider GFNorte's legal obligation to support its subsidiaries, as well as Fitch's perception that these remain core for the group's overall strategy and business profile.
RATING SENSITIVITIES - GFNorte's Subsidiaries
Any downside potential for GFNorte's non-banking subsidiaries (AyF Banorte, Casa de Bolsa Banorte-Ixe and Almacenadora Banorte), will be driven by any potential downgrade of Banorte's ratings; any changes in the legal framework which could alter GFNorte's support - a scenario that seems unlikely at present; and/or a change of each entity's strategic importance to the group.
Fitch affirms the following ratings:
GFNorte:
--Long-term foreign and local currency IDRs at 'BBB+';
--Short-term foreign and local currency IDRs at 'F2';
--Viability Rating at 'bbb+';
--Support Rating at '5';
--Support Rating Floor at 'NF'.
Banorte:
--Long-term foreign and local currency IDRs at 'BBB+';
--Short-term foreign and local currency IDRs at 'F2';
--Viability Rating at 'bbb+';
--Support Rating at '2';
--Support Rating Floor at 'BBB-';
--National scale long-term rating at 'AAA(mex)';
--National scale short-term rating at 'F1+(mex)';
--USD120 million 10-year junior subordinated securities at 'BB'.
AyF Banorte:
--National scale long-term rating at 'AAA(mex)';
--National scale short-term rating at 'F1+(mex)';
--National scale long-term rating for local issues of senior unsecured debt at 'AAA(mex)';
--National scale short-term rating for local issues of senior unsecured debt at 'F1+(mex)'.
Almacenadora Banorte:
--National scale long-term rating at 'AAA(mex)';
--National scale short-term rating at 'F1+(mex)'.
Casa de Bolsa Banorte Ixe:
--National scale long-term rating at 'AAA(mex)';
--National scale short-term rating at 'F1+(mex)'.
The Rating Outlook is Stable.
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