Fitch Affirms Banco Inbursa at 'BBB+'; Outlook Stable
KEY RATING DRIVERS
VR, IDRs and national scale ratings
BInbursa's VR, IDRs, and national scale ratings are driven by its robust loss-absorbing capacity, adequate funding and liquidity profile, and its historically low and contained credit losses. These ratings also factor in BInbursa's strong and enhancing franchise, especially when assessed together with the other financial companies of its parent, Grupo Financiero Inbursa, and also given the strong synergies with other non-financial companies related to the controlling shareholders. The bank's sound and relatively stable earnings are also considered.
The VR, IDRs, and national scale ratings also consider the relatively higher than its peers business, risk, and funding concentrations, although these have continued to decline gradually. The relatively high and volatile contribution of trading revenues is also factored in, although this item is typically positive and highly influenced by the mark-to-market of the bank's hedging positions. Also, BInbursa is seeking to reduce the volatility of trading revenues by shifting the mix of its hedging positions and funding alternatives.
As of Dec. 31, 2014, BInbursa had a robust tangible common equity to tangible assets ratio of 25.82%. In addition, the bank had loan loss reserves for up to 7.73% of total loans, which provided a comfortable cushion in view of the moderate impaired loan ratio of 3.69%, and also considering the bank's historically well-contained credit losses. Operating ROA in 2013-2014 was abnormally high (above 5%), due to some non-recurring loan loss reserves reversals and/or trading gains, but Fitch expects that BInbursa will likely maintain a sound recurring operating ROA, roughly in line or close to the historical average of 2%. Sustained loan growth could also pressure capital metrics to some extent, but Fitch expects the tangible common equity and core capital ratios to remain above 18% over the foreseeable future.
RATING SENSITIVITIES
The VR and IDRs could be upgraded over the medium term if business and risk diversification continues to improve steadily, when the longer-term assets are entirely funded with stable customer deposits and/or wholesale debt that completely offset tenor mismatches, and if the bank reduces earnings volatility driven by market-related revenues.
In turn, downside potential for these ratings and the national scale ratings would arise if the bank's capital adequacy metrics or internal capital generation deteriorate materially (Fitch core capital and/or tangible capital ratio below 15%), or in the event of a reversal in the improving trends in funding and liquidity, and/or business and revenue diversification. Materially higher earnings volatility and/or inability to sustain recurring operating profits above 1.5% of average assets could also be detrimental to the bank's ratings.
KEY RATING DRIVERS
Support Rating and Support Rating Floor
The bank's SR and SRF are driven by its moderate systemic importance and the growing share of retail deposits, although this is still modest. If the bank were to need it, Fitch considers that there is a moderate probability of receiving sovereign support, which underpins the bank's SR and SRF. Fitch's SRFs indicate a level below which the agency would not lower the bank's long-term IDRs.
RATING SENSITIVITIES
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. These ratings could be downgraded if the bank loses material market share in terms of retail customer deposits.
Fitch has affirmed the following ratings:
Banco Inbursa, S.A.:
--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 '3';
--Support Rating Floor at 'BB+';
--10-year 4.125% Senior Unsecured Notes at 'BBB+';
--National scale long-term rating at 'AAA(mex)';
--National scale short-term rating 'F1+(mex)'.
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