OREANDA-NEWS. Fitch Ratings has affirmed Banco del Bajio, S.A. (BanBajio)'s Viability Rating (VR) at 'bbb-', its long-term foreign and local currency Issuer Default Ratings (IDRs) at 'BBB-', and its short-term foreign and local currency rating at 'F3'. Fitch also affirmed the short- and long-term national scale ratings of BanBajio and its non-bank subsidiary Financiera Bajio, S.A de C.V., Sociedad Financiera de Objeto Multiple, Entidad Regulada (Financiera Bajio) at 'AA-(mex)' and 'F1+(mex)'. The Rating Outlook of the long-term ratings is Stable. A full list of rating actions follows at the end of this release.

KEY RATING DRIVERS - BANCO DEL BAJIO

VR, IDRS AND NATIONAL RATINGS
BanBajio's ratings are driven by the bank's improved and sustained recurring profitability underpinned by contained credits costs, sound performance of its main business lines, and stable margins (average NIM 2011-2014 of 4.5%), although it still stands at lower levels than its regional and local peers. Further improvements to the bank's funding profile were also considered, but Fitch expects challenges in this area to arise in the near future.

The ratings also factor in the material enhancement of the bank's asset quality metrics and the sound capital base in view of a steady loan growth. The bank has a moderate, although improving, franchise that is gradually expanding into other regions outside of its core area of influence. As of March 2015, BanBajio was the eighth largest bank of the Mexican banking system with a loan portfolio and total customer deposits accounting for 2.8% and 2.9%, respectively.

The overall performance of the bank has been strengthened recently, with a sustained enhancement of its asset quality and profitability metrics. In 2014 and 1Q15, the bank's non-performing loan ratio stood below 2% while maintaining an adequate reserves coverage.
Fitch highlights that impairment ratios have been gradually improving in past years, but aided by higher net-charge offs at YE14, which is not a recurrent practice at the bank.

BanBajio's financial performance was affected in past years by higher than average operating expenses, driven by an important expansion of its branch network. In recent years, however, the bank has been able to uplift its operating ROAA above 1% (1Q15: 1.4%). Fitch expects that the recently improved profitability metrics are sustainable and will continue to enhance the bank's internal capital generation and operating efficiency.

The bank's capital base, although slightly pressured, is considered to be sound. Fitch Core Capital stood at 13.2% as of March 2015, supported by a relatively conservative cash dividend policy and the maintenance of its risk adjusted net interest margin (slightly below 4% in 1Q15). Steady growth of core deposits and a more astringent funding management policy are aiding on the reduction of the historically high asset-liability tenor mismatches.

SUPPORT RATING AND SUPPORT RATING
The bank's SR and SRF are driven by BanBajio's market share of core customer deposits. While its overall penetration is still moderate, BanBajio is one of the few niche or regional banks that, in Fitch's opinion, could receive sovereign support if this were needed, due to the growing share of retail deposit and the widespread geographical and customer dispersion of such accounts. Fitch's SRFs indicate a level below which the agency would not lower the bank's long-term IDRs.

SUBSIDIARY - FINANCIERA BAJIO
Financiera Bajio's ratings are driven by Fitch's view that its importance for the bank is high, given the core role of the entity for BanBajio's strategy and business model. Financiera Bajio carries out the factoring and leasing activities, which are considered core business lines that complement the product offer of the bank.

RATING SENSITIVITIES

VR, IDRS AND NATIONAL RATINGS- BANCO DEL BAJIO
The ratings of BanBajio could be downgraded if the bank is not able to sustain the recent enhancements of asset quality and profitability and/or if the bank's capital metrics are pressured significantly. Fitch considers that an operating ROAA constantly below 1% and/or a Fitch's core capital below 12% could trigger the downgrade. On the other hand, there could be some upside potential for these ratings over the medium term, if operating ROAA consolidates closer to 2% are combined with further and material improvements in the funding profile that results in a reduction of the prevailing tenor mismatches.

SUPPORT RATING AND SUPPORT RATING FLOOR
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.

SUBSIDIARY - FINANCIERA BAJIO
Any potential changes of Financiera Bajio's ratings will be driven by any changes in BanBajio's ratings or a modification on the entity's strategic importance to the bank.

Fitch has affirmed the following ratings:

Banco del Bajio (BanBajio)
--Long-term foreign and local currency IDRs at 'BBB-'; Outlook Stable
--Short-term foreign and local currency IDRs at 'F3';
--Viability Rating at 'bbb-';
--Support Rating at '4';
--Support Rating Floor at 'BB-';
--National scale long-term rating at 'AA-(mex)'; Outlook Stable;
--National scale short-term rating at 'F1+(mex)'.

Financiera Bajio
--National scale long-term rating at 'AA-(mex)'; Outlook Stable;
--National scale short-term rating at 'F1+(mex)'.