OREANDA-NEWS. Fitch Ratings has affirmed Banco Inbursa, S.A.'s (BInbursa) Viability Rating (VR) at 'bbb+' and Long-term Issuer Default Ratings (IDR) at 'BBB+'. The Rating Outlook is Stable.

Simultaneously, Fitch has affirmed the national scale ratings of BInbursa and its financial subsidiaries Sociedad Financiera Inbursa, S.A. de C.V. Sofom, E.R. (Sofom Inbursa), and CF Credit Services, S.A. de C.V., Sofom, E.R. (CF Credit) at 'AAA(mex)' and 'F1+(mex)'. A full list of rating actions follows at the end of this release.

KEY RATING DRIVERS
VR AND IDRs
BInbursa's local and foreign currency IDRs are driven by its VR of 'bbb+', which reflects its robust loss-absorbing capacity made by ample capital ratios and loss loan provisions, adequate funding and liquidity profile that has shown stability through economic cycles, and its historically low and contained credit losses. These ratings also factor in BInbursa's strong and growing franchise on both sides of the balance sheet, especially when assessed together with the other financial companies of its parent, Grupo Financiero Inbursa (GF Inbursa), and 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 and IDRs also consider the relatively higher than its peers business, risk, and funding concentrations, although these have continued to decline gradually through increased consumer loans and retail deposits. 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.

Capital adequacy is one of BInbursa's main strengths and is maintained with solid buffers over regulatory minimums and generally above peer banks. As of Dec. 31, 2015, BInbursa had a robust Fitch Core Capital (FCC)-to-risk weighted assets (RWA) ratio of 23.58%. In addition, the bank had loan loss reserves for up to 4.5% of total loans, which provided a comfortable cushion in view of the moderate impaired loan ratio of 3.06% (3.69% considering charge-offs compared with 5.73% shown by its closest peers), and also considering the bank's historically well-contained credit losses. Sustained loan growth could 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.

Operating profitability-to-average assets in 2013-2014 was abnormally high (above 5%), due to some non-recurring loan loss reserve reversals and/or trading gains, but Fitch expects that BInbursa will likely maintain a sound recurring operating profitability-to-average assets, roughly in line or close to the historical average of 2%, aligned with its closest local peers. Cost efficiency is another major strength, due to the flexible cost structure and the large portion of employees receiving variable salaries. Costs-to-income has remained around 30%, despite some investments in banking infrastructure last year. Fitch expects that this ratio will improve further due to greater business volumes and a growing share of wide-margin products.

BInbursa has a strong franchise in the Mexican banking system, especially in corporate and big enterprise loans. BInbursa is the sixth largest bank in Mexico by loans and seventh by customer deposits, and the second largest among locally owned entities. It has roughly 6% of the system's loans and 4% of customer deposits. However, its market share is largest when measured by equity (roughly 10%) and operating revenues (more than 7%), holding the fifth position in each category.

BInbursa's funding and liquidity are generally stable, although due to its yet corporate nature there are moderate concentrations and some reliance on wholesale funding. BInbursa's loans to costumers-to-deposits ratios are behind those shown by the largest banking franchises in the country and to its closest international peers. As of December 2015, BInbursa's loan-to-deposit ratio stood at 252.31%. The bank aims to reach a loan-to-deposits ratio below 120% over the medium term, since retail customer deposits are growing an accelerated pace, sometimes faster than loans. The board has asked the bank to maintain medium-term debt issues as the alternative funding source as long as the above objective is not met.

SUPPORT RATING AND SUPPORT RATING FLOOR
The bank's support rating (SR) of '3' and Support Rating Floor (SRF) of 'BB+' are driven by its moderate systemic importance and the 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 SR and SRF. SRFs indicate the minimum level to which the entity's long-term IDRs could fall if Fitch does not change its view on potential sovereign support.

NATIONAL RATINGS AND LOCAL AND INTERNATIONAL SENIOR DEBT
BInbursa's National scale ratings were affirmed, since its IDRs are at the same level of those of the sovereign, and National scale ratings are relative rankings of creditworthiness within a certain jurisdiction.

The rating of the senior unsecured notes issued by BInbursa reflects that these are senior unsecured obligations of BInbursa 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+'.

Sofom Inbursa and CF Credit's National scale ratings were also affirmed, since they are perceived by Fitch as core subsidiaries of BInbursa and fully integrated into its operations and franchise. Also, the local holding company of both operating entities, GF Inbursa, whose creditworthiness is totally aligned with that of its main operating subsidiary (BInbursa), is legally enforced to provide support to its subsidiaries, if necessary. Therefore, the National scale ratings of these non-bank financial institutions are aligned with the bank's National scale ratings.

The 'AAA(mex)' and 'F1+(mex)' ratings of the local debt issued by CF Credit and Sofom Inbursa are in line with BInbursa's national scale rating level, since it is senior unsecured debt.

RATING SENSITIVITIES
VR, IDRs AND NATIONAL RATINGS
BInbursa's VR, IDRs and global notes rating 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 offsets 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 (i.e. FCC 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 to average assets above 1.5% could also be detrimental to the bank's ratings.

Any potential changes of Sofom Inbursa and CF Credit's National ratings will be driven by any changes in BInbursa' ratings or in the legal framework that could alter the propensity of GF Inbursa to support them, an unlikely scenario at present. A modification of theses entities' strategic importance to GF Inbursa and the bank could also lead to changes in its ratings.]

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.]

Fitch has affirmed the following ratings:

BInbursa:
--Foreign Currency Long-Term IDR at 'BBB+'; Outlook Stable;
--Foreign Currency Short-Term IDR at 'F2';
--Local Currency Long-Term IDR at 'BBB+'; Outlook Stable;
--Local Currency Short-Term 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)'; 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 short-term rating for a short-term portion of a senior unsecured debt program at 'F1+(mex)'.

CF Credit:
--National scale long-term rating at 'AAA(mex)'; Outlook Stable;
--National scale short-term rating at 'F1+(mex)'.
--National scale short-term rating for a short-term portion of a senior unsecured debt program at 'F1+(mex)'.
--National scale long-term rating for a long-term senior unsecured debt issuance at 'AAA(mex)'.