Fitch Affirms Banco Santander (Mexico) and Subsidiaries; Outlook Stable

MONTERREY, Mexico--(BUSINESS WIRE)-- Fitch Ratings has affirmed Banco Santander (Mexico) (SAN Mexico)'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 'F2'. The long- and short-term national scale ratings of SAN Mexico and its subsidiaries Santander Vivienda, S.A. de C.V., SOFOM, E.R., Grupo Financiero Santander Mexico (Santander Vivienda) and Santander Consumo, S.A. de C.V., SOFOM, E.R., Grupo Financiero Santander Mexico (Santander Consumo), as well as the non-bank subsidiary of Grupo Financiero Santander Mexico (GFSM), Casa de Bolsa Santander, S.A de C.V., Grupo Financiero Santander Mexico (CBSantander), are affirmed at 'AAA(mex)' and 'F1+(mex)', respectively.

SAN Mexico's Support Rating is affirmed at '2'. The bank's global issuance of subordinated securities is affirmed at 'BB+'. The global and local senior unsecured issuances of SAN Mexico is affirmed at 'BBB+' and 'AAA(mex)', respectively. While the local senior unsecured notes of Santander Vivienda and Santander Consumo are affirmed at 'AAA(mex)' and 'F1+(mex), respectively. See the full list of rating actions at the end of this rating action commentary.

KEY RATING DRIVERS - SAN Mexico's VR, IDRs and National Scale Ratings

SAN Mexico's VR and IDRs do not reflect any extraordinary support from its parent, although it is viewed as a strategically important entity for Banco Santander (SAN, rated 'A-' by Fitch with a Stable Outlook).

SAN Mexico's ratings are driven by its robust competitive position, with a growing franchise in the Mexican banking system. As of March 2015, the bank was the third largest by total assets, deposits and loan portfolio; and also held a leading position (second) in terms of commercial and mortgage lending. The ratings also consider the strong capital position of the bank; sustained through an adequate internal capital generation and the moderate and recent reliance on noncore capital, in spite of high loan growth in recent years.

The bank's ratings factor in the recently affected profitability in response to a slower growth of its net interest income (NII) by the end of 2014 (YE14) and higher non-interest expenses. However, efficiency levels remain still sound (44% at 1Q15). Previously, the bank used to operate under exceptionally sound efficiency levels in the system (2013: 35%). Its operating ROAA has deteriorated as well to levels below 2%.

Moreover, the bank's recently and further deteriorated asset quality metrics, as result of its exposure to local home developers together with a deterioration of retail lending (mainly consumer and mortgages) were also considered. As of March 2015, SAN Mexico's non-performing loans stood at 3.7% of gross loans, but the entity exhibited levels below 2% previous to the deterioration of housing developers.

SAN Mexico, in addition, benefits from its increasing customer base, growing steadily through the years, which underpins its stable funding and liquidity profile. Although Fitch highlights there are maturity mismatches at the bank, these are partially mitigated by the historic stability and recurrent deposits.

SAN Mexico's national scale ratings are driven by its strong intrinsic profile compared to other banks in Mexico.

RATING SENSITIVITIES - SAN Mexico's VR, IDRs and National Scale Ratings

SAN Mexico's VR and IDRs could benefit over the medium term from a stable recovery of its recently deteriorated overall profitability and asset quality metrics, together with further improvements of the bank's competitive position and the stabilization of its risk appetite position in terms of growth and the shift of its business model towards retail products. A further enhanced customer deposit base, and a healthy loan growth without affecting materially its capital position, will also be necessary to trigger an upgrade. In turn, the bank's ratings could be downgraded by further deterioration of its non-performing loan (NPL) ratio to levels above 4% and a deterioration of its adequate and stable profitability, for example, an operating ROA consistently below 1.7%.

The bank's IDRs could be positively affected by an upgrade of its VR. Alternatively, these ratings could also benefit from a multi-notch upgrade of its parent company, given that the entity is considered strategically important for SAN.

The national scale ratings could be affected in the event of a downgrade of SAN Mexico's VR coupled with a reduced strategic importance to its parent, which is an unlikely scenario at present.

KEY RATING DRIVERS - Support Rating

SAN Mexico's Support Rating is affirmed at '2', and reflects Fitch's view that there is high probability of support to SAN Mexico from Spain's Santander, if needed; given the strategic role of the Mexican subsidiary for its parent.

RATING SENSITIVITIES - Support Rating

The bank's Support Rating could be affected if Fitch changes its view of SAN's ability or willingness to support the Mexican bank.

KEY RATING DRIVERS - Subordinated Debt and Senior Debt

The bank's issuance of global subordinated hybrids is rated three notches below the applicable anchor rating, SAN Mexico's VR. The ratings are driven by Fitch's approach to factoring certain degrees of subordination. The notching for non-performance risk (-2) is typical for hybrids issued by Mexican banks, since Fitch considers that the triggers for coupon deferrals or cancellations are relatively high, according to applicable local regulations; and the notching for loss severity (-1) reflects that these securities are plain-vanilla subordinated debt (subordinated preferred, under the local terminology).

Fitch rates the local debt issued by SAN Mexico at the same level of the bank's corporate rating, as the debt is senior unsecured.

RATING SENSITIVITIES - Subordinated Debt and Senior Debt

The bank's subordinated debt ratings will likely mirror any change in the bank's VR, as these are expected to maintain the same relativity to SAN Mexico's credit rating.

Senior debt ratings of SAN Mexico, Santander Vivienda and Santander Consumo would mirror any changes in the bank's IDRs or their respective national-scale corporate ratings.

KEY RATING DRIVERS - CBSantander, Santander Vivienda and Santander Consumo's National Ratings

The ratings of CBSantander, Santander Vivienda and Santander Consumo are driven by Fitch's view that these entities remain core for GFSM's strategy, its business model and future prospects. The ratings also consider the legal obligation of GFSM to support its subsidiaries. Santander Vivienda is already incorporated into the agreement of responsibilities. The credit profile of GFSM is associated with that of its main subsidiary, SAN Mexico.

RATING SENSITIVITIES - CBSantander, Santander Vivienda and Santander Consumo's National Ratings

Any potential changes of CBSantander, Santander Vivienda and Santander Consumo's ratings will be driven by any changes in SAN Mexico's ratings or in the legal framework that could alter the propensity of the group to support them, an unlikely scenario at present. A modification on each entity's strategic importance to the group could also, lead to changes of its ratings.

Fitch affirms the following ratings:

SAN Mexico:

--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';

--National-scale long-term rating at 'AAA(mex)';

--National-scale short-term rating at 'F1+(mex)';

--Long-term Basel III compliant subordinated notes at 'BB+';

--Long-term senior unsecured global notes at 'BBB+';

--National-scale long-term rating for local senior unsecured debt issues at 'AAA(mex)'.

CBSantander:

--National-scale long-term rating at 'AAA(mex)';

--National-scale short-term rating at 'F1+(mex)'.

Santander Vivienda:

--National-scale long-term rating at 'AAA(mex)';

--National-scale short-term rating affirmed at 'F1+(mex)';

--National-scale long-term rating for local senior unsecured debt issues at 'AAA(mex)'.

Santander Consumo:

--National-scale long-term rating at 'AAA(mex)';

--National-scale short-term rating affirmed at 'F1+(mex)';

--National-scale short-term rating for local senior unsecured debt program at 'F1+(mex)'.

The Rating Outlook for the long-term ratings is Stable.

Additional information is available on www.fitchratings.com.

Applicable Criteria and Related Research:

--'Global Bank Rating Criteria' (March 20, 2015);

--'Global Non-Bank Financial Institutions Rating Criteria' (April 28, 2015);

--'National Scale Ratings Criteria' (Oct. 30, 2013).

Applicable Criteria and Related Research:

Global Bank Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=863501

Global Non-Bank Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=865351

National Scale Ratings Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=720082

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=985138

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20150521006193/en/

Fitch Ratings
Primary Analyst (SAN Mexico, CBSantander, Santander Consumo)
Monica Ibarra
Director
+52 818 399 9150
Fitch Mexico S.A. de C.V.
Prol. Alfonso Reyes 2612
64920 Monterrey, Mexico
or
Primary Analyst (Santander Vivienda)
Gilda de la Garza
Associate Director
+52 818 399 9160
or
Secondary Analyst (SAN Mexico, CBSantander, Santander Consumo and Santander Vivienda)
Alba Zavala
Associate Director
Committee Chairperson
+52 818 399 9100
or
Franklin Santarelli
Managing Director
+1-212-908-0739
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526
[email protected]

Source: Fitch Ratings

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