Fitch Affirms Compartamos at 'BBB'; Outlook Stable

MONTERREY, Mexico--(BUSINESS WIRE)-- Fitch Ratings has affirmed Banco Compartamos S.A. I.B.M.'s (Compartamos)' Viability Rating (VR) at 'bbb', its Foreign and Local Currency Long-Term Issuer Default Ratings (IDRs) at 'BBB' and its Short-Term IDRs at 'F2'. Fitch has also affirmed the National Scale Long- and Short-Term Ratings at 'AA+(mex)' and 'F1+(mex)', respectively. The Rating Outlook on the Long-Term Ratings is Stable.

Fitch also affirmed Compartamos' Support Rating (SR) and Support Rating Floor (SRF) at '5' and 'NF'. A full list of rating actions follows at the end of this press release.

KEY RATING DRIVERS

VR, IDRs and NATIONAL RATINGS

The affirmation of Compartamos' VR and IDRs considers its exceptionally strong profitability, robust and solid capital base and adequate liquidity profile; these factors stand significantly above its closest peers in the micro finance industry and the overall banking system. The ratings are also driven by Compartamos' leadership in group lending for working capital in Mexico, a sector where the entity is recognized as a role model; its sound franchise in a specific business line; and the still low diversification of its funding structure driven by its limited deposit base and high reliance on market debt issuances. The entity's pressured asset quality, although contained, was also factored in the ratings. The National Scale Rating reflects the same factors that drive the VR.

Compartamos' high profitability is driven by its further strengthened interest rate margin in line with a steady loan growth and relatively contained operating costs. Core earnings have been growing consistently and have proven resilient even after 2012 when competition pressures challenged the microfinance sector. Fitch is not expecting significant changes in the overall financial performance of the bank, even under the relatively recent gradual shift to individual loans, which derives on some downside risks and the challenging economic conditions that prevail in Mexico.

In Fitch's opinion, the bank's business model results on an above-average risk appetite, not only by the lower income segment customers it targets but by the portfolio shift towards semi-urban areas and individual loans. However, Fitch believes the bank has been successful at balancing this higher risk with high loan growth (Average 2012 - 2015: 17.9%), without affecting its strong performance.

Compartamos generally outperforms its peers regarding asset quality. Impaired loans started increasing in 2012, as a result of product diversification and generalized pressures in the group-lending market from increased competition that led to higher indebtedness and lower stability in the groups. Nevertheless, asset quality metrics have been somehow controlled and at reasonable levels over the cycle. The bank's NPLs plus 12-month written-off loans were 9.3% of the total loans plus 12-month written-off loans as of December 2015 (2014: 9.6%).

The bank's loss absorption capacity is robust, driven by its ample capitalization levels and strong loan loss reserves. Even though the bank constantly pays dividends (Average dividend payout 2011 -2014: 56%), it exhibits an adequate ability to restore capital in a short period of time. Fitch does not expect relevant pressures on Compartamos capital in the near future and believes that capital needs to be strong given the bank's niche orientation.

Compartamos' funding structure is highly reliant on wholesale debt, with more than half (59%) of its interest bearing liabilities coming from market debt issuances (senior unsecured debt). The bank had issued MXN10,014m as of December 2015. However, concentration in public debt was reduced as compared to YE14, driven by a higher portion of long-term facilities and term deposits (money market). While this concentration is considered high, Fitch believes such risk is partially mitigated by the long-term nature of the issuances and wide access to institutional funding sources.

The bank's adequate liquidity management relies on its highly revolving portfolio which drives the positive cumulative gaps for the next four years. The bank has no encumbered assets. Even though Compartamos is still not obliged to cover a minimum Liquidity Coverage Ratio (LCR), the entity benefits by a very strong ratio at YE15 of 406%.

SUPPORT RATING AND SUPPORT RATING FLOOR

The bank's SR and SRF are driven by its low systemic importance when measured by its market share of core customer deposits of the Mexican banking system. Fitch believes that sovereign support for the bank in case of need, although possible, cannot be relied upon.

RATING SENSITIVITIES

VR, IDRs and NATIONAL RATINGS

Fitch future upgrades of the bank's VR and IDR's are limited at present, given its current niche orientation and wholesale funding nature. Significant enhancement of Compartamos' funding base with lower reliance on capital market funding together with an adequate consolidation of its product diversification strategy may result in rating upgrades in the medium term.

The ratings could be downgraded if its capital metrics weaken significantly, as a FCC consistently below 25% and/or together with a material deterioration of its asset quality and profitability metrics. Although not a baseline scenario, sustained volatility or reduced funding access could also pressure the ratings.

SUPPORT RATING AND SUPPORT RATING FLOOR

Upside potential for the SR and SRF is virtually non-existent in the foreseeable future and could only occur in the long-term with a material gain of the bank's market share in terms of the system's core customer deposits.

Fitch has affirmed Compartamos' ratings as follows:

--Long-Term Foreign and Local Currency IDRs at 'BBB', Outlook Stable;

--Short-Term Foreign and Local Currency IDRs at 'F2';

--Viability Rating at 'bbb';

--Support Rating at '5';

--Support Rating Floor at 'NF'.

--National Scale Long-Term Rating at 'AA+(mex)', Outlook Stable;

--National Scale Short-Term Rating at 'F1+(mex)';

--National Scale Long-Term Rating for local issues of senior unsecured debt at 'AA+(mex)'.

Additional information is available on www.fitchratings.com

Applicable Criteria

Global Bank Rating Criteria (pub. 20 Mar 2015)

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

Metodologￃﾭa de Calificaciones Nacionales (pub. 13 Dec 2013)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=727099

Metodologￃﾭa de Calificaciￃﾳn Global de Bancos (pub. 29 May 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=866612

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1003522

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1003522

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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/20160428006740/en/

Fitch Ratings
Primary Analyst
Monica Ibarra
Director
+52 818 399 9150
Fitch Ratings Mexico
Prol. Alfonso Reyes 2612, Piso 8
Monterrey, Mexico
or
Secondary Analyst
Veronica Chau
Senior Director
+52 818 399 9169
or
Committee Chairperson
Alejandro Garcia, CFA
Managing Director
+52 818 399 9146
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
[email protected]

Source: Fitch Ratings

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