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Fitch: Increasing Probability of Mexican Mid-Sized Bank IPOs
June 9, 2017 / 6:24 PM / 3 months ago

Fitch: Increasing Probability of Mexican Mid-Sized Bank IPOs

(The following statement was released by the rating agency) MONTERREY, June 09 (Fitch) Despite persistent economic uncertainty and a lower growth rate in the country, Fitch Ratings believes there is a growing possibility that Mexican medium-sized banks will make initial public offerings (IPOs) in the short and medium term. This would be the result of the appetite of some investors to selectively increase their exposure in emerging countries, in conjunction with the interest of Mexican mid-sized banks to strengthen their financial and competitive positions in the face of the broad growth opportunities that the local market offers, given the low financial intermediation in the country. The completion of these events will largely depend on the evolution of the operating environment and the performance of the mid-sized banks under the relatively challenging conditions prevailing in Mexico. Banco del Bajio's recent IPO is a clear example of the possibilities Fitch envisions. Fitch notes that mid-sized banks, those with market shares of between 0.5% and 2% of the total assets of the system, show an appetite for strengthening the size of their franchises and business profiles. These banks usually grow faster than the industry average. As of March 2017, their credit portfolios have grown at levels close to 18% YoY, compared to 12% for the total system. Although the mid-sized banks rated by Fitch still show adequate capitalization indicators (Fitch Core Capital to risk-weighted assets average 13.5% as of March 2017), Fitch believes that, with the current loan growth rate and still moderate internal capital generation, one of the main challenges for these entities is to avoid that its capital bases are substantially pressured and approach the minimum regulatory limits. Given their track record, performance, and maturity, some Mexican medium-sized banks have contemplated the possibility of conducting an IPO. Some of them have an operating history of between 15 and 20 years. However, the decision and timing to access capital markets will depend on their assessment of the conditions in those markets in a global context. Investors' growing interest in political conditions and events may also play an important role in the possibility of new IPOs, especially in the run-up to the presidential election in Mexico set for June 2018. Investor appetite for these types of entities has been relatively proven through access to local debt issues, and, selectively, access to capital markets by some medium-sized banks, and even certain NBFIs (non-bank financial institutions). Fitch believes that some of these banks still have the challenge of demonstrating consistent and attractive returns for investors. For some others, Fitch believes they are building or strengthening their scale, franchise, or business model, before assessing the possibility of accessing the capital markets. The complex global environment in the last two years has reduced investor appetite in some emerging countries, specifically in those most exposed to commodity cycles. This could benefit investors' appetite for the expected issues of Mexican mid-sized banks, given the more diversified nature of the Mexican economy, and also the relatively limited supply of capital investment alternatives in the Mexican financial sector. Mexican financial entities that have accessed capital markets in recent years, either with IPOs or additional offers, include Grupo Financiero Banorte, Santander Grupo Financiero, Grupo Financiero Inbursa, Banregio Grupo Financiero, Grupo Financiero Interacciones and even non-bank intermediaries like Unifin, and previously Credito Real and Financiera Independencia. In addition to the positive effects of the prior IPOs of these entities on their capital adequacy, Fitch believes that these also have positive effects on levels of institutionalization, transparency, and corporate practices. Contacts: Alejandro Tapia Director +52 81 8399 9156 Fitch Mexico, S.A. de C.V. Prol. Alfonso Reyes 2612, Monterrey, N.L. Mexico Veronica Chau Senior Director +52 81 8399 9169 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com. Additional information is available on www.fitchratings.com ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. 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