June 9, 2017 / 6:24 PM / 9 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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