Fitch Affirms IPAB’s IDRs at ‘BBB+’/’A-‘; Outlook Stable

Fitch Ratings has affirmed the long-term foreign and local currency Issuer Default Ratings (IDRs) of Instituto para la Proteccion al Ahorro Bancario (IPAB) at 'BBB+' and 'A-', respectively.

Fitch also affirms IPAB's short-term IDRs at 'F2', its Support Rating at '2', Support Rating Floor at 'BBB+', and its long- and short-term national scale ratings at 'AAA(mex)' and 'F1+(mex)', respectively. An issuance of local senior unsecured debt was affirmed at 'AAA(mex)'. The Rating Outlook on the long-term ratings is Stable. A full list of rating actions is at the end of this rating action commentary.

KEY RATING DRIVERS

IDRs and National Scale Ratings:

IPAB's IDRs reflect the high probability that the entity will receive support from Mexico's federal government if needed, given its key role in the local financial sector as a deposit insurance entity, and to ensure the public confidence on the banking system. Its ratings are aligned with the sovereign ratings. According to its organic law, the Mexican Congress will establish measures for the payment of guaranteed obligations and funding of supported financial institutions, if required; even though IPAB does not rely on a specific sovereign guarantee. In addition, this law also considers a specific item of the Expenditures Decree, indicating that the Congress will provide budgetary resources to IPAB to face its corresponding financial obligations if needed.

RATING SENSITIVITIES

Any changes of IPAB's ratings will be driven by changes in Mexico's sovereign ratings, which currently have a Stable Rating Outlook, or changes in its legal framework and the propensity of the federal government to reduce transfers of budgetary resources to IPAB that could alter its financial flexibly, although this seems unlikely in the near future.

KEY RATING DRIVERS

Support and Support Rating Floor

IPAB's Support Rating and Support Rating Floor were affirmed at '2' and 'BBB+', respectively, given its systemic importance as the banking system's deposit insurance entity in Mexico and the willingness of the Mexican Congress to establish measures to support the entity if needed. Fitch's support rating floors indicate a level below which the agency will not lower the bank's long-term IDRs as long as the assessment of the support factors does not change.

RATING SENSITIVITIES

A potential upgrade or downgrade of IPAB's Support Rating and Support Rating Floor will be driven by a change in Mexico's sovereign rating and/or a change in the expected propensity of support from the Mexican government; both unlikely factors at present.

CREDIT PROFILE

IPAB relies on bond issues (Bonos de Proteccion al Ahorro or BPAS) as its main liability, which benefit from a contingent payment mechanism. IPAB's financial agent, Mexico's central bank, can temporarily debit the Treasury's accounts to honor these bonds; according to the Revenues Law for 2014. This mechanism should be renewed annually and is applicable for all placed BPAS until their maturity. Fitch considers this mechanism further strengthens IPAB's debt servicing ability. Net liabilities as a percentage of Mexico's Gross Domestic Product (GDP) have steadily declined since the entity's creation. As of December 2013, these stood at 4.97 percent of estimated GDP, dropping from 11.60 percent at year-end 1999 (based on adjusted historical figures of GDP).

Fitch affirms the following ratings:

IPAB:

--Long-term foreign currency IDR at 'BBB+';

--Long-term local currency IDR at 'A-';

--Short-term foreign and local currency IDRs at 'F2';

--Support Rating at '2';

--Support Rating Floor at 'BBB+';

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

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

--Local senior unsecured debt issues at 'AAA(mex)'.

The Rating Outlook is Stable.

Additional information is available on fitchratings.com

Applicable Criteria and Related Research:

--'Global Financial Institutions Rating Criteria' (Jan. 31,);

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

Applicable Criteria and Related Research:

Global Financial Institutions Rating Criteria

http://fitchratings.com/creditdesk/reports/ report_frame.cfm?rpt_id=732397

Additional Disclosure

Solicitation Status

http://fitchratings.com/gws/en/disclosure/ solicitation?pr_id=829473

((Comments on this story may be sent to [email protected]))