FinComun Servicios Financieros Comunitarios #B+/B#, #mxBBB-/mxA-3# Ratings Affirmed, Then Withdrawn At Issuer#s Request

Stocks and Financial Services Press Releases Thursday May 10, 2018 09:52
MEXICO CITY--10 May--S&P Global Ratings

MEXICO CITY (S&P Global Ratings) May 9, 2018--S&P Global Ratings affirmed its 'B+/B' global scale and its 'mxBBB-/mxA-3' national scale issuer credit ratings on FinComún Servicios Financieros Comunitarios (FinComun), with a negative outlook on both scales. At the same time, it withdrew all ratings on the company at the issuer's request.

FinComun's operating and financial performance haven't changed significantly from our assumptions in the last publication. The ratings reflect the lender's weaker-than-average asset quality metrics and considerably lower reserve coverage (measured by loans loss reserves to nonperforming assets) than those of its closest peers. This is mainly due to exposure to the weak quality of its payroll loans to government employees. However, we expect gradual improvements in FinComun's asset quality and efficiency thanks to the auto correction program, which the domestic regulator had imposed, and scaling back the payroll lending to government employees.

Likewise, the ratings incorporate FinComun's ineffective operating strategy during the past few years. This was evident in the sharp growth of payroll lending to government employees,and led to an ongoing reorganization of the company. The ratings also incorporate Fincomun's reliance on only two business lines for revenue, which leaves the latter susceptible, in our view, to a downturn in either of those businesses. On the other hand, we view FinComun's capital and earnings as credit strength due to a projected risk-adjusted capital ratio of around 9.7% for 2018, including an expected MXN50 million capital injection in June 2018. Finally, our ratings incorporate our below-average funding assessment stemming from FinComun's lack of access to the central bank's credit lines, but sufficient liquidity to cover short-term obligations.

We believe the 'mxBBB-' national scale rating is commensurate with other Mexican issuers rated at the same rating level, considering FinComun's size and business diversification, its deteriorated asset quality metrics, and the challenges the company will face over the next 12 months.

The negative outlook reflected a one-in-three chance of a downgrade as a result of FinComun's weakened risk position. If the company doesn't comply with the corrective plan and its asset quality metrics don't keep improving, FinComun's risk position will weaken and impair its overall credit profile.

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