TEXT-S&P affirms Infonavit ratings

Oct 1 - Overview
-- As the largest mortgage originator in Mexico, we consider Infonavit
has a strategic role in the implementation of the government's housing policy.
-- Infonavit has maintained its strong cash flow generation and adequate
adjusted capitalization levels during 2012.
-- We are affirming our 'BBB+/A-2' local currency, 'BBB/A-2' foreign
currency, and 'mxAAA/mxA-1+' national scale ratings on Infonavit.
-- The stable outlook reflects our expectations that during the newly
elected administration, Infonavit will continue having a key role in reducing
the housing deficit in the country.

Rating Action
On Oct. 1, 2012, Standard & Poor's Ratings Services affirmed its 'BBB+/A-2'
local currency, 'BBB/A-2' foreign currency, and 'mxAAA/mxA-1+' national scale
counterparty credit ratings on Instituto del Fondo Nacional de la Vivienda
para los Trabajadores (Infonavit). The outlook is stable.

Rationale
The ratings on Infonavit are based on our assessment of its 'critical' role in
the development and implementation of the public housing policy and its 'very
strong' link with the government, according to our criteria for
government-related entities (GREs). As a result, we consider there is an
'extremely high' likelihood of timely and sufficient extraordinary government
support in the event of a severe financial distress, based on:
-- Infonavit's 'critical role' in the implementation of the public
housing policy in Mexico. With nearly 219,580 mortgage loans originated during
the first half of 2012, Infonavit remains as the largest mortgage originator
in the country. We consider that, due to the volume and the niche market and
the importance of Infonavit's activities, it would be difficult that a private
entity would undertake this activity.
-- Its 'very strong' link with the Mexican government, a financial
distressed Infonavit could hamper the development of the housing industry in
Mexico and might impair market access for other GREs.

Infonavit's strong business profile, good earnings and cash flow generation,
and adequate adjusted capitalization metrics support the ratings. The negative
rating factors are the entity's below-average asset quality due to the
low-income segment it serves, and inherent exposure to political risk.
Infonavit's stand-alone credit profile (SACP) is at the same level as our
foreign currency rating on Mexico (foreign currency BBB/Stable/A-2; local
currency A-/Stable/A-2).

Infonavit's sound market position in the residential mortgage industry and its
status as the largest pension fund manager in the country underpin its strong
business profile. With a total on-balance loan portfolio of MXN832.4 billion
($60.9 billion) as of June 2012, Infonavit remains the largest mortgage
originator in the country with a 76% market share in terms of number of loans
(including those in the home improvement program, funded by commercial
financial intermediaries). We expect Infonavit to maintain its strong business
position as it helps reduce the housing deficit in Mexico. The development of
new products, following the reform in its bylaws in January 2012, will also
allow Infonavit to keep expanding its loan portfolio.

Infonavit's strong cash flow generation is due to a recurrent stream of
interest income from its loan portfolio and its fiscal attributions that allow
it to receive workers' contributions for the housing fund (by law, Infonavit
receives these funds from the employers). As of June 2012, revenues from its
loan portfolio accounted for 51% of the entity's cash flow, and workers'
contributions, 33%. Infonavit's strong income generation and good efficiency
levels have allowed it to absorb a higher proportion of loan-loss provisions
and to report consistent profits. In our opinion, as long as the entity is
able to contain the levels of past due loans, we would expect its loan
portfolio to keep generating the bulk of its revenues.

We consider Infonavit's adjusted capitalization levels to be adequate and
consistent with its financial risk profile. As of June 2012, its adjusted
total equity (ATE) to adjusted assets was 8.3%, slightly better than its
average of 7.9% for the past three fiscal years. The entity's decision to cap
the proportion of residuals from its CEDEVIS issuances in its equity should
reduce the pressures on its adjusted capitalization. In addition, the high
levels of loan loss reserves--17.1% of the on-balance portfolio and 2.2x the
ATE--also help protect the capital base. Expected sound internal capital
generation and a moderate growth of the loan portfolio should help preserve
adequate capitalization.

Although we still consider Infonavit to manage its credit risk adequately,
nonperforming loans (NPAs) plus foreclosed assets are higher than in previous
years. At June 2012, NPAs accounted for 6.9% of the on-balance portfolio, up
from the 6.1% average of the past five years. The entity's solid loan loss
reserves have been able to absorb the credit losses, and at the end of the
second quarter, they covered nonperforming assets at 246.8%, mitigates its
credit risk. In the coming months, we do not expect significant changes in
Infonavit's credit quality. We consider that the measures that the entity is
implementing to strengthen its origination and collection practices might
result in a better asset quality in the medium term.

In our opinion, due to its significant social influence, Infonavit remains
exposed to political risk, despite the improvements in its
institutionalization and corporate governance practices. We also continue to
believe that any political intervention could undermine Infonavit's strategic
direction and, as a result, damage its financial profile.

Our base-case scenario incorporates our expectation that Infonavit will
maintain a key role in reducing the housing deficit in the country. We expect
that NPAs will be about 7% in the next two years, and that they will be fully
reserved. The moderate growth of the on-balance loan portfolio, coupled with
sound internal capital generation, should maintain adjusted capitalization
above 8.0%.

Outlook
The stable outlook reflects our expectation that Infonavit will remain a
critical player for the implementation of the government's housing policy and
in addressing Mexico's housing deficit, particularly in the low-income
population segment. A sustained deterioration of its financial performance,
with increasing levels of NPAs or bottom-line losses, could lead us to revise
its SACP. If capitalization continues to improve and nonperforming assets
start to decrease, we could revise Infonavit's SACP upward. However, the
foreign-currency ratings will continue to be limited by the foreign-currency
rating on the sovereign.

Related Criteria And Research
-- Bulletin: Instituto del Fondo Nacional de la Vivienda para los
Trabajadores Ratings Unaffected By Reforms To Its Bylaws, Jan. 17, 2012
-- Rating Government-Related Entities: Methodology And Assumptions, Dec.
9, 2010

Ratings List
Ratings Affirmed

Instituto del Fondo Nacional de la Vivienda para los Trabajadores (Infonavit)
Counterparty Credit Rating
Foreign Currency BBB/Stable/A-2
Local Currency BBB+/Stable/A-2
Caval - Mexican Rating Scale mxAAA/Stable/mxA-1+

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