-- Mexico-based Consupago transferred almost all
of its assets to its affiliate, Consubanco, S.A.
-- We are assigning our 'BB' global scale and 'mxA/mxA-2'
national scale issuer credit ratings to the bank.
-- We are affirming the 'BB' rating on the MXN750 million
-- The stable outlook reflects our expectation that
Consubanco's strong internal capital generation will maintain
its risk-adjusted capital ratio around 18%.
On Nov. 20, 2012, Standard & Poor's Ratings Services
assigned its 'BB' global scale and 'mxA/mxA-2' national scale
issuer credit ratings to Consubanco, S.A. Institucion de Banca
Multiple (Consubanco; previously known as Banco Facil S.A.).
At the same time, we affirmed our 'BB' rating on the MXN750
million unsecured notes, which were transferred to Consubanco
from its affiliate Consupago S.A. de C.V. S.F.O.L. The outlook
The ratings on Consubanco reflect its "weak" business
position, "very strong" capital and earnings, "moderate" risk
position, and "below average" funding and "moderate" liquidity.
Our bank criteria use our Banking Industry Country Risk
Assessment (BICRA) economic and industry risk scores to
determine a bank's anchor, which is the starting point in
assigning an issuer credit rating. Our anchor for a commercial
bank operating only in Mexico is 'bbb'.
In our view, the main risk for the banks operating in Mexico
is economic risk. This is because of the population's low income
level (from a global perspective), and a decrease in payment
capacity amid a low level of domestic savings. Mexican banks
face challenges associated with lending within a legal framework
that is still establishing a track record of creditor rights.
However, underwriting standards have improved.
Also, we have not observed any asset bubbles in the Mexican
economy. Industry risk is not as high, because of conservative
regulation, but supervision still needs to be strengthened.
Healthy competitive dynamics drive the lending system. Funding
is based on stable deposits, while the domestic debt markets are
We classify the Mexican government as "supportive" to its
banking system, based on past experience and our belief that it
has the capacity to help banks withstand problems.
We evaluate Consubanco's business position as "weak," due to
the concentration of revenues from a single business line
(payroll loans to public employees), the geographic
concentrations of its loan portfolio, expected small market
share, and the stiff competition in the payroll discount sector.
We view concentration as negative to Consubanco's business
profile because the bank depends on agreements with government
entities for loan origination volumes, and the market for public
employees is limited.
In addition, the portfolio exhibits some geographic
concentrations in the states of Veracruz, Distrito Federal, and
the State of Mexico, because that's where most of its largest
exposures are located.
We don't expect the bank to offer new products in the medium
Although we consider that Consubanco is well positioned in
the payroll lending market for public employees, we expect
Consubanco to have a small market share, of less than 0.3% in
terms of loans. Increased regulation for payroll lending and
competition could hurt the bank's financial profile.
We consider that Consubanco faces the challenge of managing
the expected aggressive growth of its loan portfolio in the next
two years. Our "very strong" assessment of Consubanco's capital
and earnings is based on our expectation for a projected
risk-adjusted capital (RAC) ratio of 18% in the next 18 months
and a strong earnings buffer which can absorb forecasted credit
losses. Despite expected aggressive growth of the loan portfolio
in the next two years, 45% for 2013 and 20% for 2014 based on
our forecast, as well as a high dividend payout ratio, we expect
internal capital generation to strengthen the bank's capital
In our opinion, Consubanco's capital will have good quality,
since it will be comprised only of paid-in capital, retained
earnings, and reserves. We don't expect the bank to report
goodwill or tax-loss carryforwards in the coming months.
In our view, Consubanco's earnings quality is strong, since
net interest income will represent the majority of its revenues,
and we expect the bank to maintain core earnings to average
adjusted assets ratio of around 9% in the next 18 months, which
compare favorably with the industry average. Consubanco's
earnings capacity is strong, and we expect a three-year average
earnings buffer of 7.2%, reflective of high net interest margins
and an adequate efficiency. As long as the bank maintains high
margins and adequate asset quality, we would expect it to post
good profitability ratios.
Our risk position assessment for the bank is "moderate,"
reflecting the concentration of the loan portfolio in the public
sector, the expected high growth of the portfolio, and the
operational issues that arise from its collection mechanism. In
2012, Consupago resumed organic growth of its loan portfolio and
we expect Consubanco's loan portfolio to grow aggressively in
the coming two years.
Its loan portfolio concentration compares unfavorably with
the average of the banking industry. Although the collection
mechanism that depends on government entities' payroll
deductions remains generally efficient, the bank is subject to
operational risk due to the delays in the transfer of deducted
cash flows, although these delays have not resulted in
significant credit losses in the past.
Greater diversification of the loan portfolio could mitigate
this risk. We don't expect the bank to have foreign-currency
mismatches, and we expect that high active rates will mitigate
interest rate risk. In our opinion, Consubanco will be
challenged to manage the growth of its portfolio by maintaining
good underwriting practices and controls.
Sustained deterioration of the bank's asset quality, with
increasing levels of charge-offs, or the offering of riskier
products could lead us to revise Consubanco's risk position. In
our opinion, Consubanco's funding is "below average" and
liquidity is "moderate". We expect the bank to rely on wholesale
funding to support its growth. The bank's funding structure will
consist mainly of bank credit facilities and debt issuances,
while we anticipate that deposits will represent less than 10%
of its total funding in the next 18 months. We consider
Consubanco's liquidity levels to be "moderate" to meet its
Although the bank will benefit from the bimonthly repayment
of its loan portfolio, we expect it to use most of those funds
to support future growth. Therefore, we expect that Consubanco
will seek to refinance its cross-border issuance due April 2013.
The bank will be challenged to maintain a stable funding
structure that is adequately matched with its loan portfolio.
Outlook The stable outlook reflects our expectation that
Consubanco's strong internal capital generation will maintain
its RAC ratio around 18% in the next 18 months, with
nonperforming assets hovering around 4.5% and 5%.
We expect the bank to remain focused on payroll loans in the
medium term. Loan portfolio growth rates above our expectations,
that are not compensated with internal capital generation and
that take our RAC ratio under 15%, would likely lead to a
A sustained increase in charge-offs, the offering of riskier
products, or increased regulation or competition that affects
Consubanco's business position could also lead us to revise the
We do not expect to raise the ratings in the next 18 months.
Ratings Score Snapshot Issuer Credit Rating BB/Stable/-- SACP bb
Anchor bbb Business Position Weak (-3) Capital and Earnings Very
Strong (+2) Risk Position Moderate (-1) Funding and Liquidity
Below Average and Moderate (-1) Support 0 GRE Support 0 Group
Support 0 Sovereign Support 0 Additional Factors 0 Related
Criteria And Research -- Banks: Rating Methodology And
Assumptions, Nov. 9, 2011 -- Banking Industry Country Risk
Assessment Methodology And Assumptions, Nov. 9, 2011 -- Bank
Capital Methodology and Assumptions, Dec. 6, 2010 Ratings List
New Rating; CreditWatch/Outlook Action Consubanco, S.A.
Institucion de Banca Multiple Global Scale BB/Stable/-- Caval -
Mexican Rating Scale mxA/Stable/mxA-2 Ratings Affirmed
Consubanco, S.A. Institucion de Banca Multiple Senior Unsecured
Complete ratings information is available to subscribers of
RatingsDirect on the Global Credit Portal at
All ratings affected by this rating action can be found on
Standard & Poor's public Web site at www.standardandpoors.com.
Use the Ratings search box located in the left column.
Primary Credit Analyst: Barbara Carreon, Mexico City (52)
55-5081-4483; email@example.com Secondary
Contact: Claudia Sanchez, Mexico City (52) 55-5081-4418;