Fitch Affirms BBVA Bancomer's IDRs at 'A-'; Outlook Revised to Stable

Fitch Ratings has affirmed the ratings for BBVA Bancomer including its Viability rating (VR) at 'a-' and its Long- and Short-term foreign- and local-currency Issuer Default Ratings (IDRs) at 'A-/F1'. Fitch has revised the bank's Rating Outlook to Stable from Positive.

Fitch has also affirmed the long- and short-term national scale ratings of BBVA Bancomer and the following affiliates at 'AAA(mex)/'F1+(mex)':

--Casa de Bolsa BBVA Bancomer, S.A de C.V.,Grupo Financiero BBVA Bancomer (CBBB)
--Facileasing, S.A. de C.V. (Facileasing)

A full list of rating actions follows at the end of this press release.

The revision of the bank's Outlook to Stable reflects that despite BBVA Bancomer's relatively adequate loss absorption capacity in terms of capital and reserves for impaired loans, the trend of these metrics has not been as strong as Fitch expected, and therefore it is difficult to envision that the bank's VR could be two notches above the sovereign rating. A loan to deposit ratio slightly worse than Fitch's expectations and relatively weaker than those shown by its closest peers is also a driver of the Outlook revision.

The bank's VR and Long-term IDRs are one notch above Mexico's sovereign rating.

KEY RATING DRIVERS

VR, IDRS, NATIONAL RATINGS AND SENIOR DEBT
BBVA Bancomer's IDRs and National Ratings are driven by its standalone profile as reflected by its VR. The bank's VR and IDRs do not factor in any extraordinary support from its parent, despite being considered by Fitch as a core subsidiary of its holding company, Spain's Banco Bilbao Vizcaya Argentaria (BBVA, rated 'A-'/Stable Outlook).

The affirmation of BBVA Bancomer's VR is driven by the consistency of its overall sound profitability metrics, as a result of its strong recurring and diversified revenue and growing lending activities. Its operating profitability, measured as Operating Profit to risk-weighted assets (RWAs) stood close to 3% in recent years (2012 - 2015 average: 2.8%) and increased further as of March 2016 (3.8%). The bank's operating efficiency ratio (cost-to-income) is also strong and consistently below 45%; these levels compare favorably with other systemically important banks in Mexico and Latin America.

The ratings also factor in BBVA Bancomer's leading and diversified franchise with a stable local market share above 20% of total assets, customer deposits and loan portfolio, widely beyond its closest competitor. The bank's ample customer deposit base is also one of the pillars of its franchise as it has a large portion of demand deposits (78% at 1Q16) that have proven stable and aided in maintaining low funding costs.

In Fitch's opinion, one of the main constrains of BBVA Bancomer's is its capital position. Even though the entity is able to generate good recurring earnings, its internal capital generation is constrained by the relatively high dividend pay-out ratio, which was on average 73% between 2011 and 2014. Fitch does not expect a significant change in this ratio. BBVA Bancomer's Fitch core capital (FCC) ratio stood at 10.9% in the first quarter of 2016 (1Q16) and at 11.24% as of December 2015.

BBVA Bancomer's asset quality metrics are stable; its non-performing loan (NPL) ratio has remained below 3% since 2014, with further improvement at YE15 and 1Q16. Fitch considers these are adequate levels, considering the high proportion of retail lending and the relatively low reliance on charge-offs. A more stringent asset quality measure is considered also by Fitch, the adjusted impairment ratio that sums up impaired loans plus the last 12-month charge-offs. Compared to the largest seven banks of the banking system (G7), BBVA Bancomer's adjusted ratios compare favorably. Rather than being a constraint for its ratings, the agency views the improved asset quality metrics as strength for BBVA Bancomer.

SUPPORT RATING

Fitch affirmed BBVA Bancomer's Support Rating at '2' reflecting the view that there is high probability of support to BBVA Bancomer from BBVA if needed given the core role of the Mexican subsidiary for its parent.

SUBORDINATED AND SENIOR DEBT
The bank's global junior subordinated debt is rated four notches below the anchor rating, BBVA Bancomer's VR, while the foreign subordinated debt is rated three notches below its VR. The ratings are driven by Fitch's approach of factoring in the loss severity in view of the respective degrees of subordination (-1 for the plain subordinated notes and -2 for the junior subordinated notes), plus the effect of non-performance risk (-2 notches for both types of securities).

Fitch rates the local debt issued by BBVA Bancomer and Facileasing, at their respective corporate rating level, as the debt is senior unsecured.

CBBB NATIONAL RATINGS (SUBSIDIARY)
The ratings of CBBB reflect the legal obligation of GFBB to support its subsidiaries, as well as Fitch's view that this entity remains core for the group's strategy and overall business profile. The credit profile of GFBB is associated with that of its main subsidiary, BBVA Bancomer.

FACILEASING'S NATIONAL RATINGS (SUBSIDIARY)
The ratings of Facileasing factor in that in Fitch's view this entity is core affiliate for GFBB, although its ultimate parent is Spain's BBVA. Fitch considers Facileasing is an integral part of its local franchise, which explains that its ratings are aligned to GFBB's operating subsidiaries and reflect the propensity of support from GFBB if needed.

RATING SENSITIVITIES

VRs, IDRS AND NATIONAL RATINGS
The bank's ratings have limited upside potential over the foreseeable future, given that these are already one notch above the sovereign ratings. Upside potential will only come from an improved operating environment and a significantly enhanced financial profile in terms of capitalization and funding. The ratings could be downgraded upon a sustained deterioration of the bank's stable profitability, asset quality, and capitalization metrics, as a FCC ratio deteriorating to levels consistently below 10%. However, Fitch believes this is unlikely at present given the bank's stable and resilient recurring earnings. In addition, a downgrade of the sovereign's rating could also affect BBVA Bancomer's ratings in the same direction.

The national-scale ratings could only be affected in the event of a multi-notch downgrade of BBVA Bancomer's VR, which is also an unlikely scenario at present.

SUPPORT RATING
BBVA Bancomer's Support Rating could be affected if Fitch changes its view of BBVA's ability or willingness to support the Mexican bank, which is an unlikely scenario.

SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
The bank's subordinated debt ratings will likely mirror any change in its VR, as these issue ratings are expected to maintain the same relativity to BBVA Bancomer's intrinsic profile. Senior debt ratings would mirror any changes in the bank's IDRs or national-scale ratings.

CBBB's NATIONAL RATINGS
A downgrade of CBBB will be driven by any potential changes in BBVA Bancomer's ratings or in the legal framework that could alter the propensity of GFBB to support them (an unlikely scenario at present) and/or by a change in each entity's strategic importance to the group.

FACILEASING'S NATIONAL RATINGS
A potential downgrade of Facileasing's ratings will be driven by a change on Fitch's view about the strategic importance of this entity to the group.

Fitch affirms the following ratings:

BBVA Bancomer, S.A.
--Long-term foreign and local currency IDRs at 'A-'; Outlook Revised to Stable from Positive;
--Short-term foreign and local currency IDRs at 'F1';
--Viability rating at 'a-';
--Support rating at '2';
--National-scale long-term rating at 'AAA(mex)'; Outlook Stable;
--National-scale short-term rating at 'F1+(mex)';
--Long-term 'plain vanilla' subordinated notes at 'BBB-';
--Long-term junior subordinated notes at 'BB+';
--Long-term senior unsecured global notes at 'A-';
--Long-term Tier 2 subordinated capital notes at 'BBB-';
--National-scale long-term rating for local senior unsecured debt issues at 'AAA(mex)';
--National-scale long-term rating for local issues of market linked securities at 'AAAemr(mex)'.

Casa de Bolsa BBVA Bancomer, S.A. de C.V.
--National-scale long-term rating at 'AAA(mex)'; Outlook Stable;
--National-scale short-term rating at 'F1+(mex)'.

Facileasing, S.A. de C.V.
--National-scale long-term rating at 'AAA(mex)'; Outlook Stable;
--National-scale short-term rating affirmed at 'F1+(mex)';
--National-scale long-term rating for local senior unsecured debt issues at 'AAA(mex)';
--National-scale short-term rating for local senior unsecured debt issues at 'F1+(mex)'.

Additional information is available on www.fitchratings.com.

Adjustment to Financial Statements: Pre-paid expenses were re-classified as intangibles and deducted from Fitch Core Capital. Certain subordinated notes (those with more than 5 year outstanding maturity, were classified as mezzanine debt and were assigned 50% equity credit.

Applicable Criteria
Global Bank Rating Criteria (pub. 20 Mar 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=863501
Global Non-Bank Financial Institutions Rating Criteria (pub. 28 Apr 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=865351
National Scale Ratings Criteria (pub. 30 Oct 2013)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=720082

Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1004873
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1004873
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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