Fitch Assigns 'BBB' IDR to Compartamos; Outlook Stable

Fitch Ratings has assigned 'BBB' and 'F2' long- and short-term Issuer Default Ratings (IDRs), respectively, to Banco Compartamos S.A. I.B.M. (Compartamos), both in foreign and local currency. Fitch has also assigned a Viability Rating (VR) of 'bbb' to Compartamos. The Rating Outlook on the long-term IDRs is Stable.

A Support Rating (SR) and Support Rating Floor (SRF) were also assigned at '5/NF'. A full list of rating actions follows at the end of this press release.

KEY RATING DRIVERS

VR, IDRs AND NATIONAL SCALE RATINGS

Compartamos VR and IDR's are driven by Compartamos' ability to manage risks related to its business model, while it sustains a consistent and highly profitable financial profile even compared to other microfinance institutions in Latin America. These ratings are constrained by the low diversification of its funding structure driven by its limited deposit base and the recent pressures in asset quality, although asset quality ratios are still adequate for the sector.

Compartamos National Scale ratings are explained by the same factors that drive its VR which result in a solid financial profile and prospects compared to other entities domiciled in Mexico.

The bank's solid performance, capital structure and asset quality have been resilient to different phases of the economic cycle, interest rate volatility, a more competitive environment, and times of constrained market liquidity. The bank's ample loss absorption capacity and its ability to balance sustained growth with well-managed long-term risks, allow Compartamos to contain the relative higher vulnerability of the target segment (population segments from low to very low income), resulting in a dominant franchise in the microfinance sector in Mexico.

Compartamos' profitability (ROA and ROE at 13.3% and 36.1% respectively as of March 2014), is above its peer average, supported by its steady growth, ample interest margins, and reasonable funding and operational cost management. However, profitability could remain under downward pressure given the portfolio gradual shift to non-group products with higher delinquency ratios; the prevailing market conditions regarding to higher indebtedness levels among the customers and increased competition, and also because of the recent technological investments. Fitch does not expect these factors to substantially deteriorate the bank's solid earnings.

Asset quality ratios stands well compared to other microfinance and consumer loans lenders in Mexico, although the expansion on the individual loans portfolio may bring controlled pressures over its asset quality in the short and medium term. The bank's adjusted impairment ratio of 10.4% (90+ days impairments plus written-off loans over the latest 12 months) compares positively to its national peers (microfinance) and most banks focused on retail lending.

Despite its mostly non-deposit funding structure, Compartamos liquidity profile is benefited by the short-term nature of its credit portfolio, the bank's continuous access to wholesale long-term stable funding, and the gradual migration from a monoline business (group lending) to a more diversified product base (individual loans now accounting for 25% of the total portfolio).

Capital metrics are robust for its rating category, based on a solid, mostly Tier 1, capital base and strong internal capital generation. Rapid growth in the past years resulted in a reduction of its exceptionally high capital ratios, but these remain at sound levels. Given its niche orientation and high reliance on wholesale funding, capitalization needs to be strong. The bank's management targets a regulatory capital ratio around 30%. Fitch Core Capital (FCC) to risk-weighted ratio was 29.6% as of March 2014.

Compartamos has been largely funded in the debt market (79% of its total interest bearing liabilities); however, the concentration risk is partially mitigated by the long-term nature of the issuances and its highly revolving loan portfolio.

SR AND SRF

The bank's SR and SRF are driven by its low systemic importance when measured by its market share of core customer deposits. Fitch considers that sovereign support for the bank in case of need, although possible, cannot be relied upon.

RATING SENSITIVITIES

VR, IDRs AND NATIONAL SCALE RATINGS

Given its current relatively high level, future upgrades on its VR and IDR's may be contingent to significant enhancement of Compartamos funding base with lower reliance on capital market funding, while maintaining its solid financial performance, asset quality and capital strength.

These ratings could be downgraded if impairment charges exceed 30% of pre-impairment profits, operational expenses exceed 75% of operational income or capital metrics weaken materially (FCC below 25%). Although not a baseline scenario, sustained volatility or reduced funding access could also pressure ratings.

The aforementioned factors may affect also Compartamos National Scale Ratings considering its relativities with other Mexican rated entities.

SR AND SRF

Upside potential for the SR and SRF is virtually non-existent in the foreseeable future, and can only occur in the long-term with a material gain of the bank's market share in terms of the system's core customer deposits.

Fitch has assigned the following ratings to Compartamos:

--Long-term foreign and local currency IDRs 'BBB';

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

--Viability Rating 'bbb';

--Support Rating '5';

--Support Rating Floor 'NF'.

Fitch has affirmed Compartamos' existing ratings as follows:

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

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

--National-scale long-term rating for local issues of senior unsecured debt at 'AA+(mex)'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Global Financial Institutions Rating Criteria' (January 2014);

--'National Scale Ratings Criteria' (October 2013).

Applicable Criteria and Related Research:

Global Financial Institutions Rating Criteria

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

National Scale Ratings Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=720082

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=841977

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