21 Mexican Financial Institutions Downgraded On Same Action On Sovereign And Increasing Economic Risks For The Sector

  • On March 26, 2020, we lowered our long-term foreign currency and local currency ratings on Mexico to 'BBB' (from 'BBB+') and 'BBB+' (from 'A-'), respectively.
  • The downgrade occurred because we expect a pronounced hit to the economy following the combined shocks of COVID-19--in Mexico itself and in the U.S.--and lower global oil prices. These shocks, while temporary, will worsen the already weak trend in GDP growth for 2020-2022.
  • The outlook on the sovereign credit ratings is negative, indicating the possibility of a downgrade over the coming 12-24 months due to uneven or ineffective policy execution, potentially weakening public finances, or higher off-budget contingent liabilities.
  • Therefore, because of Mexico's weakening economic resilience, we've revised our economic risk score for Mexico's banking sector to '6' from '5', reflecting these developments. We now view the trend as stable at the current economic risk level.
  • Consequently, we're revising our Banking Industry Country Risk Assessment (BICRA) on Mexico to group '5' from '4', and maintaining our industry risk score at '3' with a stable trend. We are also lowering the anchor for banks operating only in Mexico to 'bbb-' from 'bbb'.
  • As a result, we took various rating actions on 22 Mexican financial institutions following the sovereign rating action and our assessment of higher economic risk in the banking system.
MEXICO CITY (S&P Global Ratings) March 27, 2020--S&P Global Ratings took rating actions on 22 Mexican financial institutions following the sovereign downgrade and after revising Mexico's BICRA Group to '5' from '4' and increasing its economic risk to '6' from '5' that resulted in a lower anchor for banks operating in Mexico (to 'bbb-' from 'bbb'). We now view the current economic risk trend as stable at its current level. Our industry risk assessment and its trend remain unchanged (at '3' and stable, respectively).

Our rating actions reflect various aspects about how the sovereign ratings and our BICRA affect our view of financial institutions we rate that operate in Mexico. Furthermore, the rating actions reflect the relative strengths or weaknesses of each financial institution's stand-alone credit profile (SACP). Ultimately, most of our rating actions reflect our view that the ratings on financial institutions are constrained by those on the sovereign, because of the large exposure of these institutions to country risk and the highly sensitive nature of their businesses to sovereign stress.
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