Fitch Ratings has affirmed Banco Monex, S.A., Institucion de Banca Multiple, Grupo Financiero Monex's (Banco Monex) Long- and Short-Term Foreign and Local Currency Issuer Default Ratings (IDR) at 'BB+' and 'B', respectively, its Viability Rating (VR) at 'bb+', and its Government Support Rating (GSR) at 'no support' (ns).
The Rating Outlooks for the LT IDRs are Stable.
At the same time, Fitch has revised the Rating Outlook for the Long-Term National Ratings to Positive from Stable of Banco Monex, Monex Casa de Bolsa, S.A. de C.V., Grupo Financiero Monex (Monex CB) and Monex, S.A.P.I. de C.V. (Monex) and affirmed the Long- and Short-Term National Scale ratings at 'AA-(mex)'/'F1+(mex)'.
The Positive Outlook on Banco Monex's LT National Rating reflects Fitch's view of the strengthening of the bank's creditworthiness relative to other issuers in Mexico, as it has sustained above average profitability relative to local peers, which has supported good capital metrics that help to offset the bank's concentrated business model risks. The Rating Outlooks on the long-term ratings of Banco Monex's affiliates have also been revised to Positive from Stable, in line with Banco Monex.
Key Rating Drivers
Banco Monex's VR, IDRs and National Ratings
Consolidated Business Model: Banco Monex's IDRs and National ratings are driven by its intrinsic creditworthiness as determined by its VR of 'bb+', which is one notch above its implied VR of 'bb' due to the bank's strong local market position in FX wholesale trading. The VR reflects the bank's good credit profile underpinned by a consolidated business model and consistent earnings aided by its leadership in FX trading and traditional credit risk exposure that is lower than its peers. Banco Monex's total operating income was USD345 million for the average of 2022-2019, well above other FX banks and some mid-sized banks in the country.
FX Market Leadership: Banco Monex is specialized in FX wholesale trading on behalf of customers in the spot and futures market. However, the bank's market position for deposits and gross loans is moderate. Banco Monex has been consistently a market leader in net gains on FX forward and spot trading across the cycle. As of June 2023 (2Q23), it was the third largest bank in the Mexican FX segment, with a market share of 9.6% according to local regulator information.
Adequate Asset Quality: Banco Monex's asset quality assessment considers its controlled NPL ratio consistently below 2%, ample loan loss allowances to cushion expected credit losses and reductions in borrower concentrations. Fitch also considers the bank's high proportion of liquid assets with good credit quality. As of 2Q23, cash & equivalents and investment securities portfolio comprised 74% of total assets. Fitch believes the bank will maintain adequate asset quality over the medium term. As of 2Q23, the stage 3 loans to gross loans ratio was 1.6%, the same as its four-year average, while loan loss allowances covered 2.2x stage 3 loans at the same date. The 20 largest borrowers represented 0.9x of the bank's common equity tier 1 (CET1), which is the lowest level reported during the last four years.
Above-Average Profitability: Banco Monex maintains high earnings and profitability metrics better than previous years, which in Fitch's opinion will remain above historical levels and reflect the positive trend in the factor. As of 2Q23, operating profit to risk-weighted-assets (RWA) ratio was 6%, the highest since 2019 and similar to YE 2022 metric of 5.8%. The profitability is underpinned by high operating FX volumes, controlled loan impairment charges, lower non-interest expenses, as well as, the benign operating environment for Mexican banks that has allowed to take advantage of the high interest rates. Net gains on trading grew 64.3% in 2022, and by 2Q23 these already represented 74.7% of those generated at a record level in 2022, which also explains the high profitability of the bank.
Strengthened Capital: Banco Monex's capital base and metrics have consistently strengthened since 2021 due to stable earnings generation that has been mostly reinvested over the same time frame. The CET1 to RWAs ratio was 18.7% as of 2Q23, which is the bank's second-best metric registered since 2019 (YE 2022: 19.1%). Fitch revised the trend on its capital and leverage assessment to positive as the current metric is at the upper limit of the 'bb' score range, providing the bank an ample buffer to absorb losses. Fitch also expects capital metrics to remain at levels above 18% due to the bank's strong earnings and profitability profile despite future potential capital distributions via dividend payments.
Comfortable Funding and Liquidity: Banco Monex's funding structure is mainly comprised of wholesale funding (2Q23: 57%) due to an asset mix heavily weighted on investment securities that are mostly funded through repos and securities lending. Fitch believes this funding mix will remain for the foreseeable future given Banco Monex's business model but traditional funding sources related to credit activities are well diversified and totally covered through customer deposits. As of 2Q23, gross loans to customer deposits ratio was 51.5%, the best level since 2019. Liquidity is a credit strength for the bank as reflected in its liquidity coverage and net stable funding ratios that were consistently above minimum regulatory thresholds, while liquid assets fully covered customer deposits and short-term funding as of 2Q23.
Monex's National Ratings
Equalized Ratings: Monex's ratings are equalized with those of its main operating subsidiary, Banco Monex, mainly due to a double leverage ratio consistently below 120% As of 2Q23, the ratio was 108.2%, which was the lowest level recorded since 2015 (2022-2019 average: 110.8%). Fitch expects Monex's double leverage ratio to remain below 120% for the foreseeable future due to the consistent and growing earnings generation of its main operating subsidiaries. Additionally, the entities operate in the same market and the holding company has majority ownership of its main bank subsidiary.
Operating Subsidiaries Provide Liquidity: The ratings also consider the consistent liquidity that operating subsidiaries provide to Monex to service its debt as proven with its only senior unsecured debt issuance, which was pre-funded in August 2023. Fitch views Monex's liquidity and refinancing risk as very low as the entity does not have interest-bearing liabilities.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
Banco Monex - VR, IDR and National Ratings
A sustained deterioration of the bank's operating profit to RWA ratio consistently below 2.5% and a CET1 to RWA ratio consistently below 14%, in conjunction with a weakened business profile as reflected by a reduced market position in the FX trading market;
A negative rating action on the sovereign or a weaker OE would result in a similar action on Banco Monex's IDRs and VR given its less diversified business profile.
Monex
The national ratings would remain at the same level as Banco Monex and would move in tandem with any rating actions on its main operating subsidiary. However, a significant and sustained increase of Monex's double leverage ratio above 120% would lead to a differentiation of one notch with respect to the National Scale ratings of Banco Monex.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
Banco Monex - VR, IDR and National Ratings
The Positive Outlook on Banco Monex's national ratings could materialize in a ratings upgrade if the bank maintains its CET1 to RWAs ratio and operating profit to RWA ratio consistently above 18% and 4%, respectively, while the asset quality and funding and liquidity profiles remain stable.
An upgrade of Banco Monex's international ratings is unlikely in the foreseeable future as these are already at a relatively high level for its moderate business model and scale. Over the medium term, an upgrade would depend on greater business and risk diversification, as well as a marked improvement of its gross loan and customer deposit market shares within the Mexican financial system.
Monex
Any positive movement in Banco Monex's national ratings.
Banco Monex's GSR
Banco Monex's GSR is 'ns' as there is no reasonable assumption that such support will be available since is not considered a domestic systemically important bank (D-SIB). As of 2Q23, Banco Monex deposits represented 0.8% of the Mexican banking system's deposits.
There is no downside potential for the GSR; however, upside potential is limited and can only occur over time with a material growth of the bank's systemic importance.
SUBSIDIARIES & AFFILIATES: KEY RATING DRIVERS
Monex CB
Legal Obligation to Support Subsidiary: Monex CB's national ratings and Outlook are aligned with those of Banco Monex due to Monex Grupo Financiero, S.A. de C.V.'s legal obligation to provide support to its subsidiaries, as well as Fitch's perception of Monex CB's key and integral part to the group's overall vision and strategy.
SUBSIDIARIES AND AFFILIATES: RATING SENSITIVITIES
Monex CB's national ratings would mirror any changes in Banco Monex's national ratings. Additionally, a change in Fitch's perception of the entity's lower strategic importance for the bank and the controlling group could lead to a negative rating action/downgrade.
VR ADJUSTMENTS
The VR of 'bb+' has been assigned above the implied VR of 'bb' due to the following adjustment reason: Business Profile (positive).
Summary of Financial Adjustments
Banco Monex and Monex CB: Fitch classified pre-paid expenses and other deferred assets as intangibles and deducted them from total equity due to their low loss absorption capacity under stress.
Monex: Fitch classified pre-paid expenses, other deferred assets and goodwill as intangibles and deducted them from total equity due to their low absorption capacity under stress. Fitch re-classified the net operating leases classified as fixed assets as other earning assets.
Sources of Information
The principal sources of information used in the analysis are described in the Applicable Criteria.
Financial figures are in accordance to the Comision Nacional Bancaria y de Valores criteria. Figures for 2023 and 2022 include recent accounting changes in the process to converge to International Financial Reporting Standards. Prior years did not include these changes and Fitch believes they are not directly comparable.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
Monex CB: Monex CB's ratings and Outlook are aligned with those of Banco Monex due to Monex GF's legal obligation to provide support to its subsidiaries.
Monex: Monex's national ratings are aligned with those of its main operating subsidiary, Banco Monex.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
MONEX GROUP, INC. 
