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Fitch Downgrades Monex

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This article appeared in fitchratings.com. The entire article can be read here.

Fitch Downgrades Monex

Fitch Takes Actions on 13 Mexican Banks Due to Operating Environment Deterioration

Fitch Ratings – Monterrey – 21 Apr 2020: Fitch Ratings has conducted a portfolio review of Mexican Banks with international scale ratings following the downgrade of the country’s sovereign rating to ‘BBB-‘ from ‘BBB’ and after the adjustment of Fitch’s assessment of the operating environment faced by Mexican banks to ‘bb+’ with a negative outlook, from ‘bbb’. For additional details on the sovereign rating action see “Fitch downgrades Mexico to ‘BBB-‘; Outlook Stable” at www.fitchratings.com.

While the ultimate economic and financial market implications of the coronavirus pandemic are unclear, Fitch considers the already deteriorated and challenging operating environment to be clearly skewed to the downside, which has driven the agency’s adjustment on the operating environment mid-point score to ‘bb+’ from ‘bbb’ with a negative outlook. Fitch’s assessment of the operating environment has a direct influence on bank ratings, and for many banks this is a high influence rating factor. Fitch expects deteriorating operating conditions from the coronavirus to pressure asset quality and weigh on earnings due to lower loan growth, decreasing interest rates and higher credit costs over the medium term.

Fitch believes sector-wide deferment payment measures of up to six months announced by the local regulator to most individual and SMEs loans facing difficulties as a result of the crisis could relieve some asset quality and loan loss reserves pressures in the near term; however, liquidity risks from reduced cash flows, as well as longer term effects on the asset quality and losses recognition remain a risk for Mexican banks. Fitch believes relatively limited fiscal actions from government to prevent SMEs and commercial borrowers’ losses under current stress will likely pose structural asset quality challenges for banks over the medium term.

The third group includes six medium sized and specialized banks whose IDRs are driven by its stand-alone credit profiles as reflected in their VRs. Negative rating actions on five of these entities that are detailed below reflect these banks downside risks to their credit profiles resulting from the economic and financial market implication of the coronavirus due to their less strong company profiles characterized by growing but smaller franchises than leaders in the country and more concentrated business models with relevant exposures to SMEs or in some cases to consumer sectors not traditionally served by larger banks. This group includes Banco Compartamos S.A. (Compartamos), Banca Mifel S.A. (Mifel), Banco del Bajio S.A. (BanBajio), Banco Ve por Mas S.A. (Ve por Mas), Banco Monex S.A. (Monex) and Consubanco S.A. (Consubanco).

 

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