Moody’s might cut four Mexican banks

Moody's de México said it placed the long-term and short-term global local currency deposit and debt ratings of BBVA Bancomer, SA, Banco Mercantil del Norte, SA (Banorte) and Scotiabank Inverlat, SA (Scotiabank Mexico), and the long-term and short-term issuer ratings of the Instituto para la Proteccion al Ahorro Bancario (IPAB), on review for downgrade.

The review will entail a reassessment of the systemic support assumptions that Moody's incorporates into their ratings.

Currently, the ratings of these entities are positioned above the Mexican sovereign rating, reflecting a recognition of the extensive policy tools available to the central bank and other financial authorities to support domestic banks and the IPAB even in the event of a sovereign crisis, such as the provision of liquidity or regulatory forbearance.

However, based on insights gained form historical experiences, Moody's considers that when a crisis is prolonged, these measures remain insufficient to restore confidence to the system and an outright recapitalization of financial entities is necessary.

"As such, we expect that the outcome of the review will align these entities' supported ratings with the sovereign rating, as this rating better captures a government's fiscal limitations and, therefore, its ultimate capacity to provide support," Moody's analyst David Olivares said in a news release.

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