Fitch Affirms Prestaciones Finmart at 'B+' and 'BBB+(mex)'; Outlook Revised
MONTERREY, Mexico -- March 10, 2014
Fitch Ratings has affirmed the international and national-scale ratings of
Mexican lender Prestaciones Finmart, S.A.P.I. de C.V., SOFOM, E.N.R.
(Finmart). The long-term Rating Outlook has been revised to Positive from
Stable. In addition, Fitch has affirmed Finmart's 8.5% bonds due 2015 at
'B+/RR4'. A full list of rating actions follows at the end of this release.
The Outlook revision to Positive is driven by the sustained improvements in
Finmart's profitability, capital adequacy, funding profile, risk
concentrations, and franchise, while maintaining sound asset quality metrics
and a steadily growing business volume. Finmart's ratings could be upgraded
over the next 24 months if these improvements are sustained, while further
strengthening its competitive position and containing business risks.
Finmart's ratings factor in its favorable business model in terms of credit
risk, since loans are granted to stable public sector employees with direct
debit to their payrolls. However, the ratings also consider the relatively
high operational, political, and reputational risks associated with this
sector, as well as the exposure to fierce competition, and the potential for
rapidly changing market dynamics.
Finmart's ratings also reflect its growing franchise and overall competitive
position; sound operating and risk management practices; and improving
performance and capital adequacy metrics. Over the past two years, Finmart has
materially improved the terms and flexibility of its funding base, which has
underpinned a sustained reduction of average funding costs and a material
improvement in its core and recurring profitability metrics.
The 'B+/RR4' rating on the notes reflects Fitch's opinion that Finmart has
enough available earning assets to ensure an average recovery for bondholders
in the case of liquidation. This underpins the Recovery Rating of 'RR4' and
the alignment of the notes' rating with Finmart's long-term IDR.
Finmart's ratings could be upgraded if the flexibility of funding is further
improved, with more diversified sources, an increasing portion of more stable
financing channels, and a continued shift in the funding mix toward unsecured
borrowing. In addition, rating upside could also arise from maintaining asset
quality under control, as well as the tangible equity to assets ratio and
operating ROA above 25% and 7%, respectively.
In turn, the Outlook on Finmart's ratings could be revised to Stable if the
recent improvements on earnings and capitalization are not sustained (falling
below the aforementioned levels), and/or if the company is not able to
materially improve further the flexibility of its funding mix. Downward rating
pressure could also arise from asset quality deterioration and/or heightened
The rating of the senior notes will likely remain aligned with Finmart's IDRs,
unless the portion of unpledged assets relative to the outstanding unsecured
liabilities decreases materially.
Finmart, established in 2003, grants personal loans secured by payroll
withholdings to unionized public sector employees in Mexico. These employees,
federal, state, and municipal governments, often have limited access to
financing products, given their relatively lower income and limited credit
track record. However, public sector unionized jobs are usually stable and
have low turnover ratios. Finmart offers medium-term loans that are repaid in
fixed installments. In 2012, EzCorp Inc. (NASDAQ: EZPW), a consumer finance
company based in Austin, Texas, acquired 60% of Finmart. Since the acquisition
of a majority stake by EZPW, the shareholders have contributed new capital
into Finmart for roughly USD35 million.
Fitch has affirmed the ratings for Prestaciones Finmart, S.A.P.I. de C.V.,
SOFOM E.N.R. as follows:
--Long-term foreign and local currency IDRs at 'B+';
--Short-term foreign and local currency IDRs at 'B';
--USD30million 8.5% bonds due 2015 at 'B+/RR4';
--National-scale long-term rating at 'BBB+(mex)';
--National-scale short-term rating at 'F2(mex)'.
The Rating Outlook for the long-term ratings (international- and
national-scale) has been revised to Positive from Stable.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria' (Jan. 31, 2014);
--'Finance and Leasing Companies Criteria' (Dec. 11, 2012);
--'National Scale Ratings Criteria' (Oct. 30, 2013).
Applicable Criteria and Related Research:
Finance and Leasing Companies Criteria
National Scale Ratings Criteria
Global Financial Institutions Rating Criteria
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Alejandro Garcia, CFA
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Fitch Mexico SA de CV
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