OREANDA-NEWS. Fitch Ratings has assigned an expected long-term rating of 'BBB(EXP)' to Banco Nacional de Comercio Exterior, S. N.C.'s (Bancomext) proposed subordinated notes. The expected rating is one notch below Bancomext's 'BBB+' Long-Term Foreign Currency Issuer Default Rating (IDR). The final rating is contingent upon the receipt of final documents conforming to the information already received.

The proposed USD700 million subordinated notes will be subordinated Tier 2 and will have a maturity of 10 years (due 2026) and can be called by Bancomext at the date of the fifth anniversary of the notes, subject to the prior approval of the Central Bank of Mexico. The notes constitute subordinated preferred (under local terminology) indebtedness and will be subordinated and junior in right of payment and in liquidation to all of Bancomext's present and future senior indebtedness. They will rank pari passu without preference among themselves and with all of Bancomext's present and future other unsecured subordinated preferred indebtedness. The notes will be senior to subordinated non-preferred indebtedness and all classes of Bancomext's common equity Tier 1 (CET1) and additional Tier 1 (AT1) capital.

KEY RATING DRIVERS

The expected rating of the subordinated notes is one notch below Bancomext's Long-Term Foreign Currency IDR. The notching for loss severity (-1) considers the below-average recoveries in a scenario of liquidation despite that the proposed securities are plain-vanilla subordinated debt. Fitch has applied one notch, rather than two, for loss severity, as the proposed notes' characteristics are similar to those of the legacy Basel II plain-vanilla instruments and given that their loss absorption features are not as strong as the Basel III fully-compliant notes.

Fitch believes the risk of non-performance on the bonds is adequately reflected in the anchor rating (IDR) with no additional incremental notching required as Bancomext is a fully government-owned bank that plays a highly strategic role for the federal government and its transactions are fully guarantee by the government. The bank would likely receive government support before the loss absorption features of the notes are triggered. This also explains why the anchor rating for the notes' rating is Bancomext's IDR, according to Fitch's criteria.

Bancomext's IDRs and Rating Outlook are aligned with Mexico's sovereign ratings. The ability for support from the sovereign is reflected in the investment grade rating of 'BBB+' of Mexico while the propensity of support relies on Bancomext's explicit guarantee stated in its Organic Law (Article 10). It states that the Mexican government is responsible for the transactions negotiated by Bancomext, at all times, with Mexican individuals and companies, and foreign institutions.

The propensity of support also considers Bancomext's strategic role and high relevance in the Mexican federal government's execution of its economic objectives, specifically in financing Mexican foreign trade activities and developing such sector. The bank's main objective is to finance Export-Import (Ex-Im) activities of the public and private sectors, with a greater emphasis on small and medium enterprises (SMEs). Bancomext provides direct (first floor) and indirect (second floor) financing, guarantees schemes and technical assistance to export companies to expand its production capacity.

RATING SENSITIVITIES

Bancomext's IDRs and issue ratings would be affected by potential changes in the sovereign ratings. As long as the propensity of support is explained by an explicit guarantee, under most circumstances, Fitch considers that these securities will likely remain rated one notch below Bancomext's Foreign Currency Long-Term IDR. Therefore, the rating of these securities will typically move in line with any potential changes of Bancomext's ratings.

Fitch currently rates Bancomext as follows:

--Long-Term Foreign Currency IDR 'BBB+';

--Long-Term Local Currency IDR 'BBB+';

--Short-Term Foreign Currency IDR 'F2';

--Short-Term Local Currency IDR 'F2'

--Support Rating '2';

--Support Rating Floor 'BBB+';

--National Scale Long-Term Rating 'AAA(mex)';

--National Scale Short-Term Rating 'F1+(mex)';

--Local senior unsecured debt issues 'AAA(mex)'.

The Rating Outlook is Stable