Banca Mifel S.A.

The negative outlook reflects our expectations that there's a one-in-three chance of a downgrade in the next 12 months. This could happen if higher-than-expected loan-loss reserves lower bottom-line results and doesn't offset the expected growth in RWAs. This would reduce a consolidated RAC ratio below 7%, diminishing the bank's loss-absorption capacities. We could revise the outlook to stable in the next 12 months if after the phaseout of Banca Mifel's relief programs, its asset quality remains within our expectations, avoiding the need to raise loan-loss reserves. This would enable internal capital generation to recover, allowing the bank to maintain a consolidated RAC ratio consistently above 7%. The anchor for banks operating primarily in Mexico is 'bbb-', reflecting our economic risk

...Deferred loans and significant lending growth pressure the RAC ratio. A high percentage of loans under moratorium could force Banca Mifel S.A. to increase its loan-loss reserves and hurt its bottom-line results for the year. Furthermore, we expect the bank's loan portfolio to grow about 17%--well above our expectations for the banking system of 5%. As a result, we forecast that Banca Mifel's RAC ratio will be about 7.1% for the next 24 months. Forbearance loans pose a risk to asset quality. At the peak of the pandemic, nearly 36% of total loans were deferred, compared with about 20% of the banking system. However, as of April 2021, the majority of the borrower-relief programs have been phased out, while about 20% of Banca Mifel's total loans are still under moratorium. As a result, the bank's asset quality could weaken, and consequently, reduce internal capital generation. Therefore, we will continue to monitor these exposures and their potential impact on Banca Mifel's asset quality and...

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