Fitch Affirms Prestaciones Finmart at 'B+' and 'BBB+(mex)'; Outlook Revised to Positive

MONTERREY, Mexico--(BUSINESS WIRE)--

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.

Rating Drivers

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.

Rating Sensitivities

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 business risk.

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.

Credit Profile

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. 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

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=696720

National Scale Ratings Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=720082

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732397

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=823147

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