Fitch Ratings has affirmed the Long- and Short-Term Foreign and Local-Currency Issuer Default Ratings (IDRs) at 'BBB+'/'F2', respectively of Banco Santander Mexico S.A. Institucion de Banca Multiple (SAN Mexico).

The Rating Outlook was revised to Stable from Negative in line with the Outlook of its ultimate parent, Banco Santander S.A. (Santander; A-/Stable).

This action follows Fitch's June 07, 2021 review of Santander's Outlook to Stable from Negative, reflecting Fitch's view that Santander's ratings have sufficient headroom to withstand several downside scenarios to the agency's baseline forecast. The revision of SAN Mexico's Outlook reflects that its IDRs will mirror any movements of those of Santander since the former is driven by potential support from the latter. For more information, please refer to Fitch's press release 'Fitch Revises Santander's Outlook to Stable; Affirms IDR at 'A-''. The Viability Rating (VR) of 'bbb-' was unaffected by the parent rating action.

KEY RATING DRIVERS

IDR and Senior Debt

The strong ability and propensity of SAN Mexico's ultimate parent, Santander, to support SAN Mexico drives its IDR and debt ratings. SAN Mexico's IDRs are rated one notch below its ultimate parent, Santander, reflecting SAN Mexico's important role within Santander's strategy of increasing its presence in growth markets taking advantage of the strong franchise of SAN Mexico in the country. SAN Mexico is the third-largest bank in terms of gross loans with a market share of 13.4% as of April 2021. Fitch's assessment of the ability of support considers Santander's global scale rating of 'A-' with a Stable Outlook and the bank's modest size relative to the parent's ability to provide support that would be manageable.

SAN Mexico's senior unsecured debt ratings are aligned with the bank's IDR, as the likelihood of default is the same as the bank's ratings.

Hybrid Securities

SAN Mexico's hybrid security ratings are capped by the level at which similar securities issued by its ultimate parent are rated due to Fitch's consideration that parental support neutralizes the non-performance risk.

SAN Mexico's Tier 2: The bank's Tier 2 notes' rating of 'BBB-' are a two-notch difference from the support-driven IDR to account for loss-severity risk. The notching for loss severity reflects that these are 'subordinated preferred'.

SAN Mexico's AT1: SAN Mexico's Tier 1 (AT1) securities of 'BB+' are rated three notches from its support-driven IDR. According to Fitch criteria, the baseline notching for these instruments is four notches, but non-performance risk is neutralized due to parent support. However, the rating is capped by the level at which similar securities issued by the parent would be rated: a two-notch adjustment for loss severity and a two-notch adjustment for nonperformance; implying that the cap is 'BB+', given the parent's anchor VR of 'a-'.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to positive rating action/upgrade:

IDR

SAN Mexico's IDR would be upgraded in the event of an upgrade of the parent's IDR, subject to country ceiling constraints, given that the entity is considered strategically important to Santander.

Senior Debt

An upgrade of the bank's global senior debt ratings would mirror any positive action on SAN Mexico's IDR.

Subordinated Debt

The bank's hybrid securities ratings could change in the event of an upgrade on the bank's support driven IDR.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

IDR

Any change of Fitch's perception of the strategic importance of SAN Mexico to its parent may trigger a review of its IDRs;

The ratings are also sensitive to a downgrade of Mexico's sovereign ratings and country ceiling.

Senior Debt

A downgrade of the bank's global senior debt ratings would mirror any negative action on SAN Mexico's IDR.

Subordinated Debt

The bank's hybrid securities ratings could change in the event of a downgrade on the bank's support driven IDR.

For further specific sensitivities for SAN Mexico, please refer to its press releases and/or rating reports at www.fitchratings.com.

BEST/WORST CASE RATING SCENARIO

International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579

SUMMARY OF FINANCIAL ADJUSTMENTS

Prepaid expenses and other deferred assets were classified as intangibles and deducted from Fitch Core Capital or tangible equity to reflect its low absorption capacity. In the case of SAN Mexico, Fitch has made adjustments to the risk-weighted assets (RWAs) following its criteria, and Fitch consolidated the bank's RWAs with those of its subsidiaries with credit operations.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

RATING ACTIONSENTITY/DEBT	RATING		PRIOR
Banco Santander Mexico, S. A., Institucion de Banca Multiple, Grupo Financiero Santander Mexico	LT IDR	BBB+ 	Affirmed		BBB+
	ST IDR	F2 	Affirmed		F2
	LC LT IDR	BBB+ 	Affirmed		BBB+
	LC ST IDR	F2 	Affirmed		F2

senior unsecured

LT	BBB+ 	Affirmed		BBB+

subordinated

LT	BB+ 	Affirmed		BB+

subordinated

LT	BBB- 	Affirmed		BBB-

VIEW ADDITIONAL RATING DETAILS

Additional information is available on www.fitchratings.com

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