Fitch Ratings has affirmed Banco Monex, S.A., Institucion de Banca Multiple, Grupo Financiero Monex's (Banco Monex) Long- and Short-term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'BB+'/'B' and its Viability Rating (VR) at 'bb+'.

The Rating Outlook is Negative.

Fitch has also upgraded the Long- and Short-Term National Scale ratings of Monex, S.A.B. de C.V. (Monex SAB) to 'AA-(mex)'/'F1+(mex)' from 'A+(mex)'/'F1(mex)' and affirmed Banco Monex and Monex Casa de Bolsa, S.A. de C.V., Grupo Financiero Monex (Monex CB) at 'AA-(mex)'/'F1+(mex)'. The Rating Outlook is Negative.

Fitch upgraded the National Scale Ratings of Monex SAB as a result of its double leverage metric consistently below 120% in the last four years supported by a good internal capital generation. This has offset recent company acquisitions despite the challenging operating environment (OE). The Negative Outlook is aligned with the bank's Outlook, which still reflects the weakened OE.

Fitch also upgraded the senior unsecured debt issued by Monex SAB to 'AA-(mex)' from 'A+(mex)'.

Key Rating Drivers

BANCO MONEX

VR and IDRs: Banco Monex's IDRs are driven by its intrinsic creditworthiness, as reflected in its 'bb+' VR. The VR considers as a high importance factor the still challenging OE, which explains the Negative Outlook. The company profile, distinguished by its recognized franchise in the FX trading local market but still moderate when compared to the financial system, and its proven business model through the economic cycle accompanied by consistent earnings generation also highly influence the VR.

Banco Monex is a mid-sized Mexican commercial bank that is one of the leaders in FX spot and derivatives trading in Mexico's market on behalf of third-parties. As of June 30, 2021 (2Q21), Banco Monex was the third largest Mexican financial institution by FX spot trading earnings and was the fifth largest when also considering FX derivative earnings. Nonetheless, despite its FX market leadership, its market share as commercial bank is modest in a local (1.6% of the total assets of the Mexican system) and global basis.

Banco Monex's earnings and profitability profile has remained solid and stable despite the coronavirus crisis. As of 2Q21, operating profit to risk weighted assets (RWA) ratio was 3.2%, consistent with the last four year's average. Profitability ratios have been aided by the business model and revenue structure of the bank, which benefits from wider FX spread margins during periods of higher volatility and uncertainty and increased operating volumes. The 2020 operating profit to RWA ratio was 2.9%.

Banco Monex's asset quality is the weakest link of its financial profile by its relatively high concentrations by industry and single borrower. At 2Q21, the NPL ratio was 1.4%, the lowest metric since 2018, but that was aided by relevant charge-offs made during the last 12 months. The adjusted NPL ratio that includes write-offs published by the local regulator was 3.4% at the same date. The asset quality is pressured by concentrations per creditor since the 20 largest represented 1.2x of its CET1 or 37.3% of the gross loans; nevertheless, the loan loss allowances were ample and covered 273.6% of impaired loans, providing a good loss absorption capacity for possible additional portfolio impairments.

Banco Monex's capitalization ratios provide good loss absorption capacity. As of 2Q21, the CET1 capital ratio was 16.9%, the highest ratio since 2017. The ratio has strengthened by 215bp from its level at YE2020 by a reduction of its market and credit risk requirements given the lower volatility and reduction of its loan portfolio, as well as by the consistent generation and reinvestment of earnings.

Banco Monex's funding structure is reasonable and adequate for its business model. At 2Q21, loans to customer deposits ratio remained at similar levels to prior years (55.1%). The ratio is underpinned by a stable and diversified customer deposits base that comprised 94.7% of funding sources by excluding derivatives, reverse repos and securities borrowing. The liquidity profile is a strength of Banco Monex's financial profile given its highly liquid balance sheet. The liquidity position is reflected in its 177% liquidity coverage ratio that is well above the minimum regulatory as of 2Q21.

National Ratings: Banco Monex's national scale ratings are relative rankings of creditworthiness within a certain jurisdiction.

SR and SRF: Fitch affirmed the Support Rating (SR) and Support Rating Floor (SRF) at '5'/'NF' to reflect the bank's low systemic importance. However, possible, external support cannot be relied upon.

MONEX SAB

National Ratings: The ratings consider the long-track record and leadership of the Mexican operating subsidiaries in the FX trading local market as well as the consistent, stable and diversified earnings generation of its consolidated operations through the economic cycle. Despite Monex SAB is a pure holding company whose liquidity and interests and principal payment of its senior debt wholly depends on subsidiaries dividend payments; its liquidity and refinancing risk is well mitigated. The ratings upgrade considers the double leverage ratio that has remained below 120% in the last four years and that stood at 109.6% at 2Q21. In spite of a possible increase of the double leverage over the coming 18 months, Fitch does not expect a material increase above 120% in the short- to mid-term.

Senior Unsecured Debt Rating: Fitch upgraded the MONEX 21's rating at the same level as Monex SAB's Long-Term National Scale rating of 'AA-(mex)' as the notes' likelihood of default is the same as the issuer's.

MONEX CB

National Ratings: Monex CB's ratings and Outlook are aligned with those of Banco Monex due to Monex Grupo Financiero, S.A. de C.V.'s legal obligation to provide support to its subsidiaries, as well as Fitch's perception of Monex CB's core importance to the group's overall vision and strategy.

RATING SENSITIVITIES

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

Banco Monex VR, IDR and National Ratings:

If the CET1 capital ratio declines consistently below 13% or if asset quality problems result in higher credit costs that pressure the operating profit to RWA ratio to a level consistently below 3%;

If Fitch revises downward its assessment of the OE Banco Monex's IDRs and VR would maintain the same relativity to Mexico sovereign rating due its less diversified business profile.

Monex SAB:

The national ratings would remain at the same level as Banco Monex and would move in tandem with any rating actions on its main operating subsidiary. However, a significant and sustained increase of Monex SAB's double leverage ratio above 120% would lead to a differentiation of one notch with respect to the National Scale ratings of Banco Monex.

Monex CB:

The national ratings are aligned with those of Banco Monex, and a downgrade of the bank's ratings would result in a similar action on Monex CB's National Scale ratings.

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

Banco Monex VR, IDR and National Ratings:

The Negative Outlook could be revised back to Stable if the impact of the pandemic and uncertainties in the OE decrease while the entity continues to adequately manage its credit profile allowing for a relatively fast recovery.

An upgrade of Banco Monex's ratings is unlikely in the foreseeable future as they are already at a relatively high level for its moderate business model and scale. Over the mid-term, an upgrade would depend on greater business and risk diversification, as well as a marked improvement of its gross loan and customer deposit market shares within the Mexican financial system.

Monex SAB:

The national ratings are at the highest possible level under Fitch's criteria due to being aligned with Banco Monex.

The debt rating would mirror any changes to the issuer's national scale ratings.

Monex CB:

The national ratings are aligned with Banco Monex's and would mirror any changes in the bank's national ratings.

The SR and SRF are at their lowest possible level. Any upside potential for both is limited and can only occur over time with a material increase in the bank's systemic importance.

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

Banco Monex and Monex CB: Fitch classified pre-paid expenses and other deferred assets as intangibles and deducted them from total equity due to their low loss absorption capacity under stress.

Monex SAB: Fitch classified pre-paid expenses, other deferred assets and goodwill as intangibles and deducted them from total equity due to their low absorption capacity under stress. Fitch re-classified the net operating leases classified as fixed assets as other earning assets.

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.

Public Ratings with Credit Linkage to other ratings

Monex CB: Monex CB's ratings and Outlook are aligned with those of Banco Monex due to Monex GF's legal obligation to provide support to its subsidiaries.

Monex SAB: Monex SAB's national ratings are aligned with those of its main operating subsidiary, Banco Monex.

ESG Considerations

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg

RATING ACTIONSENTITY/DEBT	RATING		PRIOR
Banco Monex, S.A., Institucion de Banca Multiple, Monex Grupo Financiero	LT IDR	BB+ 	Affirmed		BB+
	ST IDR	B 	Affirmed		B
	LC LT IDR	BB+ 	Affirmed		BB+
	LC ST IDR	B 	Affirmed		B
	Natl LT	AA-(mex) 	Affirmed		AA-(mex)
	Natl ST	F1+(mex) 	Affirmed		F1+(mex)
	Viability	bb+ 	Affirmed		bb+
	Support	5 	Affirmed		5
	Support Floor	NF 	Affirmed		NF
Monex Casa de Bolsa, S.A. de C.V., Monex Grupo Financiero	Natl LT	AA-(mex) 	Affirmed		AA-(mex)
	Natl ST	F1+(mex) 	Affirmed		F1+(mex)
Monex, S.A.B. de C.V.	Natl LT	AA-(mex) 	Upgrade		A+(mex)
	Natl ST	F1+(mex) 	Upgrade		F1(mex)

senior unsecured

Natl LT	AA-(mex) 	Upgrade		A+(mex)

VIEW ADDITIONAL RATING DETAILS

Additional information is available on www.fitchratings.com

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