News Column

Moody's rates MX-1 Santander Consumo's proposed short term commercial paper program

August 12, 2014

Moody's de Mexico has today assigned a Prime-2 short-term global local currency debt rating to Santander Consumo, S.A.

de C.V., Sociedad Financiera de Objeto M×Ēltiple, Entidad Regulada's

(Santander Consumo) proposed short-term commercial paper program for up

to MXN5 billion. At the same time, Moody's assigned a short-term Mexican

National Scale debt rating of MX-1 to the proposed issuance. The outlook

on the assigned ratings is stable.

Moody's also assigned a standalone baseline credit assessment (BCA) of

ba3 to Santander Consumo.

The following ratings were assigned to Santander Consumo's proposed

short-term commercial paper program for up to MXN5 billion, with a stable


Short-term global local currency senior debt rating: Prime-2

Short-term Mexican National Scale senior debt rating: MX-1


The debt ratings for Santander Consumo are based on Moody's assessment of

full support from Banco Santander (Mexico), S.A. (Santander Mexico,

A3/Prime-2 stable, C-/baa1 positive) to its consumer subsidiary in line

with its 99.99% ownership, full reliance on parent bank funding, high

degree of integration into its parent bank's business lines, customer and

product strategy, and importance to the bank's consumer franchise.

Santander Consumo is an inextricable line of business of Santander Mexico.

In addition to funding, the finance company depends on its parent bank

for infrastructure, staff, risk management and its customer base. In

turn, Santander Consumo's MXN55.1 billion portfolio of credit card and

general consumer loans is an integral part of Santander Mexico's product

strategy and represents a substantial 78.7% of its consolidated consumer

lending book, as of March 2014. Santander Mexico is the third largest

consumer finance bank in the country.

According to Moody's analyst Felipe Carvallo, "Santander Consumo's

standalone BCA of ba3 reflects its dependence on its parent coupled with

its monoline focus as well as strong capitalization and profitability."

The finance company's nonperforming loan ratio of 3.9% is not

excessively high despite its focus on a higher risk product such as

credit cards. In addition, Santander Consumo maintains ample loan loss

reserves and strong capital levels, as a second line of defense against

loan losses.

While it records high write-offs, Santander Consumo is comfortably able

to absorb these as a result of an ample net interest margin (NIM); as of

March 2014, its NIM was 20.1%, according to Moody's calculations.

Santander Consumo's NIM benefits from the high interest rates charged on

credit cards and the cheap financing offered by its parent-bank. The

ample NIM supports strong profitability, as exhibited by net income as a

percent of total managed assets of 6.4%, as of March 2014.

Funding from Santander Mexico currently represents 70.4% of the finance

company's total assets, as of March 2014. However, we expect Santander

Consumo's market funding to gradually increase beginning with the current

issuance given restrictions on the parent bank's ability to provide

additional funding directly due to regulatory limits for related party

lending. In turn, this could drive higher funding costs in this portion

of funding and reduce profitability, according to the rating agency.

The principal methodology used in this rating was Finance Company Global

Ratings Methodology published in March 2012. Please see the Credit

Policy page on for a copy of this methodology.

Moody's National Scale Credit Ratings (NSRs) are intended as relative

measures of creditworthiness among debt issues and issuers within a

country, enabling market participants to better differentiate relative

risks. NSRs differ from Moody's global scale credit ratings in that they

are not globally comparable with the full universe of Moody's rated

entities, but only with NSRs for other rated debt issues and issuers

within the same country. NSRs are designated by a ".nn" country modifier

signifying the relevant country, as in ".mx" for Mexico. For further

information on Moody's approach to national scale credit ratings, please

refer to Moody's Credit rating Methodology published in October 2012

entitled "Mapping Moody's National Scale Credit Ratings to Global Scale

Credit Ratings".

The period of time covered in the financial information used to determine

Santander Consumo's rating is between 01 Jan 2011 and 31 Mar 2014

(source: Moody's and Issuers' financial statements).

The sources and items of information used to determine the rating include

2014 interim financial statements (source: Moody's and Issuers'

financial statements); year-end 2011, 2012 and 2013 audited financial

statements (source: Moody's and Issuers' annual audited financial


Santander Consumo is domiciled in Mexico City, Mexico and reported

MXN56.2 billion in assets, MXN55.1 billion in gross loans, MXN10.2

billion in shareholders' equity and MXN882.5 million in net income

(source: Issuers' financial statements), as of 31 March 2014.

For more stories on investments and markets, please see HispanicBusiness' Finance Channel

Source: EMBIN (Emerging Markets Business Information News)

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