Rating Action: Moody's assigns first time B1 issuer rating to Financiera Independencia, outlook stableGlobal Credit Research - 30 Aug 2022New York, August 30, 2022 -- Moody's Investors Service ("Moody's") has assigned first time ratings to Financiera Independencia, S.A.B. de C.V. (Findep), including global scale long- and short-term local and foreign currency issuer ratings of B1/Not Prime, as well as long term corporate family rating (CFR) of B1. The issuer level outlook for Findep is stable.The following ratings were assigned:Issuer: Financiera Independencia, S.A.B. de C.V.Â Corporate Family Rating, assigned B1Â Long-term global local and foreign currency issuer rating, assigned B1Â Short-term global local and foreign currency issuer rating, assigned Not PrimeIssuer: Financiera Independencia, S.A.B. de C.V.Outlook, Assigned StableRATINGS RATIONALEFindep's B1 issuer rating acknowledges the company's adequate liquidity profile supported by diversified portfolio of lines from banks that has improved the company's asset and liability management over the past two years. The rating also incorporates the company's strong capitalization, high profitability and its track record of adequate asset quality, consistent with Findep's high risk unsecured lending focus, that benefits from disciplined underwriting practices, ample reserve coverage and high portfolio granularity, all helping to reduce net-charge offs through the cycles.The company's liquidity profile is supported by strong cash flow generation provided by the high turnover rates of its credit portfolio over time, with collections accounting for approximately 30% of its loans on quarterly basis. This portfolio dynamic has allowed Findep to increase debt coverage ratio to 62% in June 2022, from 17% in 2019, which was supported by the moderation in the origination of new loans in the first six months of 2022. In addition, Findep has been able to maintain good access to local and foreign banking facilities that also helped to enhance its liquidity position to date. The company has lower-than-peers reliance on secured debt, that accounted for 18% of average managed assets in June 2022 and there is no maturities concentration in 2022 and 2023.The B1 issuer rating also incorporates Findep's high capitalization, a positive rating driver, with tangible common equity to tangible assets reaching 35% in June 2022. The company's historically high capital buffers result from its conservative retention policy and recurring revenue generation.Profitability improved in 2022 supported by its ability to rapidly reprice loans at higher rates, which offset the increase in operating expenses related to the expansion of its franchise in the US, and the buildup of loan loss provisions, resulting from the inflationary pressures and the weakened economic activity in Mexico. In the first half of 2022, net income increased 24%, resulting in net income to average manage assets of 5.5%, which was driven by a strong 22.1% increase of net interest income in the period.While the level of nonperforming loans, measured as stage 3 loans, and net charge offs is high, together totaling 19.5% of gross loans in June 2022, the company's asset risk metrics have improved over the last two years, benefiting from its expansion in the US market, its divestment from microlending operations in Mexico and Brazil, and its payroll-linked lending platform in Mexico, and have been historically commensurate with the high profitability of the portfolio. Aligned to this expansion path, reserves for loan losses also grew and covered 215% of nonperforming loans as of June 2022.Findep's exposure to environmental and social risks is moderate and low, respectively, consistent with our general assessment for the global finance companies' sector. Governance risks are largely internal rather than externally driven for Findep, for which Moody's does not have any particular concerns. Findep benefits from a good risk management framework and adequate corporate governance practices, despite it remains as an unregulated company under the Mexican laws. As such, corporate governance remains a key credit consideration and requires ongoing monitoring.The stable outlook on Findep's ratings reflects the view that the B1 will continue to be supported by the company's good financial fundamentals and vigilant liquidity position that will withstand current challenges in the absence of debt maturity concentrations over the outlook horizon.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThere is limited upward pressure on Findep's ratings at the moment given industry headwinds. However, positive pressures on Findep's ratings could result from progress in the lender's funding strategy ahead of its international bond maturity in 2024, evidenced by its ability to effectively refinance and renew its credit lines with banks. Upward rating movements would also be supported by a sustained improvement in core earnings generation and a stabilization of its asset quality metrics at current levels, while capital remains strong.Downward pressure on Findep's ratings could arise as refinancing risks increase in the short-term, evidenced by the company's inability to renew its banking credit lines. This scenario would raise significant concerns around the refinancing capacity related to its international debt maturity in 2024. The ratings could be lowered if the company's short-term maturities coverage by liquid assets falls below 40%. At the same time, a material deterioration of the lessor's asset risks leading to a decline in collections would hurt its short-term liquidity position adding further pressure to the B1 ratings.The principal methodology used in these ratings was Finance Companies Methodology published in November 2019 and available at https://ratings.moodys.com/api/rmc-documents/65543. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. 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Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating. Rodrigo Marimon Bernales Analyst Financial Institutions Group Moody's de Mexico S.A. de C.V Ave. Paseo de las Palmas No. 405 - 502 Col. 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