September 29, 2017 / 9:08 PM / 10 months ago

Fitch: Effect of Mexican Earthquakes on Financial Institutions Not Clear Yet

(The following statement was released by the rating agency) MONTERREY, September 29 (Fitch) During September 2017, two high-magnitude earthquakes hit cities in the south, capital, and the center of Mexico. Fitch Ratings has gathered information from the largest banks and other financial institutions in Mexico that could be exposed to the damage to some extent. At this point, the total effect on the banking and non-bank financial institutions (NBFIs) is yet to be seen, but Fitch expects this to be low or moderate on a system-wide basis, although potentially mixed at the individual entity level. The first earthquake occurred on Sept. 7 and affected mainly the States of Chiapas, Tabasco and Oaxaca, zones where NBFIs, mainly microfinance companies, are more likely to have exposure, due to the low-income segment of the population they serve in such zones, which usually have lower access to traditional banking services. Those three states accounted for 1.1% of the total loans in the banking system as of mid-2017, while mortgage loans totalled 0.3% of the loan portfolio, according to the Central Bank (Banxico). In turn, Microfinance companies' loan portfolio in the same States represented nearly 10.1% of the Microfinance segment at the same date, according to information of microfinance companies rated by Fitch. The second earthquake occurred on September 19, and affected some specific zones of Mexico City, Estado de Mexico, Puebla and Morelos - those with the highest concentration of loans in the financial system. Together they represented approximately 44.8% of the total loans of the banking system (mortgage loans: 9.1% of the total); however, it is important to note that not all the municipalities in the mentioned states were damaged at the same magnitude. In both events, some banks and NBFI branches were partially affected; however, operations have been restored in most cases, or clients are being attended through alternative branches and online services. But uncertainties remain as to the extent of the earthquake's impact on customers' productive activities and, therefore, their ultimate debt repayment capacity. Although in general terms loan exposures in affected cities is high, is still too early to measure the proportion of debtors or financed projects to have been directly affected by the events. Mexican financial institutions and authorities are still trying to approximate the economic impact of the events. Fitch believes the banking system has adequate loss absorption capacity through capital and loan loss reserves to handle any possible outcomes, but the ultimate effect on individual balance sheets will be seen over the coming months. Fitch will continue to closely monitor rated banks' asset quality and credit growth. Fitch does not rule out that regulatory authorities activate special and temporary debtor relief programs for banks to assist their borrowers as it has done in natural disasters of the past. In turn, the development banks are working on special support programmes to assist the most vulnerable sectors, such as SMEs and low income individuals. Due to the non-regulated nature of most NBFIs in the country, Fitch expects these entities will not be subject to local regulator's support programs; however, Fitch anticipates some of them will be considered in the expected development banks' programs. Some payroll lenders and microfinance entities targeted to lower-income segments anticipate credit demand could increase particularly in the affected zones. However, Fitch also perceives that the NBFI's typical customer might be relatively more affected by the aftermath of the recent events, which might be especially challenging for smaller lenders with high degrees of concentration in the affected regions. Fitch will monitor rated NBFI's risk appetite and mechanisms to confront such contingencies as restructuring, refinancing and client retention programs. Contact: Veronica Chau Senior Director +52 81 83999169 Fitch Mexico, SA de CV Prol. Alfonso Reyes 2612, Edificio Connexity Piso 8 Col. Del Paseo Residencial 64920 Monterrey, N.L., Mexico Alejandro Tapia Director +52 81 83999156 Monica Ibarra Director +52 81 83999150 Media Relations: Benjamin Rippey, New York, Tel: +1 646 582 4588, Email: Additional information is available on ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. 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