November 30, 2017 / 5:12 PM / in a year

Fitch: Mexican Government Lending Change Raises Risks for Banks

(The following statement was released by the rating agency) NEW YORK/MONTERREY, November 30 (Fitch) Government lending within Mexico's banking sector is likely to concentrate further over the medium term, which could lead to elevated liquidity and political risk among some financial institutions, says Fitch Ratings. Competition for lending to Mexico's public entities has intensified in recent years owing to new legislation that limits states and municipality indebtedness and requires them to contract debt at the lowest financial cost, leading to tightened interest margins for banks in this segment. Government loan growth has been decelerating since 2015 due to the introduction of the Law of Financial Discipline of Federal Entities and Municipalities, which went into effect in April 2016. The successive interest rate hikes in 2016 and first-half 2017 have discouraged states and municipalities from borrowing, and the increased competition has tightened margins. Government loan growth peaked in 2014 at 25% and has fallen rapidly since, with total government sector loans decreasing by 1% yoy in September relative to overall lending growth of 9.8%. The financial discipline law establishes prudential rules for financing by government entities while limiting indebtedness and promoting greater transparency and accountability. Sanctions are mandated for noncompliance with the legislation. The introduction of the debt limit, monitored by the Ministry of Finance, could have a marked effect on loan growth in the sector since only those states and municipalities with lower debt levels have been acquiring credits and those with higher indebtedness could be forced to stop taking on further debt. As of Aug. 31, 2017, the Ministry gave 10 entities a yellow warning (meaning their indebtedness capacity has become limited) including Coahuila, Chihuahua, Michoacan, Morelos, Nuevo Leon, Oaxaca, Quintana Roo, Sonora and Veracruz. Competition within the segment has increased significantly and margins have tightened as a result of the financial discipline law. States and municipalities, which have historically accounted for a majority of total government lending (roughly 57%), have had their credit demand restricted, while the law also compels them to contract loans at better conditions. BBVA Bancomer and Banorte, two of the seven largest operating banks in Mexico, account for roughly 50% of total government lending. Banco Interacciones is another major player in the sector, accounting for 14% of government loans in September 2017. Banco Nacional de Obras y Servicios Publicos (Banobras), the largest development bank, is also an important competitor in the segment, especially in those states and municipalities usually not served by commercial banks. Notably, Banorte and Interacciones announced a merger on Oct. 25, which will mean that over 60% of lending in the segment will be concentrated in just two entities. As a result of the merger announcement, Fitch placed Grupo Financiero Banorte on rating watch negative and noted that the merger would lead to a material increase in public sector loan volumes with a potential mildly negative effect on asset quality. Government loans tend to be high performing, leading non-bank provisioning for the loan type to be relatively low. Credit to public entities does not typically rely on robust collateral, but the loans are backed by federal transfers to states that are designated to pay off bank loans. This has resulted in banks' NPL ratios in this segment historically being near 0%. However, government lending can raise liquidity and political risks. Government lending typically has maturities of five years or more and therefore requires long-term funding to avoid term mismatches on bank balance sheets. Problems with debtors' capacity to repay could also lead to loan restructuring as has happened in the past in some specific cases. Political and event risk leading to such restructurings is also a consideration. The upcoming federal and local elections in July of 2018 could also have an impact on loan growth. Contact: Bertha Perez Associate Director, Financial Institutions +52 81 8399-9161 Fitch Mexico S.A. de C.V. Prol. Alfonso Reyes No. 2612 Edificio Connexity, Piso 8 Col. Del Paseo Residencial Monterrey 64920 Priscila Garcia Analyst, Financial Institutions +52 82 8399-1515 Justin Patrie, CFA Senior Analyst, Fitch Wire +1 646 582-4964 Media Relations: Benjamin Rippey, New York, Tel: +1 646 582 4588, Email: The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at All opinions expressed are those of Fitch Ratings.. 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. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below