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 Business News | December 2006 
A New Era of Lending Dawns for Mexico's Bankless Millions
 Augusta Dwyer - The Globe and Mail
Wal-Mart Stores Inc.'s plan to open banks here next year may presage a new era in the stormy history of Mexico's commercial banking sector.
After the nationalization of banks in 1982 in response to an economic crisis, a subsequent privatization by then-president Carlos Salinas in the early '90s, and a severe devaluation of the peso in 1994, the majority of Mexicans remain suspicious of banks - giving uber retailer Wal-Mart a golden opportunity.
"It is going to have an important effect," said Marco Antonio Carrera of the National Commission for the Protection of Financial Services Users, an arm's-length government body better known by its acronym, Condusef. "There are big problems and insufficient service, so the new banks inside stores have a lot of room to grow."
Mexico's banking system has drawn a pile of complaints - from the 1994 peso crash to a $130-billion government bailout in 1998 to the decision later that year to remove all restrictions on foreign ownership.
"When the argument for foreign investment was first presented, one expected that commissions would be reduced, as well as interest rate margins, and that there would be abundant credit for all kinds of economic activities," said economist Jose Luis Calva of the National Autonomous University of Mexico.
Instead, pretty much the opposite has been happening.
As soon as foreign banks - from Spain, the United States, Britain and Canada - started taking an interest in buying Mexican banks, a process of consolidation began as well. Today, the five largest banks, four of which are under foreign control, account for 83 per cent of banking assets. "These are all going for the sure thing," Mr. Calva said. That is, making their profits on fees and lending only to the nation's wealthy and upper middle classes.
"No bank is interested in my few hundred pesos," said Juanita Hernandez, a housewife living in a poor neighbourhood of Mexico City. "When someone needs money, they come to me and say, 'you know what? We're setting up a tanda.' " A sort of savings lottery where, every week, participants put in the same amount of cash, and one of them takes out the total, tandas and similar savings clubs are "the most prevalent informal financial savings mechanism in Mexico City," the World Bank says.
Currently, almost three-quarters of the population - some 75 million people - don't use banks, a sector that forms the second-largest in Latin America by assets.
Domestic lending has been falling by 6 per cent annually since 1994, and at just 13 per cent of GDP, is now the lowest in the region. Worse, say critics, the credit crunch is having a serious effect on Mexico's economic development.
While the so-called informal sector - cab drivers, market vendors and millions of others - accounts for upwards of 35 per cent of the Mexican economy, it is not easy to offer them credit, explained Eduardo Kuri, spokesman for the Mexican Association of Bankers. "You ask someone for a copy of their taxes, for example," he said, "and they say 'I don't have that.' So you look at other parameters, such as cash flow into a bank account, and they say, 'Well, I don't have a bank account.' One confronts this kind of problem that is so simple yet complicates the whole scenario."
With 750 million customer receipts last year, and 833 outlets in Mexico, Wal-Mart will be taking on those complications and lending to small business and the informal sector, spokesman Antonio Ocarranza said.
"It is one of our targets," he said, "as they already come to Wal-Mart to purchase a lot of supplies for their businesses."
That means they will have a kind of credit history with the chain, similar to those built up over time by Banco Azteca, the pioneer of retail outlet banking, which was set up in 2002 by appliance vendor Grupo Elektra. Banco Azteca saw both its deposits and profit rise by 50 per cent in 2005 from the previous year.
"What you've got now is a stage where you have small niche players coming back in," said Anatol von Hahn, general director of Grupo Scotiabank and vice-president of the bankers' association. "And in my view, it's a cycle. You start off with small niche players, some will make it, some won't. Some will get bought and some become big. It's a concentration process."
Scotiabank is also studying, with some caution, those sectors of the population whose low salaries and greater susceptibility to macroeconomic conditions have made them highly unattractive to the vast majority of financial institutions. It will open 100 new branches, Mr. von Hahn said, and is targeting customers earning the equivalent of $15 to $20 a day.
These are customers, he added, "who want to have the ability to come to our branches, not for everything, but when they want to invest, buy insurance products or take out a loan. They'll have the opportunity to come and sit with us at a table."
While he calculated that 30 to 40 per cent of the population is still not bankerizeable, as he put it, "another 20 per cent today are. You could almost double the financial system without fighting too much amongst ourselves." |
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