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 Business News | June 2007 
The Changing Face of Mexico's Foreign Debt
 Frontera NorteSur
The central Bank of Mexico (Banxico) has issued a report that gives a "yellow light" to the growing trend of unpaid consumer debt. In a report last week, Pascual O'Dogherty, chief analyst for the bank, revealed that the percentage of overdue credit card accounts rose from 3.1 percent in 2005 to 4.6 percent in the first trimester of 2007. Banxico and private bank sector officials gave mixed assessments of the news. O'Dogherty urged credit card granting institutions to be cautious in their business practices, but discounted an immediate threat to the financial system.
Enrique Castillo Sanchez Mejorada, president of the Association of Banks of Mexico, recognized that more credit card holders have fallen into arrears, but maintained that the problem was "under control." In Mexico, credit card accounts are considered overdue when holders are more than 90 days late in their payments.
In the last few years, mostly foreign-owned banks have dramatically expanded their Mexican credit card debt portfolios. According to Banxico's O'Dogherty, banks approved 8.7 million new credit cards last year, awarding 40 percent of the new accounts to customers with no previous credit history. Credit card consumer spending reached about $37 billion in 2006, but now shows some signs of slackening.
With their aggressive, street-hustling style of signing up new credit card holders, banks are taking on many risky clients. On the other hand, banks are clearly cashing in on the business. Banxico reports that the percentage of banks' income derived from commissions rose 14.9 percent in 2006, with a good chunk of the cash stream attributed to income from credit cards.
Much of the new business is targeting lower and middle-income sectors of the population, and enticing non-financial sector companies like Wal-Mart into starting up their own banks. In 2006, the last year of the Vicente Fox administration, 15 new banks were authorized to operate in the country. A recent story in the Mexican press reported that Mexico's budget and taxation ministry is holding negotiations with Volkswagen and the Bank of New York to add the companies to the list of the country's banks.
Pushed by banks, the credit card boom is redefining the meaning of foreign debt in Mexico. Prior to the country's economic liberalization, the government typically contracted large debts with foreign lenders. Now, individuals from all walks of life are acquiring debts with foreign financial institutions and corporations.
As consumer credit woes mount, so are complaints against banks. The Ciudad Juarez division of the Office of the Federal Attorney for Consumer Protection (Profeco) lists the Mexican-owned Grupo Elektra, a large transnational with a presence across Latin America, as third in the total number of local complaints on record with the agency.
Ciudad Juarez Profeco official Vicente Diaz Montaño said that most of the complaints against Elektra were actually filed against the affiliated Banco Azteca, which maintains outlets in Elektra's popular department stores. Diaz said that high interest rates allegedly charged by Banco Azteca were the common cause of the consumer complaints. Banco Azteca offers new credit card customers a ten percent discount on a first purchase if it is made with Elektra on-line or in person.
Sources: El Universal, June 7, 2007. Articles by Jose Manuel Arteaga and Romina Roman. Norte, June 7, 2007. Article by Francisco Cabrera. La Jornada/Notimex, June 6, 2007. Sec.edgar-online.com. Elektra.com.mx
Frontera NorteSur (FNS)
Center for Latin American and Border Studies
New Mexico State University
Las Cruces, New Mexico
FNS can be found at http://frontera.nmsu.edu/ |
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