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 Business News | August 2007 
Mexico's Banks Seen Weathering Global Credit Crisis
 Noel Randewich - Reuters
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| | A sign advertises a bank repossessed home for sale in San Clemente, Calif. As the credit crisis has deepened in recent weeks and stock markets convulsed, spurring the Federal Reserve to swoop into the banking system with billions, a network of cash spigots around the country have quietly been opening wider to banks and thrifts that make mortgage loans. (AP/Tom Stathis) |
Mexico City - Mexico's banks, mostly owned by foreign heavyweights, are in good shape to weather a U.S. credit crisis and are unlikely to import serious financial problems into the wider economy.
Although Mexico's close trade ties to the United States make it vulnerable to a U.S. economic slowdown, weakness in Mexico's banking industry is seen as unlikely to choke the economy.
"The main link as far as Mexico is concerned is a trade link, not a credit link," said Ricardo Amorim, an economist at WestLB in New York.
Mexican banks have increased lending in recent years but still take in much more in deposits than they lend out, helping insulate them from the recent reluctance of banks around the world to lend to each other.
International banking heavyweights like Citigroup (C.N: Quote, Profile, Research), BBVA (BBVA.MC: Quote, Profile, Research), Santander (SAN.MC: Quote, Profile, Research) and HSBC (HSBA.L: Quote, Profile, Research) have snapped up almost all of Mexico's main banks over the past decade after an economic crisis devastated the industry.
They have pumped billions of dollars into their Mexican subsidiaries to make sure they can withstand problems that might lead to widespread loan defaults.
The U.S. subprime lending market ran into trouble this year when loose lending standards, rising interest rates and falling housing prices combined to spark a wave of mortgage defaults.
Packaging and selling mortgages to institutional investors, who often bought them with borrowed money, has made the lending industry in the United States and other countries more delicate and harder to gauge.
By comparison, Mexico's banking industry has only just begun to package and sell mortgage loans. Almost all the mortgages made by banks in Mexico stay on their own books, which means bankers don't need to worry about the reluctance of other investors to buy them or accept them as collateral.
KNEE-JERK REACTION
Mexico does not have a subprime lending sector similar to the one that has led to a spike in defaults in the United States, although banks are starting to offer loans to consumers with little or no credit history.
Victor Herrera, head of Standard and Poor's in Mexico, predicted bankers will curb recently launched programs to lend money to people with no documentable income, like taxi drivers and waiters, but he said that segment is small.
"If they see an impact from high-risk mortgages or credits in other countries, then there will be a psychological effect, a knee-jerk reaction," he said. "If they have colleagues in other parts of the world who have had problems, they're going to say 'Let's take a look at what I'm doing.'"
Credit-fueled consumer spending accounts for a huge part of economic activity in the United States, so dried-up lending there would hobble growth, analysts say.
But Mexican companies and consumers have gotten by for most of the past decade without much access to credit, Moody's Economy.com economist Alfredo Coutino said.
"Even if financial institutions take a more conservative attitude, I don't think this is going to impose a big restriction on economic growth in the region," he said.
Credit Suisse analyst Alonso Cervera warned that if credit around the world falls into a serious slump, Mexico's banks might be included in sweeping decisions by their international owners to throttle back on lending, even if they are less at risk.
"The lending decisions of some of these banks doing business in Mexico would be coming from the headquarters in New York, Madrid or London, and not necessarily from the executives in Mexico," he said. |
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