| | |  Business News | September 2008 
Mexican Banks Weather Crisis but Stem Lending
 Noel Randewich - Reuters
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| | Scotiabank in Mexico | | |
Mexico City — Mexico's banks, mostly owned by foreign heavyweights, are in good shape to weather a crisis shaking industry leaders on Wall Street, but caution is leading them to put the brakes on years of speedy growth.
Banks in Mexico owned by international players have ballooned their businesses in the past decade by handing out loans to credit-starved consumers and businesses, not by dabbling in risky subprime niches or unpredictable derivatives.
“In the United States the mess is that they created such sophisticated products that they did not even understand what they had created,” said Bertrand Delgado-Calderon, an economist at IDEAglobal. “Latin American banks didn't get into that. They were conservative. They saw the opportunity in the real economy, which was growing very robustly.”
In a country where most people still do not have bank accounts, Mexican branch employees spend much of their time helping customers open their first savings accounts or organizing loans for small business owners.
Lending to consumers and businesses in Mexico expanded at an explosive rate of 50 per cent a year in 2005 and 2006 as banks tended to a market starved of financial services after a crisis in the mid-1990s brought the industry to a halt.
But in recent months, credit card promoters have abandoned shopping malls and fewer meals have been interrupted by phone calls from banks pushing personal loans.
Since the end of last year, growth in bank lending to companies and consumers has declined from an annual rate of 24 per cent to 15 per cent.
Citigroup Latin America chief Manuel Medina Mora, eyeing a recent rise in non-performing loans in Mexico, warned recently that banks need to tighten lending criteria that have loosened in recent years.
Fitch Ratings said in a recent report: “Mexican banks are now facing the challenges arising from rapid incursion into relatively new retail segments, a worsening economic environment and, to a lesser extent, the global liquidity crunch.”
With the world's banking system in crisis, the U.S. government is planning a $700-billion (U.S.) bailout of U.S. financial firms stuck with dubious subprime mortgage-related securities, but experts say Mexican banks remain healthy.
In the 1990s, a botched currency devaluation and shoddy lending practices combined to devastate Mexico's banking system.
The economic meltdown, known as the Tequila Crisis, sent interest rates soaring, in turn causing widespread defaults on mortgages and other loans.
Mexico's government, in a plan similar to the current one to rescue Wall Street, bailed out the banks by buying their failed loans in a $100-billion operation that is still sorely felt by taxpayers.
Citigroup, Spain's BBVA and Santander, HSBC and Bank of Nova Scotia went on to acquire much of what remained of Mexico's banking industry and since then they have invested heavily to build reserves and overhaul management.
But precisely because Mexico's banks are mostly foreign-owned, they could be forced to trim lending growth further or even reduce loans, analysts say.
If the U.S. bailout failed and the international banking crisis worsened, head offices might order their foreign units to take money off the table, even in countries where operations are healthy.
“The excesses we saw in the United States are not present in Mexico or other Latin American countries,” said Alonso Cervera, an economist at Credit Suisse. “But the negatives associated with the U.S. financial crisis do spill over to the way they do business in the region.”
Mexico's banks are already showing hints of further plans to slow lending.
Nonperforming bank loans crept up to 2.82 per cent of total credit in June from 2.35 per cent a year before, according to Mexico's banking commission.
Mexico's central bank warned last week that the country's banking system has been “marginally” affected by the global financial turbulence. |
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