Are Mexico’s Banks Facing Headwinds or Tailwinds?

BBVA Chairman Francisco González expressed “enormous confidence” in Mexico as the bank announced a new investment in its BBVA Bancomer unit. // File Photo: BBVA.

Spain-based BBVA said March 3 that it will invest $1.5 billion in its BBVA Bancomer unit in Mexico over the next four to five years. After a meeting with Mexico’s finance minister, BBVA Chairman Francisco González expressed “enormous confidence” in the country and in its business community. How healthy are Mexico’s banks, and what are the major tailwinds and headwinds they face? What are the biggest effects that the policies of Mexican President Enrique Peña Nieto and U.S. President Donald Trump are having on Mexican financial institutions? How are consumer confidence levels and demand for loans holding up in Mexico?

Felipe Carvallo, member of the Financial Services Advisor board and vice president and senior analyst for Latin America banking at Moody’s Investors Service: “Although changes in U.S. trade policies could have a negative impact on the Mexican economy, especially on manufacturing and agricultural exports, we expect that banks’ relatively low direct exposures to these sectors will help limit the damage to their balance sheets. The automotive industry would be the most vulnerable to any rise in tariffs that might result from a renegotiation, or elimination, of NAFTA, but it accounts for just 2 percent of commercial loans. Exposures to agriculture are slightly higher at 4 percent of commercial loans, but these are mainly short-term loans and benefit from different types of guarantees provided by government development agencies. While borrowers that depend on imported inputs or with significant foreign currency debt may face increased financial pressure as a result of the weaker peso, most of these are foreign-currency earners, and hence have a natural hedge. Moreover, foreign-currency loans account for a relatively limited 13 percent of total loans. Fully gauging the long-term credit impact any change in the U.S.-Mexico trade relationship will have on Mexican banks will require…”

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