Mexico’s banks, once considered a financial backwater for tin-pot
investors, look pretty good these days relative to some of their
American and European cousins.
In fact, Mexico’s banks are so profitable now they can offer a
lifeline to those in more developed nations, The Economist reports.
For example, Santander, a major Spanish bank, this week listed part
of its Mexican subsidiary on stock exchanges in Mexico City and New
York, thereby boosting its overall core-capital ratio.
It’s a far cry from the not-too-distant global banking past. When
Mexico’s banks collapsed in 1995, following the devaluation of the
peso and financial convulsions dubbed the “tequila crisis,” bankers
in Europe and America could not believe the irresponsible lending
that had occurred. They passed the hat for a $50 billion bailout.
Santander’s Mexican listing, which raised about $4 billion, was
priced at two times book value, more favorable than most American or
European banks can get at home, and Santander Mexico provides a
return on equity almost double the rate commonly found in Europe,
approximately 20 percent.
Meanwhile, Moody’s Investors Service rates the Mexican subsidiaries
of Citibank, Santander and BBVA as less risky than their respective
parent companies. Both BBVA and Canada’s Scotiabank are also
believed to be pondering a float of their Mexican operations.
The Economist concluded Mexican’s banks’ smooth negotiation of the
financial crisis is due both to a favorable economic climate there
and to conservatism in their own lending. Private debt is one of the
lowest in Latin America, at about 20 percent of gross domestic
product.
However, only a third of Mexican firms have access to commercial
bank loans. Moreover, credit scoring in Mexico is controlled by
large banks and is so strict that a missed phone bill or tax payment
can render someone ineligible for loans.
“So because you were fined 500 pesos ($40) by the tax authorities,
you cannot get credit to buy a car, which would contribute 10,000
pesos to [value-added tax],” said Giulliano Lopresti of Crea Mexico,
a small-business organization.
Credit card rates in Mexico are also very high, and customer service
at Mexican banks is still patchy. But with so many new potential
customers, the banks do not have to work that hard to turn a profit.
Santander is adding more than 100 branches a year to its Mexican
network, and new laws allow supermarkets to turn themselves into
banks as well. Overall lending in Mexico is rising by 15 percent per
year, a rate many Americans would envy.
In a preliminary prospectus, Santander said it believes Mexico has
good growth prospect because of its sound economic fundamentals,
young population, growing middle class and low penetration of
banking services, Reuters reported.
The bank had 841 billion Mexican pesos ($64.10 billion) in assets
and a loan portfolio of 338.9 billion pesos at the end of June,
according to Reuters.
© Thomson Reuters 2012 All rights reserved