Mexico Commercial Banking Report Q3 2007, new business publication announcement from Report Buyer

Dec. 4, 2007 - PRLog -- Report Buyer (http://www.reportbuyer.com) the online destination for business intelligence for major industry sectors, has added a new report called “Mexico Commercial Banking Report Q3 2007”

Report Summary

The economic slowdown that is underway is discussed at length later in this report.

After many months of conjecture, first quarter economic data released by the Banco de Mxico (Banxico) finally confirmed what we have anticipated for some time: the Mexican slowdown is underway in 2007.
The economy expanded by 2.6% y-o-y in the first three months of the year, the slowest rate of expansion since Q405 and the fourth successive quarter of moderating growth. Given the evidence of disappointing retail sales, sluggish industrial production and stagnant economic activity (IGAE) data since the turn of the year, a growth correction has been on the cards. However, the outturn was still perhaps on the weaker side of expectations, which in our view brings to the fore a timely reminder of the economy's Achilles' heel - its overarching reliance on benign external factors, particularly in the US.

On an output basis, economic activity was lacklustre across the board. The services sector, which is by far the most dominant in the domestic economy (equivalent to roughly two thirds of GDP) grew by 3.7% yo- y. This was down from 4.2% in Q406 and the slowest rate of growth since Q405. In particular, 'commerce, restaurant and hotel' services toiled, posting growth of just 1.6% y-o-y. Meanwhile, agriculture, traditionally the most volatile sector of the economy, came to a virtual standstill, increasing by just 0.2% y-o-y. Given its long-term decline in importance (agriculture composed just 4.8% of GDP in Q107), the effect of this downturn on GDP as a whole was relatively modest. The principal drag on the economy came from a sharp downswing in industrial output growth. Construction growth slowed to 2.1% y-o-y, perhaps suggesting that last year's boom has started to ease.

The Commercial Banking Sector As of December 31 2006, total assets, loans and deposits amounted to US$224bn, US$123bn and US$148bn, respectively. By all three measures, Mexico is home to a moderately sized banking sector relative to those in many of the countries surveyed by BMI, with assets, loans and deposits ranked at 35th, 25th and 44th respectively. Despite the reasonable size of Mexico's banking sector its deposits per capita are quite low, currently around US$1,377.

As of December 31 2006, the loan/deposit, loan/asset and loan/GDP ratios were 83.3%, 55.0% and 14.8%, and all ratios have been rising compared to the previous year. Despite this, all three ratios remain low relative to the corresponding figures in other countries: Mexico's loan/deposit ratio ranks 32nd, its loan/asset ratio ranks 28th, and its-loan/GDP ratio ranks 56th, out of the 59 countries surveyed. Mexico's banks are estimated, collectively, to hold bonds worth US$33bn, which is decline of roughly 5% in US$ terms, over the year to December 31 2006. The banks' bond holdings amount to 14.7% of total assets.

BMI considers that in an international context, the banks are neither highly nor lightly exposed to bonds.

Mexico Commercial Banking Report Q3 2007  Business Monitor International Ltd Page 12 Deposits in the Mexican banking sector appear to have been recycled into assets other than government bonds, based on the relatively steady growth in deposits, combined with the fact that bond holdings do not constitute a very large percentage of total assets. A corollary of this is that deposits are large relative to loans. The commercial banking sector in Mexico thus retains its strong position, which allows banks to distribute insurance and other financial services to their clients.

Future profitability could, however, be threatened to some degree by intensifying competitive pressure mostly from the banking operations of Mexican retailers. The opportunity for retailers and finance houses (known as Sofoles) to fill the gap left by the banks, when they withdrew from the lending market during the years of the Mexican crisis, has left the sector with consumer borrowing from retailers accounting for around one-third of consumer credit (according to Morgan Stanley Research). Retailers have targeted lower-income groups, offering schemes which allowing small fixed payments at higher interest rates among other financing facilities.

Press Reports Press reports from international and local sources emphasize the profitability of Mexican banks, which have enjoyed a credit boom over the last three years thanks to pent-up demand for consumer loans, low interest rates and a growing economy. The prolongation of an upward economic cycle will strengthen Latin American banks' fundamentals in 2007 and could continue to up their ratings on a selective basis, according to S&P. Last year was the best in a decade for most banks across Latin America. The report added that the major banks' key achievement was sustaining a vigorous rate of consumer lending expansion while maintaining healthy credit fundamentals. Bank lending has more than doubled over the last three years as a stable, growing economy together with low interest rates have spurred consumer and business demand for credit. However, according to another report, Mexico was still seen as a relatively 'unbanked' country with a ratio of bank loans to GDP - a common measure of the penetration of financial services in a country - of about 13%, while in Brazil it was around 34% and in Chile about 70%.

Mexican banks aim to quadruple their private sector loan portfolio to US$410bn by 2012, according to the country's banking association. 'This would mean MXN3.3tn (US$300bn) in additional financing for the sector,' the association's president Marcos Martinez told a banking conference. Lending to the private sector in Mexico stood at US$1.1bn in January and has been growing at above 20% annually over the past three years, as international and local banks increase their client base and issue debt to finance strong demand for credit.

There were also reports critical of the Mexican banking system. Critics, including the Bank of Mexico, say banks charge far more for the same services in Mexico than in other countries. Banks say their commissions are justified due to the higher cost of doing business in Mexico and that competition has started to bring down fees and interest rates on loans. Mexicans often complain that the country's mostly foreign-owned banks levy higher rates for credit cards, account maintenance and other everyday financial products than they do in their home countries. Mexico's financial consumer watchdog urged more competition among banks and said teaching people the basics about loans and credit cards will force lenders to lower interest rates and fees. Luis Pazos, head of the watchdog Condusef, has said that banks often do little to explain to customers the burdens they are taking with credit cards, checking accounts and other products, said

Contents

Executive Summary
Key Issues
Changes To The Commercial Banking Forecast
Mexico Commercial Banking SWOT
Latest Developments - Q307
International Context
Lending Trends And External Accounts
Total Assets, Loans And Deposits
Year-On-Year Growth Rates
Per-Capita Deposits
Macroeconomic Trends And Developments
Economics: BMI Core Scenario
Politics: BMI Core Scenario
Economic Activity
Industry Forecast Scenario
Comment On The Past
Comment On Forecasts
Comment On Trends
Banks' Bond Portfolios
Competitive Landscape
Market Protagonists

“Mexico Commercial Banking Report Q3 2007” is available from Report Buyer. For more information go to: http://www.reportbuyer.com/banking_finance/country_overvi...

Piribo Product ID: BMI00491

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