Fears that the Mexican banking system could be damaged by the turmoil in the US have not been borne out, senior Mexican officials said in Miami yesterday. “The banking system is contributing to growth”, Agustin Carstens, Mexico’s finance minister said at the Emerging Markets Latin America lecture on the fringes of the IDB meeting.
Carstens said that the volume of business loans is growing at 20% annually, and that the annual volume of new mortgages had increased in the past six years from 150,000 to more than 1 million per year. Consumer lending and mortgages grew at more than 30% per year 2004 to 2006.
The banking system “worried us in the past” but is not a concern now, Everardo Elizondo, a deputy governor of Banxico, Mexico’s central bank, told Emerging Markets in an interview.
Risk in the banking system is “very low”, he said. Delinquent payments in the consumer credit portfolio “is within normal margins, and are logical owing to the growth of bankization [banking penetration]”, Elizondo said. Banks are moving down market and lending to lower-income customers as part of the drive to expand their reach, but the portfolio performance “is not a source of significant concern”, the central banker said.
He cited a number of strengths in the banking system, including a strong asset base, adequate funding and the rapid growth in lending to business.
Whatever problem portfolios may arise, they could be readily absorbed by the market, Guillermo Mondino, emerging markets research chief for Lehman Brothers in New York, said in an interview. “There is still an appetite to buy portfolios. I don’t expect systemic problems. I don’t expect there will be a serious risk (in banking) unless the situation becomes complicated.”
Alejandro Schwedhelm, managing director of Darby Overseas Investments, a private equity group that invests across Latin America, also discounts fears of risk in the financial system. “People forget that in a country like Mexico, there is no such thing as subprime. Credit penetration is still much lower, you have a rationing effect and credit goes to better quality borrowers,” he said in an interview. Another factor that reduces risk is that many recent mortgages were fixed rate.
The recession and financial crisis in the US still have a way to go before they play out, and already projections foresee a 1-percentage-point slowing of economic growth, to about 2.8% for the year, Schwedhelm said. Slower growth would mean less jobs and less capacity to pay for some segments of borrowers.