A House of Bricks


The World Bank, citing Global Findex data, confirms the grim fact that more than 2.5 billion adults have no financial inclusion whatever. Moreover, just 41% of adults in emerging markets […]

The World Bank, citing Global Findex data, confirms the grim fact that more than 2.5 billion adults have no financial inclusion whatever. Moreover, just 41% of adults in emerging markets have a bank account, in stark contrast to the 89% observed in mature economies. A 2013 survey conducted by research firm Consulta Mitofsky revealed that just 21% of Mexicans had a bank account. Given that much of the emerging economies are comprised of SMEs, this lack of participation is clearly curbing the evolution of businesses that could otherwise be economically productive. The World Bank’s 2013 Country Partnership Strategy (CPS) for the United Mexican States for the fiscal years of 2014-2019 had the double-edged objective of fostering broader, and importantly, sustainable prosperity. Together with the Mexican administration, several strategies were laid out to this end, a key one being to maximize productivity by nurturing the financial sector and reducing high financial exclusion.


Speaking at the BNP Paribas Economic Forum on March 4, 2014, Deputy Governor of the Bank of México, Manuel Sánchez, shared a bird’s-eye view of the sector’s prevailing shortcomings, outlining solutions being pursued. He noted that over the past decade real bank lending to the private sector has seen expansion. Yet, he added that, “In spite of higher loan growth, bank penetration, as measured by the ratio of private-sector credit to GDP, continues to be low, even compared to other nations at an equivalent stage of economic development. Something similar can be said about total domestic financing to the private sector, which amounts to less than one-third of GDP.” He also acknowledged that “…banking regulation and supervision have improved considerably, including the strengthening of accounting, portfolio rating, reserves and capital requirements,” as a result of which the system boasted high solvency and liquidity indicators. Mexico’s recent banking reform, set to enter effect in 2015, introduced certain key innovations, one of which was the establishment of specialized commercial-law courts at the federal level, which can only bolster corporate governance. Reform in short has sought to ensure greater protection of property-rights for creditors, more formal regulation, and greater competition among financial intermediaries. Compliance with Basel III guidelines is now mandatory by law.

Regarding competition within the sector, the legal framework enables mortgage substitution, whereby debtors can opt for banks offering better terms. Similar legal provisions facilitate deposit and consumer loan mobility, letting customers opt for banks deemed more efficient and convenient. In net terms the new banking sector framework is geared at putting on a more accessible human face to encourage wider participation and boost sector contribution to the economy. In concluding Sánchez stressed that, “…lags in the development of the Mexican banking system are a clarion call for much deeper and more inclusive intermediation [while] further measures that foster the effectiveness of the judicial processes and law enforcement, would improve the foundation for sustainable credit growth.”


Mexico’s largest sector player, and a subsidiary of Spain’s second largest bank, BBVA, is BBVA Bancomer. As of 2013 it held over a 20% market share of total assets, deposits, and performing loans. In 2013, it catered to 20 million customers, while with a branch network of over 1,797 and close to 40,000 employees. For FY2013 performing loans were at Ps697.7 billion, 8.7% up YoY, largely fueled by the commercial portfolio and household lending. The former loan group summed to Ps363.1 billion, up 11.7% YoY. Meanwhile, consumer finance and credit cards stood at Ps180.6 billion on a rise of 8.7%. Impressively, 2013 brought roughly a million new consumer loans, on double-digit growth of 11.6%. Net income from fees and commissions was at Ps20.2 billion, up 10.3% YoY. Net trading income declined 27.5% to Ps3.9 billion pesos on international markets. Most impressively, net profit of Ps37.8 billion, had soared 34.3% YoY. Annual growth, too, at 10.7%, marked a four-year high.

Banamex, by assets and deposits Mexico’s 2nd largest bank, is a subsidiary of US Citibank, and its financial results accounted for 11% of Citi’s $3.34 billion 2Q2014 net profit. Quarterly net profit shed 15% YoY to Ps4.5 billion on slender gains from positions in financial market securities. The quarterly return on equity (ROE) was at 11.3% up from 6.4% in 1Q2014. Net profit of Ps414 million from trading in 2Q2014 reversed the Ps1.40 billion trading loss in the first quarter. Banamex, Mexico’s second-biggest bank, said growth in deposits and loans during the second quarter more than compensated for the impact of lower commissions and interest rates. Deposits rose 15% to Ps459 billion. Yet, the credit portfolio of Ps346 billion as of end-June, was up from Ps340 billion a year earlier. The bank saw double-digit credit growth in areas including personal loans and mortgages, although corporate financing lost 7% YoY. The nonperforming loan rate, at 1.7%, was flat YoY, but up from 1.2% in 1Q2014. The Bank has over 1,700 branches around Mexico.

Santander Mexico comes in at third place, reported net income of Ps3.7 billion in 2Q2014, down 11.0% YoY, but up 13.1% QoQ. Quarterly ROAE was at 14.1%, vs. 13.5% in 1Q2014 and 17.8% in 2Q13. Net interest income for 2Q14 rose 4.1% YoY to Ps9.3 billion. Meanwhile, the net interest margin ratio for 2Q2014 of 4.96%, was 9 basis points down on 1Q2014. Santander Mexico’s total loan portfolio in 2Q14 climbed YoY by 20.6%, to Ps440.7 billion. The quarterly NPL ratio was at 3.33%, up 90 bps from 2.43% in 2Q13, but 7 bps shy of the 3.40% of 1Q14. NPLs in 2Q14 rose 65.1% to Ps14.7 billion, from Ps8.9 billion in 2Q13. NPLs rose 5.3%, from Ps13.9 billion in 1Q14. For 2Q14, deposits rose 12.3% YoY, accounting for 52.0% of the bank’s total funding sources. As the bank pointed out this deposit base provided “…stable, low-cost funding to support Santander México’s continued growth.” Net income in 2Q14 of Ps3.7 billion, displayed a YoY decline of 11.0%, but quarterly rise of 13.1%.

Banorte (the primary subsidiary of Grupo Financiero Banorte) is the fourth largest bank in the system, and the only locally owned institution among the top five. Standard & Poor’s in April, 2014, affirmed its BBB long-term and A-2 short-term global scale and mxAAA/mxA-1+ long- and short-term national scale ratings. In under a decade, Banorte evolved itself from being a regional player to nationwide financial entity through the purchase of four Mexican banks, becoming subsequently a full service financial group. Banorte’s 2Q2014 net capital of Ps73.5 billion was 10% up YoY. The capitalization Ratio 2Q2014 (CR) of 14.95% modestly decreased by 0.2pp, vs. 1Q2014. Banorte ended 2013 with 1,316 branches, 6,707 ATMs, and around 20,500 staff across Mexico.

In August of 2014, Fitch Ratings affirmed HSBC Mexico’s Viability Rating (VR) at BBB and its local and foreign currency Issuer Default Ratings (IDRs) at A+ and A, respectively. The Rating Outlook is Stable. The fifth largest bank in Mexico by total assets and loans, HSBC, has a large and stable customer deposit base, claiming around 9% of the banking system’s core deposits. With a robust liquidity profile, its loan to deposits ratio as of June 2014 was at 78% where around 60% of total deposits comprised core demand accounts. Yet, profitability in 2013 was dented by higher loan loss provisions due to the resumption of consumer lending and homebuilder industry exposure.

The Mexican banking sector has long since followed the light at the end of the tunnel, having emerged confidently able to withstand any local or global ructions that may arise in the years ahead. And as the economy lowers the poverty watermark, while raising the middle class, the prospects seem wholly admirable.