Mexican Banks Expect Credit Growth Despite Difficult Global Scenario Dow Jones
go to original May 20, 2012

ACAPULCO, Mexico - Mexican banks expect to continue to expand lending this year despite a complicated international financial outlook due to troubles in the euro zone.

Jaime Ruiz, president of the Mexican Banks Association, said at the country's annual bank convention in Acapulco that financial institutions operating in Mexico project that they will have lent 2.27 trillion pesos ($164 billion) to private sector entities, including consumers, by the end of 2012, for a 14% expansion in the loan portfolio versus 2011.

"Demand for credit is growing in Mexico," Ruiz told reporters, adding that the country's economy also is growing "in the middle of this international crisis."

Mexico is en route to post its third consecutive year of economic expansion after having shown a 4.6% year-on-year jump in gross domestic product during the first quarter. The central bank projects that GDP will expand this year by nearly 4% after having grown 3.9% in 2011 and 5.5% in 2010.

Despite this growth, Mexican assets have suffered in recent weeks amid concerns that the fallout of a Greek exit from the euro zone could hurt economies around the world. The Mexican peso has lost around 8% of its value against the dollar during the last two months as the euro-zone debt crisis roiled markets; the peso recently traded at MXN13.8320 to the U.S. dollar.

Yet bankers pointed to Mexico's healthy public finances as a factor that should eventually help the country distance itself from the euro-zone troubles. The country has a manageable 33% ratio of debt-to-GDP, stable monetary policy, ample foreign reserves and--should credit conditions tighten--a $72 billion flexible credit line with the International Monetary Fund.

"We always tend to separate ourselves from what's going on, and due to this, [Mexican banks are] not worried," said Hector Grisi, head of Credit Suisse Group AG's (CS, CSGN.VX) Mexican operations.

Mexico's manufacturing-heavy economy relies on the U.S. to purchase around 80% of its exports. To the extent that the euro-zone troubles stay in Europe, Mexican bankers said they see little long-term impact on the Mexican economy.

Two of the country's biggest banks are subsidiaries of Spanish financial groups, raising concerns that those banks' capital could be raided to meet tightening capital requirements in Spain. Together the Mexican units of Banco Bilbao Vizcaya Argentaria SA (BBVA, BBVA.MC) and Banco Santander SA (STD, SAN.MC) hold 35% of the MXN2.87 trillion of deposits in the Mexican banking system.

Ruiz, who is also head of a small Mexican bank called Ve por Mas, defended the right of the banks' controlling shareholders to take a cut of profits earned in Mexico as long as the banks comply with local regulations.

The average capital ratio among Mexican banks is 15.7%, well above the 8% rate mandated by Basel III.

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