Mexico's position among Latin American markets may draw further foreign
banks seeking to boost operations focused on import-export activity,
says Fitch Ratings. A number of banks have recently received regulatory
approval to operate in Mexico. Meanwhile, retrenchments by universal
banks, such as recently announced Deutsche Bank, tend to keep
competitive dynamics in check.
Several factors explain why an influx of lesser recognized foreign banks
to Mexico could continue. In particular, the recently signed
Trans-Pacific Partnership opens a wider degree of trade opportunities
with Asian regions. We also expect Mexico will benefit from the U.S.'s
decision in August to permit U.S. exporters to ship U.S. crude oil to
the country - a step toward greater energy capacity, one key to more
private investments. Regulatory barriers to entry relative to other
Latin countries are modest. Overall banking penetration in Mexico
remains relatively low, with private credit to GDP at 31% (vs. 55% for
Brazil). Profitability of banks in the Mexican system has held steady
since the financial crisis, with net interest margins across the system
around 5%, signaling that overall competitive dynamics in Mexico are
relatively in check.
Recent examples of banks coming from Asia include Industrial and
Commercial Bank of China and Korean Shinhan Financial Group. Each gained
recent regulatory approvals to operate Mexican subsidiaries. Non-Asian
regions could also be drawn into the mix, such as Brazil, which has
generally shown limited interest in Mexico. Brokerage firm BTG Pactual
and a newly created brokerage firm controlled by Itau Group have
recently gained regulatory approvals. Finally, Spanish bank Banco
Popular was recently approved as a shareholder of a local bank (25%
stake) and Banco Sabadell as a new bank in the system. Other groups have
entered the country with alternative financial vehicles and SPVs looking
for geographic expansion and or diversification of funding through debt
issuances in the local market.
Spanish banks BBVA and Santander, Citigroup's Banamex, HSBC Mexico and
Scotiabank of Bank of Nova Scotia are long-standing examples of foreign
banks already diversifying into Mexico - each is counted among the seven
largest banks in the country, or G7. And many foreign banks already
operate subsidiaries of global financial groups from various countries,
including Spain, U.S., U.K., Canada, Switzerland, Japan, France and the
But there have been also moves into the country resulting in later
departures. RBS, ING Group, BNY Mellon, and most recently, Deutsch Bank
each entered and later retreated as problems affecting each parent's
overall operations contributed to exits.
Some of foreign banks in Mexico operate a significant number of
subsidiaries in both banking and brokerage sectors. The profitability
measures (ROAs, ROEs) for those foreign banks with brokerage operations
have outperformed those of foreign banks operating in Mexico without
brokerage operations. Of the 35 brokerage banks in Mexico's system, 14
are foreign owned and comprise 37.8% and 77.7% of total assets under
custody and net profits, respectively.
The above article originally appeared as a post on the Fitch Wire credit
market commentary page. The original article can be accessed at www.fitchratings.com.
All opinions expressed are those of Fitch Ratings.
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View source version on businesswire.com: http://www.businesswire.com/news/home/20151103006439/en/
Copyright Business Wire 2015
Source: Business Wire
(November 3, 2015 - 11:25 AM EST)
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