Latin Finance - November/December 2010 - 42

has a long way to go before an upgrade. Olivares says Bancomer should play a While no rating changes are in the S&P’s director of financial institutions, leading role as the largest Mexican bank cards for at least a year – the top three Angélica Bala, says a sovereign upgrade is in carving out new areas of credit growth. agencies bestow a stable outlook – some needed first, which is not expected in the But it is not increasing commercial credits analysts say Bancomer’s rank has a foreseeable future. to small and medium-size businesses with greater chance of weakening than sufficient intensity, to its own detriment, strengthening in the medium-to-long Concentration Risk he adds. term. The main risk: Bancomer’s parent Some of the bank’s problem areas are “What the bank has stopped lending company BBVA. shared with Mexico’s banking industry in consumer credit [due to the recession] “The Spanish parent could be under – such as low growth – stymied further it has not compensated for in credit to certain pressure given what is happening businesses,” Olivares says. “In terms of in Spain with the economic downturn and by the recession. Experts expect no more volume this affects revenue generation and relatively poor economic prospects in that than 8% growth in loans for Bancomer and other banks this year, although the eventually profitability.” country,” says García. “That could have banks predict double-digit loan increases. Bancomer says it is making inroads an impact on Bancomer in a relatively Other concerns include high singleinto commercial financing as part of a shorter timeframe than any potential credit exposures, with 20 top borrowers strategic plan to focus on new low-risk upgrade.” accounting for close to 100% of opportunities. Most of the growth, García said in late September that however, is in government an agency meeting to loans (21% annual as of discuss BBVA’s outlook was June) compared to 12% for forthcoming as the bank had small businesses, according to been on positive outlook Bancomer. since before the euro-zone Olivares says banks in crisis. “We need to take general are not increasing action on that,” he says. commercial credits as much However, a mere change as they have pledged, leaving in BBVA’s outlook, if that companies to the historic were to happen, would practice of buying from not immediately affect their suppliers on credit. Bancomer’s A- long-term He nevertheless praises the issuer default rating, he banking industry for agreeing explains. in April to begin lending to S&P meanwhile says companies not registered with Bancomer’s BBB rating is Under local fire: BBVA Bancomer is criticized for high retail charges tax authorities as a first foray stand-alone, getting no help into Mexico’s vast, untapped from, and therefore proving informal sector. immune to, BBVA’s troubles. According to Bancomer’s Tier 1 capital, says Moody’s analyst David Olivares. an economist at a major Mexican bank, One of the most heated debates State Heavy strict regulations instated following the centers on whether Bancomer and other However, other analysts say that expanding country’s economic crises in the 1990s commercial financing can only happen in guarantee banks under foreign ownership Mexican banks are doing their share to boost credit in a country with one of the line with GDP growth in order to prevent are well capitalized – with at least 8% of lowest levels of financial intermediation banks from taking on too many risky credit required to be capitalized. in LatAm. Bank loans languish at 15% business loans. Structural reforms are also S&P says its main concern, the of GDP, perhaps inching up to 16% this needed to speed up prolonged foreclosures bank’s asset quality, is expected to keep year, compared to Brazil’s 45%, Chile’s and other execution of guarantees improving with economic recovery, other 65% and Panama’s 94%, says Jonathan procedures. Loans should inch up each than mortgages. The bank says it has had Heath, president of the Mexican finance year only 2-3 percentage points of GDP to create fewer provisions for credit loss executives institute’s (IMEF) economic from the current 15%, Heath says. than its peers, with provisions to average studies committee. Mexico’s finance Bancomer could keep slowly expanding loan portfolio ratio reaching only 4.04% ministry estimates from April are not its commercial loan portfolio over the next in March. The ratio dropped sharply much better, with bank loans totaling 17% 12 months if recovery holds up, analysts by 184 basis points since December, of GDP for 2010 and 21% for 2012. predict. Bancomer adds. “One of the main reasons Mexico as But state and federal governments and Experts do agree, however, that a country hasn’t been able to grow in the corporations will likely be the principle the country’s economic and regulatory past 10 years is because of this extensively recipients, with small businesses borrowing environment – including lengthy low credit penetration,” Heath says. from banks through government agency foreclosure procedures – mean the bank

42 LatinFinance

November/December 2010

Latin Finance - November/December 2010

Table of Contents for the Digital Edition of Latin Finance - November/December 2010