La Jornada: Financial institutions face increasing competition from Fintech: Moody’s

The Mexican banking system faces challenges in the credit market, so the outlook for the sector remains negative, the rating agency Moody’s reported yesterday afternoon.

In a report, it stated that structural market limitations, such as weaknesses in contract enforcement, the large informal sector, and inefficient collateral and bankruptcy frameworks, affect financial penetration, limit the proportion of creditworthy clients, and increase provisions for credit losses.

“These challenges are compounded by a weak economic backdrop, with growth expected to average around 1 percent between 2024 and 2027, and increasing competition from financial technology (Fintech) companies and non-bank financial entities,” he said.

He highlighted that the rapid expansion of participants in consumer loans and deposits is gradually transforming the Mexican financial landscape, putting pressure on banks’ asset quality as credit penetration increases.

“We maintain a negative outlook for Mexico’s banking system, reflecting weak economic growth that will put pressure on risk conditions, particularly after a period of strong consumer credit growth under high rates and in a context of persistent competition from new market participants.”

At the same time, investment uncertainty will limit demand for corporate credit, which will likely put pressure on Mexican banks’ historically high levels of profitability.

In line with the recent drop in ratings

Felipe Carvallo, senior vice president at Moody’s, explained that the banks’ negative outlook is consistent with recent rating actions.

On May 21, the firm lowered most of the ratings and/or evaluations assigned to eight Mexican financial institutions and their respective branches offshore.

The institutions that now have a lower credit risk rating are BBVA México, Banco Mercantil del Norte (Banorte), Banco Santander, Banco Nacional de México, Banco del Bajío, Banco Nacional de Comercio Exterior (Bancomext), Nacional Financiera (Nafin) and the Institute for the Protection of Bank Savings (IPAB).

Meanwhile, the deposit and debt ratings of Banamex and the base credit assessments (BCA) of Nafin and Bancomext were affirmed.

The outlook for the long-term ratings of bank deposits, issuer and senior unsecured debt changed to stable from negative for BBVA México, Banorte, Santander México, BanBajío, Bancomext and Nafin, while that of Banamex remains negative.

“Banks have strong ties to the sovereign due to their exposure to the real economy and government-driven systemic and institutional risks,” Moody’s said.