Banking institutions in Mexico have enough margin to withstand an economic slowdown this year and market volatility, including high inflation and interest rate risks. Contagion risks and second-order effects from recent US bank failures will have limited effects
declared the agency Fitch Ratings.
In an analysis titled Mexican banking system, capital and credit growth in the face of economic slowdownFitch stated that the largest banks operating in the country, which are those that serve medium and high income clients, as well as corporate and public sector clients, will help contain the deterioration of asset quality.
The rating agency specified that, in a base scenario on the consequences that the bankruptcies of credit institutions in the United States could have, large outflows of deposits are not anticipated in the national banks, particularly, in the large banks that still depend on the deposits of short term, which are less sensitive to interest rates.
However, banks have enough liquidity to handle any moderate outflow. The securities portfolios of Mexican banks tend to be short-term and revalue quickly; therefore, the risks of unrealized losses attributable to higher interest rates on the fair value of the bonds are lower relative to the US market
he pointed.
Fitch anticipates the profitability of Mexican banks to decline in 2023 as credit growth slows and loan impairment charges increase, while profitability at the more concentrated small and midsize banks will remain under pressure due to more concentrated business profiles. risky and higher cost of credit.
It also expects capitalization levels to decline in 2023 as entities continue to grow their businesses and pay dividends, along with lower earnings.
However, the system’s total regulatory capital metrics will remain high compared to pre-pandemic levels, as the requirements of that sector will support solvency.
Regarding the growth of the credit portfolio, the rating agency expects it to increase between 6 and 8 percent, but the environment will continue to be sensitive to macroeconomic, governance, and political challenges.