MONTERREY, Mexico--(BUSINESS WIRE)--Following a tough 2013, the rating outlook for Mexican commercial banks is stable due to some recovery of profitability and asset quality, according to a new Fitch Ratings report.
'The performance of Mexican banks was affected by the unexpected weakening of the economy, which is projected to close out 2013 with 1.2% growth, versus the 3.6% estimated at the beginning of the year. The economic slowdown affected asset quality, driving a material increase in provisions. Despite the economic slowdown in 2013, loans continued growing at double-digit rates,' said Alejandro Garcia, Senior Director in Fitch's Financial Institutions Group. 'Fitch expects Mexico's GDP to grow 3.5% in 2014, which should aid in an asset quality rebound and improve earnings drivers.'
Despite the recent increase in credit costs and reduced interest rates, banks have maintained profitability and slightly improved margins. Margins and return metrics were the highest in 2013 since the financial crisis. Margins could decline in 2014, along with trading income, but this would be offset by lower loan loss provisions.
In 2013, asset quality deteriorated in all the major business lines, driven by both cyclical and non-recurring factors, including the default of major homebuilders. Mexican banks are proactively settling problem loans, and asset quality metrics should stabilize, or improve moderately, in 2014 due to stronger economic prospects.
The loans to deposits ratio has continued to increase due to sustained loan growth, but remains reasonable. This ratio could deteriorate gradually as lending resumes, but the overall impact could be partially mitigated if banks continue seeking to reduce the still ample asset-liabilities tenor mismatches.
For more information, a special report titled '2014 Outlook: Mexican Commercial Banks' is available on the Fitch Ratings web site at www.fitchratings.com.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research: 2014 Outlook: Mexican Commercial Banks (Expected Partial Recovery of Asset Quality and Profitability Following a Tough 2013)