MONTERREY, Mexico--(BUSINESS WIRE)--In a new special report Fitch Ratings has analysed the consumer finance sector in Mexico and concluded that the mix of sluggish economic activity, aggressive growth in recent years, relative higher household debt at the lower end of the income ladder, and fierce market competition are again pressuring bad loans and the overall profitability of the sector. All of this is similar to 2007-2009 but this time without an economic recession.
The special report considers six rated entities mostly dedicated to providing consumer unsecured loans and pay-roll loans. All the Rating Outlooks remain Stable, with the sectors acknowledged cyclicality already embedded in them. However, current trends have moved more entities closer to the asset quality and profitability negative rating triggers.
The sector present strong headwinds in 2015 as the economic activity, and hence household income, will see only a modest increase during this year, making less likely a short-term recovery on these negative trends on asset quality.
Non-performing loans (NPLs) depends on the segment. A significant differentiation exists for lenders relying on payroll lending and those who participate mostly on the unsecured market. Adjusted NPL ratios (90-day impaired loans plus 12-month written-off loans) increased to 23% at YE14 from 21% at YE12 in the unsecured lending portfolio and to 15% from 10% in the secured portfolio. Despite NPL increase in both segments, the loan loss reserves (LLR) coverage remains sufficient. The entities' adequate capital metrics also helps to absorb possible credit losses.
Fitch also considers that an interest rate increase may result in additional headwinds for sector earnings, despite lending rates tending to be inelastic to changes in overall interest rates (mainly due to their high level and increased competition), although funding costs may increase for those lenders without low-cost retail funding, especially in the NBFI segment.
'Mexican Consumer Finance Companies' is available at 'www.fitchratings.com' or by clicking the above link.
Additional information is available on www.fitchratings.com
Mexican Consumer Finance Companies
Global Bank Rating Criteria (pub. 20 Mar 2015)
Global Non-Bank Financial Institutions Rating Criteria (pub. 28 Apr 2015)