Fitch: Regulation, Supervision, M&A To Benefit Mexican NBFIs

MONTERREY, Mexico & NEW YORK--()--Increased supervision and consolidation of Mexican non-bank financial institutions (NBFIs) will enhance long-term prospects and improve their chances of receiving funding from national and international lenders, Fitch Ratings says.

Regulations imposed in 2015 were positive for the sector as they drove consolidation of some market participants, enhanced financial reporting and made data on market segments more available. Further benefits from the financial reform remain pending, including improvements in the collateral recovery processes expected from the creation of specialized courts and judges, as well as wider use of correspondent entities to expand service offerings.

Current figures show that NBFIs now have almost half of the market of the total private sector lending in Mexico. The size of the financial market in Mexico is typically measured in terms of the banking (traditional and development banks) and regulated non-banking systems' total lending to the private sector, as a percentage of GDP. However, public estimations exclude non-regulated and other non-bank entities. If they are included as of September 2015, non-bank financial institutions' credit activities accounted for 14.7% of Mexico's GDP, while banks' penetration accounted for 18.3% (including traditional and development banks).

Fitch expects NBFI loan growth to continue as these institutions have become important contributors to the vibrancy of the economy. NBFIs reach rural and semi-urban areas where no banking branches exist and provide credit to entrepreneurs, small- and medium-sized companies, self-employed individuals, informal segments and independent professionals. Their targeted debtors are usually individuals at the lower base of the income pyramid in Mexico and smaller companies, typically unattended by banks. In Fitch's opinion, these customers still represent a majority in the country.

The positive impact of the regulations and loan growth will enhance NBFIs' access to funding from the national and international markets. We believe these changes will make their operational frameworks stronger and their healthier balance sheets could increase investors' appetites.

Fitch does not expect continued high consolidation in the Multiple Purpose Financial Entities (SOFOMES) sector to hinder loan growth. Changes in this sector's operational framework slashed the number of entities from more than 3,000 to around 1,400. Some remaining entities will not be able to cope with regulatory requirements, increasing the likelihood of mergers or acquisitions. Mergers in the pawnshop and credit union sectors could also occur in the foreseeable future.

The NBFI market in Mexico is diverse. Fitch's coverage includes: warehouses, non-regulated and regulated SOFOMES, pawnshops, credit unions, savings and loan cooperatives (SOCAPs), popular financial entities (SOFIPOs, limited corporations (Sociedades Anonimas) with financial orientations, and government-sponsored entities that play an important role in granting lending to individuals not served by traditional lenders. Fitch's estimation of the sector's market share used publicly available private credit figures from Banxico, Fitch's own database, and data from Condusef.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

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Contacts

Fitch Ratings
Monica Ibarra
Director
Banks
+52 8399 9150
Fitch Mexico S.A. de C.V.
Prol. Alfonso Reyes 2612
Monterrey, N.L., Mexico
or
Omar Rojas
Analyst
Banks
+52 8399 9167
or
Veronica Chau
Senior Director
Banks
+52 8399 9169
or
Rob Rowan
Senior Director
Fitch Wire
+1 212-908-9159
33 Whitehall Street
New York, NY
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Monica Ibarra
Director
Banks
+52 8399 9150
Fitch Mexico S.A. de C.V.
Prol. Alfonso Reyes 2612
Monterrey, N.L., Mexico
or
Omar Rojas
Analyst
Banks
+52 8399 9167
or
Veronica Chau
Senior Director
Banks
+52 8399 9169
or
Rob Rowan
Senior Director
Fitch Wire
+1 212-908-9159
33 Whitehall Street
New York, NY
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com