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Mexican banking majors see bad loans spike, profits decline in Q4'20

Three of the largest banks in Mexico showed slimmer net interest margins and profits in the final quarter of 2020 compared to the same period of 2019, as deteriorating asset quality drove the accrual of loan loss reserves.

Grupo Financiero Citibanamex SA de CV, Grupo Financiero Banorte SAB de CV and Grupo Financiero BBVA Bancomer SA de CV's collective net income totaled about 17.04 billion Mexican pesos in the fourth quarter, down 46.7% from a year earlier.

At the individual level, profitability declined for all three lenders from both the linked and prior-year quarters.

The results came as the banks' nonperforming loan ratios spiked sequentially, impacted by the end of grace periods. The increase was accompanied by higher loan loss reserve levels as a percentage of gross loans. Citibanamex, which saw its NPL ratio tick almost a full percentage point higher from the third quarter, closed 2020 with a reserves-to-loans ratio of 7.01%, up from 4.48% at the end of 2019.

The banks' net interest margins, meanwhile, slid year over year to below 6% as Mexican policymakers announced several benchmark rate cuts over the year.

Executives at Banorte, which reported the lowest fourth-quarter NPL ratio among the group at 1.10%, expect to see a moderate increase in profitability this year but also forecast a continued reduction in the bank's net interest margin of between 15 and 30 basis points.

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As of March 8, US$1 was equivalent to 21.40 Mexican pesos.