Commercial banks in Mexico could face challenges in 2018 arising from presidential elections and ongoing talks to revamp the NAFTA trade pact, but the sector's large capital cushion and solid reserve coverage for nonperforming assets should allow it to cope with any potential volatility, according to S&P Global Ratings.
The presidential elections, scheduled for July 1, could result in credit demand stalling, the rating agency said in a report. It added, however, that Mexico's two previous election cycles had only a minor impact on loan demand and GDP growth.
Inflationary pressures have more potential than political developments to reverse recent asset quality improvements for Mexican banks, S&P noted.
"We also believe that unexpected adverse changes in fiscal or other economic policies after elections later this year could curtail the country's GDP growth prospects, which would damage domestic banks' credit quality," the rating agency said.
Earlier in March, Fitch Ratings said uncertainty over election cycles in Latin America could limit credit improvements this year, noting that any fundamental changes to NAFTA would likely affect a wide array of sectors.
This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings, a separately managed division of S&P Global. Descriptions in this news article were not prepared by S&P Global Ratings. The original S&P Global Ratings documents referred to in this news brief can be found here.
