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Banorte cuts credit growth guidance amid 'selective and rigorous' lending stance

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Banorte cuts credit growth guidance amid 'selective and rigorous' lending stance

Grupo Financiero Banorte SAB de CV cut down its loan growth forecast for 2019 as the financial group faces sluggish demand and adopts what it described as more prudent lending policies.

The bank said it now sees lending growth for the year hitting between 4% and 5%, compared to its prior expectation for 7% to 9% growth.

In a conference call discussing the Mexico-based banking group's third-quarter results, CEO José Marcos Ramirez Miguel said the bank's priority is "to remain selective and rigorous" in its lending decisions, after posting a record high risk-adjusted margin of 5% in the period.

Banorte also noted that it is seeing weaker demand in the corporate and medium-sized company segments, with repayments impacted by clients turning to international bond markets in refinancing their debt.

"We don't see a lot of appetite from the small companies to take additional debt, and we remain selective, only lending to companies that maintain a strong liquidity position or have high-quality supplier receivables," Ramirez said.

Banorte remains optimistic on the consumer loan segment, which presents "good opportunities to grow with measurable risk," the CEO noted.

The company's net income rose 13% year over year to 8.86 billion Mexican pesos in the third quarter. Noninterest income grew 30% annually to 6.21 billion pesos, as a 162% surge in trading income offset an 8% drop in net service fees.

The decline in net fees was mainly driven by an increase in the provisions of an insurance policy for government workers as well as the sale of some real estate assets, Ramirez said. However, basic banking fees, the one that is generated through customer transactions, continued to be strong with growth of about 11% yearly, according to Investor Relations Head Ursula Wilhelm.

Banorte has yet to release its guidance for 2020, but Ramirez said the group is confident that they will reach double-digit growth in net income growth next year. Funding costs related to the acquisition of Grupo Financiero Interacciones SA de CV have also been declining, which will help in boosting net income in the fourth quarter and into next year, CFO Rafael Victorio Arana de la Garza said.

Rather than a threat, Banorte views the implementation of state-backed CoDi mobile payment system as "more of an opportunity," Francisco Martha, general director of digital banking, said. Although there is a possibility that merchant fees will decline, the payment system could present alternative revenue models for the bank, Martha added.

Ramirez also expects CoDi to help in formalizing a large chunk of the economy and serve as a cash substitute for small merchants.

As of Oct. 24, US$1 was equivalent to 19.08 Mexican pesos.