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Moody's: Mexico's new leverage ratio minimum to benefit Mexican banks

The new 3% minimum leverage ratio set by Mexico's banking commission CNBV is credit positive for Mexican banks, according to Moody's.

In a sector report, Moody's said the new minimum will help lenders control their balance sheets relative to their core capitalization. It will also place Mexico's regulations more in line with global standards.

Moody's expects the regulation to anchor in solving the weaknesses of risk-based capital measures. "[The leverage ratio] will ensure that Mexican banks do not become overleveraged even as they maintain adequate risk-weighted capitalization ratios by optimizing capital consumption through a focus on assets with low risk weights," Moody's said.

The rating agency believes that Mexican banks will be able to surpass the new minimum leverage requirement, as reflected in the weighted average leverage ratio of the country's seven largest lenders, which was at about 9% in June.

Mexico joins other Latin American countries in implementing a minimum leverage level, including Brazil, which set a 3% minimum in January, as well as Chile and Panama.

The leverage ratio is calculated by dividing a lender's unconsolidated regulatory Tier 1 capital, including both Common Equity Tier 1 and Additional Tier 1 capital, by total adjusted assets, Moody's said. Opposite to previous regulatory capital rules, assets in the leverage ratio are not risk weighted, the rating agency noted.