Moody's on Aug. 29 revised its outlook on Mexico's banking system to negative from stable, noting that lower economic growth prospects will weaken the government's ability to support banks.
The rating agency expects Mexico's GDP growth to slow from 2% in 2018 to 0.5% in 2019 and 1.5% in 2020. Such economic weakness could lead to a rise in delinquencies, with small- and medium-sized companies mostly bearing the brunt, Moody's said.
Bank delinquency ratios could jump to 2.7% by 2020 while loan growth could slow down to about 6%, the rating agency noted.
As a result, banks would maintain portfolio concentration in lower-risk corporate, residential mortgages and secured consumer financing, which already make up about 70% of total loans as of June.
In addition, narrowing margins as a result of expected cuts in the central bank's policy rates as well as higher credit costs would weigh on banks' profitability, Moody's said.
Still, the rating agency expects the government to maintain a high probability of support for banks in case of a crisis.
"This assumption reflects the government's track record during previous periods of stress, as well as the system's high reliance on local currency retail deposit funding, which gives the government a strong incentive to rescue banks," the rating agency added.
In June, Moody's lowered Mexico's outlook to negative due to risks in the country's growth and fiscal outlooks, including the "inability to articulate and execute a clear set of policies."
