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Fitch: Mexican banks see stable profits in H1'16 due to higher interest rates, loan growth

Mexicanbanks had stable profits in the first half of 2016 despite Mexico's difficulteconomic scenario, mainly thanks to higher interest rates and loan growth,Fitch Ratings said in its latest Mexican banking system update.

Banxicorecently raised itsbenchmark rate by 50 basis points to 4.75%, meaning it has increased the rateby 150 basis points so far in 2016. This is positive for banks, since higherrates have been reflected in higher net interest margins, Fitch said.

Goingforward, Fitch expects banks' net interest margins to continue rising given thelow-cost funding available to them through deposits.

Asfor lending, Mexican banks' total loan portfolio grew 15.2% in June 2016compared to a year ago, up from 14.6% growth in June 2015, mainly due topayroll and personal loans, Fitch noted.

Fitchsees loan growth remaining around this level for the rest of 2016 despite lowerprojections for Mexico's GDP growth, mainly as the result of the low level offinancial intermediation and opportunities derived from Mexico's recentstructural reforms.

Recentgrowth in products such as credit cards and loans to SMEs should also benefitbanks, while tighter cost controls would help their earnings, Fitch noted.