The Mexican government's plan to use development banks to stimulate the economy is credit negative for the banks due to possible asset risks, Moody's said Aug. 2.
With the program, the rating agency expects development banks to be exposed to companies and sectors that are most vulnerable to the country's economic slowdown. Specifically, new financing for micro-, small- and medium-sized enterprises worth 270 billion pesos will account for 45% of Nacional Financiera SNC Institución de Banca de Desarrollo and Banco Nacional de Comercio Exterior S.N.C. Institución de Banca de Desarrollo's loan and guarantee portfolios, Moody's said.
Nafin has an indirect exposure to SMEs, since it instead funds commercial banks that lend to the sector. Minimal exposure to SMEs limit asset risks for Nafin, as seen in its low delinquencies. However, Nafin will now be expected to absorb more risk as it needs to provide guarantees to these SME-lending banks without government backing, Moody's said.
"[T]o make up for this higher risk, Nafin will increase premiums and use these funds to create additional reserves for potential losses on guarantees, which will limit the risks," the rating agency said.
Moody's expects a limited rise in asset risk for Bancomext, despite a higher exposure to SMEs, given its conservative origination practices and direct lending know-how.
Both banks exhibit strong asset quality and capitalization, and they will be able to manage any possible deterioration in these metrics, Moody's said.
Elsewhere, the lowering of interest rates in Instituto del Fondo Nacional para el Consumo de los Trabajadores, or Infonacot, is expected to curb the bank's margins. However, its lower net provisioning cost will support profitability, Moody's said.
The mandated increase in Infonacot's consumer financing will also pressure banks and finance companies focused on retail lending, the rating agency noted.
Sociedad Hipotecaria Federal SNC Institución de Banca de Desarrollo, a development bank focused on the housing sector, will see further erosion in its already-low asset quality once it starts a mortgage financing program for people with income sourced from the informal economy, Moody's said.