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Moody's: Mexico's development banks set to ramp up lending under AMLO


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According to Market Intelligence, April 2023

Moody's: Mexico's development banks set to ramp up lending under AMLO

Mexico's development banks are expected to increase lending during the administration of President-elect Andrés Manuel López Obrador, but their capitalization needs to be bolstered in order to counter a rapid rise in the granting of loans, Moody's said Aug. 7.

In a sector report, Moody's said that Mexico's public financial institutions are well positioned, with strong capitalization metrics, at the start of the new administration. López Obrador, who will take office Dec. 1, plans to use development banks to bolster lending and support economic growth in the country.

Moody's expects state-owned banks' fundamentals to generally remain sound if the planned increase in lending is done prudently. However, government sources will be needed to support the banks' capital ratios if credit growth becomes too fast and remains high over extended periods of time, the rating agency said. The impact on each public bank will vary depending on its asset quality and profitability, Moody's said.

"Still, even if lending increases significantly, this should not represent a material competitive threat to Mexico's private banks because the missions of public [financial institutions] are largely complementary to the business strategies of private banks," Moody's noted.

The next administration will focus on expanding resources to SMEs, as well as infrastructure and housing, through public banks. The banks with the most exposures to these segments are Nacional Financiera SNC Institución de Banca de Desarrollo, with a focus on SME financing; Banco Nacional de Obras y Servicios Públicos SNC, which targets financing for infrastructure projects; as well as Instituto del Fondo Nacional de la Vivienda para los Trabajadores and Sociedad Hipotecaria Federal SNC Institución de Banca de Desarrollo, both of which have a housing loan focus.

As for Banco Nacional de Comercio Exterior SNC Institución de Banca de Desarrollo, Moody's does not expect the bank to accelerate lending as much as the other development banks due to its previously high loan growth and the administration's focus on growing domestic demand instead of exports. Thus, the rating agency expects any deterioration in the bank's asset quality and capital to be likely contained.