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Higher rates continue to buoy profit at Mexico's largest banks

Banking Essentials Newsletter December Edition Part 2

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University Essentials | COVID-19 Economic Outlook in Banking: Rates and Long-Term Expectations: Q&A with the Experts

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Higher rates continue to buoy profit at Mexico's largest banks

Mexico's largest banks posted a 23.8% jump in second-quarter net profit as a rising rate environment continued to help boost net interest income compared to year-ago levels.

In aggregate, the country's three largest listed banks — Grupo Financiero Banorte S.A.B. de C.V., Grupo Financiero Inbursa SAB de CV, and Grupo Financiero Santander Mexico SAB de CV — showed net income of 13.15 billion Mexican pesos, up from 10.63 billion pesos a year earlier. The year-over-year profit improvement was broadly similar across the three banks, with increases ranging from 22.8% for Banorte to 25.0% for Inbursa.

As a group, income from both interest and fees and commissions grew compared to the year-ago period. Net interest income shot 20.4% higher to 34.26 billion pesos, while net fee and commission income increased 17.2% to 7.86 billion pesos.

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The higher net interest income comes as Mexico's central bank, Banco de México, has continued to raise rates. Its benchmark interest rate ended the second quarter at 7.00%, compared to 4.25% a year earlier. Since resuming rate hikes in late 2015 following a seven-year hiatus, Banxico has upped the benchmark rate by 400 basis points so far, though the central bank has recently hinted that it may soon be near the end of its cycle of interest-rate increases.

Still, all three banks saw their net interest margins expand in the second quarter as compared to a year earlier to sit above 5% for the three-month period. Banorte had the highest NIM for the period, at 5.34%, despite seeing a 57-basis-point contraction compared to the prior-quarter period, which the company attributed mainly to lower premium income in Seguros Banorte SA de CV and lower net interest income on its investment book.

The stronger performance on interest income, along with higher fee and commission income, helped to offset still rising credit quality and operating expenses. As a group, the three banks saw operating expenses tick 11.4% higher, while asset write-downs grew 20.1%.

Despite the increase in credit quality costs, all three banks saw improvement in their nonperforming loan ratios compared to a year ago. Inbursa's NPL ratio narrowed by 38 basis points over the year to end the quarter at 2.25%, while Santander Mexico and Banorte's NPL ratios improved by 67 basis points and 56 basis points, respectively, over the same time period.

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Click here to view a webcast utilizing Latin American regulatory bank disclosures for financial analysis.
Click here to analyze a bank and its peers using granular and standardized regulatory financials for Mexican and Colombian banks.

As of Aug. 2, US$1 was equivalent to 17.92 Mexican pesos.