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Moody's: Outlook stable on Mexican banking system

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Moody's: Outlook stable on Mexican banking system

Moody's on Sept. 4 gave a stable outlook to the Mexican banking system, based on banks' continued strong fundamentals and declining operating environment risks.

In a report, the rating agency said banks' strong profitability and capital buffers support their robust asset quality, despite seeing a slight rise in consumer segment delinquencies. Prudent underwriting and good loan loss reserve coverage will aid in managing further deterioration, while lower inflation will cut down the risks on consumer lending.

Meanwhile, high lending rates and access to low-cost deposits will anchor banks' earnings, Moody's said. "Returns on assets will remain robust at about 1.7%. This will underpin core capitalization, which remains strong as evidenced by a tangible common equity ratio of about 13% as of June 2018," said Moody's analyst Georges Hatcherian.

In case of a cancellation of the North American Free Trade Agreement, Moody's expects banks to draw limited exposures to export industries that would be adversely impacted.

Moody's expects Mexico's real GDP to expand 2.3% in 2018 and 2.5% in 2019.