Contents

Introduction

Mexico's credit portfolio continues to grow but is still far from recovering the impressive pace last seen at end of 2016. The weak expansion of the economy and the rise in inflation, along with uncertainties stemming from the July 1 general election and stagnant NAFTA negotiations, have tapped the brakes on loan expansion.

The negative factors weighing on credit should dissipate during the second half of the year. Economic activity has begun to accelerate and inflation is slowing down, while the country will soon confirm whether leftist firebrand Andrés Manuel López Obrador (AMLO) will succeed President Enrique Peña Nieto and take the reins of the government on December 1. And while the banking sector is concerned about the prospect, the Mexican financial system looks solid enough to lessen the risks of impacts due to political decisions.

Meanwhile, the banking sector's profitability continues to rise thanks to high rates and low-cost funding. In this scenario, Mexico-based banks will continue to reap profitability rates above the Latin American average.

In this report we will describe how credit has evolved in recent years, along with short- and medium-term outlooks. In addition, we will identify which factors continue to drive profitability. Finally, we will analyze the impact that the recently approved Fintech law in Mexico can have on the sector.

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