"We see ourselves today as a solid counterparty for our partners"

Friday, March 18, 2011

Like most other development banks controlled by the Mexican government, Nacional Financiera (Nafinsa) ramped up its countercyclical activity during the 2008-09 crisis.

The development bank is now cooling off a bit, focusing its attention more on new alliances with banks like HSBC México, Santander México, and Banorte, offering innovative new ways to get funding to the country's millions of SMEs.

Nafinsa deputy general manager for promotion Luz Stella Lozano spoke with BNamericas about the bank's efforts to reach SMEs and its outlook for 2011.

BNamericas: How do your new alliances with banks to lend to SMEs fit with your strategy for 2011?

Lozano: These are new programs, the ones that we're doing with these banks. Right now, we have a program with guarantees that is functioning throughout the commercial banking sector. It's working with both banks and non-bank institutions, and it's a program that we've been managing for several years now. Today, that guarantee program represents 43% of Nafinsa's portfolio. We're talking about more than 75bn pesos [US$6.24bn] through 2010. With that guarantee program, normally we guarantee 50% of the risk of financial intermediaries, in exchange for the product for SMEs' having two main characteristics. First, that they don't require any mortgage guarantees, and second, that they offer a below-market interest rate.

These [new] programs that we're launching now are part of that whole line of products, but they're more specialized and aimed at market segments that aren't being served. Everyone participates in the general program, where we guarantee 50%. All banks have an SME product where each bank competes in the market with a product, with certain characteristics that differentiate them. When we go for a market segment that's not being served, there are some [banks] that go for it and others that don't. So we're looking at the strengths of every intermediary, and I think this is going to be a very interesting kicking-off point, in the sense that they're going to be developing specialties.

The ideal would be that all the banks participate in all the programs. But it's also good to have the player who is a specialist in each one.

BNamericas: Nafinsa has not been expanding its credit portfolio as quickly as it did during the crisis. What's the plan going forward?

Lozano: Our portfolio during the last three years saw very significant growth, mainly between 2008 and 2009. In 2010, it was a year where we really expected a faster domestic recovery. As you said, Nafinsa was indeed very active as a development bank filling its countercyclical role during the crisis. We grew by about 40% during 2008 and 2009. We did it through different programs directed at the sectors that were most impacted - for example, the automotive sector.

We opened credit lines worth more than 15bn pesos for the sector, and started certain programs directed specifically at that sector. We also worked, particularly in the worst moment of the crisis, on issues of corporate liquidity, launching programs aimed at backing companies with securities guarantees for debt renewal. So yes, there was very significant growth during those years.

What we're seeing is that in 2010, [Nafinsa's portfolio] began to return to levels of normal growth, in line with the economy.

BNamericas: What about for 2011?

Lozano: We're expecting growth of 20%, minimum. We're going to grow mainly in guarantees. We're convinced that as a development bank, our main instrument is the guarantee, where we share the risk. We're not attractive when it comes to funding, because in the end the same rules apply to us as to private sector banks, and we also raise our funding in the market. So for a commercial bank, we're not so attractive when it comes to funding. But the guarantees are what play that very important role of being a conduit for credit, and we're sharing the risk with the financial intermediary.

We're going to be very focused on sector-specific programs this year. For example, we're going to launch an education financing program. Working with financial intermediaries, the program already has 25 universities signed up. We're also going to launch a program to finance construction activity, as that's one of the industries that were affected [by the crisis], and it has recovered much more slowly than the others. We're going to keep supporting working capital for SMEs through all these initiatives you're seeing. We're also going to very specifically focus on developing our network of intermediaries.

We're moving to a "third floor" model, where we're going to take advantage of the solidity of intermediaries that are already accredited so they can give financing to other, much smaller intermediaries. So I think for 2011, we have a very optimistic and positive outlook. Lending in 2011, in January alone, took off at a much better rate than in 2010. During that month, our guarantees program grew by close to 3bn pesos.

BNamericas: How important are Nafinsa guarantees in the overall SME lending market?

Lozano: In the last six years, we went from guaranteeing 21% to 63%. That is, of all the SME credit granted by banks, 63% is guaranteed by Nafinsa.

BNamericas: So Nafinsa's influence in that market is on the rise?

Lozano: Exactly. What we're seeing is that Nafinsa's guarantees are gaining more and more weight in the banking sector's credit portfolio. And another piece of information is really interesting. In Nafinsa's credit portfolio, five years ago the guarantees made up 12%. Today, they represent 43%, and we could close this year with guarantees rising to close to 50%. That tells you where we're heading. We see ourselves today as a solid counterparty for our partners.

About the company

Nacional Financiera (Nafinsa) is a development bank owned by the Mexican government. Since the early 1990s it has focused on providing financing to the country's business sector through wholesale lending, with a particular focus on those parts of the economy neglected by commercial private sector banks.