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The recent increases at several Mexican banks of their government-related nonperforming loan (NPL) ratios are due to Coahuila state's debt restructuring, Moody's analyst Felipe Carvallo told BNamericas.
Because of this restructuring, local banking regulator CNBV required banks to report their exposure to Coahuila state debt as NPLs for the next three repayments.
The last of those three repayments will occur at the end of 2011, and in 2012 there will be a return to the traditionally low NPL levels among government loans, the Moody's analyst said.
Bank loans to states and municipalities normally have a federal guarantee, where the finance ministry is authorized to use part of the funds that would be allocated to a particular state to repay its outstanding loans to banks, Carvallo noted.
In the case of Coahuila, some banks began to realize earlier this year that their guarantees were not registered with the ministry, and were fraudulent.
The banks asked for the outstanding debt to be repaid, which lead to Coahuila's needing to restructure its debt, the analyst said.
Although at no point did the state stop paying its debt, it is now obligated through the restructuring to repay its debts over a much longer period - 15 or 20 years - and with a high rate of interest, Carvallo noted.
A recent Deutsche Bank (NYSE: DB) report said that increasing government NPLs were a cause for concern among some banks, including the local units of Santander (NYSE: STD) and HSBC (NYSE: HBC), with respective NPL ratios of 15.8 and 15.3% at the end of September.