IMF approves US$72bn line for Mexico just in case, finding that banks are healthy

Tuesday, January 11, 2011

The IMF has approved a flexible credit line (FCL) arrangement worth 47.3bn special drawing rights (SDRs, US$72bn in total) for the Mexican government, which it does not plan to execute, according to a report from the multilateral that also praised the solidness of the country's financial system.

Noting that Mexico has improved a number of its fiscal and monetary policy mechanisms in recent years, the IMF report said that "the banking system is well-capitalized and profitable" and that the government had responded fairly well to the financial and economic crisis of 2008-09.

"Well-targeted interventions in financial and foreign exchange markets helped maintain orderly conditions, with careful use of rules-based interventions and some lending and credit guarantees from public development banks in order to keep key market segments operating," the IMF said.

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"The financial system remains resilient and there are signs that the credit cycle is beginning to turn. After contracting for much of 2009, bank credit has started to grow in 2010, rising by 1.1% year-over-year on average during the first three quarters, but rising to 5.9% year-over-year by September," the report read, pointing to stability in non-performing loan (NPL) ratios of 2.7%.

Moreover, the subsidiaries of global banks, which dominate in Mexico with close to 80% market share, have learned to use their local presence to build a domestic funding base, so that the crisis did not cause undue stress on their balance sheets.

Mexico received its first FCL in April 2009 and saw that program renewed in March 2010.