Mexico launches major initiative to boost financial sector

Mexico's financial leadership has unveiled an eight-point, public-private initiative to strengthen the financial sector.

The project, which touches on technology, services, market incentives, fees and financial inclusion, is the product of months of discussions between the heads of Mexico's private financial institutions, the central bank and the incoming finance ministry under President Andrés Manuel López Obrador (AMLO).

"The main objectives of these actions are to increase the coverage of the financial sector and promote liquidity in the stock market, introduce a more efficient payment system for the population, and overall, facilitate and promote savings mobilization, channeling them into productive investments," read a press release from the finance ministry.

"All these objectives are a prerequisite for a more dynamic, inclusive and equitable economic growth."

For his part, the head of Mexican banking association (ABM), Marcos Martínez Gavica, outlined the group's strategic plan through 2024 to add at least 30mn clients to the banking system, increase consumption of lending to families by 50%, approve 1.3mn new mortgages, give financial support to 250,000 micro, small and medium enterprises, contribute an additional 0.7 percentage points to GDP, and achieve a credit penetration as a percentage of GDP of around 50%.

"In order to meet these goals... it is fundamental for there to exist continuous and coordinated work between the authorities and the banking sector," said Martínez Gavica, according to the ABM transcript.

At the presentation late Tuesday, central bank governor Alejandro Díaz de León (pictured), finance minister Carlos Urzúa and finance vice minister Arturo Herrera outlined the following plan:

1. Improvement of the SPEI electronic transfer payment system and integration of the CoDi (Cobro Digital) payment system, based on QR code transfers and near-field communication (NFC) technology, a tool in development at the central bank since 2016. This system should enable sellers and buyers to execute transactions through mobile phone devices within seconds, while also reducing the use of cash in daily transactions.
2. Getting payroll loans with any bank. Díaz de León outlined the implementation of "open architecture" to allow workers to use their payroll bank accounts as a source of payment for all types of loans and with any financial institution.
3. Regulation for repurchase and securities lending transactions will be revised so that a larger number of financial entities can execute repurchase transactions or securities lending operations. At the same time, the range of securities that banks and brokerage firms will be able to use for repurchase operations will be broadened, thereby promoting more liquidity in the fixed income and capital markets.
4. Strengthening incentives for companies to list their equity and debt in the stock market and removing factors that discriminate between domestic and foreign investors. This includes a reduction of taxes on income from the sale of stocks in IPOs to a rate equivalent of 10% of income tax (ISR) from the current level of 35%. The plan also gives a 100% credit of ISR withholding to foreign residents with corporate debt investments.
5. Greater flexibility for financial intermediaries in their repurchase and securities lending operations. Authorization will be given to financial institutions, including the pension fund managers (Afores), to conduct repo and lending with securities issued by these companies.
6. Greater flexibility to the investment regime at Afores. This measure aims to help Afores to better diversify their investments and, at the same time, encourage them to invest more in long term projects (e.g., infrastructure). Afores are also directed to reduce commissions to below 1% and take additional actions to encourage voluntary contributions.
7. Eliminate barriers to financial inclusion by allowing young people between 15 and 17 years of age to open their first bank account. This is expected to benefit around 7mn young people.
8. Strengthen national development banks to benefit 15mn new clients in rural areas, vulnerable municipalities and semi-urban areas where there is no presence of commercial banking. To this end, the National Savings and Financial Services Bank (BANSEFI in Spanish) will be renamed and transformed into the Banco de Bienestar, and a new financial group will be created to cater to the needs of the agricultural sector. The new financial group will consist of four institutions: Financiera Nacional de Desarrollo Agropecuario, Forestal, Rural y Pesquero (FND); Fondo de Capitalización e Inversión del Sector Rural (FOCIR); Fideicomiso de Riesgo Compartido (FIRCO) and Agroasemex.

Banorte's economic analysis team, in a note, offered a positive response to the plan. "We applaud the efforts of the federal government to boost the financial sector. In this context, Mexico is still among the countries of Latin America with one of the lowest levels of financial penetration," it said.

"In our opinion, the measures announced today will help to increase penetration by allowing the entry of a greater number of users of banking services, which will eventually also help reduce informality," added Banorte.