What to watch at Mexico’s top 10 banks
Mexico’s commercial banks will release 1Q21 financial results in coming days, which are expected to also clarify the impact of last year’s deferment programs.
The results are anticipated, especially regarding asset quality and profits, because ratings agencies have maintained ‘negative’ outlooks for most banks.
Slow vaccination roll-out and mobility restrictions are further complicating bank’s operating environment (OE) and sustain pressure on profits and asset quality.
BNamericas presents the most recent data and commentary for Mexico’s 10 largest banks by loan book, drawing on latest data from regulator CNBV, Fitch Ratings stress test results, and guidance on upcoming results announcements from Barclays.
Mexico’s 10 largest banks accounted for 89.1% of total loans and 88.3% of total deposits in the system at end-2020.
Most recent loan book and net income data are provided by CNBV and refer to February 2021, while comparisons are year-on-year, unless otherwise stated.
BBVA México (formerly Bancomer)
Loan book: 1.26tn pesos (US$63bn), -0.2%
Net income: 5.87bn pesos; -23.5%
Key commentary
In a recent stress test report, Fitch Ratings said regulatory relief measures and ad hoc programs to support clients contained NPLs and charge-offs, but delayed the impact of the pandemic on asset quality metrics for most of 2020. This phenomenon complicates sector forecasts.
Higher-than-expected charge-offs could force additional loan-loss provisions, with additional downside risks to profits including slower vaccinations and/or additional lockdowns, said Fitch.
The agency expects sustained pressure on profits through 1H21, “possibly easing only and if economic recovery gains traction and loan growth resumes in more in profitable segments.”
Banco Santander México
Loan book: 705bn pesos; -2.3%
Net income: 2.44bn pesos; -28.5%
Key commentary
Fitch said Santander’s Mexico operation, has held on to “good performance, especially in secured segments (mortgage and auto loans), despite the complex OE.”
The agency sees profitability staying under pressure, “mainly due to softening loan growth, increasing credit costs and a low interest rate environment.” It added Santander México’s continued commitment to ramp up digitization investment could pressure expenses.
Barclays expects a 2% year-on-year Q1 contraction in net interest income (NII), but a 1% increase quarterly and an 8% loan book contraction for Q1 with flat sequential net interest margin (NIM).
Barclays wrote in a report that observers should “focus on management comments around the parent company’s offer to delist Santander México’s shares from the Mexican Stock Exchange,” during the results call scheduled for April 29.
Loan book: 551bn pesos; -17.0%
Net income: 1.74bn pesos; -37.0%
Key commentary
“Citibanamex's management proved to be prudent in the crisis,” wrote Fitch. “Instead of gaining market share, the bank continued to prioritize profitability while monitoring asset quality, capital and liquidity.”
But “the bank's profitability and operating efficiency ratios continued to compare unfavorably to other large Mexican banks,” with low business growth and high provisioning undermining profits.
Fitch added that Citibanamex’s higher-than-peer exposure to credit cards and unsecured personal loans, accounting for 22% of its loan book at end-2020, indicates asset quality control could be especially challenging this year.
A strategic adjustment may also be necessary, considering recent comments by incoming CEO Jane Fraser with “an eye toward potential repositioning and simplification.”
Loan book: 797bn pesos; +5.4%
Net income: 3.71bn pesos; -9.1%
Key commentary
Despite the complicated OE, Banorte expects single-digit loan growth to continue, with managers calling for 6% to 8% expansion in 2021, likely focused in corporate, commercial and mortgage lending.
Barclays expects to see 3% annual loan growth in Q1, but sees “upside risk to our numbers based on CNBV reported data up to February.” It added that NPLs should reach 1.4%, “which coincides with the rising price trend shown in CNBV’s January and February figures.”
The investment bank estimates a 6.1% annual drop in consolidated NII, but a 5.4% increase quarter-on-quarter. Likewise, it sees net income jumping 25% on the quarter, though down 18.2% compared to 1Q20.
The Q1 results call is set for April 23, and Barclays advised looking out for details on asset quality in the consumer segment, NIM trends, and the company’s expectations on its portfolio mix.
While Banorte’s adjusted NPL ratio (impairments plus charge-offs) has held steady at around 4%, “asset quality could deteriorate during the first six months of 2021 as 99% of accounts enrolled in deferrals already expired (18% of total loan portfolio enrolled into the relief program),” Fitch wrote.
Fitch’s risk appetite assessment remains influenced by Banorte’s “high exposure” to government-related businesses, where uncertainties look to continue beyond the pandemic.
Loan book: 371bn pesos; -6.0%
Net income: 1.49bn pesos; -9.8%
Key commentary
HSBC’s Mexico unit has been resilient due to solid support from its parent, said Fitch. It could maintain a strong position in the corporate sector and stable deposits. Resilience is further supported by strong commercial synergizing opportunities with the parent.
The agency noted that asset quality is “still masked” by forbearance programs. However, a sizable portion of its loan book is already restructured (15%), and “the bank's relatively higher-than-peers' concentrations per creditor could result in asset quality pressures in 2021.”
During the results call, attention should be paid to loan performance in vulnerable segments, including construction, real estate, hotels and restaurants (4.3% of loan book), where material deteriorations in any of these could “represent a challenge.”
Fitch sees little room for further asset deterioration, given the bank’s lower capital levels relative to peers, though loan quality might surge in coming months.
Observers should also focus on how the Mexican unit fits into HSBC’s global cost-cutting strategy.
Loan book: 424bn pesos; +1.8%
Net income: 848mn pesos; -24.2%
Key commentary
At end-2020, Scotiabank held a 7.8% market share of the sector’s loans, with the company looking to break into the top echelon of commercial banks in recent years by diversifying its products through digitization.
The company has continued these efforts despite the pandemic’s impacts on its bottom line. It announced a 610mn-peso investment program to enhance its digital channel, which Fitch said “could benefit Scotiabank’s business model.”
The bank has historically demonstrated solid asset quality metrics related to its strategic focus on secured loan segments (mortgage and auto segments, which represented 42.1% of total loans in 2020).
Fitch, however, expects to see additional asset quality pressures as deferment payment measures grow more distant.
By May 2020, 25.8% of retail portfolio and 20.6% of commercial loans were in forbearance programs, and updates related to this area and containment of its NPL ratio will be important in the Q1 results.
Loan book: 248bn pesos; -1.6%
Net income: 2.1bn pesos; -14.3%
Key commentary
Inbursa was helped in 2020 by its focus on corporate lending and transactional banking coupled with strong commercial synergies with shareholders.
Ample credit concentrations by borrowers in “sensitive industries” could raise risks on the bank’s credit profile, mostly in loan quality and profits, said Fitch.
Barclays sees a 10% year-on-year contraction in March in Inbursa’s loan portfolio, with NPLs stable at 2.2%.
Long-term credit prepayments in 1Q20 helped to deepen the year-on-year contraction Barclays forecasts for NII to -35.8%, though the metric looks to jump 24.1% on the quarter.
In the Q1 results, “company expectations for opportunistic growth” in 2021 to take advantage of high capitalization and liquidity position will be important, as well as any discussions of planned spin-off Sinca.
Banco del Bajio (BanBajio)
Loan book: 201bn pesos; +11.9%
Net income: 615mn pesos; -28.2%
Key commentary
“We forecast total portfolio growth for the quarter of 6% but total revenues falling by 7.9% on further NII compression,” wrote Barclays. It added that while NPLs will hold to 1.3%, recent CNBV data has added to upside risk.
In the Q1 call scheduled for April 29, a focus on asset quality behavior by corporates and company strategies to prevent further NIM erosion will be key.
Fitch said management has done well to maintain growth in core lines by taking advantage of its regional base in the central Bajio zone and focus on SMEs and agribusiness.
The agency highlighted BanBajio’s double-digit loan growth throughout the pandemic, adding the bank expects to see loans to companies and guarantee-backed SMEs to lead credit expansion this year.
But loan growth will lower to 6-8% in 2021, with NIM flat at about 4% and the NPL ratio holding below 1.8% to prioritize asset quality and “cautiously manage its capital metrics,” according to Barclay’s.
Banco Regional (Banregio)
Loan book: 112bn pesos; +2.3%
Net income: 472mn pesos; -11.9%
Key commentary
Banregio’s competitive position continues to be limited by its northern regional focus and heavy specialization in SMEs. However, Fitch is monitoring development and strong roll-out of its digital platform Hey Banco as a potential means for expanding business.
With Q1 results coming out April 27, Barclays expects a 2% deceleration in loan growth with NPLs ticking higher to 1.7%. Meanwhile, NII looks to contract 6.9% year-on-year and 2.5% quarterly.
Net income will grow 57.6% quarter-on-quarter, compared to an annual 8.8% contraction, according to Barclays.
The bank advised to “focus on asset quality in the SME portfolio and the potential outlook to create additional provisions.”
Fitch believes Banregio’s growth will largely depend on the recovery in the operating environment and improvement in the economy. The bank faces growth challenges during 2021, but Fitch still expects moderate growth as market opportunities emerge.
Loan book: 105bn pesos; +13.1%
Net income: 63mn pesos; -79.5%
Key commentary
Fitch sees Azteca’s business model generating a much more negative impact than has been seen in peers, with its focus on in-person retail offerings built into branch locations.
Adding to this, the default of a major client in 1Q20 weakened Azteca just as the pandemic was getting underway.
With a focus on consumer lending, Azteca’s adjusted NPL ratio at end-2020 was 16.1% (including charge-offs), which Fitch sees as “high but lower than that of the 2008-2009 crisis.”
Parent support has maintained capital metrics at the bank, with Grupo Elektra injecting 7.28bn pesos via a debt issuance in 4Q20. Liquidity remains a core strength, supported by strong deposits and a highly revolving portfolio. Azteca’s liquidity coverage ratio of 662% is one of the highest in Mexico.
In the results, analysts should look out for concentration risks in non-core business. As Fitch said, Azteca’s top 20 clients corresponded to 1.4x of its common equity tier 1 (CET1).
“Weaker corporate governance practices on Azteca's controlling group raise concerns about the group's governance,” Fitch said.
“The agency considers that this adds sensitivity to the negative outlook on Azteca's rating in the face of the high proportion of loans with related parties (35% of the CET1) and because the risks of a poor governance could affect the bank's credit quality.”
Subscribe to the leading business intelligence platform in Latin America with different tools for Providers, Contractors, Operators, Government, Legal, Financial and Insurance industries.
News in: Political Risk & Macro (Mexico)
Mexico’s Gálvez vows to respect energy market reforms
The presidential candidate said many firms and investors were negatively affected by the reforms the current government implemented to strengthen P...
IMF cuts growth forecast for Mexico
The International Monetary Fund projects growth of 2.4% for 2024, supported by greater public spending, but below the 2.7% forecast in January.
Subscribe to Latin America’s most trusted business intelligence platform.
Other projects
Get key information on thousands of projects in Latin America, from current stage, to capex, related companies, key contacts and more.
- Project: Modernization of Five Generating Units of the Belisario Domínguez Hydroelectric Plant (Angostura)
- Current stage:
- Updated:
1 hour from now
- Project: Víctor Ramos Guardia High Complexity Hospital
- Current stage:
- Updated:
19 hours ago
- Project: Aroeira 5 wind farm (Aroeira wind complex)
- Current stage:
- Updated:
11 minutes from now
- Project: Aroeira 4 wind farm (Aroeira wind complex)
- Current stage:
- Updated:
19 hours ago
- Project: Modernization of the Malpaso Hydroelectric Plant
- Current stage:
- Updated:
19 hours ago
- Project: Aroeira 3 wind farm (Aroeira wind complex)
- Current stage:
- Updated:
19 hours ago
- Project: Wastewater Treatment Plant for Pereira and Dosquebradas (El Paraíso)
- Current stage:
- Updated:
20 hours ago
- Project: Puertos de Santander Solar Project
- Current stage:
- Updated:
1 hour from now
- Project: Joca dam
- Current stage:
- Updated:
19 hours ago
- Project: Aroeira 2 wind farm (Aroeira wind complex)
- Current stage:
- Updated:
19 hours ago
Other companies in: Political Risk & Macro (Mexico)
Get key information on thousands of companies in Latin America, from projects, to contacts, shareholders, related news and more.
- Company: Alvarez & Marsal, Sucursal México
- Company: Control Risks México S.A. de C.V.  (Control Risks México)
-
The description contained in this profile was taken directly from an official source and has not been edited or modified by BNamericas researchers, but may have been automatical...