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Business group expects 250,000 Mexican companies to fold

Bnamericas Published: Tuesday, June 30, 2020
Business group expects 250,000 Mexican companies to fold

Mexican industrial chamber Canacintra estimates some 250,000 companies that closed operations during the lockdown will not reopen due to lack of government support or tax relief measures.

In a statement, the association expressed “great concern” that many small and mid-sized firms would not remain solvent through the crisis, adding the situation is exacerbated by “the lack of government support and the threat of prosecution [for not meeting tax and regulatory obligations] that, far from supporting small businesses, could make small business owners subject to penal sanctions.”

The estimate arrives with bank metrics showing a faster-than-expected slowdown in lending.

The central bank published its banking credit report for May on Tuesday, noting a 5.3% year-on-year expansion in the sector loan book with consumer credit pulling back 4.2% – the second month of contraction for the segment, reaching the lowest level since August 2010. 

Meanwhile, corporate lending grew 8.5% as large firms sought to strengthen liquidity

Banorte said in a note the May result came in well below its forecast of 9% growth, adding, “although we expected a deceleration to happen, we did not anticipate it would happen so fast,” with the slowdown in economic activity under the lockdown. 

The firm said credit card debt and personal lending both saw “deep contraction” of 8.2% and 7.7%, respectively.

“In particular, we believe this is related to the deterioration in employment conditions as well as to increased caution by consumers, opting to delay purchases of expensive items until uncertainty decreases,” Banorte said.

Business loans, Banorte said, will likely “decelerate too, although at a lower rate still aided by liquidity needs from several sectors.”

And “it is also possible that mortgages decelerate, despite benefiting from refinancing programs and the possibility of people tapping into their home equity,” said Banorte. “Nevertheless, given the delay in the reopening of the economy, which is already incorporated into our recent revision to GDP to -9.8% y-o-y in 2020, downside risks for credit have increased.”

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