Bank lending from Mexican financial institutions sank in light of the decrease in the country’s gross domestic product (GDP) growth, says BNamericas. The drop in GDP growth is also expected to result in an increase in nonperforming loans (NPL), higher credit costs and a lack of profitability.
According to reports, the country’s GDP growth has slipped to a measly 0.5% in 2019. Experts connect this to the negative developments in the lending activities of top Mexican banks.
The National Banking and Securities Commission (Comision Nacional Bancaria y de Valores or CNBV) revealed that the Mexican banks saw a fall in their lending activities in July this year. The CNBV report showed that the figure dropped down to 0.7% amounting to 5.34 trillion pesos (USD 271 billion).
A report by Moody’s remarked that the lending activities of Mexican banks are “well diversified.” However, their stability will be compromised as the various industries have been facing different issues since 2018. This can affect their borrowing, thus “[exposing] banks to deterioration.”
Some of the industries affected include those related to oil, energy, water gas, and construction. Incidentally, these sectors make up one-third of bank loans.
The Moody’s report also said that the country’s top 5 banks might experience the negative effects of this fall in GDP growth. Mexico’s largest financial institutions include BBVA, Banorte, Citibanamex, HSBC and Santander Mexico.
BNamericas noted that Moody’s latest insights aim to provide an update to its September 2018 report, in which it offered positive predictions for the country. The investment-focused company has been giving updates that notified Mexico of its consistent decline since January.
The latest update warned that the possible further decrease of Mexico’s GDP growth “will lead to higher delinquencies, lower business growth, and fiscal constraints.” These effects will restrict the government’s capability to aid financial institutions.