Mexico development lenders leapfrog private banks

22/03/2010 | Greg Brosnan

Mexico’s development banks are jumping back into the economic driving seat as the bruised private sector dithers on the sidelines, their directors have said.

The institutions are confident that they will be able to ramp up credit for infrastructure, real estate, business and the countryside.

Rafael Gamboa, the director for development banks in Mexico’s Finance Ministry, told Emerging Markets that the nation’s quintet of principal development banks expects jointly to boost their loan portfolios by 14%, from $57 billion now to $65 billion at the end of the year.

Officials hope the banks can be a driving force in Mexico’s nascent recovery, extending loans to credit-hungry sectors of economy to fill in for a private banking system that is still risk averse.

Javier Gavito, director of Sociedad Hipotecaria Federal (SHF) Mexico’s mortgage development bank, told Emerging Markets: “Private banks stepped back, and the development banks stepped in – and will continue to do so over the next months.”

When the crisis started, Mexico, encouraged by a new vitality in local credit markets, was in the process of scaling back its development banks’ role.

Infrastructure development bank Banobras was scaling back its participation in a thriving market. SHF was meant to stop lending altogether in 2009, instead focusing on providing credit guarantees. Mexico’s Senate removed that block in 2008, allowing it jump in to provide liquidity as the crisis unfolded.

The government is pushing in any direction in which it feels the private sector is not ready to respond. It is happy to take up the slack from creditors beyond its borders as well as those at home, and says loans are available for foreigners too.

Mexico sends 80% of its exports to the US, and its economic fortunes depend heavily on a US recovery boosting manufacturing at home, especially in the auto sector. But US automakers have been hard pressed to find financing for expansion.

When Fiat-Chrysler mentioned it was considering opening a major plant in the central city of Toluca to produce a low fuel consumption car, Mexico’s export development bank stepped in itself as a lender, disbursing $400 million on a 15-year maturity.

Fiat took the bait and the project is expected to bring in $550 million in investment and create 2,000 permanent jobs. “The loan sealed the deal,” the bank’s director Hector Rangel told Emerging Markets.

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