Stronger financial regulation threatens the push by foreign
banks to expand corporate banking operations in Mexico, the
chief executive officer of the countrys biggest domestic
lender has said.
Alejandro Valenzuela of Grupo Financiero Banorte told
Emerging Markets in Cancun that stronger
regulation, lower [permitted] levels of leverage for foreign
banks and the probable scarcity of capital globally in
the coming years is weighing heavy on financial executives
operating in the region.
Only the most sound of global banks will have
the capital to expand their corporate business aggressively in
Latin Americas second largest economy, he said. Foreign
banks balance sheet constraints gave Banorte a
Valenzuela added: Local banks are locally managed and
are thus more agile. He claimed they have also been
less leveraged than foreign banks.
Banorte jumped from being the fifth largest bank by assets
in Mexico at the beginning of 2008 to the third largest with
more than 12% of the overall market. Local subsidiaries of
foreign banks, which control 75% of the local market, have
repatriated capital back to their parents upon the onset of the
Richard McNeil, head of Latin America debt capital markets
for Goldman Sachs, pointed to the shortage of syndicated loan
offers from foreign banks to Mexican firms. He said this is
evidence that liquidity in the local bank market has not
returned to pre-crisis levels due to foreign banks
Theres still residual uncertainty overshadowing
banks globally, with the result that those markets in Latin
America that are most reliant on foreign banks may take a bit
longer to normalize fully.
But Augusto Urmeneta, head of Latin American capital markets
at Bank of America Merrill Lynch, said that Latin American
corporate business has become strategically important for
Western financial institutions over the past year due to strong
regional growth. We will continue to put our balance
sheet to play for select clients that need strategic
funding, he said.
Nevertheless, Valenzuela said balance sheet constraints are
having a bigger impact on the corporate outreach [of
foreign banks] than retail operations. He added:
Mexico still presents a huge opportunity for the retail
operations of foreign banks in the medium term, as it is an
In other comments, Valenzuela said he expects credit growth
of 10%-15% this year by Banorte, as Mexico roars out of
After beefing up capital buffers to absorb projected losses
on mortgage and credit card products, he said: These have
not been run down this year, so this shows that the recovery
has been faster than anyone expected.
He said the Mexican central bank would not hike interest
rates until early 2011. An increase would boost banking
profitability if demand for credit outweighed the subsequent
increase in the cost of paying depositors.