Mexico’s Policy Bank Growth to Benefit from Increased Financial Inclusion

The FINANCIAL —  Fitch Ratings expects Mexico’s six state-owned banks to gradually increase their role in the execution of economic and financial policies. Low financial inclusion provides Mexico’s policy banks a key opportunity to further establish economic and social roles in the country, which is supportive of ratings and credit. Ratings are largely driven by the explicit sovereign guarantees on these banks and the importance of their long-term policy roles.

Fitch rates the six policy banks in Mexico at the highest level of ‘AAA (mex)’ on the national scale; Banobras, Nafin, Bancomext, SHF, Banco del Bienestar and Banjercito. Of those banks, Banobras, Nafin and Bancomext are also rated at the same level of the sovereign rating in the global scale (BBB-/Stable). These banks provide funding and support to key economic sectors, and are expected to play a relevant role for nearshoring opportunities. The banks also support the federal government’s policy priorities such as completion of major infrastructure projects or distribution of social transfers.

The results of Mexico’s general election, held June 2, point to broad policy continuity, with Claudia Sheinbaum of the incumbent’s MORENA party winning the presidency. Specific strategic policy and initiatives for policy banks during the next presidential period are yet to be defined by the incoming administration, but Fitch expects policy roles to remain unchanged.

Mexico maintains relatively low financial inclusion (private credit to GDP was 34% in 2023, compared to the Latam median of 50%), especially in segments such as micro, small and medium sized enterprises, low-income individuals, and certain less developed regions and industries.

During Lopez Obrador’s administration, most of these banks, with exception of Banobras, reduced their policy role as they materially decreased their lending and guarantee granting, in comparison to private sector banks. This occurred despite the banks’ continued access to financing through local debt markets or deposits and positive credit domestic demand. Policy banks heavily benefit from the strong linkage to the Mexican government creditworthiness and the explicit guarantee for their obligations. During Lopez Obrador’s administration, total funding (debt issuances plus deposits) increased 6.8%, compared to 11.6% in the previous administration. These growth rates are low relative to the ample lending demand prevailing in the country.

During Peña Nieto’s administration, policy banks’ compound annual growth rate of the total loan portfolio was around 13.7%, materially higher than 2.0% equivalent rate in the Lopez Obrador’s administration. Guarantees provided to customers under Lopez Obrador were lower than in the Peña Nieto’s, partially affected by fewer government subsidies. During Lopez Obrador’s administration the balance of guarantees increased 2.1% compared to a 13.6% growth in Peña Nieto’s administration.

The federal government’s periodic costs charged to these banks, called “aprovechamientos” were much higher in the Lopez Obrador administration, but moderate growth in risk weighted assets (RWA) and periodical money transfers from federal government have sustained capital adequacy metrics well above regulatory minimum limits. Aprovechamientos will remain high as long as capitalization metrics remain above regulatory minimum requirements. At 1Q24 the total capital ratio of development banks was 26.3% (common equity Tier 1 [CET1] ratio: 24.9%) compared to 17.5% (CET1 ratio: 15.9%) at the end of Enrique Peña Nieto’s administration in YE18.