IMF Survey: Mexico Banks Resilient, But Global Risks Need Care

IMF News, March 30, 2012

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Mexico's banking system is "resilient and well capitalized," and stress tests indicate it "would be capable of sustaining significant shocks."
The IMF assessment was published on March 30, 2012.
Fernando Montes-Negret, senior financial expert in the IMF’s Monetary and Capital Markets Department and head of the assessment team, said: “Our assessment of Mexico’s financial system is very positive.”
Mexico is one of the major 25 financial sectors required to undergo in-depth reviews of their financial health by the IMF every five years under the Financial Sector Assessment Program.

The IMF highlighted Mexico’s "significant linkages to the global economy and to Spanish banks" and urged authorities to "monitor closely and respond quickly to emerging risks."
The IMF noted episodes of distress in recent years and that in the wake of the global economic crisis it has strengthened surveillance of countries’ financial systems.

A fixed term for the President of the Banking and Securities Commission, and a rebalancing of its Board.
Broaden regulatory and supervisory powers to financial and mixed-activity groups.
Fully implement new international banking regulation known as Basel III to improve supervisory processes, including criteria to require capital buffers above regulatory minimums.
Tighten concentration limits in the banking system and introduce capital charge for concentration risk under Basel III regulations.
Change pension fund investment guidelines and regulatory tools to encourage focus on long term returns, including using long-term benchmarks.
Improve the legal framework for derivatives.

Concentration risk: the seven largest financial groups hold or manage about three-quarters of the banking system’s total assets worth $600 billion at the end of June 2011.
A U.S. economic slowdown that would impact Mexico’s exports, GDP growth, and remittances, potentially causing a "major increase in nonperforming loans and capital impairment." The IMF noted Mexican banks experienced deterioration of personal and consumer loan portfolios following the 2007–2009 crisis.
Distress in foreign parent banks of the largest Mexican bank subsidiaries: ongoing financial pressures in Europe could affect Mexican subsidiaries via higher funding costs and liquidity pressures through deposit losses and loss of parent banks’ and other credit lines.
Solvency problems in a number of smaller banks affecting confidence in the banking system.

Strengthen the institutional framework for financial supervision by:
- Establishing a fixed term for the President of the Banking Commission.
- Rebalancing the Banking Commission’s Board.
- Promoting stronger legal safeguards for supervisory personnel.

Source: IMF Survey: Mexico Banks Resilient, But Global Risks Need Care (IMF Survey online, March 30, 2012).