Mexico: Financial Sector Assessment Program-Technical Note on Systemic Risk Analysis and Stress Testing
IMF Staff Country Reports, December 8, 2022
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Bibliographic details
- Published: December 8, 2022
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9798400226359.002
Summary
- Mexico has a resilient financial system but a low level of financial inclusion.
- The financial system is smaller than in peer countries and is dominated by commercial banks that have had large capital and liquidity buffers for years.
- Despite these buffers and the high profitability in the banking sector, credit growth has been low due to both supply and demand factors, with banks targeting mainly the prime segments of the economy.
- The COVID-19 pandemic has had a limited impact on the financial system, reflecting a mix of resumption in mobility and support from global and domestic policies.
Key findings
- Resilience: Commercial banks maintain large capital and liquidity buffers.
- Size and structure: The financial system is smaller than in peer countries and is bank-dominated.
- Credit dynamics: Low credit growth persists despite high banking-sector profitability; banks concentrate lending on prime segments.
- Pandemic impact: The COVID-19 pandemic’s effect on the financial system was limited, aided by mobility resumption and policy support.
Systemic risk analysis and stress testing (high-level implications)
- Stress testing relevance: Persistent low credit growth alongside strong bank capital and liquidity profiles suggests stress tests should focus on demand-side shocks and sectoral vulnerabilities where lending is limited.
- Liquidity and capital buffers: Large buffers provide resilience but should be assessed against concentrated exposure in prime segments and potential spillovers to underserved segments.
- Pandemic lesson: Limited pandemic impact underscores the role of timely global and domestic policy support in mitigating systemic stress.
Policy implications and priorities
- Strengthen financial inclusion to address low levels of outreach and broaden credit access beyond prime segments.
- Monitor and test vulnerabilities arising from a smaller, bank-dominated financial system, including concentration risks and sectoral credit gaps.
- Maintain and calibrate capital and liquidity requirements to ensure buffers remain effective against both supply- and demand-driven shocks.
- Incorporate scenarios in stress testing that reflect limited credit penetration and potential amplification of shocks in non-prime segments.
Mexico: Financial Sector Assessment Program-Technical Note on Systemic Risk Analysis and Stress Testing, December 8, 2022.
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- Executive Summary