Fitch: Seeking Growth, Mexican Banks Acquiring Loans

Two recently announced acquisitions of retail loan portfolios by Mexican banks are notable steps toward achieving some business expansion amid the sluggishness facing the Mexican banking sector, says Fitch Ratings. We believe the loan sales, by Mexican subsidiaries of foreign banks in both cases, could spur further interest of the country's domestic banks to seek other loan acquisitions. Recent announcements of new bank licenses and the possible entrance of some international banking players, attracted by the low level of banking penetration and sound profits in Mexico, suggest that local competition will remain high and M&A activity may also play a more active role in driving individual bank growth in the incoming years.

On March 27, Banco Regional de Monterrey's (Banregio, National Scale Rating AA(mex)/F1+(mex), Outlook Stable) announced the acquisition of a MXP600 million loan portfolio from International Finance Corporation. The transaction, pending regulatory approvals, does not materially affect the bank's credit profile, as the acquired portfolio was just 1.2% of the bank's total loan portfolio.

Fitch considers Banregio's acquisition to be a reasonable step toward slowly adding revenue and risk diversification as the bank seeks to expand its mortgage business. However, Fitch sees the bank has yet to prove that it can maintain sound asset quality metrics in mortgages on a large scale. A growing mortgage portfolio also could pose additional challenges in terms of further long-term funding needs, especially in view of the more stringent liquidity rules that are slated to go into effect for Mexico's banks later this year.

In a second example on March 18, Banco Santander (Mexico), (SAN Mexico, Long-Term Issuer Default Rating BBB+, Outlook Stable / Viability Rating bbb+) announced that it had completed the acquisition of a consumer loan portfolio from Scotiabank Inverlat S.A. (Scotiabank Inverlat, AAA(mex)/F1+(mex), Outlook Stable) after receiving the corresponding regulatory approvals and authorizations. The total balance of the acquired portfolio was around MXP3.2 billion, or 4.2% of the bank's consumer loan portfolio, and 0.7% of the total loan portfolio.

The transaction complements the current strategy of SAN Mexico, as consumer lending already has been one of the main drivers of loan growth for the bank over the last four years. SAN Mexico's acquired portfolio is composed of personal loans and it will enhance the bank's market position in this segment while maintaining the credit quality of the portfolio.

Even though these acquisitions have been more frequent in the last year, Fitch believes that they represent a seizure of available opportunities, rather than a definitive trend in the Mexican banking sector. The potential for more such transactions is aided by the still-low banking penetration in Mexico, the high competition in the sector and the tendency of banks to focus more sharply on customers with proven credit histories.