Moody's Raises Mexican Banks' Outlook To Stable From Negative

Moody's Investors Service on Thursday raised its outlook on the Mexican banking system to stable from negative, citing the banks' sound funding and liquidity, as well as their improving asset quality.

"The good news is that we see no signs of asset bubbles that could pose a long-term risk to the banks' asset quality," Moody's analyst David Olivares-Villagomez said in a statement.

Banks reduced lending during the 2009 economic crisis as the Mexican economy contracted 6.1%. The caution that the banks demonstrated helped to keep their levels of past-due loans at a minimum, Moody's noted.

Mexico's Finance Ministry expects the country's gross domestic product to grow 3.8% next year after expanding by around 5% in 2010.

"Asset quality began to improve in 2010, driven by the banks' cautious credit stance and the country's slow, but positive, economic growth," Olivares-Villagomez said.

As of end-October, the combined credit portfolio of Mexico's banks stood at 2.084 trillion pesos ($168 billion), with a bad loan rate of 2.49%, according to data from Mexican banking regulator CNBV. At the height of the recent economic troubles, in June 2009, bad debt represented 4% of Mexican consumer credit.

Moody's warned that a lingering reluctance of Mexican banks to extend lending could stifle their growth potential. The ratings agency added that high loan concentrations could also weigh on the banks' performance, as they lend mainly to corporate entities that belong to large, interrelated groups, while low interest rates could challenge the banks' profitability.

Mexico's two largest banks are units of Spain's Banco Bilbao Vizcaya Argentaria SA (BBVA, BBVA.MC) and Citigroup Inc. (C) of the U.S. Together, BBVA Bancomer and Banamex, as the units are called, command around half of deposits and a similar share of loans in the Mexican banking system.

-By Amy Guthrie, Dow Jones Newswires; 5255-5980-5177; amy.guthrie@dowjones.com

BBVA Bilbao Vizcaya Arge... (NYSE:BBVA)
Historical Stock Chart
From May 2024 to Jun 2024