Analysts Hope Tough Financial Quarter is Last of Bad NewsBy Peter Appleby | Thu, 07/30/2020 - 18:14
A tough financial quarter has ended and with it a review of the damage begins. In some parts of the world, including most of western Europe, parts of East Asia and New Zealand, COVID-19 is being reigned in. But in Latin America cases continue to rise and Mexico is no exception. Regardless, the hope is that next quarters’ results will make for a happier reading and, as Banxico predicts, Mexico’s economic recovery will begin. The financial sector must be at the heart of this resurgence.
May, along with April, made for historic lows due to lockdowns for all non-essential activities. This suspension of activities had a dramatic effect on overall economic activities as in May, a 21.6 percent contraction was reported compared to the same month in 2019. April’s contraction was of 19.6 percent, though primary economic activities actually saw a year-on-year increase of 2.6 percent in May.
May’s negative results added to the historic shrinkage of Mexican GDP in 2Q20, as the country saw out its hardest second quarter in history. GDP shrank by 18.9 percent in comparison to the same quarter last year and dropped 17.3 percent against 1Q20. Secondary and tertiary economic activities bore the brunt of the losses with factory closures, the suspension of flights and retail stores, bars and restaurants all closed.
A worrying fact is that 2Q20 marked the fifth consecutive quarterly contraction in Mexico and in April alone 12.5 million jobs were lost.
However, in more positive news, Banxico’s report on the country’s economy post-COVID-19 said that June would be the beginning of recovery. "The drop in economic activity bottomed out in May and recovery began to be observed as of June with the incipient reopening of some economic sectors,” the bank said.
Banks Report Underwhelming 2Q20 Figures
Grupo Financiero Santander Mexico reported a 24.6 percent drop in profit in 2Q20 in comparison to the same quarter last year with a net income of MX$4.23 billion (US$215 million). The bank also a net income of MX$9.6 billion (US$436 million) in 1Q20, a drop of 11.5 percent over the first half of 2019.
BBVA saw a similar difficulty during the period with a reported 28.9 percent fall in earnings during 2020’s first half in comparison to 1H19, as earnings hit MX$19.8 billion (US$900 million).
Both banks pointed the finger of blame at the COVID-19 pandemic, with the suspension of credit payments as a factor in falling revenue.