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News Article

Bank Profits Fall as Consumers Change Behavior

By Peter Appleby | Mon, 07/06/2020 - 15:29

Data reported by El Economista shows that Mexico’s banking sector profits fell by 31 percent in May as consumers changed their banking habits following the arrival of COVID-19. Banking profits in May fell to MX$48 billion (US$2.15 billion), some MX$20 billion (US$890 million) less than in May 2019.  

A large part of this was due to the credit deferral scheme that many major banks offered consumers who were facing financial difficulty as the pandemic forced the suspension of millions of jobs nationwide. Lower returns on interest and commissions were the consequences for banks, El Economista reports.

Risk avoidance behaviors were the driver of the sector’s falling profit. The use of credit cards dropped by 8.2 percent and personal loans saw a 7.7 percent fall in activity during May. Set against the backdrop of economic fragility, this change in behavior is easy to understand. According to an El Financiero survey, the percentage of Mexicans viewing the country’s economic outlook in a negative light rose from 53 percent in March to 72 percent in May as job losses mounted and the lockdown lingered across Mexico.

The greater hardship the average person is facing is reflected in the slight increase in penalties for late payment, which rose to 2.41 percent in May this year versus 2.16 percent during May 2019.

There was also a change in saving behaviors as consumers sought to protect their financial health and prepare themselves against the country’s expected recession. The National Banking and Securities Commission noted a large increase of 13 percent in savings deposits.

These figures are in line with reports from other institutions. In May, savings put into Afores – Mexico’s pension savings system – rose to their highest ever value at MX$102.49 billion (some US$4.49 billion), a “growth of 26 percent in annual terms,” El Economista said.  

Similarly, remittances figures jumped dramatically between April and May. As reported by Mexico Business News last week, remittances into Mexico rose 18.1 percent from Us$2.86 billion to US$3.38 billion as Mexican’s in the US sent money to families and friends in support during the downturn.

Most credit suspensions were for a four to six-month period, so unless they are extended, it is likely that profits will grow again as mortgages and loans begin to be repaid again. The grim outlook that Banxico and the World Bank have reported for Mexico could cause banks to consider extending the repayment suspension. According to Banxico, Mexico’s economy could contract by 8.8 percent in 2020.

Peter Appleby Peter Appleby Journalist and Industry Analyst