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News Article

Banks Prepare More Credit Restructuring Programs

By Peter Appleby | Mon, 12/28/2020 - 12:40

Mexico’s financial institutions are preparing themselves for a third round of mass credit restructuring for clients as the country struggles to recover from COVID-19’s drawn out economic impact.

In an interview with El Financiero, National Banking and Securities Commission (CNBV) President Juan Pablo Graf said that the banking authority and banks themselves were drawing up plans for the rollout of a third wave of restructuring programs even though present non-payment and default figures do not suggest the programs will be immediately needed.

"We are working with banks on a third facet of these restructuring programs, which we call institutional restructuring programs. They consist of the entities themselves carrying out the restructurings in the way they propose, which is similar to the restructurings proposed by CNBV. Clients will benefit," Graf told El Financiero.

The third iteration of restructuring comes as the prolonged impact of the pandemic becomes clearer and the two emergency programs that were offered by banks this year end. The first program offered clients the chance to defer a variety of loans and credit payments for four to six months. This was a measure agreed on by almost all financial institutions after the first COVID-19 lockdown that led to high job losses. The second program was offered as the first ended. This time, payment terms were restructured to help people and businesses who were facing difficult economic circumstances. Earlier this year, the Mexico Banking Association (ABM) reported that banks had restructured over MX$11 billion (US$552.4 million) in loans for 782,101 clients. Loans to big business made up 45.7 percent of the value of the restructuring, while 17.2 percent of the loan applications were for personal credit card loans.   

The CNBV director explained that this third program will seek to make it easier for clients to make repayments, thereby reducing the likelihood of defaults and the potential damage to credit scores that this can present.

Earlier this year Banxico had warned of the need for the financial sector to retain liquidity ahead of an unknown but likely severe economic outlook. It relaxed the Liquidity Coverage Coefficient, a metric that determines an institution’s ability to pay off its debt obligations without outside help. While the Financial System Stability Council found in October that the sector had “high levels of capital and ample liquidity,” further restructuring offers extra benefits around liquidity, Graf noted.

“Regulatory incentives accompany this type of restructuring, with lower credit reserve requirements for expected losses and capital requirements for unexpected losses. Institutions can take advantage of this,” he said.

Mexico’s economic recovery following COVID-19 is still uncertain. Though the country is now in possession of a vaccine, the vaccination campaign will not end until mid-2022. Mexico’s economy has contracted for five quarters in a row – including a quarter prior to the pandemic – and some experts have forecast that the country’s GDP will shrink by double-digits at the end of the year. According to Deloitte, recovery will depend on major industries like tourism bouncing back. 

Peter Appleby Peter Appleby Journalist and Industry Analyst