Brighter Outlook in 2021?By Peter Appleby | Thu, 12/10/2020 - 17:09
The rollout of COVID-19 vaccines this week led to Barclay’s revising up its 2021 economic outlook for Mexico, with a potential to push the forecast higher should good results come from early vaccination efforts. Meanwhile, Mexico’s banks have already restructured US$11 billion worth of loans, G7 countries cast doubt over cryptocurrency regulation and commercial banks backed Banxico in sharing concerns over changes to its responsibility.
All this and more in The Week in Finance.
Next year should bring a brighter future for Mexico and the globe, Marco Oviedo, Chief Economic Investigator for Latin America at Barclays, said this week. Though he accepted that Mexico would see a harsh economic contraction this year – -8.8 percent is Barclay’s most recent forecast – the bank believes the economy will grow 4.5 percent next year thanks to recent positive news regarding the roll out of COVID-19 vaccines. This is an increase of 1.5 percent from the last forecast, which saw Mexico’s GDP grow by only 3 percent. However, “if the vaccination strategy were more effective or faster, the economy could grow between 5 and 6 percent,” Oviedo added.
Luis Niño de Rivera, President of the Mexican Bank Association (ABM), said that Mexican banks have so far restructured over MX$11 billion (US$552.4 million) personal and business loans, following the end of the loan deferral period. Big business loans accounted for the highest value of restructured loans, followed by SME loans. However, the largest volume of restructured loans were micro loans, while consumer loans and credit card loans came next.
The restructuring has been carried out during a year to forget for the banking sector. Earlier, most banks reported a stagnation in profits or all out losses, with Banco Azteca standing out following a MX$4.394 billion (US$210 million) loss during the first eight months of the year.
Commercial banks stood behind Banxico over the proposed reform to the Bank of Mexico Law that would give the central bank the responsibility to collect foreign cash, which would put the bank at risk. This is because there is potential that foreign cash inflows contain cash from illicit sources, meaning that the bank would fall under the scrutiny of international money laundering laws, spearheaded by US authorities. ABM released a statement of support saying that any changes made to the law “should not affect in any way the autonomy of the Bank of Mexico.”
Proponents of the law change argued that it would give families who rely on remittances and workers from the tourist industry greater certainty.
Leaders from the G7 nations - Canada, France, Germany, Italy, Japan, the UK and the US – began discussing the regulation of digital currencies as their popularity grows. Country leaders spoke about the entrance of Facebook’s newly-named Diem cryptocurrency and its potential authorization in Europe, suggesting it could threaten privacy and begin the erosion of monetary policy. In October, two of Diem’s original backers, Visa and Mastercard, pulled out because of concerns. Olaf Scholz, German Finance Minister, said: “It is clear to me that Germany and Europe will not accept their (cryptocurrencies) entry to the market until the regulatory risks are adequately addressed.”
Standard & Poor’s said that Mexico’s banking system will be able to withstand the economic fallout from the COVID-19 pandemic due in part to their pre-pandemic performance. The credit agency kept all of the economic risk indicators at the same level as they had been during the last review and said that the banking system was in a “correction phase” following the COVID-19 impact.
“Healthy balance sheets, solid profitability and very high net interest margins of over 7 percent in the last five years” offered a solid starting point for banks to withstand the storm. Furthermore, the country’s low credit leveraging meant that banks “have conservative lending practices with a focus on middle and high-income clients who have adequate debt capacity.”