COVID-19 and the Rearrangement of the Mexican Banking SectorBy Gabriela Mastache | Wed, 05/27/2020 - 13:22
The COVID-19 pandemic will create an opportunity to reshape the Mexican banking sector, with many banks not being able to withstand the consequences of the crisis. This could open the door for many of them to disappear and for many others to consolidate, says a report by consulting firm Akya and reported by Darío Celis in El Financiero newspaper.
According to the report, despite the good capitalization levels that the overall Mexican banking sector experienced before the start of the COVID-19 pandemic, the position many of them have experienced could soon deteriorate and their ability to survive might depend on their ability to react and offer new products and services to clients to palliate the upcoming negative effect of the post-COVID-19 crisis.
The report groups banks operating in Mexico in four different categories: challengers, shapers, vulnerable and targets. In the challengers category, Celis mentions those small and medium-sized banks that are experiencing good profitability levels and that can maintain two key elements: independence and growth. In the mapping presented by Celis, Mifel, Monex, Banco Base, Compartamos and Invex fall within this category.
The shapers category is composed by those banks that have a relatively good performance and that face constantly the challenge of increasing their size but at the same time maintain their profitability. Moreover, banks in this category are those that have the possibility of acquiring banks in the upcoming consolidation period. In this category fall banks such as BBVA, Banorte, Santander, HSBC, Banregio and BanBajío.
Banks in the vulnerable category are those that given the current crisis situation might receive regulatory alerts despite current positive capitalization levels or that could be acquired through low valuations. In this category, the report mentions Actinver, Afirme, Bx+, Banco Sabadell, Autofin, Bancrea, Banco Famsa, Banco Inmobiliario Mexicano, Forjadores, Finterra, ABC and Accendo.
The last category focuses on target banks, which are larger banks with a performance that is not stellar and that with a consolidation would become more efficient. This category includes Scotiabank, Inbursa and Banco Azteca.
Though it is sill early to discern the impact that the COVID-19 pandemic will have in the country’s banking system, it is not unthinkable that some banks could disappear. In a note by El Economista, the European Banking Authority (EBA) has warned that even though European banks entered the COVID-19 pandemic with positive capitalization levels, the current crisis will impact negatively the quality of banks’ assets and “could elevate the volume of non-productive loans.” Though the warning is for European banks, Mexican banks do not escape from this situation and should their conditions deteriorate, one could expect a rearrangement in the country’s banking sector.