The First Bankruptcy of the COVID-19 EraBy Peter Appleby | Thu, 07/02/2020 - 17:05
The much talked-about risk facing banks during the COVID-19 pandemic became real this week as the first Mexican bank fell victim to the virus. Despite the economic danger, SHCP said it would not increase national debt to face the health crisis, while remittances from the US to Mexico rose in May.
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A grave milestone was reached at the beginning of the week, as Banco Ahorra Famsa became the first bank in Mexico to call bankruptcy following the arrival of COVID-19. The World Bank previously had given stark warnings on the potential risks to banking institutions and Banxico had warned of potential problems with liquidity should the pandemic persist. The question now is how many other banks are at risk.
During a webinar on housing and finance regulation, Deputy Minister of Finance Gabriel Yorio explained that the government would not take loans and increase national debt to face the economic crisis brought to Mexico by COVID-19. The comments made by the deputy minister were in line with those of the president, who has pursued austerity policies in an attempt to stunt Mexico’s climbing national debt. Despite this, analysts are suggesting that the country’s debt could more than double this year due to the pandemic’s effects.
According to Banxico figures, the total value of remittances sent from the US to Mexico by migrant workers increased by 18.1 percent in April. Clearly, the need for remittances increased in Mexico but the rise is so far running contrary to predictions made by experts including BBVA that said remittances could drop by 17 percent this year and 21 percent by 2021. So far, this is not looking the case.
The Fideicomiso de Fomento Minero (FIFOMI) has financed 250 mining SMEs between January and May of this year, helping small employers to bear the battering from COVID-19. FIFOMI increased its loan support for struggling companies by 21 percent to MX$2.3 billion (US$102.3 million) in contrast to the funding given by December 1, 2018. Alfredo Tijerina, FIFOMI’s Director General, explained that the fund is only hoping those companies that are involved in activities to bring benefits to the local community.