Funding Mexico's InfrastructureWed, 03/15/2017 - 14:35
Q: What kind of portfolio diversification is the bank considering to correctly manage risk?
A: A bank must sell different products in different sectors to avoid systemic risk. In the case of Interacciones, we are very focused on providing loans to the government. The fact that our borrowers pay us with funds that come from the federal government makes our risk dependent on the country’s finances. The entire country would have to go bankrupt for one of our clients to go bankrupt, which is why we do not have to diversify our operations according to industry. Nevertheless, we are doing several things to diversify our portfolio within our traditional operations. We have managed to construct a five-lane highway between Interacciones and the country’s states and through this highway there are several products passing by. We have credit products aimed directly at local governments and our infrastructure loans help the development of local economies. There are several products that cater to the liquidity needs of government suppliers, that includes an SME banking initiative for those that are also suppliers. We have other products that go beyond credit such as consultancy services for states. We see ourselves as an adviser for our clients that also has a bank that can finance their needs.
Q: How do you expect FDI to behave during 2017?
A: At the end of 2016 and early 2017, movements in the exchange rate translated into competitiveness. We believe that we will continue to see relevant investment in the country, which means further growth for Banco Interacciones. The northern states of the country have a significant dependence on maquila manufacturing and on the US. Even though many people believe that due to the US political administration investment is going to stop flowing into this area, that is not necessarily the case. A significant number of Mexicans living in the US are expected to return to Mexico. Several will not return to their states of origin and instead will stay in the border zone. States in the northern border have been investing in their infrastructure considering their usual population requirements. However, they had not considered the possibility of so many immigrants returning from the US. This means they now have to invest in basic infrastructure to accommodate the needs of a growing population and generate employment opportunities. This represents an important opportunity for Interacciones to participate, contributing to the bank’s growth.
The center states have not been that affected. Many have growth percentages above the national average and their investment agenda has not been impacted. In the south, we believe the ZEEs will be an important investment engine that will provide the necessary tools to give these states an industrial calling.
Q: What factors do you take into consideration when analyzing a project’s feasibility?
A: We take into consideration several factors. We have such a level of specialization that we have a team of civil engineers to analyze the project’s technical viability with our clients, looking at the logic and if the cost estimated by the client has certain symmetry with what we estimate it to cost. If the cost the client is proposing is way above our estimations, we will not participate.
Part of the consultancy we offer is related to the correct use of federal funding to finance these projects. In this country, tax collection is made in a centralized manner. States usually receive funds from this collection. However, our clients often do not have clarity on how to access these funds. So, this is what we do: we connect the dots between the financial and technical viability and how to access federal funds for infrastructure projects.
When we are structuring a loan, we isolate the capacity that our client has to pay us. Typically, our clients pay us through a federal trust, where the federal government deposits these resources and then the credit is paid. Once the payment has been covered, the remaining credits are delivered to the state authorities. This process is one of the reasons why we have a very low past-due loan portfolio percentage.