Development Bank Bridges Project Finance GapTue, 11/01/2016 - 15:21
Q: What have been the main drivers of change in the finance industry?
A: Capital and liquidity requirements have been significantly increased in the last few years for commercial banks and subsequently these institutions have been less willing to participate in long-term financing. When combining these regulatory changes with Mexico’s need for new development, a situation arises whereby many new projects are in need of financing. Commercial banks have less appetite to participate so development banks such as Bancomext emerge as the front-runners in this market. Bancomext focuses on export activities. We need to close the financing gap between projects and the pool of available resources. Our role is crucial to make greenfield projects happen.
Q: How do you ensure that services complement those offered by other banks?
A: The idea is to use development banks to boost financial diversity and also to distribute the risks associated with lending to new debtors or projects. At Bancomext, we have two main financial services – those we provide directly to companies and those we provide indirectly through second-tier financing, in which we rely on the presence and branches of commercial banks to grant credit to SMEs. We are highly involved in both and we complement each other. Commercial banks want to develop mature projects with a short to medium-term scope but not long-term financing.
Q: Which initiatives is Bancomext involved in?
A: We are financing a broad base of companies and sectors and as the bank is growing at a fast pace, our pool of idle capital is getting smaller so we need to be judicious in how we distribute our marginal financing pesos. We can meet our objectives if we focus on CAPEX, which will increase the productive capacity of exporters and sectors including automotive, energy and infrastructure. We also want to play a larger role in the supply chain and be an agent that helps suppliers increase their added value in Mexico.
Another important area in which we are active is tourism, financing large hotels and other projects. Bancomext recently launched a program called Mejora Tu Hotel, through which we are providing financing alternatives for hotels to upgrade their buildings. Bancomext is determined to help small and medium-sized hotels upgrade facilities and the services they provide. Tourism not only extends to key beach destinations like Cancun and Los Cabos but also smaller destinations throughout the country.
Bancomext has co-chaired the Investment and Infrastructure Working Group for the last three years. Financing is a complex ecosystem and there are some traditional factors that work across sectors but there also are specific requirements such as financing in different sectors. The idea is to bridge the gap between projects and institutional resources, not only from local investors but also from external sources of finance. The country’s economic performance also has placed it in a different category from other emerging markets. New instruments like Fibra E have been created to increase the financing alternatives for greenfield and brownfield projects.
Q: What role can Bancomext play to ensure infrastructure is developed on time?
A: BANOBRAS is the development bank mandated to support the infrastructure segment. Our role is to act as a liaison between the projects and the institutional investors and to help them deploy some of these resources into the broad concept of infrastructure. There are a lot of projects, from roads, rails, ports and highways to housing and energy, and there is a great deal of work to be done to match companies with suitable undertakings. We must plan according to our five, 10 and 20-year needs to eliminate infrastructure bottlenecks. Long-term planning and preparation will be key going forward. The Special Economic Zones (ZEE) coordinated by BANOBRAS will require an additional effort by public agencies and development banks because we want to develop regions, mainly in the south of the country, that have not been fully integrated into agreements such as NAFTA and as a result have lagged in productivity, employment and growth. One key region is the Isthmus of Tehuantepec, which is considered Mexico’s third border, connecting the Pacific and the Atlantic.