Providing Responsibility to Investors, Commitment to CountryWed, 11/01/2017 - 12:12
Q: Banco Interacciones registered double-digit growth in 2016. What were the contributing factors?
A: 2016 was a spectacular year for Banco Interacciones. We experienced an 18.24 percent increase in our credit portfolio, our return on equity was 17.52 percent and our utilities grew 14 percent. Within our portfolio, infrastructure grew 40 percent and our new leasing service grew 60 percent. We did all this while also reducing our past-due loan portfolio, which concluded the year at 0.05 percent, one of the lowest percentages registered in the world. Among the factors that favored Banco Interacciones’ growth during 2016 is the Fiscal Discipline Law, which was set in motion during the first months of the year. It forces states and municipalities to have more transparency regarding the use of public resources. The law also stipulates that states can acquire debt for productive investment, which is 90 percent infrastructure, a niche that Banco Interacciones knows very well. The fact that states are becoming more transparent in the way they present information makes our analytical process for determining risk much easier.
Q: How does Banco Interacciones reconcile the high state indebtedness with the bank’s participation in infrastructure projects?
A: One of the most common misconceptions is that the states are overindebted. However, Mexican state indebtedness only represents 2.9 percent of the country’s GDP. In similar economies, this level ranges between 6 and 12 percent. In more developed economies, the level rises to 24 percent of GDP. In Mexico, states have been plagued by cases of corrupt administrations, but the authorities have begun taking the necessary actions to avoid this from happening again. At Banco Interacciones we do not provide loans to governors or mayors. We finance infrastructure projects and we focus on the financial and technical viability of the project. As of today, every infrastructure project we have financed is already concluded and operating.
Q: What factors do you take into consideration when analyzing a project’s social, technical and financial feasibility?
A: We have such a level of specialization that we have a team of civil engineers that analyzes the project’s technical viability alongside our clients, ensuring the project is logical and that the cost expected by the client is in line with our estimates. If the cost the client is proposing is much higher than our estimates, we will not participate. We also have a specialized team of lawyers that focuses on understanding the local laws and the way states operate. When we are structuring a credit, we isolate the capacity that our client has to repay the loan. 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 remainder of the credit is delivered to the state authorities.
Q: How do you expect FDI to behave during 2017, particularly in terms of infrastructure?
A: The truth is that at the end of 2016 and the beginning of 2017 the movement we have seen in the exchange rate has translated into competitiveness. We believe that we will continue to see relevant investment in the country that will translate into growth for Banco Interacciones. The northern states of the country have a significant dependence on maquila manufacturing and the US. Even though many people believe that investment will be curtailed due to the new US political administration, this is not necessarily the case. Many of the central states, on the other hand, have growth percentages above the national average and their investment agenda has not been affected. In the south, we perceive that the Special Economic Zones (ZEEs) will be an important engine for investment engine, providing the necessary tools to give these states an industrial component. The ZEEs are expected to generate significant fiscal benefits, such as income tax exemptions for the first 10 years, and later to lead to progressive growth. These incentives alone make the ZEEs competitive when compared with other ZEEs around the world. This scheme is also prompting states to invest in basic infrastructure to compete for the investment that is coming.