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Viewing cable 06MEXICO1776, MEXICO'S BANKING SECTOR CONTINUES EXPANSION IN 2005

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Reference ID Created Released Classification Origin
06MEXICO1776 2006-04-05 15:57 2011-08-25 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Mexico
VZCZCXRO3381
RR RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #1776/01 0951557
ZNR UUUUU ZZH
R 051557Z APR 06
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC 0019
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE
UNCLAS SECTION 01 OF 02 MEXICO 001776 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR WHA/MEX, WHA/EPSC, EB/IFD 
STATE PASS USAID FOR LAC:MARK CARRATO 
TREASURY FOR IA MEXICO DESK: JASPER HOEK 
COMMERCE FOR ITA/MAC/NAFTA: ANDREW RUDMAN 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV PGOV MX
SUBJECT: MEXICO'S BANKING SECTOR CONTINUES EXPANSION IN 2005 
 
------- 
SUMMARY 
------- 
 
1. (U) In 2005, Mexico's banking sector enjoyed continued 
rapid expansion in both loans and profits.  Mortgage and 
consumer credit grew 35% and 48% respectively, while loans to 
businesses grew a modest 5%.  Banking profits grew 83% over 
2004 to USD 4.4 billion, prompting criticism that the banks 
are "too profitable."  Finance Secretary Francisco Gil Diaz 
and others have defended the banking system as an engine of 
growth that has succeeded because of improved operations and 
customer service.  (Note: None of the figures in this report 
include Mexico's government-owned development banks.  End 
note.) End summary. 
 
------------- 
CREDIT SOARED 
------------- 
 
2. (U) Despite oft-cited public sentiment that Mexican banks 
have been tight with their lending, Mexico's banking sector 
expanded credit at phenomenal rates in 2005, following 
equally healthy lending growth in 2004.  In 2005, Mexico's 
full-service banks grew their overall loan portfolios to the 
private sector (mortgage, consumer, and business credit) 
21.5% over 2004, to USD 78 billion.  Consumer loans and 
mortgages grew 48% and 35% respectively.  Loans to businesses 
(other than financial institutions) grew by a modest 5.4 
percent, though businesses are still the banks' main 
customers. 
 
-------------- 
AS DID PROFITS 
-------------- 
 
3. (U) According to the National Banking and Securities 
Commission (CNBV), banks' net profits rose 83% in 2005, to 
USD 4.4 billion.  The banking sector continued to be 
dominated by six banks, which together hold 86% of Mexico's 
private sector banking assets.  Of these, only one, Banorte, 
the fifth largest, is Mexican.  The others, in order of 
assets held, are BBVA Bancomer (Spanish), Banamex (owned by 
Citigroup), Santander Serfin (Spanish), HSBC (British), and 
Scotiabank Inverlat (Canadian). 
 
------------------------ 
ELICITING SOME CRITICISM 
------------------------ 
 
4. (U) The banking sectors' profits have prompted some 
criticism, which is partly fueled by the banks' foreign 
ownership.  Central Bank Governor Guillermo Ortiz and 
Competition Commission head Eduardo Perez Motta have both 
voiced public criticism of the sector's profitability. 
Defenders of the banking sector, including CNBV president 
Jonathan Davis and Finance Secretary Francisco Gil Diaz, 
while admitting there was room for improvement, say banks' 
profits are directly related to improved operations and 
customer service. 
 
------- 
COMMENT 
------- 
 
5. (SBU) The banking sector in Mexico has yet to recover from 
the 1995 collapse and the high rates of credit growth are 
largely due to the small base from which credit is growing. 
Banking credit as a percentage of GDP still greatly lags 
behind most industrialized economies.  Furthermore, banking 
services have yet to reach most of the population -- a fact 
accepted by banking leaders.  However, the banks have indeed 
stepped up their lending efforts - that is, after all, their 
business.  Competition has lead to rapidly falling interest 
rates that are at historically low levels, making credit much 
more accessible.  Low inflation and macroeconomic stability 
have also allowed for repayment terms stretching to 20 or 
more years at fixed rates - a phenomenon unheard of just a 
few years ago.  Criticizing the success of the banks, to 
which many attribute Mexico's economic rebound and its 
projected future economic growth, is not productive. 
 
6. (SBU) Long-standing criticism that banks are not lending 
enough to businesses is also unfair.  Although growth in 
lending to businesses has been slower than to consumers and 
 
MEXICO 00001776  002 OF 002 
 
 
homeowners, the banks rightly point out that many small- and 
medium-sized businesses simply don't have the needed 
expertise and documented financial performance to take 
advantage of banking credit.  Furthermore, most large 
businesses have access to cheaper financing through the 
financial markets and many businesses of all sizes can and do 
obtain credit from suppliers and other sources.  The success 
of the banking sector is something that should be applauded 
and will hopefully continue unimpeded by government 
intervention, helping propel Mexico's economy despite itself. 
GARZA