While they benefit from and contribute to Mexico’s strong economy, Mexican banks could reap impressive growth by targeting the still under-served consumer and business markets. That’s one of the conclusions of KPMG’s recent report (in Spanish), The Role of Mexican banks in economic growth.
The global financial crisis demonstrated the close connection between healthy national economies and financial institutions. In fact, Mexico’s economy escaped the worst of the global turmoil, partly since its financial sector went through its own transformation years earlier, during the 1982 nationalization and re-privatization process and the 1994 Mexican peso crisis.
The upheaval resulted in strong regulation and foreign investment that benefited Mexican consumers and the underlying economy. Today, there are 22 financial groups, 42 banking institutions and six development banks, as well as many non-regulated financial services firms. Despite the large number of operators, the eight largest banks represent 80% of assets.
Interestingly, while six of the top 10 banks are foreign-owned, these banks have concentrated on serving multinational, corporate or upper-tier retail clients. As a result, 93% of banks providing specialized services, like in-store banking, small business loans or auto-financing, are domestically held.
The banking sector has thrived in Mexico’s favorable macro economy, characterized by six years of stable inflation and interest rates and rising Gross Domestic Product (GDP/PIB). Mexico has also outshone most western nations in terms of fiscal balance and low public debt. Under these conditions, Mexican banks have achieved solid capital levels and reserves, in excess of regulator requirements.
Mexican banks are blessed with vast growth potential, thanks to the low percentage of the population that currently accesses banking products, limited branch and ATM networks, and underserved small and mid-sized business segments. In fact, the World Bank estimated that just 45% of private financing in Mexico comes from banks, while the majority is derived from suppliers or cash injections from private investors. In addition, a study from the U.S. Federal Reserve calculated that just 25% of Mexican consumers have even a basic bank account, as compared to 90% of U.S. citizens.
Mexican banks could readily expand their branch and alternative service channels, simplify account opening processes and introduce more basic saving and investing options. There is also extraordinary opportunity to serve small businesses, which dominate the Mexican economy, and by welcoming Mexico’s lower-income segments who are not typical bank customers.
Although the future looks bright for the solid and responsible Mexican banking sector, the banks should stay alert to shifting global economic conditions that could influence the local economy and consumer health. Despite the challenges, the banks are poised to grow alongside Mexico’s rising middle class, business and export sectors.