Fitch: Mexico's Smaller Banks To Be More Challenged Meeting LCR

NEW YORK & MONTERREY, Mexico--(BUSINESS WIRE)-- Smaller, niche and less mature Mexican banks are more likely to face challenges passing the phase-in requirements of the Basel III Liquidity Coverage Ratio (LCR), says Fitch Ratings. The challenges will stem from the less stable funding of smaller Mexican banks relative to the country's larger banks. Some smaller banks, perhaps up to 20% of the overall 45 banks operating in Mexican system, could require a longer period to reach full LCR compliance, Fitch added.

Fitch believes that the smaller-scale banks, especially those with large long-term loan portfolios, will need to extend the tenors of their liabilities to meet LCR targets by tapping more long-term funding sources. Some banks have moved to access long-term funding from local state-owned banks while others have issued long-term debt.

Most banks in the Mexican banking system are well positioned to pass LCR hurdles. The largest Mexican banks, including Banamex, BBVA Bancomer, Banorte, Santander Mexico, Banco Inbursa, Scotiabank Mexico and HSBC Mexico (the G7), face no pressures meeting the first target. As of 1Q15, the average LCR of Mexico's G7 was 163% and the minimum coverage level within the group was still 20% above the 60% target. Larger Mexican banks gather most of their funding from stable customer deposits and their balance sheets are well matched in terms of maturities.

In March, the Basel Committee on Banking Supervision (BCBS) deemed Mexico to be compliant with Basel III standards regarding planned regulatory implementation of the LCR, including both the LCR and LCR disclosure requirements subcomponents. Mexican banks began quarterly reporting of LCRs to Mexican banking regulators this year, and requirement will shift to daily reporting in 2016. The LCR phase-in requires banks to reach a level of 60% of the fully phased-in limit by June 2015, with an additional 10% per year step-up to 100% coverage by January 2019. Mexico's banking regulator has given more time for small banks to comply with LCR rules (January 2016 versus end of June 2015).

Mexican regulators have yet to adopt final rules for a Net Stable Funding Ratio (NSFR) using the Basel guidelines. In Fitch's view, the eventual adoption of NSFR rules will be relatively more challenging for small and medium-sized banks than the LCR requirement, since these entities typically source only a small or moderate fraction of their liabilities from truly core customer deposits or other similarly stable resources.

Regarding Basel III capital standard compliance generally, the BCBS deems Mexico already compliant in twelve of 14 components of the standards, while the banking system is largely compliant with the countercyclical buffer and Pillar 3 standards.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

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View source version on businesswire.com: http://www.businesswire.com/news/home/20150609006129/en/

Fitch Ratings
Alejandro Tapia, +52 81 8399-9150
Director
Fitch Mexico, S.A. de C.V.
Monterrey
or
Monica Ibarra, +52 81 8399-9150
Director
or
Matthew Noll, CFA, + 1 212-908-0652
Senior Director
New York
or
Media Relations
Elizabeth Fogerty, +1 212-908-0526 (New York)
[email protected]

Source: Fitch Ratings

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