Bankers offer upbeat outlook for 2005

Mexico's top bankers are upbeat on the prospects for the economy and the banking sector next year despite the onset of a long presidential and congressional election campaign season. "Despite the political build-up we are going to see, I am sure the year is going to be positive in economic terms and that we are going to be able to grow around 4% with inflation also at 4%," Hector Rangel, chairman of Mexico's largest banking group BBVA Bancomer, said on Wednesday. Mexico's economy, which is recovering from a stagnant three years of poor growth, is currently expanding at about 4%. This in turn has spurred greater demand for credit from businesses and individuals. Banks reported direct performing loans to the private sector of 616bn pesos (US$55.4bn) at the end of October, an increase of nearly 22% in real terms compared to the same period last year, driven by consumer, mortgage, and business lending. However, interest rates have started to rise off historic lows as the central bank struggles to contain inflation, which stood at just over 5% at the end of September. Interest rates on the government's benchmark 28-day Cetes T-bills averaged 7.76% during October, up from 4.69% in January. "Yes, we think that interest rates could rise 1-2 percentage points during the year [2005]. We don't think that is going to slow the demand for credit that we are seeing," banking association ABM chairman Manuel Medina told reporters Wednesday. "The broad nature of economic recovery in all sectors, not just in construction and consumer spending but in corporate spending, is generating a considerable demand for credit," said Medina, who is also CEO of Mexico's number two bank, Banamex.