Leaders and WB confab in on quake efforts; Fitch sees Mex banks stable

Mexican President Enrique Peña Nieto joined Mexico City mayor Miguel Ángel Mancera, finance minster José Antonio Meade and other top officials on Wednesday afternoon for a meeting to discuss reconstruction efforts, following September's earthquakes.

During the event, Meade noted the government has already authorized the use of 670mn pesos (US$36.7mn) to respond to the disasters, and Mancera asked the federal government to accelerate the reconstruction process by adding flexibility with applications for federal funds.

Elsewhere, an envoy from the World Bank met with Mexican officials to discuss earthquake impact, relief and recovery, as it analyzes the release of a US$150mn cat bond, likely triggered by the Sept. 7 quake striking southern Mexico.

With an 8.1 magnitude, the first earthquake easily met the cat-bond's minimum intensity parameter, set at 7.8. As such, the first quake seems likely to trigger the World Bank funds.

However, while the damage from the 7.1-magnitude quake hitting central Mexico - including Mexico City - is certain to produce a far greater economic and insured-loss impact, the magnitude of the quake did not cross the threshold.

Mexican daily El Universal reported sources close to the meetings between Gregor Wolf, program leader for the World Bank's sustainable projects in Brazil, and Mexican officials, including national civil protection minister Luis Felipe Puente, said the World Bank is indicating some flexibility in how the funds can best be used to address the overlapping catastrophes.

The ongoing discussions are the latest development in the multifaceted roll out of funding mechanisms for both the Sept. 8 and Sept. 19 quakes, which include direct aid, loan assistance, tax breaks and the nation's "Plan Billetes" aimed at using bank cards to release funds directly to victims at strategic locations in southern Mexico.

Fitch: Mexican banks move to 'stable' from 'negative'

Fitch Ratings has revised its outlook on Mexico to 'stable' from 'negative', moving in line with the perspectives held by Moody's and S&P, suggesting that profitability should continue to improve as downside risks subside.

"Downside risks have gradually eased, which drives Fitch's revised expectation that financial metrics in the near future will no longer deteriorate materially relative to recent readings," said Fitch in its announcement.

Fitch noted the banking system has been resilient in an uncertain economic environment with rising inflation over recent months.

"Still, under Fitch's baseline scenario of moderate but positive economic growth, we expect system-wide profitability should continue to improve gradually as the major banks will continue to benefit from widening margins, due to the higher interest rates and well-contained low funding costs." The ratings agency maintains that commercial banks' lending growth rate will decelerate in 2H17; however, it revised its forecast for loan growth during the calendar year upward, to 10% from 6%-8% previously.

"Over the past two years, banks' overall asset quality metrics have improved; however, higher than targeted inflation, rising interest rate hikes and prevailing economic uncertainties stemming from the forthcoming NAFTA renegotiations could pressure asset quality figures moderately, particularly in the consumer and SMEs sectors," said the ratings agency.