Mexican banks see profit drop by a third

Mexico’s commercial banking sector experienced a sharp contraction in net income in the first eight months.

Total net profits of the 50 banks operating in the country from January to August amounted to 76.8bn pesos (US$3.63bn), or 32.5% less than in the same period 2019, according to banking regulator CNBV. 

Profitability was strongly impacted by banks making billions of pesos in loan loss provisions in preparation of potential asset deterioration spurred by the economic impacts of the COVID-19 pandemic, and unemployment in particular.

Eduardo Osuna, CEO of the country’s largest bank, BBVA Mexico, said it had allocated 23.85bn pesos in provisions in the first half of 2020, or 41.1% more than the same period last year. Speaking Wednesday during BBVA’s 2020 national board of directors meeting, Osuna said 32% of the provisions were directly tied to the pandemic.

The bank, he said, also recorded a 4.1% increase in expenses in the half, adding that COVID-19 has presented a host of challenges to banks, which will only be overcome by those that are well prepared.

The CEO said that in addition to this year’s contraction in supply and demand, loss of employment, reduced purchasing power and lower investment, companies have been forced to adapt to fundamental changes in employee and client behavior with new health measures, social distancing and working from home. Likewise, businesses have had to accelerate digitization plans to adapt to the “new normal.” 

Sector performance

CNBV said sector ROA in August reached 1.21%, down from 1.71% in the same month last year, while ROE stood at 11.80%, dropping from 15.99% in August 2019.

The sector-wide loan book stood at 5.41tn pesos in August, down 1.3% from July and 1.9% less than in August 2019, according to CNBV.

The decrease in loans was the first since the pandemic began. 

CNBV reported that commercial lending – including loans to businesses, the government and other financial entities – fell 1.1% from a year earlier to 3.51tn pesos or 64.9% of the total loan book. Commercial loans contracted 2.0% compared to July. 

Loans to businesses fell 0.4% to 2.78bn pesos, while government loans contracted 1.7% to 539bn pesos.

At 966bn pesos, consumer loans were down 9.6% from end-August 2019. Home loans stood at 930bn pesos, a 4.6% increase. All the percentage figures are in real terms.

Asset quality

A 4-6 month loan payment deferment program begun in late March began to conclude in late July, with banks able to avoid declaring unpaid loans as non-performing for clients participating in the scheme.

As such, the NPL ratio stood at 2.06% in August, 0.04 percentage points lower than July and 0.11pp lower than in August 2019. 

The commercial NPL-ratio was 1.27% in August, down 0.09pp on 12 months before, while that of consumer loans was down 0.70pp to 3.66%. The NPL-ratio for home loans rose 0.62pp to 3.29%. Past-due mortgages were up 0.13pp from July.