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 Business News | June 2006 
In Mexico, Pushing Big Banks to Lend Small
 Adriana Arai - Bloomberg
| "To achieve greater economic growth and improve the welfare of the population, we must incorporate more people into the banking system."
- Guillermo Ortiz |
Mexico City - Every March, Mexican bankers fly to the coastal resort of Acapulco for a two-day conference to discuss financial issues - and to throw a party. But there is one item on the agenda the executives do not look forward to: the tongue-lashing they must endure from Guillermo Ortiz, the governor of the Bank of Mexico.
For the past two years, Ortiz has turned his address at the annual bankers' convention into a bully pulpit to criticize the banks for lending too little to individuals and small businesses and charging too much in interest and fees.
"To achieve greater economic growth and improve the welfare of the population, we must incorporate more people into the banking system," Ortiz told the 675 bankers in attendance this year. "The strategy of the banks and the prices of services will play an important role in solving this problem."
Though his tone is always polite when he addresses the bankers, Ortiz has been waging a war against them. In a series of public statements and private meetings, he has noted that the amount of credit handed out to Mexican individuals and private companies equals only 10 percent of Mexico's gross domestic product. That is less than for any other major economy in Latin America, according to Credit Suisse Group.
In Brazil, the region's largest economy, domestic credit is 31 percent of GDP, while in Chile it is 67 percent. In developed countries, the ratio exceeds 100 percent.
Ortiz also criticizes bankers for charging interest rates as high as 40 percent on loans and credit card balances and for an array of fees that discourages most working-class Mexicans from getting bank accounts. With inflation and the value of the peso under control, he says, the foreign companies that bought the largest Mexican banks recently have no excuse to be so tight on lending.
From 2000 to 2002, overseas banking giants bought five banks that now control 80 percent of Mexican banking assets. The biggest bank in the country by assets, Grupo Financiero BBVA Bancomer, is owned by Banco Bilbao Vizcaya Argentaria of Spain, while the third-largest, Grupo Financiero Santander Serfín, is owned by Banco Santander Central Hispano, also of Spain.
Citigroup, which is based in the United States, controls the second- biggest Mexican bank, Grupo Financiero Banamex. Two other big Mexican banks are run by HSBC Holdings of Britain and the Bank of Nova Scotia.
In response to Ortiz's pressure, banks have begun to increase lending. Though still low by international standards, bank loans to Mexican families and private companies surged 30 percent in the 12 months through March 31, led by mortgages and personal loans, according to central bank figures.
Fees have also come down, though not fast enough for Ortiz. At the end of 2004, Banamex dropped its fee for withdrawals from automated teller machines to three pesos, or 26 U.S. cents, from five pesos. In March, BBVA Bancomer dropped a fee of 3.50 pesos for wire transfers. Ortiz said ATM fees had dropped 46 percent over all and fees for balance inquiries by 67 percent.
Ortiz, a former finance minister, was appointed central bank chief by President Ernesto Zedillo in 1997, and President Vicente Fox reappointed him in 2003. His term ends in 2009.
His struggle with the bankers comes at a critical time for Mexico. By many measures, the Mexican economy has never been healthier. Under Fox, the federal budget reported its smallest deficit in nine years.
Inflation, at 3.3 percent, was lower in Mexico last year than in the United States for the first time. Foreign investment is at record levels. Analysts give much of the credit for the healthy economy to Ortiz, who imposed tight monetary controls that have stabilized the peso and controlled inflation.
Yet Mexico's $770 billion economy has languished in recent years. While economic growth for 2005 was 3 percent, the average annual expansion for the past five years has been just 1.8 percent. Growth must be much higher if Mexico is to produce enough jobs to absorb the one million workers who join the labor force every year, said Paulo Leme, managing director for emerging markets at Goldman Sachs.
For much of their recent history, the banks have made most of their profit from lending to big corporations and wealthy individuals, and from interest payments on high-yielding government bonds, Ortiz said. As inflation came under control, yields fell. He said the banks then replaced that revenue stream with another risk-free business: fees.
In the past five years, banks have charged Mexicans for all kinds of services, including cash withdrawals, balance inquiries, online banking and bill payments. Customers with savings accounts at BBVA Bancomer must pay an annual fee of at least 125.35 pesos and keep an average balance of at least 750 pesos to avoid an additional charge of 94.30 pesos a month.
Bankers say they need to charge higher fees in Mexico because costs are higher. But Ortiz does not buy such arguments. He has driven bank costs down by encouraging competition.
"The challenge ahead is to increase competition so that the interest rates paid by the customers can decline," Ortiz said. "We're moving in the right direction."
MEXICO CITY Every March, Mexican bankers fly to the coastal resort of Acapulco for a two-day conference to discuss financial issues - and to throw a party. But there is one item on the agenda the executives do not look forward to: the tongue-lashing they must endure from Guillermo Ortiz, the governor of the Bank of Mexico.
For the past two years, Ortiz has turned his address at the annual bankers' convention into a bully pulpit to criticize the banks for lending too little to individuals and small businesses and charging too much in interest and fees.
"To achieve greater economic growth and improve the welfare of the population, we must incorporate more people into the banking system," Ortiz told the 675 bankers in attendance this year. "The strategy of the banks and the prices of services will play an important role in solving this problem."
Though his tone is always polite when he addresses the bankers, Ortiz has been waging a war against them. In a series of public statements and private meetings, he has noted that the amount of credit handed out to Mexican individuals and private companies equals only 10 percent of Mexico's gross domestic product. That is less than for any other major economy in Latin America, according to Credit Suisse Group.
In Brazil, the region's largest economy, domestic credit is 31 percent of GDP, while in Chile it is 67 percent. In developed countries, the ratio exceeds 100 percent.
Ortiz also criticizes bankers for charging interest rates as high as 40 percent on loans and credit card balances and for an array of fees that discourages most working-class Mexicans from getting bank accounts. With inflation and the value of the peso under control, he says, the foreign companies that bought the largest Mexican banks recently have no excuse to be so tight on lending.
From 2000 to 2002, overseas banking giants bought five banks that now control 80 percent of Mexican banking assets. The biggest bank in the country by assets, Grupo Financiero BBVA Bancomer, is owned by Banco Bilbao Vizcaya Argentaria of Spain, while the third-largest, Grupo Financiero Santander Serfín, is owned by Banco Santander Central Hispano, also of Spain.
Citigroup, which is based in the United States, controls the second- biggest Mexican bank, Grupo Financiero Banamex. Two other big Mexican banks are run by HSBC Holdings of Britain and the Bank of Nova Scotia.
In response to Ortiz's pressure, banks have begun to increase lending. Though still low by international standards, bank loans to Mexican families and private companies surged 30 percent in the 12 months through March 31, led by mortgages and personal loans, according to central bank figures.
Fees have also come down, though not fast enough for Ortiz. At the end of 2004, Banamex dropped its fee for withdrawals from automated teller machines to three pesos, or 26 U.S. cents, from five pesos. In March, BBVA Bancomer dropped a fee of 3.50 pesos for wire transfers. Ortiz said ATM fees had dropped 46 percent over all and fees for balance inquiries by 67 percent.
Ortiz, a former finance minister, was appointed central bank chief by President Ernesto Zedillo in 1997, and President Vicente Fox reappointed him in 2003. His term ends in 2009.
His struggle with the bankers comes at a critical time for Mexico. By many measures, the Mexican economy has never been healthier. Under Fox, the federal budget reported its smallest deficit in nine years.
Inflation, at 3.3 percent, was lower in Mexico last year than in the United States for the first time. Foreign investment is at record levels. Analysts give much of the credit for the healthy economy to Ortiz, who imposed tight monetary controls that have stabilized the peso and controlled inflation.
Yet Mexico's $770 billion economy has languished in recent years. While economic growth for 2005 was 3 percent, the average annual expansion for the past five years has been just 1.8 percent. Growth must be much higher if Mexico is to produce enough jobs to absorb the one million workers who join the labor force every year, said Paulo Leme, managing director for emerging markets at Goldman Sachs.
For much of their recent history, the banks have made most of their profit from lending to big corporations and wealthy individuals, and from interest payments on high-yielding government bonds, Ortiz said. As inflation came under control, yields fell. He said the banks then replaced that revenue stream with another risk-free business: fees.
In the past five years, banks have charged Mexicans for all kinds of services, including cash withdrawals, balance inquiries, online banking and bill payments. Customers with savings accounts at BBVA Bancomer must pay an annual fee of at least 125.35 pesos and keep an average balance of at least 750 pesos to avoid an additional charge of 94.30 pesos a month.
Bankers say they need to charge higher fees in Mexico because costs are higher. But Ortiz does not buy such arguments. He has driven bank costs down by encouraging competition.
"The challenge ahead is to increase competition so that the interest rates paid by the customers can decline," Ortiz said. "We're moving in the right direction." |
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