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Mexico: Banks bouncing back on lower costs

Mexico’s banking sector reported a 20.2% increase in earnings in 2010, with an average return on equity of 13.5%. With the country being tipped as the region’s potential star performer this year, Mexican banks should continue to enjoy strong earnings as lending rates recover to pre-crisis levels.

Statistics published by Banxico, the central bank, indicate that the sector earned Ps74.7 billion ($6.2 billion), thanks largely to a 20.4% fall in financing costs and a decline in risk reserves of 30%. Interest income rose 5.9%. The sector’s combined performing credit portfolio grew by 8.8%, with mortgage lending rising 9.8%, consumer lending growing by 6.4% and lending to non-financial corporates up 7.9%. Lending to the government leapt by 16%, driven in part because government securities and loans to states and municipalities consume less regulatory capital than other asset classes.

The strong 2010 results augur well for 2011 as growth projections are being revised upwards. In January Banamex, the local arm of Citi and Mexico’s second-largest bank, increased its 2011 forecast to 4.8% from 3.9% (in 2009 Mexico’s GDP shrank by 6.1%). That should lead to growth in bank credit to corporates and individuals, which contracted in real terms in 2008/09 and has not yet recovered to pre-crisis levels.

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