Mexican banks anticipate new regulation


Rob Dwyer
Published on:

Recent growth puts Banorte ahead of its 2020 targets; strong cash generation expected to lead to greater 2019 dividends.

Mexican banks expect the new government to introduce new regulation that target the financial industry, according to Banorte’s head of investor relations Ursula Wilhelm.


Ursula Wilhelm,

“We will probably see some changes – some new focus with regards to the banking industry,” she says. “Nothing has really been talked about from people in the new government, but we do expect that to come.”

The market is mainly speculating about potentially restrictive regulation – such as the introduction of interest-rate limits for lending, floors for deposits or mandated lending to certain segments.

However, Wilhelm believes the industry could be pleasantly surprised.

“We are hoping for new rules that really help to improve the level of credit penetration and increase formality, which would be very helpful with respect to the banking system.”


Banorte’s recent strategy – aggressive organic growth coupled with the acquisition of Interacciones – means that the largest domestic bank will be bigger and stronger when any new regulations come into force.

The bank introduced a 2020 strategy in 2015 to improve return on equity (ROE) to 20% – among a range of targets – from 13%. In the first quarter of 2018, the bank reported ROE of 19.1%.

However, the bank hasn’t adjusted its capital position to account for strong cashflow – the capital ratio ended the first quarter of 18.6% – and Wilhelm confirms that if the bank had distributed excess capital, the bank might have already achieved its ROE target.

“It’s true that had we paid out a higher dividend payout this year, we would have been much closer to the 20% [ROE target] than we are today,” she says.

Wilhelm declines to specify what the bank’s capital ratio floor would be, but says the bank is likely to articulate its capital-management strategy in early 2019.

“Management has not made a decision yet, but that is something that we are evaluating and we will probably communicate the decision to the market early next year, but the strong capital ratios does meant there is room to improve capital payouts,” she says, adding the bank has “no need to retain capital in the short term”.

Other targets

Other key 2020 targets were for an efficiency ratio of 40% – the bank hit 39.5% in 1Q 2018 – and to be selling an average of 2.2 products per retail customer, currently at 1.9 products from 1.6 in 2015.

Wilhelm also confirms that Mexico’s retail banking sector is facing new competitive forces with the recapitalization of Citi, new leadership of HSBC and the continued growth of Scotiabank’s operation.

She says the competition is “natural”, but notes that she has yet to see Citi become an active competitor in the consumer segment.

“I see them very active and aggressive in the corporates and middle-market segments,” she says. “Citibanamex is the bank that has been growing the fastest in the last 18 months and a lot of that is based on pricing.”

Meanwhile, Scotiabank continues to outperform the retail market. Brian Porter, the bank’s CEO, noted on a recent investor conference call that: “Revenues grew 15% year-over-year and our operating leverage was 900 basis points.

“This trend is in line with the last two years – in that period, Mexico has been winning market share, improving the efficiency ratio from 62% to 55% and improving ROE.”

Analysts say the Canadian bank’s Mexican subsidiary is well managed, but faces a long struggle to achieve scale in the market purely through organic growth.