A 62 year old institution, Bancomext acts both as a developing bank and a trade boat. As a financial institution you provide Mexican companies with a range of services, such as credit negotiations. What are the financial services Mexican companies demand the most from Bancomext?
The Mexican economy has been changing, evolving dramatically in the past years, and Bancomext, which is 62 years old, has been changing just as fast. In fact, we try to move faster than the economy in order to provide a full service to our customers. One thing we try to do is to provide a full service to each particular customer. And as we are geared towards small to medium size companies, we try to start by helping to support these companies we help them find their own capabilities and develop projects that's why the trade board side of the bank comes first from the point of view that we try to identify potential customers for our own customers also aiding them to identify the product, the market, and to develop projects that at the end will be financed by Bancomext, but we start from the other end. Once we get into the financing, which is the last stage of our support to the companies, we try to provide them with every type of financial support, from the possibility of becoming partners, we get into the equity, (we have a minority share with our companies), we provide direct credit, all types of financial services they may require. We do it either directly (80% of our transactions), or through the Mexican commercial banks (20% of what we do).
In fact you are about to launch a new service, which is credit insurance, when will it be available and what is this project about?
Last month, we opened the company, Seguros Bancomext, which is a 100% subsidiary of Bancomext. So from May on, it has been operating. It's main task is to provide credit insurance for Mexican exporters, specially small to medium companies, that do not have the ability to identify the risk with their type of potential foreign customer and who require the security we represent. This is a very common practice all around. In fact, in Mexico there is a private company (Comecec) that provides this service, at one time we were shareholders of that company. As the market has developed we have identified the need to provide more comprehensive credit for our customers so we decided to become independent and to have our own company. There's a huge demand for this type of service.
In fact, Bancomext does not receive financial support from the Mexican State, nevertheless, you claim to be the soundest Mexican bank. How did you manage to get to this position taking into account that Mexican banks have undergone a very difficult over the last years?
Its true, we have not received any subsidies from the government. Of course, our equity capital belongs to the government. At one time, we were in charge of the trade board portion and that's why we had to subsidize some of the trade promotion activities in terms of participating in different types of events paid by the bank. We do it with the revenues we get from the financial side so that forces us to have a very sound financial operation. I believe we are the only bank in Mexico who didn't have to turn to any of these rescue schemes such as the Fobaproa. This is because, first of all we combine the promotional side with the financial side and we provide the credit once we know the project and we know our customers very well, so this gives us a very sound credit analysis review. The fact that we are with the World Investment News Ltdrs, which are the export companies, is also a plus. Our team is very professional and they have managed to do it right. We were very happy of the fact that we were able to do it, even without subsidies from the government.
We talked about the financial role, now let's talk about the trade factor. You mention it's one of the most important roles of the bank. In that field you have 38 offices abroad which work identifying opportunities and establishing the strategies to penetrate certain markets. What are the markets you are currently targeting?
On the trade board side, we operate both in Mexico and abroad. With our 38 offices abroad, what we try to do is to identify opportunities to help Mexican companies take advantage of those opportunities but we are also in charge of promoting investments in Mexico so we try to be helpful to the foreign companies that come to Mexico. On the Mexican side we identify companies that have the potential to become exporters so they may go to a different market to take advantage of the opportunities we've identified in our foreign branches. So we try to blend both things. We do a lot of training, we provide a lot of information to companies. In Mexico we also have 38 offices and we are gradually operating more through the universities in Mexico. We are operating with 85 Mexican universities and we have managed to open 75 offices in the universities. The role of these offices, which are managed by the universities themselves, the professors and the students, is to help young people to become exporters coming out of the universities and provide them the necessary information to create projects and one thing that has been very successful is to link Mexican universities with the small and medium size companies in different regions in the country.
In terms of target markets, of course we have a huge concentration with the US market. We are neighbors and we have the NAFTA operating wonderfully, but we are trying to grow in the other markets and diversify. The fact that we have free trade agreements with most Latin American countries and now with Europe, will give us a push into those markets. In the case of the Asia, there have been talks (through APEC and PEDEC) about trying to have freer trade between Mexico and Asia. We've talked with Japan and Singapore about the possibility of a future trade agreement with them. And more and more the fact that we are also in the Pacific has become clearer and we are trying to establish links and to dismantle any barriers we have in order to have more trade with Asia.
As a matter of fact, Jetro, a Japanese organization, has made a survey of Japanese companies established in Mexico and 95% of them declared that they would be willing to see a Mexico-Japan free trade agreement signed in the near future. Nevertheless, Japan has never signed a free trade agreement with any country in the world. How would you assess any free trade agreements and how do you think is the reference state of the negotiation with Japan?
I think it's very preliminary, we only have good intentions, but that would have to be worked out for the future. But what we aim at is to be able to have an open trade between both countries and probably more important is to have a very clear set of rules on how we trade and how we can comply with certain problems that, of course, will rise form time to time on both sides. And of course, we must notice the importance of a market as the Japanese, which is complicated but with good products and projects and vice versa.
Nevertheless some say that rather than signing new trade agreements Mexico should concentrate on what is already in place and then, in a few years time, Mexico will be in a position to sign new agreements. What is your position on this?
I think both positions are right. We just signed with Europe and other American countries, so we have to assimilate what is going on. Mexican companies may not have the capacity to cope with all of these markets at the same time in the present moment but it doesn't mean we don't have to prepare ourselves for the future. And I think that in the short run we will be very interesting and will negotiate and in the process of broadening our markets and the free trade agreement with Asia becomes very attractive for Mexico.
Now that China is about to become a member of the WTO, what are the challenges laying ahead for Mexico not only as a potential market but also as a country which could compete with Mexican products?
I think that Mexico is very optimistic and we welcome very much the fact that China joins the WTO. In fact, Mexico is one of the few countries negotiating with the terms with which they will become a member, and one very important aspect is that these terms represent a very clear set of rules for everyone and that we are able to talk the same rules and the same language. We are sure that China has a huge potential, both as a market and as a competitor as long as we work with the same rules.
Do you expect the present conflict regarding dumping policies and so on to be lifted in the near future?
Well it has to do with how the rest of the world does business and if we have a clear set of rules and we all abide by them, then there is no need to have any other mechanism.
You have stated that some of the most important issues that are still pending in Mexico are the amendments to the credits guarantee and bankruptcy laws, what are the concrete proposals you have submitted to the congress?
Now we have a new law and it was passed a month ago. So most of the pending issues were solved by the new law. Nevertheless we have to acknowledge that we are still a long way from having a banking law that promotes lending. The current laws are better than the previous but they still have to protect the XXX so much that it inhibits the lending activity. I believe that in order for Mexico to develop a system that is more supportive of the Mexican economy, we have to promote lending and in order to do so we need laws that protect lenders in order to facilitate lending. | Have your proposals to the congress been welcomed? Are you happy with the new legislation?
It's a good step forward but there is still a long way to go. The new law does move ahead in terms of protecting lenders, making it easier for a lender to collect. That will promote lending more than the previous law, but it's still far away from what we need.
So if you should have to choose the date when you think lending will be available for Mexican companies at reasonable interest rates, when do you think it would be?
It's a combination of facts. Today we have more advantages than a month ago and even better than a year ago because on one side we have advanced a lot in terms of developing domestic savings which were not existent six years ago and now, with the pension funds mechanisms, we have the resources, the money to work with in terms of lending. At the same time, the banking system, both in regulation, supervision and structure has been strengthening tremendously. The opening of Mexican banks to foreign participation is vital. And nowadays we have much sounder banking institutions. And we also have the issue of lending and bankruptcy law, which is more modern than the previous one. So we have advanced a lot and I'm sure that this will allow Mexican banks to lend from the second half of this year on. In the year 2001 banks will be more active than before, but it doesn't mean we are ready yet. It means that we have advanced a lot but we still have a long way to go in terms of promoting a modern law, a new law that will be more helpful than the one we have
Could you be more concrete regarding this new legislation? You said that there are positive amendments that have been included. If you had to mention a couple of things investors should consider as positive signs, what would they be?
One thing is that it's much easier to structure and to collect collateral with the new law. Now, the accrued interest through all of the period, as opposed to the previous law, with the suspension of a payment mechanism and when the interest was not accrued, has now been solved. And the timing for resolutions by the judges have been cut down tremendously, so you do not have to wait five years for a judicial decision. Now its much faster, probably a year or two rather than 5, or several months rather than 2 or three years as it used to be. Though we have advanced a lot, we still have to be faster and clearer so we have to move towards that direction.
You also talked about the banking system which, in you opinion is sounder than it used to be in the past. What is your opinion regarding the merging wave that is sweeping over the banking system in Mexico? Is the nationality of the capital an issue?
I don't think so. This merging is occurring all over the world and its a fact that stronger bigger institutions have a competitive advantage over the small ones, if not for any other reason but by the fact that having larger means they can divide their costs over a larger set of customers and in terms of communications, systems and all those expensive things, they can do it much better. It's the same case for Mexico. The fact that strong banks are becoming stronger mergers, that the resulting banks are becoming stronger, is a plus for the Mexican economy. And as long as the banks abide by the Mexican rules and laws, who cares about their nationality? What's important is for the banks to be strong and to support the Mexican economy and that they abide by the rules.
Today Bancomext is somehow adopting the role that commercial banks should do. Lets think of a scenario 3 years from now when Mexican banks are in a sounder position than they are today and are able to give credit at reasonable rates. How is it going to affect the role you are playing today?
Our role is to complement or to substitute what the private sector is not doing. In these past years, as the commercial banks were not lending, we've had to step in and start lending. If in the short or middle run, commercial banks start to lend, then we will need to redirect lending and we will probably concentrate on providing guarantees and providing insurance and supporting small and medium size companies with the structuring of projects. The type of activities Bancomext will do are going to change as the Mexican economy and banking system change. The important thing is that we do whatever the private sector is not doing, that we support Mexican companies, especially small ones, and that we do it right. So whatever we do depends on what the needs are, so we have to continue being very flexible, moving from one activity to the other.
Americans used to say that contacts mean business. A big part of your role is to provide contacts, bringing together Mexican and foreign companies. You also said that you act as an investment boat. Let's say a foreign investor wants to come to Mexico, why should they address themselves to you, how can you help them find the appropriate partner or company to invest in?
First, we know the market very well and we know the Mexican companies very well, especially sector by sector and region by region, so any foreign company can get that information from us. In fact, we specialize in providing this type of information to foreigners all around the world, either from our representatives abroad or from our offices in Mexico. But secondly, we can give them our own perspective of a particular company or sector. And third, we can also become a partner, either in the equity portion of the capital or through lending or whatever. What we are trying to do nowadays in the investment promotion side is to really identify those niches where there is not a Mexican company doing it and as we are trying to structure the whole chain of production to identify which portion of the chain is not full, we tell foreign companies what the opportunities are. Everyone wins.
What are the sectors or companies that are more interesting for investors today in Mexico?
The sectors that are more interesting are those that have become more productive, competitive, and also exports. Of course, electronics is the most important sector, it's the sector where our exports have multiplied several times but we need to build the domestic capacity to support that sector. The second one would be the automotive industry, which has been of primal importance in Mexico for the past years. We have the textile industry and then the rest of the sectors: pharmaceutical, construction, food and beverage, etc.
Certainly it is positive that Mexico has become the eighth exporting power in the world and soon we will see Mexico in the 5th or 6th position. Nevertheless, the truth is that foreign trade amounts for 4% of the national GNP, does it constitute any problem for the development of economy, should the Mexican government focus on strengthening the domestic market?
I think that the opening of the Mexican market and the negotiation of the free trade agreements have placed Mexico in a very good position. But at the same time this growth may be the basis for the growth of the domestic market, that's why the role we are assuming, and what the government is trying to do is to take advantage of all of these exports and to really try to structure a full chain of production that will service these exports. So more than only departing from the maquiladora scheme, which is good from the employment point of view but not too linked to the Mexican economy itself, is trying to develop a supplier base which takes advantage of the exports but at the same time builds a domestic market from the exports. It's trying to link both and trying to become efficient on both sides.
And, finally, Vicente Fox is the first opposition candidate to become president. How do you see the next administration evolving, what are the main challenges for Vincente Fox and for Mexico?
It's true that this was a very important election and it's the first time an opposition candidate wins the presidency, and it's really a new thing for Mexico. But it's also true that the changes started a long time ago and that President Zedillo has been the leader of many of the changes of the Mexican economy. When we talk about the opening of Mexico, we have to talk about the opening of the economy but also the opening to a full and legitimate democracy. Both things have come together, so we are really seeing a new Mexico nowadays. As for the future, Mexico will continue to grow and stay open, the new administration will have to build up on the basis we now have. I'm sure they will continue strengthening links with the external markets in promoting Mexican exports. I'm sure they will continue to take advantage of those exports in reinforcing the domestic market, which is the state we are now. So I really think that the macro view will be very similar. They will continue trying to modernize and strengthen the Mexican economy and it's only in the micro level that they will have to focus more nowadays and they will have to build from the strengths that we already have into transferring them to the rest of the economy.
What is the feature or the achievement President Zedillo will be remembered by?
One of them is democracy and the opening of Mexican politics and the second one is opening to a full economy.
Thank you very much |
BANCOMEXT