 THE WEAK LINK: BANKING AND FINANCE |
The weak link in the Mexico's otherwise strong economic chain has undoubtedly been the banking sector. The financial system's inherent weakness was revealed by the collapse of the banking system following the peso crash, which led to a 20 percent loss in purchasing power, more than two million lay-offs, and tens of thousands of bankrupt businesses.
After the peso crisis, interest rates shot up so quickly that many debtors, owing billions of dollars, defaulted on their loans. If it had not been for the government's bailout package, the entire banking system would have been insolvent. To remedy the grave situation, the Zedillo administration created a deposit-insurance institution called the Bank Deposits Protection Institute (IPAB) to oversee the bail-out, which, to date, is estimated at about US$100 billion.
While Zedillo's term in office may be remembered as the sexenio of change, it will also be remembered as the sexenio when Mexican commercial banks did not lend to the private sector. And any entrepreneur shopping for credit will tell you that the industry has yet to recover. In fact, lending to the private sector contracted 12.2 percent in 1999. The National Banking and Securities Commission (CNBV) estimates that the banking system still needs about US$5 billion in new capital, while Standards and Poor's places the price tag at almost three times that amount.
Even though it will take awhile for the banking sector to get on its feet, things are looking up. It now seems that interest rates are under control, down from the high of nearly 100 percent to 15 percent at the end of last year. Hector Rangel, president of the Bankers Association, has been openly optimistic about the future, predicting that, by the end of the year, "(Mexico) will have a reasonably healthy and strong banking system."
His reasons for being positive are many. In December 1998, Congress approved legislation creating the IPAB to replace the largely discredited bank bailout program Fobaproa. The IPAB is charged with overseeing the disposal of the assets in Fobaproa and insuring deposits. It was through IPAB that the government took over the banks Serfin and Bancrecer and injected another US$640 million into Inverlat as part of their broad effort to reduce the US$100 billion banking-sector debt. Congress also recently passed bankruptcy and credit-guarantee laws, as well as new legislation to regulate the booming e-commerce industry.
"Lending is going to recover gradually," Rangel says, "but it's going to be more selective because of all these wounds and regulations and bad experiences that we've been through for the last five years."
Javier Labrador Goyeneche, managing partner of Deloitte & Touche, a professional services firm that specializes in tailor-made consulting, agrees that recent developments in the Mexican banking system-namely its aperture to competition-have been positive.
"I think that the banking sector is just like (it is) in any other business, in that it is immersed in the globalization process," says Labrador.
One result of the globalization process is that the sector is consolidating and simplifying itself to leave only the strongest banks. After the devastating collapse of 1995, only four of the 18 banks privatized by the government in the early 1990s are still in operation.
Some of the bigger players include Banamex-Accival (Banacci), which was reprivatized in 1991 and purchased by a group with Roberto Hernandez Ramirez and Alfredo Harp Helu at the helm. Since its creation 115 years ago, Banacci's position within the Mexican financial sector has always been formidable.
Another of the stronger banks is Bancomer, which has more than 1,350 branches and 2,500 ATMs throughout the country. It also maintains a presence in more than 600 cities and provides banking services for more than seven million account holders.
Reprivatized in 1990, Bancrecer, though much smaller than Banacci and Bancomer, has done well to penetrate markets outside the Federal District ignored by some of the bigger banks, which tend to focus on the capital.
"BanCrecer has only 16 percent of its deposits in Mexico City," says General Manager Carlos Septien Michel, "while other banks concentrate between 40 and 50 percent."
Bancrecer maintains 760 branches throughout Mexico and is present in all regions and main cities of Mexico. In the Northwest (Baja California, Sonora, and Sinaloa) Bancrecer is ranked in second place due to the recent purchase of Banoro, a bank with excellent local coverage and presence. Bancrecer also enjoys a very strong presence in the Southwest and the Yucatan Peninsula. In Chiapas, for example, Bancrecer is ranked number one.
A number of multinational mergers have also helped
to solidify the sector and, perhaps most important,
have been responsible for the injection of billions
of dollars in much-need capital. Spain's Banco
Santander, for example, a bank with a presence
in a dozen Latin American countries, acquired Banco
Serfin in May, and set off a veritable merger frenzy
that should help to consolidate and simplify the
sector even further. |
"The important banks in the country have taken big leaps to be solid again, to be competitive again, and be ready for the new Mexico," says Banco Santander Mexicano CEO Marcos Martinez Gavica.
Not one to be outdone, Bancomer merged with Spain's Banco Bilbao Vizcaya Argentaria (BBVA) last June, which brought from the mother country a cool $1.4 billion. Citibank has been making excursions into the Mexican market as well.
For those companies involved in exports, national trade bank Bancomext, which has been on the scene for some 62 years, provides Mexican companies with a wide range of services, including credit negotiations and tax consultation. On the trade board side, Bancomext maintains 38 offices abroad and has been eyeing Asia as its next target for penetration. Bancomext specializes in identifying undiscovered niches and helping new companies structure themselves in the Mexican market.
"More and more, the fact that we are also in the Pacific becomes clearer," says Bancomext President Enrique Vilatela. "We are trying to establish links and dismantle any barriers we have to increase trade with Asia."
Global business consulting firm PricewaterhouseCoopers (PWC), which has been in Mexico since 1908, also specializes in helping Asian companies adjust to Mexico. According to General Manager Enrique Osorne Heinze, PWC is the best option for Asian companies when it comes to deciding "how to administer to risks and be in full compliance with all of the fiscal, accounting, and financial regulations" in Mexico.
Another investment option is Mexico's IPC stock index itself, otherwise known as the Mexicana de Valores (BMV) or Bolsa, which at press time had reached 6,245 points, down 10.61 percent in dollar terms from last year. The overall performance of the Bolsa depends greatly on the performance of the Dow Jones Industrial Average and the Nasdaq, which recently dipped due to company profit warnings. Despite the recent drop in the Bolsa, however, analysts are predicting up to a 24-percent increase to between 7,500 and 8,000 points by the end of the year.
The domestic shares with the highest demand and largest volume are also usually those with the greatest amount of capital, and all tend to be traded on the New York Stock Exchange. Some of the favorite Mexican shares include telecommunications giants Televisa and Telefonos de Mexico (Telmex), as well as cement giant Cementos Mexicanos (Cemex).
In a credit-strained country, the Bolsa has come to be seen by many companies as an effective, alternative means of generating capital. Farmacia Benavides (Far-Ben) is a good example of just that. The largest bulk-pharmaceutical provider in Mexico and Latin America, Far-Ben currently maintains 631 stories in 118 cities, with a strong presence in the states of Tamaulipas, Nuevo Leon, Coahuila, Chihuahua, Sonora, Sinaloa, San Luis Potosi, Aguascalientes, Guanajuato, and Veracruz. Far-Ben's stock was put on the Bolsa in 1993, and though its performance has been mixed, having put the company on the exchange has served as an incentive for company president Enrique Mouret Benavides.
"The Stock Board's decision was motivated like it is with all companies, as a means of institutionalizing a company," says Mouret Benavides. "The markets haven't always been the best, haven't been what we would have liked, but the point here is that, with the projects we have, we are going to see growth, and the stocks will strengthen."
Another investment opportunity within the banking and finance sector is the development and operation of credit card and bankcard systems. Although the sector has been dominated until just recently by Prosa, a company that has enjoyed a presence in Mexico for more than 32 years, more and more competitors are entering the market.
"Today, Prosa is a company highly specialized in switch transactions," says General Manager Jose Molina. A switch carries out a transaction from its origin-say, a bankcard or credit card-to its final authorization. "We do this 700 million times a year, which makes us the largest switcher in Latin America, the second largest in the world."
Although some competitors have entered the market, Prosa has done well to maintain its dominant market share, investing some US$15 million the last two years in technological, processing, and communications renovation.
All of these changes, reforms, apertures, and mergers, though painful for many, have across the board-from banking to the Bolsa to bank cards-served to weed out weak, inefficient banks in true Darwinistic fashion. So far, the results have been encouraging. |
