Mexican Liquidity Rule May Challenge Small and Mid-Sized Banks with Concentrated Funding

• Mexican regulator’s recently approved Basel III liquidity rules, requiring one year of stable funding, may be a challenge for some small- and medium-sized banks with highly concentrated funding structures, according to Fitch Ratings. However, it is expected that the largest and second-tier banks will easily meet the new rules.
• On Aug. 23, 2021, the financial authorities published an update to the Liquidity Coverage Ratio (LCR) rules as well as the final rules to implement the Net Stable Funding Ratio (NSFR) for Mexican banks. The introduction of a minimum NSFR of 100% should be a credit positive for the banking system as a whole, improving resilience during cyclical downturns by increasing liquidity and reliance on stable funding sources.
• The new rules implementing the NSFR for Mexican banks will take effect in March 2022 and will help close the gap on Basel III implementation with its G20 peers. Some banks may have to adjust their balance sheets to meet the new requirements, most likely by utilizing effective asset management to reduce the required amount of stable funding.

(Source: Fitch Ratings)