Mexican Banking Sector Will See Slow Growth in 2022 Due to Rising Interest Rates, Slowing Growth
Mexican Banking Sector Will See Slow Growth in 2022 Due to Rising Interest Rates, Slowing Growth
The Mexican banking sector assets will grow by 2.6% in 2022, down slightly from an expected 3.4% at the end of 2021 according to Fitch Solutions. This is anticipated as the country’s economy rebounds slowly and interest rates rise.
Tighter monetary policy, a volatile economic recovery and a stronger Mexican peso (MXN) caused banking assets to shrink in annual terms for the bulk of the year. Though Mexico’s loan portfolio is expected to shrink relative to GDP, loan growth will reach 7.1% from 4.7% in 2021. This growth is primarily driven by inflation averaging 5.9%.
Mexico’s loan portfolio will fall to 22.0% of GDP in 2022, from 22.6% in 2021, as a hiking cycle by the Banco de México (Banxico) and greater economic uncertainty weaken demand for credit. Banxico is expected to hike its benchmark rate by 100 basis points to 6.50% by end-2022, with risks to the upside. An increase in the policy rate will lead to higher interest rates, which could balance the falloff in Mexico’s loan portfolio.
Furthermore, growth will slow to 2.8% in 2022, from 5.6% in 2021, while the economic policies implemented by President Andrés Manuel López Obrador continue to deter investment. That said, demand for housing loans will remain a bright spot, likely surpassing growth for business and consumer loans.
Over the longer term, Mexico’s solid economic growth and relatively low levels of banking sector penetration will support a multi-year expansion. The recent announcement by Citigroup that it will sell its retail banking operation in Mexico is unlikely to affect the sector’s stability.
