OREANDA-NEWS. Mexican banks saw a modest uptick in the latest figures of year-over-year loan growth, aided by gains across many major loan sectors, says Fitch Ratings. In spite of subdued broader economic conditions, certain pockets of lending in Mexico could be indicating some excessive competition. Other areas of lending saw high growth because of relatively low banking penetration.

Overall, gross loans outstanding grew at a healthy 14.0% in the annual period ending July 2015, compared to 9.1% in the same period ending July 2014. As of August 2015, central bank data reinforced this trend, with total banking lending to the private sector increasing by a nominal rate of 13.4% year over year. Fitch expects loan growth in Mexico to finish 2015 in the range of 10% to 12%. The unevenness in loan growth across loan market segments highlights the degree to which loan market dynamics can vary.

Mexico's seven largest banks, comprising about 84% of that country's overall loan market, and the next nine largest medium-sized banks, comprising 11% of the market, dominate the overall growth picture by bank type. These top two segments achieved 14% and 21% (ending July 2015) of overall average growth, respectively, well above the overall growth of the Mexican economy. We do not view these growth rates as inconsistent with a market wherein banking penetration remains below its full potential, and below Latin America's overall average of 45%.

The seven largest banks achieved their strongest loan growth in government-related lending, up 29% over the 12 months ending July 2015, followed by payroll loans and personal lending, each up about 20%. The top segments for medium-sized banks were mortgage loans (up 28%), personal loans (up 28%), followed by government related lending (up 22%). These growth rates are above recent historical performance.

Aggregated across all segments that Fitch examined, government lending had the highest overall loan growth, reaching nearly 28%. Government lending represents just under 15% of the total lending market in Mexico. Borrowing by the federal government and government-related entities remains higher than average historically, in part due to political interest in higher financial penetration and intermediation in Mexico. Public sector borrowings are part of this effort.

Corporate lending, Mexico's largest lending segment by loan type and representing 44% of the bank loan market, grew by almost 15% for the 12 months ending July 2015. Mortgage lending, nearly 17% of the market, grew by about 10%. Credit cards and personal loans grew at the slowest rates, at just under 3% and under 5%, respectively. However, payroll lending, now over 5% of the overall loan market, saw robust 20% growth.

Smaller banks had considerably choppier loan growth performance. Eight consumer banks examined by Fitch, comprising a loan portfolio of MXN115.0 billion (3.2% of the total loan market), dropped by 7.7% at the end of July 2015. Fitch believes that such a decline is closely linked to the performance of local economies. In addition, recently adopted fiscal reforms have discouraged the use of some consumer loans products, particularly credit cards.

Foreign exchange banks, consisting of four banks and MXN22.6 billion of total market loans, had the highest growth among the small bank segments. These banks specialize in providing short-term loans in foreign currencies to meet liquidity needs of their customers, but are expected to continue to move into more traditional lending.