OREANDA-NEWS. Mexican banks demonstrated their ability to continue growing despite slower-than-expected economic growth in 2015 (Mexico's 2015 GDP growth was 2.5% versus 2010-2014 average of 3.3%) and a difficult and volatile global financial environment. Fitch Ratings believes that Mexican banks were able to adapt rapidly to new market conditions in the country, where demand for corporate loans and big enterprise loans fell, and the credit card business was less attractive than in previous years. Therefore, to replace this growth, Mexican banks gave more consideration to credit products that were previously not fully served, such as lending to small- to medium-sized enterprises (SMEs) and personal loans (including unsecured loans and payroll loans). Auto loans also helped in the overall lending increase, as a result of the local automotive industry's recovery from the 2008 crisis.

Mexican banks' gross loan portfolio grew significantly in 2015 compared to 2014 (14.6% vs 10.3%), in line with Fitch expectations. Almost 80% of system growth is driven by lending from the seven major banks (G7 banks, whcih compose 80% of total system assets). By type of loan, around 51% is the result of corporate lending from all banks, of which up to 25% consists of SME loans whose importance gradually grew to 24% in 2015 from 21% in 2011. Fitch believes that banks preferred this segment due to favorable credit conditions from state-owned development banks which were notably enhanced during the past year. Such positive conditions were evident in the flexible funding and in guarantees schemes that helped private banks absorb credit losses.

Overall, gross loans outstanding grew at a healthy 14.6% for the year ending December 2015, compared to 10.3% for the year ending December 2014. As of December 2015, central bank data supported this trend, with total banking lending to the private sector increasing by a nominal rate of 13.8% year over year. Fitch expects loan growth in Mexico to finish 2016 in the range of 12% to 14%. The unevenness in loan growth across loan market segments highlights the degree to which loan market dynamics can vary.

Mexico's credit penetration in 2010-2014 was in average 27.9% of GDP. As of 2015, this indicator grew to 32.5%, continuing a positive trend toward the government's goal, although in Fitch's opinion, the 40% target in 2018 continues to appear ambitious. However, it continues to close the gap among other newly fast-growing economies of Latin American such as Peru (40.1%) and Colombia (55.1%), but is still far behind Brazil (77.2%), Chile (83.9%), and Panama (86.6%). According to these ratios, Fitch believes that Mexican Banks still have room to grow.

G7 banks hold a credit portfolio of around MXN3,218 billion, representing 84% of the total loans. The next group in importance is the mid-sized banks, composed of nine banks, which share around 11% of the market; this group's annual growth of 21.9% was greatly supported by corporate and personal lending. Both the G7 and mid-size banks have shown an interest in consumer loans, especially personal loans, which for both has resulted in growth to around 30% of their respective portfolios. It is noteworthy that these groups' fast growth in personal loans does not necessarily mean that they are taking on additional risk. They are growing in this lending segment through cross-selling and not by open-market underwriting. In both groups of banks corporate lending still dominates. Overall, this type of loan grew 17.4% in 2015. Specialized consumer banks (eight banks) are focusing on payroll (26.6% growth), given the lower level of delinquency of the product, rather than personal lending, which shows a decrease of 10.6%. In general, this group decreased its portfolio by 1.5% relative to 2014, mainly because they are being more conservative in their underwriting standards and are reducing their portfolios in order to enhance portfolio quality.

There are four foreign exchange (F/X) banks in the system. These are mainly focused on F/X trade although they are looking for diversification through other segments, mainly lending, and are experiencing faster growth than the industry average. Fitch expects that these banks will continue to grow rapidly, and the challenge will be to do so without altering their adequate credit profiles.

For the trading banks', seven companies and all subsidiaries of major global trading banks, growth is also usually variable, focused on short-term commercial loans. In many cases the credit segment is not included in their operations; these banks are solely vehicles of securities brokerages. Fitch expects that these banks will continue to operate in the same way in the foreseeable future.

The other banks in the Mexican banking system, eight specialized and smallest banks, show relatively high growth rates because they are newly created companies and are looking to increase their market share rapidly. In Fitch's view, their creation and rapid growth continue to be positive for Mexico's financial inclusion as well as for banking competition, although they will not affect concentrations in the banking system.