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Banking in a constructive perspective

In a friendly tone and in a reflective perspective, Carlos Serrano, chief economist of BBVA, gave a talk on the Panorama of the Financial System in Mexico in the Narciso Bassols Auditorium of the UNAM Faculty of Economics last Monday, May 13 . He clearly and precisely showed the situation of a financial system, where nearly 2 thousand intermediaries participate, where the bank participates with 45 percent of the system’s assets.

A point to highlight in his intervention was the way in which the total credit portfolio was restructured in the last 23 years, reducing the participation of loans to public entities from 48 percent of the total to 9 percent, which allowed companies They will absorb 47 percent in 2023 and consumption, 21 percent. This was combined with the reduction of entry barriers, which are below the world average and are the lowest in Latin America. These changes allowed credit to the private sector of commercial banks to show resilience in the post-pandemic period, compared to other crises. He highlighted that this active participation of the bank is solid and solvent, thanks to the fact that it has maintained levels of capital and liquidity much higher than the regulatory minimums established by Basel.

A point that should be highlighted is that the total financing of commercial banks has grown at rates higher than those of GDP, in 2023 it was 5.9 percent, where support for households stood out, which grew 9.1 percent, while companies contracted by 5.6 percent. In 2023, the main component of the portfolio was 54 percent for companies, 24 percent for consumption and 23 percent for housing. He highlighted that credit to companies registered its highest growth in real terms in the last five years. He noted that all consumer credit segments recorded growth during 2023 and an average annual variation of 11.8% was reached. Good news was that delinquencies in consumer and housing portfolios showed lower levels than those recorded prior to the pandemic.

Encouraging news was that in recent years, internal financing flows have gained weight in the financing of the economy, reaching 6.4 percent of GDP in 2022, given the fall in the participation of non-residents in public securities. An element to highlight is that in internal sources there was a recomposition towards term resources, whose average real increase of 10.4% in 2023 supported traditional deposits. In this regard, he pointed out that the recent monetary cycle could be a turning point for the recomposition of internal sources of financial savings. A very encouraging element that he pointed out was that flows in term deposits during 2023 registered their highest level in the last decade due to higher yields in a growth environment. This situation shows how the strength of the financial system is consolidating and is moving from being a short-term market to a long-term market, which is encouraging, since it shows the strength of the economy, opening the door to more solid growth.

A very timely reflection in these moments of debate on pension funds was that retirement funds (SIEFORE), through which retirement fund administrators invest workers’ resources, amount to around 18 percent of the GDP, which makes them the second most relevant institution in the financial system, pointing out that more than half of the SIEFORES’ resources are invested in government debt. Added to this is that, with around 10 percent of GDP, the Investment Fund market is the third most relevant participant in the financial system. Most of the funds are dedicated to variable income strategies, however, they are Debt funds have the most clients, in this regard he noted that the high proportion of assets invested in debt has favored their recent growth in the face of rising interest rates.

Among the challenges that he pointed out that Mexico has is to increase banking coverage, since currently the population between 18 and 70 years old with a bank account only reaches 40.8 percent of the population, around 41 million people, that is, in In 2021, 86.3 percent of people with a formal job had some savings product or service with a bank in Mexico, in contrast, the population with an informal job, only 35 percent, had a bank account.

Finally, he gave a perspective on the situation of digitalization, which could promote greater financial inclusion; however, he pointed out that we are still lagging behind. In mid-2023, it is estimated that 92 million adults resided in Mexico, of which 275 million had a bank account and used mobile banking, 17.7 million had a bank account but did not use mobile banking, 35 million did not have an account, but were mobile phone users and 11.7 million did not have an account or use mobile phones.

This panorama clearly presents what are the great challenges that the financial system in Mexico observes in 2024, little has been discussed in this regard, and great are the challenges to promote a more solid financial system that accommodates all companies and all the population.

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