The banking system in Mexico has been called one of the most developed in Latin America. It consists of a central bank and the remaining financial institutes typically fall into one of six essential categories of banks.
The Public Development banks, the Public credit Institutions, Private Commercial Banks, Private Investment Banks, Savings and Loan Associations, and Mortgage Banks. Apart from the financial institutes in these six categories, there are other certain activities that Mexican Banks engage in such as “securities market institutions, development trust funds, insurance companies, credit unions, factoring companies, mutual funds, and bonded warehouses”. While the six groups cover most of the financial system, these are other modules without which the financial system would be incomplete. (http://lcweb2.
loc.gov/cgi-bin/query/r?frd/cstdy:@field(DOCID+mx0063) )The head of the Central Bank is Guillermo Ortiz. “The central bank, the Bank of Mexico (Banco de México), regulates the money supply and foreign exchange markets, sets reserve requirements for Mexican banks, and enforces credit controls. It serves as the fiscal agent of the federal government, the issuing bank for the new peso, and a discount house for private deposit banks.
It supervises the private banking sector through the National Banking Commission, and it provides funds for government development programs.”(http://lcweb2.loc.gov/cgi-bin/query/r?frd/cstdy:@field(DOCID+mx0063) )In the past three decades the Mexican Banking System has experienced a significant amount of instability.
The main cause of it seems to be the nationalization of the banking system in the September of 1982 when the president of Mexico was López Portillo. During that period, with the exception of Citibank, no other foreign bank was allowed to invest; the government owned all the banks, even the commercial ones and this brought about limited development since there was next to no competition. Also in an attempt to improve the banking system’s efficiency the government merged several banks together and did away with twenty-two commercial banks.Then it was thought that the banks needed their financial freedom because the nationalization resulted in a banking system which was greatly controlled and regulated by the government.
The beginning of the privatization of the Mexican banking system started in 1987, but not much was essentially done; the government returned 34 percent of the “banks’ capital to private investors in the form of nonvoting stock”. It was in the June of 1991 that real privatization of the system had actually began. “The major banks were sold to the country’s wealthy families at extraordinarily high premiums (2 to 4 times book value compa red with a U.S.
average for bank mergers of about 1.5 times). Such a rich purchase price premium required rapid revenue growth from ballooning loan portfolios to provide an acceptable return. At the same time, loan loss reserves were kept low in order to generate higher profits.
Even before the peso crisis, Mexican banks were experiencing loan loss problems and they were relatively ill-equipped to deal with those problems. The peso crisis merely intensified an already serious problem.” (http://lcweb2.loc.
gov/cgi-bin/query/r?frd/cstdy:@field(DOCID+mx0063) ) (http://www1.lanic.utexas.edu/cswht/paper6.
html)The number of stock holders jumped from just 8,000 in 1982 to 80,000 in 1993. So that credit could be easily available, the Mexican government allowed domestic banks to be set up. When Mexico signed the NAFTA (North American Free Trade Agreement) in 1994 it allowed foreign banks, (American and Canadian) banks to set up shop in Mexico. The agreement was that for a six-year period American and Canadian banks “could acquire an existing Mexican bank or enter the Mexican market through a de novo subsidiary.
(It is interesting and important to note that NAFTA did not allow for U.S. or Canadian banks to establish branches in Mexico.) However, a U.
S. or Canadian bank could not acquire a Mexican bank if this left the foreign entity with control of more than 1.5 percent of the total capital of all Mexican banks. Effectively, this provision limited acquisitions to only two banks.
Even after the end of the six-year transition period, foreign entities were not to be permitted to control more than 4 percent of the total capital of all Mexican banks, a limitation that would leave off-limits the six largest Mexican banks, which control 70 percent of the assets of the entire Mexican banking system. Under NAFTA, Mexico granted formal permission to fifty-two foreign banks, brokerage houses, and other financial firms to enter Mexico.”(http://www1.lanic.
utexas.edu/cswht/paper6.html )To make a significant change, NAFTA provided the potential in the Mexican banking industry. The devaluation of the peso in the December of 1994 nearly crashed the entire Mexican banking system.
The first obvious problem was the exchange rate risk, those banks where this wasn’t such a big problem had to deal with several other such as the dramatic increase of interest rates and the worsening of the credit quality of the loan portfolio. Also all this combined with the deteriorating economy resulted in bad loans.“Mexico, at the time of facing the financial impact suffered in 1994, with the participation of the Federal Government through the corresponding authorities, began a series of measures to support the banking system in order to counteract the devastation of the initial effects of the financial crises, such as the establishment of a wicket for liquidity issues in dollars, to be used by commercial banks to guarantee the compliance of its obligations in foreign currency, which produced immediate liquidity in said foreign exchange by means of loans. Another measure included the implementation of Temporary Capitalization Programs (PROCAPTE), in order that the banks had a term to earn capital and pay their debt, as well as a series of legal reforms to allow a wider foreign participation in national banks and the acquisition of a portfolio by means of the Banking System Savings Protection Fund (FOBAPROA), since such debt could not be performed due to the weak legal regulations on credit guarantees.
htmThe Mexican government saw that these measures weren’t quite as effective as they hoped, so the initial ban on the limit of foreign banks was lifted and foreign investors were permitted to acquire part of or even an entire bank – however the regulations were such that the three largest Mexican banks were still off-limits. The government took over15 banks. “Of those 15 banks, four have already been sold back to the private sector, five have been dismembered and their branches and part of their liabilities sold to different entities, one will be sold at the beginning of next year and the rest will be liquidated”. Another three banks were not formally taken over but were offered under administration to potential purchasers, which acquired the institutions after bilateral negotiations with the authorities.
In total four banks were handed to other private banks which had the ultimate objective of acquiring them, but only one had previously been taken by the authorities. The 32 banks existing before the onset of the crisis, only 22 survived. However, after 1995 many banks were merged or acquired by other financial groups and new institutions entered the market”. http://www.
pdf+Mexican+Banking+system;hl=en;gl=pk;ct=clnk;cd=4Currently in Mexico, there are fourteen Mexican controlled banks with US$ 6.9 billion in capital and they hold 51.6% of the total assets. There are four large foreign affiliates and foreign controlled banks with US$5.
6 billion in capital and they hold and 46.7% of the total assets. There are also foreign affiliates with 13 financial institutes with US$ 0.7 billion in capital and they hold 1.
7% of the total assets. A few of Mexico’s largest banks in descending order BBVA-Bancomer with US$ 40 million in assets and 24% share of the total market, Banamex with US$ 34 million and 21% share of the total market, Santander-Serfin with US$ 23 million and 14% share of the total market, BITAL with US$ 19 million and 11% share of the total market , Bancrecer with US$ 12 and 7% share of the total market, Banorte with US$ 11 million and 7% share of the total market, Inverlat with US$ 6 mililion and 4% share of the total market and Citibank with US$ 6 million and 4% share of the total market.http://66.102.
pdf+Mexican+Banking+system;hl=en;gl=pk;ct=clnk;cd=4About 80% of Mexican’s banks are owned by foreign institutes. One would expect that the foreign investment would cheaper banking. But uunfortuantely Banking fees remain high and this tends to churn out higher profits. It is a proven fact that the average for the credit card interest rates is over 30 percent.
To help this situation, the head of the Mexican Central Bank (Banco de Mexico), Guillermo Ortiz, has actively been trying convincing the banks to reduce the costs.“Mexico’s stock exchange’s shareholders is BMV which consists exclusively of authorized brokerage firms, each of which owns a single share. The exchange trades debt instruments including federal Treasury certificates (CETES), federal government development bonds (BONDES), investment unit bonds, Bankers acceptances, promissory notes with yield payable at maturity, commercial paper and development bank bonds. In addition, it also trades stocks, debentures, mutual fund shares, and warrants.
”http://www.answers.com/topic/bolsa-mexicana-de-valoresThe current stock market capitalization of Mexico is roughly about US$250 billion. Following is a list of firms quoted at the BMV:DBSECDeutsche Bank SecuritiesARKACasa de Bolsa ArkaVECTOCasa de Bolsa VectorBANORCasa de Bolsa BanorteBCOMRCasa de Bolsa BancomerUBSUBS Investment BankGSGoldman SachsSANTCasa de Bolsa Santander SerfinHSBCBHSBCMONEXGrupo Financiero MonexMULVAMultivaloresBASMXBanc of America SecuritiesCSFBCredit SuisseINBURInbursaCBMORJP MorganGBMGrupo Bursátil MexicanoPROTGCasa de Bolsa ProtegoIXECasa de Bolsa IXESCTIAScotia InverlatCITICitibankINGING BaringsVAFINFinamexINVEXGrupo Financiero invexINTERCasa de Bolsa InteraccionesVALUECasa de Bolsa ValueACCIVAcciones y ValoresMERLMerryl LynchVALMEValores MexicanosABINABN AMROACTINActinverhttp://www.
answers.com/topic/list-of-brokerage-firms-of-the-bolsa-mexicana-de-valoresSome of the firms quoted inculde the major clue-chip companies in Mexico. Cemex (the cement firm), Banorte (banking group), American Movil (celluar operator) and Grupo Mexico are all blue chip firms. In the November of 2006, the Mexican market’s IPC index was pushed to a second straight record-high.
“The IPC index rose just under 11 points, or 0.1%, to 23,941.80. Big gainers included the CPO shares of cement giant Cemex (CX) , up 1.
1%; the O shares of banking group Banorte, which rose 1.5%; and the B shares of copper miner Grupo Mexico, which climbed 2.6%.” http://news.
morningstar.com/news/DJ/M11/D09/200611091855DOWJONESDJONLINE001290.html?pgid=qtqnNews2“American Movil, spun off from Telefonos de Mexico (NYSE: TMX) back in 2001, is Latin America’s largest cellular operator, with roughly 108 million subscribers as of June 30, 2006. In holds over a 70% share of the Mexican market, which provides 46% of its revenue.
”http://www.fool.com/news/commentary/2006/commentary06090724.htm“Annual exports in the early 1990s were valued at about $27.
5 billion, and imports in the same period cost approximately $48.2 billion per year. Major exports include crude petroleum, machinery, transportation equipment, fruits and vegetables, coffee, chemicals, and basic manufactures. The country’s chief imports include machinery, transportation equipment, chemicals, agricultural commodities, and iron and steel.
The great bulk of the country’s trade is with the U.S. and Canada, Mexico’s partners under the North American Free Trade Agreement (NAFTA); other important trade partners include Japan, Germany, Brazil, France, and Spain. Tourism, border trade, foreign investments, and remittances from Mexican workers in the U.
S. are significant sources of foreign exchange revenue.”http://www.worldalmanacforkids.
a40.c70Mexico has trade agreements 43 free trade agreements and this makes it the country with the largest network of Free Trade Agreements (FTA’s) in the world. “Mexico’s strategy is to continue expanding its network of FTA’s to diversify its export markets and to attract Mexican and foreign enterprises to invest and reap the benefits of joint production in a strategic location.” http://www.
mexico-trade.com/Mexico’s network of FTA’s including Chile, U.S, Canada, Venezuela, Europe, Japan and Uruguay.Mexico has come along way from the 1995 crisis.
It has evolved and its economy has grown considerably over the past decade.Reference Answers.com. List of brokerage firms of the Bolsa Mexicana de Valores.
Retrieved on the 25th of November 2006 from the website:http://www.answers.com/topic/list-of-brokerage-firms-of-the-bolsa-mexicana-de-valores Mexican Banking System. The Banking Industry in the Emerging Market economics: Competition and Consolidation in the Mexican Banking Industry after the 1995 crisis .
Retrieved on the 25th of November 2006 from the website:http://22.214.171.124/search?q=cache:8cH_sPdKoykJ:www.
bis.org/publ/bispap04j.pdf+Mexican+Banking+system&hl=en&gl=pk&ct=clnk&cd=4 Mexican Law Review. Bankruptcy of the Banking System and Guarntees’ regulation in Mexico .
Retrieved on the 25th of November 2006 from the website:http://info8.juridicas.unam.mx/cont/4/arc/arc8.
htm Morning Star. LATIN AMERICAN MARKETS: Brazil Erases Early Gains; Mexico Edges Up. Retrieved on the 25th of November 2006 from the website:http://news.morningstar.
com/news/DJ/M11/D09/200611091855DOWJONESDJONLINE001290.html?pgid=qtqnNews2 Photius Coustsoukis (November 2004). Mexican Banking System. .
Retrieved on the 25th of November 2006 from the website:http://www.photius.com/countries/mexico/economy/mexico_economy_banking_system.html The Motley Fool (September 2006).
Emerging Market Musing: Mexico. Retrieved on the 25th of November 2006 from the website:http://www.fool.com/news/commentary/2006/commentary06090724.
htm University of Texas at Austin, Institute of Latin American Studies (2000). Whither the Mexican Banking System? by Donald R. Fraser. Retrieved on the 25th of November 2006 from the website:http://www1.
lanic.utexas.edu/cswht/paper6.html World Almanac for Kids.
Mexico. Retrieved on the 25th of November 2006 from the website:http://www.worldalmanacforkids.com/explore/nations/mexico.html#fw..me098400.a40.c70 Not Availablehttp://lcweb2.loc.gov/cgi-bin/query/r?frd/cstdy:@field(DOCID+mx0063) Not Availablehttp://www.bis.org/publ/bispap04j.pdf Mexico Information Centerhttp://www.mexico-trade.com/