Introduction to the Current Banking Landscape in Mexico
Fitch Ratings does not foresee significant competition for traditional banks in Mexico from new entrants, particularly digital ones, in the near future. This assessment is based on the fact that traditional banks have long been investing in innovation and implementing commercial strategies to address this emerging competition.
Traditional Banks’ Investment in Innovation
Alejandro Tapia, Senior Director at Fitch Ratings, explains that traditional banks have been actively investing in innovation for years. They have also initiated certain commercial strategies to tackle the competition posed by new players.
Room for Improvement in Financial Intermediation
Tapia highlights that there is still substantial room for traditional banks to enhance their financial intermediation. He points out that low financial inclusion provides opportunities for both traditional banks and new entrants to expand.
“There’s a lot of talk about low financial inclusion, which creates space for both traditional banks and new players to keep growing,” Tapia says. He also notes that traditional banks still have significant potential for growth within their existing customer bases.
Regulatory Environment and Licensing
Tapia emphasizes the regulatory aspect, as new entrants seek banking licenses to compete more evenly with traditional banks. He acknowledges that Mexico’s large and diverse market can accommodate more players.
“The market has room for more participants… We’ve always mentioned, as an agency, the low banking and financial penetration in emerging markets, especially when compared to developed ones,” Tapia explains.
Recent Developments in Banking Licensing
According to the Mexican National Banking and Securities Commission (CNBV), recent approvals have been granted to three digital newcomers: Nu, Revolut, and Plata. Additionally, Openbank from Santander and Bineo from Banorte have already started operations as open banks.
However, the regulatory body has also disclosed that seven more banking license applications are currently under review.
Resilient Banking Sector Amid Global Uncertainty
Alejandro Tapia also points out that despite global uncertainty, including the U.S.-China trade tensions and a potential economic slowdown, Mexico’s banking sector remains robust. This strength has allowed Fitch Ratings to maintain a stable outlook for the industry.
Macroeconomic Risks and Industry Resilience
Tapia acknowledges the macroeconomic risks surrounding the industry and country but notes that banks have strengthened their financial performance in recent years. He believes these strong indicators can absorb shocks from such risks.
“We anticipate a potential slowdown in Mexico’s economy, which may put pressure on profits and asset quality. However, there is room for deterioration,” Tapia clarifies.
“We expect some degradation in asset quality and profitability, but nothing to be overly concerned about,” he emphasizes. “The environment will undoubtedly influence the expected contraction and economic slowdown, impacting bank performance. Nevertheless, we anticipate a normalization of the industry’s performance.”
Key Questions and Answers
- Q: What does Fitch Ratings think about the competition for traditional banks in Mexico? A: Fitch Ratings does not see significant competition for traditional banks in the near future due to their ongoing investment in innovation and new entrants’ pursuit of banking licenses.
- Q: How are traditional banks addressing the competition from new entrants? A: Traditional banks have been investing in innovation and implementing commercial strategies to tackle the competition posed by new players.
- Q: What opportunities exist for traditional banks in the context of low financial inclusion? A: Low financial inclusion provides opportunities for both traditional banks and new entrants to expand their services and customer bases.
- Q: How is the regulatory environment affecting new banking entrants in Mexico? A: New entrants are seeking banking licenses to compete more evenly with traditional banks, and Mexico’s diverse market can accommodate more players.
- Q: What is the current state of banking licensing in Mexico? A: Recently, three digital newcomers have received banking licenses, and two open banks have started operations. Seven more license applications are under review.
- Q: How resilient is Mexico’s banking sector amid global uncertainty? A: Despite macroeconomic risks and potential economic slowdown, Mexico’s banking sector remains robust, allowing Fitch Ratings to maintain a stable outlook.
