Background on Key Players and Context
Mexico’s banking sector has been experiencing a decline in profit growth, primarily due to reduced income from interests. This trend has been ongoing for over a year and a half, following the Bank of Mexico’s (Banxico) interest rate reduction cycle.
Banxico, Mexico’s central bank, initiated a downward trend in interest rates starting mid-2021. The rate peaked at 11.25% between April 2023 and March 2024, coinciding with the highest growth in bank income from interests. However, as of now, the reference interest rate stands at 7.25%, following a recent 25-basis-point decrease.
Decline in Interest Income
September marked the second consecutive month of decline in interest income for Mexican banks, following a period of robust growth when reference rates remained elevated.
In August, interest income saw its first reduction since December 2021, dropping by 0.04%. Nonetheless, for over three and a half years, banks witnessed consistent growth in interest income until 2023, with May experiencing the highest increase of 42.3%.
Impact on Major Banks in Mexico
Out of the seven largest banks operating in Mexico (known as the G7), most reported slower profit growth and a decrease in interest income according to data from the National Banking and Securities Commission (CNBV).
- BBVA: With the highest profits among the G7, BBVA reported earnings of 74,213 million pesos between January and September, marking a real annual growth of 1.42%.
- Banorte: Banorte’s earnings stood at 34,507 million pesos (-2.91%) during the same period.
- Santander: Santander reported earnings of 23,805 million pesos with a real annual growth of 2.99%.
- Inbursa: Inbursa’s earnings were 16,938 million pesos (-12.7%) during the period.
- Banamex: Banamex recorded earnings of 10,158 million pesos (-45.9%) in the same timeframe.
- Scotiabank: Scotiabank’s earnings amounted to 7,480 million pesos (-8.95%) between January and September.
- HSBC: HSBC reported earnings of 6,730 million pesos (-4.7%) during the period.
Most of these major banks experienced a decline in interest income, contributing to the overall slowdown in profit growth within Mexico’s banking sector.
Key Questions and Answers
- What caused the decline in bank profits? The primary reason for the decrease in Mexican bank profits is the reduction in income from interests, resulting from the Bank of Mexico’s prolonged interest rate reduction cycle.
- Which banks were most affected by this trend? All seven major banks in Mexico, known as the G7, experienced slower profit growth and a decrease in interest income.
- How long has this trend been ongoing? The decline in bank profits has persisted for over a year and a half, following the Bank of Mexico’s interest rate reductions that began in mid-2021.
- What was the peak interest rate and when did it occur? The reference interest rate peaked at 11.25% between April 2023 and March 2024.
- What is the current reference interest rate? As of now, the reference interest rate stands at 7.25%.
