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Mexico 2013 | FINANCE | VIP INTERVIEW

TBY talks to Hector Rangel, CEO of Bancomext, on the competitiveness of Mexico's banking system.

What are the main activities that Bacomext undertakes to improve Mexico's economic competitiveness?

I am in charge of two development banks in Mexico: Nacional Financiera and Banco Nacional de Comercio Exterior (Bancomext), which have different mandates. Nacional Financiera has the mandate to provide access to credit for SMEs and also to participate in the risk capital industry to make it possible for entrepreneurs to access risk capital. We also have an investment banking side of the institution that provides financing for sustainable development projects, particularly alternative energy projects like wind, solar, and geothermal projects. Bancomext provides financing for industries that are particularly geared toward exports to generate foreign exchange. We finance all kinds of projects, including the expansion of capacity, trade finance, and the export of Mexican goods and services to the rest of the world. We also provide financing to the tourism sector, which provides services for foreigners who come to Mexico and generate a lot of foreign exchange. The two banks have different mandates and they operate separately, although they have the same top management. In the past six years of this government, we have been able to increase the resources Nacional Financiera provides to SMEs very substantially. We have grown financing to SMEs by four fold in Mexico and we have supported hundreds of thousands of SMEs with credit. We have an important program that provides guarantees to financial intermediaries to mitigate the risk of lending to small businesses. SMEs have a higher risk than consolidated larger businesses, so by providing guarantees we mitigate the risk so they can more readily lend to SMEs with better terms and conditions. This program has been multiplied by seven times in the last six years. It has become a very important part of lending to SMEs. About 55% of the total resources given by the commercial banks to SMEs is guaranteed by Nacional Financiera. We are sharing the risk and providing a safety net so that the banks and financial intermediaries can lend a lot more money to the sector. At Bancomext, we have provided financing for many important projects. For example, in the financial crisis of 2008-2009, when the commercial banks were very risk adverse, we provided a lot of financing to many medium and large corporations that had difficulty in accessing the capital markets or the banking sector. That way they could continue expanding their activities and they did not suffer the slowdown and retraction of credit that occurred in 2009. We also provided significant financing to the automotive industry in Mexico, which is already a very important sector. We are the fourth largest exporter of automobiles in the world. During 2009, both Chrysler and General Motors went bankrupt in the US. They did not have access to financing, so we provided many lines and guarantees for the suppliers of those corporations so they could continue exporting, and we also financed two very large plants in Mexico.

What sort of trends have you witnessed from SMEs looking to export their goods or services abroad, and where do you see the greatest opportunities in Mexico?

The automotive industry is a very important one, but we also have a lot of companies participating in the electronics industry, which is very large in Mexico, and also in the providing of services for maquiladoras, the inbound industries that exist on the US border for export. In the tourism sector there is a lot of potential and we have financed the construction of about 5,000 rooms in the hotel business. The aeronautical industry is also becoming an important one in Mexico. We already have several assemblers of fuselage parts for airplanes. In the future, Mexico is going to become a large manufacturing center for North America and the rest of the world. Little by little, Mexico is becoming a major exporter. We already export $1 billion per day, and that is more than all of Latin America combined. There are a lot of companies moving their manufacturing centers or factories from the US, Canada, Europe, and also from China. The logistics and transportation costs are becoming more difficult to handle from far away, so many companies in the US and Canada prefer to have their resources and supply management closer to home, so Mexico is a particularly attractive platform. Also, the energy availability in Mexico is ample. We are a very large producer and exporter of oil, and the availability of shale gas in North America is beginning to change the energy equation to make Mexico a much more competitive manufacturing center. The future of Mexico is very bright. We need to improve infrastructure and the rule of law and many other things, but it has the potential to grow much more rapidly in the coming years. The financial situation is particularly good compared to other countries around the world in terms of debt-to-GDP, the deficit reserves, inflation, growth, demographics, and so on.

“Basel III is going to have an impact on financing and on the availability of financing, particularly long-term financing and costs."

How do you foresee the new banking relations such as Basel III impacting the wider banking industry in emerging markets such as Mexico?

Basel III is going to have an impact on financing and on the availability of financing, particularly long-term financing and costs, given the requirements of additional capital and liquidity. Although the Mexican financial system is a very strong one and it is very well capitalized, I think it will have more of an impact on European banks and some US banks. It will probably affect the project financing of long-term infrastructure projects because they require large amounts of financing over very long tenures, and that is penalized by Basel III requirements. The regulatory authorities of the world are going to have to be careful in implementing and monitoring the unintended consequences of the regulation. We are already seeing some European banks, for example, moving back from long-term projects when they were very eager to participate, and they are not so eager now because of the impact it will have on the capital of the bank and the liquidity gap of long-term financing versus short-term funding. There is a question whether trade financing is going to be affected by Basel III, and there is contradictory evidence. The regulators say that it will have no impact, while the industry says it will have a large impact. There is no consensus on what's going to be the true impact of the trade financing regulation, which is much safer and more short term. The banks are going to try to maximize their return on equity and minimize the impact of capital requirements.

What steps do you think should be taken to increase the amount of credit available in Mexico and incorporate more people into the country's banking system?

Mexico has very low financial penetration, which is measured by total banking debt versus GDP. There is enormous potential to grow financing to families and to businesses. The large corporations have total access to the financial market not only in Mexico, but also around the world. These are large corporations that have lots of resources and can access the international capital markets. However, as you go down in the pyramid, the small and very small businesses have a lot of difficulty in accessing credit, and that is why the development banks are working hard to provide guarantees and support for the base of the pyramid. There is still a lot to be done.

© The Business Year - February 2013