As if it were a puzzle, banking in Mexico is undergoing a structural rearrangement that implies the departure of players, the arrival of more competitors and the appearance of new pieces of different sizes.
Citibanamex moved the system by announcing on January 11 that it was selling the retail business, that is, the consumer bank, the Afore, insurance and its cultural and historical assets. Although he did not reveal the amount, some analysts estimate that the bank, one of the four main entities in the sector and a market leader in credit cards, will cost up to 15.5 billion dollars.
The intention to sell occurs in a complex context, because the banking business grows as the Mexican economy does, but faces difficulties in resuming its growth after the pandemic, due to high inflation, the beginning of the upward cycle of interest rates interest and the effects of the Russian invasion of Ukraine.
“An economic scenario with high inflation can hinder the growth of bank financing, since this would lead to increases in interest rates and a lower demand for credit,” considers the credit risk rating agency HR Ratings.
The Association of Banks of Mexico (ABM) and HR Ratings agree that the placement of credit is behind the example, in 2020, the GDP contracted 8.5% while credit fell 11.5%. For this year, the Ministry of Finance and Public Credit estimates that the economy will have an advance of 3.4%, after lowering its expectation at the beginning of April, from the 4.1% forecast and approved in the 2022 economic package.
Daniel Becker, president of the ABM, clarifies that the decision to put Citibanamex’s assets up for sale is due to business issues and not because the country is unattractive to big capital. “It is important to mention that the operation is not related to local conditions, [but] to a redefinition of the business model and that, in addition, Banamex clients will be absolutely safe,” he says.
who raises his hand
Citibanamex is the third largest bank in the country by number of assets and one of the leaders in the market, with a 12% share until the end of 2021. A more than appetizing bite for several financial institutions in the country.
Banorte is one of them. In April, it confirmed that it had started the process of reviewing the assets for sale to determine whether to acquire them. The bank directed by Marcos Ramírez is the fourth largest player in the country, so if the purchase is consolidated, it would surpass BBVA Mexico, the Spanish institution that has been the leader for years.
“We have already started to have contact. [Citibanamex] begins to open its accounting, they are processes of months. We have nothing, all the interested parties are signing the agreements to enter the data room and see the information,” Ramírez, CEO of Grupo Financiero Banorte, said in an interview. “We are a large bank, we want to be the Mexican bank and of the Mexicans, that is where we are going to focus. We can and we compete with the best banks in the world, but we compete without fear, we can be better than them”.
The issue of the Mexican nature of Citibanamex’s assets has even been mentioned by President Andrés Manuel López Obrador, who said that he would support national businessmen to stay with that business.
“In the ABM we are agnostic to the origin of the capital, but we are not agnostic to the fact that the one that manages such a relevant asset is a group that has the technical and professional capacities to do so. That is what I can tell you about the Mexican nature of Banamex”, says Becker.
But if Banorte was the first to raise its hand, it has not been the only one. So have Santander and Inbursa, the latter, at least at the close of this edition. “We maintain the same [purchase] interest,” said Frank Ernesto Aguado, director of Investor Relations at the bank at the end of April, in the presentation of its quarterly results. “Inbursa will participate jointly with Mexican negotiators and investors. We are not going alone,” he added.
If the business was acquired, Carlos Slim’s company would rise to the top 3 of the most important banks in the system and would compete with BBVA or Santander.
More changes
But it is not only the sale of Citibanamex that is transforming the sector. Between 2015 and 2019, the system welcomed financial institutions from China, South Korea, and Japan. Banking saw the arrival of eight new players with low participation and who have been mainly dedicated to large companies, such as the Bank of China.
The pandemic also came to move the board. In June 2020, the Ministry of Finance and Public Credit liquidated Banco Ahorro Famsa for failing to comply with the capitalization ratio. In 2021, Sofom Credijusto acquired the Finterra bank for $50 million, which marked a historic event: it was the first time that a technology company had bought a bank. Months later, the Treasury again took action against Accendo Banco and liquidated it due to inconsistencies in its income statements. And, although its market share was barely 1%, the system had not faced a liquidation since 2013, when the Bicentennial bank was closed.
To these movements we must add the arrival of new players, the fintech, digital companies that through the use of cell phones create accounts and grant loans to people and companies. It has been a revolution: some have achieved unicorn status, companies that reach a valuation of $1bn quickly. One of the most representative cases is that of Nubank, of Brazilian origin, which in less than three years since its launch is already the main issuer of new credit cards, with more than 1.4 million plastics.
The king of credit cards
To better understand the reconfiguration of the system, it is important to note that the most relevant credit segments are cards, automobiles, mortgages and business loans.
2019 was one of the best years for banking in Mexico for loan placement, however, from that moment on, a slowdown began that was accentuated by the pandemic. At the end of 2019, the total credit portfolio closed at 427,397 million pesos, but by December 2021 it was already 9.1% below those levels.
“Credit cards are the most relevant product within banks with a consumer portfolio; however, together with personal loans, they are the only segments with lower growth in recent years”, says HR Ratings in its most recent report.
Data from the National Banking and Securities Commission (CNBV) indicate that the leading players in this segment, discounting fintech, are BBVA Mexico, Citibanamex and Santander. These banks and their competitors have launched aggressive campaigns for the placement of plastics. Now, financial institutions are looking for more personalization of these cards.
Citibanamex has secured the possession of plastics thanks to the promotions it has with OCESA, with pre-sales of tickets for concerts. Manuel Romo, general director of the bank, explains that, despite the fact that they are in the process of selling, the promotions with their plastics are still in force and attracting more clients.
And although the retail business is for sale, Citibanamex will not stop investing in technological innovation: the bank seeks to improve call center services, the opening of new branches and the renovation of ATMs, says its director.
The importance of car credit
The lower sale of vehicles in Mexico has caused a drop of up to 8% in financing. The lack of sale of new cars has knocked down the financing made by banks and, therefore, they have launched programs for users to acquire used vehicles. Santander, for example, seeks to catch the more than eight million people who buy a car between individuals a year: “Opening bank credit to buy a pre-owned car between individuals is the response that was needed in the market to serve millions of Mexicans who look for a car every year”, considers Julio Ascorve Zermeño, executive director of Automotive Financing of Santander Mexico.
Well-funded mortgages
If there was a portfolio that knew how to show resilience in the pandemic, it was the housing portfolio. This type of credit reported a 6% growth in 2021 compared to the previous year. This advance, according to the ABM, was due to the fact that the country faces a housing deficit and due to the low interest rates of up to one digit that the banks managed.
“Loans rose due to better economic conditions, the oversupply of real estate, accessible rates and facilities in granting mortgages. Although it will not be soon, the trend should normalize when the cost of housing is higher due to the inflation of costs in construction materials, the active rates of mortgages are higher and the comparable base is more difficult to overcome”, says Carlos Gómez, sector analyst at Intercam Casa de Bolsa.
And as for financing companies, once the licenses are obtained from the authorities, Citi Mexico will compete with banks that offer loans to large corporations. At the end of 2021, this type of credit had a contraction of 3.4%. 77.3% of this portfolio is made up of loans to large companies, 17.6% to government entities, and 5.1% to financial entities. The leaders are BBVA México, Santander and Banorte, but other entities appear among the top 10, such as Banco del Bajío, Banregio and Sabadell.
Digitization and what’s to come
With the pandemic, the use of digital tools also accelerated and banks saw app adoption grow in one year from what was planned in five. An example of this is Citibanamex, whose banking app reported growth of up to 80% in the pandemic.
While investing many more resources in improving the experience of its users on mobile devices, banking has reduced the presence of branches and last year 11,698 were reported, 3% less than in 2020, according to data from the Commission National Banking and Securities (CNBV).
In addition, a study by The Cocktail Analysis firm shows that consumer confidence will be key in choosing their main bank. The analysis also highlights that consumers will have more than one bank. “An interesting reduction is noted in the proportion of ‘monobank’ clients, which went from 63% in 2019 to 46% in 2022,” the report highlights.
Mexicans no longer only have a ‘traditional’ bank account, now neobanks are added, which appear as an additional viable alternative to their main bank. Fintech and neobanks already represent 17% of all Mexican banked users.
An important piece of information is that 52% of unbanked respondents say they have never had an account because they do not need one and mistrust financial institutions.
The banking sector has the challenge of banking more than 60% of the population that does not have an account or a bank card. The challenge is coupled with a transition from the digitization of operations and to knowing who is left with one of the oldest and largest banks in the system.
