Mexico - Banking SystemsMexico - Banking
Following the 1994-peso crisis, banks in Mexico have been very cautious in their lending, preferring to provide loans only to their most sound customers. However, banks are now beginning to implement programs for lending to a wider range of companies, although at relatively high rates. In general, small- and medium-enterprises (SMEs) have trouble accessing credit. According to a first quarter 2018 Bank of Mexico (BANXICO) survey of established companies, their main sources of financing were suppliers (76.7%), commercial banks (31.2%), other companies and/or their own headquarters (15.5%), foreign banks (5.8%), development banks (5.8%), and debt issuance (2.6%).
The Mexican Government has enacted several incentives to encourage more lending to SMEs, and banks have followed suit with new lending policies, but it remains to be seen whether the largest segment of the Mexican economy will gain better access to credit. In January 2014, President Enrique Peña Nieto announced a set of financial reforms to redefine the mission of development banks, promote private financing, and encourage financing with lower rates. Now more than four years later, these reforms have started to reduce borrowing costs and to increase access to credit, albeit slowly. The four goals of the financial reform are to 1) promote lending through the development banks; 2) expand credit from private financial institutions; 3) increase competition in the financial sector; and 4) ensure the security of the Mexican financial system.
There were several other important aspects of the reform:
- Strengthen the role of the National Commission for the Protection of Users of Financial Services (CONDUSEF)
- Increase the role of banking agents (corresponsales bancarios)
- Strengthen and modernize the operation of credit unions
- Promote the investment funds market
- Establish a new legal framework for financial entities
- Maintain the optimal levels of capitalization under Basel III
The Mexican fintech industry grew by 23.4 percent from May to November 2016 and the market is concentrated in the following segments: payments and remittances, lending, enterprise finance management, personal finance management, crowdfunding, wealth management, insurance, financial education and saving, scoring solutions, identity and fraud.
Due the growing importance of the fintech industry in Mexico, in 2017 and 2018 financial regulators drafted Mexico´s first financial technology regulation law to reduce operational risk, enhance transparency and improve security. On March 10, 2018 the Fintech Law was published in the Official Gazette. The law supervises four broad areas of fintech services. They include crowdfunding and P2P lending, electronic money services, virtual assets, and application programming interfaces (APIs). The law was drafted to foster financial inclusion, consumer protection, financial stability, competition, and financial integrity.
The law allows companies and financial entities to obtain a special temporary authorization to offer financial services using technological tools through a regulatory sandbox. The Fintech Law also mentions the creation of a Financial Innovation Group formed by financial authorities and the private sector to share ideas, discuss innovations in the financial arena between the private and public sectors, and achieve better planning and development of the law. The law also establishes that SHCP, CNBV, and BANXICO are the main regulators for the fintech sector.
The Fintech Law includes an option to obtain a special temporary authorization to offer financial services using technological tools subject to certain terms and conditions. The Fintech Law was approved in March 2018 but most of the substantive content will be regulated by secondary regulations. Regulators established periods of six, 12, and 24 months to draft them.
The mission of development banks is to fill financing shortfalls in the commercial banking sector. Mexico has seven government-owned development banks that provide services to specific areas of the economy. The dominant institutions are Nacional Financiera (Nafinsa) and the National Bank for International Trade (Bancomext). These institutions have become primarily second-tier banks that lend through commercial banks and other financial intermediaries such as credit unions, savings and loans, and leasing and factoring companies. Nafinsa's primary program funds SMEs and micro businesses. Nafinsa also undertakes strategic equity investments and contributes equity to joint ventures. Bancomext provides financing to Mexican exports and to SMEs. It also offers working capital, project lending, and training to firms in several specific sectors that require support, such as textiles and footwear.
The other Mexican development banks are Banobras (National Development Bank for Public Works and Services), Financiera Rural (Rural Agriculture Bank), Bansefi (National Savings and Financial Services Bank), Banjercito (Mexican Army, Air Force and Navy Bank), and Hipotecaria Federal (which finances Mexican homeownership through financial intermediaries).
The non-traditional banking sector in Mexico is comprised of exchange houses, credit unions, leasing, factoring companies, and financial lending networks with multiple objectives (SOFOMs). SOFOMs are divided in two categories: Regulated Entities (SOFOM ER) and Non-Regulated Entities (SOFOM NR).
Due to the financial reform, regulation and supervision of SOFOMs has increased. SOFOMs have the obligation to maintain up-to-date information with the National Commission for the Protection of Users of Financial Services (CONDUSEF), and they are required to give information about their borrowers to at least one credit bureau.
There are no controls on the transfer of U.S. dollars into or out of Mexico. This means that profits can be repatriated freely. However, to prevent money laundering, SHCP maintains a regulation governing the deposit and exchange of U.S. dollars in Mexican banks. Dollar transactions that are processed through on-line banking are not affected. According to the regulation banks must observe the following limits:
- Individuals that are account holders of the bank can deposit no more than USD 4,000 per month in all banking branches.
- National citizens that are non-account holders of the bank can deposit USD 300 daily, but no more than USD 1,500 monthly.
- Tourists that are not account holders of the bank can exchange no more than USD 1,500 monthly in cash.
Border and tourist-area businesses can exceed the USD 14,000 per month cash deposit limit if they meet three criteria. They must 1) have been operating for at least three years; 2) provide additional information to financial institutions justifying the need to conduct cash transactions in U.S. dollars; and 3) provide three years of financial statements and tax returns. The limit on individual account holders remains unchanged. There is no restriction on the sale of dollars. However, upon entering or departing Mexico, cash amounts of USD 10,000 or more must be declared and documented. For more information on the regulation in Spanish, see the Official Gazette notice on this subject.
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