Financial resilience in Mexico: Status and risks of this Latin American market

The Mexican financial system is like a huge ship that navigates turbulent waters and has been able to face the global storm during the first half of 2023. In the middle of the year, during the presentation of its financial stability report, the Bank of Mexico – affectionately known as Banxico – emphasized the challenges that banks look over around the world.

Table of Contents

It’s almost like watching the plot of an adventure movie… The best part? There are no signs that the problems we had at the beginning of the year are going to entrench themselves. In fact, Banxico assures that Mexico’s banking sector has been a true hero, propping up the entire financial system with its resilience and solid basis.

Mexican banks, put to the test

Like the icing on a cake, they did stress tests on several Mexican entities, and the results were music to our ears. It turns out that they have the financial muscle to continue facing adversity head-on. Of course, every story has its plot twists, and for our protagonists, this includes macroeconomic risks such as a drop in demand and tight global financial conditions that could be a challenge.

The direction the bank will take towards the end of the year will be strongly influenced by its ability to adapt and the possibility of maintaining its agility. Additionally, next year comes with a good dose of uncertainty. However, to meet these challenges, it is imperative that banks equip themselves with tools and technologies that allow them to clearly understand the market and the specific needs of their customers.

Financial resilience and dynamism in the sector

Although the future remains uncertain, the IMF’s forecasts for the global economy have changed little. Interest rates will continue to rise to control inflation and the risks associated with wars will continue. All of this can make markets volatile, so it is important to monitor how the financial system evolves. Global markets have been influenced by all these aspects and also by discussions about debt in the United States.

As for the financial markets of emerging countries, they have not been seriously affected. Stocks have performed well and currencies, including the Mexican peso, remain strong. All this due to prudent fiscal and monetary policies, balance in external accounts, important remittances, higher interest rates than elsewhere, less volatility of the peso and a relatively good macroeconomic position.

In short, uncertainty has gone down a bit, but there are still risks. Investment flows to emerging countries, including Mexico, could be affected and financing costs for companies and households could rise. The Mexican banking system has continued to grow and has made money from securities operations and the credit portfolio.

Although more money is lent than raised!

How to achieve financial resilience and not lose it?

Economic forecasts for the end of 2023

According to Mexico Business News, the country’s economy continues to show a great capacity for adaptation, facing challenges and maintaining stable projections for the coming quarters. Inflation is expected to ease in the coming months, paving the way for a gradual change in the central bank’s approach. In addition, experts foresee a series of interest rate cuts starting in the fourth quarter of 2023.

The reality is that the capital and liquidity of Mexican banks are far above what is required. Despite concerns about problems at banks in the United States and Europe, there has been no increase in the risk of contagion, in part because Mexican banks are not strongly connected to them. Non-banking financial institutions continue to have problems due to tightening conditions. This has affected costs and access to financing.

Access to credit is democratized: bank cards and financing lines

Data from the National Banking and Securities Commission (CNBV) indicate that credit to the private sector in Mexico experienced an increase of 4.9% compared to the previous year. In particular, consumer credit stands out, which registered an increase of 8.9% in real terms. All this with the Default Rate (IMOR) at stable values: 2.3% for the entire private sector.

Thus, we see that, during the first four months of 2023, more than 22 million credit cards were issued in Mexico, although the accumulated balances decreased by 6.6 million pesos compared to the levels recorded in 2018, according to data provided by BBVA Research. What does this trend reflect? Without a doubt, the issuance of cards better adjusts to the payment capacity of consumers.

This approach seeks to ensure that people can manage their debt responsibly and avoid excessive debt. In this way, access to credit is available to anyone and promotes optimal financial health. We cannot fail to mention the data published by the Mexico Fintech Association in a recent study: more than 40% of users in 2023 were unbanked a year ago.

Impressive, right?

The role of Open Banking in the financial development of Mexico

The financial future is full of opportunities and challenges, and Open Banking is a fundamental tool in this scenario. The idea behind Open Finance is simple but powerful: it allows financial institutions to become more competitive by securely sharing information through application programming interfaces (APIs).

Here is a complete article dedicated to the expansion of open finance in Latin America

This openness not only encourages innovation, but also promotes inclusion in the sector, giving more people and companies access to financial services that were previously denied to them. Open banking certainly has the opportunity to make the most of this approach to overcome challenging situations and transform obstacles into advantages.

Thanks to technology, it is possible to promote the financial resilience of users without taking risks. For example, helping them improve their economic situation through micro-savings Apps, PFMs or the management of their group expenses. According to the report “Open Banking in Mexico. Diagnosis and trends”, 72% of entities believe that open banking will be a catalyst for the creation of higher quality digital services, while 68% believe that it will trigger the growth of companies.

Offer your customers tools integrated in their online banking and get ready to see them stay with you forever!

New call-to-action

Sign up for our newsletter and get our top stories delivered straight to your inbox