Mexico’s banks and economy got a bit of bad news as two international ratings agencies lowered their outlooks on Tuesday Aug. 23.
Moody’s lowered its outlook for Mexico’s banking sector to negative for the first time in six years, citing slower economic growth and exposure to cash-strapped state oil company Pemex, Reuters reported.
Also on Tuesday, fellow ratings agency Standard & Poors lowered its outlook for Mexico’s economy to negative but continued to hold a “stable” outlook for banks.
The specter of two Mexican financial crises in the 1980s and 1990s hangs over the country’s banking sector, which has a reputation for being cautious and is keen to maintain its high levels of capital.
But Moody’s said that despite high profitability, capitalization and liquidity in the sector, slower economic growth and exposure to the oil sector could affect asset quality.
“It’s going to be harder for them to maintain the fundamentals,” lead Mexican bank analyst David Olivares said in an interview.
Mexico’s economy shrank in the second quarter for the first time in three years, dragged down by a slump in industrial output, data published on Monday showed.
Pemex, which is struggling with falling oil prices and production, got an emergency cash injection in April from the Finance Ministry to help pay down outstanding bills.
Moody’s estimates that loans to Pemex account for a relatively low 6 percent of all those outstanding at Mexican banks, but at some individual institutions can be up to 40 percent of core capital.
“When banks start building such big credit exposures in a sector, we start to worry,” Olivares said.
After holding a “negative” outlook on the sector during the 2008-2009 global financial crisis, Moody’s had kept the sector as “stable” since 2010.
But Standard & Poor’s outlook on banks was less negative.
“The banks have learned lessons from past crises, they’ve improved and have been more conservative in terms of their credit processes,” S&P analyst Alejandro Tapia said.
Tapia said he believed banks could absorb a hit from the energy sector.
Enrique Mendoza, an analyst from Actinver, said banks were prepared to handle any rise in defaults in the future.
“We’ve seen that even when defaults do start to grow and there start to be losses, the banks start to turn off the tap.”
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