Economics: Weakening of development banks poses risks for public finance and the banking system

MEXICO - Report 19 Jul 2022 by Mauricio González and Francisco González

Mexico’s development banks are of particular interest in what is unquestionably a highly complicated economic and financial panorama. At the end of 2021, total development bank loan portfolios totaled 1.05 trillion pesos, in real terms, 12.5% below levels of December 2018. Between 2018 and 2021 there has been a cumulative real-term reduction in development bank loan portfolios that has been especially pronounced in the case of Nafin (-35%) (-20% in 2021/2020), followed by a 28.3% real-term drop at SHF (-15.4% in 2021/2020) and Bancomext at -10.4% (-10.1% in 2021/2020).

The contraction in total development bank loan portfolios has been accompanied by a broader deterioration of their financial situation. Collectively, their non performing loans expanded during the second half of 2021, swelling the delinquency rate (IMOR) from 1.9% in 2018 to 6% at the end of this past March.

According to the federal government program of guarantees, subsidies and transfers, beginning in 2018 the authorities began substantially reducing the guarantees awarded to development banks. This week we analyze the main factors influencing their recent performance.

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