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Mexico Best Bank: Banorte

Nov 1, 2012

Mexico¹s banking sector is in good shape with the country¹s largest lenders largely isolated from global turmoil and well poised to capitalize on the economy¹s expected growth. Output is likely to get a boost in the coming years thanks to favorable global trends, with promised reforms from a new government possibly adding a further fillip.

All of Mexico¹s big banks should benefit from the improving conditions.

While not the system¹s largest by assets, Banorte has used its integration following the 2011 merger with Ixe Financial Group to gain ground on foreign-owned players.

³OECD discussions are about deleveraging, while the story in Mexico is about leveraging,² Banorte chief executive Alejandro Valenzuela tells LatinFinance.

Mexico¹s strengthened fundamentals and economic growth have successfully lifted the country¹s financial sector after a prolonged phase of intermittent financial crises, Valenzuela says. With stronger Mexican economic growth forecasted, Banorte sees itself in a position to cater to the growing business lending market.

The bank has been integrating operations that resulted from its merger with Ixe in 2011 ­ a deal that has made it the third-largest financial institution in Mexico, surpassing Santander. This has brought size as well as a stronger investment banking operation. With no overhang from concerns of a foreign parent, the bank is in a strong position to grow.

It has also been expanding non-bank assets. In January, the bank merged its Afore Banorte pension operation with Afore XXI, one of the country¹s other large operators, becoming a 50% partner in Afore XXI Banorte with the Mexican Social Security Institute. Banorte¹s pension assets under management reached $225 billion pesos ($17.8 billion) at mid-year, up from just $86 billion pesos in 2010.

Banorte¹s strategy for the next 12 months will focus on continued integration, says Valenzuela. It will center on increasing profitability by extracting synergies from mergers. The bank also wants to take advantage of opportunities for banking penetration that exist in Mexico, and by cross-selling consumer products to its increasing client base.

Additional acquisitions could play a role here, particularly those that would allow it to achieve greater scale in the pension and retirement fund business. Valenzuela says Banorte is analyzing opportunities to scoop up the BBVA pension assets in Mexico, part of a package the Spanish bank is looking to unload that also includes assets in Chile, Colombia and Peru.

³We want to look and see if those assets could generate value and if we can afford them,² Valenzuela says, noting that the bank is in the early stages of analysis. ³We will have a clearer picture of where it stands within three to four months.² Banorte¹s banking assets increased to $890 billion pesos as of June 2012, which represents 14% growth from the first half of 2011. The real growth in its total assets under management ­ up to $1.4 trillion pesos at mid-year from $1.3 trillion pesos the year before and from $712 billion pesos two years before ­ has come from the pension and broker-dealer growth.

Banorte still sits third behind BBVA Bancomer and Banamex is most credit categories, but has seen stronger growth in several areas in the last 12 months, most notably credit cards and government-related lending. It says it has the second largest market presence in commercial and SME lending following the integration of the Ixe operations. The bank has seen an overall increase in market share over the past 12 months to 13% from 12% in deposits and to 14% from 13% in loans.

The bank has one of the lowest non-performing loan rates in the Mexican financial system. NPLs also remain low in the second half of 2012, at 1.8% of total loans versus the Mexico average of 1.9% and smaller than the 2.4% reported during the same period last year.

Banorte will continue to work in partnership with the IFC to support small and medium-size enterprise financing with special guarantees, as well as other priority sectors such as agribusiness, low and middle income housing and infrastructure financing. SME lending does not yet match the SME¹s contribution to GDP.

Profitability has also been strong. The bank¹s 14% and return on assets of 1.2% at mid-year were among the system¹s highest. LF

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