Mexican Senate approves financial reform
Part of Peña Nieto's reform package, the bank bill changes the bankruptcy code - but analysts are uncertain of the long-term impact
By Lucy Conger
Mexico's Senate voted by a landslide margin Tuesday to
approve a financial reform bill that that aims to promote bank
lending, particularly to small and medium sized
The bill makes it easier for banks to collect on bad loans
and will set regulations on financial groups. It was passed
with 90 votes in favor from the ruling PRI party, its ally the
Green Party (PVEM) and the conservative PAN party. The 24 votes
against were from three opposition parties on the left.
The financial reform gives a mandate to the nation's
development bank Nafinsa to guarantee commercial lending to
SMEs. It streamlines Mexico's bankruptcy process and installs
specialized judges, strengthens protection for financial
service users, and will change some financial group
regulations, although details there are still to be
Under the new rules, fully foreign-owned companies will be
able to offer insurance and leases. The reform also stipulates
that the central bank, the Banco de México, will
regulate bank fees and interest rates on lending.
Still, the reform constitutes less progress than meets the
eye, analysts suggest.
Banks favor low-risk government lending, and a recent
tolerate a federal deficit means credit to the private
sector could be crowded out. "The government is trying to
reform to increase bank lending and at the same time it is
going into deficit spending this year," independent economist
Jonathan Heath tells LatinFinance.
The reform creates a more workable bankruptcy law and
promises more expeditious resolution of cases that can take
years to resolve.
"The most important thing in Mexico is improving [lenders']
ability to take an asset back. The reform gets rid of some
distortion," says John Welch, executive director, macro
strategy for Latin America at CIBC World Markets. Collateral
from loans to the large, but risky, segment of SMEs will be
enhanced with guarantees from development banks.
"It is an improvement, but a subsidy on collateral. I don't
think it will have a massive effect," says Welch. The fact that
small-scale startups in Mexico last on average just two years
limits lending to the sector, according to Heath.
The reform, which involves changes to 34 laws, is the latest
in a series of modifications to Mexico's financial system over
the past 20 years. "There will be a continuous reform process
rather than a definitive reform, a process of putting new
things in place," says Welch.
With the laws approved by the Senate, they will take effect
once signed by President Enrique Peña Nieto and
subsequently published in the Diario Oficial, the
official government bulletin. The process is likely to be
completed by year-end.
Bank penetration in Mexico is one of the lowest in Latin
America. Recent figures show that fewer than 20% of adults hold
a bank account, and lending to the private sector is less than
30% of GDP.
The Senate's approval of the bill brings Peña Nieto
one step closer to approval of a
full package of reforms he has pledged will transform
Mexico. One of the most ambitious of those is the pending
energy reform that would open the state oil company, Pemex, to
private investment. Securing agreement on the energy reform
remains tough but it is predicted to pass nonetheless before
the year is out. LF