Mexico hybrids on cards, but detail needed, says Banorte
The Mexican lender is waiting for regulators to stipulate the finer structural points on additional tier one instruments before it considers a deal
Mexican lender Banorte is waiting for local regulators to
fine-tune rules on new style bank capital instruments, its
chief executive has told LatinFinance.
|| Source: Serge Saint
"In terms of issuing new instruments, cocos [Contingent
Capital] and things like that, it hasn't been truly tested,"
Alejandro Valenzuela, Banorte's chief executive, said in
regards to the new style bank capital market in Mexico. "Today
it's a very illiquid and cumbersome market. We believe over the
future it will have to develop and clearly Banorte will want to
test that over time.
"I think it's part of the array of instruments that you need
to diversify to make sure your structure of capital is well
suited for your growth purposes or to deal with any contingency
that may arise."
Mexico introduced the global bank capital framework in 2013,
but has not finalized the local interpretation of rules on how
the principal of new-style additional tier one hybrids would
absorb losses. The regulations could allow for the principal to
be written off either temporarily or permanently, or converted
to shares. The details of each would determine the cost to
banks of issuing the instruments.
"Those rules, when they're defined they're going to define
the spread and the costs of those instruments," said David
Suarez, Banorte's chief financial officer. "And that's when
we're going to start looking into it. But right now, since
there's no reference, no benchmark, it's very complicated to do
Banorte has a $1.5bn subordinated bond outstanding, which
loses 10% capital treatment each year as Basel III rules are
phased in. The bank will need to renew the instrument "at some
point", added Suarez.
Banorte would prefer to issue additional tier one
instruments, rather than a tier two contingent capital
security, Valenzuela added: "We believe that quality of capital
is going to be as important, or even more important, than the
level of capitalization." LF
BANK CAPITAL: Slow going - LatinFinance May/June