Mexican Banks Laugh All the Way to the Vault with High-Interest Rates
Mexican banks Banorte, Banco del Bajío, Inbursa, Regional, and Compartamos are reaping the rewards of high-interest rates, with their financial margins soaring. Despite mixed share performance, the sector's fundamentals remain robust, and loan portfolios are expanding.
In a surprising turn of events, high-interest rates have proven to be a boon for several banks listed on the Mexican Stock Exchange (BMV). Banorte, Banco del Bajío, Inbursa, Regional, and Compartamos have experienced a considerable rise in their financial margins, leading to a wave of excitement in the industry.
According to data from last May, this group of banks, excluding preventive estimates, witnessed an impressive annual growth rate of 28.5 percent in their financial margins. This figure surpasses the growth rate of the entire multiple banking sector, which stood at 21.9 percent. The exceptional performance can be attributed to the banks' expanding loan portfolios and the impact of higher interest rates compared to the previous year.
When considering a higher generation of provisions, except for Inbursa, which released reserves, the net financial margin of these listed banks still achieved an impressive annual growth rate of 25.9 percent. This growth outpaced the sector's average of 18.3 percent. The remarkable results are a testament to the sound strategies implemented by these banks, leveraging increased loan activity and favorable interest rate dynamics.
Among the banks analyzed, Banco del Bajío emerged as the clear winner, reporting a staggering annual variation of 54.2 percent in its net financial margin through May of this year. Inbursa followed closely with 50.3 percent, while Banorte, Regional, and Compartamos achieved growth rates of 20 percent, 17.7 percent, and 3.3 percent, respectively. This exceptional performance reflects the banks' ability to capitalize on the prevailing market conditions and maximize their financial gains.
In terms of operating income, there was an overall year-over-year growth of 19 percent, primarily driven by the expansion of net interest income. Banco del Bajío once again led the pack with a remarkable growth rate of 50.9 percent, owing to its heightened sensitivity to interest rates. Inbursa followed suit with a commendable growth rate of 39.0 percent.
However, the growth rates of Regional and Compartamos were relatively subdued, standing at 7.9 percent and 5.3 percent, respectively. These banks faced the impact of an increase in the generation of reserves, which somewhat dampened their growth potential. Nevertheless, the sector fundamentals remain strong, and despite variations in performance, the overall outlook for the Mexican banking industry appears promising.
In a rather contrasting development, the equity performance of banks in 2023 has been a mixed bag. Cumulatively, the shares of these banks recorded an average return of -2.8 percent and a median of -11.7 percent for the year. Unfortunately, this underperformance has lagged behind the general stock market performance. Over the same period, the S&P/BMV IPC index accumulated a remarkable return of 10.7 percent.
While individual bank-level share price performances have been a mixed bag, it is important to note that the sector's fundamentals remain solid. Several factors could explain the variable share performance, including regional banking events in the United States and the prospect of a pause in the rate hike cycle. Nonetheless, the overall strength of the banking sector provides a strong foundation for future growth and recovery.
On the bright side, banks listed on the BMV experienced a commendable 14.5 percent annual growth in their loan portfolios, surpassing the growth rate of the overall sector. Regional took the lead with an impressive 20.5 percent annual growth rate, while Banco del Bajío recorded the lowest growth rate at 9.9 percent. This variation among banks highlights their unique strategies and market positioning.
In conclusion, high-interest rates have proven to be a double-edged sword for Mexican banks listed on the BMV. On one hand, they have significantly boosted financial margins and operating income, enabling these banks to capitalize on increased loan activity. On the other hand, the equity performance of these banks has been somewhat lackluster, with mixed results observed at the individual bank level. However, the overall strength of the banking sector and its solid fundamentals provide optimism for the future.
