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Fitch: Effect of Mexican Earthquakes on Financial Institutions Not Clear Yet
September 29, 2017 / 9:09 PM / 21 days ago

Fitch: Effect of Mexican Earthquakes on Financial Institutions Not Clear Yet

(The following statement was released by the rating agency) MONTERREY, September 29 (Fitch) During September 2017, two high-magnitude earthquakes hit cities in the south, capital, and the center of Mexico. Fitch Ratings has gathered information from the largest banks and other financial institutions in Mexico that could be exposed to the damage to some extent. At this point, the total effect on the banking and non-bank financial institutions (NBFIs) is yet to be seen, but Fitch expects this to be low or moderate on a system-wide basis, although potentially mixed at the individual entity level. The first earthquake occurred on Sept. 7 and affected mainly the States of Chiapas, Tabasco and Oaxaca, zones where NBFIs, mainly microfinance companies, are more likely to have exposure, due to the low-income segment of the population they serve in such zones, which usually have lower access to traditional banking services. Those three states accounted for 1.1% of the total loans in the banking system as of mid-2017, while mortgage loans totalled 0.3% of the loan portfolio, according to the Central Bank (Banxico). In turn, Microfinance companies' loan portfolio in the same States represented nearly 10.1% of the Microfinance segment at the same date, according to information of microfinance companies rated by Fitch. The second earthquake occurred on September 19, and affected some specific zones of Mexico City, Estado de Mexico, Puebla and Morelos - those with the highest concentration of loans in the financial system. Together they represented approximately 44.8% of the total loans of the banking system (mortgage loans: 9.1% of the total); however, it is important to note that not all the municipalities in the mentioned states were damaged at the same magnitude. In both events, some banks and NBFI branches were partially affected; however, operations have been restored in most cases, or clients are being attended through alternative branches and online services. But uncertainties remain as to the extent of the earthquake's impact on customers' productive activities and, therefore, their ultimate debt repayment capacity. Although in general terms loan exposures in affected cities is high, is still too early to measure the proportion of debtors or financed projects to have been directly affected by the events. Mexican financial institutions and authorities are still trying to approximate the economic impact of the events. Fitch believes the banking system has adequate loss absorption capacity through capital and loan loss reserves to handle any possible outcomes, but the ultimate effect on individual balance sheets will be seen over the coming months. Fitch will continue to closely monitor rated banks' asset quality and credit growth. Fitch does not rule out that regulatory authorities activate special and temporary debtor relief programs for banks to assist their borrowers as it has done in natural disasters of the past. In turn, the development banks are working on special support programmes to assist the most vulnerable sectors, such as SMEs and low income individuals. Due to the non-regulated nature of most NBFIs in the country, Fitch expects these entities will not be subject to local regulator's support programs; however, Fitch anticipates some of them will be considered in the expected development banks' programs. Some payroll lenders and microfinance entities targeted to lower-income segments anticipate credit demand could increase particularly in the affected zones. However, Fitch also perceives that the NBFI's typical customer might be relatively more affected by the aftermath of the recent events, which might be especially challenging for smaller lenders with high degrees of concentration in the affected regions. Fitch will monitor rated NBFI's risk appetite and mechanisms to confront such contingencies as restructuring, refinancing and client retention programs. Contact: Veronica Chau Senior Director +52 81 83999169 Fitch Mexico, SA de CV Prol. Alfonso Reyes 2612, Edificio Connexity Piso 8 Col. Del Paseo Residencial 64920 Monterrey, N.L., Mexico Alejandro Tapia Director +52 81 83999156 Monica Ibarra Director +52 81 83999150 Media Relations: Benjamin Rippey, New York, Tel: +1 646 582 4588, Email: benjamin.rippey@fitchratings.com. Additional information is available on www.fitchratings.com ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. 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Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

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