MEXICO CITY (Reuters) - Mexico’s state and municipal government debt sector will likely see lower borrowing costs in the coming months following the acquisition of Grupo Financiero Interacciones by Banorte, Interacciones CEO said on Wednesday.
The tie-up between Mexican-owned bank Banorte and the smaller Interacciones, which was announced late last year, is expected to create the country’s second biggest bank once the deal is finalized during the first half of 2018.
Interacciones was already a major player in offering loans to Mexico’s local governments, which had a total debt of about 560 billion pesos ($30.15 billion), according to data from September.
As of late last year, the two firms combined accounted for almost half of the sector’s loan portfolio, figures from Mexico’s banking regulator show.
“This will allow us to be much more aggressive,” said Interacciones CEO Carlos Rojo in an interview, noting the lender’s ability to now offer lower rates.
The interest rate paid by states and municipalities on loans averaged 8.7 percent through September, government data shows.
In 2016, rules that apply to local governments taking on debt were tightened after several states recorded debt increases.
“There’s huge financing capacity,” said Rojo.
“Duplicating it does not put us in a situation that’s even close to being stressed.”
The executive added that the two firms would be able to double the capacity of local governments to invest in infrastructure compared to current levels.
Reporting by Noe Torres and Sheky Espejo; Writing by David Alire Garcia; Editing by Himani Sarkar