Fitch: Systemically Important Mexican Banks Ready to Meet Additional Capital Requirements

The seven systemically important Mexican banks (G-SIBs) recently selected by the local regulator (Comision Nacional Bancaria y de Valores), currently committed to the capital rules required by Basel III, are ready to meet the required additional capital buffer for G-SIBs, according to Fitch Ratings.

The additional capital requirement established is intended to strengthen the bank's capitalization, given its characteristics of size, interconnectedness with the financial system, importance of services and infrastructure, and complexity of operations that in the event of insolvency could have an impact on the financial system in general. The seven Mexican G-SIBs, which represent 80% of total assets of the banking system, includes five foreign-owned banks (BBVA Bancomer, Banamex, Banco Santander Mexico, Scotiabank Mexico and HSBC Mexico) and two locally owned (Banorte and Banco Inbursa).

Mexican banks have been characterized by being well capitalized for several years, complying with some leeway the minimum capitalization ratio required by regulation, currently 10.5%. At the end of February 2016, Mexican commercial banks showed a total regulatory capital ratio of 14.52% and a Tier I regulatory capital ratio of 12.99%. This is no exception for now systemic banks, which showed at the same date a total regulatory capital ratio and Tier I regulatory capital ratio of 14.20% and 12.48%, respectively.

Therefore, the seven Mexican G-SIBs already meet at 100% with the additional capital buffer for G-SIBs, that is supplementary to the 10.5% minimum capitalization ratio required, which was set to be in compliance within a maximum four years (25% annually). Fitch believes that banks categorized as G-SIBs by the local regulator, five have a reasonable leeway to keep the ratio considering its growth plans; while two of them are somewhat closer to the limit. Although no the base line scenario, in all cases important increases on its portfolio over the next four years could make them migrate to higher grades, and therefore increase the capital requirements. Despite this, Fitch believes that the challenges to be in compliance in all cases are low because banks have a strong ability for internal capital generation and/or have the support of their parent companies or with a high propensity of its shareholders to inject capital, if required, to meet with the minimum regulatory requirements.

According to its characteristics G-SIBs can be classified into five degrees or groups. BBVA Bancomer was classified in the Group IV, which considers a additional capital buffer for G-SIBs of 1.50 percentage points (p.p), with information as of February 2016 considering the new requirement its minimum capital regulatory ratio would be exceeded at 1.70 p.p. While Banamex and Banco Santander Mexico, classified in Group III with additional capital buffer for G-SIBs of 1.20 p.p., would exceed the new regulatory minimum at 1.97 p.p. and 3.73 p.p., respectively. In the case of Banorte, listed in Group II with an additional capital buffer for G-SIBs of 0.90 p.p., would exceed at 3.26 p.p. In the cases of Scotiabank Mexico, HSBC Mexico and Banco Inbursa which were classified in Group I with an additional capital buffer for G-SIBs of 0.60 p.p., would exceed at 1.12, 1.19 and 6.60 p.p. respectively, the regulatory minimums.