IMF published its staff report and selected issues report in context of the 2019 Article IV consultation with Mexico. The IMF Directors noted that the financial sector remained sound and emphasized that resilience could be further enhanced by closing gaps in the regulatory and supervisory framework. The staff report highlighted that the nonperforming loans remain low, the banking system is exposed to concentration risk, and the authorities agreed on the need to monitor risks related to financial technology.
The staff report highlighted that the financial sector remains profitable and well-capitalized. As of June, the tier 1 capital ratio of the sector stood at 14.2% and the return on equity was at 20.9%, driven by near record high net interest margins, while the nonperforming loan ratio remained at a near record low of 2.1%. The financial sector is resilient to various shocks, but close monitoring remains crucial. The stress tests by authorities confirmed that, even under adverse scenarios, most banks will remain above the regulatory minimum capital ratios. The banking system remains subject to concentration risk, given that most banks are exposed to a handful of large corporates. The authorities noted that the capital buffers of the financial sector would shield the sector from shocks and that they are closely monitoring concentration risks. Resilience of the financial sector could be boosted by closing regulatory and supervisory gaps. In line with the 2016 Financial Sector Assessment Program, or FSAP, recommendations, the staff advocated the following:
- Increasing operational independence, budget autonomy, and legal protection of the banking and securities supervisor
- Integrating prudential supervision under one authority for all financial institutions
- Enhancing the definition of “common risk” and “related party,” in the area of bank exposures
- Expanding the resolution regime to cover financial holding companies and strengthening the powers of authorities in banking resolution
The authorities noted that the current governance structure has worked well and did not see the need to merge regulators. They noted that they are evaluating the revision of the supervisory regime for financial holding companies and are discussing a draft regulation that will implement Basel standards on large exposures. Staff emphasized that a multi-pronged strategy to boost financial deepening and inclusion should be a policy priority. Staff argued in favor of improving credit reporting systems to facilitate the development of value-added services. The authorities agreed that there is scope for improvements in credit reporting systems. They also noted upcoming fintech regulation for Open Banking that will promote information-sharing among financial institutions and initiatives to improve the banking infrastructure. Furthermore, the staff stressed that secondary regulation for fintech should balance the priorities of promoting competition and improving financial inclusion while strengthening financial stability and consumer protection. The authorities noted that these are the main principles in the fintech law, which are the basis for developing secondary regulation. Moreover, they agreed on the need to monitor fintech related risks.
Keywords: Americas, Mexico, Banking, Article IV, FSAP, Fintech, NPLs, Capital Buffer, Resolution, Large Exposures, Financial Stability, IMF
The Central Bank of the Philippines (BSP) issued communications covering developments related to online lending platforms, open finance framework and roadmap, and on the expected regulations in the area sustainable finance.
The Board of Governors of the Federal Reserve System (FED) published the final rule that amends Regulation I to reduce the quarterly reporting burden for member banks by automating the application process for adjusting their subscriptions to the Federal Reserve Bank capital stock, except in the context of mergers.
The European Banking Authority (EBA) published its assessment of risks through the quarterly Risk Dashboard and the results of the Autumn edition of the Risk Assessment Questionnaire (RAQ).
The Malta Financial Services Authority (MFSA) updated the guidelines on supervisory reporting requirements under the reporting framework 3.0.
The Hong Kong Monetary Authority (HKMA) published a circular, along with the reporting form and instructions, for self-assessment, by authorized institutions, of compliance with the Code of Banking Practice 2021.
The Financial Conduct Authority (FCA) decided to register European DataWarehouse Ltd and SecRep Limited as securitization repositories under the UK Securitization Regulation, with effect from January 17, 2022.
The European Commission (EC) published the Delegated Regulation 2022/25, which supplements the Investment Firms Regulation (IFR or Regulation 2019/2033) with respect to the regulatory technical standards specifying the methods for measuring the K-factors referred to in Article 15 of the IFR.
The Bank of International Settlements (BIS) published a paper that assesses the ways in which platform-based business models can affect financial inclusion, competition, financial stability and consumer protection.
The Central Bank of Egypt (CBE) published a circular with instructions on emergency liquidity assistance to banks that are unable to meet their liquidity requirements.
The European Supervisory Authorities (ESAs) published the list of identified financial conglomerates for 2021.