IMF Publishes Reports on the 2018 Article IV Consultation with Mexico
IMF published its staff report and selected issues report under the 2018 Article IV consultation with Mexico. Directors noted that the financial sector remains resilient and welcomed the efforts of authorities to increase financial deepening and regulate the rapidly evolving fintech industry. They encouraged the authorities to close remaining gaps in the regulatory framework to enhance the effectiveness of supervision and to strengthen the resolution and crisis management framework. Further enhancing the AML/CFT framework also remains a priority.
The staff report highlights that the financial sector continues to weather the uncertain domestic and international environment well. The banking sector remains well-capitalized and highly profitable. As of July 2018, the tier 1 capital ratio of the sector stood at 14% and the return on equity at 20.7%, while the non-performing loan (NPL) ratio remained at near record low of 2.1%. Commercial bank credit to the non-financial corporate sector strengthened by 10% (y-o-y) in real terms in August, despite higher borrowing costs. Although the financial sector remains resilient to various risks, close monitoring should continue. Recent stress tests of the banking sector conducted by the regulators have confirmed overall resilience of the banking sector; except for a few very small banks, all banks could absorb a substantial deterioration in credit quality and higher funding cost. The authorities considered that the financial sector’s substantial buffers, given strong levels of capital and loan-loss provisions, have made the sector resilient under an uncertain economic environment.
Staff welcomed the issuance of regulation based on the new Fintech legislation. It is believed that the National Strategy for Financial Inclusion (NSFI) was a first step to improve financial inclusion by focusing on financial education and consumer protection. Staff advised against setting quantitative lending targets and instead supported changes in development banks’ incentive structures to encourage lending to sectors lacking access to market financing. The incoming administration noted that they expected development banks to play an important role in infrastructure finance and would consider consolidating a few development banks to improve efficiency. Staff reiterated that financial sector resilience could be enhanced by closing gaps in the governance of the regulatory framework. In line with the recommendations of the 2016 Financial Sector Assessment Program (FSAP), staff urged the authorities to increase the operational independence, budget autonomy, and legal protection of the banking and securities supervisor, and to, subsequently, integrate all prudential supervision functions under one prudential authority. The current and the incoming administrations believe that the institutional set up and governance structure of regulators provides sufficient safeguards to preserve the effectiveness of supervision and do not see the need to merge different regulators to one prudential regulator.
Staff also noted that the resolution and crisis management framework needed strengthening. It was recommended that the bank resolution regime should cover financial holding companies to ensure supervisors can adequately manage the true risks of the group and have the power to require banks to improve their resolvability. Moreover, a formal contingency plan for dealing with a systemic crisis should be developed and a process should be put in place to conduct a systemic crisis simulation exercise involving foreign shareholders. The current administration considered that the resolution framework had been strengthened since the legal reform to the bank resolution framework was enacted in 2014. It is believed that an ex-ante simulation exercise to coordinate the resolution process with foreign regulators could be contemplated, but would require significant resources and careful planning. The selected issues report examines labor market challenges in Mexico, constraints to firm investment and growth, and inequality and social policies.
Related Links
Keywords: Americas, Mexico, Banking, Fintech, FSAP, Resolution Framework, Stress Testing, Article IV, IMF
Related Articles
|
News
HKMA Decides to Maintain Countercyclical Capital Buffer at 2.5%HKMA announced that, in accordance with the Banking (Capital) Rules, the countercyclical capital buffer (CCyB) ratio for Hong Kong remains at 2.5%.
April 16, 2019
WebPage
Regulatory News
|
|
News
EP Approves Agreement on Package of CRD 5, CRR 2, BRRD 2, and SRMR 2The European Parliament (EP) approved the final agreement on a package of reforms proposed by EC to strengthen the resilience and resolvability of European banks.
April 16, 2019
WebPage
Regulatory News
|
|
News
FDIC Consults on Approach to Resolution Planning for IDIsFDIC approved an Advance Notice of Proposed Rulemaking (ANPR) and is seeking comment on ways to tailor and improve its rule requiring certain insured depository institutions (IDIs) to submit resolution plans.
April 16, 2019
WebPage
Regulatory News
|
|
News
EP Resolution on Proposal for Sovereign Bond Backed SecuritiesThe European Parliament (EP) published adopted text on the proposal for a regulation of the European Parliament and of the Council on sovereign bond-backed securities (SBBS).
April 16, 2019
WebPage
Regulatory News
|
|
News
PRA Seeks Input and Issues Specifications for Insurance Stress TestsPRA announced that it will conduct an insurance stress test for the largest regulated life and general insurers from July to September 2019.
April 15, 2019
WebPage
Regulatory News
|
|
News
PRA Finalizes Policy on Approach to Managing Climate Change RisksPRA published the policy statement PS11/19, which contains final supervisory statement (SS3/19) on enhancing banks’ and insurers’ approaches to managing the financial risks from climate change (Appendix).
April 15, 2019
WebPage
Regulatory News
|
|
News
EBA Single Rulebook Q&A: First Update for April 2019EBA published answers to nine questions under the Single Rulebook question and answer (Q&A) updates for this week.
April 12, 2019
WebPage
Regulatory News
|
|
News
EIOPA Statement on Application of Proportionality in SCR SupervisionEIOPA published a supervisory statement on the application of proportionality principle in the supervision of the Solvency Capital Requirement (SCR) calculated in accordance with the standard formula.
April 11, 2019
WebPage
Regulatory News
|
|
News
FED Updates Form and Supplemental Instructions for FR Y-9C ReportingFED updated the form and supplemental instructions for FR Y-9C reporting. FR Y-9C is used to collect data from domestic bank holding companies, savings and loan holding companies, U.S intermediate holding companies, and securities holding companies with total consolidated assets of USD 3 billion or more.
April 11, 2019
WebPage
Regulatory News
|
|
News
OSFI Finalizes Guidelines on Liquidity Adequacy and NSFR DisclosuresOSFI published the final Liquidity Adequacy Requirements (LAR) guideline and the net stable funding ratio (NSFR) disclosure requirements guideline.
April 11, 2019
WebPage
Regulatory News
|
