Featured Product

    IMF Publishes Reports on the 2018 Article IV Consultation with Mexico

    November 08, 2018

    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

    Featured Experts
    Related Articles
    News

    MAS Concludes Blockchain Payments Prototype Shows Commercial Potential

    MAS and Temasek jointly released a report to mark the successful conclusion of the fifth and final phase of Project Ubin, which focused on building a blockchain-based multi-currency payments network prototype.

    July 13, 2020 WebPage Regulatory News
    News

    EBA Publishes Phase 2 of Technical Package on Reporting Framework 2.10

    EBA published phase 2 of the technical package on the reporting framework 2.10, providing the technical tools and specifications for implementation of EBA reporting requirements.

    July 10, 2020 WebPage Regulatory News
    News

    APRA Updates Reporting Validation Rules in July 2020

    APRA updated the lists of the Direct to APRA (D2A) validation rules for authorized deposit-taking institutions, insurers, and superannuation entities.

    July 10, 2020 WebPage Regulatory News
    News

    PRA to Partly Apply EBA Guidelines on Disclosures for COVID Measures

    PRA updated the statement that provides guidance to regulated firms on implementation of the EBA guidelines on reporting and disclosure of exposures subject to measures applied in response to the COVID-19 crisis.

    July 10, 2020 WebPage Regulatory News
    News

    EBA Updates List of Correlated Currencies Under CRR

    EBA updated the 2019 list of closely correlated currencies that was originally published in December 2013.

    July 10, 2020 WebPage Regulatory News
    News

    FASB Proposes to Delay Implementation of Insurance Contracts Standard

    FASB issued a proposed Accounting Standards Update that would grant insurance companies, adversely affected by the COVID-19 pandemic, an additional year to implement the Accounting Standards Update No. 2018-12 on targeted improvements to accounting for long-duration insurance contracts, or LDTI (Topic 944).

    July 09, 2020 WebPage Regulatory News
    News

    APRA Updates Regulatory Approach to Loan Deferrals Amid COVID Crisis

    APRA updated the regulatory approach for loans subject to repayment deferrals amid the COVID-19 crisis.

    July 09, 2020 WebPage Regulatory News
    News

    BCBS and FSB Set Out Recommendations for Benchmark Transition

    BCBS and FSB published a report on supervisory issues associated with benchmark transition.

    July 09, 2020 WebPage Regulatory News
    News

    IAIS Sets Out Recommendations for Benchmark Transition for Insurers

    IAIS published a report on supervisory issues associated with benchmark transition from an insurance perspective.

    July 09, 2020 WebPage Regulatory News
    News

    ESMA Updates Reporting Manual on European Single Electronic Format

    ESMA updated the reporting manual on the European Single Electronic Format (ESEF).

    July 09, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 5469