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Mexico’s Financial Reforms Will Improve Credit & Boost Economic Growth

29 September, 2013

2013 has been a good year so far for Mexico,and things are only looking better as we round the corner and begin creeping toward 2014. For investors worldwide,one of the most talked-about issues happening in Mexico today involves an overhaul of the banking system,the creation of a universal credit bureau and a new tax plan that includes a variety of new social programs for Mexico,including nationwide pensions and unemployment insurance.

In addition,the Canadian Press reports that the plan encourages more lending,as well as more competition between banks,creating incentives for mid-sized companies to list shares on the stock market and modifying the nation’s existing bankruptcy laws. In addition,the plan demands regulators carry out an anti-monopoly investigation of the entire banking sector.

“The Mexican government projects an economic expansion of 3.5 percent in 2013 and President Enrique Peña Nieto is promoting a series of economic reforms in areas such as energy and taxation,which he says will tack an extra two percentage points annually on to the country’s GDP growth in future years,” writes the Christian Science Monitor. “The Association of Mexican Banks released a statement saying it supported the objectives of the financial reforms.”

In addition,CSM reports that Mexico’s banks have been deemed “stable and profitable” by a number of international organizations and that their policy of acting conservatively has produced large profits at the same time that banks around the world have been asking for bailout money. The legislation was also crafted to boost Mexico’s development banks and reduce the cost of credit and other services.

The Wall Street Journal reports that Mexico is also working towards creating its very own universal credit bureau,which will combine a variety of information from government lenders and other non-regulated entities to data that has already been gathered from commercial banks in an effort to increase access to financial services.

“An effective credit bureau with trustworthy information could lead to more adequate pricing for different risk profiles and ultimately reduce interest rates for the best payers,” reports the WSJ. “It could also help improve the payment culture,as entities and individuals would have a bigger incentive to maintain an adequate credit history if all lending institutions were required to use the credit bureau to grant loans.”

Alejandro Valenzuela,who is the CEO of Grupo Financiero Banorte,Mexico’s fourth-largest bank,also agrees that business is likely to expand for banks throughout Mexico this year,with Banorte expecting that its lending will increase by at least 15 percent in 2013.

Finally,in early September Peña Nieto announced what the Associated Press called “sweeping new social programs for Mexico,” including nationwide pensions and unemployment insurance. The new programs will largely be funded by removing tax loopholes that have been given to businesses in previous years.

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