Industry Forecast - Banking Sector: Modest 2018 Growth Capped By Rising Uncertainty - APR 2018

BMI View: Growth in the Mexican banking sector will accelerate modestly in 2018, in line with the broader economy as manufacturing and services pick up in the coming quarters. Growth will be capped by tight monetary policy and uncertainty surrounding trade talks and the July 2018 presidential election.

We expect total asset growth in Mexico's banking sector will accelerate modestly in 2018, in line with our view that growth in the Mexican economy as a whole will pick up following a weak H217 ( see ' Modest Uptick In Growth Amid Mounting Risks ' , January 9). Resiliency in the manufacturing and service sectors will support credit demand, and falling inflation will precipitate an uptick in consumer lending. While we still forecast an acceleration in total asset growth in 2018, growing uncertainty over US-Mexico trade relations and tighter monetary policy than we previously expected will present headwinds to lending activity. As a result, we have downgraded our forecast for loan growth in 2018 to 9.0%, from 9.5% previously, a deceleration from 10.0% in 2017.

Weak economic activity over H217 is unlikely to carry over deep into 2018, which will support overall loan growth in 2018. We have seen a deceleration in loan growth in recent months, with the pace of client loan growth falling from 14.6% y-o-y in November 2016, to 8.9% in November 2017. Lending to government entities will remain weak in 2018, amid efforts by the administration of President Enrique Pena Nieto to cut spending ( see ' Consolidation Set To Continue', January 8). Credit to government entities by commercial banks contracted by 2.9% y-o-y in November 2017. While falling inflation will support consumer appetite in the coming months, borrowing costs will remain high, capping client loan growth in 2018.

Gradual Accleration Ahead
Mexico - Banking Sector Assets
e/f = BMI estimate/forecast. Source: CNBV, BMI

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