Mexico banks falling short of credit growth goal

* Credit grows 4 pct in first eight months of year

* Banks still aiming for 10 pct growth this year

* Analysts: stronger recovery needed to meet growth goal

By Tomas Sarmiento

MEXICO CITY, Oct 13 (BestGrowthStock) – Mexico’s banking sector is
struggling to achieve its loan growth goal this year as tighter
standards and anemic credit demand from consumers and industry
hold back new lending.

Bank credit grew by 3.9 percent to 2.045 trillion pesos
($165 billion) in the first eight months of 2010, according to
the National Banking and Securities Commission, leaving a long
way to go to meet a 10-percent expansion forecast the Mexican
Banking Association (ABM) made at the beginning of the year.

Mexico’s economy is expected to grow 4.5 percent in 2010 as
it emerges from its worst recession since the 1930s but the
expansion remains concentrated in the export sector.

In the broader economy domestic demand is still stunted and
the banking sector, although well-capitalized after the
downturn, is retrenching after losses on loans extended during
a consumer lending boom before the recession.

“The growth that was predicted by both the banks and the
government will be difficult to achieve,” Moody’s analyst David
Olivares said.

“The banks are more conservative, lending more selectively
and … at the same time there is weak demand for credit.”

The banking sector, dominated by international giants BBVA
(BBVA.MC: ), Santander (SAN.MC: ), Citigroup (C.N: ) and HSBC
(HSBA.L: ), saw its consumer loan portfolio, equal to nearly a
fifth of total lending, shrink by 0.12 percent in the year
through August, while business lending, which accounts for 46
percent of loans, grew only 0.5 percent.

Uncertainty over the state of the U.S. economy, which buys
80 percent of Mexico’s exports, is holding back businesses,
analysts say.

Gross fixed investment [MXGFI=ECI], a measure of capital
spending, rose by 0.8 percent in July from a year ago, far
short of analysts’ expectation. Consumer confidence
[MXCONC=ECI] has recovered but remains below pre-crisis highs.

“The recovery has been slower than expected at the start of
the year, and credit demand has also been slower,” said
Angelica Bala of Standard & Poor’s.

Despite the slow start to the year, Ignacio Deschamps, the
head of the ABM, said last week he is still optimistic that
lending growth can hit 10 percent this year as borrowing should
accelerate as the recovery takes hold.
($1 = 12.425 pesos)
(Writing by Robert Campbell; Editing by Padraic Cassidy)

Mexico banks falling short of credit growth goal