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Latin America Investment News on Viva Tropical

How Mexico’s Banks Are Fueling Its Growing Middle Class

Article Summary:

Mexican banks full of disposable cash are targeting the middle class and women as a way to cash in on the country’s surging economy.

Photo Credit: Bloomberg

Original Article Text From Bloomberg:

Mexico’s Banks Target Wealthy in Booming Home Market: Mortgages

Mexican banks flush with cash are targeting wealthier clients and women as a way to cash in on the country’s surging mortgage market.

From Grupo Financiero Banorte SAB’s program that focuses on lending to women to Grupo Financiero Santander Mexico SAB’s (SANMEXB) mortgages for homes worth at least 1.7 million pesos ($131,000), the nation’s biggest lenders are tailoring products to grab their share of the 14.6 million additional homes the nation is expected to add between 2010 and 2040.

Mexico, Latin America’s second-biggest economy, is poised to grow faster than Brazil, the region’s largest, for a second straight year, helping the expanding middle class buy homes. Even as some banks’ rates excluding fees have fallen to 10 percent this year from near 13 percent in 2009, government data signals slower expansion in their mortgage holdings, as state- affiliated lender Infonavit controls 75 percent of home loans.

“The population of middle and high incomes has gotten stronger in recent years,” Eduardo Torres, an economist tracking the real-estate industry for BBVA Bancomer, as the local unit of Banco Bilbao Vizcaya Argentaria SA (BBVA) is known, said by phone from Mexico City. “Banks haven’t developed sufficient products for this population.”

Mexican home loans grew by 10.1 percent in the 12 months through September to 443 billion pesos, according to the banking and securities regulator. In Brazil, outstanding housing loans jumped 39 percent to 256.4 billion reais ($122.1 billion) over the same period.

Credit Cards
The growth in the Mexican mortgage market has been outpaced by overall bank lending in the country, which expanded 12.5 percent in the 12 months through September. Credit card debt grew at 16.3 percent, according to the regulator known as CNBV.

Infonavit, the nation’s biggest housing lender, is mostly focused on giving credit to lower-income groups often left out of the financial system, said Alfredo Rabell Manon, head of credit at the state-affiliated organization. While founded in 1972 to give workers access to home financing, it also caters to wealthier Mexicans by complementing larger mortgages with smaller Infonavit loans.

The lender has given 64 percent of its loans this year to borrowers who earn less than 7,579 pesos per month, according to the Mexico City-based organization. Annual interest rates charged by Infonavit range from 4 percent to 10 percent, depending on a borrower’s salary.

Affluent Borrowers
Rabell Manon said about 30 percent of the economically active population is served by government-affiliated organizations such as Infonavit, providing a “growth market” for commercial banks.

“The market is very big and little utilized,” he said in a telephone interview from Mexico City. Increased competition from banks hasn’t cut into Infonavit’s portfolio, as the biggest competition is in lending to the wealthier borrowers, he said.

The Hipoteca Accesible Mujer Banorte program, which started earlier this year, is the first in the country to cater specifically to women, according to Cristina Porras, director of mortgage sales at Banorte. It offers payment flexibility during major life events, such as births, or illnesses, she said.

Banorte provides female clients extra services with their mortgages including a program to increase affordability for television installations and plumbing repairs. It also offers discounts on four monthly payments if the client gets married, graduates from college, gives birth or adopts a child. The interest rate is the same as similar Banorte mortgages.

The program “has been a great success” and other targeted products will “surely be coming to market” in the coming months, Porras said by phone from Mexico City. The bank also sees opportunities in boosting mortgage lending to wealthier customers, she said.

Resilient Market
Mortgages have been a “resilient market” for banks because it offers them the opportunity to expand into more profitable sectors by “cross-selling” other products, said Felipe Carvallo, an analyst with Moody’s Investors Service.

He said that offering mortgages with lower interest rates allows banks to sell those borrowers consumer loans and insurance.

Santander’s Mexican unit saw mortgages as one of 2012’s biggest growth opportunities, Chief Executive Officer Marcos Martinez said in a March interview in Mexico City.

Home loans represent about 20 percent of the bank’s total loan portfolio, Jorge Jauregui Montero, executive director of mortgages at Santander’s Mexican unit, said in an e-mailed statement. The bank offers higher-income mortgage holders additional benefits such as a checking account with premium customer service, he said.

‘Attractive Margins’
While banks including Santander and Banorte have boosted their focus on mortgage lending by targeting specific sectors to capitalize on “attractive margins,” other banks are unlikely to follow suit as alternative areas offer more growth, according to Martin Lara, head equity analyst with Corp. Actinver SAB in Mexico City.

The total amount of consumer loans outstanding jumped 23 percent in the 12 months through September to 568 billion pesos from 462 billion pesos a year earlier, according to data from the CNBV.

“Each bank has its own strategy,” Lara said by phone. “Everything is growing.”

Seventeen percent of Mexico’s population joined the middle class between 2000 and 2010, earning between $10 and $50 per day, according to the World Bank. Bank of Nova Scotia plans to take advantage of improved credit quality and a growing middle class to expand lending in Mexico, Troy Wright, the head of the bank’s local unit, said in an interview last month.

BBVA Bancomer expects mortgage lending in the country to grow at about 10 percent in nominal terms in 2013, according to Torres.

“Significant growth is around the corner as products are developed that are just being conceived or designed,” he said. “In particular in terms of what has to do with housing, the perspective is that there’s going to be a lot of growth.”

Link to Original Article:

From Bloomberg

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