September 26, 2002
By ELISABETH MALKIN
EXICO CITY - When Ad·n LÛpez and Jorge Acevedo took their $20,000 in savings and set up their own e-business and Web design company in June, they hired four employees and signed up their first clients.
But now they need an additional $10,000 to $20,000 to keep the business growing, and they are finding that there is no loan money available for start-ups. "The banks all want to see financial statements before they lend," Mr. Acevedo, 28, said recently as he and his partner wandered around booths set up by banks at a government-sponsored small-business fair here. "And even if they do give you a loan, the interest rates are too high" - at least 25 percent.
Entrepreneurs like Mr. LÛpez and Mr. Acevedo are not the only would-be borrowers spurned by the Mexican banks. More established small businesses look instead to suppliers to provide financing. And home buyers do not even think of applying for a mortgage unless they have a 35 percent down payment saved.
Ten years after Mexico privatized its banks to great fanfare, and seven years after a bank crisis that cost taxpayers $100 billion, retail bank credit is almost stagnant.
In this decade, foreign banks, including Citigroup, HSBC Holdings and Spain's two biggest banks, Banco Bilbao Vizcaya Argentaria and Banco Santander Central Hispano, have been buying up Mexican banks and restoring them to health. With each purchase, bankers have confidently predicted the recovery of retail lending.
But the numbers tell another story. The sum of all outstanding bank loans to the private sector is now 6 percent lower than it was at the beginning of 2000, according to figures from the country's central bank.
The bankers say they are willing to lend, and point to a surge of new credit cards and car loans. But a piece of the puzzle that would reactivate mortgage and business loans, providing a much more important push for the economy, is still missing: It is virtually impossible to foreclose on a defaulted loan in Mexico, and that, bankers say, makes it too risky to lend.
Despite legal reforms that were supposed to make it easier for banks to repossess collateral, courts are not holding up their end. "It shouldn't take eight years to recover the guarantee on a mortgage," said Ignacio Deschamps, director of commercial products for Mexico's largest bank, Grupo Financiero BBVA Bancomer, which is controlled by Banco Bilbao Vizcaya Argentaria.
A bill is now in Congress that would speed up judicial procedures. "We've been in contact with key legislators to explain its advantages, which would be an increased volume of credit and cheaper credit," said OthÛn Ruiz Montemayor, president of the Mexican Bankers Association. Mr. Ruiz said he hoped the bill would come to a vote in October or November. If it goes through, he said, "2003 will be the year we see mortgages being offered at fixed rates."
Such confidence has been heard before. Bankers said that lower interest rates and legal reforms would encourage lending. Though the rates and reforms came, the lending did not.
If the banks do get the conditions they need to lend this time, there will be a lot of catching up to do.
In December 2000, according to Moody's Investors Service, the level of lending by banks in Mexico to the private sector was 19.7 percent of gross domestic product, way behind that in the United States (71.5 percent), Chile (64.4 percent) and Brazil (34.2 percent), though it did beat Venezuela (13.4 percent). And the comparison has changed little since then, said Philip Guarco, senior credit officer at Moody's in New York.
"A bank isn't supposed to just take deposits and buy government paper and charge high fees," Mr. Guarco said. "Banks are really providers of dynamism to the economy. We would say that it is just not a successful banking system for the country."
With Mexico's recovery still anemic, largely because of the slowdown in the United States, which buys almost 90 percent of Mexico's exports, the economy needs the lift that would come from more bank credit for mortgages and small business.
Home building ó a big housing shortage in Mexico means that most mortgages go toward new construction ó increases employment and helps sales for the largely homegrown companies that make everything from light switches to concrete.
Small business accounts for two-thirds of all employment in Mexico, and without credit, many companies cannot invest, expand and hire new workers.
Many economists have marveled at the fact that the economy manages to function in Mexico even though lending has been frozen for so long.
"There isn't really a banking system, and businesses just carry on," said Celso Garrido, an economist at the Metropolitan Autonomous University in Mexico City. "That doesn't happen anywhere in the world."
Members of Mexico's middle class, who own the small businesses and apply for the bank mortgages, have been hit hardest. Frenzied bank lending in the early 1990's led to the 1995 banking crisis when interest rates soared to more than 100 percent after the peso was devalued and many borrowers stopped repaying.
A lot of those middle-class borrowers are finally back on their feet, and benchmark interest rates have fallen to about 8 percent, their lowest level in decades ó conditions that should have led to a resumption of bank credit.
So far, the foreign banks here, which now control 80 percent of all Mexico's banking assets, have poured their retail banking expertise into the marketing of credit cards and auto loans. BBVA Bancomer, for example, expects to add 600,000 cardholders to its existing portfolio of 2.5 million this year. The bank is also finding heavy demand for its personal loans of up to three months' salary.
This unsecured lending is growing because the banks just factor in the number of loans they expect to fall delinquent and charge everybody accordingly ó about 25 percent for customers with a good credit record.
Since the banking crisis, however, a new class of finance companies operating outside the banks have managed to figure out a way around the guarantee problem for secured loans, and are lending where the banks are not.
These sofoles, as they are called, have been crucial to channeling about $5 billion in government mortgages meant for the working class. With a delinquency rate below 0.5 percent, they show that a little legwork pays off.
Sometimes, they say, it is as simple as placing a payment booth in a housing development to make it easy for mortgage holders to pay ó or renegotiate if times are tough.
http://www.nytimes.com/2002/09/26/business/worldbusiness/26PESO.html