Mexico | Evolution of pandemic will continue to pose challenges for the financial system

Summary

The financial system has shown strength in the face of the adverse shocks generated by the pandemic and has maintained high levels of capital and ample liquidity, however, there is still uncertainty about the magnitude of the effects that this may have on the credit portfolio of the more vulnerable sectors.

Key points

• Key points:
• From now on, it will be of particular importance to follow the portfolio quality indicators of the different intermediaries, both because of the consequences that higher delinquencies could have for the future access of households to credit, and because of the risks that financial institutions could face
• It is necessary to provide more confidence to investors to attract capital flows. This is based on a solid macroeconomic framework that provides certainty and facilitates access to credit for the different sectors of the economy
• A more active participation of development banks would be desirable to preserve and reactivate credit activity, since it can constitute a countercyclical tool that mitigates the credit effects of the economic contraction
• As a result of the pandemic, institutions such as Investment Funds and Brokerage Houses increased their liquid positions, while Afores increased their exposure to international stock markets
• Their stress exercises indicate that, in the aggregate, the bank complies with an adequate level of capitalization and liquidity. However, in certain simulated trajectories, some institutions would not maintain a level of capitalization above the regulatory minimums

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