The Mexican economy has expanded slightly in the first quarter of 2014, in line with the growth rates at the end of 2013. Public spending indicators and exports are showing the greatest strength. The inflation rate has returned to within the Central Bank of Mexico’s (Banxico) target range, after absorbing the temporary effects of tax changes. These factors have allowed Banxico to maintain the benchmark interest rate unchanged at 3.5%.
The country’s financial system maintains high solvency levels, with a total capital ratio at 15.2% as of January 2014. It also has adequate liquidity and robust profitability, strongly supported by financial revenue. Loans to the private sector are slowing their annual growth rate, which according to the latest available information as of February 2014 is 9.5% (12.3% a year ago) 1. The NPA ratio has increased slightly, but from a low level.
Lastly, all the comments below on rates of change will be expressed at a constant exchange rate, unless expressly stated otherwise. The year-on-year depreciation of the Mexican peso against the euro, both in terms of final and average exchange rates, has a negative impact on the Group’s financial statements. Over the quarter, the effect is slightly negative in the income statement and practically neutral in the balance sheet and activity.
(1) Source: CNBV. Banks with Sofomes without subsidiaries through February 2014.