Mexico
Highlights
- Growth of lending.
- Good performance of customer funds.
- Costs continue to increase below gross income, and double-digit year-on-year growth in net attributable profit.
- Stable asset quality indicators.
Business activity (1)
(Year-on-year change at constant exchange rate. Data as of 30-06-2017)
(1) Excluding repos.
Net interest income/ATA
(Percentage. Constant exchange rate)
Operating income
(Million euros at constant exchange rate)
Net attributable profit
(Million euros at constant exchange rate)
(1) At current exchange rate: +9.3%.
(1) At current exchange rate: +11.6%.
Breakdown of performing loans under management (1)
(30-06-2017)
Breakdown of customer funds under management (1)
(30-06-2017)
(1) Excluding repos.
(1) Excluding repos.
Macro and industry trends
According to the latest information available from the National Institute of Statistics and Geography, year-on-year GDP growth in Mexico was 2.8% in the first quarter of 2017, driven by internal consumption, which could reflect purchase decisions being brought forward in the face of a pick-up in inflation expectations, and more dynamic export growth. On the basis of these results, Banxico has slightly revised up (by 0.2 percentage points) its forecast for growth in 2017, to a range of between 1.5% and 2.5%.
As regards inflation, following the increase registered in the first quarter of the year, there are now signs emerging to suggest that it may be leveling out. This is partly due to the exchange rate gains in recent months (mainly supported by the perception that any renegotiation of NAFTA will maintain the core elements of the existing trade relationship with the United States). Given this situation, Banxico could be nearing the end of its cycle of interest rate hikes. The main monetary policy rate looks set to remain around current levels of 7% until the end of the year.
As has been the case in previous years, the Mexican financial system retains very comfortable levels of capital adequacy and asset quality. According to the latest data released by the National Securities Banking Commission (CNBV), the capital ratio stood at 15.3% at the end of April, while the NPL ratio closed May at 2.19% with the NPL coverage ratio exceeding 154%. Nominal year-on-year growth in the loan portfolio in May was similar to growth rates registered during the previous year (up 11.6%). All portfolios contributed to this good performance. Traditional bank deposits (demand and time) rose 11.3% year-on-year in nominal terms, with both categories performing similarly.
Activity
All rates of change given below, for both activity and earnings, will be given at constant exchange rate, unless expressly stated otherwise. These rates, together with changes at current exchange rate, can be seen in the attached tables of financial statements and relevant business indicators.
BBVA's loan book in Mexico (performing loans under management) increased by 2.4% relative to December 2016 and 2.1% in the second quarter of the year, which is an improvement over the behavior observed during the first three months of the year. As a result, BBVA Bancomer maintains its leadership position, with a market share for its performing portfolio of 23.4% (according to the latest local information from the CNBV to the close of May 2017).
The weight of retail and wholesale portfolios remained practically unchanged at the end of June relative to published data through March 31 (51% and 49% respectively). Wholesale lending was up 1.1% on December and 2.4% over the quarter. Business loans continue to perform particularly well, including loans to corporate clients and mid-sized companies, which have risen by 2.6% so far this year, excluding developer loans. Meanwhile lending to housing developers remains on a positive trend since last year, with an increase of 1.8% in the first six months of the year.
The retail portfolio has registered growth of 3.6% in the first half of the year and 1.7% over the second quarter. This portfolio continues to be buoyed mainly by lending to SMEs and for auto finance, which rose 9.3% and 7.8% respectively over the last six months. Meanwhile, credit cards declined by 1.5% over the same period, though new production during the first six months of the year rose by 9.8% year-on-year. The mortgage portfolio continues to show the effect of maturities on the overall amount, which increased by 3.6% over the last six months.
These developments in lending have been accompanied by asset quality indicators which remained stable relative March 31, 2017 and December 31, 2016. Accordingly, the NPL coverage ratios stood at 2.3% and 126% respectively at the end of June.
Total customer funds (customer deposits under management, mutual funds and other off-balance sheet funds) posted half-year growth of 3.7% (up 2.8% in the second quarter of the year). All products continued to perform positively: current and savings accounts rose 3.6% year-on-year (up 1.7% on the previous quarter), and time deposits grew by 3.4% (up 3.7% over the quarter). BBVA in Mexico has a profitable funding mix with low-cost items continuing to account for over 81% of total customer deposits under management. Mutual funds registered growth of 3.5% over the half-year and 3.1% over the quarter.
Results
The highlights of the income statement for Mexico for the first half of 2017 are summarized below:
- Positive performance of net interest income, with a year-on-year increase of 9.2%, driven primarily by greater activity volumes and the favorable development of customer spreads.
- Good performance of net fees and commissions, with growth of 11.7% over the last twelve months. These remain strongly influenced by an increased volume of transactions with credit card customers and fees from online and investment banking.
- Strong growth in NTI (up 25.3% year-on-year) thanks to a very good performance from the Global Markets unit in the first part of the year.
- In the other income/expenses line (up 24.3% year-on-year), earnings from insurance activity performed strongly, partly due to the change introduced at the end of 2016 relating to the method for calculating mathematical reserves.
- Operating expenses continued to grow at a controlled pace (up 4.3% year-on-year) and below the area's gross income growth of 10.5%. As a result, the efficiency ratio stood at 34.2% in the first half of 2017.
- Impairment losses on financial assets grew by 10.0% year-on-year, slightly more than the increase in the loan-book over the same period (up 8.8%). The above puts the area's cumulative cost of risk at 3.35%.
Overall, BBVA in Mexico posted a net attributable profit for the first six months of the year of €1,080m, a year-on-year increase of 16.4%.
Financial statements and relevant business indicators (Million euros and percentage)
| Income statement | 1H17 | ∆% | ∆%(1) | 1H16 |
|---|---|---|---|---|
| Net interest income | 2,676 | 4.7 | 9.2 | 2,556 |
| Net fees and commissions | 595 | 7.1 | 11.7 | 556 |
| Net trading income | 117 | 20.1 | 25.3 | 97 |
| Other income/expenses | 120 | 19.2 | 24.3 | 101 |
| Gross income | 3,507 | 6.0 | 10.5 | 3,309 |
| Operating expenses | (1,198) | 0.1 | 4.3 | (1,198) |
| Personnel expenses | (520) | 0.2 | 4.5 | (519) |
| Other administrative expenses | (549) | (1.5) | 2.7 | (558) |
| Depreciation | (129) | 6.7 | 11.2 | (121) |
| Operating income | 2,309 | 9.3 | 14.0 | 2,112 |
| Impairment on financial assets (net) | (831) | 5.5 | 10.0 | (788) |
| Provisions (net) and other gains (losses) | (8) | (65.4) | (63.9) | (24) |
| Profit/(loss) before tax | 1,469 | 13.1 | 17.9 | 1,300 |
| Income tax | (389) | 17.4 | 22.5 | (331) |
| Profit/(loss) for the year | 1,081 | 11.6 | 16.4 | 968 |
| Non-controlling interests | (0) | (58.6) | (56.8) | (0) |
| Net attributable profit | 1,080 | 11.6 | 16.4 | 968 |
| Balance sheets | 30-06-17 | ∆% | ∆%(1) | 31-12-16 |
|---|---|---|---|---|
| Cash. cash balances at central banks and other demand deposits | 6,406 | 23.4 | 16.7 | 5,192 |
| Financial assets | 31,958 | 2.2 | (3.4) | 31,273 |
| Loans and receivables | 53,904 | 12.3 | 6.2 | 47,997 |
| of which loans and advances to customers | 50,425 | 8.5 | 2.6 | 46,474 |
| Tangible assets | 2,017 | 3.1 | (2.6) | 1,957 |
| Other assets | 4,948 | (28.3) | (32.2) | 6,900 |
| Total assets/liabilities and equity | 99,233 | 6.3 | 0.5 | 93,318 |
| Financial liabilities held for trading and designated at fair value through profit or loss | 10,390 | 4.3 | (1.4) | 9,961 |
| Deposits from central banks and credit institutions | 6,628 | 11.9 | 5.8 | 5,923 |
| Deposits from customers | 54,826 | 8.4 | 2.5 | 50,571 |
| Debt certificates | 8,183 | (5.0) | (10.2) | 8,611 |
| Other liabilities | 15,261 | 9.5 | 3.5 | 13,941 |
| Economic capital allocated | 3,945 | (8.5) | (13.5) | 4,311 |
| Relevant business indicators | 30-06-17 | ∆% | ∆%(1) | 31-12-16 |
|---|---|---|---|---|
| Loans and advances to customers (gross) (2) | 51,949 | 8.5 | 2.6 | 47,865 |
| Non-performing loans and guarantees given | 1,270 | 10.2 | 4.2 | 1,152 |
| Customer deposits under management (2) | 45,980 | 9.5 | 3.5 | 41,989 |
| Off-balance sheet funds (3) | 21,040 | 10.1 | 4.1 | 19,111 |
| Risk-weighted assets | 48,547 | 1.4 | (4.1) | 47,863 |
| Efficiency ratio (%) | 34.2 | 35.4 | ||
| NPL ratio (%) | 2.3 | 2.3 | ||
| NPL coverage ratio (%) | 126 | 127 | ||
| Cost of risk (%) | 3.35 | 3.40 |
(1) Figures at constant exchange rate.
(2) Excluding repos.
(3) Includes mutual funds, pension funds and other off-balance sheet funds.