Today, Banxico published its banking credit report for July 2021
Banking credit declined 9.7% y/y in real terms, better than our -10.8% forecast and the -11.8% of the previous month. Although figures are still partly skewed by a difficult base effect, we believe that the shock to economic activity remains as the main factor behind the contraction
Corporate credit posted the largest contraction at -14.7%, with the effect mentioned above most notable here. Mortgages came in at +3.1% and consumer loans improved for a fifth in month in a row, to -5.8%
Non-performing loans (NPLs) fell to 2.7% of the total portfolio. Consumer loans and mortgages corrected lower, with corporates unchanged
We expect banking credit to maintain a recovery trend in coming months. Nevertheless, we do not rule out some volatility in the figures given some risks for activity
Banking credit extends its recovery. Commercial banking credit to the private non-financial sector contracted 9.7% y/y in real terms in the seventh month of the year (see Chart 1). This came above our expectations at -10.8%, as well as the -11.8% of the previous month. Although figures remain skewed by a challenging base effect, persistently low rates suggest that figures remain affected by the shock to economic activity and high levels of uncertainty. In addition, the effect of annual inflation was quite modest in this occasion, decreasing 7bps to 5.81%. Although annual figures complicate performance evaluation, we believe some dynamism is being recovered, albeit at a slower rate relative to other economic indicators. In this context, corporate loans fell 14.7% y/y in real terms, the most skewed by the base effect. However, it should keep fading out in coming months. Looking at the breakdown, only 2 out of 13 sectors worsened relative to June (see Table 1). These were mining (-32.4% y/y from -29.5%) and ‘not sectorized’ (2.7% from 2.9%). On the contrary, the largest increases were in mass media (-18.5% from -30.0%), lodging (-10.2% from -14.3%) and commerce (-16.4% from -19.4%).
Mortgages improved at the margin, to 3.1% from 2.9% in June. Inside, low-income housing credit was unchanged at -18.5%, albeit with the residential sector better at 4.6%. Meanwhile, consumer credit improved to -5.8% from -8.5%. Details were favorable (Chart 2), with an uptick in practically all sectors, except for durable goods (-3.4%), which were the only ones deteriorating. With improvements we noted credit cards (-7.0%), payroll loans (-2.9%), personal (-13.3%), and ‘others’ (11.7%). We consider these signals to be positive in a context in which the epidemiological outlook worsened, with some restrictions back into place. Nevertheless, the result is consistent with strong gains in the employment report for the same period, suggesting that the recovery, at least in this front, might continue.
Non-performing loans decrease 10bps to 2.7% of the portfolio. NPLs for consumer loans fell to 3.6% from 3.9% (Chart 3), adding six months lower. Corporates were unchanged at 2.1%, with mortgages lower by 10bps to 3.4%. We believe figures could continue improving due to: (1) A stabilization in credit trends, allowing for a better ratio between outstanding loans and those in trouble (non-performing), especially for consumption; and (2) regulators’ actions –such as those by the National Banking and Securities Commission (CNBV in Spanish), MoF and Banxico– and banks to improve conditions for payments due and other accounting procedures to bolster the system’s financial position.
We expect banking credit to maintain a recovery trend in coming months. As detailed in previous publications, we expect credit to take an upward trend in the remainder of the year after reaching a low point in April. While arithmetic effects are overall positive, we remain wary about the impact that inflation can have, considering that it remains high and will likely trend upwards towards the end of the year, with our forecast at 6.1%. In turn, this could lead to lower dynamism. However, and ultimately more important, we will remain focused on underlying factors for performance, which seemed to be improving on the back of a mostly broad economic recovery. Nevertheless, we remain concerned about the risk associated with the increase in COVID-19 cases in August, possibly impacting some of the sectors most exposed to social interactions. On corporates, given an extension of supply disruptions, businesses could decide to delay some CAPEX, also skewed by some idiosyncratic factors. Nevertheless, strength in demand, especially from abroad, along prevailing tensions in the US-China relation, could benefit our country. Lastly, we will keep analyzing mortgages, as shifts towards home-office schemes and other disruptions tied to the pandemic continue. The health of the financial system seems to be consolidating further, especially with NPLs normalizing and because of timely actions by both regulators and other market participants.