Bank credit to private sector seen declining 3% in 2009 - Mexico

Credit granted by commercial banks to the private sector in Mexico is expected to decline by 3% in real terms this year due to the effects of the economic recession on the demand and supply of credit, according to Eduardo González, analyst at financial groupBanamex.

The credit contraction has deepened in recent months, with direct performing loans to the private sector decreasing by 4.2% in the year through July, following a 3.7% drop for the 12 months through June, according to the latest data from the central bank.

"We are close to seeing the worse in terms of annual credit contraction and conditions are set to start to see a recovery at the end of this year or early next," González told BNamericas.

Trends diverge by type of loan. Growth in loans to businesses, which slowed to 5.8% in the year through July from a 6.6% rise for the 12 months through June, is expected to decelerate further in coming months, affected by reduced demand from firms, according to the analyst.

"We should see almost flat growth in performing loans to businesses at the end of year compared to end-2008," said González.

Mortgage lending, by contrast, is expected to grow about 4% in 2009, being the only loan type that is expected to expand this year, helped by increased lending activity in coming months and the comparatively low base, said González.

Banks grew their performing mortgages by 4.2% in the year through July, slower than the 4.7% increase recorded for the 12 months ended June.

"Demand has slowed down as not everybody is confident enough about the stability of his or her job to take a long-term commitment like a mortgage. But, on the other hand, supply has also dropped," said Ricardo García, head of consumer banking at Scotiabank México, which controls the third biggest mortgage portfolio in the hands of a commercial bank.

Mexico is expected to lose 619,000 formal sector jobs this year, while seeing its economy shrink by 7.2%, according to the estimates of private sector economists surveyed by the central bank.