This post is also available in: Português Español

The head of Mexico’s banking association said Wednesday he expects loan growth to top 10 percent this year as the country pulls out of its worst recession in over a decade. Mortgages and loans to small businesses are poised to grow more than 15 and 20 percent respectively, while consumer lending will likely lag behind, said Ignacio Deschamps, CEO of BBVA Bancomer and president of the Association of Mexican Banks.

“We believe that it’s ready to pick up and grow at double digits, especially housing and small and medium enterprises,” Deschamps told the Advisor following a speech at The George Washington University.

Mexico’s National Banking and Securities Commission is predicting loan growth of between 8 percent and 12 percent this year. After growing at rates of more than of 20 percent in previous years, bank lending increased just 4 percent in 2009 as the global economic crisis rippled through the country’s economy and shrank GDP by 6.5 percent.

While the United States spent billions of dollars bailing out financial institutions, Mexico’s banks proved resilient in the face of crisis, especially remarkable in a country that has suffered its fair share of financial meltdowns. “Mexico did not implode and this is very important,” said Santiago Levy, a Mexican economist at the Inter-American Development Bank who commented on Deschamps’ presentation. Mexico “did its homework” by improving macroeconomic management and beefing up financial sector regulation after the Tequila crisis of 1994, and this time banks served as a buffer rather than an aggravating factor in the crisis, Levy said.

The low penetration of financial services in Mexico compared to countries such as Brazil and Chile means that banks need to expand credit at rates as much as five times higher than GDP growth in order to catch up, according to Deschamps. That makes “banking the unbanked” the primary growth strategy for banks like BBVA Bancomer, the country’s largest retail outlet. “The numbers we’ve shown, going from 28 million [in 2005] to 49 million Mexicans that have financial services today shows you that is a huge opportunity and we will continue at least for the next decade growing at a fast rate,” Deschamps told the Advisor.

Levy said efforts to expand credit to individuals and businesses face a formidable challenge in navigating Mexico’s informal sector, which employs more than 60 percent of the country’s workers. According to Levy, less than 1 million of the 3.7 million businesses operating in Mexico are legal entities registered with tax authorities. “You’re not going to have the kind of bank penetration that Ignacio wants to have in that context,” because banks can’t easily offer credit to informal enterprises, Levy said.

But Deschamps argued that Mexican banks still have plenty of room to expand credit before running into such barriers. “We haven’t reached those restrictions yet. We are coming from a small base, so we will reach probably some restrictions [eventually], but today there are many towns that need banking services and many segments of the population, either individuals or companies, that will demand services,” he said. “And that will be there strongly for the next few years, a decade, I think.”

Originally published in the Dialogue’s daily Latin America Advisor.