Honda Lures Banks to Mexico to Fund Sales to U.S.: Japan Credit

Investments by Honda Motor Co. and Nissan Motor Co. that look set to make Mexico the biggest car exporter to the U.S. are giving Japanese banks a chance to escape from the world’s lowest yields.

The median interest rate charged by 34 banks for commercial loans in peso in Mexico was 8.1 percent in January, according to data from the nation’s securities and banking regulator, known as CNBV. The average interest rate for commercial loans in Japan is 0.887 percent, seven basis points more than a record low reached in August in central bank data going back 20 years.

Honda Chief Executive Officer Takanobu Ito opened an $800 million factory in Celaya, Mexico last month and similar strategies by rivals are boosting firms including Mitsubishi UFJ Financial Group Inc. Cross-border and foreign currency lending by Japanese banks in Mexico rose 34 percent to a record $17.6 billion on Sept. 30, more than in Malaysia and the Philippines combined, Bank of International Settlements data show.

“We want to charge a lot more for Mexico-oriented loans than for those at home,” said Fuminori Matsushita, the general manager for international business promotion at Shizuoka Bank Ltd. (8355), located in an area southwest of Tokyo that’s the nation’s second-largest supplier of auto parts. “How much more we can charge to reflect the country risk for Mexico depends on individual negotiations.”

Photographer: Daniel Acker/Bloomberg

The 2015 Honda Motor Co. Acura TLX vehicle is unveiled during the 2014 North American International Auto Show in Detroit, Michigan, on Jan. 14, 2014. Close

The 2015 Honda Motor Co. Acura TLX vehicle is unveiled during the 2014 North American... Read More

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Photographer: Daniel Acker/Bloomberg

The 2015 Honda Motor Co. Acura TLX vehicle is unveiled during the 2014 North American International Auto Show in Detroit, Michigan, on Jan. 14, 2014.

Quadrupling Exports

Mexican auto exports to the U.S. more than quadrupled from 1993 to 2013, buoyed by lower tariffs under the North American Free Trade Agreement. Its tally will reach 1.9 million in 2015, eclipsing Canada and Japan, consultant IHS Automotive estimated.

Japanese carmakers are riding the Mexican boom.

Nissan, Japan’s second-largest automaker, broke ground on a $2 billion plant in November in Aguascalientes, while Mazda Motor Corp., Japan’s most export-dependent car company, inaugurated in February a $770 million facility in Salamanca, where Toyota Motor Corp. (7203) contracted to build 50,000 cars each year. Honda’s Celaya plant will make Fit hatchbacks.

The number of Japanese-affiliated companies in Mexico increased to 679 last year from 464 two years earlier as automakers embarked on new plant projects, according to data from the Mexican embassy in Japan, distributed at a Tokyo seminar last month. The figure will probably increase to about 800 by 2015, said Aaron Vera, a commercial officer of the embassy at the event.

Improve Margins

“There’s a chance to improve margins somewhat with loans to support overseas expansion of domestic companies,” Mana Nakazora, the chief credit analyst at BNP Paribas SA in Tokyo, said in a telephone interview. For smaller regional banks, lending in Latin America is an opportunity to diversify their overseas investments, she said.

Bank of Tokyo-Mitsubishi UFJ Ltd., Mitsubishi UFJ’s main lending unit, charged an average of 4.56 percent for peso commercial lending in Mexico, the lowest of 34 banks, according to data from the the nation’s financial regulator.

The BOJ’s unprecedented buying of more than 7 trillion yen ($69 billion) of bonds a month is eroding profits on lending. Banks’ average net interest margin was 1.28 percent, the least in the Asia-Pacific, according to data compiled by Bloomberg. Mitsubishi UFJ’s was 0.93 percent.

Japan’s benchmark 10-year bond yield has dropped 21 basis points since the start of 2013 to 0.62 percent. That’s the lowest in the world and compares with a 6.26 percent yield in Mexico, according to data compiled by Bloomberg. One basis point is 0.01 percentage point.

The yen has risen 3.6 percent this year to 101.64 per dollar as of 4:26 p.m. in Tokyo, after tumbling 18 percent in 2013 in the wake of the BOJ’s easing measures.

Denso Investment

Denso Corp., Japan’s largest car parts supplier, said in July it would invest an additional $51 million to expand operations at a plant in Guanajuato, Mexico, to make alternators for North American customers. Construction on the plant begun last year with a $57 million investment, to add to two existing facilities in the country.

Bank of Tokyo-Mitsubishi increased lending in Mexico by 56 percent to $2.37 billion as Sept. 30 from a year earlier, according to its parent’s earnings data released last month.

Japan Bank for International Cooperation signed a loan agreement yesterday with Hiruta Mexico SA, a unit of transmission and chassis parts maker Hiruta Kogyo Co. to fund the building of a plant in Guanajuato, according to a statement from the state-owned lender. JBIC together with Hiroshima Bank Ltd. are providing $38 million for the project.

Moody’s Investors Service awarded Mexico its highest-ever debt rating on Feb. 5, raising it one level to A3. It cited President Enrique Pena Nieto’s constitutional changes to open the energy industry to more foreign investment and broaden the tax revenue base. Japan is rated Aa3 by Moody’s, three levels higher and the company’s fourth-highest investment grade.

“There aren’t many cards Japanese banks can play to boost profits with little prospect of domestic lending increasing that much,” said BNP’s Nakazora. “Increasing lending overseas to capture higher returns is one way Japanese banks can survive.”

To contact the reporters on this story: Finbarr Flynn in Tokyo at fflynn3@bloomberg.net; Emi Urabe in Tokyo at eurabe@bloomberg.net; Shingo Kawamoto in Tokyo at skawamoto2@bloomberg.net

To contact the editors responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net; Sandy Hendry at shendry@bloomberg.net Ken McCallum, Pavel Alpeyev

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