It should be an ideal scenario for a Mexican home-buyer seeking a mortgage. Benchmark rates have dropped from around 19% to 7% in just 16 months. Inflation has fallen below 4.4%, hitting a 30-year low. And most of the country's banks are showing solid profits. Yet some banks are charging as much as 17.9% for a 15-year, fixed-rate mortgage, and buyers must put down up to 40% of the price. Not surprisingly, there are few takers.
What's going on? Lenders sure don't seem willing to lend. Partly it's a case of once burned, twice shy. The banks lost billions after the 1994 peso devaluation, when interest rates doubled overnight, to 100%, and thousands of borrowers defaulted on floating-rate mortgages, business loans, and credit-card debt. More important, it takes banks three to five years of legal battles to seize assets in Mexico, so they're pushing for new rules to let them collect on delinquent mortgages in six months or less. "For mortgage financing to really take off, it's urgent to make changes in the law," says Othon Ruíz, president of the Mexican Bankers' Assn. Until then, Banamex, the second-largest bank, says it won't start a big push in mortgages, though a few rivals have decided to go after this market.
Mortgages aren't the only loans banks are shunning. The biggest source of their loan business, corporate lending, is way off as large companies balk at the banks' big spreads and instead issue bonds on the local market to take advantage of the low rates. And banks are skittish about lending to small and midsize businesses. The result: Credit to the private sector has dropped 77.5% in real terms over the past seven years. In fact, of all countries given an investment-grade rating by credit agencies, Mexico has the lowest ratio of bank loans to gross domestic product. It's just 18%, vs. 60% in Chile and 72% in the U.S. Analysts estimate that fewer than 20,000 fixed-rate mortgages will be granted this year in Mexico--a pittance compared with the annual demand for more than 750,000 new homes. Most of those buyers must pay cash. "Without a healthy banking system that actually lends, it's very hard for any economy to grow," says Gustavo López, director for Latin American banks at Fitch Ratings in New York.
While it may not be good for the economy, the lack of lending doesn't appear to be hurting banks. They're making money on the boom in credit cards and by charging hefty new service charges on bank accounts. And if companies don't want to shoulder high rates on loans, the big banks will be glad to help them issue bonds--for a fee, of course.
By Geri Smith in Mexico City