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Bancomer Leads Jump in Bank Bonds on Loan Growth: Mexico Credit

A pedestrian walks by a Banco Santander bank branch in Mexico City. Photographer: Susana Gonzalez/Bloomberg
A pedestrian walks by a Banco Santander bank branch in Mexico City. Photographer: Susana Gonzalez/Bloomberg

March 29 (Bloomberg) -- Banks in Mexico are increasing peso bond sales at the fastest pace in nine years to finance loans as the U.S. recovery bolsters growth in Latin America’s second-largest economy.

Banco Bilbao Vizcaya Argentaria SA and Banco Santander SA helped boost lenders’ debt offerings 335 percent to 70.9 billion pesos ($5.9 billion) in the past year, the biggest 12-month advance since the period ending in March 2002, data compiled by Bloomberg show. The local unit of Santander, Mexico’s third-largest bank by outstanding loans, sold 1.7 billion pesos of bonds due in 2021 on March 16 to yield 8.91 percent, or 135 basis points above similar-maturity government debt.

“The underlying element here is that we expect a sizable expansion of credit in Mexico,” Ernesto Gallardo, deputy chief financial officer at BBVA Bancomer SA, the nation’s largest bank, said in a telephone interview in Mexico City. Mexico’s lending may expand this year as much as 14 percent, he said.

Peso sales are growing as economists predict policy makers will increase interest rates for the first time since 2008 as soon as July. The cost for Mexican companies to borrow in dollars approached the highest level in eight months.

While consumer credit is expanding at half the pace of Brazil, the 8 percent annual growth rate in January reflects Mexico’s recovery from its worst recession since 1991, buoyed by rising U.S. demand.

Mexico’s gross domestic product expanded 5.5 percent in 2010, the fastest pace in 10 years, and may grow 4 percent to 5 percent this year, Finance Minister Ernesto Cordero said last week. The expansion compares with 7.5 percent growth in Brazil in 2010 and a 9.1 percent increase in GDP in Argentina.

Consumer Lending

Outstanding Mexican consumer loans have risen every month since May 2010, when they reached an almost four-year low, according to Mexico’s Banking and Securities Commission. The loans totaled 384.9 billion pesos in January from a year earlier, up from 356.3 billion pesos in the same month in 2010. In Brazil, outstanding consumer loans climbed 19 percent in January from the year-earlier period to 553.8 billion reais ($336 billion), according to central bank data.

Grupo Financiero Inbursa SAB, the financial-services firm controlled by billionaire Carlos Slim, forecast an expansion of at least 15 percent in its outstanding loans this year amid growth in lending for autos and small businesses, Frank Aguado, the bank’s head of credit, said on a conference call Feb. 11.

‘Growth Potential’

“Banks are going to need capital,” Guillermo Ortiz, a former central bank governor who is now chairman of Grupo Financiero Banorte SAB, said in New York on March 22. “If you think about their growth potential, they’ll require a lot of financing.”

Mexican banks are failing to meet demand for credit, Ortiz said.

Debt sales of non-bank companies in Mexico fell 15 percent to 144.8 billion pesos in the 12-month period ending March 28, according to data compiled by Bloomberg.

Yields on the TIIE futures contract maturing in July fell 1 basis point, or 0.01 percentage point, to 5.0 percent today.

The peso strengthened 0.2 percent to 11.95515 per dollar at 5 p.m. New York time and is up 3.2 percent this year.

The extra yield investors demand to hold Mexican dollar bonds instead of U.S. Treasuries fell 3 basis points to 125, according to JPMorgan Chase & Co.’s EMBI+ Index. The difference compares with 166 for Brazil, rated one level lower than Mexico at BBB- by Standard & Poor’s, and 165 for similarly rated Russia.

The average yield on dollar bonds sold by Mexican companies rose 3 basis points to 6.35 percent yesterday, according to JPMorgan. It reached 6.38 percent on March 8, the highest since July.

Rate Outlook

The cost to protect Mexican debt against non-payment for five years fell 2 basis points to 106, according to CMA DataVision. Credit-default swaps pay the buyer face value in exchange for the underlying securities or cash equivalent if the issuer fails to comply with debt agreements.

Central bank Governor Agustin Carstens will increase the overnight lending rate about 75 basis points to 5.25 percent by year-end, trading in 28-day interbank rate futures contracts known as TIIE futures shows.

Mexico is the only major Latin American country that hasn’t boosted borrowing costs in the past year as consumer prices rise at the third-slowest pace in the region after Chile and Peru.

‘Good Moment’

The central bank’s five-member board has kept the benchmark lending rate at 4.5 percent for a record 17 meetings after cutting it from 8.25 percent on Aug. 15, 2008. The economy shrank 6.1 percent in 2009 after the U.S., the biggest buyer of Mexican exports, slipped into recession. The U.S. economy expanded 2.9 percent last year and may grow 3.1 percent this year, according to the median estimate in a Bloomberg survey of 68 economists.

“If you ask whether it’s a good moment to get funding, I’d say it is,” Eduardo Estrada, the head bond trader at Actinver Casa de Bolsa in Mexico City, said in a telephone interview. “If you keep in mind we’re coming out of a couple years of general decline in growth and low interest rates worldwide, I think it makes a lot of sense.”

The economic expansion is fueling speculation Mexican inflation will pick up. Consumer price increases slowed to 3.1 percent in the 12 months through mid-March from 3.6 percent in February. Annual inflation will reach 3.9 percent at the end of the year, according to a survey of 24 economists released by Citigroup Inc.’s Banamex unit on March 22.

Bank Deposits

Total deposits held by Mexican banks rose 8.5 percent to 2.42 trillion pesos at the end of the fourth quarter of 2010, compared with the same period in 2009, according to National Securities and Banking Commission. The figure doesn’t include international deposits. Outstanding loans rose 0.5 percent to 2.14 trillion pesos in January from a year earlier, the commission said on March 22.

Bancomer, BBVA’s Mexico City-based unit, has the most outstanding loans at 573.9 billion pesos, followed by Banamex with 322.7 billion pesos, the commission’s data show.

Banks including Bancomer, Banamex, Inbursa and Santander may return to the local market because they’ve only sold a small amount of what they’re authorized to issue, Actinver’s Estrada said.

Santander, Mexico’s third-largest bank by outstanding loans, sold 3.7 billion pesos of bonds due 2013 to yield 15 basis points above TIIE on March 16.

Banamex Sale

Santander is “extending the terms” of funding because the bank expects demand for credit will quicken and regulators will impose stricter liquidity requirements, according to an e-mail from the bank.

Banamex, the Mexico City-based unit of Citigroup, sold 7 billion pesos of notes due in 2015 to yield 28 basis points above TIIE on Nov. 24. Officials at Banamex’s press office didn’t return calls for comment.

Banco Inbursa, a unit of Slim’s Grupo Financiero Inbursa, sold 6 billion pesos of bonds on Feb. 23 to yield 24 basis points above TIIE.

Bancomer still has room to sell more bonds in the local market this year, Gallardo said.

“We are in a comfortable position and we have the space to sell more debt because of the growth we see coming,” Gallardo said.

To contact the reporters on this story: Jonathan Roeder in Mexico City at jroeder@bloomberg.net; Andres R. Martinez in Mexico City at amartinez28@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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