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Asociación de Bancos de México March 7 & 11 MORTGAGE LENDING IN MEXICO Index 1.The Mexican Banking Sector 2. Mortgage Market in Mexico 3. Outlook and Conclusions 3 Introduction 1. Mexico keeps its favorable outlook for growth for this year, inflation and public finances are under control and the Mexican banking system is sound and it is ready to respond to the economy's financing requirements. 2. Banking mortgage credit has grown steadily over the past years, and can still continue on this trend for some time. Growth hasn't translated into higher delinquency rates. 3. Due to structural conditions, housing demand has been rising. The favorable economic context, as well as increasing competition among financial institutions has provided additional support. 4 1. The Mexican Banking Sector In a complex international environment, the Mexican Banking Sector is sound Capitalization Ratio Percentage points 18% 14% 16.1% 1.0% 15.1% 15.9% 1.3% 14.6% 15.3% 2.0% 13.3% 16.5% 16.8% 1.9% 1.9% 14.6% 14.9% 15.7% 16.0% 2.0% 2.1% 13.6% 13.8% 10% Core Capital Basel III (8.5%) 6% 2% ‐2% Basel III (10.5%) Source: Mexican Central Bank. 2006 2007 2008 Core Capital to RWA 2009 2010 2011 2012 Complementary Capital to RWA 5 1. The Mexican Banking Sector Delinquency trends during pre crisis levels & a high provision coverage ratio are maintained Delinquency ratio (%) & Coverage 14% 250% 185.0% 12% 200% 10% 150% 8% 6% 3.4% 4% 100% 2.5% 50% 2% 0% Mortgage loans portfolio (L) Coverage Ratio of total loans portfolio (R ) 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 0% Total loans portfolio (L) Source: CNBV. 6 1. The Mexican Banking Sector Credit activity has a maintained a steady growth Economic & Credit Growth Real Growth rate in 2012 11.7% 7.8% X 2 3.9% Economic growth (GDP) Banking Credit (real growth) In 2012 the bank credit grew twice as much as the economy did Banking Credit (nominal growth) Source: INEGI and Mexican Central Bank. 7 1. The Mexican Banking Sector Total loan portfolio has grown at double digit rates 2007 2008 2009 Growth in 2012 Source: Mexican Central Bank. 12% 2,015 1,834 2006 1,749 1,273 1,585 Total outstanding balance in 2012 2,610 billions of pesos (USD$ 202 Billions) (Ps/USD= 12.97) 2,337 Total outstanding balance (Billions of pesos) 2010 2011 2,610 16% of GDP Total loans portfolio 2012 Average growth Non performing 2006 ‐ 2012 loans rate 13% 2.5% 8 Index 1. The Mexican Banking Sector 2.Mortgage Market in Mexico 3. Outlook and Conclusions 9 2. Mortgage market in Mexico Coordinated public policies and banks long term commitment have driven housing sector Mortgage loans portfolio Source: Mexican Central Bank. 330 2007 2008 2009 Growth in 2012 10% 2010 2011 457 416 307 2006 275 231 Total outstanding balance in 2012 457 Billions of pesos (USD 35 Billions) (Ps/USD= 12.97) 368 Total outstanding balance (Billions of pesos) 2012 Average growth Non performing 2006 ‐ 2012 loans rate 12% 3.4% 10 2. Mortgage market in Mexico The mortgage portfolio behavior shows the banking risk appetite for the housing sector Housing credits granted Mortgage loans share of total loans portfolio Thousands of credits & Average credit $MXN Mortgage loans to total loans (%) In the last 10 years Almost 1 million of credits were granted 151 112 698 67 113 113 114 691 593 592 800 750 700 650 600 550 500 450 400 14% USD 10 Billions Source: ABM. 2012 2012 2011 2010 2008 2007 2006 2005 Thousands of credits (L) 2009 490 12 2004 795 127 124 33 2003 160 140 120 100 80 60 40 20 0 2003 18% USD 35 Billions Average credit $MXN (R) Note: The number of credits does not include remodeling programs (“Renueva tu hogar”). 11 2. Mortgage market in Mexico The banks provide more than half of the funding to home builders, although the debt issue is gaining share Financing to housing developers Distribution % 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 31.8 30.3 7.4 7.3 16.5 7.3 11.1 17.4 37.0 Banks: 53.5% 2008 Banks: Construction loans Banks: Other types of loans Banks: 51.6% 34.2 2012 Debt securities Others Equity Source: BBVA Research 12 2. Mortgage market in Mexico Better credit conditions for customers without excess indebtedness Commercial bank mortgage loan portfolio: rate and term (% and years) Commercial bank mortgage loans: mortgage payment to income ratio (%) 18.8 12.5 30 18.6 12.0 18.4 18.2 11.5 25 20 18.0 17.8 11.0 15 17.6 17.4 Rate Source: CNBV Term Nov-12 Aug-12 May-12 Feb-12 Nov-11 Aug-11 May-11 Nov-10 Aug-10 May-10 Feb-10 10.0 Feb-11 17.2 10 5 17.0 0 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 10.5 Source: CNBV 13 2. Mortgage market in Mexico Financial innovation has allowed borrowers to enjoy better conditions 2000 2013 Interest rate Variable Fixed with incentives for timely payments Up front fees 6% 0% ‐ 1% 10‐15 yrs Up to 20 yrs Acquisition Multiple uses* Payment pesos per thousand $22.0 $8.5 ‐ $11.0 Down payment +35% 5% ‐ 15% Unemployment insurance No Yes Interests tax deductible No Yes Term Products * Acquisition, Substitution, Construction, Remodeling, Co‐financing INFONAVIT, FOVISSSTE, INFONAVIT TOTAL Program Home Equity. 14 2. Mortgage market in Mexico Main Factors that Caused the Mortgage Crisis in some Countries are not Present in the Mexican Market Factor Description Housing Market • No price bubble. • No speculation. Credit • Detailed credit & risk analysis. • Full documentation and proof of income (Stated Income not accepted). • Mandatory Credit Bureau report. • Moderate Loan To Value (LTV) & Down payment required. • Most credits are for 1st home acquisition. Non Toxic Products • Fixed rates (No uncertain rate mortgages, no teaser rates, or negative amortization). • Home Owners Equity Credit lines at max. 50% LTV (less than 5% of total portfolio). Customer Insurance • Mandatory Life and Property Insurance. • Unemployment Insurance in recent loans is common. 15 2. Mortgage market in Mexico The fundamentals remain sound Market Drivers Demographic • Demographic structure bonds. • Annual growth of 650 thousand households per year. • Need of replacement or renewal of housing stock. • • • Low penetration of the mortgage lending as a % of GDP. Banks are solid and open to credit under prudent criteria. New Federal Housing policy. Institutional coordination: SEDATU (CONAVI, CORETT, FONAPO), INFONAVIT, FOVISSSTE, SHF. Federal Government subsidies (CONAVI). • Co‐financing programs Fixed rates • Risk Based Pricing • Relief programs • Multiples terms • Institutional Product • • • Portfolio with Life and Casualty & Property • Mortgage & unemployment insurance 16 Index 1. The Mexican Banking Sector 2. Mortgage Market in Mexico 3.Outlook and Conclusions 17 2. Mortgage market in Mexico 3. Outlook & Conclusions Final remarks The Mortgage Market in Mexico will keep its potential based on these strengths: 1) Demographic trends, Macroeconomic stability and a sounded Mexican banking system. 2) High competition among credit institutions: Lower rates, longer terms, and a wide range of banking products available for a changing demand. 3) Healthy and dynamic growth of mortgage lending (12% annual rate in 2006‐2012 and 10% in 2013e). These strengths, combined with a close coordination with the Mexican Federal Government, will enable Banks to fully meet the need of housing credits for the Mexican families. 18