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% 10% 6% 2% 2% 16.1% 15.9% 16.5% 16.8% 15.3% 15.7% 16.0% 1.0% 1.3% 1.9% 1.9% 15.1% 2.0% 2.0% 2.1% 14.6% 14.6% 14.9% 13.3% 13.6% 13.8% 2006 2007 2008 2009 2010 2011 2012 Core Capital to RWA Complementary Capital to RWA Basel III (10.5%) Core Capital Basel III (8.5%) Source: Mexican Central Bank. 5
1. The Mexican Banking Sector Delinquency trends during pre crisis levels & a high provision coverage ratio are maintained 14% 12% 10% 8% Delinquency ratio (%) & Coverage 185.0% 250% 200% 150% 6% 4% 2% 100% 3.4% 2.5% 50% 0% 2001 2002 2003 2004 2005 2006 Mortgage loans portfolio (L) Coverage Ratio of total loans portfolio (R ) 2007 2008 2009 2010 2011 2012 Total loans portfolio (L) Source: CNBV. 0% 6
Economic & Credit Growth Real Growth rate in 2012 1. The Mexican Banking Sector Credit activity has a maintained a steady growth 3.9% X 2 7.8% 11.7% In 2012 the bank credit grew twice as much as the economy did Economic growth (GDP) Source: INEGI and Mexican Central Bank. Banking Credit (real growth) Banking Credit (nominal growth) 7
1. The Mexican Banking Sector Total loan portfolio has grown at double digit rates Total loans portfolio Total outstanding balance (Billions of pesos) Total outstanding balance in 2012 2,610 billions of pesos (USD$ 202 Billions) (Ps/USD= 12.97) 1,273 1,585 1,749 1,834 2,015 2,337 16% of GDP 2,610 2006 2007 2008 2009 2010 2011 2012 Source: Mexican Central Bank. Growth in 2012 Average growth 2006 2012 Non performing loans rate 12% 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 Total outstanding balance (Billions of pesos) Total outstanding balance in 2012 457 Billions of pesos (USD 35 Billions) (Ps/USD= 12.97) 231 275 307 330 368 416 457 2006 2007 2008 2009 2010 2011 2012 Source: Mexican Central Bank. Growth in 2012 Average growth 2006 2012 Non performing loans rate 10% 12% 3.4% 10
160 140 120 100 80 60 2. Mortgage market in Mexico The mortgage portfolio behavior shows the banking risk appetite for the housing sector Housing credits granted Thousands of credits & Average credit $MXN 40 20 0 In the last 10 years Almost 1 million of credits were granted 12 2003 698 33 2004 67 2005 112 124 2006 593 2007 Thousands of credits (L) 151 2008 127 113 113 114 2009 490 2010 592 2011 795 691 2012 Average credit $MXN (R) 800 750 700 650 600 550 500 450 400 Note: The number of credits does not include remodeling programs ( Renueva tu hogar ). Mortgage loans share of total loans portfolio Mortgage loans to total loans (%) 2003 2012 14% USD 10 Billions 18% Source: ABM. USD 35 Billions 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 7.3 11.1 16.5 17.4 Banks: 53.5% 37.0 34.2 2008 2012 Banks: Construction loans Banks: Other types of loans Debt securities Others Equity Banks: 51.6% 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 (%) 12.5 12.0 11.5 11.0 10.5 10.0 18.8 18.6 18.4 18.2 18.0 17.8 17.6 17.4 17.2 17.0 30 25 20 15 10 5 0 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Dec-12 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Rate Term Source: CNBV 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% Term 10 15 yrs Up to 20 yrs Products 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 * 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 Housing Market Credit Non Toxic Products Customer Insurance Description No price bubble. No speculation. 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. 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). Mandatory Life and Property Insurance. Unemployment Insurance in recent loans is common. 15
The fundamentals remain sound 2. Mortgage market in Mexico Market Drivers Demographic Institutional Product 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). Fixed rates Co financing programs Risk Based Pricing Relief programs Multiples terms 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