Mexico: Enkele belangrijke kwesties om in de gaten te houden in een financieel gestresste omgeving

Na de ondercuratelestelling van de Silicon Valley Bank (SVB) en soortgelijke situaties bij andere financiële instellingen in de VS en Europa die onder druk staan, maken bedrijven zich zorgen over hun internationale activa en kredieten bij bancaire en niet-bancaire instellingen in het buitenland. De bezorgdheid in Mexico is nog groter door de verwevenheid van de Amerikaanse en Mexicaanse economie.

Foley has been closely monitoring recent events and watching how these events affect clients in Mexico across all industries. Highlighted below are some of the main issues that should be watched by companies and individuals regarding their assets or credits in Mexico in the current financial environment.

General Regulation and Solvency of Mexican Banks

Mexico has suffered and learned from various financial crises in the past decades. As a result of the financial crisis in 1995 (the Tequila Effect) and the global economic crisis in 2008, Mexico strengthened banking regulation, government supervision, and solvency rules. Mexican banks have learned from extremely difficult financial situations and are generally risk adverse on their credit and investment policies. On March 16, following the announcement of the SBV receivership and other related events, the Mexican National Banking and Securities Commission (CNBV) and the Ministry of Economy issued a joint release expressing their confidence in the general solvency and ability of Mexican banks to navigate in the current stressed environment. Among other observations, Mexican financial authorities mainly highlighted that, due to the strengthening of regulations and financial discipline in the past years in Mexico, Mexican banks in general (i) are healthy and well capitalized; (ii) have a solid liquidity coverage ratio that exceeds 238% on average; (iii) are subject to Basil III solvency and capitalization rules; (iv) do not have a significant client or credit concentration in large depositors or in particular sectors of the economy (at least with the largest systemic banks); and (v) at the moment, Mexican authorities do not expect an effect of distrust with investors motivating large withdrawals or transfer of funds from Mexican banks. This release from Mexican regulators can be downloaded in Spanish here (with an option to translate to English) for further reference.

Mexican banking regulation is federal and overseen by federal government agencies. All traditional banking institutions (instituciones de banca multiple) are authorized and nationally supervised by the CNBV and the Bank of Mexico, and follow the same regulatory and oversight rules, and standards of capitalization and solvency. These rules do not apply proportionally or differently to different players in the traditional banking sector due to size, client base, or state regulations in Mexico, as may be the case in other jurisdictions.

IPAB’s Banking Insurance Deposits

Similar to the FDIC in the U.S., the Mexican Institute for the Protection of Banking Savings (Instituto para la Protección al Ahorro Bancario, or “IPAB”), insures deposits and investments of small and medium-sized investors in Mexican banks. Currently, the amount insured by IPAB is MX$3.1 million (approximately US$160,000) invested or deposited by an individual or legal entity within a single banking institution. IPAB´s deposit insurance covers amounts in bank deposits, check and payroll accounts, debit cards, certificates of deposit, and promissory notes that are due and payable by Mexican banks.  Similar to the U.S., in the unlikely event that a Mexican bank becomes insolvent, IPAB and CNBV would transfer the assets of the failing bank to another banking institution appointed by IPAB, and they would follow an orderly procedure of dissolution and liquidation under banking laws. Savers and investors covered by the IPAB would be directly paid up to the limit allowed by the insurance deposit mentioned above, without the need of filing a claim. Investors and other banking clients with amounts deposited or invested in Mexican banks exceeding the insurance deposit limit would be entitled to make a direct claim to the corresponding banking institution under procedures followed by Mexican laws.

The IPAB insurance only covers accounts in banking institutions, and it does not secure investments or transactions in other non-banking institutions, such as funds, insurance companies, and brokerage firms or at the stock exchange, among others, even if these investments are offered through banks but are in custody of non-banking institutions.

Non-Traditional Banking Institutions in Mexico

Although still subject to a significant amount of regulation, non-traditional banking institutions are not subject to the same level of regulation, capitalization, and solvency rules as banks. Such institutions, including limited purpose banks (bancos de nicho), Sofomes (limited purpose financial entities, also known as non-bank lenders), funds, brokerage firms, fintech companies, and others, could be more fragile in stressed market scenarios.

There have been recent examples before the SVB events, where non-banking institutions like Sofomes have been forced to initiate bankruptcy, liquidation, or similar procedures in Mexico due to solvency issues.  Some of these non-banking institutions do business in the U.S. or may conduct transactions with U.S. clients in Mexico.

Steps to Consider in Mexico in the Current Financial Context

Clients should consider reviewing their deposits, investments, assets, funding, and debt relationships with financial institutions in Mexico given the current financial environment. Some of the key issues clients should focus on in Mexico include:

• Review whether financial transactions are conducted with a traditional bank or a non-traditional banking institution in Mexico.
• Review mitigation strategies to lessen investment risks or ability to dispose of credit lines in case of financial stress or insolvency of financial institutions where clients conduct business.
• Check whether investments or savings are in the banking system or not, and whether they are covered by IPAB´s insurance deposit and up to which limit, and address questions and alternatives on amounts or type of investments that may not be covered with such insurance coverage.
• Review whether banking trusts securing assets and payment obligations, or that hold property investments on behalf of foreigners (there are existing restrictions on property that can be held in Mexico by foreigners in beach and border zones), are in good standing. This includes verifying that annual trust fees and taxes are paid and current; permits, licenses, and other agreements requiring signature by trustees or public registries are current; and other issues related to trust management, new appointments to committees and/or beneficiaries are up-to-date. Banks tend to hold large portfolios of property and guarantee trusts with substantial value in assets, and it is recommended that these undergo thorough review.
• Review the status of investments and credit lines not in traditional banking institutions, which could face more risks in globally stressed markets, and where some preventive steps or alternatives can be taken with respect to these assets and debt.
• Review assets and credits with Mexican financial institutions that may have links to foreign entities that have faced significant stress, or are involved in insolvency, receivership, financial rescue, or similar proceedings in other jurisdictions.

Foley has a strong interdisciplinary team of attorneys to assist clients navigating the different issues that could be faced in Mexico due to the current volatile financial situation, including financial and banking regulation, IPAB´s deposit insurance, insolvency, credit financing and restructuring, litigation and claims, and payroll and mandatory labor obligations in scenarios of short funds availability.

Please reach out to members of the Bank Receivership Task Force or to your Foley relationship partner if we can provide assistance.