Moody’s agency considered that completing the sale of Banamex, by Citigroup, will not be quick, given the bank’s significant scale across various business segments and its traditional name in Mexico, in addition to the already highly concentrated nature of the country’s banking system and regulatory environment, which will delay approvals.
In a new analysis, the rating agency specified that, given these circumstances, the sale is likely to take longer than its review period of 1 to 3 months to conclude.
He detailed that the banking system Mexico is highly concentrated, with the seven largest banks controlling 81% of the system’s gross loans as of November 2021.
In this sense, he pointed out that any acquisition made by the largest banks will be carefully evaluated and closely monitored by the regulator and the Federal Economic Competition Commission (Cofece), especially given the already strong pricing power, in order to ensure the stability of the local banking system and maintain a solid and quite competitive environment.
In addition to this, Moody’s stated, five of the seven largest banks operating in the country are foreign-owned, with 62% of the system’s gross loans as of last November.
“Finding a national bank, or a group of Mexican investors, to acquire Citibanamex’s consumer and SME segments is also likely to delay the process,” he said.
Likewise, he stated that the National Banking and Securities Commission (CNBV), continues to maintain its April 2021 conservative guidance on dividend payouts at 25% of net income for 2020 and 2021, which it believes will complicate Citi’s ability to hold negotiations with potential buyers.
It will be a smaller bank
Moody’s He noted that after Citi’s divestment, Banamex will be a much smaller and less diversified bank that will face more competition in Mexico.
“Whether in the institutional client segment or in the consumer and SME segments in Mexico, we expect Citibanamex to rise to the challenge of maintaining resilient asset quality and a stable funding mix while addressing challenges related to the uneven economic recovery.” , he emphasized.
The agency noted that the sale is credit negative for Citibanamex, due to post-divestment uncertainties regarding structure and ownership that could have implications for the bank’s stand-alone credit profile.