In Mexico, banks operate in a “weak economic environment” marked by “moderate growth and persistent uncertainty related to policies and trade that limits investment and employment prospects,” Moody’s Ratings indicated on Monday.
Furthermore, it noted that asset risk will deteriorate “amid strong competition between traditional banks and new entrants,” although reserves for “loan losses are adequate,” with still high levels of write-offs for uncollectible loans. This comes as the agency reaffirmed that the outlook for Mexico’s banking system (Baa2 negative) “remains negative.”
The agency explained that “profitability will also weaken as margins shrink in a competitive environment for financing and consumer credit,” while higher operating costs from investments in digitalization and customer service will put pressure on earnings.
While “capitalization will remain ample and loss-absorbing capacity will be supplemented by hybrid debt issuances,” and bank funding benefits from “stable customer deposit franchises,” the report also notes the diminishing capacity of government support and the weakening of institutional and policy frameworks, which increase risks.
In the report, Moody’s explained that the strength of profitability, capital, and funding “is tempered by a prolonged environment of low growth and increasing competition.”
It emphasized that GDP growth will remain “moderate,” reflecting weak investment dynamics, and reiterated its projection that Mexico’s economic expansion will “rebound slightly” but remain weak, averaging less than 1.5% in 2026-2027, down from 0.5% in 2025, reflecting persistent internal and external challenges.
“Investment remains constrained by changes in the judicial system and other institutional reforms that have increased uncertainty surrounding contract compliance and guarantees, as well as by fiscal consolidation efforts, which are undermined by the need to support Petróleos Mexicanos (Pemex, B1 stable),” he stated.
He also stated that “trade-related uncertainty, especially with the review of the United States-Mexico-Canada Agreement, will continue to delay investment decisions, including those related to nearshoring.”
He added that “while unemployment will remain low—at 2.6% in 2025—the momentum of the labor market is weakening as job creation slows and informality increases, reaching 55% toward the end of last year.”
He noted that the Mexico Plan, which seeks to boost domestic production and employment, and the mixed investment program to attract private investment, “could help alleviate these obstacles to growth if successfully implemented.”
He also noted that inflation will remain within the target range of 2% to 4% in 2026-2027, after reaching 3.8% in January 2026, “which supports market expectations of further cuts in the monetary policy rate of up to 7%.”
Source: informador
