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Mexico Credit: Banorte beats Brazil´s Itau as acquisition boosts lending

Bonds sold by Grupo Financiero Banorte SAB, Mexico’s fourth-largest bank by outstanding loans, are outperforming debt from financial peers in Latin America after an acquisition helped the company boost lending by 29 percent.

The 6.1 percent rally in Banorte’s dollar bonds due in 2021 this year compares with an advance of 5.7 percent for bank debt in the region, according to data compiled by Bloomberg and Credit Suisse Group AG. Similar-maturity bonds sold by Banco Itau Unibanco SA, Latin America’s biggest bank by market value, gained 6 percent during the same period. Debt due in 2020 issued by Bancolombia SA, Colombia’s biggest bank, rose 5.5 percent.

Banorte, based in Monterrey, Mexico, is tapping into a growing demand for credit in Latin America’s second-biggest economy. Total loans for Banorte expanded 18 percent in the past year, the most since 2008, according to Mexico’s National Banking and Securities Commission. Banorte said on July 25 that its acquisition of Ixe Grupo Financiero SAB helped increase its loan portfolio to 312 billion pesos ($26.4 billion) in the second quarter from 242 billion a year earlier.

“They grew at a healthy pace in the quarter and I’m expecting it to continue,” Natalia Corfield, an ING analyst who recommends investors buy Banorte’s bonds, said in a telephone interview from New York. “The banking sector has a very good growth potential.”

The yield on Banorte’s bonds sank 47 basis points, or 0.47 percentage point, this year to 4.72 percent, according to data compiled by Bloomberg. Mexican government dollar notes that mature in 2020 yield 3.45 percent.

Credit Expansion

Pedro Rodriguez, a spokesman for Banorte, didn’t return a phone message seeking comment.

Yields on Sao Paulo-based Itau’s bonds due in 2020 fell 41 basis points during the same period to 5.39 percent. Itau declined to comment through an e-mailed statement.

Mexican banks including Banorte are benefiting from the expansion of credit to a larger share of the population, said Alonso Madero, who helps manage about $5.5 billion in debt at Corp. Actinver SAB. The country’s private credit measured as a percentage of the gross domestic product was 21.8 percent in 2009, compared with 45 percent in Brazil, according to ING.

“Banks could lend a lot more,” Madero said in a telephone interview from Mexico City, “It’s very clear that this is how they could grow. There’s a big potential growth to capitalize on because of the low banking penetration.”

Growth Outlook

Banks in Mexico are increasing lending as the economy may grow “a little bit more” than 4.3 percent this year, Finance Minister Ernesto Cordero said in an event in Mexico City yesterday. Gross domestic product expanded 5.4 percent in 2010, the most in a decade.

Slowing growth in the U.S., the destination for 80 percent of Mexico’s exports, may curb demand for credit in the Latin American country, said Araceli Espinosa, debt analyst at Scotia Capital.

A report yesterday showed that service industries in the U.S. expanded in July at the slowest pace in 17 months as orders and employment cooled, indicating the biggest part of the economy had little spark to begin the second half of the year. Economic figures in the U.S. in last two weeks have shown declining home sales, weaker factory orders, waning consumer confidence and the first decrease in household spending in two years.

“If the economy is not growing, the loan portfolio for the banks is not going to grow,” Espinosa said in a telephone interview from Mexico City.

Yield Spread

Yields on futures contracts for the 28-day TIIE interbank rate due in May were unchanged at 4.99 percent, indicating traders expect the central bank will wait until that month to raise benchmark borrowing costs from a record low 4.5 percent.

The extra yield investors demand to hold Mexican government dollar bonds instead of U.S. Treasuries was unchanged at 128, according to JPMorgan Chase & Co.

The cost to protect Mexican debt against non-payment for five years rose 1 basis point to 112, according to CMA. Credit- default swaps pay the buyer face value in exchange for the underlying securities or cash equivalent if the issuer fails to comply with debt agreements.

The peso advanced 0.2 percent to 11.8193 per dollar, extending its advance this year to 4.4 percent.

Banorte is likely to exercise a call option on its bonds in 2016, ING’s Corfield said. The yield to the 2016 call date on the company’s notes may drop 50 basis points from 6 percent yesterday, she said. A call is a contract that gives the holder the right to buy a security at a set price within a set period. The holder of the call is not obligated to buy the security.

‘Well Positioned’

Banorte has used takeovers, including the 2001 acquisition of Bancrecer SA, to grow into a national financial group from a north-Mexican regional lender since the country’s banking industry collapse in 1995.

Banorte reported a 24 percent increase in second-quarter net income to 2.05 billion pesos. Ixe added 119 million pesos to the profit.

“It’s a benign environment for Mexico now and Banorte is well positioned to benefit from it,” Corfield said.

Source: Bloomberg, 04.08.2011 by  Veronica Navarro Espinosa vespinosa@bloomberg.net; Andres R. Martinz amartinez28@bloomberg.net

Filed under: Brazil, Latin America, Mexico, News, , , , , , , , , , ,

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