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Is Mexico’s New Banking Bill a sign of worse things to come in International Banking Regulations?

A proposal to regulate fees charged by banks operating in Mexico won’t put a big dent in Bank of Nova Scotia’s (BNS) bottom line, but it could be a sign of worse things to come, as banking rules around the world begin to tighten in the wake of the financial crisis.

Brad Smith, Blackmont Capital analyst said:

As of the year-end 2008, Scotia’s Mexican operations were responsible for 9% of total earnings and while this legislation could impact on Scotia’s total operations to be marginal at this time.

The greater concern, in our view, is that this is merely an initial step in increased international regulation of the financial industry, thereby putting increased strain on future profits.

The new banking bill passed by the Mexican Senate, but still required to pass through the lower house, proposes ceilings on credit card and loan interest rates and also seeks to regulate deposit rates and eliminate certain banking fees.

Mr. Smith continues to rate Scotiabank shares a “hold” and left his C$36 price target unchanged.

Source: SeekingAlpha, 23.04.2009

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Filed under: Banking, Latin America, Mexico, News, Risk Management, Services, , , , , , , , , , , ,

Mexican Senate to limit Excessive Credit Card charges by foreign banks, observed by U.S. Senate

[16.04.2009] Mexico’s Senate banking committe approved changes to the financial services law. The Central Bank will be allowed to set limits on the rates that commercial banks can charge on loans.

Banco de Mexico will not set of specific limits to rates; instead, the central bank will set references as to how much banks should be charging for the loans and also have the ability to highlight to the public which banks are charging more than others. “Banco de Mexico will ensure that institutions give loans or credit in accessible and reasonable conditions, and it will take corrective measures so that operations are offered under those terms,” the bill says.

The initiative will now move to the floor of the Senate. The bill doesn’t specify a maximum interest rate. Instead, it calls for policy makers to cap interest rates if they are deemed to be too high or if they prevent low-income Mexicans from obtaining credit.      The legislation would prohibit banks from charging fees that “distort healthy banking practices,” according to the initiative. Banks wouldn’t be able to charge fees for consulting account balances under the measure.

Source: IXE 16.04.2009

[26.03.2009] Two Mexican Senate committees approved proposals to overhaul financial sector regulations that if passed into law would give authorities greater scope to limit the interest rates and commissions that banks charge their customers.

Mexico is not alone. The U.S. Senate Banking Committee will meet on March 31 to consider pro-consumer credit card legislation.

The current credit cards comissions and interest rates in Mexico, charged by foreign banks are the higest in the World and cause to great concern for social instability, for example:

HSBC                 charges 72% p.a. in Mexico  vs.  16%  in the UK

ScotiaBank     charges 61% p.a. in Mexico vs.  18%  in Canada

BBVA                 charges 80% p.a. in Mexico vs. 25% in Spain

Citi/Banamex charges 77% p.a. in Mexico vs.   9% in the US

According to Mexico Bankers Association (ABM) in 2008 there where  26.2 milion credit card holding individuals, which spend  478 Bn pesos ( 33.7 bn US$).

Credit cards might as well be the next bubble to burst, see the Reuters special on consumer credit concerns.

The Finance Commission and the Legislative Studies Commission approved the bill late Wednesday with the backing of senators from the three largest political parties. The commissions said they hope to submit a final draft to the full Senate as soon as possible, according to a Senate press release.

The measure would then be sent to the lower house. The plan would give the Bank of Mexico greater power to regulate commissions and interest rates, ban fees for checking balances at bank branches and require lenders to offer a basic credit card product without “excessive charges.”

Fees and commissions of close to 56.3 bn pesos (3.97 bn US$) last year accounted for about 27% of banks’ operating income, according to National Banking and Securities Commission data.

Five of Mexico’s top seven banks are owned by foreigners. Banco Bilbao Vizcaya Argentaria SA (BBV) and Banco Santander SA (STD) of Spain, Citigroup Inc. (C) of the U.S., HSBC Holdings PLC  ( HBC) of the U.K., and Canada’s Bank of Nova Scotia (BNS) control 68% of bank loans and 69% of deposits.

Source: El Financiero, El Economista,Dow Jones,Reuters,AFP  26.03.2009

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