Don't bank on it: Pessimism rife in Mexico's finance system

The poll, which was conducted in late February by MUND Opinion Services, reveals profound pessimism regarding the banks and the overall economy. The results underscore the challenges of a financial system that must lure new customers to generate profits and economic growth, instead of losses and taxpayer bailouts.

Forty-two percent of the respondents to the survey said banks hurt economic development, while 37 percent said they helped and 21 percent didn't respond. Two-thirds have no bank savings at all. And most respondents said they don't look to banks for personal or business loans.

"This is a largely un-banked society that doesn't look to the banks as a way of advancing," said Daniel Lund, the president of MUND, a Mexico City polling firm. "People deeply feel that the banks are a brake on the economy."

In the United States and many other countries, banks are seen as a helping hand for savings, car loans, mortgages and even retirement plans. In Mexico, the poll shows that many people view them as a potential pitfall.

"I knew I shouldn't get a bank loan, even when all my friends were doing it," said Jesús Flores Barragán, 34, a government employee in the western state of Colima, who was among those polled.

"I looked at my salary, and I looked at the interest rates. And sooner or later, I knew I wouldn't be able to pay," he said.

A robust banking industry will boost domestic savings and stabilize the economy -- a prerequisite for long-term economic growth, government officials said.

If bankers are to build an industry that helps foster economic development, experts say, they will have to woo additional customers such as Mr. Flores Barragán with accessible loans and attractive savings accounts.

Such customers represent the potential of the Mexican market as a destination for products made in Texas and the rest of the United States. Last year, Mexico's businesses and residents bought 41 percent of a record $91 billion in Texas exports.

Chink in armor

The banks remain the most glaring chink in Mexico's economic armor.

Bank credit has been shrinking in real terms for five years in a row. Large companies borrow abroad, while small companies must fend for themselves.

Moreover, analysts expect a recent government bank bailout to cost Mexican taxpayers $100 billion. That's about a quarter of all the goods and services Mexico produces in a year. It's also the equivalent of about two-thirds of the banking system's current assets.

"Banks are pretty important in the overall international economy," said Mr. Lund. "But Mexico is a society that pretty much gets along without them."

The poll also highlighted economic pessimism among most Mexicans, despite the booming macroeconomic figures Mexico produces. Only 13 percent of those polled said they thought the country's economic situation would get better next year.

The poll had a margin of error of 2.8 percentage points.

To be sure, bankers have raised much fresh capital in the last two years, and they are not entirely to blame for their institutions' ongoing weakness. Mexico's antiquated bankruptcy laws make it difficult for banks to collect the collateral backing past-due loans.

President Ernesto Zedillo has criticized those laws, and Congress could pass new ones this spring. But until then, banks are unlikely to issue new loans.

"The banks simply won't lend without new bankruptcy legislation, it's too dangerous," said Roberto del Cueto, a former CEO of Banco Nacional de México, or Banamex, the nation's largest bank.

"The new laws are crucial for a reactivation of the banking system," said Mr. Del Cueto, who is now a professor of financial law at the Autonomous Technological Institute of Mexico in Mexico City.

Those legal changes and a veritable invasion of rich foreign banks could eventually restore the sector to health. Last week, Spain's Banco Bilbao Vizcaya Argentaria, or BBVA, negotiated a deal to buy 40 percent of Grupo Financiero Bancomer and assume management control.

At least three foreign banks plan to bid for Grupo Financiero Serfin when the government sells it in May. And banks from Spain to Canada to the United States are investing in new bank services and providing much-needed capital injections.

"A lot of investment is on the way, and there's going to be a lot of competition among the banks," said Alberto Leyva León, 28, a poll respondent from Mexico City who paints pottery and dolls for a living. "Now, no one gets a mortgage or a loan to expand their company. But the new investment is going to bring benefits for customers."

Moreover, the lack of modern banking products and services might actually help the newcomers, they say.

"Only about 10 percent of Mexico's 100 million people really use banks," said Vitalino Nafria Aznar, the Spanish executive who would manage the alliance between BBVA and Bancomer. "There's a lot of potential in this market."

Small accounts

Still, there's a long way to go.

About 21 million people have bank accounts in Mexico, and 13 million of them have less than $600 in them, analysts say. On such small accounts, banks pay annual interest rates that are substantially lower than inflation. That means depositors actually lose money over time in real terms.

Banks also charge high annual fees and steep commissions on basic services like cash withdrawals and writing more than a set number of checks.

Although several dozen savings and loan institutions offer attractive interest rates to working-class savers, they lack blanket government deposit insurance. And liquidity problems in several institutions from the western state of Jalisco to the Gulf Coast state of Tabasco have some peso pinchers wondering if they'll ever see their savings again.

That would merely be the latest chapter in a long history of trouble.

"People have long memories, and they remember old banking crises," said Mr. Lund, the pollster.

Hard currency

Back in 1982, the government needed hard currency. So it encouraged banks to offer high interest rates on accounts in U.S. dollars, then loan the money to the Finance Ministry.

But then José López Portillo, who was president at the time, nationalized the banks and froze the dollar accounts. He eventually allowed depositors to change their dollars to pesos, albeit at an exchange rate that meant they lost half their savings.

In the 1980s, government ownership of the banking system allowed the Finance Ministry to finance huge budget deficits. But it also led to a severe lack of mortgages and business loans for ordinary Mexicans.

Former President Carlos Salinas de Gortari restored the banks to private investors in 1991 and 1992, and an orgy of high-risk lending followed. The currency devaluation of 1994 and an ensuing economic crisis in 1995 led many borrowers to stop paying interest on their loans.

That brought the banks to a near-death experience until the government stepped in with its $100 billion bailout. It also reinforced a past lesson for bank customers: Don't expect too much from your bank.

"More than anything, I think that banks are helping themselves more than helping the country," said Martha Aguilar, 58, a retired government employee who lives in the southern state of Chiapas. "I use the banks to save and maybe once in a while for a credit card, but not for a big loan. They just charge so much, and then you're sorry."

Brendan M. Case, a free-lance writer based in Mexico City, is a frequent contributor to The Dallas Morning News. Staff writer Laurence Iliff contributed to this report.