BajaNomad

Lending practices by Mexican Banks

Santiago - 9-26-2008 at 06:45 AM

I'm curious how Mexican banks have been operating the last few years and if they have changed their practices in the last few weeks. A bank has to lend the money they have on deposit so who are they lending to? There doesn't seem to be much consumer credit going on, but I may be wrong.
1. How are new cars and trucks sold? I see lots of new vehicles with Baja plates - are they bought with cash or do most have loans? What kinds of down payments are required?
2. If someone who owns a couple of Pemexs wants to open another, is this financed through a bank?
3. How about all the agriculture development in San Quintin? These are big operations that need capital. Where is the capital coming from? In the US, banks are very much in the agriculture business.
4. Driving through TJ on Blvd 2000 there are a gillion apartments/condos being built. This is something I know about on the US side and I always wonder how the deals are structured in Baja. There must be banks involved in purchasing, underground and construction.
5. Do the purchasers of these condos get a mortgage? If so, what are the requirements and are there many foreclosures going on?
6. In the last few weeks I personally know of a dozen businesses in NorCal that employee about 200 people each see their lines of credit get very, very tight. Dangerously tight. Is this also happening in Baja?

k-rico - 9-26-2008 at 07:19 AM

http://uk.reuters.com/article/electionsNews/idUKN03218146200...

http://tinyurl.com/4nsbkj

The new homes and cars are being bought with borrowed money and credit cards are becoming common.

I don't know about construction loans. They used to be scarce and the scarcity, I think, was the reason for so many half completed buildings. The recent modernization of the banking system is one of the best things that has happened in Mexico.

flyfishinPam - 9-26-2008 at 07:57 AM

from what I can see their terms of credit are extremely to their advantage, so much so that they will not fall into the same situation as American banks. For instance I received a TelMex solicitation that said because of my company's good standing we can receive an instant credit of $69K pesos funded by Inbursa bank. When I calculate the interst it is 38% which is not bad comparatively, but WOW! In the ATM's at Bancomer they have a sign on the instant credit you can get while withdrawiing $ from the ATM, the law in Mexico says that the terms and interest rates have to be posted, called a CAT a disclosure, that rate is 26-57%!!! Yikes. Credit is becoming common here and there is no bankrupcy protection as there is up north. The laws are on the side of the banks and I sure hope people do their homework and understand what they're getting themselves into. another thing, want a credit card or credit here in Mexico? guess what, you have to put down as collateral, the title to a property! these banks will not get into the same problems as those up north, credit is not cheap here.

Santiago - 9-26-2008 at 08:49 AM

FFP: isn't the down side to that a very slow or even a no-go economy? Here's an example of what I mean:
In my small town there is a small building material tienda. As best as I can tell, there is no credit there (I could be wrong). Last time down I wanted to have a 175 sq ft slab poured but the contractor did not have enough capital to go buy the bags of concrete. He could supply the water and the sand (I'm assuming he just went out in the desert and dug up the sand). The up-shot was I either gave him money to go buy concrete or I go into town and buy the concrete and haul it back. As I was short on time and didn't know the guy to give him money upfront, he did not get the job and the material supplier did not sell concrete and I still don't have my slab. Everyone loses.
What I'm really trying to understand is why the economy has evolved this way.
When you say that to get a credit card you have to put property up as collateral, do mean that only property owners can get a credit card?
When you say the interest is between 26 & 57% that is a huge range. Does that mean that the mnost credit-worthy customers get the lower rate? If so, how does a bank figure credit worthiness - I'm gonna guess there is no FICO score or similar system.
When I was in Asuncion the co-op had bought a bunch (maybe 50 or so?) new 90 hp Honda engines for their pangas. 50 times $7500, I'm guessing, is a bunch of money - is that all done on cash?

k-rico - 9-26-2008 at 09:04 AM

It's better than it was (no credit). I can't imagine giving a credit card to the average Mexican without collateral. The average Jose is just not that well educated in financial matters. I was speaking with a Mexican medical insurance agent recently and he told me that many people are shocked when they try to buy insurance AFTER they are diagnosed with a major medical problem and are told they don't qualify.

Perhaps the Government bought the outboard motors for the fishing ejido. Those people are not in private enterprise, they work for the government in a communal fashion.

BTW, mexican private medical insurance underwriting is extremely tough. One company I inquired about would not offer any policy to anybody that has high blood pressure.

[Edited on 9-26-2008 by k-rico]

dao45 - 9-27-2008 at 12:08 AM

Yikes imagine that everyone in the US had to secure a loan with REAL assets.Probablly be destitute and bankrupt by now.
OOPS!Arent we allready??????

flyfishinPam - 9-27-2008 at 09:31 AM

Quote:
Originally posted by Santiago
FFP: isn't the down side to that a very slow or even a no-go economy? Here's an example of what I mean:
In my small town there is a small building material tienda. As best as I can tell, there is no credit there (I could be wrong). Last time down I wanted to have a 175 sq ft slab poured but the contractor did not have enough capital to go buy the bags of concrete. He could supply the water and the sand (I'm assuming he just went out in the desert and dug up the sand). The up-shot was I either gave him money to go buy concrete or I go into town and buy the concrete and haul it back. As I was short on time and didn't know the guy to give him money upfront, he did not get the job and the material supplier did not sell concrete and I still don't have my slab. Everyone loses.
What I'm really trying to understand is why the economy has evolved this way.
When you say that to get a credit card you have to put property up as collateral, do mean that only property owners can get a credit card?
When you say the interest is between 26 & 57% that is a huge range. Does that mean that the mnost credit-worthy customers get the lower rate? If so, how does a bank figure credit worthiness - I'm gonna guess there is no FICO score or similar system.
When I was in Asuncion the co-op had bought a bunch (maybe 50 or so?) new 90 hp Honda engines for their pangas. 50 times $7500, I'm guessing, is a bunch of money - is that all done on cash?


yes is definately causes a slower to move economy. I can relate with your construction story. Business is done differently here and at first it was frustrating but now I'm used to it. Pay first, wait, wait, wait then you get it, then you have to fight for the proper receipt. After working with people long enough, I just order, get the stuff and the receipt, then pay. I can't grow my business as fast as I could have with easy credit but I prefer it this way looking back and ahead. We can whether a storm like the kind we're expecting better because of it, we have no debt. the coop guys got their motors for half price but they have to sign over the rights of their boat and motor to the cooperativa (coop owns that property now). the guys can be independent but to the degree of which will depend on the dynamics of the cooperative. there are benefits and drawbacks depending on the guys position and his attitude toward the work and the coop.

on the credit card question, yes its only property owners or people with friends or family that will lend over a title to a property that can secure one. I was offered one at BBVA and was looking over the form and then asked the manager if I had to secure with a title and he said yes. No thanks then. It would have been easier paying out of town expenses that way but oh well.

Pam