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These are the banks that wobble after Famsa's fall in Mexico

According to experts, the ABM described the revocation of the license to Famsa as an isolated event, more banks and other financial entities will follow

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  • 08/07/2020
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These are the banks that wobble after Famsas fall in Mexico
The bankruptcy of Famsa Bank is a consequence of problems associated with the volume of loans granted. (Cuartoscuro)

The National Banking and Securities Commission (CNBV) of Mexico revoked on Wednesday the license of Banco Ahorro Famsa for inappropriate risk management to protect its more than half a million clients. The Mexican Banking Association (ABM) described the revocation  as "an isolated event" that does not affect other banks or the payment system because the Mexican financial system is "solid and solvent." However, according to experts, more banks and other financial entities reeling from long ago will follow.

WHY DID FAMSA BANK GO BANKRUPT?

The bankruptcy of Famsa Bank is a consequence of problems associated with the volume of loans granted to the financial group's related parties over the regulatory limits, which led to the capitalization ratio being below the statutory minimum. The bank did not record some loans to individuals from companies linked to the group as loans, but as accounts receivable, to avoid the regulation of accounting considerations of the loan portfolio.

According to the president of the CNBV, Juan Pablo Graf, the latest stress tests that the authorities carried out on the banking system showed that some banks' capital positions could be affected in situations of stress, which is why they recommended injecting capital.

Although Famsa had a capital injection last year, it was more related to the deficiencies it had in accounting, "due to the excesses it had incurred," Graf said. At the end of December 2018, Famsa's Capitalization Index (ICAP) was 12.54%, compared to 15.91% of the system average. For March of this year, the ICAP was 11.34%, compared to 15.75% of the system, but the CNBV indicated that Famsa's data was subject to revision.

The information of Famsa was audited, and the authorities detected related operations between Group companies, and when calculating the activities, "the accounting record recomposed these operations and dramatically affected ICAP."

REQUIRED REVIEW OF OTHER BANKS

The Famsa case will cause more than one bank that has sister companies to review in detail how they operate with them and will also serve the authorities to pay more attention in that area, according to Jeanette Leyva, in her column on El Financial.

The reviews and requests for capital increases to several smaller banks have been made by other financial institutions, which, they say, helped save more than one. Even mid-sized bank executives acknowledge that they have analyzed some options to add to small or weak banks since they least want bankruptcies like Famsa repeated.

Specialists say, at least two more banks are being closely watched at the IPAB, and these institutions also serve the segment of the so-called base of the pyramid.

UNDER SCRUTINY

According to a BBVA analysis of the banking system, the banking system is stable, however, it points out that there are banks with lower than average liquidity and capitalization levels.

In the case of Famsa, the analysis highlights the decrease in its ICAP and its low profitability levels with a negative ROE of -6.4% in April.

In the latest CNBV report on banks, although Famsa reports an ICAP of 11.34% in April, it is the only one that has a note indicating that it is under review by the authorities.

In April, Banks with an ICAP of less than 13%  are ABC capital with 10.97%; Autofin, 12.68%; Go for More 12.21%; and Sabadell 12.37 percent. Other banks with negative ROE are Azteca; ABC Capital; Accendo; Smiths; Dondé and Pagatodo.

RELATED BOARD MEMBERS

Several former CNBV vice presidents in charge of supervision now work in private initiative and other banks.

At that time, the CNBV Vice President of Regulations, in charge of supervising the compliance of banks such as Famsa, was Margarita de la Cabada Betancourt. Two former Vice Presidents of Group Supervision and Financial Intermediaries A and B were Jorge Alberto Conde Lara. He is currently the comptroller of the controversial Caja Libertad, which took lawyer Collado to jail, and Fernando Rodríguez Antuño, current comptroller of Scotiabank México.

According to his column, Rodríguez Antuño arrived at the Scotiabank Comptroller's Office through Silvia Lavalle Genaro. In turn, she is a partner of the former CNBV president and current chairman of the Canadian bank's board, Guillermo Babatz, at the ATIK Capital office. In other words, Rodríguez Antuño works in a bank that he supervised from his position as vice president of Groups and Financial Intermediaries at the CNBV.

Traducción: Valentina K.Yanes