Despite the international financial troubles and its shrinking economy, Mexico's banking sector presents a relatively stable and optimistic picture. Assets in its top five banks grew on average by 50% in 2008, and although profitability has significantly declined these banks all closed the last financial year in profit.

Banks' capital grew at double-digit rates for the fifth year running, as did assets. The solidity of the Mexican banking system has been attributed to the measures put in place to cope with the country's financial and economic troubles of the mid-1990s. The consequences of the so-called 'Tequila Crisis', which originated in Mexico and spread to other Latin American countries, devaluing local currencies, forced the central bank to curb bank borrowing in dollars and to focus on banks' capitalisation.

The Mexican banking scene is dominated by foreign-owned players. Its largest, Grupo Financiero Banamex, bought by Citi in 2001, presents the highest capital-to-assets ratio, at 16.54% - a figure that is nowhere to be seen in the world's Top 1000 banks. Even the average capital-to-assets figure for all Mexican banks, 9.9%, is higher than most of the leading lenders globally.

The soundest ratio in Mexico in 2007 was provided by Banco Inbursa, with a particularly high 29.5%. During 2008, the all-Mexican bank doubled in size but its Tier 1 capital contracted by 20.5%, which resulted in a diminished, but still solid, 11.5% capital-to-assets ratio. Banco Inbursa was also the most cost-effective outfit, with a 36.3% cost-to-income ratio. The most profitable Mexican bank, Grupo Financiero Santander, reached its $893m pre-tax profits with a 46% cost-to-income ratio.

Another fine example of banking success was Grupo Financiero Banorte, the only locally owned institution among the top Mexican banks. It nearly doubled its assets last year and the bank's performance remained essentially untouched, while its competitors' profits declined by 40% on average. Banorte's growth pushed the lender into the top five independent Latin American banks by Tier 1 capital, just beneath the traditionally larger Brazilian players.

Although only marginally affected by the global financial crisis, the country faces other problems, such as the growth of overdue obligations in credit cards. Furthermore, some companies have lamented a lack of credit from foreign-owned banks that have cut financing to repatriate funds to their parent companies.

Although Mexico's economic outlook is the worst it has been for 15 years, with projections of real gross domestic product dropping by more than 7% in 2009, the country's well-capitalised, sturdy banking system seems well equipped to face any troubles ahead.

Top Mexican Banks by Capital/Assets (As at 31/12/2008)

Top Mexican Banks by Capital/Assets (As at 31/12/2008)

Top Mexican Banks by Cost/Income (As at 31/12/2008)

Top Mexican Banks by Cost/Income (As at 31/12/2008)

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