Banco de México s importance in the Mexican financial system

Transcription

1 Banco de México s importance in the Mexican financial system August 2008

2 Contents I. Legal foundations II. Financial system II.1 Financial markets II.2 Intermediaries II.3 Payment systems III. Protecting the public interest 2

3 I. Legal foundations Mexican Constitution (article 28): In the terms set forth in Mexico s laws, and with the intervention of the relevant authorities, the central bank shall regulate the exchange rate, as well as all financial intermediation and services, with the necessary authority to undertake such regulation and guarantee its observance. 3

4 I. Legal foundations Banco de México s purpose (Banco de México Law, article 2): Banco de México s purpose will be to provide the economy with domestic currency. Its primary goal will be to ensure stable purchasing power. The central bank will also foster the sound development of the financial system and promote the proper operation of the payment systems. 4

5 I. Legal foundations Banco de México s functions (Banco de México Law, article 3): I. Regulate both issuance and circulation of Mexican currency, the exchange rate, financial intermediation and services, and the country s payment systems. II. Act as a reserve bank for banks and as a lender of last resort. 5

6 I. Legal foundations III. Provide the Federal Government with treasury services and act as its financial agent. IV. Act as an advisor to the Federal Government in the area of economic policy and, in particular, finance. 6

7 I. Legal foundations Regulation issued by Banco de México (Banco de México Law, article 24): Banco de México shall issue provisions only related to monetary or exchange rate regulation, the sound development of the financial system, the proper working of the payment systems, and the protection of the public s interests. 7

8 I. Legal foundations Other laws: Credit Institutions Law Law for Regulating Financial Groups Securities Market Act General Law on Ancillary Credit Organizations and Activities Payment Systems Law Law for the Transparency and Regulation Financial Services Law for Regulating Credit Information Companies of 8

10 II.1 Financial markets Financial markets Forums, physical or virtual spaces and rules which enable investors, issuers, intermediaries and persons to borrow or lend, and buy and sell foreign currency and shares. Financial markets contribute to economic growth as they channel resources between surpluses and deficits, thus benefitting both parties. They also help identify and finance more efficient and productive projects. They allow risks to be transformed and diversified so that the best prepared agents can take them. 10

11 II.1 Financial markets Debt market Where debt securities are issued, placed, distributed and traded. A source of financing for large partipants (government, companies) that diversifies institutional investors investment options. 11

12 II.1 Financial markets Debt market The Federal Government s participation in debt markets is fundamental. Not only because it finances government spending but also because it provides the rest of the market with interest rate and terms references. It provides long-term investment options and contributes to deepen the market. 12

13 II.1 Financial markets Debt market The average maturity of government debt has also increased. It has served as a benchmark for increasing the maturity of other transactions. Average maturity of federal government debt Fixed-rate bond yield curve 2,500 Days 11 Percent 2, , , Jul-08 Source: Banco de México Source: Valmer. Aug-08 Dec-07 Dec-06 Dec-05 Dec-04 Years 13

14 II.1 Financial markets Debt market Other economic agents have increasingly obtained financing through debt securities. Outstanding securities issued by private companies Outstanding securities issued by state-owned companies and state and municipal governments Billion pesos of / Real rate Floating rate Fixed rate Billion pesos of / Real rate Floating rate Fixed rate Jun Jun- 02 Source: Banco de México Jun Jun- 02 Source: Banco de México

15 II.1 Financial markets Debt market The development of the debt market promoted mortgage securitization. Interbank Equilibrium Rate (TIIE28) and 28-day Cetes Rate Average mortgage rate and 20-year fixed rate bond Percent Percent CT28 TIIE M20 Mortgage rate M J S D M J S D M J S D M J S D M J S D M J 4 M J S D M J S D M J S D M J S D M J S D M J Source: Banco de México. Source: Banco de México. 15

16 II.1 Financial markets In the debt market, Banco de México: Acts as Federal Government agent placing government debt securities such as Cetes, Bonos M, Udibonos, and IPAB bonds. Implements government securities lending. Regulates repo operations and securities lending. 16

17 II.1 Financial markets Foreign exchange market The foreign exchange market allows hedge payments and transactions for international trade. The Mexican peso (MXN) is one of the world s most traded currencies and the most traded currency among emerging markets. 17

18 II.1 Financial markets Average daily amount traded in Mexican pesos internationally Average daily amount of foreign currency traded 50 Billion US dollars 40 Billion US dollars Baht (TH) Koruna (CZ) Forint (HU) Peso (MX) Rand (ZA) Real (BR) Rupee (IN) Zloty (PL) Source: Bank for International Settlements. 18

19 II.1 Financial markets In the foreign exchange market, Banco de México: Participates in the Foreign Exchange Committee together with the Ministry of Finance. Regulates banks foreign currency position. 19

20 II.1 Financial markets Derivatives market Functions: the derivatives market complements the spot market helping to reduce and distribute risks more efficiently. It also provides certainty for those who use it for hedging purposes. 20

21 II.1 Financial markets Interest rate swap turnover 28-day TIIE futures trading in MexDer Trillion pesos Billion pesos Interest rate and foreign currency crosses 1/ In foreign currency 1/ In Mexican pesos Volume (right) Open interest (left) / Includes yens, US dollars and euros. Source: Banco de México Source: MexDer and Asigna. 0 21

22 II.1 Financial markets Derivatives market Composition of amount traded in pesos by instrument type Percent Spot Forwards Swaps Options In the derivatives market, Banco de México: Regulates derivatives transactions such as swaps, options, forwards, and futures Source: Bank for International Settlements. Foreign exchange activity and derivative market survey. 22

23 II.1 Financial markets Stock market Finances a company s capital, increases the number of shareholders, and enables society to participate in a company s capital. IPC: turnover and amounts traded Stock market cap 250 Amount (million pesos of 2002) 7,000 Percentage of GDP 200 Volume (million transactions) 6,000 5, first half 150 4, Source: Infosel. 3,000 2,000 1, Source: BMV. 23

25 II.2 Financial intermediaries Financial system structure Percentage of total assets Sofoles and OACs Brokerage 4% firms 2% Insurance companies 6% Siefores 12% Development banks 8% Commercial banks 56% Commercial banks are the main intermediary in the Mexican financial system. Commercial banks have increased their share of the financial system through increased lending. Mutual funds 12% Total assets: trillion pesos (March 2008) 25

26 II.2 Financial intermediaries Banking system structure Percentage of total assets BACC 1/ (5) 1.6% Mediumsized banks (18) 10.4% June 2008 Small banks(15) 6.5% Large banks (6) 81.5% 1/ BACC: Banks associated with retail chains. 44 banks comprise the banking system. 6 banks have 83 percent of total assets. Medium-sized banks are made up of regional and niche banks. BACC are new banks that will make banking services more available to underserved sectors of the population. 26

27 II.2 Financial intermediaries Banco de México s regulation of commercial banks: Deposits banks must maintain in Banco de México Foreign currency liquidity Lender of last resort 27

28 II.2 Financial intermediaries Other laws under which Banco de México operates: Credit Institutions Law: Bank s basic products. Derivatives. Securities Market Act: Regulates the characteristics of credit, lending or repo transactions between brokerage firms. Derivatives. 28

29 II.2 Financial intermediaries Investment Company Act: Regulates repo, securities lending, loans, securities and derivatives issuances, also in foreign currency, of investment companies. Derivatives. 29

30 II.2 Financial intermediaries The General Law on Ancillary Credit Organizations and Activities: Regulates money exchange transactions. Law for Regulating Credit Bureaus: Regulates the transactions and activities of credit bureaus. 30

31 II.2 Financial intermediaries Banco de México participates jointly with other financial authorities in regulating intermediaries in matters related to: Banking system and brokerage firm capitalization rules Prudential regulation of banks: Risk exposure limits: larger borrowers, related transactions. Credit reserves. Early warnings and timely corrective measures. 31

33 II.3 Payment systems There are large and small value payment systems. The former are used by financial intermediaries to meet their obligations. As individuals we use the latter through bank cards, checks and electronic transfers. 33

34 II.3 Payment systems In most countries, the central bank manages and regulates large value payment systems. They play a key role in the economy by facilitating the payment of goods and lending services among economic agents, and by transferring resources between savers, investors and consumers. Its failure could have serious consequences for the economy. The central bank implements monetary policy through the payment systems. 34

35 II.3 Payment systems Daily average transactions Thousands Daily average transaction amount Trillion pesos SPEI SIDV SIAC SPEI SIDV SIAC M J S D M J S D M J Source: Banco de México. 0.0 M J S D M J S D M J

36 II.3 Payment systems SPEI is a transfers system promoted by Banco de México because it is more efficient and cheaper than checks. Diverse measures have been adopted that have contributed to its implementation: A mechanism for identifying the issuer of the transactions. Banks agreed to place an 11 peso ceiling on the SPEI fee involving transactions below MXN 100,000. The lower cap (MXN 50,000) was eliminated on the amount that could be sent by SPEI. 36

37 II.3 Payment systems Direct participation of non-bank banks was allowed. There are currently 21 non-bank participants. The transaction fee Banco de México charged banks (between 1 and 0.5 pesos) was lowered and recently overnight lower cost transactions have been permitted (0.10 pesos per transaction). The annual fee for participating in SPEI was eliminated. All of this has contributed to transforming the SPEI from a large value payment system involving few transactions to a means of sending electronic payments between individuals. 37

38 II.3 Payment systems Millions of monthly transactions Average transaction Million pesos Total <$10,000 pesos >$10,000 <$50,000 pesos >$50,000 <$100,000 pesos >$100,000 pesos A-04 F-05 A-05 F-06 A-06 F-07 A-07 F-08 Source: Banco de México. 0 A-04 F-05 A-05 F-06 A-06 F-07 A-07 F-08 38

39 II.3 Payment systems Since the first Transparency Law in 2004 was enacted, Banco de México has also been involved in small value payment systems. The Law for the Transparency and Regulation of Financial Services encourages the use of more efficient payments. 39

40 II.3 Payment systems Transactions using different payment instruments Millions of quarterly transactions Electronic transactions Millions of quarterly transactions Checks Transactions with cards at retail outlets Electronic transactions SPEI Direct debiting Payment of credit card debt TEF M J S D M J S D M J S D M J S D M M J S D M J S D M J S D M J S D M Source: Banco de México. Figures as of the first quarter of Preliminary data subject to review. 40

41 II.3 Payment systems Trend in interbank fees Average weighted fee by transaction volume, percent Credit cards Debit cards S D M J S D M J S D M J S D M J S D M Source: Banco de México. 41

42 Index I. Legal foundations II. Financial system II.1 Financial markets II.2 Intermediaries II.3 Payment systems III. Protecting the public interest 42

43 III. Protecting the public interest In May 2007, Congress passed the new Law for the Transparency and Regulation of Financial Services (LTOSF, for its acronym in Spanish) and modified diverse laws in order to: Encourage competition among intermediaries. Promote the transparency of financial services in the defense of users. Increase the access of lower-income sectors to banking services. 43

44 III. Protecting the public interest Banco de México is responsible for implementing some of the amendments to these laws through secondary regulations. Some of the measures adopted by Banco de México related to consumer protection are detailed below. 44

45 III. Protecting the public interest The Total Annual Cost (CAT, for its acronym in Spanish) methodology is introduced Its application is extended to: Banks and non-bank banks (Sofoles, Sofomes, popular savings and loans companies) as well as other lending institutions. Consumer loans below 900,000 UDIs. Enabling comparisons between different lenders to be made is the best way of bringing down the cost of credit. 45

46 III. Protecting the public interest The CAT includes all costs and expenses related to credit. It is useful for providing and comparing information. It includes: Credit amount CAT Amortizations of principal Ordinary interest Agreed upon credits and discounts Value Added Tax Fees, charges and insurance premiums required to grant the loan 46

47 III. Protecting the public interest Beginning of the fee registration process Banks and regulated financial companies must register changes to fees with Banco de México before they can come into effect. Banco de México may make observations whenever it feels that increases are a barrier to competition, preventing clients of one bank from using the services of another, or when such increases are viewed as bad practices. So far, four observations have been made public. As in most cases, banks have withdrawn or modified their registration request in favor of the consumers. 47

48 III. Protecting the public interest Basic bank accounts were designed (payroll and for the general public) Basic accounts offer cost-free services with regard to: Opening and maintaining an account, Granting a debit card, Crediting resources to the account through any means, Withdrawals from the bank s ATMs, Consulting balances at the bank s own ATMs. Basic accounts for the general public may require a minimum balance, but banks are not allowed to charge fees if the requirement is not met. 48

49 III. Protecting the public interest Number of basic accounts Millions of accounts 7 6 Mar-08 Jun General BA Payroll BA Source: Banco de México. 49

50 III. Protecting the public interest Early payments are allowed Banks and regulated entities must accept early payments on mortgage loans and other types of loans below 900,000 UDIs. Credit card rules Credit cards cannot be issued without being applied for. Consumers have limited responsibility when the transactions do not generate a receipt (promissory note). New cards or replacements must not be activated. 50

51 III. Protecting the public interest Payroll transfer Banks must transfer payroll deposits to the account indicated by the client at no charge. This measure should increase competition between banks. Limits on charging interest in advance Lending entities cannot request interest payments on mortgages and other types of loans below 900,000 UDIs in advance. 51

52 III. Protecting the public interest Rules for deleting credit bureau records Information related to loans must be below 1,0000 UDIs. The deleting time begins to run as of when the loan is reported past due. 52

53 III. Protecting the public interest Progress with the process for deleting CB records: Deleting CB records according to loan amount and time elapsed ( from July 16, 2008 to date) No. of records deleted Time elapsed for Debt amount (persons) deleting Individuals Corporations Up to 25 UDIs 12 months 863,245 4,766 Between 25 and 500 UDIs 24 months 2,775,218 21,357 Between 500 and 1000 UDIs 48 months 215,146 1,621 Total 3,853,609 27,744 53

54 Final remarks Banco de México has evolved alongside the financial system in order to promote economic development and raise Mexicans standard of living. 54