The Mexican banking system: regulation

The Mexican banking system is comprised of Banco de México (Banxico), commercial banks, development banks and public trusts created by the federal government for economic development that carry out financial activities, as well as banking self-regulatory bodies.

Pursuant to the Law of Credit Institutions (LIC), public trusts for economic development whose main purpose is the regular and professional performance of credit operations, including the assumption of obligations on behalf of third parties, are understood to be engaged in financial activities.

These operations must represent 50% or more of total assets, according to a World Trade Organization (WTO) report.

The banking sector, which comprises multiple or commercial banking and development banking, is governed by the LIC of 1990 and its amendments of March 9, 2018, June 22, 2018, June 4, 2019, March 27, 2020, May 20, 2021 and March 11, 2022.

The secondary regulation issued by the National Banking and Securities Commission (CNBV) are the General Provisions applicable to credit institutions (also known as Circular Única de Bancos -CUB-).

Mexican banking system

There are no restrictions on foreign investment in commercial banks; however, in development banks there are restrictions on foreign investment (article 6 of the Foreign Investment Law and section 2.4).

Mexico authorizes the commercial presence of foreign banks through the incorporation of subsidiaries of foreign financial institutions, in accordance with the provisions of the free trade agreements signed by Mexico and the provisions of the LIC.

Banxico’s favorable opinion is required for the CNBV to authorize the establishment of subsidiaries of foreign commercial banks, which must also comply with the Rules for the Establishment of Subsidiaries of Foreign Financial Institutions.

According to the WTO, no restrictions are imposed on the operations of a subsidiary, which may offer the same services and products as a domestic commercial bank.

The same regulation applies to multiple banks that are subsidiaries of foreign financial institutions as for domestic multiple banks.

The establishment of representative offices of foreign banks is also permitted.

Authorization from the CNBV is required to organize and operate as a multiple banking institution, which is obtained with the prior agreement of its Board of Directors and the favorable opinion of Banco de México.

Banks

The CNBV will notify the resolution within five business days following the date on which its Board of Governors resolves to grant the authorization.

The authorization to initiate operations is subject to the condition that the respective authorization is obtained in terms of Article 46 Bis of the LIC.

Among other requirements, the incorporation of a commercial bank must be carried out as a fixed capital corporation and the minimum capital required is 90 million investment units (UDIs) for multiple banks.

For banks that specialize in a niche market and therefore do not perform all the operations permitted by the LIC, a lower capital of 36 or 54 million UDIs is required.

There are three types of niche banks: those that specialize in savings and loan operations, those that provide corporate financial services and those that specialize in issuing cards and other means of payment.

The share of niche banks is low: they represent about 1% of total assets, loans and deposits.

The top five commercial banks by asset size are: BBVA Mexico (22.15% of total assets); Santander (14.81%); Banamex (12.43%); Banorte (11.16%); and HSBC (6.45 percent).