Bank of Mexico touts financial system's stability despite economy's weakness (updated)

Japan Systembank

11/12/2024 19:06

* 
      Mexico central bank calls financial system 'solid and
resilient'
    

        * 
      It says banking system has liquidity, adequate capital
levels
    

        * 
      Report calls market behavior relatively orderly
    

        * 
      Bank cites potential trade conflicts as risk to financial
system
    

  
 (New throughout, adds details, background and governor's
comments)
    By Brendan O'Boyle
       MEXICO CITY, Dec 11 (Reuters) - 
    Mexico's central bank on Wednesday expressed confidence in
the country's financial system despite the "notable weakness" of
Latin America's second-largest economy and risks from market
volatility and potential trade conflicts.  
  
        In its biannual financial stability report, the Bank of
Mexico credited robust institutions for the system's stability,
noting its "solid and resilient" position and capital and
liquidity levels above regulatory minimums. 
  
        Mexican markets have experienced considerable volatility
in the year's second half, amid elections in Mexico and the
U.S., its top trading partner. U.S. President-elect Donald Trump
has promised to levy a 25% across-the-board tariff on Mexican
imports.
  
        Uncertainty over a slew of constitutional overhauls in
Mexico also contributed to a weakened local currency. Still,
Mexican markets have managed to behave in a "relatively orderly"
manner, the report said.
  
        "While the vulnerabilities and risks identified for
financial stability are generally considered limited, unexpected
or severe shocks could affect its proper functioning," Banxico,
as the central bank is known, noted in the report. 
  
        Even if limited, risks to the financial system could
come from a rise in geopolitical tensions or trade conflicts,
the report said. It also saw a risk in possible further
weakening of the domestic economy, which the central bank
currently forecasts will grow just 1.8% in 2024 and 1.2% in
2025. 
  
        Trump's threatened tariffs have stoked uncertainty over
whether Mexico will continue to benefit from nearshoring, a
trend in which multinational corporations locate manufacturing
capacity in Mexico, closer to the U.S. market, rather than in
Asia. 
  
        Banxico Governor Victoria Rodriguez on Wednesday said
the economic phenomenon "is underway," and the results of the
central bank's survey of companies underscore the "relevancy" of
U.S.-Mexico economic integration. 
  
        "The relocation of companies has also boosted bank
credit," Rodriguez said, adding that the process is a gradual
one. 
  
        "These investments take time to materialize, so we would
expect this process to continue both throughout this year and
the coming years."
  

 (Reporting by Brendan O'Boyle; Editing by Anthony Esposito and
David Gregorio)
 ((Brendan.OBoyle@thomsonreuters.com;))