Could Spain's Financial Woes Spread to Mexico?

  • 19 Nov 2012
  • By The Economist Intelligence Unit

Two Nations' Financial Ties Run Deep

Spain's role at the center of Europe's debt crisis has fueled concern that foreign subsidiaries of the country's major banks may try to prop themselves up by shedding assets in developing nations, such as Mexico, according to the Economist Intelligence Unit.

In contrast with Spain's domestic woes, foreign affiliates of two of the country's largest banks, Banco Santander and BBVA Group, posted results that ranked among the strongest in Mexico's financial sector in the first half of 2012. The affiliates have been sending increasing amounts of their profits back to Spain, attracting the attention of Mexican banking authorities.

But even though the financial ties between the countries run deep, concern the repatriation of profits may transfer Spain’s financial crisis to Mexico are probably overblown, analysts with the Economist Intelligence Unit said in a recent report.

With capital ratios running about double what's called for in new Basel III banking standards, Mexico's banks are "way ahead" in terms of global capital standards, the analysts wrote. It's clear that Mexico's central bank and financial regulators "have made sufficient provision to mitigate these risks in the foreseeable future."