Euro-Zone Woes Seen Having Limited Impact On Mexican Banks

Mexican financial authorities said in a statement late Thursday that while the euro zone's debt and banking troubles are "worrisome," the possibility that the problems will spread to the Mexican banking system is limited.

The Financial Stability Board, which includes regulators as well as the finance minister and central bank governor, singled out some of the banking system's strengths -- such as high capitalization levels, acceptable bad debt rates and ample deposits -- as backing their conviction that the system can withstand external shocks.

October data from Mexican banking regulator CNBV shows total banking assets of 5.96 trillion pesos ($432 billion), deposits of MXN2.87 trillion and a nonperforming loan rate of 3%.

The Financial Stability Board identified relationships between Mexican banks and their parent companies abroad as the main potential source of contagion for Mexico's banking system.

Spain's Banco Bilbao Vizcaya Argentaria SA (BBVA) runs Mexico's largest bank by assets and deposits while the Mexican unit of Spanish financial group Banco Santander SA (STD, SAN.MC) is the system's third-largest.

The Financial Stability Board said that as some European governments face difficulties refinancing their debts and European banks seek to shore up their capital levels, world economic growth could be stunted.

The reduction in European banking assets could also result in a trimming of assets among subsidiaries of European banks around the world, the board said.

Earlier in December, Santander sold a 7.8% stake in its Chilean business for $950 million while also announcing plans to sell all of its business in Colombia, where Santander has a minimal market share.

However, Santander reinforced its Mexican operations last year via a purchase of the 25% of the unit it didn't already own from Bank of America (BAC) in a deal that valued the business at $10 billion. It also bought a $2 billion portfolio of mortgages from General Electric Co. (GE), making Santander Mexico's second-largest private provider of mortgages.

The Financial Stability Board added that Mexican financial markets continue to function in an "orderly fashion" and that they have not shown signs of stress. The board also noted that both public and private issuers of debt in Mexico have been able to place debt with more favorable terms than some of their developed-market counterparts.

-By Amy Guthrie, Dow Jones Newswires; (5255) 5980-5177; [e-mail]