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Mexico’s non-bank lenders may now need bank licenses to survive

mexico banks

Mexico’s biggest non-bank lenders may need to become licensed banks, analysts said, as they maneuver through growing market turmoil to avoid the fate of three big peers who defaulted in the past year.

“Any fintech with serious, long-term ambitions will likely have to find a way to become a bank,” says Mike Packer, an investor at QED, a venture capital fund which has backed several lending fintechs.

During the pandemic, the non-bank institutions grew to represent 20 per cent of Mexico’s private credit market. Also known as “shadow banks,” they offer everything from unsecured credit to payroll lending to Mexico’s 4-to-5 million small and medium-sized businesses.

But three major publicly traded players have since defaulted in a year: AlphaCredit, Credito Real (CREAL.MX) and Unifin (UNIFINA.MX). Now banks are less willing to finance non-bank lenders. International bondholders are also reluctant after losing billions of dollars in the recent wave of defaults.

With confidence in the sector dried up, along with an ensuing liquidity drop and rising interest rates, the remaining players face much slower growth prospects and potentially a fight to survive.

“Faced with a scenario of less liquidity in the market, these financial companies will have to renew their lines of credit at higher costs, and evaluate alternative domestic financing sources,” said Moody’s analyst Rodrigo Marimon.

There is one other option available to such lenders in Mexico – become a bank, likely via an acquisition. That would allow them to lend out customer deposits rather than relying on credit markets, analysts said.

Gilberto Garcia, an analyst at Barclays in Mexico, agreed that nonbank lenders would struggle to grow in the current funding climate, making becoming a bank a more attractive avenue.

“At this point, they will have to fund their growth very gradually with their profits, or they can boost their funding pool by pursuing a banking license,” he said.

Garcia added, though, that becoming a bank is “by no means an easy or quick route, and comes with (onerous) regulatory obligations.”

Mexican fintech Covalto, previously named Credijusto, successfully went this route last year, acquiring a bank.

“We specifically became a bank to prevent the pitfalls of this moment. The stability and security that we have right now, and the long-term benefit of decreasing our cost of capital, that’s what we bought,” said Covalto co-CEO David Poritz.

Poritz also says more shadow banks will eventually follow.

“Non-bank lenders will always play a role. But increasingly, companies are going to be going a fully regulated route.”

Analysts named the likes of Konfio and Brazil’s Nubank as possible future-bank candidates. Both companies declined to comment, though a Konfio spokesperson said it recently fired 150 employees as part of a broader restructuring.


The bank route does not resonate with everyone. Some nonbank lenders hope to stick with the existing business model, which emerged to tackle the country’s reported $160 billion funding gap.

Among them is Tangelo, a digital nonbank lender formed out of the merger of asset-based lender Mexarrend and fintech Zinobe, and boasts credit lines from HSBC and Credit Suisse.

“We’re going to leave the regulated play for people who already have it,” said co-Chief Executive Tarek El Sherif, adding that the Mexican regulator is “actually being very supportive because they don’t want the sector to disappear.”

He added: “There’s a real need. We are already getting approached (by Unifin clients).”

Moody’s has not ruled out the possibility of casualties and flagged the sector’s need to improve corporate governance. Still, Marimon said shadow banks “that maintain their credit origination policies in a prudent manner (have) good business prospects.”

Indeed, a drop in competition has opened up new prospects, El Sherif said, arguing that the sector will survive its short-term bumps.

“The people that survive will thrive and grow, and there’s a lot of market share to scoop up. It’s definitely a time to be aggressive.”

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