Banks Tighten Lending to Indebted Mexican States as Graft Concerns Surface Noe Torres and Dave Graham - Reuters
go to original August 3, 2016

Mexican Finance Minister Luis Videgaray (C), Mexico's Economy Minister Ildefonso Guajardo (R) and Deputy Governor of the Bank of Mexico Roberto del Cueto attend a news conference in Mexico City. (Reuters)

Mexican banks, determined to avoid a return to past woes, are reining in lending to the country's indebted state governments, some of whose leaders have recently become the focus of corruption allegations.

The drop in bank lending to the states this year has been the sharpest since the 2007-2009 financial crisis, and coincides with a jump in liabilities in several states in the past five years.

In the first half of 2016, commercial banks agreed 11 loans to local and state governments worth 8.471 billion pesos ($451 million), less than half the sum from the same period in 2015, when 32 loans went out, according to finance ministry figures.

This year's decline was the steepest since 2009, when the financial crisis pushed Mexico into recession, the data show.

Four states — Veracruz, Quintana Roo, Nuevo Leon and Chihuahua — accounted for close to half of the 70 percent jump in local government liabilities between 2010 and 2015, which stood at 536 billion pesos ($28.52 billion) at the end of December.

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