Mexico to bring in accelerated Basel III
Thursday August 11 2011 | 08:01 AM

Mexican authorities are considering whether to accelerate Basel III implementation because its banks already fulfill the new capital and liquidity requirements. 

In its latest country report, the International Monetary Fund says that Mexico is well positioned to adopt the Basel III changes ahead of the international timetable, and that regulators plan to introduce new capital requirements in 2012 - well ahead of the timetable of 2019.

However, the IMF warns that the introduction of a capital surcharge for systemically important financial institutions under Basel III could have a "disproportionate effect" on the country due to the large share of systemic banks in its financial sector.

This would lead to lower credit growth and higher intermediation margins, as well as potentially reducing market liquidity. 

Despite these concerns, it says that at the end of 2010, all banks complied with the minimum requirements "significantly exceeding" them with common equity at 13.8 per cent. Mexican banks also had an average tier one capital ratio of 14.7 per cent at the end of last year.

On the liquidity front, the country is also well prepared according to the IMF report with banks having large liquid assets in relation to short-term liabilities. However, some of the smaller banks may not yet comply with the ratio. 

The IMF warned that there could be a spillover effect from the European and US sovereign debt crises on Mexico's economy.

It says: "Although the direct impact from unsettled conditions in Europe is seen as limited, an increase in global risk aversion and generalised flight to quality could affect even strong sovereign credits like Mexico.