What factors are likely to affect funding operations in the short and long term for Nacional Financiera?
Similarly to other markets elsewhere, in the short-term there are many factors present in the global economic environment which are affecting exchange rates and levels of funding in Mexico. The expectation of interest rate hikes by the Fed, the actions of other central banks such as the Bank of Japan and the Bank of England and the fallout from Brexit have all impacted the Mexican economy.
Despite this, we are not expecting any structural change in Mexico which could affect the credit risk of the country or of Nafin in the long-term.
Which factors could lead to an increase or a decrease in lending across the country?
It currently remains to be seen what the impact of the implementation of the structural reforms approved by the Mexican government a few years ago will be, particularly regarding the energy and telecom reforms.
However, a strong understanding of the economic and legal conditions within Mexico amongst the international investment community would lead to more demand for new credits or projects in which Nafin would play an important role.
On a similar note, we feel that an increase in current oil prices could also lead some market players within that sector to reactivate specific projects, which would lead to an increase in demand for credit by either themselves or their contractors and suppliers.
Furthermore, on the successful implementation of the reforms, we are expecting to see an increase in demand for credit from micro and small to medium sized enterprises, which are going to constitute an important part of the development of new projects in the country.
How do peso and dollar funding compare when financing projects?
Given that we are a development bank owned by the federal government, our credit risk is amongst the strongest possible in Mexico. This leads to the cheap financing costs in pesos.
However, because of the basis swap, nowadays there is a benefit to issuing pesos and converting them through synthetic funding into dollars or other currencies if necessary, which provides an alternative to traditional financing methods.
Despite this, we are aware that this situation could be a temporary one, and as a result we are working to build our own cost of funding curve in dollars.
What are Nacional Financiera’s funding requirements at present?
We expect to increase our total net credit loan portfolio by around 10% to 12% over the next few years.
As a result, we will be continuing with our Syndicated Auction Mechanism to launch our peso-denominated Cebures with 3 and 10-year tenors.
Simultaneously we are looking to build our cost-of-funding curve in US dollars through benchmark-sized publicly issued bonds from which we are looking to raise funds for around MXN20bn and US$500mn per year.
How does the Bank plan to attract other investors towards projects it is working on?
Nacional Financiera already started attracting international investors in October 2015 when we returned to the international capital markets with our green bond.
Following on from this, we are launching an international offer along with our local offer for our CEBURE in Mexican pesos. We have had several meetings with investors from the US, Europe, Asia and South America as we look to diversify our investor base.
How likely will volatility in the peso impact the ability of many investors to lend? How can Nacional Financiera counteract this?
In a volatile economic environment, investors seek the safest instruments and strongest credit risk profiles. As a part of the federal government, Nacional Financiera’s debt is one of most in demand across Mexico in times of economic uncertainty.
The cost of funding for Nafin changes with the market conditions, but we always have a reference in the price of Mexican government securities.
Which sectors need the most financial support? How does the Bank intend to assist these sectors?
One of Nacional Financiera’s main goals is to provide access to affordable financing to micro and small to medium sized enterprises, which historically has been one of the most under-banked sectors of the Mexican economy.
Our goal is to continue to provide innovative loan products that enhance existing loan programmes and increase the availability of credit.