OREANDA-NEWS. Mexican development banks are a crucial tool for the federal government to accomplish the financial reform and to increase the relatively low banking penetration in Mexico, according to a new Fitch Ratings dashboard report.

Although Mexican development banks make up a relatively small part of the country's financial system, high growth exhibited in recent years of both loans and guarantees, due to the less dynamic local economy, has proved its policy bank nature and has helped to partially complete the targets set in the financial reform approved in 2013.

Fitch considers development banks have a sound asset quality with low and relatively stable impaired loans, benefited by its indirect financing nature (second floor loans or financial intermediaries), except for two entities that grant direct lending. Although asset quality is not a concern for Fitch, impaired loans could gradually increase as the loans mature and continue expanding, especially direct lending. Their profitability metrics are stable and generally acceptable, but modest, when compared to the Mexican banking system as this has historically not been its main objective.

In Fitch's opinion, capitalization metrics at most of these entities exhibit slight pressures (regulatory capital) as high loan growth has not been compensated with higher internal capital generation. However, loan loss reserves are usually ample. Funding is predominantly wholesale, and these entities can easily access funding sources as these are guaranteed by the federal government.

For more information including key credit profile factors, see Fitch's full report 'Mexican Development Banks - 2015 Dashboard', which is available at 'www.fitchratings.com'.