OREANDA-NEWS. Mexican FX banks have a strong position in the FX trading business segment, have low nonperforming loans (NPLs) and shows consistent profitability metrics that support its reasonable capital ratios. However, their significant reliance on a volatile business defines their aggressive business profiles that are exhibited in faster growth than the industry average.

FX banks are looking for diversification through other segments, mainly by lending. Fitch expects that these banks will continue to grow rapidly and the challenge will be to do so without altering its reasonable credit profiles.

Despite their low NPLs, FX banks exhibit high loan concentration by geographic zone and by borrower. Fitch expects that charge-offs and impairment ratios could potentially pick up in the foreseeable future as their loan portfolios are young and need to mature.

In Fitch's opinion, the reasonable capitalization metrics of these banks reflect the lower risk nature of their on balance sheet assets and supported by consistent profits. Fitch expects capitalization ratios to gradually decrease due to rapid loan growth above their internal capital generation and new capital regulatory requirements.

FX Banks' funding relies on wholesale and concentrated funding that tends to be more vulnerable to market conditions. Positively, these banks have ample liquidity levels. Fitch expects these banks at some point will need to access long-term funding to finance planned growth in more traditional credits.