Judicial reform would raise the cost of credit: TMSourcing

Mexico City. The judicial reform could increase the cost of credit granted by banks and specialized intermediaries, since the recovery of guarantees could be longer in the courts due to having personnel who lack the required training, warned Susana Bravo, director of legal engineering at TMSourcing.

When participating in the first TMSourcing webinar “Judicial reform in Mexico: Implications for the non-banking and fiduciary financial sector”, the specialist pointed out that non-banking financial intermediaries will be affected by the judicial reform when their past due portfolios rise and they seek to recover them.

The intermediaries are mainly the Multiple Purpose Financial Companies (Sofomes) and the Popular Financial Companies (Sofipos).

“If they fall into an issue of overdue loans, the issue of recoverability of their capital can be more complicated. They fund themselves differently than a bank because they do not have deposit activities, they have latent risk,” he mentioned at the conference.

“For a financial intermediary, it seems to me that guaranteeing the recovery of their capital at this stage is essential, it can hit them and I think it could affect the end user because some financial intermediary is going to spend more resources on portfolio recovery, this In the long run it will bring increases in interest rates,” he added.

He explained that the cost of credit will be high if there is legal uncertainty because investors in banks and intermediaries will seek to protect themselves from non-payment by their clients.

“This means that these loans that they grant in turn are going to be more expensive, the rates are going to be higher and therefore they are going to ask for greater guarantees, and this is how it is permeated to the end users,” he commented.

“I think that this sector of the not so large could be quite hit by this reform and that is where as a union everyone should look for some type of option to counteract it,” he warned.

In the same videoconference, Sergio Chagoya, partner of Santamarina and Steta, argued that by volume, (the most affected) could be the largest financial institutions or groups that have more clients.

However, he stressed that the loss of professionals in the judiciary who carried out training exams, especially at the federal level, is of greater concern.

“In principle, there is no (initiation) in the reform package that the special courts will be eliminated, but the risk is large (in terms of) that judges specialized in economic competition, telecommunications, and commercial bankruptcy proceedings will also begin to suffer from being new, from not having this trajectory and this judicial career that has been promoted in the last 30 years. So there is the risk,” he said.

“With regard to special mortgage judgments, execution of guarantees and other actions that non-banking or banking financial institutions employ, there is also a risk in the sense that there is not that recognition, that capacity, as has been built in all these decades,” he reiterated.