There have been three open questions hanging over the Mexican banking system since Nubank entered in 2021 and started offering high interest-bearing deposit accounts in a bid to win new customers as its way to acquire clients.
Will offering high interest rates on deposits work, in terms of adding clients, for challengers? More importantly, will such a strategy work in terms of creating a profitable business? And, lastly, will such a strategy from the new entrants require thetraditional banks to react, increasing the cost of funding for these institutions to the point of lowering returns on equity?
A recent report from Citi looks at this issue from the perspective of the last question: to what extent Mexican banks are having to increase interest rates on their deposit base.
As the report’s authors concede, it is still an opaque issue, and more time will be needed before we know the answers to these questions with any certainty, but the early signs for the traditional banks are better than is often assumed. So far, the interest rates being paid by Mexican banks for demand deposits – about half of the total funding of the banking system – haven’t increased.
