Investments by Honda Motor Co. and Nissan Motor Co. that look set to make Mexico the largest car exporter to the U.S. are offering Japanese banks a chance to avoid the world’s lowest yields.
The median interest rate set by 34 banks for commercial loans in peso in Mexico was 8.1 percent in January, according to information from the nation’s securities and banking regulator, known as CNBV. The average interest rate for commercial loans in Japan is 0.887 percent, seven basis points greater than a record low achieved in August in central bank data going back 20 years.
Honda Chief Executive Officer Takanobu Ito established an $800 million factory in Celaya, Mexico last month and same techniques by rivals are lifting companies including Mitsubishi UFJ Financial Group Inc. Cross-border and foreign currency lending by Japanese banks in Mexico rallied 34 percent to a record $17.6 billion on September 30, more than in Malaysia and the Philippines mixed, Bank of International Settlements data revealed.
“We want to charge a lot more for Mexico-oriented loans than for those at home,” said Fuminori Matsushita, the general manager for international business promotion at Shizuoka Bank. Ltd., located in an area southwest of Tokyo that’s the nation’s second-largest supplier of auto parts. “How much more we can charge to reflect the country risk for Mexico depends on individual negotiations.”
Quadrupling Exports
Mexican auto exports to the U.S. more than quadrupled from 1993 to 2013, buoyed by lesser tariffs under the North American Free Trade Agreement. Its tally will achieve 1.9 million in 2015, overshadowing Canada and Japan, consultant IHS Automotive calculated.
Japanese carmakers are riding the Mexican boom.
Nissan, Japan’s second-largest automaker, broke ground on a $2 billion plant in November in Aguascalientes, while Mazda Motor Corp., Japan’s most export-dependent car firm, inaugurated in February a $770 million facility in Salamanca, where Toyota Motor Corp. contracted to make 50,000 cars each year. Honda’s Celaya plant will make Fit hatchbacks.
The amount of Japanese-connected firms in Mexico jumped to 679 last year from 464 two years earlier as automakers embarked on new plant projects, based from data from the Mexican embassy in Japan, distributed at a Tokyo seminar last month. The figure will possibly bolster to about 800 by 2015, said Aaron Vera, a commercial officer of the embassy at the event.
Improve Margins
“There’s a chance to improve margins somewhat with loans to support overseas expansion of domestic companies,” Mana Nakazora, the chief credit analyst at BNP Paribas SA in Tokyo, said in a telephone interview. For smaller regional banks, lending in Latin America is an opportunity to diversify their overseas investments, she said.
Bank of Tokyo-Mitsubishi UFJ Ltd., Mitsubishi UFJ’s primary lending unit, charged an average of 4.56 percent for peso commercial lending in Mexico, the least of 34 banks, based from data from the the nation’s financial regulator.
The BOJ’s unprecedented purchasing of more than 7 trillion yen ($69 billion) of bonds a month is eroding earnings on lending. Banks’ average net interest margin was 1.28 percent, the lowest in the Asia-Pacific, according to data recorded by Bloomberg. Mitsubishi UFJ’s was 0.93 percent.
Japan’s benchmark 10-year bond yield has sagged down about 20 basis points since the beginning of 2013 to 0.64 percent. That’s the least in the world and compares with a 6.26 percent yield in Mexico, according to data gathered by Bloomberg. One basis point is 0.01 percentage point.
The yen has skyrocketed 3.5 percent this year to 101.79 per dollar as of 10:38 a.m. in Tokyo, after plunging down 18 percent in 2013 in the wake of the BOJ’s easing measures.
Denso Investment
Denso Corp., Japan’s biggest car parts supplier, said in July it would invest an extra $51 million to expand operations at a plant in Guanajuato, Mexico, to make alternators for North American clients. Construction on the plant started last year with a $57 million investment, to add to two existing facilities in the country.
Bank of Tokyo-Mitsubishi hiked lending in Mexico by 56 percent to $2.37 billion as September 30 from a year earlier, according to its parent’s profits data published last month.
Japan Bank for International Cooperation signed a loan settlement yesterday with Hiruta Mexico SA, a unit of transmission and chassis parts maker Hiruta Kogyo Co. to fund the building of a plant in Guanajuato, according to a statement from the state-owned lender. JBIC together with Hiroshima Bank Ltd. are providing $38 million for the project.
Moody’s Investors Service awarded Mexico its highest-ever debt rating on February 5, lifting it one level to A3. It cited President Enrique Pena Nieto’s constitutional alterations to open the energy industry to more foreign investment and broaden the tax revenue base. Japan is rated Aa3 by Moody’s, three levels greater and the company’s fourth-highest investment grade.
“There aren’t many cards Japanese banks can play to boost profits with little prospect of domestic lending increasing that much,” said BNP’s Nakazora. “Increasing lending overseas to capture higher returns is one way Japanese banks can survive.”
