Large foreign private banking players dominate Mexico’s private banking market, catering to a relatively small population of HNWIs. A recent report from WealthInsight forecasts that there will be an increase in HNWI numbers, presenting an opportunity for the wealth management sector to flourish further
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Mexico’s GDP was worth $1.283tr in 2014, representing 2.07% of the world economy. However, despite the size of the economy, the wealthy population in the region is modest.
The high net worth individual (HNWI) population in Mexico rose by 2% in 2014, reaching approximately 148,000 and holding $751bn in wealth. This follows a 0.9% population rise in 2013.
According to WealthInsight, though, the Mexican HNWI population is set to grow 11.8% by 2019, reaching 170,500. Their wealth is forecast to grow by 29.9%, reaching $1.02tr.
Even though the wealth in the region seems to be on the rise, as does the wealthy population, the wealth inequality is staggering. Mexico is home to the world’s second richest man, telecommunications tycoon Carlos Slim, who is worth an estimated $77bn by Forbes. According to Oxfam, however, the country’s four richest individuals are worth as much as the 20 million poorest. The wealthy population in the region represent a minute 0.1% of the total population, which stood at 124m in 2014.
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By GlobalData
Private banking landscape
Mexico’s domestic bank credit is currently at around 16% of GDP – much lower than other emerging economies. In 2004, foreign bank participation accounted for 82% of total banking assets in Mexico, turning the Mexican banking sector to an oligopolistic market. A Federal Competition Commission has been formed (Cofece by its Spanish acronym) in order to encourage competition in the banking sector.
The country’s wealth management industry is currently dominated by foreign private banks. With ample exposure to international markets, foreign banks are in a better position to provide more sophisticated and diverse investment options to the Mexican wealthy in comparison to their local counterparts.
Source of wealth
According to the WealthInsight report, FMCG accounted for the primary source of wealth for 15.3% of local HNWIs in 2014. Basic Materials was the second-largest source of wealth, with 12.6% in the same year, followed by financial services and construction and engineering with 11.6% and 10.6% respectively, and media with 8.9%.
Asset allocation
Real estate was the largest asset class for Mexican HNWIs in 2014, accounting for 45.2% of total HNWI assets. This was followed by business interests with 17.1%, equities with 15%, fixed-income with 11.9%, cash and deposits with 5.9% and alternatives with 5%.
Mexican residential property prices rose by 4.9% in 2014and have been showing an annual rise of 4-5% since 2005. In recent times, the Mexican real estate market has been dominated by the demand of resort communities. Ever since the tequila crisis in 1994 – when due to the spike in interest rates there were large scale bank defaults – the Mexican property market had shown continuous recovery.
Aside from real estate – equities, alternatives and business interests grew during the review period, at 42%, 33% and 31% respectively between 2010 and 2014.
Alternative assets held by Mexican HNWIs increased marginally during the review period, going from 4.8% of total HNWI assets in 2010 to 5.0% in 2014. HNWI allocations to commodities decreased marginally from 0.9% of total HNWI assets in 2010 to 0.8% over the same period.
WealthInsight expects allocations in commodities to decline over the forecast period to reach 0.7% of total HNWI assets by 2019, as global liquidity tightens due to a forecast near-term drop in demand for raw materials from China. This is expected to cause global commodity prices to flatten.
Mexican HNWIs’ liquid assets were valued at $246.0bn as of 2014, representing 32.8% of the total wealth holdings.
