May 22, 2020 | 2:57 pm

Banco Ahorro Famsa, one of the financial institutions focused on loans to low-income people, suffered a new setback from the rating agency Moody’s.

Moody’s cut the bank’s global, local currency and foreign currency long-term deposit ratings to ‘Caa1’ from ‘B1’ and changed its outlook to ‘negative’.

The rating agency argued that the changes reflect its assessment that the Mexican economy will contract in 2020 as a result of the coronavirus outbreak, which will have a direct negative impact on asset quality and profitability. of Banco Ahorro Famsa and other Mexican banks.

Economic crises tend to affect people with fewer resources more strongly, however, even in difficult times, it is the segment that seeks to face their bank payments so as not to have a bad record.

However, the COVID-19 outbreak has led to the implementation of containment measures that have caused a drop in economic activity in Mexico, which in addition to affecting the most vulnerable people, the bank’s business model is also affected.

This is because its unsecured consumer loan model depends on pedestrian traffic in the parent company stores, which severely limits origination and collection in current circumstances.

The management of Banco Ahorro Famsa has introduced improvements in its origination and collection processes since 2019 and has begun to diversify beyond riskier financing such as consumption, but given current conditions, any improvement in the quality of assets can only be anticipate by 2021

Moody’s said.

Non-performing loans from Banco Famsa have continued to increase in the first quarter of 2020 to 16.8%, from 14.6% in December 2019, due to the difficult operating environment in Mexico. So the rating agency expects a further deterioration in the bank’s delinquency rate due to the deep contraction of Mexico’s GDP this year and the limited economic recovery that it forecasts for 2021.