Small Mexican banks at risk

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The Independent Online
MEXICO CITY (Reuter) - Mexican banks have become the latest casualty of last month's peso devaluation, and analysts say only government intervention may save some of the smaller banks from collapsing.

A slowing economy, high inflation and climbing interest rates - projections for 1995 laid out by the government last week - are about as bad as it gets for a banking sector already stricken with problem loans.

Analysts say most banks were badly weakened by the 20 December devaluation, and that some may survive the year only if the government bails them out, or foreign rivals buy them at firesale prices.

Donald Gabbai, analyst at Standard and Poors, said: "Clearly, investor confidence is at a nadir right now. I don't know how much worse it can get. But we think Mexico has a very supportive system. It wouldn't allow a bank, even a small bank, to go under.

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At first overshadowed by the larger crisis affecting the country as a whole, Mexican bank travails came into the spotlight last week as fears mounted over their solvency.

Mexican stocks and the country's currency, the new peso, fell sharply on Friday on fears that some of the banks' international creditors were turning off badly-needed credit lines and demanding repayment.

Preparing for the worst, Mexican officials are already making contingency plans to deal with bank emergencies, including extra financing.

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