https://www.fitchratings.com/research/banks/mexican-financials-face-ongoing-money-laundering-contagion-risks-08-07-2025

Fitch Ratings-New York/Monterrey-08 July 2025: The recent U.S. Treasury Department's identification of three financial institutions over cartel-linked money laundering concerns is a significant stress event for Mexico’s bank and non-bank financial institutions given the potential for ongoing sanction and contagion risks, Fitch Ratings says. The affected institutions’ relatively small market share and footprint and prompt regulatory response have limited the threat of broader market disruption, but potential money laundering risks will be an ongoing watch item for the financial system.

Following the U.S. Treasury’s Financial Crimes Enforcement Network’s (FinCEN) notification of banks Intercam Banco and CIBanco and brokerage firm Vector Casa de Bolsa over money laundering concerns, Fitch downgraded the entities (rated by Fitch on the national scale only) by several rating categories to better reflect the heightened vulnerability of these entities and the potential effect on liquidity and income that could ultimately threaten their ability to meet financial obligations. All three financial institutions have denied wrongdoing.

Risks related to alleged money laundering and enforcement can quickly undermine a financial institution’s viability and going concern status, damaging its business profile and ultimately revenues, along with the confidence of consumers, investors and counterparties. The business activities of affected financial institutions may be disrupted by frozen assets, transaction reversals and legal uncertainties. Contagion risk can erode confidence in the broader financial system if not contained, which could pressure cross-border capital flows, increase compliance costs, and drive client outflows.

The three financial institutions remain going concerns and are not subject to automatic liquidation, but effective July 21, 2025, U.S. financial institutions are prohibited from transmitting funds to or receiving funds from these entities. Mexico’s banking regulator CNBV temporarily assumed control of the entities after they had operational and liquidity problems. Key counterparties such as large U.S. banks, local banks and other market participants have begun to cut ties with the entities and withdraw funds, pressuring liquidity. Major Mexican REITs are looking to replace CIBanco as trustee. The Mexican Finance Ministry announced that the trustee businesses of CIBanco and Intercam Banco will be temporarily transferred to local development banking units to keep them operating.

The two banks represented about 1.5% of total assets and less than 1% of loans and deposits of the Mexican banking system as of April 2025. Their small market shares in credit and deposits, concentrated business models, and ample capital and liquidity limit the threat of broader disruption.

Banks with concentrated, and/or wholesale-focused business models face greater downside risk. The two banks have business models heavily concentrated in wholesale FX trading and derivatives services and international payments. FX trading income accounts for more than half of the affected banks’ operating income, while traditional lending is secondary. Intercam Banco and CIBanco rank among Mexico’s top 10 FX market players collectively, with 18% of non-financial private sector traded FX volumes in 2021-2024. Other banks could absorb their FX brokerage activities, as all are permitted to operate in this segment, though risk appetite varies.

Vector Casa de Bolsa had a market share of under 1% of investment accounts and nearly 2% of custodial transactions as of December 2024. While its business model is relatively diversified, the ongoing situation may negatively affect several business lines due to reputational risk that could lead to clients leaving for market competitors.

CNBV fined Intercam Banco MXN5 million (approximately USD268,000) in 2019 for money laundering infractions and administrative failures dating back to 2013. Mexican lawmakers passed an anti-money laundering bill in response to the FinCEN designation of the banks to better prevent and identify money laundering, expanding oversight and activities subject to anti-money laundering controls in areas such as real estate, trusts and cryptocurrency.