Deposits at risk, but not in conventional banks. Deposits at risk, but not in conventional banks.

Savings, loan coops flagged for high risk

Consumer agency warns 583,000 people at risk of losing their savings

Almost 600,000 people across Mexico are at risk of losing their savings because their money is invested in funds that are on the verge of collapse, according to the financial services consumer protection agency Condusef.

The deposits totaling more than 6.2 billion pesos (US $324 million) are held by 97 different independent savings and loan cooperatives known as Socaps, which exist to provide financial services to people in rural areas where there are no banks.

According to Condusef data, only 800 of Mexico’s 2,492 municipalities have bank branches and in those that don’t, community savings institutions dominate the financial sector.

Oaxaca is the worst affected state having 30 of the at-risk financial institutions, representing almost one-third of all the highly vulnerable funds identified by Condusef. Michoacán, Jalisco, Veracruz, Guanajuato and Puebla are the next-worst on the list.

However, the problem affects virtually the whole country, with a total of 583,000 account-holders spread across 28 different states in danger of losing their bank deposits. Only Baja California, Baja California Sur, Sonora and Chihuahua are unaffected.

The Socaps sector operates legally under the supervision of the National Banking and Securities Commission (CNBV) but in light of their current state of insolvency and potential for bankruptcy, the 97 imperiled cooperatives have been ordered to stop receiving new deposits from their members. The decision was based on a recommendation from Condusef.

In an interview with the newspaper Milenio, Condusef chief Mario Di Costanzo explained that the decision to prescribe the no-new-deposits condition was made because the 97 jeopardized funds had managed their resources poorly and taken them to the brink of disaster.

“. . . What they did before this status was issued was not illegal but if they receive more [deposits], it is illegal because they are no longer secure or viable,” he said.

The order acts as a warning to account-holders because “if people don’t know, they may go to deposit their money in these places and ultimately put their money at risk.”

Condusef identified a further 10 entities offering financial services that are in the process of consolidation with larger, more stable institutions because of their susceptibility to risk. Those entities have 131,000 members and more than 931 million pesos (US $48.6 million) in assets.

Considering that so many people’s financial situations have become precarious, Di Costanzo added that proposed reforms to the Popular Credit and Savings Law — currently held up in the Senate — need to be put in place.

The reforms will provide greater guarantees and protections for people whose savings are held in small funds and are required urgently because, in many cases, the people that use them don’t have the option of using the services of a regular bank.

Another way to ensure greater protection of people’s bank deposits, according to Di Costanzo, is for small, locally-based funds to amalgamate with larger, more secure financial cooperatives.

Source: Milenio (sp)

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