A radiography of bank interest rates for SMEs in Mexico

Abstract

The general objective of this paper is to study the evolution of bank interest rates charged to SMEs in Mexico, reviewing the individual trajectories of 14 representative banks in the Mexican banking system. In particular, it analyzes whether there is a long-term relationship (through Johansen and Gregory-Hansen cointegration tests) between the reference rate TIIE 28 days and the interest rate series for SMEs of each bank. The results show that following the same long-term path as the reference rate does not ensure competitive behavior (in prices) on the part of the banks. Large-scale banks are the only ones capable of charging rates above the average market rate. In addition, there is no relationship between the level of rates set by banks and their market share in credit to SMEs, which means that interest rates do not represent a fundamental variable of competition in such a market.