The Spanish bank’s Mexican arm has noted a significant uptick in structured products that are exclusively tied to the ESG theme over the past year and bleeding into the first quarter of 2021.

ESG as a theme is definitively gaining ground among Mexican equity investors but with a great variety in the level of awareness and knowledge. For the most advanced investors, ESG criteria are already being directly used in their investment strategies.

According to Pablo Parra (pictured) head of global structured solutions, Mexico at BBVA, ESG themes have been considered for many years by Mexican corporates but have been limited to the publication of dedicated sustainability reports to analyse their performance in each of the three ESG criteria.

We hope that during 2021 there will be a greater consolidation of ESG instruments - Pablo Parra

“Even though the level of commitment remains variable among listed entities, we have witnessed a quantum leap in the past couple of years with major Mexican corporates creating both specific ESG committees, and the contemplation of ESG criteria in investment decisions or for management retributions,” he said.

During 2020 and 2021, BBVA Bancomer saw many launches of ETFs, investment funds and indices with an exclusive ESG angle. Similarly, warrants have been a vehicle to implement and deliver ESG investment strategies to investors and the bank expects more in the coming months.

As it continues to develop its quantitative investment strategies (QIS) offering , the Spanish bank has also developed a series of ESG indices, with five being distributed globally. In April 2021, it launched a new 5G index Solactive BBVA Next Generation Networks Index.

“Global BBVA QIS activity involves the manufacturing and distribution of trading strategies encapsulated in rules-based and transparent indices,” said Parra. “An example of this new line of business is the work hand-in-hand with a European institutional client to create a tailor-made index according to their specific investment requirements.”

Shorter terms

Structured product issuance in the first quarter was strong despite increasing apprehension among Mexican investors amid upcoming elections that will decide the majority in Congress.

“Investors have opted to maintain high liquidity by decreasing the term of the notes or by buying products with a high cancel probability in the short term, but otherwise have shown an increased interest versus the first quarter of 2020, which was hit by the Coronavirus pandemic,” said Parra.

SRP data shows that BBVA was the second most prolific issuer group in the Mexican structured products market during Q1 21 with 377 products worth MXN16.9 billion (US$839m), compared with 398 products valued at MXN21.8 billion in Q1 20.

BBVA’s product issuance gradually grew during 2020 reaching 506 products in Q3 20 worth MXN19.2 billion, and then fell to 431 (MXN17 billion) in the final quarter of 2020.

The bank follows Monex which topped the top five issuer league table in the first quarter of 2021. Other key players are Citi with an issuance of 57 products valued at MXN5.2 billion, Santander with 53 products worth MXN1.9 billion, and Scotiabank with 17 products worth MXN1.2 billion.

Q1 activity

In Mexico, BBVA’s net interest income stands at €1.4 billion for the first quarter period compared with €1.5 billion during the same period in 2020. Risk-weighted assets totalled €62 billion in Q1 21, representing an increase from its Q1 20 figure of €60.8 billion.

The bank’s net attributable profits soared by almost 47% from the first quarter of 2020 to total €493m. Operating expenses increased by 4.3% due expenses which were postponed due to the pandemic, as well as expenses denominated in dollars affected by the depreciation of the Mexican peso.

BBVA expects to see an increased interest in traditional FX and rates products compared to the volatile period of 2020 while in terms of ESG, the bank identifies the need to work closely with investors.

“We hope that during 2021 there will be a greater consolidation of ESG instruments which we expect will have a positive effect in the asset allocation of investors,” said Parra. “In addition, there will be a common effort by both regulators and market participants to create a regulatory framework that will allow ESG investments to grow in the Mexican market.”

Click here to view the bank’s first quarter earnings release.