Early Warning Variables of Financial Fragility in Mexican Credit Unions

Abstract

The Savings and Loan Cooperatives (SOCAPS) in Mexico are smaller in size than banks, so they are at greater risk of having problems in the face of changes in economic variables and their internal indicators. Therefore, the objective of this paper is to analyze the effect of different fundamental and macroeconomic variables on the probability of financial problems (losses) of savings and loan companies in Mexico. Using Logit specifications, we find that five specific and five macroeconomic variables are significant in the probability of losses. Changes in size and debts, measured through assets and liabilities respectively, as well as late payment are the fundamental factors that have the greatest influence on the probability of having financial problems; inflation and the dollar were the macroeconomic variables that have the greatest effect on the probability of having losses. These results can be useful as early warning indicators to avoid problems in these savings banks, as well as in the design of public policies to avoid the closure of these institutions.