How do Mexican lenders calculate loan loss reserves?
Probability of default times loss given default times the balance, with the regulator's fixed loss tables for banks and regulated SOFOMs, an own expected-loss model for the rest, and the coverage the rated sector holds.
A Mexican bank or regulated SOFOM reserves each loan at its probability of default times its loss given default times its balance, by the CNBV's tables. Once a personal loan is more than three payments late, the probability is 100% and 71% of the balance is reserved, rising with every payment missed. An unregulated SOFOM uses its own expected-loss model.
The licence decides which rulebook a lender reserves under
The rules sit in the Disposiciones de carácter general aplicables a las instituciones de crédito, the CNBV's single circular for banks. Its Chapter V Bis sets a standard method for each kind of portfolio, and Chapter V Bis 1 lets a bank replace it with an internal model under NIF C-16, the Mexican accounting standard on expected credit losses, once the CNBV has approved the model. NIF C-16 applies to banks for years starting on 1 January 2022.
A SOFOM (sociedad financiera de objeto múltiple, the Mexican licence for a non-bank lender) is pulled into the same chapters in two ways. The CNBV's circular for regulated SOFOMs, article 72, makes a SOFOM tied by ownership to a bank apply «Los Capítulos V, V Bis y V Bis 1 del Título Segundo de la Circular Única de Bancos». Article 72 Bis 3 covers a SOFOM that issues debt registered with the national securities register, or stands behind registered trust certificates as the party that sold or services the loans: it applies the circular's sections on rating consumer, mortgage and commercial loans and on building the reserves (Sections One to Three and Five of Chapter V). It must rate its consumer loans every month and its commercial loans every quarter, and disclose the probability of default, loss given default and exposure every quarter.
Every other SOFOM is unregulated (E.N.R.) and follows NIF C-16 itself, in force for years starting on 1 January 2018. HR Ratings, the Mexican rating agency, describes what that means in its sector report of 25 August 2026: these lenders «are not mandatorily subject to the expected loss guidelines issued by the National Banking and Securities Commission (CNBV) for regulated intermediaries», which gives «flexibility in the estimation of provisions according to the internal policies of each Company».
The CNBV reserve multiplies three numbers, and only one of them is a model
For a consumer loan that is not revolving, article 91 Bis reads: «El porcentaje que se utilice para determinar las reservas a constituir por cada crédito, será el resultado de multiplicar la Probabilidad de Incumplimiento por la Severidad de la Pérdida», and the reserve is that percentage times the exposure. The exposure is the loan's balance at month end. The probability of default comes from a formula on the borrower's payment behaviour and credit bureau record, with one adjustment worth knowing: for a woman with no arrears the probability is multiplied by 96%, or 98% on a payroll loan. The loss given default is not estimated at all. It is read from a table by type of loan and number of missed payments.
The table works through stages. A consumer loan with at most one missed monthly payment is in stage 1, more than one and up to three puts it in stage 2, and more than three puts it in stage 3, where article 91 Bis 1 sets the probability of default at 100%. From that point the reserve is the loss given default, and it climbs with every further payment missed.
CNBV, Disposiciones de carácter general aplicables a las instituciones de crédito, compiled text to 1 September 2026: article 91 (classes and stages), article 91 Bis 1 (probability of default of 100% above three missed payments or in stage 3) and article 91 Bis 2 (loss given default by class and missed monthly payments). In stage 3 the reserve equals the loss given default.
| Loan class (CNBV letter) | Reserved on reaching stage 3 | Reserved at 12 missed payments | Fully reserved after |
|---|---|---|---|
| Durable goods (B) | 86% | 99% | 13 missed payments |
| Car loans (A) | 72% | 94% | 19 missed payments |
| Payroll loans (N) | 68% | 98% | 17 missed payments |
| Personal loans (P) | 71% | 92% | 19 missed payments |
| Other non-revolving (O) | 81% | 98% | 17 missed payments |
The product, not only the days late, sets the first number: a payroll loan starts at 68%, a durable goods loan at 86%. A fund that checks a lender's reserves against one flat rate per bucket misses that spread.
of a personal loan's balance reserved once it is more than three payments late, under the CNBV standard method
Probability of default 100% in stage 3, loss given default 71% up to four missed payments.
Stage 2 adds a lifetime horizon, and on a short loan the twelve-month figure still binds
A loan in stage 2 is reserved for its whole remaining life. Article 91 Bis gives a formula that discounts the expected loss of each remaining year at the rate the borrower pays, and then takes the larger of that lifetime figure and the ordinary twelve-month figure, probability times loss times exposure.
A worked example, modelled. A personal loan with a balance of 100, a probability of default of 20%, the class loss given default of 71% and an interest rate of 40% a year has a twelve-month reserve of 14.2. With three years left, the lifetime formula gives 16.1, and 16.1 is booked. With two years left it gives 13.5, and with one year 10.1, so the twelve-month 14.2 is booked in both cases. On a short, high-rate consumer loan the move to stage 2 costs through the higher probability of default, not through the longer horizon.
A commercial loan starts lower and takes three years to reach 100%
Commercial loans count days, not missed payments. Under article 110 Bis a loan is in stage 1 at up to 30 days late, in stage 2 above 30 and below 90 days, and in stage 3 from 90 days. Article 113 then extends the default to the borrower: a probability of default of 100% applies when «el acreditado tenga algún crédito con la Institución que se encuentre en etapa 3», unless that loan is disputed or below 5% of what the borrower owes. Article 114 sets the loss given default by the months the loan has spent in stage 3.
CNBV, Disposiciones de carácter general aplicables a las instituciones de crédito, compiled text to 1 September 2026, article 114: loss given default of commercial loans without real or personal guarantees or credit derivatives, by months since the loan was classified in stage 3 under article 110 Bis. Senior column: borrowers in article 110, fractions I, III, IV and V b). A third column of the article, for fraction V a), is not shown.
| Months in stage 3 | Senior, unsecured | Subordinated |
|---|---|---|
| Up to 3 | 45% | 75% |
| Over 3, up to 6 | 55% | 79% |
| Over 9, up to 12 | 66% | 84% |
| Over 15, up to 18 | 75% | 88% |
| Over 21, up to 24 | 81% | 91% |
| Over 33, up to 36 | 96% | 98% |
| Over 36 | 100% | 100% |
Commercial defaults are reserved at about half the consumer level on day one and catch up over three years. A lender whose book is mostly business loans shows a lower reserve on the same past-due balance, by rule rather than by optimism.
Coverage is the ratio a fund reads, and the rulebook changes what it means
A fund reads reserves through one ratio: the coverage index, reserves for credit risk divided by past-due loans, as HR Ratings defines it in its rating reports. The 84 institutions in the agency's non-bank sample held 1.6 times their past-due loans at June 2026, up from 1.5 times a year earlier.
HR Ratings, NBFIs Sector Analysis, 25 August 2026: audited quarterly data of 84 rated financial institutions; coverage index (reserves for credit risk over past-due loans) by segment at 2Q25 and 2Q26.
| Segment | Coverage, June 2025 | Coverage, June 2026 |
|---|---|---|
| Payroll lending | 1.5 times | 2.2 times |
| SME lending | 1.4 times | 1.5 times |
| Microfinance | 1.6 times | 1.5 times |
| Agricultural finance | 1.0 times | 0.8 times |
| All 84 rated institutions | 1.5 times | 1.6 times |
One sector, four segments, a spread of nearly three to one. HR Ratings explains the low end by method: many agricultural lenders count the recovery value of collateral and the guarantees of FIRA, the agricultural development trusts, in their expected loss.
The CNBV tables give a floor to compare against, our computation. If every past-due loan in a book were a personal loan just past three missed payments, the standard method would reserve 71% of that balance, a coverage of 0.71 times on the defaulted loans alone, before any reserve on the loans that still pay. A lender at 0.8 times holds little more than that floor on its whole book.
Coverage also depends on what leaves the book. A lender that writes loans off soon after they default keeps a small past-due balance and a high ratio. So the useful request is the stage table itself: balances and reserves by stage, the loss given default applied in stage 3, and the write-off rule, recomputed from the loan tape, the file with one row per loan, rather than read from the ratio.
Rules and tables are the CNBV's and coverage figures HR Ratings'; the stage 2 example and the coverage floor are our computation from them.
Questions this raises
- How do Mexican banks calculate loan loss reserves?
- Loan by loan, as probability of default times loss given default times exposure, under the CNBV's Disposiciones de carácter general aplicables a las instituciones de crédito. Loans in stages 1 and 3 get a twelve-month reserve; loans in stage 2 get the larger of a lifetime reserve and the twelve-month one. A bank may use an approved internal model under NIF C-16 instead.
- Do SOFOMs have to follow the CNBV reserve methodology?
- Regulated SOFOMs do. A SOFOM tied by ownership to a bank applies the banks' Chapters V, V Bis and V Bis 1, and one that issues registered debt or stands behind registered trust certificates applies Sections One to Three and Five of Chapter V. An unregulated SOFOM follows the accounting standard NIF C-16 with its own expected-loss model.
- What is the loss given default on a defaulted personal loan in Mexico?
- Under the CNBV standard method, a personal loan more than three monthly payments late is in stage 3 with a probability of default of 100% and a loss given default of 71% up to four missed payments. The rate rises with each payment missed and reaches 100% after nineteen.
- What is a normal reserve coverage ratio for a Mexican non-bank lender?
- HR Ratings' 84 rated non-bank institutions held reserves of 1.6 times their past-due loans at June 2026. By segment: payroll lending 2.2 times, SME lending and microfinance 1.5 times, agricultural finance 0.8 times, where lenders count collateral and FIRA guarantees in their expected loss.
- When does a Mexican commercial loan move to stage 2 and stage 3?
- Under article 110 Bis of the banks' rules, a commercial loan is in stage 1 at up to 30 days late, stage 2 above 30 and below 90 days, and stage 3 from 90 days. Once one loan is in stage 3, article 113 gives the borrower a probability of default of 100%, unless that loan is disputed or below 5% of the debt.
Where every figure on this page comes from7 sources
- 01CNBV, Disposiciones de carácter general aplicables a las instituciones de crédito, compiled text with amendments to 1 September 2026: Chapter V Bis (standard methods), Chapter V Bis 1 (internal models under NIF C-16), articles 91, 91 Bis, 91 Bis 1, 91 Bis 2, 91 Bis 3, 110 Bis, 113 and 114.
- 02CNBV, Disposiciones de carácter general aplicables a los almacenes generales de depósito, casas de cambio, uniones de crédito y sociedades financieras de objeto múltiple reguladas, compiled text: articles 72 and 72 Bis 3.
- 03CNBV, Sociedades Financieras de Objeto Múltiple (Sofomes), gob.mx: regulated and unregulated SOFOMs and the scope of CNBV supervision of the latter.
- 04CINIF, NIF C-16, Deterioro de instrumentos financieros por cobrar: approved in November 2015, in force for years starting on or after 1 January 2018.
- 05Quarterly report of a Mexican bank under article 181 of the CNBV's rules, third quarter of 2022: NIF C-16 in force for banks for years starting on or after 1 January 2022.
- 06HR Ratings, NBFIs Sector Analysis, 25 August 2026: sample of 84 rated institutions, sector coverage and coverage by segment at 2Q25 and 2Q26, methodologies used by unregulated SOFOMs.
- 07HR Ratings, rating announcement on Grupo CAPEM (Grupo Olinx, S.A.P.I. de C.V., SOFOM, E.N.R.), 9 March 2026: glossary definition of the coverage index.