Mexico's largest listed banks recorded higher profits in the second quarter compared to a year ago, driven by stronger lending activity, as S&P Global Ratings noted the sector's resilient asset quality.

Grupo Financiero BBVA México SA de CV, Grupo Financiero Banorte SAB de CV and Grupo Financiero Inbursa SAB de CV all posted an increase, with their collective net income rising about 37% to 37.10 billion pesos, according to data compiled by S&P Global Market Intelligence.

BBVA México saw the sharpest year-over-year profit growth, with net income jumping more than 40% to 20.94 billion pesos. The bank said lending grew by 4.8% in the quarter, with particularly strong growth in wholesale lending driven by demand from small and medium-sized enterprises.

Banorte, whose net income increased to 11.52 billion pesos from 8.57 billion, registered an 8% increase in its performing loan book, citing strong credit demand. Its corporate loans grew 12%, with consumer and government loans up 8% and the commercial book up 7%.

Inbursa's net income ticked up to 4.64 billion pesos from 3.80 billion pesos. A 41% increase in risk-adjusted net interest income was driven by higher loan levels together with improving asset quality that led to a lower cost of risk.

Nonperforming loan ratios improved at all three banks. BBVA México's fell to 1.96% from 2.38%, Inbursa's to 1.44% from 2.07% and Banorte's to 1.02% from 1.31%.

Resilient asset quality is a key strength of Mexico's banking system, Ratings said in a July 15 report. Although the agency expects asset quality to worsen over the coming 12 to 18 months, it believes this to be manageable because of the banks' prudent lending, which focuses on middle- and high-income customers with adequate debt profiles, and conservative growth strategies.

A key risk is low economic growth. Consumption is expected to be weak, and exports to the U.S. are likely to decline amid lower growth expectations there. This is set to limit credit growth for the remainder of 2022 and into 2023, Ratings said.

The Russia-Ukraine conflict will likely not have a significant impact on Mexican banks because they have limited direct exposure to countries in that region.

As of Aug. 3, US$1 was equivalent to 20.6 Mexican pesos.

* Access aggregate financial highlights for Mexican banks. * Access income statement for BBVA México.