BANK RESILIENCE AMIDST USMCA REVIEW, TARIFF UNCERTAINTY

Large Canadian and Mexican banks should withstand USMCA-related trade volatility because their concentrated but resilient banking systems, diversified operations, strong capital and solid profitability offset the main risks.

• The U.S. declined to renew the USMCA on July 1, 2026; the agreement remains in force, but annual reviews will continue until its expiration in 2036 unless all three countries agree to renew or amend it.
• Canada sends more than 70% of its merchandise exports to the U.S., with approximately 90% of those exports qualifying for USMCA exemptions, while the country’s six-bank oligopoly supports asset quality, profitability, liquidity and funding resilience.
• Mexico relies on the U.S. for over 80% of its goods exports and more than 40% of its imports, but four of its six largest banks are controlled by foreign parents including BBVA, Santander, HSBC and Bank of Nova Scotia.
• BBVA Mexico generated roughly a 24% ROE and contributed above 40% of BBVA Group’s net profit in 1Q26, illustrating the strength and importance of Mexican operations within a major international bank.
• Trade-exposed Canadian corporates could weaken bank asset quality, but diversified loan portfolios, U.S. operations, strong capital buffers, resilient asset quality and operating efficiencies should limit the impact.

Takeaway: Spectrum views Canadian banks and global banks operating in Mexico as well positioned to navigate USMCA uncertainty and tariffs, although the assessment remains exposed to continuing U.S.-driven trade-policy volatility; Spectrum owns Canadian-bank and global-bank securities but no domestic Mexican-bank paper.