Latin America's financial system has emerged from a volatile year more resilient than many expected. Across Mexico, Brazil and the Andean economies, banks have remained largely steady, even as shifting US policies, new compliance demands and geopolitical realignments have tested every part of the sector.

In Mexico, aggregate profits for the banking sector fell around 2 percent year on year between January and September 2025, according to data from the country's National Banking and Securities Commission (CNBV). This decline is largely attributed to a drop in interest income from commercial loan portfolios, combined with a rise in credit risk provisions and higher operating costs.

Donald Trump's return to the White House in January last year also played a role. The second Trump administration has brought with it sharper scrutiny of cross-border financial flows, a renewed focus on security cooperation and a recalibration of trade policy that has rippled through the region. Mexico's close economic ties with the US mean that shifting tariffs—and the recent US Supreme Court ruling against them—trade policy, and economic growth inevitably impact its macro outlook.

These forces have created friction, but also opportunity. Supply chains continue to reorient toward North America, drawing investment and financing demand to Mexico and beyond. Meanwhile, the tightening of US compliance expectations is driving faster professionalization across the region's banks.

Besides, while aggregate profits fell slightly, some financial institutions have managed to grow by expanding their loan books.

A year defined by policy change

The most immediate shock came early in 2025, when the White House instructed the State Department to begin designating Mexican drug cartels and certain transnational criminal organizations as foreign terrorist organizations, or FTOs. 

For Latin American financial institutions, this move effectively redrew the boundaries of compliance. For decades, anti-money laundering frameworks have been the backbone of risk management, tracking where money comes from. The terrorism-financing lens, by contrast, focuses on where funds go—and whether they might sustain criminal or sanctioned networks.

The distinction may sound like semantics, but in practice, its impact has been considerable. Banks have had to expand their monitoring systems, adapt reporting channels and reassess their relationships with US institutions.

Within weeks, three clear patterns emerged in how banks responded. Some clients recognized the significance instantly and began upgrading their controls without hesitation. Others were cautiously inquisitive, seeking advice before acting. A third group dismissed it as "just more AML."

The FTO policy also intensified US regulatory engagement. In June 2025, the Financial Crimes Enforcement Network, FinCEN, issued an order against three Mexican financial institutions it deemed "of primary money-laundering concern" in connection with opioid trafficking. One of those, CIBanco, began liquidation proceedings in October after the CNBV revoked its license.

While none of these institutions were, strictly speaking, of systemic importance, the move sent a clear signal: US agencies were widening their reach.

It made clear to other banks in Mexico that compliance is far from a box-ticking exercise, but rather a frontline issue of strategic importance.

Trade, nearshoring and the new geography of finance

While compliance dominated headlines in early 2025, trade and investment flows have been the deeper forces reshaping the financial landscape. The reordering of global supply chains, which has been accelerated by US policy shifts and ongoing tensions with China, has put Mexico at the center of a historic realignment.

Mexico had already overtaken China as the US' largest source of goods imports in 2023. As manufacturers relocate production closer to North American markets, the financial sector has become a critical enabler.

Foreign direct investment has followed. In the first quarter of 2025, official economic data shows that Mexico attracted around US$21.4 billion in FDI, a 5.4 percent increase year on year—in spite of the intense volatility that characterized Q1 of 2025. "This is very good news because it's been a challenging quarter internationally," Mexico's economy minister, Marcelo Ebrard, said at the time.

Much of this investment went to the manufacturing sector, supporting the nearshoring trend emerging from the US last year. Meanwhile, more than a quarter of total FDI in the first half of 2025 went to the finance and insurance sectors.

This FDI boom brings new pressures. US officials have hinted at a tougher approach to rules-of-origin enforcement under the United States-Mexico-Canada Agreement (USMCA), while renewed tariff discussions and related legal battles continue to periodically unsettle markets. The combination of opportunity and oversight is forcing financial institutions to balance optimism with caution.

If nearshoring continues at pace—and current trends suggest it will—the implications for finance are profound. Credit growth will likely remain robust, and the region's capital markets may deepen as new issuers emerge from the supply chain ecosystem.

The trend of global financial institutions divesting from their LatAm subsidiaries is likely to continue, presenting further opportunities for dealmakers. It is plausible that, in the future, most banks—not just those with a LatAm presence—will be aligned with either China or the US, rather than be "global." For most Mexican sellers, it makes clear economic and geopolitical sense to align with the latter.

A market that keeps moving

Despite the regulatory headwinds and political noise, there is still plenty of interest in business development throughout Latin America, but particularly in Mexico. Large private equity and credit funds say they are still bullish on the region in spite of the uncertainty, viewing volatility as an opportunity to acquire undervalued franchises.

Capital markets activity has remained steady after a few subdued years. Data from the Economic Commission for Latin America and the Caribbean shows that international bond issuance by regional players hit a new record of US$52.5 billion in the first quarter of 2025, surpassing the prior peak from Q1 of 2021.

Initial public offerings are also reappearing on the horizon. National flag carrier Aeromexico went public last November with the biggest IPO in Mexico since 2018, sending a strong signal of confidence in the local market.

While overall M&A deal volume was down in 2025, deal value grew. Some of this activity has been driven by defensive or protective M&A, namely, transactions in which local institutions seek US investment or partnerships to ensure long-term resilience under evolving policy conditions.

Nearshoring, a trend compounded by the US' increasingly tense relationship with China, is likely to drive further inbound M&A. Overseas investors are eyeing manufacturing, chemicals and packaging assets in Mexico.

Financial institutions are central to this momentum, providing the liquidity, trade finance and structured credit that underpin nearshoring and cross-border investment.

Looking ahead

The coming year will test how deeply this new resilience runs. The regulatory environment is still evolving, and the US' "whole-of-government" approach to cross-border financial crime enforcement shows no sign of easing. Cooperation between FinCEN, the US Treasury and Latin American regulators has intensified, creating a more transparent but also more demanding environment for compliance teams.

Litigation risks are another emerging frontier. Several US law firms have explored potential civil actions linking Latin American banks to alleged money-laundering or cartel-financing activity, testing the boundaries of extraterritorial liability. For financial institutions, the task is not only to meet higher regulatory standards, but to anticipate reputational and legal exposure in an increasingly politicized context.

Even so, the region's fundamentals remain sound. In April 2025, the IMF said GDP growth for the LatAm region would decline from 2.4 percent in 2024 to 2 percent for 2025 but, six months later, the fund revised its projection back up to its original forecast of 2.4 percent, citing improved growth expectations for Mexico and Brazil.

Infrastructure is likely to become a major driver of financial activity. Mexico's government has prioritized logistics corridors, rail connectivity and energy projects, while Brazil and Chile continue to attract capital for clean energy and grid modernization. Long-term investors, including sovereign funds and development banks, are re-engaging.

Ultimately, while the Latin American financial system is navigating a period of geopolitical and regulatory change, Mexico stands out as both the region's pressure point and one of its greatest opportunities. As supply chains reconfigure and compliance expectations rise, Mexico's financial sector is not merely adapting, it is balancing risk, regulation and investment in an increasingly sophisticated way.

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