UPDATE 1-Mexico bank lending loses more steam in December

(Adds detail on consumer credit)

MEXICO CITY Jan 30 (Reuters) - Growth in Mexican bank lending to individuals and companies lost steam in December and consumer credit fell amid increased fear of defaults and fallout from the world credit debacle.

Bank lending to the private sector expanded 4.2 percent in December over the year-ago period, compared with a 7.3 percent increase in November, the central bank said in a statement on Friday.

With U.S. demand for exports slumping, analysts say healthy internal demand, fueled by credit growth, is key to Mexico weathering a global downturn in 2009.

Lending to consumers and businesses in Mexico expanded at explosive rates of around 50 percent a year in 2005 and 2006 as banks tended to a market starved of financial services after an economic crisis in the mid-1990s brought the industry to its knees.

But in recent months banks have become more cautious about handing out new credit cards and giving loans to consumers as those sectors are increasingly hurt by defaults.

Banks' consumer credit, which includes credit cards, fell 33.5 percent in December from the year-ago period, the central bank said.

Most of that drop was attributed to Spain's Santander (SAN.MC) and Banamex, the Mexican unit of Citigroup (C.N), which this year moved credit-card debt off their books and into specialized lending companies. Those and other nonbank lending companies saw their loans rise 115.6 percent in December.

Consolidating data from banks and those lending companies, consumer credit fell 5 percent in December, year over year, and credit-card lending was down 4 percent, the central bank said.

Mexico's banks are considered well-capitalized. They have not loaned to subprime niches and have avoided many of the problems plaguing financial groups in the United States and Europe.

But defaults are expected to rise further over the coming months as a slumping economy makes it difficult for many Mexicans to make credit-card payments.

Since the end of 2007, growth in bank lending to companies and consumers has steadily declined from an annual rate of 24 percent. (Reporting by Noel Randewich, editing by Gerald E. McCormick)