UPDATE 2-Mexico Banorte's net drops, World Bank invests

* Banorte's quarterly net falls 27 pct on reserves

* World Bank to invest about $150 mln in bank unit

* Past due loans nearly double, year over year

(Recasts, adds detail on IFC investment and earnings, byline)

By Tomas Sarmiento

MEXICO CITY, July 23 (Reuters) - Mexican bank Banorte (GFNORTEO.MX) said on Thursday its second-quarter net profit sank 27 percent on higher loan loss provisions and announced a $150 million equity investment by the World Bank.

Chief Executive Alejandro Valenzuela told reporters the International Finance Corporation, which is the World Bank's private sector arm, has agreed to invest in financial group Banorte's bank unit, improving its Tier 1 capitalization ratio.

"We think it's going to be about $150 million," said Valenzuela, adding the investment could be made by September.

As Mexico struggles through a deep recession, the banking system, dominated by Citigroup (C.N) and Spain's BBVA (BBVA.MC), has been hit by rising loan defaults, particularly in credit cards.

For the second quarter, Banorte's past due loans nearly doubled from the same period last year and were up 13 percent from the end of March.

Total performing loans were up 8 percent from the year-ago period but flat compared to the first quarter of 2009.

Banorte said its net profit for the quarter was 1.312 billion pesos ($100 million) after setting aside 2.188 billion pesos in loan loss reserves.

Tough liquidity conditions allowed it to lend at higher margins during the quarter, boosting net interest income 12 percent to 5.838 billion pesos, Banorte said.

FEES UNDER PRESSURE

Service fees in the quarter declined 14 percent, year over year, to 1.454 billion pesos. Credit card fees were down 12 percent, partly in anticipation of stiffer regulation, Banorte said.

The central bank announced on Tuesday it will prohibit banks from charging fees deemed to be anti-competitive and nontransparent.

Among the practices prohibited are fees charged to clients who exceed their account balance when attempting to withdraw money from an automatic teller.

As well, the banks will be banned from charging fees when clients close deposit accounts, cancel credit or debit cards or stop using Internet bank services.

Mexico's bank regulator is also planning new rules to make banks increase their reserves against possible losses from credit card lending. That regulation could force the country's banks to increase their reserves by almost half, according to a government estimate.

After a wave of foreign acquisitions in recent years, Banorte is the only big bank in Mexico still controlled by local investors. ($1=13.17 at end-June) (Additional reporting, and writing, by Noel Randewich; Editing by Carol Bishopric, Phil Berlowitz)