Factbox: Key points to Mexico's planned banking reform

Sun Apr 21, 2013 7:02pm EDT

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(Reuters) - Mexico's government wants to boost lending by making it easier for banks to collect on guarantees for bad loans and by giving powers to regulators to punish firms that do not lend enough, according to a draft copy of the banking reforms seen by Reuters.

The proposal, which comprises more than 800 pages and touches on everything from money laundering to Basel capital standards, is due to be announced next week as part of a raft of measures designed to ramp up growth in Latin America's second biggest economy.

Following are some key features of the reform proposal:

SANCTIONS AND SHAME

It specifies that banks will be evaluated periodically on their lending rates and could face sanctions, such as limits on securities trading for their own accounts, if lending levels are deemed too low.

A provision in the measure would also require the banking regulator to "name and shame" those that have broken financial rules, by posting their names and violations on the regulator's website.

Regulators currently cannot disclose sanctions until appeals are exhausted, meaning it can take years to find out about a firm's improprieties.

BOOSTING CREDIT TO SMALL BUSINESS

Mexico's six development banks would be encouraged to buoy credit supply to small companies via measures aimed at giving them more autonomy and by reducing lending restrictions. For example, restrictions on multiple loans to one party and on medium-term loans would be lifted for some institutions.

STREAMLINING LEGAL PROCEEDINGS

To create more legal certainty, the reforms would make it easier for banks to take possession of a loan guarantor's assets in case of default. It would also streamline the bankruptcy process in Mexico, in part by creating new courts.

FOREIGN INVESTMENT

The proposal includes a plan to pare back regulations limiting foreign investment in Mexican financial institutions, such as allowing foreign ownership to exceed 49 percent of certain types of firms without requiring government consent.

COMPETITION

The reform would require Mexico's competition regulator to conduct a study 120 days after the reform is approved evaluating competitiveness issues in the sector and possibly making recommendations for improvement.

MONEY LAUNDERING

The measure increases authorities' powers to freeze suspect funds that could be tied to money laundering with specific penalties for terror financing.

CONSUMER PROTECTIONS

Strengthens the country's financial consumer protection agency's powers to regulate bank product literature and billing, and establishes new arbitration proceedings for disputes between firms and customers.

CREDIT BUREAU

The reform gives the government the authority to create a state-owned credit bureau, to share widely borrower creditor information in a bid to boost financial sector competition. Mexico currently has two privately owned credit bureaus. ($1 = 12.2238 Mexico pesos)

(Reporting by Alexandra Alper, editing by G Crosse)

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