UPDATE 3-Mexican government unveils bank reform bill to spur lending

Thu May 9, 2013 12:44am EDT

By Alexandra Alper
    MEXICO CITY, May 8 (Reuters) - Mexico on Wednesday presented
wide-ranging financial reforms to jump-start lending in Latin
America's No. 2 economy, making it easier for banks to collect
on guarantees for bad loans and beefing up regulator powers over
delinquent companies.
    The reforms target the financially conservative policies of
Mexico's banks, which boast high capital levels but lend much
less than their counterparts in other countries. 
    The bill includes a new mandate for the development bank to
help foster growth in the financial sector, increase competition
in the banking and financial system to reduce costs, create new
incentives to lend and strengthen the sector's regulation,
Finance Minister Luis Videgaray said.
    The bill does not mandate specific lending levels or cap
interest rates.
    "The reform initiative is integral. It does not seek to
lower interest rates by decree. It proposes giving greater
flexibility and incentives so the private sector and development
banks together give more credit, which is cheaper," Videgaray
said.
     
    Videgaray said the banking law overhaul removes the single
biggest obstacle for small and medium businesses to obtain loans
by making it easier for banks to seize assets put up as
collateral in cases of nonpayment. 
    "The first thing the bank says is how difficult it's going
to be to get that piece of land ... in case the company does not
pay the loan, to go to court and get the asset," he said in an  
interview with Reuters earlier. 
    "Banks are not lending to them because they cannot reclaim
their guarantees."
    
    WIDER REFORM AGENDA
    The financial reforms, included in a pact between President
Enrique Pena Nieto's Institutional Revolutionary Party (PRI) and
the country's main opposition parties, were in limbo for weeks
due to a political dispute. The parties settled their
differences and agreed on Tuesday to revive the pact.
 
    The pact, signed by the major parties in December when Pena
Nieto took office, contains a number of reforms aimed at
invigorating the economy, including overhauls of the tax system
and state-owned oil giant Pemex.  
    Reforms of the telecommunications sector, education system
and labor laws have already been approved by Congress.     
    Under the proposed financial reforms, the banking regulator
would get new powers to punish those lenders that fail to
channel enough resources into credit - even limiting banks'
securities trading on their own account if lending falls below
the required levels. 
     The reform also proposes to require the banking regulator
to name on its website those who have broken financial rules,
and state what they did wrong. 
    Mexico's banking sector is dominated by units of major
global banks, such as Spain's BBVA and U.S. bank
Citigroup.
    Analysts said it would take years to see much of an impact.
    Central Bank Governor Agustin Carstens estimated the reform
could add around 0.5 percentage point to growth in two or three
years. 
    
    BOOSTING CREDIT, PROTECTING CONSUMERS
    Videgaray said that under banking reform, competition
authorities would carry out a review of the financial industry
and make recommendations to financial regulators for increasing
competition.
    The reform would also give medium-size businesses another
financing tool that would make it easier for them to list
publicly, he said. Consumers would be able to transfer financial
products from one bank to another. 
    Another measure would ban banks from making consumers buy
one product in order to get access to another and create a
"financial entities" bureau to make it easier for them to access
and compare key information about the financial institutions.   
    Mexico's private sector financing stands at just 26 percent
of gross domestic product, with private sector credit at 45
percent of bank assets - below Brazil, Argentina, Uruguay, Peru
and Chile.
    Small- and medium-sized companies generate nearly
three-quarters of Mexican jobs but struggle to get credit,
receiving  just 15 percent of credit, the finance ministry says.
    But analysts doubt the measures will spur rapid lending that
could soon put Mexico in the position of other emerging markets,
which have seen credit bubbles grow in recent years.
    "We believe there are many structural and cultural changes
that have to take place. There is only going to be gradual
progress," said Jose Perez, a banking analyst at Standard &
Poor's in Mexico City.
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