Mexico's Senate gives preliminary nod to banking reform

MEXICO CITY Tue Nov 26, 2013 5:08pm EST

MEXICO CITY Nov 26 (Reuters) - Mexican lawmakers on Tuesday approved the outline of a bill to boost lending in Latin America's second largest economy, by making it easier for banks to collect on guarantees for bad loans and beefing up regulatory power over financial firms.

The reform, which was presented by President Enrique Pena Nieto in May, targets Mexico's financially conservative banks, which boast high capital levels but lend much less than their counterparts in other countries.

The bill is part of Pena Nieto's ambitious reform agenda, which seeks to increase growth by overhauling the country's ailing energy sector and opening up a telecommunications sector dominated by a handful of large firms.

Senators approved the far-reaching package of measures in a general vote, while dozens of provisions were singled out for further debate. However, opposition lawmakers said they doubted they had enough votes to make any changes, which means the bill will be sent to Pena Nieto for approval.

The reform, which was approved by the lower chamber in September, does not mandate specific lending levels nor cap interest rates.

It would, however, give the banking regulator 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.

It would also require the banking regulator to name on its website those who have broken financial rules and state what they did wrong. The reforms also make it easier for banks to seize assets put up as collateral.

The World Bank's ease of doing business survey ranks Mexico as particularly weak on the enforcement of contracts, with the average claim taking 415 days between filing and payment - more than twice the time needed in best-ranked Singapore.

Mexico's banking sector is dominated by units of major global banks, such as Spain's BBVA and U.S. bank Citigroup.

Its 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.

Most analysts have said it would take years to see much of an impact from the reform. Central Bank Governor Agustin Carstens estimated the bill could add around 0.5 percentage points to growth in two or three years.