Mexico banks to gradually absorb higher reserves

By Tomas Sarmiento

MEXICO CITY, July 15 (Reuters) - Mexico's banks expect to gradually adjust to new rules forcing them to increase their reserves against credit cards losses, the chief executive of HSBC's local unit said on Wednesday.

Upcoming changes will force Mexico's banks, dominated by Citigroup (C.N) and Spain's BBVA (BBVA.MC), to estimate each clients' likelihood of falling behind on payments a year into the future.

That will probably increase the industry's loan loss reserve requirements by 13.6 billion pesos ($1 billion), according to a government estimate.

"The good news is that the (regulator) has told us there will very likely be a gradual period, still to be defined, in which the banks will be able to absorb the impact," HSBC Mexico chief executive Luis Pena told reporters at a bank association event.

Banks in Mexico have weathered the global credit crisis better than those in the United States because they focused on traditional lending rather than subprime loans.

But a slumping economy, rising unemployment and slack credit card policies have aggravated delinquencies and raised fears of further loan losses.

Devised by the National Bank and Securities Commission, the rules will also force banks to take into account how much debt each client could potentially rack up on their credit card.

The changes, expected to go into effect within weeks, will probably not affect lending, Pena said.

Mexico's 10 biggest banks had reserves of 32 billion pesos in March, according to a government document outlining the new rules. ($1 = 13.55 pesos)

(Editing Bernard Orr)