UPDATE 1-Mexico cenbank chief opposed to capping bank fees

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By Noel Randewich

MEXICO CITY, March 14 (Reuters) - More competition and transparency in Mexico's banking system, not price limits, will push down high fees for cash withdrawals and other services, central bank governor Guillermo Ortiz said on Wednesday.

Speaking to senators, some of them keen to intervene in what they consider price gouging and stiff interest rates, Ortiz said the country's banking system is slowly becoming more efficient and encouraged the government to educate consumers.

"Imposing price caps on financial services is not the best policy," he said.

Mexican consumers and politicians often complain that foreign-owned banks levy higher rates for credit cards, account maintenance and other everyday financial products than they do in their home countries.

Lawmakers from Mexico's three main political parties attacked the country's big banks at the beginning of this month and backed a move to cap interest rates and fees.

The proposal, which appeared to have more momentum than similar past attempts, would oblige the central bank to limit interest rates and fees charged by banks.

Ortiz acknowledged that the banking system was not as competitive as it should be but said the country's six big banks have lost some market share in recent years.

After a financial crisis devastated Mexico's financial industry in the 1990s, big foreign banks such as Citigroup (C.N), BBVA (BBVA.MC) and Santander (SAN.MC) acquired most of the biggest Mexican banks.

Fees and commissions charged by banks are on a downward trend after peaking about three years ago, Ortiz said.

Past attempts by lawmakers to cap bank fees have floundered without sufficient support from parties in Congress, but the most recent proposal was backed by the opposition Institutional Revolutionary Party, or PRI, and the left-wing Party of Democratic Revolution, or PRD.

LENDING BOOM

Trying to boost competition, the government has been handing out licenses to retailers and other new players to operate banks.

Wal-Mart Stores Inc.'s (WMT.N) Mexican unit is expected to open its bank at mid-year.

Ortiz emphasized that most Mexicans know little about the basics of the financial system, and said teaching them more would force banks to offer better and cheaper products.

Most Mexicans do not have savings accounts and are unaccustomed to paying with debit cards or taking out loans.

The majority of Mexicans live on less than $5 a day and cannot afford banking fees.

Still, the availability of credit for the first time for many Mexicans has led to a boom in lending, even at high interest rates.

Demand for credit cards among new clients is so strong that banks so far have not needed to lower rates, Ortiz said.

Mexico lags Brazil and Chile in per capita use of credit and debit cards and is far behind the United States or Canada.

Households in Mexico have credit outstanding worth about 14 percent of gross domestic product, compared to an average of 28 percent in Latin America, according to the Banco de Mexico.