UPDATE 2-Citigroup eyes growing bad debt in Mexico-report

(Recasts paragraph 1, adds finance minister quote, detail)

MEXICO CITY, Sept 22 (Reuters) - Growing bad debt could threaten Mexico's banks unless they change criteria for lending, Citigroup's head of Latin American operations said in an interview published on Monday.

Lax rules and insufficient studies on giving out credit cards are behind increasing low-quality debt in Mexico's banking system, Manuel Medina Mora told the Reforma newspaper.

"We are at a very good time to correct it," Medina Mora said in the interview.

"It is everyone's responsibility to look after the banking system or we will be taking a step -- not right now but in the future -- toward a system that is not so stable," Medina Mora said.

Global credit markets have tightened and banks have had to write off billions of dollars as a result of investments in U.S. subprime mortgages and the collapse of the U.S. housing market.

Mexico does not have a subprime mortgage lending industry, but banks, anxious to maintain fast growth, in recent years have increased offers of pre-approved credit cards and consumer loans.

"Some financial players relaxed their credit requirements," Medina Mora said in the interview. "There were some banks and financial institutions that would give you a credit card if you already had one, without further study or analysis."

According to studies by Citigroup's (C.N) Banamex unit, Mexico's second-largest bank, non-performing credit card debt among the country's top six players was 16.2 percent, more than double the official central bank figure of 6.6 percent.

The difference is because the official figures discount the non-performing debt that is covered by bank provisions.

Overall Mexican non-performing bank loans, including bank subsidiaries, stood at 2.82 percent of total credit in June, up from 2.35 percent a year before, according the Mexico's banking commission.

Mexico's central bank warned for the first time last week that the country's banking system may have been "marginally" affected by global financial turmoil.

Mexico's banking system was devastated in the 1990s, when an economic crisis sent interest rates soaring, which led to widespread defaults on mortgages and other loans.

The government bailed out the banks by buying billions of dollars of their shoddy loans, the cost of which still burdens taxpayers.

Foreign players Citigroup, BBVA (BBVA.MC), Santander (SAN.MC), HSBC (HSBA.L) and Scotiabank (BNS.TO) went on to acquire much of what remained of the banking industry and since then have invested heavily to strengthen the system.

"Mexico is not a major player in this crisis. In fact, it's one of the first crises in which Mexico has been very well positioned," Finance Minister Agustin Carstens said at an event on Monday.

Ignacio Deschamps, chairman and chief executive of BBVA-Bancomer, BBVA's Mexico subsidiary, said in an interview with the El Financiero newspaper that increased arrears at his bank were "acceptable and inside forecast parameters."

"It is natural that arrears are out of step because first your credit portfolio grows, but many measures are being taken to control non-performing loans, and despite this the banking system is in a solid and decisive position," Deschamps said. (Reporting by Chris Aspin, Noel Randewich and Armando Tovar; Editing by Gary Hill)