Citi sees rising non-performing Mexico debt-paper

MEXICO CITY, Sept 22 (Reuters) - Non-performing loans are rising and Mexico's banking system could face instability if the sector does not correct its criteria for giving out credit, Citigroup's head of Latin American operations said.

Manuel Medina Mora told Reforma newspaper that lax rules and insufficient studies on giving out credit cards were behind the increasing bad debt in Mexico's banking system.

"We are at a very good time to correct it (the problem of growing non-performing loans)," Medina Mora told the daily newspaper in an interview.

With the world's banking system in crisis, central banks around the world, including the U.S. Federal Reserve, announced measures last week to pump hundreds of billions of dollars into global markets to ease a funding squeeze.

"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.

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

According to studies by Banamex, Citigroup's (C.N) Mexican unit, non-performing credit card debt among the top six banks in Mexico is running at 16.2 percent, easily 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.

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

"It is not convenient for anyone in a country where the debt level for many of our families and people is high and they have credit problems because we enter into a sequence where there is credit expansion and then a backwards step," he said.

Mexico's banking system is dominated by large international banks like Citigroup, Spain's BBVA (BBVA.MC) and Santander (SAN.MC) and Britain's HSBC (HSBA.L), and the local bank Banorte (GFNORTEO.MX). (Reporting by Chris Aspin; editing by John Wallace)