--Mexico to present financial-sector reform Tuesday
--Bill aims to boost low lending rate in Latin America's
second-biggest economy
--Proposal seen improving collection of guarantees on unpaid
debt
By Amy Guthrie
MEXICO CITY--Mexican President Enrique Pena Nieto plans to
present a broad financial-reform proposal early Tuesday that aims
to raise Mexico's low rate of lending to the private sector, which
in turn is seen boosting economic growth.
Private-sector credit as a percentage of gross domestic product
in Mexico stands at 27.5%, one of the lowest rates in Latin
America, according to Standard & Poor's. The rate in Brazil is
53.5% and in Chile it's 77.9%. Excluding credit from government-run
mortgage companies and other nonbank lenders, private lending falls
to just 18% of Mexico's GDP. The Mexican economy is Latin America's
second largest.
Bankers say they are all for change, as long as the government
doesn't mandate lower interest rates or oblige them to bestow
credit that is likely to default.
The reform is expected to call for the creation of a universal
credit bureau that includes more measures of creditworthiness, and
to speed bankruptcy proceedings and asset recoveries. The proposal
would build on education and telecommunications reforms that have
already passed Congress as part of a drive to improve Mexico's
competitiveness on the international stage.
The Mexican bankers' association and officials at the country's
two-largest banks declined to comment ahead of the official
unveiling of the reform.
In an interview published in Mexican daily El Financiero, Luis
Robles, executive president of the bankers' association and
president of the board at BBVA Bancomer, the country's largest
bank, said the bankers' association sent a series of suggestions
for the reform. In particular, the banks proposed creating
dedicated bankruptcy courts to speed the recovery of assets in
cases of nonpayment.
Bankruptcy proceedings initiate in local courts and wind their
way to federal courts, making the road to asset recovery a long and
costly one, according to El Financiero, which says it takes around
five years to resolve a typical bankruptcy. And foreclosing on a
mortgage, according to S&P, takes on average between three and
five years, depending on the regional government and the strength
of the borrower's legal defense.
This slow and costly recovery of collateral is directly related
to interest rates, Mr. Robles said.
According to 2012 data from the Mexican central bank, the
average interest rate on credit-card debt in Mexico is 25%, while
the average rate for a car loan is 12%. One of the lowest
home-mortgage rates currently in the market is a 20-year loan at
8.75%, offered by HSBC.
By giving banks more tools to collect, and a bigger stick to
encourage borrowers to pay, the government hopes to raise lending
and generate competition that could lead to lower rates.
Last year, the 42 banks that Mexican banking and securities
regulator monitors reported a combined credit portfolio of 2.75
trillion pesos ($224 billion), up 12% on the year, while deposits
increased 9% to MXN3.22 trillion. As of Jan. 1, Mexican banks had
all complied with the first stage of Basel III minimum capital
requirements, well ahead of most international peers.
Mexican banks are conservative in their lending and capital
levels in large part because they have been burned by spikes in
defaults in the past when they have attempted to quickly loosen
credit.
The country's two largest banks are units of Banco Bilbao
Vizcaya Argentaria SA (BBVA, BBVA.MC) of Spain and Citigroup Inc.
(C) of the U.S., which together control 39% of Mexican bank
deposits. Mexican bank Grupo Financiero Banorte SAB (GBOOY,
GFNORTE.MX) and Grupo Financiero Santander Mexico SAB (BSMX,
SANMEX.MX) round out the top four.
The Reuters news agency reported that, under the proposal, the
government could limit a bank's securities-trading efforts if it
deems that the bank's lending levels are too low. The news agency
didn't specify what amount of credit the banks would be expected to
offer. Such a measure might be construed as interventionist.
Mexico's modest 13% annual expansion of credit in recent years,
compared with 20% for Brazil, looks in hindsight to have been a
blessing, says David Rees, of London-based Capital Economics.
"Rapid credit growth can be a double-edged sword for emerging
markets: while it can result in a period of very fast economic
growth for a time, this often creates financial vulnerabilities
that lead to a period of much weaker growth later on," Mr. Rees
warned in a report.
"In Brazil, the rapid expansion of lending over the past decade
means that debt-servicing costs now eat up nearly one-fifth of
household incomes," he added.
Write to Amy Guthrie at amy.guthrie@dowjones.com
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