Mexico's government wants to boost lending by making it easier for banks to collect on guarantees for bad loans and by giving regulators new powers to punish firms that do not lend enough, according to a draft of a new banking reform.
The proposal, a copy of which was seen by Reuters, is due to be announced next week and is part of a raft of measures designed to ramp up growth in Latin America's second largest economy.
The financial reform proposal, thrashed out within a pact between President Enrique Pe��a Nieto and the leaders of the country's main opposition parties, targets Mexico's conservative banks, which boast high capital levels but lend much less than their foreign peers.
"Granting more loans, under more favorable conditions in terms of interest rates, duration and amounts, is a crucial element to efficiently allocating financial resources to boost national economic growth," the draft says.
The wide-ranging reform proposal, which amends nearly 40 laws, impacts Mexico's financial system from large banks such as Bancomer , with some $101 billion in assets, down to the smallest credit unions. At more than 800 pages, it cover issues ranging from money laundering to competition.
To create more legal certainty, the proposal aims to ease the process for banks to take possession of a loan guarantor's assets in case of default. It would also streamline the bankruptcy process, which can drag on in Mexico, in part by creating new courts.
Banks would also be subject to periodic lending reviews under the plan, which must be passed by both houses of Congress.
Under the proposed reforms, the banking regulator would get new powers to punish those lenders that fail to channel enough resources into credit - even limiting banks' securities trading on their own account if lending falls below the required levels.
The Finance Ministry hopes those measures, combined with a revamp of the development bank, will reduce risk and induce banks to lend more and more cheaply, especially to small businesses.
Since taking office in December, Pe��a Nieto has passed a major education reform package, and lawmakers in his Institutional Revolutionary Party say a sweeping bill to increase competition in the telecommunications sector should be approved this month.
Mexico's private sector financing stands at just 26 percent of gross domestic product with private sector credit at 45 percent of bank assets - below Brazil, Argentina, Uruguay, Peru and Chile.
Borrowers in Mexico complain of high fees, with median credit card interest rates around 29 percent annually, according to data from the Mexican central bank.
Small- and medium-sized companies bear the brunt of the credit trickle, generating nearly three quarters of Mexican jobs, but receiving just 15 percent of credit, the finance ministry says.
Tough loan requirements force small businesses "to resort to credit cards," said Jorge Escalante, president of the employers' association COPARMEX in the northern border city of Tijuana, which helps small business people find credit. "For small businessmen and consumers alike, interest rates on credit cards, they devour us. The balance just goes up and up and up."
The reform aims to push the government's six development banks to boost lending to the sector, by bolstering autonomy, promoting long-term lending and offering competitive pay.
For example, restrictions on granting medium-term loans and on the number of short-term loans, plus rules against making multiple loans to one borrower would be lifted for the development bank serving the armed forces.
The reform also proposes to require the banking regulator to name on its website those who have broken financial rules, and state what they did wrong.
If approved, it will also pare back restrictions on foreign investment in Mexican financial firms.
(Additional reporting by Michael O'Boyle and Veronica Gomez; editing by Dave Graham, Andrew Heavens, G Crosse)