MEXICO CITY, May 8 (Reuters) – Mexico’s overhaul of banking
laws removes the single biggest obstacle for small and medium
businesses to obtain loans by making it easier for banks to
seize assets put up as collateral, Finance Minister Luis
Videgaray said.
The reform, unveiled by Mexican President Enrique Pena Nieto
on Wednesday, seeks to speed up the flow of credit to the small
business sector, which accounts for 74 percent of jobs but
receives just 15 percent of credit.
Videgaray said a business might put up a mortgage on a piece
of land as security for a loan.
“The first thing the bank says is how difficult it’s going
to be to get that piece of land … in case the company does not
pay the loan: To go to court and get the asset,” he said in a
recent interview with Reuters, approved for release on
Wednesday.
“Banks are not lending to them because they cannot reclaim
their guarantees. If you talk to banks and say ‘what’s the main
reason why you’re not lending enough?’ it’s the high risk
associated with their incapacity to execute the guarantees.”
The World Bank’s ease of doing business survey ranks Mexico
as particularly weak on the enforcement of contracts, with the
average claim taking 415 days between filing and payment – more
than twice the time needed in best-ranked Singapore.
A Mexican central bank survey shows that 40 percent of firms
that took no new loans during the fourth quarter of last year
named the amount of collateral requested as a limitation.
Videgaray said other important changes in the bill, which
must still be approved by Congress, were a new procedure to deal
with bank failure and greater flexibility for Mexico’s
development bank, which has a lending portfolio about half the
size of the commercial banks.
“Right now their mandate is to preserve their capital, which
makes them more conservative than commercial banks, which is
almost a contradiction with the purpose of having development
banks,” Videgaray said.
“The new mandate: to foster credit, by themselves and by
working with financial markets.”
Videgaray said the new bank resolution regime would be in
line with principles agreed by Group of 20 nations.
The Financial Stability Board, tasked by the G20 with
overhauling regulation in the wake of the financial crisis, has
said these should include giving regulators power to transfer a
troubled institution’s shares or assets to another organization,
protecting insured depositors, setting up “bail-in” mechanisms
to recapitalize lenders and making shareholders take the first
losses.
The banking measure, included in a reform pact between the
president’s Institutional Revolutionary Party (PRI) and the
country’s main opposition parties, was in limbo for weeks due to
a political spat that threatened to derail the accord.
Leaders of the conservative National Action party (PAN) and
leftist Party of the Democratic Revolution (PRD) agreed on
Tuesday to revive the pact thanks to an addendum that guarantees
clean elections and safeguards social programs.
(Reporting by Krista Hughes; editing by Jackie Frank)
