the TIIE interbank rate) series since 2000 that can be used to validate the claim of increased affordability. However, anecdotal evidence, supported by CNBV analysis of reported bank accounting income<sup>47</sup> , suggests that average lending spreads for corporates have declined in the last few years. The BOM’s quarterly firm survey also shows that high interest rates have become less of a barrier to accessing bank credit since 2000 for larger companies, but not for SMEs (see figures 33 and 34). Firm-level characteristics, such as individual growth prospects that are related to competitiveness, have progressively become more important.

Figure 33: Main Constraints to Bank Credit by Company Size (December 2000) Figure 34: Main Constraints to Bank Credit by Company Size (December 2005) <!-- Start of picture text --> 100%90%80%70%60%50% 151626 9 161524 8 1414 25 8 -7 27 13 100%90%80%70%60%50% 10 1124 1111 151713 9 1111 33 5 13131919<br>40% 40% 15<br>30%20%10% 31 34 37 47 30%20%10% 33 30 2416 1919<br>0% 0%<br>Small Medium Large Corporates Small Medium Large Corporates<br>High interest ratesLow growth prospects Application rejectedBad credit history Economic uncertainOther High interest ratesLow growth prospects Application rejectedBad credit history Economic uncertaintyOther<br>Proportion of companies (%)<br>Proportion of companies (%)<br><!-- End of picture text --> Source: BOM.

Note: The size of companies is determined based on their annual sales in 1997 according to the following cut off levels: Small (MXP 1-100 million), Medium (MXP 101-500 million), Large (MXP 501-5,000 million), AAA/Corporate (MXP 5,000+ million). Low growth prospects consists of those firms that have reported lack of demand for their products or problems in market competition as their main reason for not accessing bank credit. Bad credit history consists of those firms that have reported problems of financial restructuring or a bad credit record as their main reason for not accessing bank credit. Other constraints to accessing bank credit includes the use of own funds, excessive demand by banks for collateral etc.

Government support programs do not appear to have a large impact on the affordability of micro and SME financing. A review of financing terms offered by different banks participating in the _Apoyo Pyme_ program (see table below) reveals that terms vary significantly across different credit providers and that the interest rates charged on such products remain high in relation to the average rates for commercial loans (see figure 35). The much higher SME lending rates can only be attributed to their cost-intensive origination, given that the actual credit risk for banks is low<sup>48</sup> especially if one considers the benefits provided by government guarantees, such as high loss coverage (often first loss) and lower capital requirements and loan loss provisions.

> 47 The current chart of accounts does not allow the decomposition of bank interest income or fees by market segment or loan product, so all analysis of accounting statements is at the overall credit portfolio level. 48 According to preliminary figures by the Ministry of Economy, past due loans in this portfolio in 2005 were only 0.46 percent.

32