Banks that a decade ago got burned lending to Third World governments--including the one here--are now eager for the chance that the North American Free Trade Agreement will provide them to do business in an economically reformed Mexico.
But this time, they plan to provide services to Mexican consumers and companies, not loans to the government.
Banking will be among the first industries opened to foreign competition under NAFTA, with Mexico planning to start granting licenses to subsidiaries of foreign banks as soon as the treaty takes effect Jan. 1, Finance Minister Pedro Aspe said recently.
Two dozen international banks have already expressed interest in submitting applications, Aspe said. Foreign banks have been barred from operating subsidiaries in Mexico for 55 years.
U.S. financial services companies stand to benefit greatly from NAFTA, according to Edward E. Leamer, a UCLA economics professor who has studied the trade agreement. The accord will open up an "underbanked" market of 85 million Mexicans to aggressive U.S. and Canadian firms looking to grow, Leamer and others say.
In addition, while many areas of the Mexican economy are being opened to all foreign investors, most opportunities in financial services will be limited to the NAFTA partners. Only U.S. and Canadian banks--and the U.S. and Canadian subsidiaries of banks based in other countries--are eligible to open units here.
Currently, U.S. banks are allowed to maintain representative offices in Mexico that do little more than facilitate Mexican loans for U.S. firms doing business here.
Besides complying with the terms of NAFTA, allowing foreign banking subsidiaries also fits with the Mexican government's goal of increasing competition in banking.
Cushy profit margins and protective regulations in banking have resulted in high interest rates and an unavailability of funds for industry--factors that long have been blamed for discouraging investment in Mexican factories.
Even before the opening to foreign banks takes effect, the government has encouraged domestic competition by licensing 11 upstart rivals in the last year. Before that, the government privatized 18 formerly state-owned banks.
As banks here confront competition from the likes of Citibank and Chase Manhattan, industrialists forced by international competition to modernize antiquated plants now have some hope of relief from nearly usurious interest rates.
Currently, mid-sized businesses here pay 25% annual interest rates and can usually only arrange short-term loans, for three to six months. Consumers typically are charged 40% interest on credit cards, 30% for mortgages and 30% on car loans--when they can get them.
"Those rates will come down" as a result of NAFTA, predicted P. Kenneth Ackbarali, senior economist at First Interstate Bancorp.
In addition, banks, consumer lenders and investment bankers insist there is a "hunger" for banking services south of the border, where inefficiency often leaves customers standing in line for hours for basic services.
That inefficiency is basically a result of the industry's lack of competition and excessive profits, Ackbarali said. Typically, he said, Mexican banks earn twice the net interest income--the difference between what they charge borrowers and what they receive from depositors--as U.S. banks.
Indeed, Mexico may be ripe for the same explosion of banking services witnessed in the United States 50 years ago. However, bankers who know the Mexican market best say consumers probably will be the last to benefit from the banking changes under NAFTA.
"I can't see us opening a lot of retail offices," said Jorge Tejada, spokesman for Citibank, the only foreign bank currently allowed to operate branches in Mexico. Citibank, a subsidiary of New York-based Citicorp, has a special status because it did not pull out of Mexico in 1938, when other banks embargoed the country following the government's seizure of the oil industry.
Under NAFTA, Citibank will have the option of trading in its branch designation for the right to open a full subsidiary in Mexico. The bank is studying the advantages of switching, Tejada said. But the considerations being weighed mostly involve the commercial market.
The apparent lack of interest in retail banking reflects the limits of NAFTA and the realities of the Mexican banking system.
For one thing, Mexico's two banking giants--Bancomer and Banamex--already have a jump in retail banking, with name recognition and extensive branch networks.
U.S. and Canadian banks interested in retail services may eventually decide to buy majority ownership of Mexican banks. Currently, the maximum is 10% of a bank and up to 30% of a holding company that owns a bank, but NAFTA would permit U.S. and Canadian partners to take over Mexican banks.
For another, U.S. and Canadian banks will be subject to growth controls. American banks together will be allowed to own a maximum of only 8% of all bank capital in Mexico through the year 2000. Although that cap will rise in future years, no individual foreign bank ever will be allowed to own more than 1.5% of Mexico's bank capital.
Banks would rather put that limited market share to use in commercial transactions, which do not require the extensive payroll, buildings and operating structures needed for retail operations.
And, finally, banks will have to spend time and money educating consumers about the loan and investment products they want to sell, Elliott acknowledged.
"It's like when they started selling toothpaste in the 1950s," he said. "You have to get people to understand products before you sell the brands."
Despite the potential for profits, not all major U.S. banks are equally enthusiastic about opening subsidiaries in Mexico. The units will be subject to Mexican banking regulations, which include stringent capital requirements.
Also, in the past, the government has created high reserve requirements for domestic banks--forcing them, in essence, to make no-interest loans to the state. Finally, there is the lingering memory of the 1982 bank nationalization, which provokes fear of expropriation.
Darling reported from Mexico City and Kraul from San Diego.