NEW YORK -- Clearing a major hurdle to a North American free trade pact, negotiators have reached a tentative compromise on the entry of foreign banks into Mexico, bankers said.

Canadian, Mexican, and U.S. representatives have ironed out their major differences over the financial services section of the trade agreement, said Roberto Hernandez, chairman of Banamex-Accival, Mexico's largest bank.

Issue Said to Be Settled

In a speech to bankers at the Council of the Americas in New York last week, Mr. Hernandez said it was "my understanding" that the negotiators had concluded discussions about entry into Mexico, a key stumbling block.

Mexico bars foreign banks from operating in its market. Citicorp, grandfathered under Mexican banking law, is the only exception.

Mexican banking sources said it appeared U.S. negotiators had made substantial concessions by agreeing to Mexican demands that U.S. and Canadian banks establish locally chartered institutions in order to enter the Mexican market.

Allowable Stake to Rise

Mexico, in turn, has agreed to raise the maximum domestic market share foreign banks would be allowed from an initial 12% to "over 20%" after three years, the sources said.

U.S. bankers earlier expressed strong opposition to any tcan restrictions on market entry and sought authorization to operate branches rather than subsidiaries, which are less costly to operate.

Mr. Hernandez warned, however, that despite the progress, there was no deal until negotiators "put their signatures" to an agreement.

He also cautioned that other trade and environmental issues remained to be resolved before the overall agreement can be signed by the three governments.

Treasury Department officials heading the U.S. negotiating team for financial services declined to comment on Mr. Hernandez' remarks, but trade experts said a final agreement appeared close, perhaps as early as this month.

"I know that they're making progress between Washington and Mexico City on almost everything," said Harold B. Malmgren, former U.S. deputy trade representative and president of the Malmgren Group, a Washington-based consulting firm.

The U.S. administration is hoping to initial a free-trade agreement among the three countries within the next few weeks.

President Bush and Mexican President Carlos Salinas de Gortari are due to meet soon to discuss the state of the talks.

A White House spokeswoman said no date had as yet been set but banking sources said the two were expected to meet in San Diego on July 14.

Mr. Hernandez said his bank, with more than $33 billion in assets, had little to fear from competition.

"We've had lots of competition from foreign banks in the corporate market for the last 20 to 25 years and investment banks from New York are already doing business in Mexico," Mr. Hernandez said.

|Room to Grow'

More than half of Mexican private savings were managed abroad as recently as 1987, and Mexico remains "underbanked," he added.

"There's lots of room to grow," Mr. Hernandez said, noting that Mexico's economy has expanded 12% over the last three years.

Only 8% of all Mexicans have a checking account, less than 1% have a mortgage, and the private sector's demand for credit is rising at a rate of 20% a year after adjustments for inflation, Mr. Hernandez estimated.

Bank credit to the private sector in Mexico amounts to only 21% of gross national product, or one third the level in the United States and one fourth the level in European countries like Germany, he said.

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