NEW YORK -- Citicorp, the only foreign institution now allowed to provide full-service banking in Mexico, plans to expand its retail operations "substantially" once the North American Free Trade Agreement takes effect, vice chairman William Rhodes said.

He expressed confidence that the trade agreement, known as Nafta, will be ratified and that it will take effect next Jan. 1.

Interviewed after a press briefing of the Mexican Investment Board, Mr. Rhodes said that Citicorp primarily conducts corporate business in Mexico.

Citicorp has five branches in Mexico and will add two by yearend, according to chief Mexican executive Gabriel Jaramillo. He said Citicorp has gained a competitive advantage on the corporate side by being the only foreign bank doing business in the country.

But Citicorp's overall Mexican market share is less than 1%, Mr. Rhodes said. The market is dominated by three commercial banks led by Banco Nacional de Mexico, known as Banamex.

Other U.S. banks have voiced an interest in entering Mexico, and Mr. Rhodes does not see their entry as a threat.

Because of Mexico's projected economic growth, he said, there should be enough business for all new bank entrants.

Mr. Rhodes said Citicorp has been lending in Mexico regularly since it gave the country new money in 1989 as part of a debt pact.

"We have been increasing our financing of trade, and recently we underwrote the Pemex [Petroleos Mexicanos] deal," the Citibank executive said. "We are very active in the marketplace."

The expected growth of foreign banks will be good for everyone," said Manuel Somoza, president of Grupo Financiero Invermexico/Banco Mexicano.

Mr. Somoza said Mexican banks will have to specialize more, offer new products, and adopt new technology.

Eyeing Joint Ventures

"We are not worried. We would love to see some joint ventures," he added, saying it is easier to get a bigger share of the market this way than alone. Joint ventures in technology seem particularly attractive, he said.

Bancomext chief executive officer Jose Angel Gurria said Mexico is "underbanked" and its banking system is "underdeveloped."

Bancomext, which is Mexico's equivalent of the U.S. Export-Import Bank, is "very profitable," Mr. Gurria said.

Small-Business Loans Lag

One area he cited as not very advanced is lending to small Mexican businesses. Such loans are "very expensive to operate," he said.

Manuel Robleda, head of the Mexican Stock Exchange, said that more foreign banks in Mexico will mean heightened competition among investment bankers, because Mexican institutions can do both commercial and investment banking.

"We are going to face very strong competition in this area," Mr. Robleda said. "We've been preparing for it."

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