Banks need to find experienced partners if they want to crack the fast- growing consumer finance business in emerging markets, according to a study by the Boston Consulting Group.

Such partners, the firm suggested, are most likely to be local consumer finance companies, merchandise retail chains, or automotive and appliance makers.

Banks should not go it alone because their administrative structures are not set up to handle consumer lending in emerging markets, Boston Consulting said. "Their methods for assessing credit, approving loans, and collecting payments are costly and ill-suited to populations lacking traditional credit information."

The study also found that low-income people, who make up most of the customers in emerging markets, "are often intimidated by the procedures of the typical bank branch."

Though local lenders and retail chains in emerging market countries provide some consumer credit, their cost of funds remains high, and they have difficulty identifying potential customers beyond a narrow base, the study added.

Only Citigroup Inc., BankBoston Corp., and Wells Fargo & Co. are seeking to develop consumer credit activities outside the United States.

But the business is poised for rapid growth, and nonbank lenders are going after it aggressively. Among them are Associates First Capital Corp., General Electric Capital Corp., and two captive auto finance groups, General Motors Acceptance Corp. and Ford/Opel.

At Associates, revenues from operations outside the United States climbed 60% last year, to $1.6 billion, and now account for about 16% of total revenues.

"The recent performance of our international operations would be difficult to surpass," the company said in its most recent annual report.

Associates this year considerably boosted its international activities by acquiring Avco Financial Services Inc, a Costa Mesa, Calif., finance company. The move expanded Associates' operations in Canada, the United Kingdom, and Puerto Rico and also gave the company offices in Australia, Hong Kong, France, Sweden, Spain, New Zealand, Ireland, and India.

GE Capital has also been moving to expand internationally. The company last year bought several finance companies in Asia and acquired controlling stakes in credit card companies in Thailand and India.

In Hungary the only U.S. financial institution competing with Citigroup's local banking unit are General Motors Acceptance Corp., which owns Opel Bank Hungary Ltd., and General Electric Capital Corp., which owns a 28% stake in a local bank.

Other U.S. banking companies with international operations have focused mainly on corporate finance, securities and funds processing, and private banking. Both Citigroup and BankBoston have mainly targeted affluent people abroad, though Citigroup uses Commercial Credit, a wholly owned consumer finance subsidiary, to offer consumer loans.

Wells Fargo & Co., which runs a Des Moines-based consumer finance company, is also expanding in the Caribbean, Central America, and, more recently, Argentina. BankBoston entered the automotive consumer finance market in Brazil 14 months ago and now has a portfolio of about $90 million of loans outstanding.

"We have a combination of monetary stabilization, credit availability, and a fast-growing middle class that is completely new in Brazil," said Geraldo Carbone, co-head of global banking and general manager of BankBoston's operations in Brazil. "Credit information is weaker, but spreads are bigger, and this is a natural source of growth for the banking business."

In the reverse strategy, BankAmerica Corp. decided to sell its Asian consumer banking network outside Hong Kong and Macao last November. Officials said at the time that the company was not prepared to allocate capital to develop a business in which it could not achieve significant market share.

Chase Manhattan Corp., which runs a credit card business in Hong Kong, has refrained from developing other consumer finance activities outside the United States.

Boston Consulting listed several reasons why banks remain reluctant to invest in consumer finance in emerging markets.

Relatively few people in emerging markets use banks.

Incomes are low, and the average transaction is small.

Recent economic crises have made banks leery of expanding in Asia, Latin America, or other emerging markets.

According to Boston Consulting, consumer finance assets are likely to grow by 10% to 15% over the next five years in Mexico, where they now total around $1.5 billion.

In Thailand, Malaysia, and Indonesia, consumer credit volumes "are still likely to triple over the next 10 years," despite the current economic downturn in east Asia, Boston Consulting predicted.

"Estimates put current net profits before tax for India, Malaysia, Thailand, and Indonesia at $530 million," the company said. "These profits should continue to grow at double-digit rates."

The consulting firm suggested banks could best take advantage of the trend by linking up with finance companies.

Most banks "will find it easier to create a separate company or to team up with finance companies that already have low-cost stems for acquiring customers, assessing credit, and collecting payments," the report recommended.

By doing this, Boston Consulting added, banks can "take advantage of the efficiencies of finance companies" as well as their own ability to access low-cost funding.

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