With the ink barely dry on the North American Free Trade Agreement, banks are scrambling to position themselves for what some say will soon be a single financial market from the Arctic to the Amazon.

"We're looking at an entirely new cross-border dimension to banking," says Manuel Lasaga, a banking analyst and director of the Miami-based International Management Assistance Corp.

"This will catalyze cross-border megamergers and could one day produce a genuine |Bank of the Americas'."

Evidence that banks are thinking along the same lines came less than two weeks after the United States, Mexico, and Canada agreed to set up a free-trade zone. The Bank of Nova Scotia announced plans to acquire a 5% stake in Grupo Financiere Inverlat, Mexico's fourth-largest financial group and parent company of Multi-banco Comermex.

"The draft North American Free Trade Agreement makes this alliance strategically important for both parties," said C.E. Ritchie, chairman and chief executive of Scotiabank.

Stronger Commitments in Sight

"We foresee rapid growth in trade between Mexico and Canada, as well as between Mexico and many other countries where Scotiabank operates."

And Bank of Boston Corp. plans to convert its Mexico City representative office to a banking unit as soon the treaty takes effect.

"Banks will be able to make a stronger commitment to Mexico because there is a clear road map to expand," says Kevin Mulvaney, international banking group executive at Bank of Boston.

Retail on the Outskirts

Other major U.S. banks decline to disclose their plans but add they are likely to focus on corporate finance and investment banking rather than retail banking.

"I think it's will very unclear how deeply American banks will become involved in Mexican retail banking," said Peter McPherson, executive vice president at BankAmerica Corp.

BankAmerica, which is said to be interested in extending its own retail banking and trade finance activities into Mexico, has not made a final decision on strategy, Mr. McPherson added.

But smaller U.S. banks near the border expect a quick buildup in trade finance, retail business, and private banking -- and a surge in stakeouts across the border.

"Bicultural banks are among those which stand to profit the most [from the agreement]," says Manuel Harry Nuno, vice president for international banking at the San Diego-based Bank of Southern California.

And senior Canadian bankers have long said they view North America as their main market for expansion, while Mexican bankers have made little secret they hope to acquire U.S. outlets just over the border.

Limited Slice of the Pie

Still, there will be limits to expansion over the next few years.

The agreement will permit U.S. banks to acquire small and midsize Mexican institutions as of January 1994.

But it allows U.S. banks to acquire no more than 15% of the total capitalization of the Mexican banking industry by the year 2000, then up to 25% over the three years following the turn of the century.

"Foreigners' share of the banking sector will be limited," notes Stefano Natella, a Latin American analyst with First Boston Corp. in New York.

"Their ability to grow in terms of lending and deposits is restricted."

Analysts such as Mr. Lasaga say these limits mean banks will likely first build strategic alliances rather than establish full-fledged operations from scratch.

This likelihood is increased by capital constraints on U.S., Canadian, and Mexican banks, the high cost of buying large banks, and the difficulties of setting up an operation in a new market.

But they add that similar considerations and concerns surrounded interstate banking when it was introduced in the United States and did not prevent the emergence of large superregional banks.

"We're moving into unchartered waters," says Mr. Lasaga. "But given the potential of the Mexican market, a lot of people are interested in getting their foot in the door."

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