Growth formula: foreign superbanks look for new opportunities as free trade kicks into high gear.

For more than three years, General Electric Consumer Finance--part of gigantic U.S. industrial, media and financial conglomerate General Electric (GE)--circled over the world's emerging markets, looking for a way to buy or merge its way into fast growth. Part of a 10-year strategy, the investment plan calls for GE to make 60% of its revenues in the coming decade from new businesses in developing countries, triple the percentage of earnings abroad reported for the past dozen years.

In August, GE found in Central America the target it had been looking for. Nicaragua's BAC International Bank, one of the region's most profitable, also sought a strategic partner for its consumer-banking and credit-card arms. A ferocious struggle--one lithely managed by Credit Suisse First Boston and which lasted through the end of April--included banking giants such as U.K. bank HSBC Holdings and Canada's Bank of Nova Scotia, among others, clear evidence that the regional BAC had suddenly become an attractive target among global giants.

Until recently, Central America's financial landscape was populated mostly with family-run dynasties--the exception being Panama, home to several large international financial groups--which had just begun to expand beyond their frontiers in a region with significant socioeconomic gaps and widely varying levels of financial sophistication. Nevertheless, perceptions are changing, says Glen Wakeman, Latin America president for GE Consumer Finance. Although it is clear that the financial system still lacks in refinements, much of the growth opportunity represented by the region is due to the market's immaturity, which has accelerated consolidation and regionalization during the last two or three years, lead by its major financial institutions.

Despite these pressures, small-business banking is still a wide-open field in Central America. "Central American banks will have to be more creative and, as a result, we will begin to see more aggressive and innovative consumer products and services," says Juan Carlos Fabrega, executive vice president of Panama's Banistmo. "Central America is not known for 'sophisticated development' in consumer banking, with the exception of credit cards and mortgage loans."

In addition, compared to the nearly completed consolidation process across much of Latin America, Central America had fallen behind. The lag has turned out to work as an advantage, since it led some of the world's largest financial institutions to study how to take advantage of its approximately 40 million consumers, who have traditionally had very little access to credit and high interest rates for loans. This in spite of several years of relatively stable democratic governments along the isthmus, as well as a free trade deal approved by the U.S. Congress in late July. In addition, Central American countries have been on the receiving end of remittances from family members living in the world's largest economy, the United States, totaling nearly US$7 billion annually.

The flow of remittance dollars, along with positive growth across the region, has made this the moment to invest in creating economies of scale and strategic development, says Wakeman. "GE is proposing to grow in every area of business," he says. "But in a disciplined and prudent way, remembering that with profitability comes rise It's a matter of knowing which risks to take."

GE will buy 49.9% of BAC for $500 million, buying in the process a strong brand with 178 branches in Nicaragua, Panama, Guatemala, Honduras, El Salvador and Costa Rica, as well as a credit-card division, Credomatic, which is considered the largest in the region, and recently opened operations in Guadalajara, Mexico. BAC's assets include $1.90 billion in deposits and $1.70 billion in personal, corporate and commercial loans.

Buying spree. But GE is not alone in believing risk means profit. Guided by the same philosophy, other regional and international groups, like Grupo Financiero Popular, based in Puerto Rico and Canada's Scotiabank, also are buying assets in Central America. El Popular bought shares of El Salvadoran financial institution Union de Bancos Cuscatlan Internacional, the second largest in the region after Panama's Banistmo. Popular bought 19.9% of Cuscatlan for $125 million, while Scotiabank bought 97.7% of Banco de Comercio de E1 Salvador (BanCo) for $178 million.

"We have seen the Central American banks focused on increasing efficiency, which makes them attractive in terms of purchasing them or in creating strategic alliances," says Jaime Carreno, director of rankings for financial services for Latin America at ratings agency Standard & Poor's.

But entities from outside the region will have to decide among various methods of penetration in order to grow. According to experts, the way to achieve economies of scale is through acquisition. For those seeking niche businesses, it will be through opening new operations. Alberto Vallarino, executive president of Banistmo--among the first to embrace regionalization--has no doubt that consolidation is under way. But his strategy has been to acquire local assets. "Mergers and acquisitions are very complex, but one has to be prepared for them," he says. "For example, in order to really take advantage of the resulting synergies, one needs to understand well the realities in each country."

Since 1998, the bank's strategies have been to take full advantage of expanding trade and investments that come to the region as a result of free trade deals signed with the United States. Banistmo also moved into Colombia, where it bought 17 branches of Lloyd's TSB Bank. These acquisitions, in addition to similar actions taken in Central America itself, have made the bank the regional leader in assets, which last year exceeded $4.85 billion. In the region, including Colombia, Banistmo has 141 branches and more than 3,000 employees.

Nevertheless, the big challenge for Banistmo will continue to be the battle to overcome a weak brand, since in each country it operates under different names. The bank's main job for the coming months will be consolidating the brand and integrating more fully its offerings. Local partners. For GE, whose emerging-markets investments generated just 10% of total business in the past decade, the choice of local partners is tremendously important. Much of the risk facing GE comes with understanding the consumer and operating dynamics in each country. That will be the task of BAC's executives, according to BAC CEO Ernesto Castegnaro. What has changed, he says, is that GE will have its own people on the board at BAC and will be able to provide technology and new services. Yet Castegnaro believes that he will be able to sustain the same success experienced by his organization of having grown organically, with investments in technology and human capital. "We have been here for 50 years, and we know how to handle ourselves," he says. "For example, we have one of the best-run back offices in the sector, and we have an impressive range of well-hired managers and executives. Our entire system is interconnected among the countries, which allows our range of products to be a single, solid platform."

Cuscatlan, which along with Banistmo is among the region's titans, as well as its most aggressive in terms of expansion, is ready to strengthen its brand through new acquisitions and alliances. The Salvadoran company recently unveiled its new partner, Grupo Popular, which it says will allow for an expansion into the Caribbean and the United States. It's part of a double offensive by Cuscatlan, says Mauricio Samayoa, the group's president. On the one hand, it provides a way to continue to position the bank in Central America, where, he says, "there's still much left to do," while at the same time attack the business of Salvadorans who send money home from the United States in the form of remittances.

Cuscatlan's regional structure has made it flexible enough to adapt a broad corporate vision to the specific market conditions in which it operates. "This allows the local groups to have their own strategic focus. But the capital moves with greater fluidity; many industries are consolidating," he says. "Everyone in the region is at this stage, and we want to be a part of that."

RICARDO CASTILLO * MANAGUA