U.S. banks are plotting an assault on the Mexican market in anticipation of approval of the North American free-trade agreement.

Some major banks, including Chase Manhattan Bank, have formed high-level committees to evaluate post-Nafta strategies, banking sources said.Chase Manhattan's Nafta planning committee includes the bank's chairman, Thomas Labrecque. This shows the importance U.S. bankers are placing on the potential opening of the Mexican market. Chase Manhattan has a representative office in Mexico.

A number of U.S. banks are thinking of setting up Mexican subsidiaries if Nafta is approved, banking sources said. Subsidiaries, unlike branches, must be separately capitalized. Foreign banks will not be allowed to set up branches in Mexico, even after approval.

Mexico and Canada have said they would consider modifying Nafta to allow U.S. bank branches if the United States first allows interstate branch banking. Branching is less expensive than setting up new subsidiaries. Branches also have higher lending limits based on their parent's capital.

With a subsidiary, foreign banks will be able to engage in the full range of commercial banking, however, just like a Mexican bank, for the first time in 50 years. Most bankers refused to go "on the record" with their Mexican

plans, saying Nafta was not a done deal and that they didn't want to tip their hands to the competition.

Chase Manhattan is not interested in the retail market in Mexico, but is focusing on such areas as foreign exchange, trade finance, securities underwriting and trading, sources said. Other banks are studying the full range of retail activities from credit cards to deposits to loans.

Mexican banks already are allowed to open branches in the United States, although U.S. banks are prohibited from opening Mexican branches. The exception is Citicorp, which had its Mexican branches grandfathered.

The Securities Industry Association, representing securities brokers and investment banking firms, urged congressional approval of Nafta at its Sept. 14 board meeting.

"Without the Nafta, U.S. financial services firms will be hamstrung in establishing a local presence in Mexico and serving their clients," the SIA said in a release. "As a result, securities firms, banks and other U.S.

financial services companies risk losing opportunities in Mexico."

The SIA said that as the Mexican market grows, "so will employment in U.S.

financial services firms." It added that "many of these jobs will be created in the United States in operations, research, trading, new products and other related services supporting U.S. activities in Mexico."

The Financial Services Group (FSG), part of the Coalition of Service Industries, also has urged approval of Nafta. In a letter to President Clinton, it said the agreement will benefit the U.S. financial industry, help the Mexican economy, provide opportunities for U.S. exporters and expand opportunities for U.S. investors.

"This pact marks the first time an international agreement has included comprehensive commitments to liberalize financial services, and will create a significant market opening for U.S. financial intermediaries in Mexico," the FSG said.

"U.S. financial services firms are among the most efficient and innovative in the world, and we believe that the Nafta will further enhance our ability to compete in world markets," it said.

The FSG is comprised of securities firms, banks, insurance companies, diversified financial services companies, limited scope companies like automobile financing companies and other special purpose companies and trade associations.

U.S. commercial banks in particular would be aided in areas like local currency lending and trade financing, foreign exchange services and investment services, the group said.

Mutual fund sponsors would be able to establish operating companies in Mexico. The financing arms of U.S. auto manufacturers in Mexico would be able to access the Mexican debt markets, "allowing increased credit to Mexican car buyers at competitive interest rates," the FSG said.

In a position paper in support of Nafta, it said, "The ability of U.S.

financial services firms to establish a local presence is critical to our ability to compete effectively. Indeed, one primary motivation for financial services firms to seek access to foreign markets has been to follow our multinational clients and become better acquainted with their markets."

Otherwise, the paper said, U.S. financial services companies risk losing their clients to non-U.S. companies with local expertise. Once established in foreign markets, U.S. financial services companies facilitate the expansion of U.S. exports into these markets, it added.

Without Nafta, the U.S. financial services sector is, for the most part, prohibited from establishing and providing services in Mexico, one of the most restrictive markets. There are about 1,500 U.S. companies already operating in Mexico, and the bankers want to follow their clients.

Total assets of the Mexican banking system have grown by 25 percent to 30 percent a year in real terms in the past two years and will grow even faster with Nafta, the FSG said.

"In addition, Mexico will need to upgrade the quality of its banking services, which are neither technologically developed nor widely available," it said. "For example, widespread use of consumer credit cards began only last year in Mexico."

Bancomer SA, Mexico's largest retail bank with more than 800 branches, was restructured in September in an effort to improve its efficiency. Ricardo Guajardo, chief executive of the bank's parent, Grupo Financiero Bancomer, said, "Our new strategic model will allow us to consolidate our leadership as a profitable and growing financial institution in an increasingly competitive environment."

The bank plans to add 200 branches in the next two years.

The Mexican Finance Ministry at the beginning of September approved the charters of five new Mexican banks to increase competition in the recently privatized banking system.

Under Nafta, foreign banks will be limited to 15 percent of the Mexican market, with no single bank having more than 4 percent.