As competition heats up in Spain's crowded bank market, 
    Banco Exterior de Espana is seeking to shed its image of a state-owned bank and move into new activities. 
    Under the direction of its new chairman, Francisco Luzon, Spain's seventh largest bank is undergoing a tough restructuring 
    that 
    analysts say 
    may be the first step toward the bank's privatization. 
    The state-owned industrial holding company Instituto Nacional de Industria and the Bank of Spain jointly hold a 13.94% stake in Banco Exterior. 
    The government directly owns 51.4% 
    and Factorex, a financial services company, holds 8.42%. 
    The rest is listed on Spanish stock exchanges. 
    Some analysts are concerned, however, 
    that Banco Exterior may have waited too long 
    to diversify from its traditional export-related activities. 
    Catching up with commercial competitors in retail banking and financial services, 
    they argue, 
    will be difficult, 
    particularly if market conditions turn sour. 
    If that proves true, 
    analysts say 
    Banco Exterior could be a prime partner 
    -- or even a takeover target -- 
    for either a Spanish or foreign bank 
    seeking to increase its market share after 1992, 
    when the European Community plans to dismantle financial barriers. 
    With 700 branches in Spain and 12 banking subsidiaries, five branches and 12 representative offices abroad, the Banco Exterior group has a lot 
    to offer a potential suitor. 
    Mr. Luzon and his team, however, say 
    they aren't interested in a merger. 
    Instead, they are working 
    to transform Banco Exterior into an efficient bank by the end of 1992. 
    "I want this to be a model of the way 
    a public-owned company should be run," 
    Mr. Luzon says. 
    Banco Exterior was created in 1929 
    to provide subsidized credits for Spanish exports. 
    The market for export financing was liberalized in the mid-1980s, however, 
    forcing the bank to face competition. 
    At the same time, many of Spain's traditional export markets in Latin America and other developing areas faced a sharp decline in economic growth. 
    As a result, the volume of Banco Exterior's export credit portfolio plunged from 824 billion pesatas 
    ($7.04 billion) 
    as of Dec. 31, 1986, to its current 522 billion pesetas. 
    The other two main pillars of Banco Exterior's traditional business 
    -- wholesale banking and foreign currency trading -- 
    also began to crumble under the weight of heavy competition and changing client needs. 
    The bank was hamstrung in its efforts 
    to face the challenges of a changing market by its links to the government, 
    analysts say. 
    Until Mr. Luzon took the helm last November, 
    Banco Exterior was run by politicians 
    who lacked either the skills or the will 
    to introduce innovative changes. 
    But Mr. Luzon has moved swiftly 
    to streamline bureaucracy, 
    cut costs, 
    increase capital 
    and build up new areas of business. 
    "We've got a lot 
    to do," 
    he acknowledged. 
    "We've got to move quickly." 
    In Mr. Luzon's first year, the bank eliminated 800 jobs. 
    Now it says 
    it'll trim another 1,200 jobs over the next three to four years. 
    The bank employs 8,000 people in Spain and 2,000 abroad. 
    To strengthen its capital base, 
    Banco Exterior this year issued $105 million in subordinated debt, 
    launched two rights issues 
    and sold stock held in its treasury to small investors. 
    The bank is now aggressively marketing retail services at its domestic branches. 
    Last year's drop in export credit was partially offset by a 15% surge in lending to individuals and small and medium-sized companies. 
    Though Spain has an excess of banks, 
    analysts say 
    the country still has one of the most profitable markets in Europe, 
    which will aid Banco Exterior with the tough tasks 
    it faces ahead. 
    Expansion plans also include acquisitions in growing foreign markets. 
    The bank says 
    it's interested in purchasing banks in Morocco, Portugal and Puerto Rico. 
    But the bank's retail activities in Latin America are likely to be cut back. 
    Banco Exterior was one of the last banks 
    to create a brokerage house 
    before the four Spanish stock exchanges underwent sweeping changes in July. 
    The late start may be a handicap for the bank 
    as Spain continues to open up its market to foreign competition. 
    But Mr. Luzon contends 
    that the experienced team 
    he brought with him from Banco Bilbao Vizcaya, 
    where he was formerly director general, 
    will whip the bank's capital market division into shape by the end of 1992. 
    The bank also says 
    it'll use its international network 
    to channel investment from London, Frankfurt, Zurich and Paris into the Spanish stock exchanges.