Southern California is ripe for irrational lending: A slow economy has stymied loan growth, and plenty of wounded competitors are anxious to book new business.
But bankers say it is not sick rivals that are causing concern. Rather, competitors claim that Los Angeles-based Sanwa Bank, the $7.6 billion-asset unit of the Japanese superbank, has been too aggressive in the fight for share of the small business loan market.
"Sanwa is acting irrationally," said one rival, who asked not to be identified. "We have found it difficult to compete primarily on structure."
They say the 109-branch Sanwa has loosened its credit terms by not requiring personal guarantees or second liens on equipment -- both common conditions for bank loans.
Russell Cree, vice president and manager of Sanwa's small business unit, said the criticism may be true of a portion of the company's portfolio, but those loans are collateralized with cash. However, he offers no apologies, saying consolidation and aggressive marketing have made Sanwa more aggressive in a push that began in December 1993.
"A lot of the companies we serve have survived the economic problems of the last few years," Mr. Cree said. "We're reaping the benefit because we're coming in just as the market is coming back."
He said the bank's typical customer is a manufacturer, distributor, or professional organization that has been around five to 10 years. It normally employs 15 to 25 people and borrows around $100,000.
The problem is, that is the same customer profile targeted by many of its California rivals. And with so many lenders chasing the same quality credits, some are getting angry with aggressive banks like Sanwa.
Still, Mr. Cree believes a centralized credit function has made the bank more aggressive, as well as safer in its commercial lending. "In this environment, you can get better credit quality even though you are marketing to more people," he said.
Also, the loan can be more competitively priced since depository and other services are often the most lucrative part of the relationship.
"You typically don't get just a transaction, as you do in a retail loan," said Mr. Cree. "In a business transaction, you get a line of credit or term loan, a business-use bank card, a business checking account, a business savings account, and maybe a payroll account. It's a very profitable and attractive market."
His outlook for the future: "We have made an impact and we're just starting," he said.
