Top 50 Bank Lenders Gain Slowly in Market Share

The top 50 banking companies in small-business lending are gaining ground in a slow, grinding war for market share.

The group accounted for 49% of all small-business loans on the books of banks and thrifts at midyear-up 0.73 percentage point from a year earlier and seven points from 1995, according to an American Banker survey. (Complete tables begin on page 14.)

Led by NationsBank Corp., Wells Fargo & Co., and Banc One Corp., the top 50 lenders in the field, all commercial banks, are clearly gaining at the expense of community institutions, long the pillars of small-business lending.

"The larger banks are proving their commitment to this market," said Charles Wendel, president of Financial Institutions Consulting in New York. "The community banks' share of the pie is going to get smaller year by year."

Michael James, executive vice president in Wells Fargo's business banking group, added: "Small-business lending is consolidating, and what's driving that is the ability to invest in technology."

During the past year, large banking companies have simplified their small-business loan applications and lent money by direct mail, telephone, and fax. The larger banks use data base marketing to target borrowers and credit scoring to evaluate loan applications.

"Small-business customers want products that are easy to use and like the ability to access the bank at any time," said Thomas H. Jeffs, vice chairman of First Chicago NBD Corp. "Banks that are technologically advanced have an advantage."

The survey-based on data from Sheshunoff Information Services, the Federal Deposit Insurance Corp., and banks themselves-found that total bank loans to small businesses had grown 7% in the 12 months through June 30, to $175 billion. The data comprise business loans of less than $1 million.

Community banks, for their part, say they offer better service and are gaining small-business customers unhappy with the impact of large-bank mergers.

"The entrepreneur likes to know his banker and likes to spend time with his banker," said Gerald Lipkin, president and chief executive of Valley National Bank in New Jersey. "He would have to go to Charlotte to have lunch with the CEO of First Union."

Nonbanks such as the Money Store, American Express Co., and Merrill Lynch & Co. also play a major role in small-business lending but are not included in these statistics.

NationsBank-the leading small-business lender for the past three years- saw a significant jump in loans outstanding after its merger this year with St. Louis-based Boatmen's Bancshares. At midyear, the company was holding $7.1 billion in 319,133 small-business loans, a 69% dollar increase for the 12 months. Even excluding the merger's effect, NationsBank's portfolio would have grown 13%.

NationsBank executives were not available to discuss the growth. A spokesman said the company has increased its focus on small-business lending and introduced small-business credit lines for amounts of less than $50,000.

Wells Fargo, holding down the No. 2 spot, increased its small-business loan total 18%, to $4.6 billion. During the last three years, Wells has nearly tripled its number of loans, to 307,869.

The average loan size at Wells Fargo, which pioneered the use of direct mail to issue credit lines, declined to $15,100, from $18,250 at midyear 1996. By comparison, the top 50 had an average loan size of $38,550.

"With technology, even a very small business in New York, Florida, or Toronto can borrow from Wells Fargo in San Francisco," said Wells' Mr. James.

He said credit scoring, centralized underwriting, and data base marketing have helped the company bring down the cost of making smaller loans.

"Ten years ago, we didn't know how to make money making a $10,000 small- business loan," Mr. James said. "Today we've turned it into a very big business."

Banc One, Columbus, Ohio, and First Chicago NBD each moved up in the rankings, and Minneapolis-based Norwest Corp. held on to fifth place, while Cleveland-based KeyCorp dropped to sixth.

Debra Stuer, First Chicago NBD first vice president and small-business segment development officer, said her company has increased its focus on small-business lending, designing standardized products and training its branch employees to work with entrepreneurs.

"We're getting better," Ms. Stuer said.

KeyCorp had 48,875 small-business loans outstanding, totaling $3.3 billion. That 16% drop in the dollar value of loans outstanding pushed KeyCorp from its third-place rank of last year.

But Sandra Maltby, a KeyCorp vice chairman who oversees the small- business lending effort, said the company measures its achievement by growth in the number of small-business customers, not just in amounts loaned.

"We focus on relationships, not just being the largest credit provider," she said.

Ms. Maltby said the decline in the portfolio's value reflected KeyCorp's sale of all its branches in Wyoming, as well as others in New York and Ohio. She said the company's sales of all small-business products had increased 49% in its core markets during the first 10 months of 1997.

Ms. Maltby also said the bank's customers have less debt because the economy is strong and some borrowers are using a new product that structures a business loan as a home equity loan.

Analysts for the FDIC said small-business data from banking companies that had completed mergers or combined bank charters and changed their lending systems could have been affected in similar ways.

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