Fierce competition for small-business customers is propelling some community banks into a new line of business: trade finance.
Fremont Bank recently set up a trade finance division in its Fremont, Calif., offices to help technology, agriculture, and other small-business customers in trading overseas. And Houston's Sterling Bank started a trade finance division 10 months ago to keep pace with rival Southwest Bank of Texas, an active international lender.
"This tells customers that our bank is much more of a full-service bank," said Raymond T. deSola, Sterling's senior vice president of international banking. Though trade finance represents a small portion of Sterling's overall business, "the important thing is that our customers are not having to go elsewhere," Mr. deSola added.
U.S. companies are engaged in more international trade than ever. In 1996, $1.6 trillion of goods and services-from canned peaches to computer software-moved in and out of the United States, compared with $760 billion in 1986, according to the Census Bureau. In Orange County, Calif., alone, 61% of all companies export and import products and services, compared with 41% just three years ago.
For community bankers, "that's a percentage of the market you just can't ignore," said Mark H. Stuenkel, president and chief executive officer at Southern California Bank in Newport Beach.
Even the crisis in Southeast Asia cannot dampen the spirits of community bankers who offer trade finance. In fact, though community bankers acknowledge that now is not a good time to finance exports to Asia, they say it is an ideal time to finance imports.
"As the currency is devalued, it makes the purchase of goods that much more attractive," said Pin Pin Chau, president and CEO at Atlanta's Summit National Bank, a $180 million-asset bank that has financed international transactions for a decade.
"Importers are going to have a strong year, and they are going to need help from banks," added Robert A. Fuller, president of $125 million-asset Commercial Bank of San Francisco.
The largest overseas transactions are still handled by banks such as BankAmerica Corp., which has a sophisticated international lending division. But community bankers, especially those in trade-dependent states such as Texas, California, New York, and Florida, say a niche exists for them to serve small and midsize companies.
"From what we've seen, small companies have had a little trouble getting trade financing from larger banks," said Mr. Fuller, who is also a former international banker with Bank of America.
Trade financing comes in many forms. It can mean providing working capital or a line of credit to U.S. companies that export fruit or beef or brand-name clothing. Often it means financing an individual transaction, such as $50,000 worth of textiles to the Far East, in which payment is typically received in three to six months.
Letters of credit are also a means of trade financing. To ensure payment from its customers, a community bank will-for a fee-provide a letter of credit to the overseas buyer. Also for a fee, banks will collect payments from overseas merchants on behalf of their U.S. customers.
"Most banks like fee income, and this generates a lot of fee income," said Michael Tun Zan, president of Pacific Bank in San Francisco.
Still, offering trade financing is easier said than done. The biggest obstacle, community bankers say, is finding lending officers that understand the complexities of doing business in multiple countries.
It is no coincidence that Houston's Sterling Bank did not launch its trade finance division until it hired Mr. deSola, a former international lender with First National Bank of Chicago. And Southern California Bank's trade finance division did not take off until three years ago, when the bank hired a lending officer who speaks five languages.
Many community banks solicit new customers by conducting seminars that teach small-business owners the finer points of overseas commerce. Equally crucial to building business is working with clients to identify new markets.
To offset a slowdown in sales to Asian countries, Pacific Bank is helping one customer-an exporter of name-brand clothing and electronics- develop relationships in Europe.
"The Southeast Asian market cannot afford to buy U.S. goods so we need to be careful our customers are trading with parties that can still afford to pay for the goods," he said.
Such client relationships have paid off for $594 million-asset Pacific Bank. According to Mr. Tun Zan, almost 30% of the bank's revenues are generated by trade finance.
Trade financing will not make all community banks rich. Commercial Bank of San Francisco's Mr. Fuller, for example, said fees from its trade finance division account for only 1% to 2% of the bank's overall net income.
But the point these community bankers make is this: If they did not offer trade financing, small-business customers would take their business- as well as their deposits and payroll services-to a bank that did.
"Just the demands of being in New York City means you have to have the skills" to offer trade finance, said John C. Millman, president of Sterling National Bank in Manhattan's garment district. "If we didn't have trade financing, we probably wouldn't be able to keep a lot of our clients."
"It makes you a full-service bank in the eyes of the client," said Southern California Bank's Mr. Stuenkel. "Once you get them into the cycle on the international side, they don't ever want to leave you."
There are ways of offering trade finance services without actually creating an entire division. If, for example, a customer at Danvers Savings Bank in Danvers, Mass., needs a letter of credit, the $272 million-asset bank will supply it through a partnership with Brown Brothers Harriman & Co., a private New York investment bank that has issued letters of credit for decades.
"While we saw a lot of our clients doing more exporting and importing, it wasn't to the extent that we needed to create a division of our own," said president and CEO Kevin T. Bottomley. Under the arrangement with Brown Brothers, "I have no investment, and my customers are taken care of by a first-rate organization," Mr. Bottomley said.
Indeed, partnering with large banks on international deals is not unusual. Despite the growth in its trade finance division, Southern California Bank still issues its letters of credit through Bank of America. And Fremont Bank plans to offer Bank of America's products to its customers until further notice.
"We don't plan on making a lot of money," said Fremont president Alan L. Hyman. "We're going to pass on what Bank of America charges us to our customers. We just want to get into the business."
