More banks are automating and streamlining their small-business activities in the face of growing competition from nonbanks.

That's the verdict of 58 small-business bankers who responded to the 1996 Small Business Banking Study, recently released by the Consumer Bankers Association, a Washington-based trade group. The respondents represented banks with an aggregate of $1.6 trillion in assets.

According to the survey, more banks are using small-business loan credit-scoring systems and small-business marketing data bases to cut costs and give themselves an edge over the competition.

And although most bankers still say they expect other banks to be their biggest competitors over the next five years, Merrill Lynch Co. in particular was picked as the third-biggest threat by 28% of respondents.

"Merrill Lynch is having an impact in markets," said Nickolas Certo, senior vice president of PNC Bank Corp., Pittsburgh, and a member of the survey task force. Bankers say that Merrill Lynch has increasingly been viewed as a threat in small-business lending, but this was the first survey that asked bankers to actually rate the competition.

Increasing their use of automation helps the banks fight nonbanks like Merrill, while boosting their bottom lines.

For instance, 70% of the respondents said they use a small-business marketing data base to hunt for sales opportunities, up from 42% in 1989 when the first survey was conducted.

Also, 50% of bankers judge small-business loans using credit scoring, the survey found. And the use of credit scoring will only increase as customers demand faster service, Mr. Certo said.

"If you want to call yourself a top-tier small-business lender, it's going to be a prerequisite," Mr. Certo said.

Moreover, data base improvement was identified as one of the top small- business banking issues of the next two years, along with total relationship profitability and increased use of high-tech delivery systems.

More banks are shifting internal jurisdiction over small-business lending. According to the survey, 48% of the respondents - more large banks than small - put responsibility on the retail side of the business. There has been a steady upward trend in this direction since 1989, when only 33% of banks put small business under retail.

"Over the past four to five years there has been a move to shift running small-business operations through the branch environment," said James B. Schmitt, director of business delivery systems for Norwest Corp., Minneapolis, and chairman of the survey task force.

"The branches are where this sort of customer is coming now."

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