Credit scoring is remaking the small-business portfolios of the West Coast's largest banks, according to a recent study.

The largest banks in the West increased their holdings of small-business loans for less than $100,000 by more than 26%, according to a study by the Federal Reserve Bank of San Francisco.

That gave the biggest banks a 58% market share of loans for less than $100,000.

At the same time, small-business loans between $100,000 and $1 million declined 5% at the 20 largest western banks between June 1995 and 1996.

The West Coast is viewed as a bellwether region for small-business lending because it is home to Wells Fargo & Co., BankAmerica Corp., and Union Bank of California.

"Some of the leading small-business lenders are on the West Coast and they were among the early adopters of credit scoring," said Latimer Asch, vice president of commercial products for Fair, Isaac & Co., which designs credit scoring systems.

The largest bank lenders to small business have found that credit scoring, a statistical method of assessing loan risk often used for smaller loans, dramatically decreases the costs of lending.

"Banks can make these loans more profitably so more loans are being made," Mr. Asch said.

The shift at the largest banks presented an opportunity for their smaller competitors at the middle of the small-business market, who increased their number of commercial loans between $100,000 and $1 million more than 7%, according to the Fed letter.

But Herbert Foster, chief executive of the $250 million-asset Civic Bancorp in Oakland, Calif., said the larger banks haven't abdicated any segment of the small-business market.

"They're very competitive," said Mr. Foster, whose bank also uses credit scoring. "They don't want to give anything away."

Overall, smaller banks did not compensate for the largest western banks' retreat from the upper-end of the small-business market, the study found.

The Fed's western region-comprising California, Oregon, Washington, Idaho, Nevada, Utah, Arizona, Alaska, and Hawaii-posted nearly zero growth for small-business loans between $250,000 and $1 million, as compared to 5.5% for similar sized loans nationwide.

Mr. Asch said the shift in the small-business market may not last long. Fair, Isaac plans to market its products to community banks and hopes to develop a credit scoring system for loans above $250,000.

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