You'd think banks and thrifts owned by minorities would do a better job of lending to low- and moderate-income people within their communities than a white-owned bank in the suburbs.

But that doesn't seem to be the case, according to a study of Community Reinvestmcnt Act data by a private consultant, and a Federal Reserve analysis of home lending patterns at minority banks obtained by the American Banker.

Minority banks and thrifts, on average, scored far lower on their CRA ratings than did all other banks, according to a study by William M. Cunningham, a Washington consultant who analyzes CRA ratings for corporations looking to work with minority financial institutions.

"You would expect minority banks to blow everybody else away with outstanding ratings, but they actually have worse than average CRA ratings." said Mr. Cunningham.

Richest Singled Out

A separate analysis of Home Mortgage Disclosure Act data found that minority banks, while they make overwhelmingly more housing loans to minorities, are singling out the richest segment of their communities to a greater degree than all other banks.

Applicants earning 120% or more of median family income accounted for a full 60% of all applicants for mortgage loans at minority banks. The average for all banks was 53%.

Minority banks had a fairly high income group of borrowers," said Fed economist Glenn Canner, who analyzed the conventional home purchase loan data of 80 randomly selected minority banks.

Minority bankers - like their mainstream brethren - complain that enforcement of CRA has unjustly focused on paperwork and detracted from their ability to make loans.

Flaws Seen in CRA

"CRA is statutorily flawed, and is incapable of being an agent of change for poor neighborhoods without modification," said William T. Johnson, president of Omni Banc Corp., River Rouge, Mich. Mr. Johnson recently made a bid to buy Indecorp. Chicago, the nation's largest African-American-owned banking company Minority borrowers are also more likely to have flawed credit histories, making the job of lending especially difficult for minority banks, 58% of whom are located in neighborhoods where more than half of residents are minorities according to the Fed data.

"Regardless of whether we are minority owned or not, we are regulated by the same regulators who examine majority institutions," said Ron Thigpen, executive vice president at Family Savings Bank in South Central Los Angeles. "People with poor credit histories who can't prove that they will be able to repay their loans will not get a loan."

What's more, minority banks are on more precarious footings than all other banks: This year six minority banks have failed, accounting for almost 20% of the 32 bank failures.

The average weighted return on assets for minority banks was just 0.58%, and average return on equity was 5.53% in the first quarter, according to an American Banker analysis of data provided by Sheshunoff Information Services. The average ROA for community banks was 1.26% and ROE was 14.29% at the end of the first quarter.

Instability Cited

"Because many [minority banks] are not stable, they are not in a position to effectively reach out with the kinds of creative lending that is required to rebuild communities," said Mr. Johnson.

Minority bankers share the concerns of many community bankers who say regulatory bias makes it harder for community banks to comply with regulations such as CRA. No minority banks have more than $2 billion of assets.

Fewer Poor Applicants

"We are in a competitive business, and the larger banks have more resources than we have and can afford large signs and plenty of circulars," said Richard T. Greene, president and CEO of Carver Federal Savings Bank, a $320 million-asset Harlem thrift.

According to the Fed data, minority banks are also attracting fewer poor applicants for housing loans. Applicants with household incomes less than 100% of the median accounted for only 30% of all applicants at minority banks. At all other banks the rate was higher, at 35%.

The minority banks are also turning away a greater percentage of poorer applicants from their communities than all other banks. Denial rates for those applicants under 80% of the median family income median were 36% at minority banks, and 33% at all other banks.

Minority banks, however, do serve neighborhoods with great percentages of low- and moderate-income applicants. While poorer neighborhoods accounted for 10% of areas served by all banks, they accounted for 31% of the neighborhoods served by minority banks.

Wealth Is Relative

Part of the difference, said minority bankers, is explained by, the fact that the median family income varies between neighborhoods and cities. An upper-income family in a predominantly minority inner-city neighborhood, for example, might earn substantially less money than an upper-income family in the suburbs.

"We are dealing with a community that by and large makes only 60% of the average family income, so we inevitably end up" with borrowers whose credit histories are poor, said Jesse H. Turner Jr., president and chief executive of Tri-State Bank of Memphis, and chairman of the National Bankers Association, a trade group representing minority banks.

Others suggested that minority banks accept loans from some minority borrowers who - because of their race - might be rejected at nonminority banks.

"Those upper-income blacks would be turned down by the mainstream banks," said Marcus Alexis, a professor of economics at the J.L. Kellogg School of Management at Northwestern University.

Asians Fare Worse

CRA performance also appears to vary between minority banks and thrifts, with Asian banks faring much worse, than African-American and Hispanic banks, according to Mr. Cunningham, whose firm is Creative Investment Inc.

While 13% of all banks and thrifts received outstanding CRA ratings in the two-year period ended September 1992, only 8% of minority banks received such ratings in the two-year period ended June 1992.

Among the minority institutions, 15% of the nation's Hispanic banks and 11% of African-American banks received the highest CRA grade. Only 2.6% of Asian banks received outstanding ratings.

"Needs to Improve'

Nearly 10% of all banks received "needs to improve" or "substantial noncompliance," the two worst CRA ratings. A whopping 24% of minority banks were given such low CRA ratings.

But among the minority groups, only 8% of African-American banks received the two lowest grades, while 20% of Hispanic banks and 36% of Asian banks received low ratings.

The Asian-American banks "serve a tight-knit, well-defined community," sharing a similar language and culture, said Mr. Cunningham. "They don't make a lot of extra efforts to go outside their community."

"It is more related to culture than anything else," said one Asian-American banker, who like most of the Asian-American bankers contacted for this article, asked to remain anonymous.

Room for More Loans

Some minority bankers concede that there may be room to make more loans to lower-income borrowers in their communities.

"Part of the issue is being sophisticated about how to make loans," said Mr. Alexis. The Kellogg professor said he is also preparing a bid to acquire Indecorp, the Chicago-based black banking company.

"Many of the minority bankers may be disposed to lend to low-income borrowers but don't have the techniques to do it efficiently."

Others question whether they are being held to a higher standard because they are minority banks. Indeed, minority banks have differing mission statements: Some claim to have a special obligation to extend credit to poor borrowers; others say that obligations to shareholders override any claims of social responsibility beyond those of mainstream banks.

Beyond the Bottom Line

Alpha Johnson, chief executive and president of Commonwealth National Bank, a black-owned institution in Mobile, Ala., said, "Our mission goes beyond the bottom line: We have to serve the low- and moderate-income people in our community." Mr. Johnson's bank recently received a $350,000 capital infusion from NationsBank Corp.

"We are operating a commercial bank like any other financial institution in the United States." said Arnoldo Cisneros, senior vice president at International Bank of Commerce, Laredo. Tex. "The only distinguishing feature is that our stock is Hispanic owned."

Sometimes, however, minority banks put themselves into the spotlight by taking advantage of government and corporate programs designed to increase deposits, said Mr. Cunningham, who analyzed the CRA data.

"When we deposit funds in a bank, we expect that bank to invest in the community," said Marj Halperin, spokeswoman for Illinois state treasurer Patrick Quinn, an active supporter of minority banks.

"Many of these banks turn around and say. |Support us because we are minority,'" said Mr. Cunningham. "But the implicit assumption behind a lot of these minority deposit programs is that you are helping out the community by helping out the minority financial institutions. That assumption may not hold entirely."

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