SMALL URBAN BANKS HAVE A GOLDEN -- if daunting -- opportunity to grow along with the immigrant groups settling in their service areas, says Francine Justa, executive director of Neighborhood Housing Services of New York Inc.

Since 1980, the not-for-profit, intermediary lender has funded the rehabilitation of 2,408 apartments in New York City -- most recently in Brooklyn's Bedford Stuyvesant neighborhood.

Whereas the population of Bed Stuy is almost entirely black, however, the lender's study exploring the feasibility of a rehab initiative in Queens shows "a variety of credit cultures that's just astounding," Ms. Justa says.

The $5,000 study was funded by eight banks and thrifts. Released Nov. 23, it demonstrates a need for a Neighborhood Housing Services initiative in northern Queens -- where, until recently, whites, African-Americans, and Hispanics made up the dominant population groups.

In recent years, however, waves of Korean, Indian, Arab, and Chinese immigrants have arrived in the borough, and the diversity they represent "portends the future of urban neighborhoods in the country," Ms. Justa says.

"In 10 years, a lot more people will be banking at ATMs or computers, but the immigrants in urban areas will still be walking to their branches. Small banks should find a way to attract this [walk-in] business, but I know it won't be easy."

James J. O'Donovan, senior vice president of Queens County Savings Bank, agrees -- but his $1 billion-asset institution has been trying hard.

"We're advertising in Spanish and Asian newspapers, and we've held dual-language seminars in Mandarin and English."

The Queens initiative was the idea of Richard King, vice president of $600 million-asset Flushing Savings Bank.

Mr. King says "it's not a foregone conclusion that we'll fund the project. We estimate we'll need $100,000 for the first year, and $250,000 a year thereafter -- and that's just expenses."

Mr. King proposed the initiative because "it seemed that everyone was trying to form CRA coalitions, and they were frequently dominated by large banks.

"So, rather than contribute to a mortgage coalition fund, we'd rather try to develop something that would keep our contributions in our neighborhoods."

Mr. King, whose bank has a "satisfactory" Community Reinvestment Act rating, says anything that's good for his community is good for his bank, but adds, "There are also intangible benefits, lide broadening your customer base."

Kenneth C. Camelo, senior vice president of $1.6 billion-asset Ridgewood Savings Bank, says intangibles are not the reason his institution -- which has a "satisfactory" CRA rating -- joined the effort in Queens. "We already have a great reputation in our community, and we're already involved in a home improvement program with the city," he said. "We're just trying to see if there's any way to help NHS."

Says Frank J. Barkocy, analyst and managing director at Advest Inc.: "The reality of modern banking says you still have to do what's best for your shareholders, obviously, but you mustn't ignore the markets where you operate."

Neighborhood Housing Services operates by relending bank loans issued to the group, which has 240 offices around the nation. John McCaffrey, the group's assistant director of development, says applications are screened so carefully that that the default rate is just 0.09% over 11 years.

Mr. Barkocy, while arguing that branch banking still will be strong in 10 years, agrees it presents a special opportunity in urban areas, where "there's probably a greater percentage of walk-ins" than in affluent areas.

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