Oxxford Information Technology Ltd. has developed a service that officials say can help banks convert Community Reinvestment Act compliance into a potential profit opportunity.

The service, called CRA Database, is a marketing and analysis tool that investigates and profiles companies for small-business loans.

Officials said the system helps banks identify preferred customers, especially those operating in redlined areas, such as inner cities.

"The importance of this product is to make sure that banks don't redline," said Raymond M. Greenhill, president and CEO of the New York- based Oxxford, a data base management systems company with more than half the nation's top 50 banks as customers.

Redlining is the practice of excluding potential customers based on geography.

CRA prohibits this practice by banks and requires lenders to submit annual compliance reports.

Oxxford maintains a nearly 13-year-old data base, which is an amalgamation of over 60 external and proprietary data bases, including those from the Internal Revenue Service and the Small Business Administration.

Oxxford officials say they have comprehensive information on 97% of the nation's 10.5 million companies.

Officials said the service can target specific borrowers, based on compliance objectives. The service provides profiles for certain companies based on scoring models that incorporate neural network technology, which is a set of computers designed to mimic the brain.

"The bank tells us what communities it serves by state, county, city, or census tract," Mr. Greenhill said. "We provide a detailed CRA market analysis on each of those communities."

Oxxford also matches the balance sheets and income statements of typical businesses to the economic health of local markets.

Cliff Brundage, an executive vice president with Oxxford, said most banks typically have looked upon their CRA requirements as obligations. But banks are increasingly looking upon them "as major opportunities" to build profitable business lines.

"One of the things we've found out is that many of these small businesses are better candidates for a whole range of financial services," Mr. Brundage said. "They are no more risky to deal with than those outside the lower census tracks."

He explained that these businesses have exceptional profit margins, are highly loyal to the bank, and represent a market that has little competition.

Alan McIntyre, a senior consultant with Oliver, Wyman & Co., New York., concurred with Mr. Brundage's assessment, saying the banking industry has traditionally segmented small businesses using annual sales and location.

He said a "more sophisticated technique" is required because many market segments considered to be on the fringes have "some interesting subsegments that are extremely profitable."

"Our experience has been that these factors in general are not indicative at all of the profitability that can be expected," Mr. McIntyre said.

Experts said that until recently, banks have looked on the small- business community as among the last bastions of profitability, but are increasingly losing their the market to nonbank competitors like Merrill Lynch & Co.

These competitors are targeting the small-business market, particularly those in redlined areas, while most commercial banks have "a one-size-fits- all approach to small business in their advertising and marketing strategies," Mr. McIntyre said.

But increasingly, according to one senior bank official who requested anonymity, commercial banks are reexamining their strategies in disadvantaged communities.

Banks - money-centers in particular - are "scoring big points" with the regulators by working closely with many small-business owners, the bank official said.

Oxxford has tested the service with two undisclosed banks for about a year, officials said.

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