Even as some regional banks shutter and consolidate suburban branches to reduce costs, these same institutions are renewing efforts to beef up a retail and community banking presence on the island of Manhattan.

One example is National Westminster Bancorp. In the midst of moving 1,300 back-office positions from its Jersey City headquarters to a new service center in Pennsylvania, the $26 billion-asset subsidiary of National Westminster Bank PLC is spending some $30 million to renovate branches in New York City. The idea is to boost its small business and personal banking market share in the Big Apple.

Meanwhile, Uniondale, L.I.-based European American Bank is returning to its community banking roots after paring down a huge nonperforming asset portfolio accumulated in the late 1980s, according to president and chief operating officer, Edward Travaglianti.

The $6.8 billion-asset subsidiary of Amsterdam-based ABN Amro Holding opened a new office in midtown Manhattan last year that focuses on lending to small and midsize businesses. The bank has watched its consumer and small business loan portfolios grow 42%, to $2.7 billion, over the last 15 months, Mr. Travaglianti says.

Even Providence, R.I.-based Fleet Financial Group Inc., which has six Manhattan branches by virtue of its 1989 acquisition of Norstar Bancorp., is making efforts to attract business in the Big Apple.

The bank began customizing checking accounts and loan programs specifically to the small business market. That program, known as Easy Business Banking, is expected to have $370 million in small business loans outstanding in New York State in 1995, says John Garvey, senior vice president of community banking.

Banks in New York City are fighting over lending to more than 100,000 small businesses, hoping to attract deposits and private banking relationships with their owners.

"I think banks are getting religion, believing that small business is a profitable sector," Mr. Garvey says.

Part of what's driving the new market focus is necessity. As large corporations find cheaper financing in the capital markets, banks are eyeing businesses with annual sales of less than $5 million to take up the borrowing slack.

Small businesses typically maintain $3 of deposits for every $1 banks lend them, a better ratio than banks have with middle market and large companies, Mr. Garvey says.

In addition, small business lending offers risk diversification as banks lend relatively tiny amounts to a wide variety of companies.

Natwest is one bank that understands the current competitive climate. For the past three years, the bank has changed its emphasis, turning away from the heavy commercial lending that got it into trouble in the late 1980s, and toward retail banking.

To make this shift operational, chief executive John Tugwell hired Roger Goldman, a former consultant who specialized in consumer and middle-market banking strategies.

Natwest has been lending to the New York apparel and diamond industries for more than half a century. The bank has captured a nearly 20% market share in the city's diamond business and about 13% market share in the apparel business, Mr. Tugwell said in a recent interview.

"For 52 years we've been in New York. We're committed to expanding our marketplace. We'd be crazy not to," the CEO said recently at the gala reopening of the bank's renovated Fashion Avenue branch.

But Mr. Goldman, who calls himself the best salesman in the world, concedes competition is very tough. "It's a marketer's dream," he says, of the New York lending scene. The key to success in the Big Apple depends as much on glitz as it does on relationships and products.

Natwest has instituted a two-year program to refurbish its 16 Manhattan offices. The bank spent $2.5 million just to renovate the Fashion Avenue branch, outfitting it with a wall of nine television screens to update customers on world fashion news as they wait for service.

Natwest will also sponsor monthly fashion shows in the branch, to support local designers who are customers of the bank.

The goal is to prove to New Yorkers that Natwest, which boasts a comprehensive branch network in suburban New Jersey, understands the needs of quintessentially urban businesses and neighborhoods. Indeed, a good many of the New Jersey branches are in urban communities such as Atlantic City, Jersey City, and Newark.

The bank, with 2% of the deposit share in Manhattan, says its efforts in the fashion district are just a small part of a citywide marketing campaign.

"New York is clamoring for a retail bank," Mr. Goldman says. "This is a store now," he says, motioning around the branch, "from the colors, to the textures to the lighting. The average consumer knows in one second whether this is a nice place to shop. People will flock here in droves," he says.

However, Natwest has to face tough competition from money center and community banks in New York's hundreds of neighborhoods.

Although banks and consultants won't reveal market share figures, most agree that Chemical Banking Corp. owns close to 45% of the small business market by virtue of its 1993 acquisition of Manufacturers Hanover Corp.

Consultants say real success in this market will depend on which banks develop sophisticated customer data bases.

"There's an intelligence race - knowing who the customer is - that is hotter in New York than in other parts of the country," said James McCormick of First Manhattan Consulting Group.

Mr. Goldman wouldn't say whether Natwest was in the process of collecting and computerizing customer information. But he did acknowledge that it's "an important step to develop skills in this area that banks have not been known for except in credit cards."

And, he pointed out, Natwest did recently hire a new senior vice president for marketing who will be responsible for such activities.

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