Small Banks Enter Trade Finance as Business Clients Look Overseas

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Fierce competition for small-business customers is propelling some community banks into a new line of business: trade finance.

Fremont Bank recently set up a trade finance division in its Fremont, Calif., offices to help technology, agriculture, and other small-business customers in trading overseas. And Houston's Sterling Bank started a trade finance division 10 months ago to keep pace with rival Southwest Bank of Texas, an active international lender.

"This tells customers that our bank is much more of a full-service bank," said Raymond T. deSola, Sterling's senior vice president of international banking. Though trade finance represents a small portion of Sterling's overall business, "the important thing is that our customers are not having to go elsewhere," Mr. deSola added.

U.S. companies are engaged in more international trade than ever. In 1996, $1.6 trillion of goods and services-from canned peaches to computer software-moved in and out of the United States, compared with $760 billion in 1986, according to the Census Bureau. In Orange County, Calif., alone, 61% of all companies export and import products and services, compared with 41% just three years ago.

For community bankers, "that's a percentage of the market you just can't ignore," said Mark H. Stuenkel, president and chief executive officer at Southern California Bank in Newport Beach.

Even the crisis in Southeast Asia cannot dampen the spirits of community bankers who offer trade finance. In fact, though community bankers acknowledge that now is not a good time to finance exports to Asia, they say it is an ideal time to finance imports.

"As the currency is devalued, it makes the purchase of goods that much more attractive," said Pin Pin Chau, president and CEO at Atlanta's Summit National Bank, a $180 million-asset bank that has financed international transactions for a decade.

"Importers are going to have a strong year, and they are going to need help from banks," added Robert A. Fuller, president of $125 million-asset Commercial Bank of San Francisco.

The largest overseas transactions are still handled by banks such as BankAmerica Corp., which has a sophisticated international lending division. But community bankers, especially those in trade-dependent states such as Texas, California, New York, and Florida, say a niche exists for them to serve small and midsize companies.

"From what we've seen, small companies have had a little trouble getting trade financing from larger banks," said Mr. Fuller, who is also a former international banker with Bank of America.

Trade financing comes in many forms. It can mean providing working capital or a line of credit to U.S. companies that export fruit or beef or brand-name clothing. Often it means financing an individual transaction, such as $50,000 worth of textiles to the Far East, in which payment is typically received in three to six months.

Letters of credit are also a means of trade financing. To ensure payment from its customers, a community bank will-for a fee-provide a letter of credit to the overseas buyer. Also for a fee, banks will collect payments from overseas merchants on behalf of their U.S. customers.

"Most banks like fee income, and this generates a lot of fee income," said Michael Tun Zan, president of Pacific Bank in San Francisco.

Still, offering trade financing is easier said than done. The biggest obstacle, community bankers say, is finding lending officers that understand the complexities of doing business in multiple countries. …