spoken here! Making your minority customer feel at home

RMA Journal, The, Oct, 2003 by Darrell Delamaide

The 2002 Annual report for the parent company of Harbor Bank of Maryland features photographs of an African-American minister who is building a new church, a Latino entrepreneur who owns a tile business, a white businessman who is renovating a historic property, and an African-American single mother who has just moved into her dream home.

They are customers of the Baltimore minority-owned bank, which marked its twentieth anniversary last year. The photographs demonstrate the bank's evolution from its original focus on African-Americans in the inner city, says Joseph Haskins Jr., chairman and chief executive.

"We now consider ourselves an urban-focused financial services corporation," he says, as the bank has extended its market to include ethnic groups like East Indians, Asian-Americans, Koreans, Hispanics. Greeks, as well as white yuppies who now live in Baltimore's gentrified downtown districts.

Much has changed since a dozen or so black civic leaders helped launch Harbor Bank in 1982--the neighborhoods in Baltimore, the nature of banking, and the U.S. economy. Like many other successful minority-owned banks, Harbor Bank now finds itself embedded in a niche that is increasingly attractive, as growth and buying power in ethnic communities outstrip that of the nation at large. It is the hands-on efforts of the minority-owned banks themselves that have helped develop this new economic potential.

However, like other minority-owned banks, Harbor Bank also faces limits to what it can do, how much capital it can command, and what kind of talent it can attract. As some of the country's biggest banks move into ethnic niches in search of growth, these limitations pose new challenges to the minority-owned institutions. In a showdown between the relationship banking of the minority-owned community banks and the transaction banking of the well-heeled money-center banks, the smaller hanks will need to hone their advantages in order to compete.

In the end, the fight over ethnic markets has come to resemble the classic struggle between relationship and transaction banking, with ethnic affinities being a key component in establishing the relationship. For Harbor Bank's Haskins, as demonstrated by the customers featured in the annual report, the actual complexion of his customer base has long ceased to matter. Because of his standing in the community, Haskins has been appointed chairman of a commission to revitalize a derelict area of East Baltimore near Johns Hopkins University by creating a major biotechnology park. The project, which includes 2,000 new housing units and is one of the biggest projects of its kind in the country, will create many business opportunities for the bank as well.

"I have relationships," said Haskins, citing the advantage of being embedded in the community over a long period of time. Major banks are like factories, he says, and they have to go for volume products or those that can be reduced to a process. "This leaves a lot of niches available for banks to find parts that are attractive." As the bank has grown and adapted to its community, some customers who had exited to mainstream banks are now returning for the kind of personalized service Harbor Bank offers.

General Bank, a Chinese-American bank based in Los Angeles, has specialized in trade finance, primarily for the large Taiwanese community on the West Coast, and is now the second-largest consignee of letters of credit in California. "We know their family background, their relationships with corporate entities in the home country, we know what the collateral is," says John C. Getzelman, executive vice president at General Bank. "We understand the nuances. That makes us different from mainstream banks."

Executives at minority-owned banks cite this ability to make credit judgments based on personal knowledge of the borrowers rather than the fixed criteria of credit reports as an edge they have against the majors. Big banks, because of their size and bureaucracy, are often obliged to take a cookie-cutter approach to lending, while the smaller community banks can make a more personalized assessment.

Ignacio Urrabazo Jr., chief executive of Commerce Bank in Laredo, Texas, expects to continue growing in spite of increased competition from the majors. He sees his $440 million bank doubling in size in the next five years. Laredo is 95% Hispanic, so it is not a question of ethnic diversification. Rather it is a question of insertion in the community and establishing a relationship that in a Hispanic community takes on a bigger dimension.

"Once you establish a relationship, it is a friendship," says Urrabazo. "I am invited to weddings, baptisms, anniversaries. They seek my advice on schooling."

The border area creates a special subculture of its own, with its own dialect in Spanish. Bank of America and Wells Fargo may set up branches staffed by Hispanics, says Urrabazo, "but I am still from the border."

This identification with the community is a key attribute of the successful, well-run minority institutions, says Sonja White, Director of Supervision Policy at the Office of Thrift Supervision in Washington, D.C. "They see themselves as an important player in the community," she says.