The Heat Is On

Faced with competition by mega-banks, black-owned banks are fighting to retain their customers and their capital base

Black-owned financial institutions forged full steam ahead in 1997, in the battle-ready stance they adopted two years ago. It was then that many in the industry began deploying new tactics, blending traditional and innovative approaches to increase their asset base and enter new markets. Some acquired new branches, took to loan syndication, or put more emphasis on mortgage and small business lending. Others, meanwhile, focused on new services and products, such as check cashing, telephone banking, credit cards and mutual funds.

As the consolidation of the mega-banks continued rapidly in 1997, some black banks decided to join forces as well. The merger of Southern Bank in Lithonia, Georgia, and Citizens Trust Bank of Atlanta created the sixth largest black-owned financial institution in the country, with combined assets of $185.4 million. The merged bank now has a higher legal lending limit due to its larger capital base, and as a result can handle larger loans.

“The strength of large multinational banks is that they can offer a variety of products and services, they have a greater number of branches and ATMs, and they have added telephone and PC banking to their networks,” says Fritz Elmendorf, vice president of communications at Consumer Bankers Association in Arlington, Virginia. “Big banks have seen cost savings as a result,” he adds, “but the consumer has paid the price for all this in the form of higher transaction fees.”

Elmendorf says that small community banks have done a better job at personal customer service. Still, these institutions face several new challenges when it comes to maintaining a competitive edge. For starters, they must adapt their computer networks to handle the upcoming turn of the century. Meaning, when the year 2000 rolls around, a bank’s computer system will have to recognize that number as the year 2000. Some computers were designed to recognize only two digits. So, if you input 98, your system will recognize it as 1998.

The problems could be considerable, say experts. “This is something that will actually impact every industry across the board,” says Deborah Scott-Ensley, chairperson of the National Bankers Association, the Washington, D.C.-based trade group of minority-and women-owned banks. “It sounds very simple on the surface, but a lot of money is going to be spent reevaluating and revamping computer systems. Over the next two years, every financial institution will undergo ‘Computer 2000′ examination by federal banking regulators.”

As black-owned banks rush to comply with federal regulations, they must also find an economically feasible way to ride the wave of technology that has ushered in banking by phone and computer, adds Scott-Ensley, who is also president and CEO of Citizens Savings Bank and Trust Co. in Nashville, Tennessee, with $35.4 million in assets.

“At the same time, black banks have to continue to grow their branches and make sure they can provide some of the same products and services as the big banks,” says Baunita Greer, president of Cromwell, Miller and Greer Inc., a New York securities brokerage firm. “There is still such a thing as

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