By JOHN BRINSLEY

Staff Reporter

Just how effective have the major banks been in reaching out to the Latino customer? It depends on who you ask. Leticia Aguilar, a senior vice president at Bank of America, cites considerable progress in the past 20 years. But Robert Gnaizda, policy director of the Greenlining Institute, a San Francisco-based consumer activist group, has a different take.

Question: How well have large financial institutions addressed the needs of Latinos and are things changing?

Aguilar: I think if you go back 20 years and compare it to today, there's no comparison. Twenty years ago you didn't have bilingual staff to address the needs of the community you serve. Visit any Bank of America center and you'll see we staff it with people who can serve those needs. Now, we have more than 9,000 bilingual ATMs in the U.S. We've introduced products for Hispanics where you can finance a home with little or no down payment. And we've made it more accessible to get these products.

Twenty years ago, (Spanish-speaking) bank staff in Spanish-speaking communities was rare. Now loan officers, credit officers and bank managers speak the language and know the culture.

Gnaizda: Historically, banks have been grossly inadequate (in responding to the needs of Latinos), and that's been to their financial disadvantage. They see emerging markets in Brazil, but not in East L.A. The Latino market in California alone exceeds the gross national product of Mexico and of any other nation south of the border except Brazil. Except occasionally at Bank of America, no bank has had adequate upper-management representation of Latinos.

For every bank, it's a 2 percent solution. On average, only 2 percent of top management is Latino. When you consider that more than half the population in L.A. County is Latino, and more than half the new business opportunities involve Latinos, it's insufficient.

Q: So have there been efforts to specifically target the Latino community?

Aguilar: We work very closely with the Latino community. (Bank of America has) pledged $350 billion over the next decade for investments (nationwide). A total of $180 billion is going to small businesses, $115 billion is going for affordable housing, $30 billion for consumer loans and $25 billion for economic development. That's the largest commitment by any financial institution, which should show how committed we are to local communities, including Latino areas.

Gnaizda: Not one major financial institution has a significant long-term plan to tap the $600 billion-a-year Latino market. The closest is Wells Fargo, and it's modest. It's not that the pledges (by Washington Mutual, Bank America and Wells Fargo) are inadequate, they're unenforceable.

Bank of America has done more for Russia than for Latinos. They've never lost any money investing in the Latino community and they've lost over half a billion dollars in Russia.

Q: Latino community activists say there are barriers in getting loans from banks. How can these barriers be addressed?

Aguilar: Personally speaking, one of the challenges of a bank manager with a (Latino) client is a lack of education about what they need to provide. We are now giving community-based seminars to teach them what they need to present and formulate to qualify for a loan. But it's completely different compared to 10 or 15 years ago.

There are probably two major areas where there is a lack of knowledge (among Latino businesses). One is an understanding of what a financial statistical analysis is. The second is an understanding that credit records are required for (loan) applications, like what a TRW report is. The first is the most important, knowing what a statement needs to look like when you apply for a loan. The sophistication of the clients, whether operating their own business or otherwise, has improved greatly over the past few years.

Gnaizda: These barriers are artificially created by regulators and banks. American Savings found it didn't have to use these barriers. They changed the paradigm, deciding that the only regulation (needed) for approving a mortgage was if (the applicant) had paid his rent on time. Banks have abandoned all criteria in lending to Russia, and almost all criteria in lending to Korea and Indonesia. I believe such barriers (put on Latino lending) to be artificial and unnecessary.

Q: Many Latinos are going through community development organizations instead of mainstream banks to get financing, and some smaller banks have had success in attracting Latino customers. These banks say they are better able to respond to Latino businesses since they are smaller, more flexible and better able to appreciate cultural problems associated with dealing with large banks. What do you think about this situation?

Aguilar: Well, one out of every three Bank of America customers is Latino, so I would probably argue against the contention that because we're large we can't address that segment of society. But having many institutions is good for economic stimulation. The more people who provide lending and address the needs of the market, the better. I think the consumers and clients are the ones that benefit.

We partner with community-based organizations and we need to continue to do so. One of the organizations that does a good job is TELACU. We need to support them and other organizations that provide a good percentage of the loans that go to Latino businesses.

Gnaizda: I think the experience TELACU has had should make big banks change their ways. They are wonderful. TELACU makes more home loans in L.A. than any bank except for Bank of America. That should be shocking.

Q: Some of these smaller financial institutions also benefit from the perception that a large institution isn't going to bother with a small, Latino business since it isn't worth their while. Big banks don't want to take the time to deal with a $50,000 loan when the paperwork is the same as a $5 million loan.

Aguilar: First of all, the application process for a $50,000 loan or even a $1 million loan is quite different today. It is a lot simpler than before. That doesn't mean anybody will qualify for a loan. Of course not, but it is a lot simpler.

Q: How does a bank take into account diversity within the Latino community?

Aguilar: Within the community there are Mexican Americans, Cuban Americans, South Americans, Central Americans, Puerto Ricans and so on. The challenge is to understand that they are all different, but they also appreciate the same things good service and people they can relate to. Around 73 percent of Hispanic households prefer to deal with someone who speaks Spanish. That doesn't mean that (such households) only speak Spanish. They may be bilingual, or maybe even speak English most of the time. But the challenge for all financial institutions is to address their needs and satisfy them.

Q: Does the banking community really understand the impact of Latino businesses?

Aguilar: Absolutely. From 1982 to 1992, the number of Latino firms (in the U.S.) increased by 269 percent, expanding from 233,975 companies to 862,205. For 1999, that number is projected to be around 2 million based on studies I've read. It's absolutely phenomenal.

(Reaching out to Latinos) is the right thing to do, especially as a business in California. The market is changing so fast you must market to the communities you serve, or you'll be out of business.

Gnaizda: I don't think they understand it at all. Otherwise, they would have fired top management for failing to take advantage of such economic opportunity. My own belief is that given the opportunity, Latinos would do much more business with banks if the outreach was there. Why do check-cashing businesses thrive? Because banks have failed to compete for that business.

Why are they paying huge performance bonuses to top executives while this opportunity is being missed? To give you an example, the top five Bankers Trust executives have taken home an average of $75 million in bonuses over the past three years while losing almost a billion dollars overseas. And it is the only top-10 bank to have lost money last year.

Q: How do you view your situation as a Latina who has risen high in a major financial institution?

Aguilar: I've never felt any discrimination. As you can tell, I have an accent and I'm proud of it. It's a wonderful advantage to be bilingual. We have so many Hispanics in positions of power. It's beautiful to see so many who are branch managers or district managers.

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A few years ago, bakery owner Abel Diaz wanted to expand. His three bakeries two in South Central and one in Huntington Park were thriving, so he decided to open a restaurant to handle weddings and other large functions.

Despite his solid track record, Diaz was turned down time and again in his requests for a loan from various banks in the area.

"I spent almost a year going from bank to bank," Diaz said. "It was hard."

He ultimately succeeded in securing a $900,000 loan through the Small Business Administration to build his Fiesta Mexicana Family Restaurant. But for many Latino entrepreneurs, the tale is a familiar one.

Despite years of success, Latino business owners still run into problems when trying to borrow from financial institutions. Yet similar barriers persist, to varying degrees, with respect to mainstream financial institutions trying to attract Latino customers for home loans, consumer loans, depository accounts and other services.

"In the Latino community, it's a cash economy," said Richard Amador Sr., president of Charo Community Development Corp., an East L.A.-based financial services firm. "It's hard to convince some Latinos to put their money in the bank."

Among the numerous hurdles for financial institutions are Latinos' tendency to transact business in cash; immigrants' general distrust of banks; large portions of income being wired back to Latin America; a general aversion to taking on debt; and a preference for personalized service, which is more expensive to provide.

That's not to say U.S. banks have turned their backs on the Latino community. Far from it. In recent years they have bolstered the ranks of bilingual tellers, loan officers and automatic teller machines. They have instituted no-money-down home loan programs aimed at first-timer buyers, gotten involved in Latino community groups, and held financial education seminars.

Yet those efforts fall far short of meeting the potential demand for financial services.

"I'm not so sure it's fair to say that the (Latino) market has been ignored, but it may have been misunderstood," said Brenda Ross-Dulan, vice president for corporate community development at Wells Fargo Bank. "(But) most corporations in any market specialize in following trends. If you see where the trend is, it is in your best interest to follow."

Between 1992 and 1998, the number of Latino businesses in Los Angeles County almost doubled to more than 200,000. Today, more than 50 percent of all new businesses in L.A. County are Latino-owned. In 1999 alone, Latino businesses in Southern California will generate an estimated $47 billion in revenues.

The prominence of the Latino market is also clearly visible in the home loan sector, another huge potential source of business for local financial institutions.

An estimated 13.2 percent of all California homes sold in 1999 will be purchased by Latinos, according to the California Association of Realtors, up from 9.8 percent in 1998. In fact, four out of the top five, and 13 of the top 25 most common surnames of new homeowners in L.A. County in 1998 were Latino.

The major institutions have made huge commitments to inner-city lending generally stemming from Community Reinvestment Act pledges that were a condition of getting their huge mergers approved.

Bank of America has pledged to spend $350 billion nationwide over the next 10 years on community reinvestment, including at least $70 billion in California. Washington Mutual Inc. has pledged $120 billion over the same period, with $60 billion slated for California.

In 1997, Wells Fargo set up a six-year, $1 billion loan program specifically for Latino businesses, with much of the money going to L.A. and Orange counties. Ross-Dulan says $100 million of that already has been loaned out.

But community activists say these mainstream institutions have a hard time getting a handle on the cash businesses that make up much of the Latino economy. Banks have ceded the money transfer business to check-cashing operations, and Western Union has a virtual monopoly over wiring money to the home countries of the many immigrants.

As for commercial lending, Latino business leaders still consider big banks far more restrictive in their loan-qualifying criteria, compared with smaller community banks.

"Traditionally, bankers are pretty conservative," said Alfred M. Ayala, vice president of corporate banking at First American Bank, a community bank that has penetrated the Latino market. "Typically, we want two or three years of a track record. (Latino) businesses will have the experience, but not the financial records. So they will come to a bank for a loan, and the answer will be 'no.' But recently, in the last three to five years, there has been some opening up."

Tracking the volume of bank lending to local Latino businesses is impossible because financial institutions are prohibited by federal law from breaking down loans by ethnicity, although that regulation may soon be overturned.

But the L.A. office of the Small Business Administration, which is allowed to track lending by ethnicity, saw the number of its loans to Latino companies jump from 245 (worth $65.8 million) in 1997 to 373 (worth $86.1 million) in 1998.

For fiscal 1999, which ends Sept. 30, the L.A. SBA office expects to well exceed last year's Latino volume, both in number of loans and aggregate amount.

"Until 25, 30 years ago, banks didn't lend at all to minorities or Latinos," said Amador. "More than a glass ceiling, it was more like an iron wall. A business might have been going for 10 or 15 years, but doesn't have three years of credit, so they can't get a loan."

While that has been changing, as financial institutions become more adept at serving Latinos, critics charge that more could be done.

"Substantially less than 5 percent, probably closer to 2 percent, of the total dollar loans made in L.A. are made to Latinos," said Robert Gnaizda, policy director of the Greenlining Institute, a consumer activist group in San Francisco.

He calls Wells Fargo's lending program commendable but modest, and says inner-city lending pledges like that of Bank of America are too vague, and must have more specific provisions to be meaningful.

Not all the reluctance is one-way. Many older Latino business owners have operated on a cash basis, and are reluctant to take on debt. That, combined with a distrust of financial institutions, contributes to the lack of bank activity.

"The reputation of financial institutions south of the border is not very positive," said Amador. "In some countries, it takes three months to open up an account. And you borrow at 10 percent, and three months later, it's 30 percent."

Michael D. Lizarraga, president of TELACU, a nonprofit organization in East L.A. that has for-profit subsidiaries, including Community Commerce Bank, believes the large banks are trying to work in the community. But they often are too big and too slow to get things done.

"For some of these institutions, it's like an elephant trying to mate with a mouse," Lizarraga said.

Along with the community-based groups, smaller banks have made inroads to the Latino community. One example is Wilshire State Bank, a Korean-American bank that just opened its sixth branch, in the largely Latino area of Huntington Park. Wilshire State made the second-largest number of SBA loans in L.A. County in 1998.

The bank made the decision to get into the Latino market in the early 1990s, and found surprising success. Before 1992, 10 percent of its loans were to non-Asians; now that percentage is around 35 percent, with most of that being to Latinos, according to Senior Vice President J. Han Park.

"What really works is the person-to-person approach," Park said. "Big banks go through a process where if they interview 10 businesses, they'll take two to give loans to. Now, maybe five of those businesses won't qualify no matter what. That leaves three for us."

Park believes that Latinos and Asians, although from quite different ethnic backgrounds, share a mentality about starting one's own small business. "Ethnic banks, I think, are a little more sensitive and accommodating to certain considerations," Park said.

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