Even casual observers of the banking industry are familiar with major Asian-American institutions such as Cathay Bank, East West Bank and GBC Bancorp.

But far off the radar screen of most analysts and investors, dozens of smaller financial institutions in Los Angeles are competing for a larger share of the burgeoning Chinese-American market.

A common thread of these institutions is a familiarity with and sensitivity to Chinese cultures that most of the larger banks Asian or otherwise are unwilling or unable to match. Nevertheless, Los Angeles' smaller Chinese-American banks are anything but uniform, with different institutions employing a variety of strategies to find a profitable niche in the highly competitive Southern California banking environment.

"This is one of the fastest growing segments within California, and that's expected to continue for the next 10 years," said Derek Derman, a research analyst with Wedbush Morgan Securities. "It's a favorable demographic for the banking industry because, percentage-wise, (Chinese) are more educated than other immigrant groups and more likely to start their own business."

But marketing banking services primarily to Chinese Americans is not a winning strategy, according to several industry executives, who say broadening their customer base to encompass a more diverse cross-section of American society is their best bet for long-term profitability.

"We welcome business from all types of industries and clients; we are quite diversified," said Joseph Jao, vice president and general manager of Los Angeles-based United World Chinese Commercial Bank. Opened in 1993, United World is affiliated with Taiwan Bank and concentrates on providing commercial loans to manufacturers, construction firms and other businesses.

Jao estimated that about 30 to 40 percent of the bank's customers are Asian-run businesses.

"The competition is always there, and we chase a similar market (as non-Asian banks). You have to be ready to compete," Jao said.

Of the 36 local banks that are members of the National Association of Chinese-American Banks, only a handful has assets in excess of $1 billion. Most of the rest have assets between $100 million and $500 million and fall in two general categories, said Li Yu, president and CEO of Los Angeles-based Preferred Bank.

"You have agency banks, which are offshoots of larger banks from Asia, and then you have locally chartered banks, which cater to people who live in the neighborhood and the local business community," Yu said.

The dozen or so Chinese agency banks in Los Angeles are affiliated with large financial institutions in Asia. More often than not, the parent banks are in Taiwan or Hong Kong.

With their roots overseas, agency banks generally operate a single branch or perhaps two in the United States and are prohibited from taking deposits. They tend to concentrate on financing manufacturers, import/export companies and warehousing businesses involved in Pacific Rim commerce. Most of their customers are located in Asia or on the West Coast of the United States, but their clientele is becoming increasingly international.

The second category of Chinese-American banks is privately owned community banks that provide a wide range of traditional business and personal banking services. From small and medium-size business lenders to institutions that concentrate on providing checking accounts and home loans, Chinese-American community banks have become a fixture over the past two decades in places such as Monterey Park, Alhambra and Rosemead, where large numbers of immigrants are drawn to established communities of first-, second- and third-generation Chinese Americans.

"Frankly, they can't be matched by the big banks in the level of service and understanding they provide," Derman said of Los Angeles' smaller Chinese-American banks. "There will always be a place for niche banking, and this is a great example."

Cultural connection

Many of the local Chinese-American banks were founded during the early 1980s, when Taiwan relaxed its emigration laws and large numbers of Taiwanese came to the United States, settling mostly in California and New York.

A relatively high proportion of those immigrants arrived with money, eager to start their own businesses, said Wilson Mach, vice president of marketing at General Bank, one of the nation's largest Chinese-American banks.

"A lot of the smaller banks are supported by immigrants from China," Mach said. "Those banks are more consumer oriented, they do mortgages, car loans and small-business lending."

Between 1990 and 1998, nearly 300,000 Asians moved to Los Angeles County, according to the California Department of Finance. Of the 370,000 immigrants to arrive in California in 1997 and 1998, more than 43 percent were Asian, with a high percentage from China. Only Mexico and the Philippines account for more immigrants to California than does China, and an astounding 52 percent of those leaving Taiwan make their way to the Golden State.

It's not surprising that many of those immigrants have turned to Chinese-American banks when one looks at the comfort level provided by those institutions. In addition to bilingual tellers, many such banks offer automated phone systems in Mandarin and Cantonese and banking using Chinese characters. Many of the smaller banks advertise in the local Mandarin press and quite a few offer personal banking, and courses on home buying and small-business operating, geared to newly arrived Chinese.

"There are more Chinese immigrants, so a bank with a Chinese name that has tellers that speak Chinese and English will attract that business," said Gregory Tse, vice chairman of Golden Security Bank in Alhambra.

One example of cultural sensitivity that has allowed such banks to outflank their larger and more mainstream rivals is no-fee checking and savings accounts that do not require a minimum balance.

"This is the kind of thing that benefits the entire household, and it's the kind of product that most U.S. banks wouldn't consider," Derman said.

Branching out

In 1981 a small group of Chinese-American investors formed a holding company to establish Trust Bank in Monterey Park. The bank, which also has branches in Arcadia and West Covina, changed ownership in 1995 and currently has about $203 million in assets, said Acting President George Hwang.

Trust Bank is a true community bank, Hwang said, focusing on providing checking and savings accounts, credit cards, car and home loans and professional lines of credit, while drawing customers from the neighborhoods around its branches.

"We try to separate ourselves from the pack by providing good service to customers, knowing them on a first-name basis, and through fast turnaround," Hwang said. "There is definitely a competitive edge to being small. We have low overhead and we offer quicker decision-making."

Although its Chinese-American clients are critical to the bank's success, Hwang said Latinos are the fastest-growing segment of Trust's customer base.

Perhaps none of the smaller banks in the area has made as concerted an effort to tap into the non-Asian market than has Preferred Bank, which owns seven branches in Century City, the San Gabriel Valley and as far south as Irvine. Only about 25 percent of the bank's business comes from the Chinese community, Yu said.

"Our business structure is very mixed. We are not a very Chinese Chinese bank," Yu said.

Established in 1992, Preferred Bank offers personal banking services and specializes in loans, usually between $1 million and $5 million, to small and medium-sized businesses. Preferred has assets of $585 million and has averaged a 31 percent annual earnings growth rate since its founding, Yu said.

"They are very well performing," Mach said. "They have been getting good returns and growing quite rapidly."

Consolidation or proliferation?

While banks such as Preferred and Trust have done well in recent years, that has not been the case for all small banks those in the Chinese-American segment of the industry included.

A rapid proliferation of Chinese-American banks earlier in the decade has slowed considerably, Mach said.

"The competition is really very tough for everybody, but for the smaller banks it's even tougher," Mach said.

Industry insiders are in general agreement that the business climate for Asian-American banks, and especially Chinese banks, will remain strong for the next five to 10 years, but opinions vary as to whether that will result in more or fewer banks.

"I think there will be fewer," Derman said. "Already you've seen a few of the smaller banks sold. As the bigger banks get stronger, you're going to see a lot of opportunity to acquire these little three-branch operations."

Tse of Golden Security Bank has a different view. Although his bank, with about $100 million in assets, is tiny, Tse said it has been growing at a rate of about 20 percent per year by financing real estate deals and construction projects. He sees more opportunities ahead.

"I think it will be more or less the same as it is now." Tse said. "When one bank is acquired, another opens up. It equals out."

For reprint and licensing requests for this article, CLICK HERE.