United Commercial Bank and EI banco22
As the United States grows more diverse, tailoring service offerings to the needs and preferences of specific ethnic groups becomes more important. In fact, the nation’s largest retail bank, Bank of America, was founded as the Bank of Italy by A.P. Gianini shortly after San Francisco’s 1906 earthquake in order to serve the Italian-American community.
Today, two of the most creative service offerings in banking that target ethnic communities are located in the United States. United Commercial Bank is the largest bank serving San Francisco’s Asian-American community and focuses on business and real estate lending within this famously entrepreneurial group. More recently, EI Banco de Nuestra Comunidad has designed a unique retail banking operation for the burgeoning Latino community in Atlanta. Both of these communities are characterized by rapid growth, unique product needs, and a cultural identity separate from that of the general banking market.
SERVING THE CHINESE COMMUNITY: UNITED COMMERCIAL BANK
United Commercial Bank (UCB), a San Francisco-based bank that focuses on the Chinese-American community, has $6.32 billion in assets and a market capitalization of approximately $1.4 billion. This bank has 46 branches in California, representative offices in Taiwan and China, and a branch in Hong Kong. Competitors serving the Asian market include East West Bancorp, Nara Bancorp, Hanmi Bancorp, Cathay General Bancorp, and Wilshire Bancorp.
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UCB was founded in 1974 as a thrift operation with a focus on time deposits as its primary product. The bank has grown to become the largest (and perhaps the best run) bank serving the Asian community, with branches mainly in San Francisco and greater Los Angeles. The mission statement reads in part:
All of us at UCB share your values of dedication to hard work, savings, and education. We are committed to providing highly personalized service and a wide range of consumer and commercial banking products and services to help you, your family, and your business to achieve your ‘American Dream’
United Commercial focuses on loans to businesses owned by Chinese-Americans and their families. Almost 90 percent of its loans are real estate loans (40 percent multifamily and 60 percent commercial).
The remaining 10 percent are mainly commercial and industrial loans (i.e., normal corporate lending).
The average real estate loan at UCB is about $960,000 and the average multifamily loan is $600,000.
UCB has an unusually high proportion of savings accounts and time deposits as shown in Figure 3.3. This strategy is in response to the Chinese-American desire to save in banks, instead of at brokerage firms. The reliance on savings accounts and CDs places UCB above the 95th percentile among banks overall. Not surprisingly, United Commercial’s interest expense stands at the 71st percentile for large banks overall.
These financial facts highlight the unique service offerings of United Commercial. In the first place, Chinese-American customers primarily demand savings accounts and CDs with high rates of interest. Non-irrterest bearing deposit accounts are only a small fraction of UCB’s assets.
This customer focus on savings accounts and CDs also places a premium on the perception of overall bank soundness and safety. United Commercial answers this by favoring a highly conservative lending strategy on the real estate loans it underwrites. For example, the average loan-to-value ratio for the bank’s commercial real estate loans is 58 percent, versus around 80 percent on average for other banks.
The Bank’s functions are segmented into several operating groups including: * Corporate Banking Group which handles a variety of financing programmes for Export Oriented Units (EOUs), Importers, and overseas investment by Indian companies. * Project Finance / Trade Finance Group handles the entire range of export credit services such as supplier’s credit, pre-shipment credit, ...
United Commercial effectively wins the safest and best customers in the Chinese-American community because it charges much lower account fees than other banks. Banks classify fee income from commercial or retail accounts as “non-interest income” and this forms a major part of the income of most banks. United Commercial collects fee income equal to 0.32 percent of assets, while the average large bank collects fees equal to 1.70 percent of assets. UCB non-interest income is accordingly in the 5th percentile for banks overall. By rarely charging fees and often refunding fees previously charged, UCB differentiates its banking services to the point where it is very successful in winning customers.
Recognizing that many Chinese-American businesses are involved in importing goods from China, UCB offers a full-featured trade finance department that issues letters of credit and provides other services to facilitate import-export businesses.
Finally, United Commercial has a well-articulated cultural focus on South Asia. Customers opening checking or savings accounts with relatively high balances receive tea caddies or gift tea sets. The bank’s Web. Site allows visitors to send an animated, Chinese New Year-themed e-card to friends. Most important of all, every customer of UCB knows that each branch employs numerous Chinese-speaking representatives with whom to conduct business.
UCBH: Deposit Analysis (As of Dec 31,2004) | United Commercial | All Banks*Percent |
| Amount | Percent | |
Total depositsTransaction accountsMoney market accountsSavings accountsTotal MMA and savingsTime deposits under $100KTime deposits over $100KTotal time depositsDeposits in foreign offices | 5,222,672133,0831,288,595946,1652,234,760916,0771,610,2702,526,347328,572 | 100.02.524.718.142.817.530.848.46.3 | 100.014.634.315.249.516.817.434.21.7 |
*All commercial banks with assets between $1B and $10B. |
SERVING THE LATINO MARKET: EL BANCO
EI Banco de Nuestra Comunidad is an offering of Nuestra Tarjeta de Servicios, Inc, which provides financial services in a bank setting to Hispanic customers. EI Banco is a franchise that existing banks can license. EI Banco was launched in January of 2002 as a branch of Flag Bank in Atlanta, Georgia. The idea resulted from the partnership of an individual with a check-cashing business and a Latino banker. EI Banco branches offer a range of retail financial services including bank accounts, check cashing, and mortgage lending. Currently, there are six EI Banco branches in Atlanta, which implies rapid growth from the company’s first branch in 2002.
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EI Banco’s physical setting is orientation toward Hispanics. In the words of CEO, Drew Edwards, “The EI Banco concept is designed to appeal to Latino customers from floor to ceiling, with bright color schemes, Spanish-Language newspapers, lively Latin music, comfortable sitting areas, children’s play areas, snacks, telephones, e-mail stations and, of course, Spanish-speaking bank employees (many of whom don’t speak English at all).” This stands in contrast to traditional retail banks that aim for a conservative, business-like atmosphere suggesting solidity and wealth. EI Banco branches are “store fronts” in strip centers frequented by Latinos. The branches do not provide drive-thru facilities because commercial customers are not targeted. For Latinos who feel uncomfortable in a foreign land, EI Banco’s informal atmosphere is an attractive feature.
EI Banco is focused on fee-based services. Most retail banks occasionally cash third party checks as a courtesy, but this service is not intended as a revenue-generating service. EI Banco, however, focuses on this need, which is a basic financial service desired by Hispanics whether or not they have bank accounts. Fees for check cashing start at 1.5 percent for certain types of checks (e.g., high security payroll checks); this line of business earns one-third of EI Banco’s revenues. The company also earns fees on other services；such as bounced checks and low account balances. Overall, service fees account for more than 50 percent of EI Banco’s revenue, versus less than 30 percent for retail banks in general.
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EI Banco also offers home mortgage financing to undocumented individuals (illegal aliens).
Very few financial service providers will finance homes for illegal aliens-Banco Popular is the only bank that offers this service for most of the country. The Latino community is predominantly lower-income, but the community nonetheless includes thousands of individual who could purchase $100,000-150,000 homes but for their status as undocumented applications on “Individual Taxpayer Identification Numbers” (ITINs).
Consequently the rates for EI Banco’s ITIN mortgages range from 8.0-9.5 percent, versus an average of about 4.86 percent in Georgia according to Bankrate.com.
Finally, as a customer acquisition strategy, EI Banco has chosen to mimic Western Union. One of the most trusted financial services brands among Hispanics, Western Union won deep customer loyalty by completing international funds transfers from Hispanics in the USA to relatives and friends abroad on a reliable basis. EI Banco has consciously attempted to piggyback on Western Union, both by offering primarily fee-based services and by emulating its logo.
Shown in Figure 3.4, EI Banco acquires earlier than traditional banks. Customers are first attracted to EI Banco’s check-cashing service, a service that is usually offered only by non-bank retailers. As these customers grow in affluence, they seek more banking services (e.g., saving accounts, credit cards, financing), and EI Banco is prepared to meet these growing needs to avoid losing customers to other institutions.