Lincoln, Neb. — Like international bankers generally, Brad Korell is worried about the more than $550 billion in commercial bank debts that third-world countries have piled up. Unlike big-city bankers, however, Mr. Korell, vice-president of the National Bank of Commerce (NBC) here, is not afraid that Brazil, Argentina, Nigeria, and other debt-strapped countries will default.
Mr. Korell worries that the big money-center banks won't lend them more money.
NBC does not make foreign loans like the ones that distress Chase Manhattan and Citicorp. But local clients, for whom it performs a variety of international services, have become heavily dependent on robust trade with developing countries. And today that trade is hurting, because third-world nations cannot get sufficient financial resources to resume high growth rates of the 1970s.
``I'm not personally worried about the money-center banks,'' says Korell of the possibility of huge third-world defaults. ``The government would bail the banks out.''
The bigger problem is that concerned commercial banks have pulled back sharply on new lending, making the third world's $100 billion annual obligations on long-term debt service all the more difficult an economic burden. ``If we extract everything out of developing countries in the short run,'' Korell says, ``we will destroy those markets for export products.''
His fears echo recent United States Treasury Department concern about lack of growth in developing countries and the need to step up capital flows abroad. They also illustrate the special international orientation of local banks across the United States.
With about $425 million in assets, family-owned NBC is a smaller regional bank. Ranked by deposits, it is the fifth largest in the state and about 550th out 14,000 in the country. The bank has no overseas offices, and barely a hint of international activity shows up on the lengthy financial reports it submits regularly to the US government.
But a typical day for the three-member international department, headed by Paul Warfield, is busy from the time the guard brings up a briefcase full of currencies from Mexico, Britain, and other countries until the staff exits the building, which was designed by I. M. Pei.
Lincolnites about to travel abroad buy the foreign currency. Foreign students at the University of Nebraska here purchase bank drafts in Indian rupees and Nigerian naira to send home. Customers wanting gold and silver coins from China, Mexico, and South Africa can order them at NBC.
The fastest growing part of the business lies in letters of credit, a kind of insurance policy banks provide for international transactions. A letter of credit, arranged by an importer's bank with a bank in the exporter's country, guarantees payment as soon as the merchandise arrives at its destination.
The largest share of this business -- and one dependent on healthy trade with the developing world -- is to help companies like T-L Irrigation Company in Hastings, Neb., which exports center-pivot irrigation equipment to Venezuela, Jordan, Brazil, and Saudi Arabia.
Letters of credit are especially important when doing business with developing countries, says Mr. Warfield, where ``it's harder to know your customer or check him out.''
``You wouldn't be able to function on an international level without the bank,'' says an executive at Li-Cor Inc., a Lincoln company that manufactures high-tech agriculture equipment sold widely in developing countries.
Although exports of irrigation equipment and grain bins have fallen off in the wake of economic troubles abroad, the 300 letters of credit passing over Warfield's desk this year are more than triple the number in 1982. About two-thirds involve third-world countries.
The international department, started in 1974, is now a profit center, says Korell, who is responsible for all NBC corporate banking.
Larger commercial banks asked NBC to participate in syndicated commercial loans to developing countries in the 1970s, when such lending was glamorous. NBC declined, Korell says, because it does not have the foreign expertise to risk deviating from its generally conservative strategy.
The closest it comes to foreign lending is to finance local export-related sales covered by the federally operated Export-Import Bank in Washington, D.C. Ex-Im can subsidize loan interest rates and provide risk insurance.
The Ex-Im transaction that Korell is most proud of was the sale to the Chinese of a hog confinement facility from Sand Livestock Systems in Columbus, Neb. The $300,000 deal was made through a Filipino entrepreneur, who planned to sell the pork in Hong Kong.
Defaults have recently resulted on NBC loans involving Bolivia and Mexico. Thanks to Ex-Im protection, the bank had only nominal losses, Korell says.
NBC's continuing interest in helping Nebraskans use the Ex-Im Bank reflects a trend by ``more and more smaller banks,'' says Arthur Obester, a spokesman for the agency in Washington.
Large money-center banks in Chicago and New York provide the same services as NBC on a grander, more sophisticated scale. But local businesses often prefer to conduct their international transactions through NBC.
NBC gives ``personalized service,'' says Daniel Kubit, controller of Chief Industries, a manufacturer of grain bins and other products in Grand Island, Neb.
Officers at larger banks frequently won't return Mr. Kubit's telephone calls the same day. Warfield is always available, even if he is on the road, and can usually conclude a transaction on the telephone, because he knows Kubit's voice.
This same close attention is a critical ingredient in getting small businesses beyond their initial fears about trading overseas. Warfield, whose family owns several smaller banks in the state, shows companies how to do paper work and manage risks ``so they don't get burned on their first transaction and won't export again.''
In Lincoln the bank also provides an invaluable communications link with third-world countries, where telephones often don't work well and mails are slow.
A local travel agency that arranges safaris in East Africa uses the bank's telex to transfer funds to Nairobi, Kenya, make room reservations, and send personal messages.
Korell, who grew up on a farm in southwestern Nebraska, sees a bright future in international banking, but he is acutely aware of the risks that have come with an increasingly interdependent world.
Massive default by just one or two of the big-debtor third-world countries would threaten the industrialized world's major commercial banks. The health of those banks, whose network of services is responsible for the orderly flow of money, is an issue for ``the entire Western banking system,'' he says.
Just a sag in third-world trade can hurt NBC, as has become painfully obvious to Korell. A decade ago NBC went years without a farm-related default.
Today, 60 percent of its defaults involve farmers, who have seen third-world markets shrink because of the strong dollar, increased competitiveness from other countries, and heavy debt-service obligations.
Sixteen of Nebraska's 455 banks closed this year and last, says Mary White of the Nebraska Bankers Association. ``The closings relate directly to the depressed state of agricultural commodities.'' She says state bank regulators expect additional closings in the coming months.
Last month the Treasury advanced a plan to restore the economic health of developing countries. It called for more lending by multilateral lending institutions such as the World Bank, better financial management by third-world countries, and $20 billion in additional loans by commercial banks ($7 billion by US banks) over the next three years.
Last year, third-world countries paid $7 billion more to commercial banks in long-term debt servicing than they received in comparable new loans. According to Nick Hope, an expert on World Bank debt, that trend seems likely to accelerate this year.
Korell says he has not heard enough to know whether the Treasury proposal will work. But, he says, ``the most interesting things banks do is to help other people do the things they do.'' And that, he believes, will be stymied for NBC if third-world countries don't grow.