Banks tighten lending standards amid more would-be borrowers

Banks across the nation are tightening lending standards for all loan classes as more and more borrowers are turning to their lenders for cash support.

As the covid-19 pandemic continues to rattle the economy, consumers and businesses are turning to banks for a financial lifeline to survive the crisis.

Banks, however, are pulling the purse strings a little tighter, according to a Federal Reserve survey.

Bankers have been more stringent in examining and approving loans as they cast a wary eye on the economy, which continues to be ravaged by the coronavirus. The lending outlook was released last week by the Federal Reserve after a quarterly survey of senior loan officers at banks across the nation.

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The results reveal that banks are being more restrictive in approving loans while the coronavirus continues to disrupt business operations that are sending commercial and industrial customers to private lenders for support.

For example, banks have "tightened their terms and standards significantly" on business loans to firms of all sizes. At the same time, the banks reported stronger demand for loans from large and mid-size companies.

Likewise, banks were bringing more scrutiny to requests for commercial real estate loans in all key segments, including construction and land development, nonfarm residential and multifamily projects.

As for household loans, banks tightened lending standards across all three categories: credit card loans, auto loans and other consumer loans.

The survey was conducted as the full force of covid-19 was bearing down on the economy. The spreading coronavirus was generating greater demand for loans as consumers and businesses were seeking more liquidity and capital, according to the survey, which was conducted from March 23-April 3 and reflected lending issues in the first quarter of 2020.

Another interesting revelation: "banks noted that they were focused on existing clients rather than granting loans to new clients." That's not surprising given the prevailing economic uncertainties and tighter lending standards being put in place. In the current environment, banks are going to be more comfortable working with customers they know.

Requests for business loans were driven by "an increase in customers' precautionary demand for cash and liquidity (and) a decrease in customers' internally generated funds," the Fed reported.


Last week, the Small Business Administration began offering emergency loans to agricultural businesses threatened by covid-19. Farmers have been restricted from applying for SBA financial aid aimed at small businesses.

Agricultural businesses now are eligible for loans up to $2 million. The loans are not forgiven, as they are with the federal Paycheck Protection Program, but the disaster loans provide low interest of 3.75% for 30 years.

Use of funds is not restricted, another key difference compared with other federal emergency loan initiatives like the paycheck program.

Agriculture Secretary Sonny Perdue welcomed the relief package.

"America's farmers, ranchers, and producers need the same help that other American businesses need during this unprecedented time," Perdue said in a news release. "This significant new authority signed by President Trump will make a tremendous difference for America's agricultural community."

Congress approved the funding package to help protect the nation's food supply. Agricultural operations that are eligible include businesses engaged in the legal production of food and fiber, ranching, raising livestock and aquaculture.


Bank OZK is planning to begin moving about 60 employees into new corporate headquarters in west Little Rock in two weeks, May 23-24.

The move, originally scheduled for April, was delayed due to covid-19 concerns and the resulting increase in employees working remotely.

Bank OZK's move incorporates social-distancing standards and other procedures to maintain a safe and healthy workforce during the move. After the initial group, the company plans to move groups of 30-50 employees over the following nine weekends.

The move is expected to be completed by early August.

The 248,000-square-foot building will be powered by a 4.8-megawatt solar array that will provide electricity to the entire 44-acre campus and about 40 other locations statewide.

Bank OZK invested more than $6 million in the solar-power facility, which is being developed by Scenic Hill Solar of North Little Rock. The array will include 12,000 solar panels and construction is projected to begin later this year.


U.S. business economists surveyed in mid-April reported that one-third of their companies had shut down at least some of their operations, and two-thirds have laid off or furloughed workers or cut their pay.

The National Association for Business Economics found that 86% of the 107 members surveyed expect the gross domestic product to continue shrinking.

The survey's findings are the worse outlook for sales, profit margins and capital since the 2008 global financial crisis that produced a recession in the U.S.

Sharp drops in wages and employment over the next three months also are expected, the survey said.


We're all fascinated and gossiping about the Zoom backgrounds colleagues are using in work-from-home meetings. Co-workers are competing to have the most provocative or most-talked-about backdrop.

Tourist attractions are the most popular feature, according to a survey by Times Square, which is pretty much empty these days, was the most popular background, followed by the Eiffel Tower.

Other top choices are all iconic images as well: the Colosseum, Great Pyramid of Giza, the Taj Mahal, the Great Wall of China and Christ the Redeemer statue in Rio de Janeiro.

SundayMonday Business on 05/10/2020

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