Clark County bankers say they expect to slowly increase their lending to businesses in 2010. Growing businesses, that is.
Companies that hunkered down in the recession, slashed spending, cut jobs and could now benefit from improved business prospects, will have a much easier time finding loans than they did in 2009, say Vancouver-area business bankers.
And after a year spent writing off bad loans and boosting their capital levels, healthy banks are ready to lend again. But the drop-off in statewide bank lending in Washington early in 2009 was three times greater than national averages. So there’s ground to make up.
This year, say industry experts, local and national banks will compete heavily with each other to issue loans to “credit-worthy” customers, now returning to the market to take advantage of historically low interest rates to buy equipment or finance an expansion.
“There are some companies operating in our market that are still doing fairly well,” said Steve Rice, executive vice president and regional manager for Umpqua Bank in Vancouver. “Our focus is to continue to identify and target customers that continue to do well in these challenging times.”
But businesses hit hardest by the recession, those that need a capital infusion to get back on their feet, will have difficulty landing a loan. Speculative developers and construction firms, especially, will have a hard time finding any bank willing to lend them money, the bankers said.
“We can’t borrow our way out of the problem,” said Kyle Hanson, business banking manager for Wells Fargo in Oregon and Southwest Washington. “The loans we’re not able to do right now are companies that aren’t able to get money because their business model is failing and they just keep accumulating losses.”
As a result, Clark County businesses should expect a slow economic rebound as increased, but limited, lending means less money is available to still-struggling companies.
“If banks are lending at very low levels, even if small businesses want to expand, they won’t be able to,” said Scott Bailey, regional economist with the Washington state Employment Security Department. “That just does not bode well for expansion in the next year.”
Fast fall, slow growth
Small business lending took a hit nationally in 2009. Commercial and industrial loans worth $1 million or less on the books of banks insured by the Federal Deposit Insurance Corp. last June totaled $289 billion, a 4.6 percent decrease from June 2008, according to the most recent data available from the agency.
Small business lending by Washington-based banks fell more than 16 percent in the same period, according to the FDIC.
Of the 10 banks holding the largest market share in Clark County last June, seven reported a decrease in their total small business lending from June 2008, according to the FDIC. And declines in lending from local branches largely mirrored national trends, with some regional variation, the bankers agreed.
Though many banks have stepped up lending since June, the number of new loans being issued overall was less last year than the previous year, they said.
Umpqua Bank was one exception, increasing its small business loans in Clark County by 13 percent since June, when its national lending had declined 3 percent from June 2008, Rice said.
Vancouver-based First Independent Bank also increased the total commercial and industrial small business loans on its books by 8 percent from $56.9 million in June 2008 to $61.7 million in June 2009, according to the bank and filings with the FDIC.
“We’ve been in an economic cycle where lending has absolutely been reduced because of the overall industry issues,” said Patti Fellas, small business banking manager with First Indy.
The bank predicts its business loan portfolio will grow more this year, starting in the second quarter, Fellas said. The first quarter of any year tends to be slower, she said, and the bank expects employment to rise again in the second quarter, leading to more lending.
Nationally, Bank of America ramped up its small business loan portfolio 37 percent by June 2009, due in large part to the terms of its $45 billion loan under the federal Troubled Asset Relief Program.
Riverview Community Bank, also based in Vancouver, saw a 9 percent decrease in its small business loan portfolio over the same period, with $32 million in loans in June 2009, down from $35 million in June 2008, according to FDIC filings.
The bank’s commercial and industrial lending was up again in November to $43 million, but still down dramatically from $174 million a year ago and $210 million in November 2007, said Ron Wysaske, CEO of Riverview.
“We’d like to lend more … but businesses have less need for additional (liquidity),” Wysaske said. “There are some banks that are choosing not to lend, but I would say that in most cases, they’re just not finding the demand for the loans.”
The biggest decline in lending among Clark County’s top 10 banks came from KeyBank, which saw a 19 percent decrease in its small business loan portfolio nationally from June 2008 to June 2009, according to FDIC.
The bank hopes to “replenish the runoff” this year, said Doug Dray, a vice president of commercial banking with KeyBank in Vancouver.
More companies are starting to rebuild inventory and restore production capacity, tapping new lines of credit to grow their businesses, Dray said. Short-term business lending will likely rebound first as businesses cautiously increase their spending again without committing to a long-term loan, he said.
“There’s pent up demand,” Dray said.
SBA still significant
As businesses grow cautiously, fueling a slowly rising Gross Domestic Product, bank lending will follow at a rate of about 2.5 to 3 percent, predicts Mark Brandon, senior vice president and regional manager of Columbia Bank in Vancouver. “It will be a slow growth but those numbers will tick up in the next year,” Brandon said.
Supporting that growth will be federal Small Business Administration loans.
A $730 million federal stimulus grant to the SBA helped prop up the declines in lending through the past year. The agency waived loan fees for borrowers and raised loan guarantees for banks to 90 percent from 75 percent.
That money ran out in November and a recent $125 million expansion of the program is expected to last through February.
Still, bankers expect to continue tapping those government-guaranteed loans well into this year, with or without the stimulus, said Wells Fargo’s Hanson, who aims to be the No. 1 SBA lender in the Portland-Vancouver metro area in 2010.
As of Dec. 31, the SBA had issued 111 loans worth $20.2 million to Clark County businesses since last January. Some 107 of those loans were likely subsidized by recovery act funds.
“It’s been extremely useful to have the SBA programs in the form of no fee to the borrower,” said Fellas of First Independent Bank. “And I continue to see using those programs next year more than we have in the past.”
Libby Tucker covers banking. Reach her at libby.tucker@columbian.com or call 360-735-4553.
