Bankers closing ranks on terms for business, consumer loans

Lenders are tightening their standards and terms on all businesses and household loans just as consumers may need more access to credit to survive the pandemic economy.

Nationwide, bankers reported that lending standards are at their toughest since 2005.

Bankers reported tightening loan terms for all commercial and industrial loans, as well in all commercial real estate categories.

Banks also are more carefully scrutinizing all categories of residential real estate loans and across all three consumer loan categories: credit card loans, auto loans and other consumer loans.

The information comes from the July 2020 senior loan officer survey on bank lending practices. The survey, conducted by the Federal Reserve, addressed changes in the standards and terms, and demand for bank loans to businesses and households over the previous three months.

Over the second quarter, the majority of lenders reported having tightened standards for commercial and industrial loans to large- and middle-market firms, as well as small businesses.

At the same time, banks reported stricter standards across all three major commercial real estate loan categories: construction and land development loans, nonfarm nonresidential loans and multifamily loans.

Banks are operating in a precarious environment today -- net interest margins are not growing, there is no more economic certainty today than there was in mid-March when covid-19 began forcing the closing of business and lenders face tighter regulatory scrutiny.

Over the past two quarters, banks have been officially accounting for Current Expected Credit Losses. The new accounting rules rely on a host of economic statistics, including future unemployment projections, to gauge their loan loss provisions, which have been increased substantially since Current Expected Credit Losses were implemented. Those losses also have led to bankers being more cautious with lending practices.

In the survey, the majority of bankers cited a less favorable or more uncertain economic outlook, worsening of industry-specific problems, and reduced tolerance for risk as key factors behind stricter lending standards.

Residential real estate loans also are becoming a little harder to get -- even at a time when the bankers say demand has been on the upswing, according to the survey. Demand was weak only for home equity lines of credit, the bankers reported.

For consumer loans, lenders were more severe in all categories, including credit card loans, credit limits and minimum credit scores required. Auto loans also were a little more difficult to obtain in the quarter.

METROPLAN 2020

Central Arkansas' planning agency, Metroplan, has released its 2020 demographic review of the area, and no surprise, the covid-19 pandemic has disrupted the momentum of a strong economy that was taking shape earlier this year.

The report outlines demographic trends for the Little Rock-North Little Rock-Conway Metropolitan Statistical Area with a focus on housing.

"Prior to the pandemic, a strong economy was pushing housing costs upward," the report found. That changed with the spread of the coronavirus.

However, the report highlights that multifamily housing construction continues across the region. Several large projects started before the pandemic are still under construction.

Yet single-family housing construction has slowed. In May 2020, the region saw about 75% fewer single-family permits as in May of 2019.

Metroplan also reported that Black homeownership in the Little Rock area ranks 30th among the top 100 metropolitan areas in the country, with 43.7% of local Black households owning their own homes.

Central Arkansas shows up well when comparing housing costs. The median housing cost for homeowners with mortgages is $1,185 monthly, 24% lower than the national average.

Pricing for renters also is favorable with median rent of $821 monthly, about 23% below that the U.S. average. Affordability, however, is a big issue, with Metroplan reporting that "a large share of local renters are financially stretched."

About half of renters in Central Arkansas pay 50% of their income to put a roof over their heads. That's equal to the percentage found in New York and Atlanta, and far greater than nearby cities like Tulsa.

The organization took what it calls a "best guess" for the metropolitan area's population when the U.S. census is released in March. Metroplan projects that the Little Rock metropolitan area will have a population of 750,000 and that Conway will bypass North Little Rock as the second-largest city in the region.

Overall, the report found that population growth slowed sharply during the 2010-20 decade. The annual rate of growth slipped from about 1.4% from 2000-10 to 0.7% over the past 10 years.

Read the full publication at metroplan.org.

ROGERS EXPANSION

Little Rock marketing agency Mangan Holcomb Partners/Team SI is opening a new office in Rogers at 800 S. Osage Springs Drive.

The agency says its business is growing in the state's northwest corner as part of the group's overall "TraDigital" marketing efforts, referring to the blending of traditional and digital media.

The 1,250-square-foot space was previously home to Core Brewing and was constructed by Core Architects. The open-style office and patio area create a working space that features a scenic view of the Pinnacle area of Rogers.

"We were thrilled to find a space that fit our firm's personality, and we are committed to our 'Innovation Lives Here' mantra being just as strong in our new Northwest Arkansas office," said Tim Whitley, chief executive and founder of Team SI.

Mangan Holcomb Partners and Team SI is a fully integrated communications firm providing services for marketing, advertising, public relations and online/digital. The firm has more than 130 employees and local, national and international clients in multiple industries.

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