Economic uncertainty tied to the threat of a looming recession and anxiety over how long the Federal Reserve Bank will continue raising interest rates are creating a gloomy outlook for the banking sector in 2023.
Profits margins will be squeezed as deposit costs increase and interest margins tighten, factors leading to a lower earnings-per-share forecasts for the Southwest region, which includes Arkansas. That's the diagnosis from banking analysts at Stephens Inc. in a report issued earlier this month.
Moreover, businesses and consumers are being chased out of the lending market as banks tighten credit standards as loan demand weakens, the Federal Reserve Bank reported last week. The economic environment is threatening all classes of loans of all sizes: commercial and industrial, commercial real estate, residential real estate, home refinancing, auto and credit cards.
A survey of senior loan officers at banks across the U.S. by the Fed reports that bankers are more cautious about approving loans for businesses and consumers.
Interest in commercial and industrial (C&I) loans -- generally used for working capital or to buy equipment or make other capital investments -- is withering as lenders narrow lending standards, the Fed said in the survey, which was conducted during the fourth quarter of last year.
It noted "banks that reported having tightened standards or terms on C&I loans cited a less favorable or more uncertain economic outlook, a reduced tolerance for risk, and the worsening of industry-specific problems as important reasons for doing so," the Fed reported.
Likewise, fewer consumer loans are being made, for many of the same reasons. "Standards tightened and demand weakened, on balance, for credit card, auto and other consumer loans," the survey found.
Economic uncertainty does not seem to be going away soon. The Fed remains focused on raising rates this year to dampen inflation to reach the agency's goal of a 2% inflation rate, Christopher Waller, a member of the Fed board of governors, said Wednesday in a speech at Arkansas State University. The board of governors helps influence interest-rate policy.
"Though we have made progress reducing inflation, I want to be clear today that the job is not done," Waller said.
Noting the Feb. 1 Fed decision to raise interest rates by another quarter-point, Waller indicated lending practices will continue to restrict. "Our intention is to tighten financial conditions, including raising the cost of credit, to dampen demand and spending to further reduce inflation," he added.
BLACK BUSINESS OPTIMISM
Black small-business owners are more optimistic about growth opportunities than their peers, with 78% of Black operators expecting to increase profits this year.
Black-owned small businesses report plans to create more jobs this year than their peers and 81% are confident about the growth of their businesses despite the challenging economic environment and systemic barriers such as access to capital.
By comparison, the survey revealed that 68% of the overall small-business community is upbeat about growth and hiring in 2023.
Those findings were released by Goldman Sachs, which conducted a national survey to celebrate Black History Month in February.
More than two thirds of Black small-business operators expect their business to create new jobs this year, 16 percentage points above the national average of 51%.
"This Black History Month, we ought to celebrate the increasing success of Black-owned small businesses in this country," said Jessica Johnson-Cope, who heads the national leadership council of 10,000 Small Businesses Voices, a small-business initiative led by Goldman Sachs. "However, Black business owners and entrepreneurs continue to face systemic barriers relative to their peers."
One of every three Black small-business owners have found it difficult to access new capital and financing, 14 percentage points higher than their peers. Moreover, 45% of Black small-business owners have used personal savings over the past three months to keep their business afloat compared with 33% of all small-business owners.
There are about 3.1 million Black-owned businesses in the U.S., providing more than 3.5 million jobs.
SUPPORTING ENTREPRENEURS
Fifteen food and farm entrepreneurs in Northwest Arkansas are participating in cohorts through March to help them improve their operations and grow their businesses.
Cureate Courses, a business education program focused on the region, is holding the sessions in conjunction with Forge Inc., a nonprofit in Huntsville that offers financing to help promote community development and economic sustainability.
Cureate selected up-and-coming food and farm entrepreneurs, emphasizing female- and minority-owned businesses, looking to serve the Northwest Arkansas market by either growing their operations or expanding their business to the region. Both cohorts will focus on marketing and branding, diversifying revenue streams, and pitching.
In April, $5,000 will be awarded to the winners in each cohort at a final farm-to-table dinner showcase. Tickets are available to the public.
For more information, visit cureate.co/courses.
ARVEST GROWS CREDIT CARD BUSINESS
Arvest Bank reports that its credit card division generated record spend volume in commercial credit card payment solutions during 2022.
Arvest Commercial Credit Card Payment Solutions provides a variety of options that allow business customers throughout the bank's four-state footprint to make payments with purchasing cards and ePayables programs. The bank serves more than 110 communities in Arkansas, Kansas, Missouri and Oklahoma.
In 2022, the Arvest Commercial Credit Card department posted a record spend total for its commercial payments portfolio, including purchasing card and ePayables customers. The portfolio's total spend was over $1 billion, which is a 16.5% increase over 2021.
"We are incredibly excited about last year's growth," said Keith Zollicoffer, director of Arvest Commercial Credit Card Payment Solutions. "This overall growth can be attributed to a variety of factors, including how businesses reevaluated vendor payment methods during the pandemic. Traditional checks became a challenge, and ePayables offered a more streamlined solution. The added mobile functionality in our purchasing card program allowed cardholders to more seamlessly capture receipts and complete expense reports."