Market turbulence forcing banks to look closer at every deal
By Anne-Margaret Swary
Ken Thomas spends a lot of time in bank board rooms. From what he sees, the Miami-based independent bank consultant and economist said there's no doubt that banks are going to be taking an even closer look at creditworthiness following the "tremendous turbulence" in markets here and abroad.
"It provides a whole new layer of uncertainty and insecurity with what's going to happen with the economy," Mr. Thomas said. "It makes banks rethink what's going on."
The Federal Reserve pledged last month to hold interest rates near zero until mid-2013. That may be good for businesses considering making new investments in their companies, but banks look at things different.
"Banks see that and say things must be pretty bad to keep that low so long," Mr. Thomas said.
They may ask for higher rate, higher down payment or maybe won't even do a deal at all, he said.
"The banking industry, particularly community banks, are not immune to what's happening in the marketplace," said Abel Iglesias, president of JGB Bank, headquartered in Doral. Gyrations of 300, 400 or 500 points on a given day in the stock market certainly give him and his peers pause for concern.
"You're obviously going to look at things a lot, lot closer," Mr. Iglesias said. "When evaluating and underwriting risk, you are going to want to look at how the volatility and uncertainty, how can that impact your client, your borrower, the entity you're considering doing business with."
Given that, he said he believes banks are generally healthy and don't have significant capital issues are eager to lend — the right people.
"Most banks are eager to go out and attract and retain good clients," he said. "The challenge is to try and figure out what is the appropriate level of risk."
More and more often, though, he hears his colleagues say it's a challenge finding people to lend to.
"There isn't a lot of credit demand right now by our customers," said Alex Sanchez, president of the Florida Bankers Association. "What customers are telling them (banks) is they are unsure of what Washington and the Obama administration are going to do next, and as a result they are holding back"
Mr. Sanchez said the No. 1 priority of banks is to help get customers through this recession.
But he does concede that banks are going to be increasingly careful about finding "qualified" borrowers in this economic climate, especially with banking regulators breathing down their necks.
"At the end of the day, banks are lenders, not investors," he said.
It will be important for banks to see there is still a lot of opportunity in the market to bring in the right clients, said Bernie J. Adrover, BankUnited senior vice president and small business banking manager for Miami-Dade County.
"If you are a good banker, you become a trusted advisor — to plan better for your clients to help them offset the problems they are having," Mr. Adrover said.
He said his company believes small businesses are the engine of the economy and the key to its recovery, which is why he is tasked with growing loan business with companies with sales under $1 million and up $10 million.
"You have a lot of companies that are still existing out there making good money," he said. "Maybe they are doing more with less, but they are still good bank clients."
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