C-Suite Wednesday: FDIC Risk Review of Main Street Lending

By Bob Coleman
Editor, C-Suite Wednesday

Main Street Recovery Unclear, PPP Loans Lower Delinquencies, Bank Income up ⅓, Credit Boxes Shrink Says Fed

While the outlook for small business lending in 2021 is unclear — the recovery for Main Street remains uneven, but is on par with previous recessions, says the FDIC in its just released 2021 Risk Review report.

The Fed believes bankers anticipate an increase in loan demand owing to PPP and other government-backed lending programs, but, the resurgence of the virus, including new strains, has tempered that optimism.

PPP Loans Are Lowering Small Business Loan Delinquencies

The banking sector, though challenged by economic and financial market conditions, remained relatively resilient in 2020 and was a source of stability to the economy.

The banking sector was helped by strong capital and liquidity levels as well as various government programs that enabled banks to extend loan forbearance and to provide support for consumers and businesses.

2020 Bank Income Up 36.5%

Industry balance sheets remained sound through 2020, but banking income declined substantially. FDIC-insured institutions reported a 36.5 percent decline in income between 2019 and 2020, which was primarily driven by a sharp increase in provision expense during the first half of the year. Bank liquidity was supported in 2020 by a record increase in deposits. Deposits surged 22.6 percent between 2019 and 2020. The banking industry loan portfolio increased in 2020, primarily because of growth in commercial and industrial loans — (Including PPP and SBA)

C&I Bank Underwriter Main Street Credit Boxes Shrink

Asset quality indicators deteriorated modestly but remained considerably better than those reported during prior recessions, partly because of government support extended during the year.

Respondents to the Federal Reserve’s January 2021 Senior Loan Officer Opinion Survey indicated that underwriting standards for C&I lending tightened except for firms with annual sales of $50 million or more.

Reasons for the tightening include an uncertain economic forecast, worsening of problems in some industries (such as in hotel, restaurant, and retail industries), increased concerns about the effects of legislative actions, and decreased liquidity in the secondary market for these loans.

SOURCE: https://www.fdic.gov/analysis/risk-review/2021-risk-review/2021-risk-review-full.pdf