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The availability of money at local banks to lend is the same as it has always been. That’s what several Bedford area bankers reported at a recent economic forum sponsored by Bedford County’s department of economic development. Underwriting standards haven’t changed either.
“There is a lot of money available,” said Mike Syrek, of SunTrust Bank.
“We have ample money to lend,” added Tony Ware, representing Bank of the James.
“The actual credit standards haven’t changed,” stated Tom Hickey, of American National Bank.
Despite bad financial news, the bankers agreed that the market in Central Virginia is better than what’s found in most areas of the United States. Syrek said that this area is weathering the storm better than many because it had a conservative view of debt and savings prior to the downturn. Furthermore, this area did not see house prices go through the roof. He noted that 92 percent of the mortgages in this area are being paid on time.
Home foreclosures are not high in this area either. Syrek said that high foreclosure rates in five states, none of them Virginia, are driving up the national average. Locally, the foreclosure rate has only gone up by 2 percent or 3 percent. He said that most of this has come from owner-financed home sales.
“Rates are low,” commented John Owen, of First Citizens Bank. “Now is a good time to look for credit.”
What’s changed is the financial situation for potential borrowers. One issue is a lack of confidence spurred by negative stories.
“The word ‘depression’ was thrown around,” said Syrek.
Sue Montgomery, the county’s director of economic development, agreed that the country is not in a depression. Montgomery moderated the forum. She noted that the Great Depression of the 1930s saw four consecutive years in which the unemployment rate exceeded 20 percent. At its height, unemployment reached 25 percent.
In addition to bad news on a national level, there is a negative impression of banks.
“We have been painted, as banks, with a broad brush,” said Hickey.
“I don’t have any toxic assets,” said Craig Parrent, another SunTrust representative.
“I think the black eye has come from investment banks,” added Ware.
Ware believes that many people are not differentiating between investment banks and local retail banks.
The climate for businesses, however, has changed. One person attending the forum, who asked that the business she represented not be identified, said that the business is in containment mode.
Robert Hackworth, managing director of the Steel Joist Institute, said that his members produce a product on a large scale and are being affected by the national market. A major use of that product is in big-box commercial building.
“We are specifically being hit by what is going on nationally,” he said.
Hackworth said a lot of business owners want to see the economy turn around before doing anything. He also said that some of his members have told him that they can’t get money to build new projects.
Montgomery said that, locally, three projects have been halted in the last six months.
“We have been told it was because they couldn’t get their loans,” she said.
“I don’t know of any lines of credit being pulled,” Syrek replied.
However, he said that every individual deal is different and there are situations when a bank should say “no.”
Owen echoed that sentiment, stating that the nation is in its current situation because a number of lenders made loans to unqualified borrowers. A borrower must show that he can repay the loan. He noted that a businesses situation could change in a way that no longer supports the loan it’s seeking.
“The profile can change very suddenly for a company,” added Parrent.
Then, maybe the lack of a loan isn’t the real reason after all.
“It could be that they are making that decision and blaming it on banks,” said Owen.
The bankers insisted that they are not in the business of declining good loans as making good loans is how they make their money. The problem is that not every idea that someone comes up with is credit worthy. They said that a business owner seeking a loan should have a good, sound business plan before coming in and they should be honest with the bank. They should also keep in mind that, just because one bank turns them down, does not necessarily mean that all banks will turn them down.
People attending the forum were skeptical about how helpful the federal government is being. County Administrator Kathleen Guzi said that Bedford County will get federal stimulus money, but she did not know at that point how much.
“We are getting local stimulus money for operating funds,” she said.
None, however, is coming down to the local level for infrastructure. Guzi is concerned that the stimulus money isn’t coming fast enough or in sufficient quantity to help the economy.
“I think the next six months is going to be very tight,” she said.
“None of our clients expect the stimulus to help soon,” commented Parrent.
Syrek said that the best step the government has taken for banks was when the Federal Deposit Insurance Corporation (FDIC) raised, last fall, the amount of a deposit it will insure. That put depositors’ minds at ease.
“We all got a stimulus from that,” he said.
That’s the good news. The bad news, noted by Ware, is that the premium that banks pay to FDIC went up. According to Syrek, this is 1/5 of 1 percent of all deposits outstanding.
The increase in the size of a fully insured deposit is supposed to be temporary. However, Syrek believes it will be bad politics for the government to later take this away.
Another bit of potential bad news is talk of mark-to-market accounting. Syrek said that this could force financial institutions holding investments in a problem class to mark their value down to current market value, even though they actually intend to hold them.
Uncertainty is another worry. Scott Hudson, vice president of Beacon Credit Union, said that uncertainty about what the federal government will do is forcing financial institutions to hold more money in reserve than they would otherwise.
Nevertheless, the group said that banks are weathering the storm well. Parrent said that fewer than 50 banks, nationwide, have failed.