Phoenix Management Services’ Q4/20 “Lending Climate in America” survey projected a slow and choppy recovery from COVID-19. Lenders expect reduced business opportunities and deterioration of their portfolios to be the greatest risks to their institutions.
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The survey asked lenders to identify what they believe will pose the greatest risk to their institution over the next six months. The majority of lenders (59%) expect that reduced new business opportunities due to the economy and competition will pose the greatest risk to their institution. Twenty-three percent of lenders expect a deterioration of their portfolio to be their greatest risk, while 14% believe booking riskier loans with a lower risk/return ratio will be the greatest risk over the next six months. Of the lenders surveyed, 4% selected other reasons to be the greatest risks to their institution.
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The majority of lenders surveyed believe economic recovery after COVID-19 will be slow and choppy, although the outlook for the U.S. economy in the near-term steadily improves. The near-term grade point average (GPA) increased 33 percentage points to 2.05 from the Q3/20 GPA of 1.72. The projected outlook for the U.S. economy in the long term decreased slightly (by 17 percentage points) to 2.43 from the previous quarter’s results of 2.60.
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While real GDP increased at an annual rate of 33.1% in Q3/20, when asked whether the United States will experience a continued recovery coming out of the crisis, 86% of lenders expect there will be slow growth due to the shutdown and rising COVID-19 cases. Fourteen percent of lenders believe that despite the virus, the economy has pent up demand and companies should prepare for a sustained V-shaped recovery going forward.
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Lenders also were surveyed this quarter to identify their opinion on the effects of a potential second stimulus. Most lenders (68%) believe a potential second federal stimulus will have a negligible effect on the current lending climate. Twenty-seven percent of lenders believe it would increase competition among lenders by creating lower rates and more borrower-friendly conditions, while 5% believe it will lead to more restrictive covenants and higher rates.
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“In Q4/20, lenders predict a slow and choppy economic recovery after COVID-19, and a potential second stimulus is expected to have a negligible effect,” Michael Jacoby, senior managing director and shareholder of Phoenix, said. “Lenders seem to be optimistic about the near-term U.S. economy as we enter 2021; however, they remain cautious in regard to the long-term U.S. economy.”
