Wisconsin Bankers Association: Fewer businesses seek loans, Wisconsin bank CEOs say

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Tax credits, low interest rates will stimulate home sales in first half of 2010

(MADISON) – Demand for business loans is weak throughout Wisconsin and is expected to stay that way through the first six months of the New Year, according to the latest Wisconsin Bank CEO Economic Conditions Survey. On the bright side, bank leaders predict that interest rates will remain low during the first half of 2010 and fewer think the Wisconsin economy is still weakening compared to their responses six months ago.

Eighty-eight percent of the 118 bank CEOs who completed the biannual survey, conducted by the Wisconsin Bankers Association (WBA), rated current demand for business loans in the market(s) they serve as “fair” (40.8%) or “poor” (47.8%). Just 11 percent said demand is “good” and no one completing the survey rated demand as “excellent.”

When asked to predict business loan demand for the first six months of 2010, 69 percent said it would stay the same, 21 percent said demand would rise and 9.6 percent said it would drop.

The three biggest obstacles to business lending, bankers say, are low demand, regulatory pressure on banks and fewer qualified borrowers. “Customers are not borrowing funds right now and [bank] regulators are being much more critical of our underwriting decisions than they have been in the past,” according to one banker who completed the survey. Another said, “It is very hard to lend when [borrower] cash flows are so hard to predict and profits are nearly non-existent.”

Bankers used words like “overzealous,” “excessive,” and “unnecessarily aggressive” to describe regulators in the survey.

Yet another banker comment summed up the overriding sentiment of the bank leaders who completed the survey: “The regulators are causing the contractions in the banking industry at a time when customers need their banks most.”

Wisconsin bankers are clearly frustrated by the mixed messages they are getting from different arms of government, explained Kurt R. Bauer, WBA president/CEO. “On the one hand, you have elected officials scolding banks for not lending enough. On the other, you have regulators threatening costly penalties if banks make anything but the safest loans.”

Bauer speculated that much of the populist rhetoric coming from elected officials was intended to deflect attention and blame for high unemployment and a slow economic recovery away from politicians.

Note: WBA will host a Business Credit Availability Forum from 10 a.m. to 11:30 a.m. on January 14 at the Monona Terrace & Convention Center, Madison. The program features a presentation by UW-Madison School of Business Professor Jim Johannes and a panel including representatives from the banking, business and government sectors. The Forum is being held in conjunction with the 2010 Wisconsin Economic Forecast Luncheon, held from Noon to 2 p.m. at the same location. Visit http://www.wisbank.com/EconomicForecast for more information.

Although demand for residential mortgage loans is flat as well, nearly 60 percent of bank CEOs say the extension of the $8,000 first time homebuyer tax credit and the new $6,500 tax credit for existing homeowners will stimulate home sales in the first half of the year. The same percentage also believes that long-term interest rates will stay low during the same period.

“The combination of the tax credits, historically low interest rates and the large inventory of homes for sale makes now perhaps the best time in 50-plus years to be a homebuyer,” said Bauer. However, he warned that interest rates will almost certainly rise in the second half of 2010.

The survey also reveals that more Wisconsin homeowners are stressed. During the last six months, 66 percent of bankers report increased customer bankruptcy filings, 55 percent say home foreclosures have increased and 64 percent say “past dues” for residential mortgage payments have increased.

While 95.6 percent of the survey participants rate the current health of the overall Wisconsin economy as either “fair” (69.8%) or “poor” (27.8%), the number of bank CEOs who believe the economy is still weakening dropped from 70 percent six months ago to 59 percent today. Just 4 percent rated the Wisconsin economy as “good” and none rated it as “excellent.”

The employment outlook continues to improve from a year ago when 54 percent of survey participants said local businesses would lay off workers. That percentage dropped to 38 percent in June and dropped again to 19 percent in the most recent survey.

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The Wisconsin Bankers Association is the state’s largest financial industry trade association, representing nearly 300 commercial banks and savings institutions, their nearly 2,300 branch offices and 28,000 employees.