Phoenix Lending Survey Reveals Slow Growth and Choppy Recovery Post COVID-19

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.

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.

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.

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.

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.

“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.”

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