Bankers Fear Virus Surge Will Delay Economic Recovery

Bankers are beginning to worry that a surge in new coronavirus cases in states that were quick to reopen will make it tougher for the economy to find its footing again.

States like Texas, California, Florida and Arizona have been setting new daily records for cases this week, with some seeing numbers double from just last week, according to state health department data.

As a result, some banks are beginning to rethink their own opening plans, while considering boosting already elevated loan-loss provisions to guard against the possibility that many loans to households and businesses will not get repaid.

Adrian Casillas, a junior economist with Houston-based BBVA, said that the surge in cases “will almost certainly defer the recovery” whether governments shut local economies down again or consumers in these states choose to stay home on their own. Casillas estimates a full recovery in some areas may not happen until late 2022 or even into 2023.

“It’s very likely that an early reopening did more economic damage in the long run than a more gradual landing as in recovered countries,” Casillas said.

Brian Klock, an analyst at Keefe, Bruyette & Woods, said that banks will feel a slew of impacts if reopenings are delayed because of the spike in cases. Fee income could take another hit as waivers that banks previously provided for debt payments are extended again, and the piles of deposits that flooded into banks at the start of the crisis could start to draw down as emergency funds are depleted.

Community Valley Bank is headquartered in Imperial County, Calif., which has the highest per capita rate of COVID-19 cases in the state.  Jon Edney, the CEO of Community Valley, said coronavirus cases began to surge in Imperial County around the same time that authorities were starting to allow businesses to open their doors. At local businesses, revenues have yet to rebound from the slump that began in March, he said.

“Most of our customers are businesses, and obviously it’s a huge challenge,” Edney said. “We think the unemployment numbers are huge today … What’s going to happen come middle of July?”

“In all past recessions, recovery was somewhat predictable,” said Chris Nichols, chief strategy officer at South State Bank in Winter Haven, Fla. “Now, that is not true as there is not only health and policy considerations to estimate, but [a presidential] election, which creates another layer of uncertainty on how to forecast. This combination of factors is causing deep confusion among credit administrators.”

Source: American Banker