As Massachusetts gingerly reopens its economy, lenders could see opportunities for commercial loans, but only if certain indicators cooperate.
Like everyone else, business bankers have had their typical routines upended by the coronavirus pandemic.
Having spent more than two months working on loan deferrals, modifications and the Paycheck Protection Program, these bankers have started to see these requests decline. But with the Massachusetts economy still in the early phases of reopening, normal lending activities will likely not resume until business confidence begins to improve.
Despite the uncertainty that remains around public health – which will likely govern near-term demand for commercial loans of all types – leaders at some of the state’s largest community banks say signs point to an economic turnaround.
“It is an interesting time, and there will be many learnings from this crisis like there have been in past crises,” said Rob Cozzone, executive vice president and chief operating officer at Rockland Trust. “But they will be very different, and I think we’re all experiencing that.”
Not All Will Rehire
At least for now, business confidence remains low, according to a recent survey from the Associated Industries of Massachusetts.
Based on a survey of more than 140 Massachusetts employers, AIM’s Business Confidence Index showed confidence dropping from 62.1 in February to 40.2 in March and 38.4 in April. Calculated on a 100-point scale, index ratings above 50 are considered positive, while readings below 50 are negative.
May saw some improvement in business confidence, with the index increasing to 42.1.
“It’s an odd thing to try to assess confidence because you’re trying to assess economic conditions through what is in essence a non-economic driver, which is a public health crisis,” said Chris Geehern, AIM’s executive vice president of public affairs and communications.
The state’s ability to manage the public health consequences is the key factor in building confidence and getting businesses functioning again, Geehern said.
Business owners have shown signs of holding a long-term positive outlook. The Business Confidence Index consists of several subcategories, and the highest rated was the Future Index, which measures expectations looking ahead six months. While still below the positive threshold, the May Future Index was 48.2.
In a different survey done when the Baker administration convened its task force on opening the economy in early May, AIM found that 51 percent of employers planned to rehire all furloughed employees. Yet, 20 percent did not plan to rehire any of them.
“It’s really good news that half the companies would in fact take back their entire workforces, and that would suggest a more temporary shut down or ramping down of activity,” Geehern said. “But if you consider 20 percent who aren’t taking people back, that’s pretty sobering moving forward.”
Signs of Improvement
Richard Gavegnano, president and CEO of East Boston Savings Bank, will be watching how the state carries out its plan for a phased economic reopening. He has already seen some signs pointing to improvements. The bank has kept its branch lobbies open throughout the pandemic and foot traffic recently picked up, he said, adding that the parking lots at local businesses have started to fill up as well.
With consumer spending the bedrock of the American economy, Gavegnano said he’ll be watching that indicator, too. Checking account balances have increased since the start of the pandemic, he said, in part because of economic aid initiatives for consumers and small businesses, but also because people have had limited options for spending money.
“I think people have some money now, and I think that’s going to be a direct correlation to how strong the activity will be in the recovery,” Gavegnano said. “Because they’re itching to spend some money.”
Gavegnano is also looking at real estate activity, both residential and commercial. He has already seen deals being made, which he sees as another sign that consumers have liquidity and could be willing to spend.
East Boston Savings Bank does not plan to change its lending standards and will maintain disciplined credit policies, he added.
Not All in Bad Shape
The shutdown does not mean all Bay State businesses are starting from a dead stop as their sectors are allowed to reopen.
“Businesses are not all that different from consumers in terms of their behavior when it comes to confidence or lack thereof,” Rockland Trust’s Cozzone said. “What we have seen recently – because businesses have lacked confidence for a very good reason – is, like consumers, they look to build cash or at least maximize their liquidity position.”
Loan modifications, new lines of credit and PPP loans have helped provide that liquidity, he said, and because businesses knew that unemployment insurance would be accessible, furloughs have been a less sensitive issue compared to past recessions.
Cozzone said signs that confidence has improved will include businesses rebuilding inventories, the pace they rehire staff and business owners’ willingness to make meaningful investments in expanding the business and borrow incrementally.
Diane McLauglin
Rockland Trust has a disciplined lending approach, Cozzone said, but if lenders pull back as they have in past recessions, he said that could offer opportunities to bring in new customers.
Given the uniqueness of the current crisis, Brian Bullock, chief commercial lending officer and executive vice president at Lowell-based Enterprise Bank, said business confidence would likely be different from industry to industry, even customer to customer.
“It’s about always staying really close to our customers, getting updates on how things are going, some projections, and their business planning,” Bullock said. “It’s really about spending time with your customers and making sure that we are helping them and able to assist them.”
