Commercial lenders believe they are considerably better equipped to handle an economic downturn now than they were before the last recession, according to a new survey.
Yet both bank and nonbank lenders believe their commercial borrowers are only slightly better positioned now than before the last pullback.
Lenders are "way more on their guard and ready to deal with it, in my opinion, than they've ever been before," said Scott Peltz, a principal of Altschuler, Melvoin and Glasser LLP, the Chicago-based accounting and consulting firm that conducted the survey.
Over 30 institutions, from money-center and international banks to regional and community banks, responded.
They were asked to rate their own preparedness, as well as that of commercial borrowers, on a scale of one to 1O, with 1O indicating "definitely more prepared" and one indicating a "complete lack of preparedness."
Lenders rated their level of preparedness at 7.6. However, they gave their borrowers a rating of only 5.7, just slightly ahead of the 5.5 midpoint that indicates "the same level of preparedness."
The improved readiness can be attributed to experience gained in the last economic downturn.
Lenders who witnessed the painful losses accompanying that turn of the business cycle are now more likely to take precautions to avoid them, Mr. Peltz said.
One lender said loan syndications and loan portfolio management techniques have helped protect banks from large loan exposures and concentrations of credit.
"We've all been lending aggressively, and a lot of banks have been putting out assets the same way they were at the end of the '80s, so we're probably in the same position in terms of having built up loan portfolios in many cases," one bank's head of loan syndications said.
"But because of more prudent portfolio management, people are probably better prepared," the lender said.
Banking regulators remember the last credit crunch and have been extremely vigilant to head off another spate of losses, Mr. Peltz said.
This month, Comptroller of the Currency Eugene A. Ludwig again warned commercial bankers to be on their guard against deteriorating credit standards and structures.
But borrowers aren't necessarily hearing the same admonition their lenders are, Mr. Peltz said.
"Banks still see their borrowers proceeding with hockey stick sales projections, looking at upward growth, and not necessarily planning for business contractions or unexpected events in their business operations," Mr. Peltz said.
Bank observers also voiced doubts about how well both lenders and borrowers will fare if the economy's health fades.
"My concern would be that both the bankers and the companies are not looking enough at the downside scenario of what will happen to company earnings and cash flows when the downturn occurs," said Allen W. Sanborn, president and chief executive officer of Robert Morris Associates, the trade association for lenders and credit officers.
