Lenders are not yet ready to take the health-care industry off the critical list, according to a survey scheduled to be released early next week.
Eighty-four percent of bankers polled said health-care companies were "unattractive" as loan customers, according to Phoenix Management Services Inc., which conducts a quarterly survey of lender confidence. This marks the second straight quarter that at least 80% of lenders said they were avoiding doing business with health-care companies.
"The prognosis for the health-care industry remains grim," said E. Talbot Briddell, president of Chadds Ford, Pa.-based Phoenix Management. "There are very few signs of life among the varied sectors that make up the industry."
In the latest poll, which was conducted in February, Phoenix contacted 86 lenders from commercial banks and finance companies. The respondents said they were particularly disenchanted with managed care companies and hospitals. Pharmaceutical companies were deemed as attractive by 41% of respondents and were rated as the best segment of the health-care industry for lenders, followed by durable medical equipment suppliers.
"The fact that no single sector of the health-care industry scored above the 50% level is indicative of the low esteem in which the industry overall is held," Mr. Briddell said.
These findings are not likely to surprise many bankers. A rash of defaults by companies in the health-care sector plagued banks during 1999, as a new Medicare payment system slashed revenues to creditors by as much as 50%.
Many banks have already taken steps to avoid future hits from exposure to the industry. SunTrust Banks Inc. of Atlanta, for example, said at yearend that it had "scrubbed" its portfolio of health-care loans in the fourth quarter, writing off $60 million in bad debt.
Amsouth Bancorp in Birmingham, Ala., said around the same time that it had targeted about $149 million of loans for accelerated disposition. The banking company cited weakness in the health-care segment that "consists solely of a very few long-term Medicare-dependent health-care companies."
Despite the gloom about health care, lenders overall say they are optimistic about the economy. About half of respondents to the Phoenix survey said their customers were expecting "very strong" or "strong" growth in the coming year, compared to 30% who answered the same way when polled in November. Just under half expect lending to small businesses and international firms to increase in the next six months.
Light manufacturing, industrial distribution, and service companies were listed as the most attractive industries to lend to. Start-ups, agriculture companies, and retail joined health care as the least desirable industries to fund.
While the respondents were optimistic about the economy's short-term prospects, most said they also do not expect the current boom to go on forever. In fact, three-quarters of the lenders said they think the economy's growth run will be over by the end of 2001.
"Lenders, probably better than most, know this economic utopia must come to an end eventually," Mr. Briddell said.