Small Business Lending Gives a Boost to Banks By Carl White, Federal Reserve Bank of St. Louis
T
he recession that has accompanied the coronavirus pandemic has hit most sectors of the U.S. economy hard, and commercial banks are no exception. Through the first half of 2020, profits sharply declined from their year-ago levels as banks worked with loan customers through deferrals and modifications, new loan demand fell, and banks set aside more funds for anticipated losses. Those trends were true of both community banks and their larger counterparts to varying degrees within the District and nationally.
SMALL BUSINESS LENDING
A snapshot of bank health as of June 30 shows one bright spot, however: small business lending.1 Compared with a year earlier, small business loans increased nearly 40% at U.S. community banks. Among all banks in Eighth District states, year-over-year growth ranged from 29.5% in Mississippi to 42.5% in Tennessee, as seen in the table below. Outstanding loans in every other category — consumer, residential real estate, commercial real estate and agriculture — declined from a year earlier for all U.S. community banks and showed much smaller increases or declines at banks in District states.
SMALL BUSINESS LENDING AND THE PAYCHECK PROTECTION PROGRAM Bank Group
Small Business Loan Growth 6/19 – 6/20
PPP Participation Rate
Ratio of PPP Loans to Small Business Loans
U.S. community banks
39.7%
81.6%
49.8%
Eighth District
31.3%
81.2%
46.5%
Arkansas
35.6%
80.2%
41.5%
Illinois
31.2%
78.0%
53.4%
Indiana
40.0%
79.8%
52.3%
Kentucky
32.4%
73.3%
41.7%
Mississippi
29.5%
84.3%
48.2%
Missouri
35.0%
85.7%
62.0%
Tennessee
42.5%
82.3%
46.3%
NOTE: The participation rate and the loan ratio data are as of June 30, 2020. SOURCE: Call Reports of Condition and Income.
• 18 •
• November-December 2020
