A Warming Trend At The Bank

March 22, 1995|By David Conn | David Conn,Sun Staff Writer

Three years ago Dennis Baldwin wanted to move his bowling ball factory -- maker of the popular "Hammer" -- a few miles to Dundalk's Point Breeze Business Center. But his regular bank, Provident Bank of Maryland, and every other lender he asked turned him down for a $250,000 loan.

"At that point in time the banks were not . . . receptive -- I guess that's the word to use -- to loaning money for just about anything," said Mr. Baldwin, 53, the owner of Faball Enterprises of Maryland Inc. He ended up financing the move from his own pocket.

Today, the Hammers are rolling off the line like thunder.

Faball is churning out more than 500 of the polished black, blue and burgundy bowling balls a day. The number will rise to 1,000 soon, thanks to a $6 million loan from Provident that allowed Faball to buy its sister company in Utah.

Mr. Baldwin is one beneficiary of a nationwide warming trend among banks. After several years of what many saw as a borrowing freeze, lenders once again are willing to lend.

"Most banks in the early '90s found reasons not to do the loan," said Faball's accountant, Robert Permison, of accounting firm Kamanitz, Uhlfelder & Permison. "Now they're finding reasons to lend."

But unlike the "wild times" of the late 1980s, as one banking consultant put it, lenders today are far more cautious. Mr. Permison and others worry that banks, still wary after the excesses of the '80s, aren't willing to make an extra effort to finance the small, growing businesses that account for such a large share of the nation's job growth.

Faball, with fewer than 60 employees and about $20 million in annual revenues, is no behemoth, but it has a solid 12-year track record to mollify nervous lending officers. By contrast, "I don't know how the small businessman, the entrepreneur, is going to go out into the marketplace to compete," Mr. Permison said.

And while bank profits last year were the highest on record, others are concerned about a long-term restructuring of the financial industry that is leaving banks with an increasingly marginal role.

Ed Furash, a Washington banking consultant, describes the industry's problem: "Banks look better than ever, but every CEO is wondering, 'What do I do for an encore?' "

The main act last year was a showstopper. The nation's commercial banks earned a record $44.7 billion in 1994, up 3.7 percent from the year before and almost 40 percent higher than in 1992, according to the Federal Deposit Insurance Corp., the banks' main regulator.

The nearly 10 percent growth in bank loans last year, to $208.4 billion, was the biggest jump in a decade. Business loans had their largest increase since 1981.

At the same time, the quality of those loans continued to improve. The fourth quarter of last year was the 15th in a row in which the amount of loans not being repaid on time declined. That allowed banks to set aside less money to cover future loan losses -- money that comes directly out of profits -- than in any year since 1983.

After the lending excesses of the late 1980s, many banks spent the early '90s licking their wounds and rebuilding their capital, the cushion of money that financial institutions must keep reserved to protect against possible losses, or collapse. With interest rates falling sharply through 1993, they opted for the safe bet of borrowing at low rates from depositors and investing at slightly higher rates in government securities.

Now interest rates are higher, but bank capital is plentiful, the economy has bounced back and with it has come increased loan demand.

When Rockville-based Danker Furniture Inc. went looking for an expansion loan last year, "I had three or four banks that were willing to give me the money," said owner Gerard Kvasnovsky, whose company has three stores and about $10 million in annual revenues.

He decided to stick with NationsBank, the only lender that came through for him a year earlier.

"There's no question that banks are lending more now than they did over the last however many years," said Geoffrey D. Lurie, of the GDL Group in New York. But Mr. Lurie's company does crisis management, advising companies in restructurings and turnarounds. Things are much tougher for his clients than before, he said.

"The criteria that banks use now to look at companies, and the smell tests and the acid tests . . . are a lot stiffer and a lot more stringent than the halcyon days when all you had to do was walk by the bank and they'd throw money at you," Mr. Lurie said.

No doubt many would call that common sense, an attitude in short supply at some banks who lent recklessly in the 1980s.

But common sense may not be enough to lead the banks through the obstacle course that's looming ahead, some industry observers believe. Competition from brokerage firms, mortgage bankers, insurance companies and mutual funds has cut banks' once-dominant share of the financial services market to about 25 percent, according to Mr. Furash, the Washington consultant.

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