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PCPS survey shows banks ready to loosen credit.

A national survey of 311 community banks conducted by the American Institute of CPAs private companies practice section has found 60% are applying more stringent lending standards than one year ago and 9% are turning away creditworthy borrowers.

The most common measures taken by the banks to raise lending standards are to demand more collateral, add more restrictive covenants and require more personal guarantees.

In addition, about two-thirds of the banks report avoiding at least one industry because it is considered too risky. The real estate industry is cited as too risky by 26% of the banks, followed by the construction industry (24%), retailers (16%), energy services and waste management (15%) and farming and agriculture (15%).

In comparing the current recession with the 1980-81 downturn, 66% of the bankers see it as less severe. However, in the Northeast, where the recession has hit hardest, only 39% say the recession is less severe; 43% say it is more severe; and 18% think it's the same. In contrast, 78% of midwestern bankers believe the current recession is less severe than the 1980-81 slowdown, which centered on heavy industries in that region.

Most bankers look for a relatively early loosening of credit. As to when credit conditions will ease, 35% mention the third quarter of 1991, and another 33% look for a loosening by the first quarter of 1992.

According to the survey, financial statements provide lenders with relevant information. Seventy percent of the bankers say they get the information they need from financial statements. However, only 11% require prospective borrowers to submit annual audited financial statements, with 54% of the bankers reporting that 90% or more of their customers submit unaudited statements. Indeed, 73% say some of their customers submit financial statements not prepared according to generally accepted accounting principles.
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Publication:Journal of Accountancy
Date:Nov 1, 1991
Previous Article:Companies spending more on state sales tax compliance.
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