THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Thursday, August 8, 1996 TAG: 9608080375
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY TOM SHEAN, STAFF WRITER
DATELINE: NORFOLK LENGTH: 62 lines
Dorothy M. Horvath has a message for bank loan officers: Too many of you have forgotten the painful lessons of the early 1990s.
``This is an industry that suffers from severe overcapacity,'' said Horvath, chief credit officer and executive vice president at National City Bank in Columbus, Ohio. ``In any industry with overcapacity, the competition becomes frenzied and less rational.''
Horvath, who becomes chairwoman of the Robert Morris Associates on Sept. 1, was in Norfolk on Wednesday to meet with local members of the Philadelphia-based organization. Robert Morris Associates gathers credit-risk information and trains lending officers.
One response to intense competition in banking has been consolidation. That's going to continue, Horvath said.
``By the year 2000, there may be no more than 3,000 banks, compared with 9,000 at the end of 1995,'' she said. ``Of those 3,000, 25 will be mega-banks with at least $100 billion of assets. Most of the others will be community banks.''
Something else that could ease the competitive pressure on banks are congressional measures that would make it easier for banks to sell insurance and underwrite securities.
Horvath predicted that Congress eventually will provide banks with the powers they have sought, but probably won't act this year.
Battered by heavy losses, especially on their real-estate and construction loans, hundreds of banks and savings-and-loan associations failed in the early 1990s. Others were crippled by sour loans and taken over by stronger institutions.
With personal bankruptcies hitting record levels and banks still aggressively promoting their credit cards, some analysts have predicted another downturn in bank earnings due to losses on their troubled loans.
In its latest survey of consumer-loan delinquencies, the American Bankers Association said 3.53 percent of credit-card accounts at commercial banks on March 31 were at least 30 days overdue. That was the highest level since early 1981, when the percentage of delinquent card accounts reached 3.58 percent, the bankers' association said.
During the national economy's next downturn, banks will suffer much heavier losses on their consumer loans than they did in the early 1990s, Horvath said. That's partly because any decline in home values would reduce the ability of borrowers to cover the home mortgages and large home equity lines of credit they have gotten from banks, she said.
But Horvath, who started out in banking 28 years ago as a loan officer with San Francisco-based Wells Fargo & Co., said a more serious threat to the health of banks are the reduced credit standards on the loans made to business borrowers. In some cases, banks have waived personal guarantees by small business owners, a protection that had been routinely required.
Because of the high cost of attracting new borrowers, more and more bankers relaxed the terms of their loans to existing customers. ``We have been likened to lemmings. We tend to move as a herd,'' Horvath said. More recently, some banks have tightened their credit standards and strengthened their reserves for loan losses. But many others, she said, have improved their quarterly earnings by not setting aside sufficient reserves to cover potential loan losses. ILLUSTRATION: B/W Photo
[Dorothy M. Horvath ...] by CNB