Magazine article American Banker

In Atlanta, FDIC Worried about Construction Loans

Magazine article American Banker

In Atlanta, FDIC Worried about Construction Loans

Article excerpt

The heavy reliance of Atlanta's community banks on construction and development lending could make them especially vulnerable in a recession, a bank regulator is warning.

In a report released last week, the Federal Deposit Insurance Corp. found that the average ratio of construction loans to assets at Atlanta- area banks and thrifts with $1 billion of assets or less was 13.1% last Dec. 31. That's more than three times the national average for similar-size institutions.

Also, loans at these institutions made up 67% of assets, compared with 63.7% nationwide. These two factors could hamstring the local contingent if the economy soured, the agency said.

The message, said Jack M.W. Phelps, regional manager of the division of insurance at the FDIC's Atlanta office, is to "take the appropriate precautions"

"We are not asking banks to stop making loans," he said, "but to be aware of where we are in this growth cycle-and that growth can't last forever."

Mr. Phelps attributes the high numbers now to Atlanta's strong economy and increased pressure on banks to make loans. Real estate development "is a very lucrative form of lending," he noted.

But he worries that community banks will be snared by the same traps that caught them the last time Atlanta had a recession.

Already there are disturbing parallels. For example at 31 of the area's community banks and thrifts-four times as many as in any other metropolitan area-construction and development loans account for at least 15% of assets.

A similar number, 33, had such high levels in 1988-and seven of them failed in the next three years. …

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