Bankers push for added lending flexibility

At issue is a law that prohibits banks from making a loan in excess of 10 percent of their total capital. The law is meant to prevent banks from betting too much on a single borrower.

But the financial crisis has forced many banks to significantly draw down capital levels to cover losses, making the 10 percent limit much easier to breach, bankers say.

As a result, a growing number of bankers are saying goodbye to some of their best customers when loans come up for renewal, said Joe Brannen, president of the Georgia Bankers Association.

“It’s just nonsensical,” Brannen said. “Here you have a performing loan, which means the customer is paying his loan. The banks want to keep the customer, the customer wants to stay at the bank.”

The new law would allow banks to renew loans with existing customers who are current on payments. Banks would not be allowed to increase the size of the loan, however.

Nationally chartered banks in Georgia are not subject to state lending limits, and state bankers say a change in Georgia law is needed to even the playing field. Of Georgia’s 305 banks, 54 are overseen by national regulators, such as the U.S. Treasury’s Office of the Comptroller of the Currency.

The bill appears to have momentum and support across party lines. The House banking committee passed it earlier this month and the entire House is expected to take it up Monday.

“I think it’s a good measure,” said State Rep. Virgil Fludd (D-Tyrone), a member of the banking committee. It gives “state banks the same lending capabilities as a national bank, without penalizing the customers.”

The push to change state banking law comes amid a turbulent time for Georgia’s banking industry, which has recorded huge losses after the real estate bubble burst. More than half of Georgia’s banks were unprofitable in the third quarter of last year, and 30 banks have failed since the crisis began in 2008.

Bankers and lawmakers said they were not concerned the proposed change would enable banks to take on more risk.

Brannen said the law is actually harming banks by forcing them to give up income-producing loans, a precious commodity these days. Meanwhile, borrowers are finding it difficult to find new lenders – especially for deals backed by real estate, because so many Georgia banks are under regulatory orders that prevent them from taking any new real estate loans on their books.

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