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Finance executives' concerns about the banking industry.
Ronald Fink and Don Durfee, CFO Magazine
October 1, 2006
After several years of easy credit, the relatively idyllic conditions that have characterized companies' dealings with their banks may be coming to an end. So suggests a CFO survey of 261 finance executives for this special report on banking and finance.
In fact, most finance executives expect borrowing terms to grow stiffer in the year to come. Only 37 percent of survey respondents say they find banks’ covenants tighter today than they were three years ago, while 17 percent say they are less restrictive. Yet more than two-thirds expect them to grow more restrictive in the coming 12 months. The survey also suggests relative concern about bank practices that could create conflicts of interest. Although only 30 percent say they are troubled by banks' lending to hedge funds and private-equity groups, the figure would rise to almost 50 percent if banks had equity in such entities, and some of their lending approaches that sort of exposure. Moreover, 43 percent of respondents worry that banks may trade on proprietary information.
Happily, only 1 percent say their companies have been harmed by such activities to date. Still, finance executives are looking for alternatives to traditional commercial loans and underwritings of securities. Those numbers are likely to increase if, as expected, terms on traditional debt and equity become less generous or certain.
Ronald Fink is a deputy editor and Don Durfee is research editor at CFO.