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Bank of America defers $7.7B in medium and large commercial loans

July 31, 2020. Print article

’s coronavirus loan deferral program provided $7.7 billion in deferrals to medium and large businesses, as the bank projected challenging times ahead followed by a steady recovery starting in 2021. 

The second-largest bank in the U.S., with $2.6 trillion in assets, allowed deferrals on 2% of its loans to businesses with over $5 million in revenue in the second quarter, according to an SEC filing Thursday. Most of these deferrals are to mid-sized businesses, as larger companies, with over $50 million in annual revenue, generally resort to other measures, such as issuing debt to handle cash flow shortcomings, according to Jerry Dubrowski, Bank of America’s corporate finance and investor relations spokesperson.

The bank has about $508 billion in outstanding loans to medium and large companies, according to Dubrowski, all of which will continue to accrue interest, whether or not they are in deferral. Although the bank generally accepts consumer requests for deferrals, it is more stringent with business applications, he said.

The Charlotte, North Carolina-based bank created a special deferral program in the first quarter for businesses and consumers affected by the coronavirus and ensuing economic shutdowns. Since the start of the program, 1.8 million people and businesses have applied for a deferral. While 1.7 million of those deferrals were in place at the end of June, around 300,000 have come out of deferral in July. 

“That’s been driven by small business non-credit card loans, such as doctors, dentists and veterinarian offices that were forced to close, and are now reopening,” Dubrowski said.

The second-largest U.S. bank by assets set aside $21 billion to cover possible credit losses, up from $17.1 billion in the first quarter, and just over double its allowances for the previous three quarters. This allowance was based on a forecast that showed the U.S. unemployment rate staying in double digits through the end of the year and then drifting down, but staying above 7% in the fourth quarter of 2021. 

Despite this outlook, and a drop of 52% in profits in the second quarter from the same period a year ago, bank executives have sounded an optimistic note for the post-pandemic economy. 

“If we can fix the pandemic, there is a resilient economy on the other side,” Candace Browning, the bank’s head of global research, told clients, according to Barron’s. Browning cited government stimulus programs, pent-up demand and resiliency of business models for the optimistic projection.