Pandemic prompts dip in Q4'21 restaurant loans

U.S. banks had fewer restaurant-related loans at the end of 2021 compared with 2020, according to an S&P Global Market Intelligence analysis of select institutions with outstanding exposure of at least $100 million.

Restaurant loans are riskier now than they were before the pandemic since the industry was hit hard by coronavirus-related restrictions, worries over the omicron coronavirus variant and labor shortages, but restaurant sales could improve soon as demand increases. Consumers paused spending at restaurants, among other industries, as COVID-19 cases increased. Of the 15 banks in the Market Intelligence analysis, Fifth Third Bancorp disclosed the greatest outstanding exposure at $1.8 billion, which was up from $1.6 billion a year earlier. Pinnacle Financial Partners Inc. had the second-highest exposure level at $595 million, up 12.3% year over year.

Restaurant loans

Restaurant loans in proportion to gross loans were down in the fourth quarter of 2021 compared with 2020, according to the data.

This could be because the pandemic has made restaurant loans riskier as the industry faces restrictions, labor shortages and rampant inflation on cost structures, according to Stephen Biggar, director of financial services research at Argus Research Co.

"Loans are viewed as riskier, and thus banks have tightened underwriting standards, therefore making fewer loans," Biggar said.

Banks are likely requiring greater collateral for restaurant-related loans, Biggar said, adding that banks are giving loans mostly to more established companies.

Restaurant sales could improve over the coming weeks as demand for dining out increases.

Omicron cases have peaked in most parts of the U.S., and consumers are becoming more comfortable with venturing out again, according to a Feb. 7 UBS note.

Click here for the restaurant exposure data in Excel.