U.S. bank BankUnited says restaurant debt in its small business loan portfolios is showing signs of stress, and is blaming food delivery apps like Uber Eats for the problem.
According to American Banker reports Friday (Jan. 24), BankUnited CEO Rajinder Singh warned that unlike other industries in its small business loan portfolio, such as businesses in the fitness market and other franchises, restaurant debt is strained.
“There is a lot of delivery happening,” he said during the bank's fourth-quarter earnings call last week. “And when delivery happens, often the revenue model gets impacted because you're not ordering some of the higher-priced stuff. That change that is happening in the business mode, coupled with tight labor markets ... is putting pressure on the financials of our borrowers.”
As the use of on-demand delivery services like Uber Eats and DoorDash rises, fewer consumers are visiting restaurants and ordering items that are more profitable for those businesses, like drinks and desserts, he said.
BankUnited holds $360 million in its restaurant portfolio, reports said, with executives noting that some of those loans recently moved to criticized or classified status during Q4.
The publication pointed to previous reports last August that similarly warned of stressed restaurant debt and cash flow challenges in the industry linked to labor shortages and raw goods costs. Lenders including First Financial Bankcorp, Cadence Bancorp and Equity Bancshares have all raised concerns about restaurant bankruptcies in 2019, the publication said.
According to BankUnited's Singh, the restaurant sector is the only industry stressing the bank's portfolios, with other franchise businesses “doing extremely well.”
He added that the bank will seek to broaden its lending to businesses in the Atlanta area this yea, with plans to introduce a commercial card for its business clients later on.
The impact of on-demand food delivery on the restaurant industry and its cash flow management could continue as more industry players enter the market, though there is consolidation ahead from players including Takeaway.com and Just Eat.