June 1, 2018
C&I lending has suffered from sluggish growth for several years, but new figures released by the Federal Reserve indicated that it might be time to once again take a bullish view on these loans.
Just a year ago, there was discussion about a sharp slowdown in commercial and industrial lending in the United States. A combination of lower loan demand due to businesses not operating to capacity and a tighter regulatory environment produced lackluster growth in C&I lending. This appears to have shifted. Now there is evidence that commercial and C&I lending is once again on the rise.
New figures from the Federal Reserve indicate that C&I lending is beginning to recover.
Why C&I Lending Has Been Stagnant
The growth in C&I loans began to wane in late 2016 and remained stale through the beginning of 2018. New loan originations in these areas grew just 0.7% last year compared to growth of 10.6% in 2015 and 6.5% in 2016.
The reasons for these downturns vary. Some blame tighter regulations under Dodd-Frank. Others believe that companies may have reacted to rising interest rates by shifting their cash to accelerate payments on variable-rate loans. Initially, the effect of the recent tax reform bill was to even further reduce borrowing, but that has been somewhat short-lived.
Fortunately, this appears to be changing. Recent figures show that C&I lending has turned a corner and several bank executives interviewed at a recent conference are now bullish on this revenue stream going forward.
Banks Are Seeing a C&I Lending Boost
The latest data from the Federal Reserve reveals that C&I loan activity is once again on the upswing. The Fed reports that total C&I loans outstanding are up 3.1% from the same period last year. This is a massive improvement over the 0.9% growth rate revealed in January. Changing lending policies amid rising competition could be just one of the reasons that these figures are on the rise.
According to one report, a Federal Reserve survey revealed that some U.S banks are easing their standards for C&I loans to large and middle-market firms, citing increased competition. There are other possible reasons for this loan growth.
According to SunTrust Banks' CFO Allison Dukes, companies are slowing down their pace of repaying debt, making the bank 'bullish' on future C&I loan growth. Even though it's only been a few months of growth, Dukes says that the bank is bullish on growth going forward.
Other bank executives attending the same investor conference echoed Dukes' sentiment. Daryl Bible, CFO of BB&T said that his bank is expecting to achieve the high end of its 1% to 3% plan for annualized loan growth in Q2. John Woods, CFO of Citizens Financial Group said that his bank's loan pipelines in April were "up meaningfully" versus figures reported in January.
This is welcome news for banks, investors, businesses, and the economy. Slow C&I loan growth has been an ongoing challenge for this sector for over a year, which has offset some of the other triumphs. The recovery of C&I loans also indicates that companies are operating closer to capacity, which is a positive sign for all investors.
A whole loan broker can help lenders boost bottom-line results as conditions change.
How a Loan Sale Advisor Can Help Banks with These Shifting Tides
Which loans are performing well during any given period may change, and that can impact a bank's bottom line. This is particularly the case for lenders that either are or are not prepared to make adjustments to minimize risk or maximize returns.
A whole loan broker like Garnet Capital can help banks adjust their portfolios by buying and selling pieces of them or buying and selling entire portfolios.
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