May 6, 2014

Fed survey shows rising C&I loan origination

Commercial and industrial loan origination moved higher during the first quarter, according to Federal Reserve data. Commercial real estate lending activity also increased during the period.

The April 2014 Senior Loan Officer Opinion Survey on Bank Lending Practices indicated this outcome after culling responses from 74 domestic banks and 23 U.S. locations of foreign lenders.

Lenders loosen credit standards
Financial institutions loosened their standards for extending C&I and CRE credit, and borrowers stepped up their demand for this debt, according to the Fed poll. Banks reported tightening their spreads of C&I borrowing costs above their cost of funds.

During the quarter, most lenders were more liberal in granting all three types of commercial real estate loans contained in the survey, Bloomberg reported. This included credit for multifamily residential buildings, debt for construction and land development and loans for nonresidential buildings.

Of the financial institutions that took part in the poll, 14 percent eased standards when providing loans to small- and medium-sized companies, according to USA Today. Alternatively, only 3 percent reported tighter conditions.

The Fed gave an explanation of the looser credit conditions in a report it released along with the survey.

"Every domestic respondent that reported having eased either standards or terms on C&I loans over the past three months cited more-aggressive competition from other banks or nonbank lenders as an important reason for having done so," the document stated. "Smaller numbers of banks also attributed their easing to a more favorable or less uncertain economic outlook and increased tolerance for risk."

Fed data points to broader trend, says expert
Millan Mulraine, deputy head of US Research & Strategy at TD Securities, stated that the recent changes in the lending environment are part of a broader loosening of credit markets, according to Business Insider.

"On balance, this report points to further re-leveraging in commercial and non-mortgage consumer debt, reinforcing the improving trend that has been seen in other credit-related reports," he stated. "[T]he buoyancy in C&I lending activity is especially important as we continue to see a pick-up in business capital investment as a necessary, though not sufficient, conditions for the economic recovery to sustain the higher level of growth momentum beyond Q2."

If economic conditions continue to improve, this development could make it far easier for lenders to maintain their new, looser standards for extending credit.

Trends like these could affect both the price and volume of C&I and CRE loan sales by increasing the supply of this debt. Financial institutions that are looking to participate in these transactions might consider contacting Garnet Capital Advisors, which has substantial experience in this space.