Regional Commercial Lenders revise expectations as the demand for business loans declines

3page_img3-bigRegional commercial lenders are complaining about a decline in the demand for new loans by business owners. Many blame global instability and political uncertainty.

2017 has particularly strong year for most businesses, economic activity is up and stock indexes are higher than ever. But this growth has not translated into increased lending by regional banks.

Some speculate global uncertainty may be driving down the demand for new loans. “Some of the international issues that have risen have also put uncertainty in our customers’ minds,” said Comerica CEO Ralph Babb, adding that some business owners have “ held back on what I would call investing for the immediate future.” Demand for new loans is certainly declining this year. Commercial lending by regional banks has been expanding at a steady 6 percent in recent years. However the pace of lending by regional banks in particular has stalled since the beginning of the year and analysts claim it is unlikely to accelerate.

If businesses are getting financing in many cases they aren’t going to regional banks. Many business owners are apparently turning to capital markets and to non-bank lenders. Evercore ISI analyst John Pancari says that “some of that demand ( for commercial loans ) is finding its way out of the banks and into the bond markets.” Evercore ISI notes that corporate bond issuance has only been growing by single digits in recent years, while commercial lending has been growing by 10 percent. Evercore claims that the trend is likely to reverse this year. Corporate bond issuance is expected to grow by 7.5 percent,while commercial lending by regional banks will only grow by a tepid 4 percentage points.

Regulatory pressure may be causing the slow down. There is consensus that regulators have been compelling regional banks to reduce exposure to commercial real-estate and some banks are scaling back their lending efforts. Fifth and Third of Cincinnati withdrew from 4.5 billion in “risky” loans last year. The bank plans to scale by its commercial lending activity by an additional 600 million dollars by the end of this year.

Some commercial lenders are blaming instability in Washington.

Both banks and business owners have lost the positive outlook they had at the beginning of the year as a result of instability in Washington. “As an industry, we began the year with high hopes for an improving rate environment along with regulatory and tax reform…it remains to be seen if regulatory relief, tax reform or a dramatically improved economy is going to materialize,” said Bill Demchack CEO of PNC Financial Services Group. Kelly King CEO of BB&T in Winston-Salem, NC claims that initial investments made by businesses at the beginning of the year are tapering off in expectation of more stability in Washington. It seems that until congress provides more certainty, business owners will continue to defer investment and the demand for commercial loans will continue to flounder.

As demand shrinks commercial lenders will have to compete for borrowers.

Political uncertainty rather than stability in the financial markets seems to be the cause for the decline in lending this year.” A lot of it comes down to borrower confidence and a lot of it’s tied to what’s going on in Washington,” said Evercores John Pancari. Even in 2017’s strong economic environment, the unstable political environment is causing businesses to put off new investment, which is lowering the demand for new loans. Pincer hints that “ as the size of the pie is seemingly shrinking, these banks are going to get more competitive.”


Dennis Dahlberg
Level 4 Funding LLC  Private Hard Money Lender
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About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

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